<PAGE>
As filed with the Securities and Exchange Commission on October 12, 1999
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
[_] Confidential, for Use of the
Check the appropriate box: Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
STANFORD TELECOMMUNICATIONS, INC.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_]No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
Corporate
Headquarters
Mailing
Address
P.O. Box 3733
[STANFORD TELECOM LOGO] Sunnyvale, CA
94088-3733
October 12, 1999
Facility
Address
1221 Crossman
Avenue
Sunnyvale, CA
94089-1117
Tel:(408) 745-
0818
Fax:(408) 745-
7756
A Merger Proposal--Your Vote Is Very Important
To the Stockholders of Stanford Telecommunications, Inc.:
We have entered into a merger agreement with Newbridge Networks
Corporation. The merger agreement provides for a merger that would result
in Stanford Telecom becoming a subsidiary of Newbridge. As a stockholder
of Stanford Telecom, you would become a stockholder of Newbridge as a
result of the merger. The merger agreement also provides for the sales to
third parties of our government and contract manufacturing businesses. As
a result of the merger, you will receive $30 of Newbridge stock, plus
additional Newbridge stock based on a formula that depends on the
proceeds we receive from the sales of our government and contract
manufacturing businesses. We expect you will receive between $3.50 and
$4.00 of additional Newbridge stock based on agreements we have entered
into to sell the government and contract manufacturing businesses.
The Newbridge common stock is traded on the New York Stock Exchange
under the symbol "NN." The closing price for the Newbridge common stock
on October 8, 1999 was $24.50 per share.
We cannot complete the merger or the sale of our government business
assets without the approval of our stockholders. We have scheduled a
special meeting on Monday, November 15, 1999 at 10:00 a.m., local time,
at the Sunnyvale Hilton, 1250 Lakeside Drive, Sunnyvale, California
94086, to vote on these transactions. A proxy statement/prospectus
accompanies this letter and provides detailed information about the
special meeting, the merger and the sale of the government business
assets. We urge you to read the proxy statement/prospectus document
carefully.
Your board of directors unanimously recommends that you vote to
approve the merger agreement and the sale of the government business
assets. Please use this opportunity to take part in the affairs of
Stanford Telecom by voting on these important matters. Whether or not you
plan to attend the meeting, please complete, sign, date and return the
accompanying proxy in the enclosed self-addressed stamped envelope.
Returning the proxy will not deprive you of your right to attend the
special meeting and vote in person. Your vote is very important.
Sincerely,
/s/ Dr. James J. Spilker, Jr.
Dr. James J. Spilker, Jr.
Chairman of the Board
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 15, 1999
To the Stockholders of Stanford Telecommunications, Inc.:
We have agreed, subject to your approval, to merge Stanford Telecom with a
subsidiary of Newbridge Networks Corporation. We also have agreed with
Newbridge to sell our government and contract manufacturing businesses to third
parties. The sale of the government business assets also requires your
approval. If the merger agreement is approved by our stockholders, and the
merger is completed, you will receive, in exchange for each share of Stanford
Telecom common stock that you hold:
. $30 of Newbridge common stock, plus
. additional Newbridge common stock based on a formula that depends on the
proceeds from the sales of our government and contract manufacturing
businesses.
We will hold a special meeting of stockholders on Monday, November 15, 1999,
at 10:00 a.m., local time, at the Sunnyvale Hilton, 1250 Lakeside Drive,
Sunnyvale, California 94086, for the following purposes:
1. to approve the Agreement and Plan of Merger, dated as of June 22, 1999,
as amended, between Stanford Telecom, Newbridge and Saturn Acquisition
Corp., a subsidiary of Newbridge, which will result in Stanford Telecom
becoming a wholly owned subsidiary of Newbridge;
2. to approve the sale of the government business assets; and
3. to transact any other business that is properly brought before the
special meeting, or any adjournment or postponement of the special
meeting.
The accompanying proxy statement/prospectus describes the merger agreement
and the sale of the government business assets in detail. The merger agreement
is attached as Appendix 1 to the proxy statement/prospectus.
Only persons who held Stanford Telecom stock as of the close of business on
September 30, 1999 are entitled to notice of and to vote at the special
meeting. A list of stockholders eligible to vote at the meeting will be
available for inspection at the meeting and for a period of ten days prior to
the meeting during regular business hours at Stanford Telecom's corporate
headquarters in Sunnyvale, California.
If the sales of the government and contract manufacturing businesses are not
completed on or before the effective time of the merger and contingent value
rights are issued (as described in the accompanying proxy
statement/prospectus), under Delaware law you may have the right to an
appraisal of the fair value of your Stanford Telecom shares and to receive the
appraisal price in cash instead of Newbridge common stock. To assert appraisal
rights, you must strictly follow the procedures set forth in Delaware law. A
summary of these procedures and a copy of the applicable Delaware law are
included in the accompanying proxy statement/prospectus.
By Order of the Board of Directors
/s/ Jerome F. Klajbor
Jerome F. Klajbor
Secretary
Sunnyvale, California
October 12, 1999
YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING, PLEASE COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
<PAGE>
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STANFORD TELECOMMUNICATIONS, INC. NEWBRIDGE NETWORKS CORPORATION
PROXY STATEMENT PROSPECTUS
Common Stock
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- --------------------------------------------------------------------------------
Stanford Telecom and Newbridge have entered into a merger agreement. If the
transactions contemplated by the merger agreement are completed:
. Stanford Telecom will become a wholly owned subsidiary of Newbridge and
Stanford Telecom stockholders will become Newbridge stockholders; and
. Stanford Telecom's government and contract manufacturing businesses will
be sold to third parties.
The merger agreement and the sale of the government business assets must be
approved by the Stanford Telecom stockholders. If the sale of the government
business assets is not approved, or if the sale of the government business
assets has not closed prior to the merger, the merger will be completed and
Newbridge will effect the sale of the government business assets after the
merger.
A special meeting of Stanford Telecom stockholders to vote on the merger
agreement and the sale of the government business assets will be held as
follows:
November 15, 1999
10:00 a.m., local time
Sunnyvale Hilton
1250 Lakeside Drive
Sunnyvale, California 94086
The number of shares of Newbridge common stock to be issued to the Stanford
Telecom stockholders will depend on the market price of the Newbridge common
stock prior to the merger and the proceeds from the sales of the government and
contract manufacturing businesses. The merger agreement provides that you will
receive, in exchange for each share of Stanford Telecom stock you hold:
. $30 of Newbridge common stock; plus
. additional shares of Newbridge common stock based on a formula that
depends on the proceeds from the sales of the government and contract
manufacturing businesses.
Based on the closing price of the Newbridge stock on September 29, 1999, and
assuming the contingent value is $3.75, Newbridge will issue approximately
18,000,536 shares of common stock to Stanford Telecom stockholders. Newbridge
common stock is traded in the United States on the New York Stock Exchange
under the symbol "NN" and in Canada on the Toronto Stock Exchange under the
symbol "NNC."
Please give all of the information contained in this proxy
statement/prospectus your careful attention. In particular, you should
carefully consider the discussion in the "Risk Factors" section on page 14 of
this proxy statement/prospectus.
None of the Securities and Exchange Commission nor any state securities
commission nor any similar authority in Canada has approved or disapproved
of these securities or passed upon the adequacy or accuracy of this proxy
statement/prospectus. Any representation to the contrary is a criminal
offense.
This proxy statement/prospectus is dated October 12, 1999 and is first being
mailed to
Stanford Telecom stockholders on or about October 13, 1999.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary................................................................... 1
The companies........................................................... 1
What Stanford Telecom stockholders will receive in the merger........... 1
Contingent value rights................................................. 2
United States federal income tax consequences........................... 2
Canadian tax considerations of holding Newbridge common stock........... 3
Ownership of Newbridge following the merger............................. 3
The special meeting..................................................... 3
Record date; voting power............................................... 3
Voting by proxy......................................................... 3
Vote required........................................................... 3
Appraisal rights........................................................ 3
Voting agreements....................................................... 3
Recommendations of the Stanford Telecom board to Stanford Telecom
stockholders........................................................... 3
Fairness opinion of financial advisor................................... 4
Interests of Stanford Telecom's executive officers and directors in the
merger and
the sale of the government business assets............................. 4
Listing of Newbridge common stock....................................... 4
Conditions to the merger................................................ 4
Termination of the merger agreement..................................... 5
Termination fee......................................................... 5
Technology license option agreement..................................... 5
Stock option agreement.................................................. 5
Sales of Stanford Telecom's assets...................................... 5
Conditions to the sale of the Stanford Telecom government business
assets................................................................. 6
Termination of the government business asset purchase agreement......... 6
Regulatory approvals.................................................... 6
Accounting treatment.................................................... 7
Recent events........................................................... 7
Special note regarding forward-looking statements....................... 7
Selected Historical Financial Data........................................ 8
Selected Unaudited Pro Forma Consolidated Financial Information........... 10
Unaudited Comparative Per Share Information............................... 11
Market Price and Dividend Information..................................... 12
Risk Factors.............................................................. 14
The Special Meeting....................................................... 17
Date, Time and Place.................................................... 17
Purpose................................................................. 17
Record Date............................................................. 17
Quorum; Vote Required................................................... 17
Proxies................................................................. 18
Revocation of Proxies................................................... 18
Solicitation of Proxies and Expenses.................................... 18
Proposal No. 1--The Merger................................................ 19
Background of the Merger................................................ 19
Stanford Telecom's Reasons for the Merger............................... 21
Recommendation of the Stanford Telecom Board of Directors............... 22
Opinion of Stanford Telecom's Financial Advisor......................... 22
Newbridge's Reasons for the Merger...................................... 24
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Interests of Executive Officers and Directors of Stanford Telecom in the
Merger................................................................. 25
Material United States Federal Income Tax Consequences.................. 26
Canadian Federal Income Tax Considerations of Holding Newbridge Common
Stock.................................................................. 28
Regulatory Approvals.................................................... 29
Accounting Treatment.................................................... 30
Appraisal Rights........................................................ 30
The Merger Agreement...................................................... 33
The Merger.............................................................. 33
Conversion of Shares.................................................... 33
Treatment of Stock Options.............................................. 35
Stock Ownership Following the Merger.................................... 35
Representations and Warranties.......................................... 35
Conduct of Stanford Telecom's Business Prior to the Merger.............. 36
Conduct of Business Following the Merger................................ 37
No Solicitation; Board Recommendation................................... 38
Additional Covenants.................................................... 40
Conditions to the Merger................................................ 40
Termination of the Merger Agreement..................................... 42
Fees, Expenses and Termination Fees..................................... 44
Employee Benefits....................................................... 44
CVR Agreement........................................................... 46
Technology License Option Agreement..................................... 47
Stock Option Agreement.................................................. 48
Resale Restrictions; Affiliates' Agreements............................. 49
The Voting Agreements................................................... 50
Proposal No. 2--Sale of the Government Business Assets.................... 51
Background of the Sale of the Government Business Assets................ 51
Reasons for the Sale of the Government Business Assets.................. 52
Recommendation of the Stanford Telecom Board............................ 52
Interests of Executive Officers of Stanford Telecom in the Sale of the
Government Business Assets............................................. 53
Regulatory Approvals.................................................... 53
Accounting Treatment.................................................... 53
Appraisal Rights ....................................................... 53
Federal Income Tax Consequences......................................... 53
Information about ITT Industries........................................ 54
The Government Business Asset Purchase Agreement........................ 54
Description of Newbridge Capital Stock.................................... 60
Comparison of Rights of Stockholders...................................... 61
Unaudited Pro Forma Consolidated Financial Statements..................... 75
Legal Matters............................................................. 85
Experts................................................................... 85
Stockholder Proposals..................................................... 85
Where You Can Find More Information....................................... 86
Appendices
Agreement and Plan of Merger............................................ 1-4
Contingent Value Rights Agreement....................................... 2-1
Technology License Option Agreement..................................... 3-1
Stock Option Agreement.................................................. 4-1
Opinion of Ferris, Baker Watts.......................................... 5-1
Delaware General Corporation Law Section 262............................ 6-1
</TABLE>
ii
<PAGE>
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
proposed merger and the sale of the government business assets and for a more
complete description of the legal terms of these transactions, you should read
carefully this entire document and the other documents to which we have
referred you. See "Where You Can Find More Information" (page 86). We have
included page references parenthetically to direct you to a more complete
description of the topics presented in this summary. All references to "$" in
this proxy statement/prospectus are to U.S. dollars unless otherwise specified.
All references to "Cdn$" are to Canadian dollars.
The companies
Newbridge Networks Corporation
600 March Road, P.O. Box 13600
Kanata, Ontario, Canada K2K 2E6
Telephone: (613) 591-3600
Newbridge designs, manufactures, markets and services end-to-end networking
solutions that enable customers to compete more effectively. Newbridge
customers include more than 350 of the world's largest telecom providers and
more than 10,000 corporations, government organizations and other institutions.
Newbridge's business strategy is to provide comprehensive, fully managed, end-
to-end wide area networking solutions to carriers and corporate customers based
on a broad product family that cost effectively addresses their constantly
evolving communications requirements.
Newbridge is a Canadian corporation.
Stanford Telecommunications, Inc.
1221 Crossman Avenue
Sunnyvale, California 94089
Telephone: (408) 745-0818
Stanford Telecom designs, manufactures and markets advanced digital
communication products and systems to establish or enhance communications via
satellites, terrestrial wireless and cable. Stanford Telecom's technical
strengths include: system design, communication waveforms, modulation and
demodulation techniques, ASIC design, Radio Frequency antennas and
downconverters, software and firmware, Asynchronous Transfer Mode design and
advanced manufacturing techniques and processes.
Stanford Telecom is a Delaware corporation.
What Stanford Telecom stockholders will receive in the merger (page 33)
For each share of Stanford Telecom common stock you hold, you will receive
Newbridge common stock with a value equal to:
. $30; plus
. an additional amount (which is referred to as the "contingent value") based
upon a formula which depends on the proceeds from the sales of Stanford
Telecom's government and contract manufacturing businesses.
You should not send in your stock certificates until instructed to do so after
the merger is completed.
The contingent value
The contingent value will vary depending on the proceeds from the sales of the
government and contract manufacturing businesses, the taxes to be paid on the
proceeds and the number of Stanford Telecom stock options that Newbridge
assumes. If the proceeds of the sales of the government and contract
manufacturing businesses are not in cash or are subject to post-closing
adjustments, we may agree upon, or may hire an independent appraiser to
determine, the amount of the proceeds for purposes of calculating the
contingent value. The following table illustrates how the contingent value will
change based on the gross sales proceeds. The calculation of contingent value
assumes a tax rate of 40%, and also assumes that Newbridge will assume all of
the Stanford Telecom stock options currently outstanding. The information in
the table is for illustrative purposes only and does not necessarily reflect
the actual proceeds we will realize from the sales of the government and
contract manufacturing businesses.
1
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<TABLE>
<CAPTION>
Contingent
Sales Proceeds Value
-------------- ----------
<S> <C>
$180 million............. $3.37
$200 million............. $3.78
$220 million............. $4.19
</TABLE>
Based on agreements we have entered into with potential purchasers of the
government and contract manufacturing businesses, we expect that the contingent
value will be between $3.50 and $4.00, which will result in your receiving
Newbridge common stock having a total value of between $33.50 and $34.00 for
each share of Stanford Telecom stock you own.
Newbridge closing value
The exact number of Newbridge shares you will receive in the merger will be
determined based on the average closing price of the Newbridge common stock on
the NYSE during the 10-day trading period ending on the fifth trading day
before the Stanford Telecom special meeting. If the special meeting is
adjourned or postponed, the number of Newbridge shares you will receive in the
merger will be based on the 10-day trading period ending on the fifth trading
day before the date of the adjourned or postponed meeting.
The following table illustrates how the number of Newbridge shares you receive
will change based on changes in the contingent value and the average closing
price of the Newbridge common stock. The table shows the number of shares of
Newbridge common stock you might receive for each 1,000 shares of Stanford
Telecom common stock that you own. You will only receive a whole number of
Newbridge shares and will receive cash in lieu of any fractions that result
from the formula.
<TABLE>
<CAPTION>
Average
Price of Number of
Contingent Newbridge Newbridge
Value Shares Shares
---------- --------- ---------
<S> <C> <C>
$3.50 $24.00 1,395
$27.00 1,240
$30.00 1,116
$3.75 $24.00 1,406
$27.00 1,250
$30.00 1,125
$4.00 $24.00 1,416
$27.00 1,259
$30.00 1,133
</TABLE>
If the sales of the government and contract manufacturing businesses are not
completed before the merger, you will receive $30 of Newbridge common stock
after the merger is completed and you will receive the contingent value in
Newbridge common stock at a later date after the sales of the government and
contract manufacturing businesses are completed.
If the average closing price of the Newbridge common stock falls below $24, the
exchange ratio will be 1.25, unless Newbridge agrees to increase the exchange
ratio so that you will receive Newbridge shares with a value of at least $30
(not including shares issued for the contingent value) for each share of
Stanford common stock that you own. If Newbridge does not agree to adjust the
exchange ratio, Stanford Telecom will have the right to terminate the merger
agreement without completing the merger.
Contingent value rights (page 46)
If the sales of the government and contract manufacturing businesses are not
completed by the effective time of the merger, the contingent value will become
payable following completion of those sales. In that case, Newbridge will issue
to you a certificate evidencing your right to receive the contingent value. The
contingent value right will not be transferable. The certificate representing
your contingent value right is referred to in this document as a "CVR."
United States federal income tax consequences (page 26)
Because the merger should be a "reorganization" for United States federal
income tax purposes, a typical Stanford Telecom stockholder should not be taxed
as a result of the exchange of Stanford Telecom common stock in the merger,
except you will be taxed on any cash you receive instead of a fractional share.
Tax matters are very complicated and the tax consequences of the merger to you
will depend in part on the facts of your own situation. You should consult your
tax advisors for a full understanding of the tax consequences of the merger to
you.
2
<PAGE>
Canadian tax considerations of holding Newbridge common stock (page 28)
Because Newbridge is a Canadian corporation, holders of Newbridge common stock
will be subject to Canadian tax laws and to certain U.S. tax rules that do not
currently apply to holders of Stanford Telecom common stock. Specifically,
investors should be aware that any dividends or distributions received in
respect of Newbridge common stock could be subject to Canadian withholding tax.
Ownership of Newbridge following the merger (page 35)
Based on the closing price of the Newbridge common stock on September 29, 1999,
and assuming the contingent value is $3.75, Newbridge will issue approximately
18,000,536 shares to the Stanford Telecom stockholders. Based on that number,
Stanford Telecom stockholders will own approximately 9% of Newbridge's common
stock outstanding after the merger.
The special meeting (page 17)
The Stanford Telecom special meeting will be held at the Sunnyvale Hilton, 1250
Lakeside Drive, Sunnyvale, California 94086 on November 15, 1999 at 10:00 a.m.
local time. At the special meeting, you will be asked to:
(1) approve the merger agreement; and
(2) approve the sale of the government business assets.
Record date; voting power (page 17)
You are entitled to vote at the special meeting if you owned shares of Stanford
Telecom common stock as of the close of business on September 30, 1999, the
record date for the special meeting.
On the record date, there were 13,253,443 shares of Stanford Telecom common
stock eligible to vote at the special meeting. You will have one vote for each
share of Stanford Telecom common stock you own on the record date.
Voting by proxy (page 18)
You may vote on the merger agreement and the sale of the government business
assets by indicating on your proxy card how you want to vote, and signing and
mailing it in the enclosed return envelope. Please return your proxy as soon as
possible so that your shares may be represented at the special meeting of the
Stanford Telecom stockholders. If you sign and send in your proxy card and do
not indicate how you wish to vote, your proxy will be counted as a vote in
favor of the merger agreement and the sale of the government business assets.
If you do not vote, or if you abstain, it will have the effect of a vote
against the merger agreement and the sale of the government business assets.
Vote required (page 17)
A majority of the shares of Stanford Telecom common stock outstanding on the
record date must vote affirmatively to approve both the merger agreement and
the sale of government business assets.
Appraisal rights (page 30)
Stanford Telecom is a Delaware corporation. If the sales of the government and
contract manufacturing businesses are not completed on or before the effective
time of the merger and the CVRs are issued, stockholders of Stanford Telecom
may have the right to an appraisal of the fair value of their shares in
connection with the merger. To assert appraisal rights, you must strictly
follow the procedures set forth in Delaware law.
Voting agreements (page 50)
Six officers and directors of Stanford Telecom, who together hold approximately
19.5% of the shares of Stanford Telecom common stock outstanding on the record
date, have entered into voting agreements with Newbridge. The voting agreements
provide they will vote their shares of Stanford Telecom common stock in favor
of the merger agreement and related transactions.
Recommendations of the Stanford Telecom board to Stanford Telecom stockholders
(pages 22 and 52)
The Stanford Telecom board of directors believes that the merger agreement is
fair to you and in your best interest and unanimously recommends that you
3
<PAGE>
vote "for" the proposal to approve the merger agreement. The Stanford Telecom
board also unanimously recommends that you vote "for" the proposal to approve
the sale of the government business assets.
Fairness opinion of financial advisor (page 22)
On June 21, 1999, Ferris, Baker Watts, Incorporated delivered an opinion letter
to the Stanford Telecom board of directors that, as of that date, the
consideration to be received by Stanford Telecom stockholders pursuant to the
merger agreement and the merger was fair from a financial point of view. We
have attached a copy of Ferris, Baker Watts' written opinion dated as of June
21, 1999 to this proxy statement/prospectus as Appendix 5. The Ferris, Baker
Watts opinion sets forth the assumptions made, procedures followed, matters
considered, limitations on and scope of review by Ferris, Baker Watts in
forming its opinion. The opinion of Ferris, Baker Watts is directed to the
Stanford Telecom board of directors, addresses only whether the consideration
to be received by Stanford Telecom stockholders is fair from a financial point
of view and does not constitute a recommendation to any Stanford Telecom
stockholder as to how that stockholder should vote at the special meeting.
Stanford Telecom stockholders are encouraged to read the opinion in its
entirety.
Interests of Stanford Telecom's executive officers and directors in the merger
and the sale of the government business assets (pages 25 and 53)
You should be aware that the executive officers and directors of Stanford
Telecom have interests in the merger and the sale of the government business
assets that are different from or in addition to your interests as a Stanford
Telecom stockholder. These interests include:
. severance payments;
. accelerated vesting of stock options;
. contributions to the 401(k) plan accounts of executive officers;
. payments under Stanford Telecom's management incentive plan;
. employment arrangements for executive officers; and
. continued indemnification for premerger actions.
Listing of Newbridge common stock (page 40)
It is a condition to the merger that the Newbridge common stock to be issued in
connection with the merger be approved for listing on the New York Stock
Exchange, subject to official notice of issuance, and the Toronto Stock
Exchange, subject to the satisfaction of customary conditions, at the effective
time of the merger. If we complete the merger, you will be able to trade the
shares of Newbridge common stock you receive in the merger in the United States
on the New York Stock Exchange and in Canada on the Toronto Stock Exchange.
Conditions to the merger (page 40)
Conditions to the obligations of both companies. Neither Stanford Telecom nor
Newbridge is obligated to complete the merger unless several conditions are
satisfied or (in some cases) waived by both companies, including the following:
. the merger agreement is approved by the holders of a majority of the
Stanford Telecom common stock;
. the registration statement covering the Newbridge common stock is effective
with the Securities and Exchange Commission;
. Stanford Telecom counsel and Newbridge counsel deliver opinions regarding
the federal income tax consequences of the merger;
. we obtain or file all material consents, agreements, authorizations, orders
or approvals of, or filings with, any government entity; and
. our respective representations and warranties in the merger agreement
continue to be materially accurate.
Conditions to the obligations of Newbridge. In addition to the conditions
above, Newbridge is not obligated to complete the merger unless several
conditions are satisfied or (in some cases) waived, including the following:
. there are no material adverse changes in the business of Stanford Telecom,
except as specifically permitted in the merger agreement;
. Stanford Telecom enters into binding agreements to sell its government and
contract manufacturing businesses which provide for minimum after-tax
proceeds to Stanford Telecom of $102 million;
4
<PAGE>
. certain employees of Stanford Telecom enter into employment agreements or
arrangements which are satisfactory to Newbridge;
. Stanford Telecom delivers the resignations of officers and directors
specified by Newbridge; and
. the total number of shares of Stanford Telecom demanding appraisal rights
under Delaware law does not exceed 10% of the outstanding shares of Stanford
Telecom common stock immediately prior to the merger.
Condition to the obligations of Stanford Telecom. In addition to the
conditions above, if the sales of the government and contract manufacturing
businesses are not completed on or before the effective time of the merger and
CVRs are issued, Stanford Telecom is not obligated to complete the merger
unless Newbridge enters into an agreement with a rights agent providing for the
issuance of the CVRs or Stanford Telecom waives this condition.
Termination of the merger agreement (page 42)
Newbridge and Stanford Telecom can agree by mutual consent to terminate the
merger agreement at any time without completing the merger.
Either Newbridge or Stanford Telecom can terminate the merger agreement under
various circumstances, including if:
. the merger is not completed by January 31, 2000;
. the required vote of the Stanford Telecom stockholders to approve the merger
is not received;
. the other party breaches any of its representations, warranties, covenants
or agreements; or
. a court or other government entity prohibits the merger.
Newbridge can terminate the merger agreement if a "triggering event" occurs as
further described in "The Merger Agreement--Termination of the Merger
Agreement" on page 43.
Stanford Telecom can terminate the agreement if the Newbridge common stock
value as measured for the closing drops below $24 and Newbridge has not
adjusted the exchange ratio so that Stanford Telecom stockholders receive for
each share of Stanford Telecom common stock, Newbridge common stock with a
value at least equal to $30, plus the contingent value.
Termination fee (page 44)
In connection with the termination of the merger agreement, under specific
circumstances Stanford Telecom would be required to pay Newbridge a termination
fee of $25 million. In addition, in connection with termination of the merger
agreement under other circumstances which do not require Stanford Telecom to
pay Newbridge the termination fee, Stanford Telecom may be required to pay
Newbridge's documented expenses in connection with the merger agreement.
Technology license option agreement (page 47)
In connection with the merger, Stanford Telecom has granted Newbridge an option
to acquire a perpetual, nonexclusive, fully paid license to Stanford Telecom
intellectual property necessary to make and distribute Stanford Telecom's
wireless broadband products. The option may be exercised at any time by
Newbridge after a change in control of Stanford Telecom for a purchase price of
$69 million.
Stock option agreement (page 48)
In connection with the merger, Stanford Telecom has granted Newbridge an option
to purchase a number of shares of Stanford Telecom common stock equal to 19.9%
of the outstanding shares of Stanford Telecom common stock. The option becomes
exercisable in specified circumstances that could result in termination of the
merger agreement. The option has an exercise price of $35 per share.
Sales of Stanford Telecom's assets (page 51)
As a condition to Newbridge's obligation to complete the merger, Stanford
Telecom is required to enter into binding agreements to sell its government and
contract manufacturing businesses for after-tax net cash proceeds of at least
$102 million. Stanford Telecom does not intend to sell the government
5
<PAGE>
business assets if the merger with Newbridge is not approved by its
stockholders and completed under the terms of the merger agreement.
Stanford Telecom has entered into an agreement with ITT Industries, Inc. to
sell to ITT Industries the government business assets for approximately
$191 million, subject to adjustment based on the net worth of government
business on the closing date. The ITT Industries agreement is described in this
proxy statement/prospectus beginning on page 54. In addition, Stanford Wireless
Broadband, Inc., a wholly owned subsidiary of Stanford Telecom, has entered
into an agreement with Dii Semiconductor, Inc. to sell to Dii the contract
manufacturing business for approximately $11 million. Both of the agreements
are subject to conditions. As a result, we cannot assure you that either of the
sales will be completed or that they will be completed at these prices.
The transfer of Stanford Telecom's contracts with the government cannot become
effective without the government's recognition of the purchaser as successor in
interest to the contracts and entry into a novation agreement in accordance
with the provisions of the Federal Acquisition Regulation.
Conditions to the sale of the Stanford Telecom government business assets (page
58)
Conditions to the obligations of ITT Industries and Stanford Telecom. Neither
ITT Industries nor Stanford Telecom will be obligated to complete the sale of
the government business assets unless several conditions are satisfied,
including the following:
. the stockholders of Stanford Telecom have approved the sale of the
government business assets;
. the waiting period applicable to the sale of the government business assets
under the U.S. antitrust laws has expired or been terminated;
. the transfer of the government business assets is not prohibited by any
government order or action; and
. the respective warranties of ITT Industries and Stanford Telecom contained
in the asset purchase agreement continue to be materially accurate.
Condition to obligations of ITT Industries. In addition to the conditions
above, ITT Industries will not be obligated to purchase the government business
assets unless Stanford Telecom has obtained each of the consents or approvals
listed in the asset purchase agreement.
Condition to obligations of Stanford Telecom. In addition to the conditions
above, Stanford Telecom will not be obligated to sell the government business
assets unless the merger agreement is (1) fully performed or (2) in full force
and effect and Stanford Telecom is not aware of any event that will prevent or
delay the merger.
Termination of the government business asset purchase agreement (page 59)
ITT Industries and Stanford Telecom can agree by mutual consent to terminate
the asset purchase agreement at any time before the closing of the sale of the
government business assets.
Either ITT Industries or Stanford Telecom can terminate the asset purchase
agreement under various circumstances, including if:
. the sale of the government business assets is not completed by March 31,
2000;
. the U.S. government advises that it will not enter into a novation agreement
in connection with the government contracts listed in the asset purchase
agreement;
. the other party breaches any of its representations, warranties, covenants
or agreements; or
. a court or other government entity prohibits the sale of the government
business assets.
Regulatory approvals (pages 29 and 53)
We are prohibited by U.S. antitrust laws from completing the merger or the sale
of the government business assets until after we have furnished information and
materials to the Antitrust Division of the Department of Justice and the
Federal Trade Commission and a required waiting period has ended.
Newbridge and Stanford Telecom have each filed the required notification and
report form relating to
6
<PAGE>
the merger, and the waiting period was terminated on August 16, 1999.
Stanford Telecom and ITT Industries each filed the required notification and
report form relating to the sale of the government business assets on October
1, 1999.
The merger is also subject to review by the Committee on Foreign Investment in
the United States (CFIUS) under the Exon-Florio Amendment, which provides for
national security reviews and investigations of foreign acquisitions of U.S.
companies. CFIUS notification is voluntary, but without CFIUS review the
President has the authority to block the transaction or require divestiture
after closing. On October 1, 1999, Newbridge and Stanford Telecom filed a joint
voluntary notification of the transaction.
It is expected that the principal issue in CFIUS' review will be the
disposition of the government business assets. A substantial part of this
business involves the performance of classified contracts for the U.S.
government. Department of Defense rules prohibit the performance of classified
contracts by companies with foreign ownership, control or influence (FOCI)
unless steps are taken to mitigate FOCI by means such as establishing a proxy
company or voting trust. If the sale of Stanford Telecom's government business
assets is completed prior to the effective time of the merger, Newbridge will
not have ownership, control or influence over Stanford Telecom's classified
contracts. If the sale of the government business assets has not been completed
prior to the effective time of the merger, to avoid FOCI it will be necessary
for Newbridge to transfer ownership of the government business to a proxy
company or make other arrangements pending the sale of the government business
assets to a U.S. company. Any arrangements will be subject to discussions with
the Department of Defense and other CFIUS representatives.
Accounting treatment (pages 30 and 53)
The merger will be accounted for by Newbridge as a purchase in accordance with
Canadian and U.S. generally accepted accounting principles.
The sale of the government business assets will be accounted for by Stanford
Telecom as a sale of assets in accordance with U.S. generally accepted
accounting principles.
Recent events
On September 23, 1999, Stanford Telecom entered into an agreement with Intel
Corp. providing for the acquisition by Intel of Stanford Telecom's Telecom
Component Products division. The sale of the TCP division will not affect the
amount of Newbridge common stock to be received by Stanford Telecom
stockholders in the merger.
On August 25, 1999, Newbridge announced that it had agreed to acquire
Northchurch Communications and TimeStep Corporation for total consideration of
approximately Cdn$350 million. The net purchase price to Newbridge, excluding
incentive compensation to participating employees of Northchurch and TimeStep,
is approximately Cdn$225 million. Newbridge will account for the acquisitions
under the purchase method of accounting and will record the incentive
compensation as operating expenses in the periods earned. Northchurch is a
developer of Internet Protocol edge routers for service providers and is
headquartered in Andover, Massachusetts. TimeStep provides encryption solutions
for secure virtual private networks to service providers and large enterprises.
TimeStep is headquartered in Kanata, Ontario. Newbridge completed the
acquisition of Northchurch on August 31, 1999 and the acquisition of TimeStep
on September 30, 1999.
Special note regarding forward-looking statements
This proxy statement/prospectus contains and incorporates by reference certain
statements that constitute "forward-looking statements" within the meaning of
the U.S. Private Securities Litigation Reform Act of 1995. These forward-
looking statements include all statements which are not statements of
historical fact such as statements as to beliefs, expectations, anticipations,
intentions or similar words. Those statements are subject to risks,
uncertainties and assumptions, including those described in "Risk Factors"
(page 14). If any of the risks or uncertainties affect the business of either
of the companies or should underlying assumptions prove incorrect, Newbridge's
or Stanford Telecom's actual results, performance or achievements in 1999 and
beyond could differ materially from those expressed in, or implied by, the
forward-looking statements.
7
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
Newbridge is providing the following financial data to aid you in your
analysis of the financial aspects of the merger. Newbridge derived this
information from audited financial statements for fiscal years 1995 through
1999 and unaudited financial statements for the three months ended August 2,
1998 and August 1, 1999. This is only a summary and you should read it in
conjunction with Newbridge's historical financial statements (and related
notes) and Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in the annual reports, quarterly reports and
other information on file with the Securities and Exchange Commission. See
"Where You Can Find More Information" on page 86. Unless otherwise noted,
financial data are presented in accordance with accounting principles generally
accepted in Canada.
Newbridge Selected Consolidated Financial Data
(Canadian dollars, amounts in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Fiscal Year Ended
---------------------- ----------------------------------------------------------
August 1, August 2, May 2, April 30, April 30, April 30, April 30,
1999 1998 1999 1998 1997 1996 1995
----------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Earnings
Data
Sales................... $ 495,070 $ 426,056 $1,790,705 $1,620,620 $1,376,727 $ 921,244 $ 800,523
Research and development
expense................ 67,621 67,156 264,421 258,879 155,330 97,205 66,066
Net earnings (loss)..... 47,286 35,520 179,161 (18,318) 156,917 202,864 188,390
Earnings (loss) per
share
Canadian GAAP
Basic................ $ 0.26 $ 0.20 $ 1.01 $ (0.10) $ 0.92 $ 1.22 $ 1.16
Fully diluted........ $ 0.26 $ 0.20 $ 1.01 $ (0.10) $ 0.91 $ 1.19 $ 1.11
US GAAP
Basic................ $ 0.26 $ 0.20 $ 1.01 $ (0.10) $ 0.92 $ 1.22 $ 1.16
Diluted.............. $ 0.26 $ 0.20 $ 0.99 $ (0.10) $ 0.90 $ 1.19 $ 1.13
<CAPTION>
As At
----------------------------------------------------------------------
August 1, May 2, April 30, April 30, April 30, April 30,
1999 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Working capital..................... $1,088,551 $1,243,991 $ 945,892 $ 638,392 $ 658,087 $ 491,888
Total assets........................ 2,522,334 2,470,624 1,966,825 1,496,703 1,093,417 827,163
Long term debt...................... 390,583 384,021 383,311 10,817 860 3,493
Shareholders' equity................ 1,599,646 1,529,219 1,233,620 1,126,499 902,686 674,645
Other Data
Capital expenditures................ $ 42,347 $ 213,903 $ 276,778 $ 131,641 $ 96,235 $ 81,763
Employees........................... 6,694 6,530 6,336 5,761 3,400 2,955
Cash inflow (outflow) from:
Operating activities............... $ (61,501) $ 218,984 $ 101,525 $ 223,374 $ 191,790 $ 186,996
Investing activities............... $ (201,043) $ 58,181 $ (409,687) $ (399,601) $ (104,952) $ (115,809)
Financing activities............... $ 22,190 $ 114,826 $ 455,742 $ 48,878 $ 19,094 $ (2,182)
</TABLE>
8
<PAGE>
Stanford Telecom is providing the following financial data to aid you in
your analysis of the financial aspects of the merger. Stanford Telecom derived
this financial data from audited financial statements for fiscal years 1995
through 1999 and unaudited financial statements for the three months ended June
30, 1998 and 1999. This is only a summary and you should read it in conjunction
with Stanford Telecom's historical financial statements (and related notes) and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the annual reports, quarterly reports and other
information on file with the Securities and Exchange Commission. See "Where You
Can Find More Information" on page 86.
Stanford Telecom Selected Consolidated Financial Data
(U.S. dollars in thousands, except per share data)
Statements of Income Data
<TABLE>
<CAPTION>
Three Months
Ended June 30, Fiscal Year Ended
--------------- --------------------------------------------
1999 1998 1999 1998 1997 1996 1995
------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Products and Services.. $43,246 $44,362 $165,405 $153,260 $167,002 $145,100 $114,384
Licenses............... 17,750 -- -- -- -- -- --
------- ------- -------- -------- -------- -------- --------
Total Revenues......... 60,996 44,362 165,405 153,260 167,002 145,100 114,384
Cost of revenues........ 37,329 34,919 131,311 116,629 127,432 116,014 95,679
------- ------- -------- -------- -------- -------- --------
Gross profit........... 23,667 9,443 34,094 36,631 39,570 29,086 18,705
Expenses:
Research and
development........... 2,754 3,709 14,105 13,647 11,868 8,429 7,723
Marketing and
administrative........ 6,041 4,712 19,926 17,321 16,808 12,213 9,362
------- ------- -------- -------- -------- -------- --------
Total expenses........ 8,795 8,421 34,031 30,968 28,676 20,642 17,085
------- ------- -------- -------- -------- -------- --------
Operating income........ 14,872 1,022 63 5,663 10,894 8,444 1,620
Interest income......... 393 484 1,880 1,896 1,336 839 657
Arbitration settlement
charge................. -- -- -- -- -- -- (2,075)
------- ------- -------- -------- -------- -------- --------
Income before provision
for income taxes....... 15,265 1,506 1,943 7,559 12,230 9,283 202
Provision for income
taxes.................. 4,732 467 602 2,343 4,219 3,110 71
------- ------- -------- -------- -------- -------- --------
Net income.............. $10,533 $ 1,039 $ 1,341 $ 5,216 $ 8,011 $ 6,173 $ 131
======= ======= ======== ======== ======== ======== ========
Earnings per share--U.S.
GAAP
Basic.................. $ 0.80 $ 0.08 $ 0.10 $ 0.40 $ 0.61 $ 0.49 $ 0.01
Diluted................ $ 0.78 $ 0.08 $ 0.10 $ 0.40 $ 0.61 $ 0.49 $ 0.01
Basic shares
outstanding............ 13,139 12,976 12,992 12,902 12,775 12,556 12,408
Diluted shares
outstanding............ 13,495 13,171 13,145 13,179 13,070 12,702 12,484
</TABLE>
Balance Sheet Data
<TABLE>
<CAPTION>
As of March 31,
As of ------------------------------------------
June 30, 1999 1999 1998 1997 1996 1995
------------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total assets............ $125,738 $115,063 $112,141 $103,518 $90,948 $88,005
Long-term obligations,
less current
maturities............. 66 73 41 30 85 161
Other long-term
liabilities............ 542 595 855 910 986 927
Total stockholders
equity................. $101,067 $ 89,429 $ 86,873 $ 79,706 $69,589 $62,097
</TABLE>
9
<PAGE>
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Included in this proxy statement/prospectus are the unaudited Pro Forma
Consolidated Financial Statements of Newbridge, together with the relevant
notes, assumptions and adjustments thereto, which reflect the completion of the
merger as if it had occurred on May 1, 1998 for purposes of the Pro Forma
Consolidated Statements of Earnings and as at August 1, 1999 for purposes of
the Pro Forma Consolidated Balance Sheet. The Pro Forma Consolidated Financial
Statements have been prepared using the purchase method of accounting to
account for the merger.
The following summary of unaudited pro forma consolidated financial
information for Newbridge is derived from, and should be read in conjunction
with, the detailed information contained in the unaudited and audited
consolidated financial statements of Newbridge as at and for the three months
ended August 1, 1999 and for the year ended May 2, 1999, respectively, and the
unaudited consolidated financial statements of Stanford Telecom as at and for
the three months ended June 30, 1999 and for the year ended March 31, 1999, and
the accompanying notes to such statements, incorporated by reference and the
Pro Forma Consolidated Financial Statements of Newbridge as at and for the
three months ended August 1, 1999 and for the year ended May 2, 1999 and the
accompanying notes to such statements which are included herein. See "Unaudited
Pro Forma Consolidated Financial Statements" included on pages 75 through 84
and "Where You Can Find More Information" on page 86.
The Pro Forma Consolidated Financial Statements should not be construed as
representative of such amounts for any future dates or periods.
(Canadian dollars, amounts in thousands except per share data)
<TABLE>
<CAPTION>
Pro Forma
-----------------------------------
As at and for the As at and for
three months ended the year ended
August 1, 1999 May 2, 1999
-------------------- --------------
<S> <C> <C>
Operating Results
Sales..................................... $ 495,733 $1,795,791
Research and development expense.......... 69,941 278,784
Net earnings (loss) from continuing
operations............................... 15,025 (55,787)
Financial Position
Cash, cash equivalents and marketable
securities............................... $ 699,219 n/a
Working capital........................... 1,097,508 n/a
Total assets.............................. 3,318,128 n/a
Long term debt............................ 391,495 n/a
Shareholders' equity...................... 2,333,599 n/a
Per Share Data
Earnings (loss) per share
Canadian GAAP
Basic................................. $ 0.08 $ (0.29)
Fully diluted......................... $ 0.08 $ (0.29)
US GAAP
Basic................................. $ 0.08 $ (0.29)
Diluted............................... $ 0.07 $ (0.29)
Earnings (loss) per Stanford Telecom
equivalent share(1)
Canadian GAAP
Basic................................. $ 0.10 $ (0.39)
Fully diluted......................... $ 0.10 $ (0.39)
US GAAP
Basic................................. $ 0.10 $ (0.39)
Diluted............................... $ 0.10 $ (0.39)
</TABLE>
- --------
(1) Equivalent per share data in respect of Stanford Telecom has been
calculated by multiplying the Newbridge U.S. GAAP per share pro forma
amounts by the exchange ratio.
10
<PAGE>
UNAUDITED COMPARATIVE PER SHARE INFORMATION
The following table sets forth certain earnings and book value per share
data for Newbridge on a historical basis and pro forma consolidated basis and
indicates the relative earnings and book values of the companies for the
periods presented.
The information is only a summary and you should read it in conjunction with
the Unaudited Pro Forma Consolidated Financial Statements on pages 75 through
84 and the respective audited and unaudited financial statements of Newbridge
and Stanford Telecom. We incorporate the audited and unaudited financial
statements of Newbridge and Stanford Telecom in this proxy
statement/prospectus. See "Where You Can Find More Information" on page 86.
(Canadian dollars)
<TABLE>
<CAPTION>
As at and for As at and for
the three months ended the year ended
August 1, 1999 May 2, 1999
---------------------- --------------
<S> <C> <C>
Newbridge Common Stock
Net earnings (loss) per share from
continuing operations
Canadian GAAP
Basic
Historical........................ $ 0.26 $ 1.01
Pro forma......................... $ 0.08 $ (0.29)
Fully diluted
Historical........................ $ 0.26 $ 1.01
Pro forma......................... $ 0.08 $ (0.29)
US GAAP
Basic
Historical........................ $ 0.26 $ 1.01
Pro forma......................... $ 0.08 $ (0.29)
Diluted
Historical........................ $ 0.26 $ 0.99
Pro forma......................... $ 0.07 $ (0.29)
Book value per share at period end
Canadian and US GAAP
Historical........................ $ 8.86 $ 8.49
Pro forma......................... $11.64 n/a
Stanford Telecom Common Stock (U.S.
GAAP)(1)
Net earnings (loss) per share from
continuing operations
US GAAP
Basic
Historical........................ $(0.35) $ (1.17)
Equivalent share.................. $ 0.10 $ (0.39)
Diluted
Historical........................ $(0.35) $ (1.17)
Equivalent share.................. $ 0.10 $ (0.39)
Book value per common share at period
end
Canadian and US GAAP
Historical........................ $11.49 $ 10.27
Equivalent share.................. $15.84 n/a
</TABLE>
- --------
(1) Equivalent per share data in respect of Stanford Telecom has been
calculated by multiplying the Newbridge U.S. GAAP per share pro forma
amounts by the exchange ratio.
11
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
Set forth below are the last reported sale prices of Newbridge common stock
on the NYSE and Stanford Telecom common stock on Nasdaq on June 21, 1999, the
last trading day prior to the public announcement of the merger agreement, and
on October 8, 1999, the last full trading day for which closing prices were
available at the time of the printing of this proxy statement/prospectus. The
Stanford Telecom Equivalent column reflects the potential value of the
Newbridge common stock to be received by Stanford Telecom stockholders per
Stanford Telecom share calculated assuming the contingent value is equal to
$3.75. A comparison of the Stanford Telecom Equivalent column and the Stanford
Telecom common stock column reflects the potential difference in the value of
the Newbridge common stock to be received over the price of the Stanford
Telecom common stock as of the same dates.
<TABLE>
<CAPTION>
Newbridge Stanford Telecom Stanford Telecom
Common Stock Common Stock Equivalent
------------ ---------------- ----------------
<S> <C> <C> <C>
June 21, 1999.................... $31.25 $26.44 $33.75
October 8, 1999.................. $24.50 $30.88 $33.75
</TABLE>
Newbridge Stock Price
Newbridge common stock is traded on the NYSE in the United States under the
symbol "NN" and on the Toronto Stock Exchange in Canada under the symbol "NNC."
The table below sets forth the high and low closing sale prices per share of
Newbridge common stock for the periods indicated, which indicates how
Newbridge's share price has fluctuated over the quarterly and annual periods
covered. For current price information with respect to the Newbridge common
stock, Stanford Telecom stockholders are urged to consult publicly available
sources. No assurance can be given as to future prices of, or markets for,
Newbridge common stock.
<TABLE>
<CAPTION>
Toronto Stock
New York Stock Exchange Exchange
----------------------- -------------------
High Low High Low
----------------------- --------- ---------
<S> <C> <C> <C> <C>
Fiscal Year Ended April 30, 1998
First Quarter.................... US$ 52.44 US$ 31.50 Cdn$72.20 Cdn$43.80
Second Quarter................... 69.38 42.50 95.00 58.90
Third Quarter.................... 58.88 25.88 82.75 37.50
Fourth Quarter................... 30.44 18.94 43.20 27.00
Fiscal Year Ended May 2, 1999
First Quarter.................... 32.75 20.13 47.00 30.35
Second Quarter................... 24.44 15.44 37.75 23.85
Third Quarter.................... 39.88 15.31 60.50 31.55
Fourth Quarter................... 39.50 23.50 58.00 35.55
Fiscal Year Ending April 30, 2000
First Quarter.................... 38.00 24.94 55.20 37.40
Second Quarter (through October
8, 1999)........................ 28.94 24.38 43.30 36.55
</TABLE>
Newbridge has never declared or paid any cash dividends on Newbridge common
stock.
12
<PAGE>
Stanford Telecom Stock Price
Stanford Telecom common stock is quoted on Nasdaq and traded under the
symbol "STII." The table below sets forth for the periods indicated the high
and low closing sale prices per share of Stanford Telecom common stock. For
current price information with respect to the Stanford Telecom common stock,
Stanford Telecom stockholders are urged to consult publicly available sources.
<TABLE>
<CAPTION>
Nasdaq Stock
Market
-----------------
High Low
-------- --------
<S> <C> <C>
Fiscal Year Ended March 31, 1998
First Quarter.............................................. US$20.25 US$14.13
Second Quarter............................................. 28.00 15.00
Third Quarter.............................................. 26.00 15.00
Fourth Quarter............................................. 20.50 14.00
Fiscal Year Ended March 31, 1999
First Quarter.............................................. 19.00 11.81
Second Quarter............................................. 15.50 8.50
Third Quarter.............................................. 14.69 6.88
Fourth Quarter............................................. 18.25 11.78
Fiscal Year Ending March 31, 2000
First Quarter.............................................. 29.63 15.13
Second Quarter ............................................ 32.00 26.38
Third Quarter (through October 8, 1999).................... 31.56 30.88
</TABLE>
Stanford Telecom has never declared or paid any cash dividends on Stanford
Telecom common stock.
13
<PAGE>
RISK FACTORS
You should carefully consider the following factors in evaluating whether to
vote to approve the transactions described in this proxy statement/prospectus
and thereby become holders of Newbridge common stock. These risks should be
read in conjunction with the other information incorporated by reference in
this proxy statement/prospectus, including the factors that could materially
adversely affect the business, operating results and financial condition of
Newbridge or Stanford Telecom as described in the Newbridge and Stanford
Telecom reports incorporated by reference in this proxy statement/prospectus.
See "Where You Can Find More Information" on page 86.
The price of Newbridge common stock fluctuates and may decline in the future.
The market price of the Newbridge common stock fluctuates in response to many
factors, including:
. variations in quarterly operating results;
. announcements of new commercial products by Newbridge or its competitors;
. developments or disputes concerning patent or proprietary rights; and
. economic and other external factors.
Newbridge's common stock has been subject to substantial market price
volatility, some of which has occurred when there have been variations between
Newbridge's actual or anticipated financial results and the published
expectations of investment analysts and in the aftermath of public
announcements by Newbridge and its competitors. For example, over the last two
fiscal years, the closing sales price of the Newbridge common stock on the NYSE
has ranged from $15.31 to $69.38.
In addition, the technology sector of the stock market has in recent years
experienced significant price fluctuations and stock prices on United States
stock markets have been very volatile. These broad market fluctuations, as well
as general economic and political conditions, may adversely affect the market
price of Newbridge's common stock. See "Summary--Market Price and Dividend
Information."
Because the Stanford Telecom special meeting will occur soon after the
Newbridge quarter end, the exchange ratio for your common stock may differ
materially from the price of the Newbridge common stock at the time of the
meeting.
The number of shares of Newbridge common stock you will receive in the merger
will be determined in part by calculating the average closing value of the
Newbridge common stock on the NYSE during the ten-day trading period that is
expected to end on November 8, 1999 (five trading days before the special
meeting). Newbridge's second fiscal quarter closes on October 31, 1999, and
Newbridge would ordinarily report its operating results for the quarter on
November 16, 1999. Investor and investment analyst perceptions of quarterly
operating results may affect the market price of Newbridge common stock,
particularly during the period following the end of the fiscal quarter and
before any announcement of operating results. You should be aware that the
average closing value of Newbridge common stock calculated for purposes of
determining the exchange ratio for your Stanford Telecom common stock may
consequently differ materially from the prevailing market price for Newbridge
common stock at the time Stanford Telecom convenes the special meeting of
stockholders to vote on approval of the merger, or, if applicable, any
postponement or adjournment of the special meeting.
The number of shares of Newbridge common stock you will receive in the merger
is not yet determined.
The exact number of shares of Newbridge common stock you will receive in the
merger may not be determined by the time of the special meeting. The exact
number of shares you will receive will be determined based on the amount of the
proceeds received from the sale of Stanford Telecom's government and contract
manufacturing businesses and the average closing price of the Newbridge common
stock. If the average closing price of the Newbridge common stock is below $24,
the exchange ratio will be 1.25, unless Newbridge agrees to increase the
exchange ratio so that you receive Newbridge common stock with a value equal to
at least $30, not including the contingent value. If Newbridge does not agree
to adjust the exchange
14
<PAGE>
ratio, Stanford Telecom will have the right to terminate the merger agreement
without completing the merger.
Integration of the two businesses may be difficult to achieve, which may
adversely affect operations.
Newbridge and Stanford Telecom have different technologies, products and
business operations. The combination of these two businesses after the merger
may be difficult. If we fail to integrate the products, technologies,
manufacturing operations, personnel, research and development activities, sales
channels and information management systems successfully, the operating results
of the combined company could be adversely affected and the combined company
may not achieve the benefits or operating efficiencies that we hope to obtain
from the merger.
The success of Newbridge after the merger will depend on the retention and
integration of key employees.
The success of Newbridge following the merger depends at least in part on the
retention and integration of the key engineering and other technical employees
of Stanford Telecom's wireless broadband products business into Newbridge.
Competition for qualified personnel in the computer and telecommunications
industry is intense, and competitors often use aggressive tactics to recruit
key employees during the period leading up to a merger and during the
integration phase following a merger. While each of Newbridge and Stanford
Telecom is engaged in ongoing efforts to retain key employees, it may be
difficult to retain those employees after the merger.
In particular, upon the consummation of the merger, unvested stock options that
have been outstanding for more than one year held by employees of Stanford
Telecom will immediately vest. The acceleration of options could potentially
reduce the retention incentive provided by the options. The loss of services of
any key employees of Stanford Telecom could have a material adverse effect on
the business, results of operations and financial condition of Newbridge.
If the sale of Stanford Telecom's government business assets is not completed
prior to the effective time of the merger, Newbridge will be required to set up
a proxy company or make other arrangements to run the government business.
Newbridge is not a U.S. corporation. Under the National Industrial Security
Program rules, as administered by the U.S. Department of Defense, Newbridge
would be prohibited from performing Stanford Telecom's classified contracts
unless steps are taken to mitigate foreign ownership, control or influence by
such means as the establishment of a proxy company or voting trust. A proxy
company or similar arrangement would substantially limit Newbridge's ability to
manage the government business and would prohibit routine communication between
Newbridge and management except through the designated proxies. This could
reduce the proceeds from the sale of the government business assets, which
would reduce the contingent value received by the Stanford Telecom
stockholders. This also could have a material adverse effect on the business,
results of operations and financial condition of the government business, which
in turn could have a material adverse effect on the results of operations and
financial condition of Newbridge.
The U.S. government might not enter into the required novation agreements in
connection with the sale of the government business assets.
The transfer of Stanford Telecom's government contracts to the purchaser of the
government business assets cannot become effective without the U.S.
government's recognition of the purchaser as successor in interest to the
contracts and entry into one or more novation agreements in accordance with the
provisions of the Federal Acquisition Regulation. If the U.S. government does
not grant this recognition or enter into the requisite novation agreements
prior to the completion of the merger, Newbridge will be required to establish
a proxy company or similar arrangement, which would give rise to the risks
described above. In addition, a delay by the U.S. government or refusal to
enter into novation agreements with respect to all or some of Stanford
Telecom's government contracts could substantially reduce the proceeds from the
sale of the government business assets, which would reduce the contingent value
received by the Stanford Telecom stockholders.
Application of the purchase method of accounting to the merger may have an
adverse impact on Newbridge's earnings per share.
The merger will be accounted for under the purchase method of accounting. The
total purchase price relating to the merger has been allocated on a preliminary
basis to the assets acquired and liabilities assumed based on Newbridge's
estimates of their respective fair values. To the extent this
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purchase price exceeds the fair value of the net tangible assets acquired at
the effective time of the merger, Newbridge will allocate the purchase price to
intangible assets that include purchased in-process research and development
and acquired technology, with the remainder allocated to goodwill. While the
amortization of acquired technology and goodwill will have no effect on
Newbridge's operating cash flow, amortization may have an adverse effect on
Newbridge's reported earnings per share.
The costs of completing the merger are substantial, and may affect the results
of Newbridge's operations.
Completion of the merger will result in total pre-tax costs estimated at
between $16 and $18 million, primarily relating to costs associated with
combining the businesses of the two companies and the fees of financial
advisors, attorneys, consultants and accountants.
Although we do not believe that the costs of the merger will exceed our
estimate, our estimate may not be correct and unanticipated events could occur
that will substantially increase the costs of combining the two companies. In
any event, these costs with the merger are likely to negatively affect
Newbridge's results of operations in the quarter in which the transaction is
completed.
Sale by Stanford Telecom stockholders of large numbers of Newbridge common
stock after the merger may adversely affect Newbridge's stock price.
Based on the closing price of the Newbridge common stock on September 29, 1999,
and assuming the contingent value is $3.75, Newbridge will issue approximately
18,000,536 shares of Newbridge common stock in the merger. Based on that
number, Stanford Telecom stockholders will own approximately 9% of Newbridge's
common stock outstanding after the merger. The shares issued to Stanford
Telecom stockholders will be freely tradeable following the merger. The sale of
these shares may cause substantial fluctuations in the price of Newbridge
common stock over short time periods. See "The Merger--Resale Restrictions;
Affiliates' Agreements."
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THE SPECIAL MEETING
This proxy statement/prospectus is being furnished to you in connection with
the solicitation of proxies by the board of directors of Stanford Telecom to be
used at the special meeting of Stanford Telecom stockholders.
Date, Time and Place
The special meeting of Stanford Telecom stockholders will be held as
follows:
November 15, 1999
10:00 a.m., local time
Sunnyvale Hilton
1250 Lakeside Drive
Sunnyvale, California 94086
Purpose
The purpose of the special meeting is:
. to approve and adopt the Agreement and Plan of Merger, dated as of June
22, 1999, as amended, between Stanford Telecom, Newbridge and Saturn
Acquisition Corp., which will result in Stanford Telecom becoming a
wholly owned subsidiary of Newbridge;
. to approve the sale of government business assets; and
. to transact any other business that is properly brought before the
special meeting, or any adjournment or postponement of the special
meeting.
Record Date
The Stanford Telecom board of directors has fixed the close of business on
September 30, 1999, as the record date. Only holders of record of shares of
Stanford Telecom common stock on the record date are entitled to notice of and
to vote at the special meeting and any adjournments thereof. On the record
date, there were 13,253,443 shares of Stanford Telecom common stock
outstanding, which were held by approximately 1,734 stockholders of record, as
shown on the records of BankBoston, N.A., Stanford Telecom's transfer agent for
the common stock.
Quorum; Vote Required
A majority of the outstanding shares of Stanford Telecom common stock
entitled to vote on the proposals must be represented, either in person or by
proxy, to constitute a quorum at the special meeting. The affirmative vote of
the holders of at least a majority of Stanford Telecom's common stock
outstanding and entitled to vote on the proposals is required to adopt the
merger agreement and to approve the merger and the sale of the government
business assets. Each stockholder is entitled to one vote for each share of
Stanford Telecom common stock held on the record date on each proposal.
A proxy marked "ABSTAIN" will not be voted and will be counted only for the
purpose of determining whether a quorum is present. If an executed proxy is
returned by a broker holding shares in street name and the proxy indicates that
the broker does not have discretionary authority to vote on one or more of the
proposals, the shares will be considered present at the meeting for purposes of
determining the presence of a quorum, but will not be voted in favor of
adoption of the proposals. As a result, abstentions, failures to vote and
broker non-votes will have the same effect as a vote against each of the
proposals.
Six directors and executive officers of Stanford Telecom are parties to
voting agreements with Newbridge and have agreed to vote their shares of
Stanford Telecom common stock in favor of the adoption of the merger agreement
and the related transactions. As of the record date, these directors and
officers held approximately
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2,585,515 shares of Stanford Telecom common stock which represent approximately
19.5% of the outstanding shares of Stanford Telecom common stock entitled to
vote on the proposals. See the discussion under "The Merger Agreement--Voting
Agreements" below.
Proxies
All shares of Stanford Telecom common stock represented by properly executed
proxies received before or at the special meeting will, unless the proxies are
revoked, be voted in accordance with the instructions indicated on the proxies.
If no instructions are indicated on a properly executed returned proxy, the
shares will be voted "FOR" the merger and "FOR" the sale of the government
business assets.
Stanford Telecom does not expect to present any matter not discussed in this
proxy statement/prospectus for action at the special meeting. If any other
matters, including, consideration of a motion to adjourn or postpone the
meeting for the purpose of soliciting additional proxies or votes, are properly
brought before the special meeting, the persons named in the proxies will have
discretion to vote on those matters in accordance with their best judgment,
unless authority to do so is specifically withheld in the proxy.
Revocation of Proxies
You may revoke your proxy at any time before it is voted by:
. providing written notice to the Secretary of Stanford Telecom at
Stanford Telecommunications, Inc., 1221 Crossman Avenue, Sunnyvale,
California 94089, Attention: Secretary (a notice of revocation must be
signed and may be mailed or hand delivered to this address, or
transmitted by facsimile to (408) 745-2410 before the vote is taken at
the special meeting);
. delivering a subsequently dated and signed proxy; or
. appearing in person at the special meeting and voting by ballot.
Attendance at the special meeting will not constitute revocation of a
proxy.
Solicitation of Proxies and Expenses
Newbridge and Stanford Telecom will share equally the costs of printing and
mailing this proxy statement/prospectus and soliciting proxies. In addition to
solicitation by mail, proxies may be solicited in person by directors, officers
and employees of Stanford Telecom without additional compensation, and by
telephone, telegram, facsimile or similar method. Arrangements will be made
with brokerage houses and other custodians, nominees and fiduciaries to send
proxy material to beneficial owners, and Stanford Telecom will, upon request,
reimburse them for their reasonable expenses. Stanford Telecom has retained
Corporate Investor Communications, Inc. to aid in the solicitation of proxies
at a fee of approximately $5,500 plus expenses.
The matters to be considered at the special meeting are of great importance
to the Stanford Telecom stockholders. Accordingly, you are urged to read and
carefully consider the information presented in this proxy
statement/prospectus, and to complete, date, sign and promptly return the
enclosed proxy in the enclosed postage-paid envelope.
You should not send in any stock certificates with your proxy. A transmittal
form with instructions for the surrender of stock certificates for Stanford
Telecom common stock will be mailed to you as soon as practicable after
completion of the merger.
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PROPOSAL NO. 1--THE MERGER
Background of the Merger
Newbridge began the development of wireless broadband products in 1996 in
order to address a potentially large opportunity in the telecommunications
industry. The components provided by Stanford Telecom have become a strategic
part of Newbridge's solution for this market.
In October 1997, Stanford Telecom and Newbridge began negotiations to enter
into agreements pursuant to which Stanford Telecom would perform certain
development work for Newbridge and Newbridge would acquire rights to distribute
Stanford Telecom wireless broadband products. In May 1998, Stanford Telecom and
Newbridge signed a reseller agreement. In June 1998, Stanford Telecom and
Newbridge signed a development agreement, which was made effective as of
December 23, 1997.
During the summer of 1998, Mr. Conrad Lewis, Executive Vice President of
Newbridge, and Dr. Val Peline, President and CEO of Stanford Telecom, discussed
Newbridge's desire to make an equity investment in Stanford Wireless Broadband,
Inc., the subsidiary of Stanford Telecom which conducts the wireless broadband
business.
In October 1998, Newbridge proposed terms for an investment in Stanford
Wireless Broadband, Inc., which were rejected by the Stanford Telecom board of
directors. Dr. Peline and Mr. Lewis thereafter agreed that, if Stanford Telecom
considered opportunities for a strategic combination in the future, Dr. Peline
would invite Newbridge to enter into discussions with Stanford Telecom.
In January and February 1999, Mr. Bernard Herscovich, general manager of
Newbridge's wireless broadband business contacted Mr. George Hendry, President
of Stanford Wireless Broadband, Inc., about the ongoing development work and
requested that Newbridge obtain greater control of the development effort and
greater engineering attention and support. Mr. Hendry, after discussion with
Dr. Peline, informed Mr. Herscovich that this increased involvement would only
be available if Newbridge invested in Stanford Wireless Broadband, Inc.
As a result of the growing acceptance of Newbridge's Microwave Multipoint
Distribution System ("MMDS") and Local Multipoint Distribution System ("LMDS")
in the marketplace, Newbridge became increasingly interested in acquiring
Stanford Telecom's wireless broadband business in order to secure access to
this strategic technology. On March 4, 1999, Mr. Lewis called Dr. Peline to
indicate a renewed interest in an investment in or acquisition of Stanford
Wireless Broadband, Inc.
Newbridge began an initial due diligence review of the wireless broadband
business at Stanford Telecom's facilities in Sunnyvale, California on March 16,
1999.
At meetings held on March 23, 1999 to March 25, 1999 at the offices of
Stanford Telecom in Sunnyvale, California, which were attended by Mr. Lewis and
Mr. Herscovich for Newbridge and Dr. Peline and Mr. Gary S. Wolf, Executive
Vice President of Stanford Telecom, Mr. Lewis presented various alternatives
relative to Newbridge's investment interest, including licensing the wireless
broadband technology, acquiring the assets of the wireless broadband business,
and acquiring all of Stanford Telecom and selling its government and contract
manufacturing businesses. Dr. Peline rejected the licensing alternative and
indicated that a sale of the wireless broadband business would create
prohibitive tax costs. After lengthy negotiations, Mr. Lewis offered to acquire
Stanford Telecom at a price representing a premium to Stanford Telecom
stockholders in excess of 100% per share based on the Stanford Telecom stock
price at that time, with conditions relating to the amount of proceeds that
would need to be realized from the sale of the government and contract
manufacturing businesses. The meetings concluded on March 25, 1999 with the
signing of a non-binding letter of intent providing for Newbridge to acquire
Stanford Telecom. On that date, the closing price of the Standard Telecom
common stock was $14.00.
At a meeting held on March 30, 1999, the Stanford Telecom board of directors
reviewed the letter of intent and authorized Stanford Telecom management to
negotiate a definitive agreement.
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On April 23, 1999, Dr. Peline and Mr. Lewis held a teleconference to discuss
revisions to the terms of the letter of intent proposed by Newbridge.
On May 3, 1999, Mr. Lewis and Dr. Peline held a teleconference to further
discuss the terms of the transaction. It was agreed that Newbridge would
proceed with a comprehensive due diligence review of Stanford Telecom.
On May 10, 1999, Mr. Lewis and Dr. Peline met in Sunnyvale, California to
negotiate revisions to the terms of the letter of intent.
On May 18, 19 and 20, 1999, Dr. Peline, Mr. Wolf, Mr. Peter Nadeau, Vice
President and General Counsel of Newbridge, Mr. John Woronczuk, Assistant Vice
President, Business Development of Newbridge, and representatives of CIBC World
Markets, Inc., financial advisor to Newbridge, Heller Ehrman White & McAuliffe,
counsel to Newbridge, and Thelen Reid & Priest LLP, counsel to Stanford
Telecom, met to negotiate the terms of the transaction and finalize the new
letter of intent.
On May 20, 1999, representatives of Newbridge and Stanford Telecom and their
legal, financial and other advisors met again in Sunnyvale, California to begin
the comprehensive due diligence review of Stanford Telecom's business. This due
diligence review continued through the execution of the definitive merger
agreement.
On May 24, 1999, the Stanford Telecom board of directors approved the new
letter of intent, and it was signed by both parties. On that date, the closing
price of the Stanford Telecom common stock was $22.00.
On June 1, 1999, the Newbridge board of directors discussed the proposal to
acquire Stanford Telecom and set up a special committee to review the merits of
the proposed transaction.
On June 4, 1999, Stanford Telecom engaged Ferris, Baker Watts to analyze the
consideration offered to the Stanford Telecom stockholders in the proposed
transaction and to provide an opinion as to the fairness, from a financial
point of view, to the Stanford Telecom stockholders of the consideration to be
paid in connection with the proposed transaction.
From June 7 through June 10, 1999, management of Stanford Telecom and
Newbridge, along with their legal and financial advisors, met to negotiate
drafts of the merger agreement, the technology license option agreement, the
stock option agreement and the voting agreement that had been proposed by
counsel to Newbridge.
On June 16, 1999, the Stanford Telecom board of directors held a meeting to
discuss the proposed transaction and the status of negotiations between the
parties. Ferris, Baker Watts gave a presentation to the Stanford Telecom board
of directors. The board reviewed and discussed the terms of the proposed merger
agreement and the financial and other effects of the proposed merger on the
Stanford Telecom stockholders. Advisors from Thelen Reid & Priest LLP were also
present and participated in the discussions.
On June 17, 1999, the Newbridge board of directors approved the merger
subject to certain conditions. Dr. Peline, Mr. Wolf and Mr. Jay Margulies of
Thelen Reid & Priest LLP met with Mr. Terrence Matthews, Chief Executive
Officer of Newbridge, Mr. Lewis and Mr. Nadeau in Denver, Colorado on June 18,
1999 to discuss the Newbridge board of directors' conditional approval.
On June 20, 1999, the Newbridge board of directors removed the conditions to
its approval of the proposed transaction and approved the merger without
further conditions, except as contained in the merger agreement.
On June 21 and 22, 1999, management of Stanford Telecom and Newbridge and
their legal and financial advisors met to finalize the terms of the definitive
merger agreement and ancillary agreements.
At a meeting held on June 21, 1999, Ferris, Baker Watts delivered its
fairness opinion to the Stanford Telecom board of directors. After further
review and discussion of the terms of the proposed merger agreement, and the
financial and other effects of the proposed merger, the Stanford Telecom board
of directors unanimously approved the merger and authorized the officers of
Stanford Telecom to finalize and execute the merger agreement and ancillary
agreements.
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The definitive merger agreement and ancillary agreements were signed on
behalf of Newbridge, Stanford Telecom and Saturn Acquisition Corp. on June 22,
1999. On that date, the closing price of the Stanford Telecom common stock was
$26.44.
Stanford Telecom's Reasons for the Merger
In reaching its determination to recommend approval and adoption of the
merger agreement and the merger, the Stanford Telecom board of directors
consulted with Stanford Telecom management, Ferris, Baker Watts, and Thelen
Reid & Priest LLP regarding the matters discussed above under "--Background of
the Merger." Among the factors discussed by the Stanford Telecom board of
directors and its advisors as benefits of the proposed merger were:
. the structure of the merger as a stock-for-stock transaction, which will
give Stanford Telecom's stockholders the opportunity to defer taxes and
continue to share in the growth of the wireless broadband business
through the ownership of Newbridge common stock;
. the premium included in the purchase price over the then current stock
price and over the values determined by the valuation analyses performed
by Ferris, Baker Watts;
. the availability of Newbridge's supply and distribution infrastructure,
which would provide Stanford Telecom with direct access to end-users for
its wireless broadband products;
. the terms under which Stanford Telecom can consider alternative
acquisition proposals by third parties; and
. the opinion of Ferris, Baker Watts that the consideration to be paid in
the merger is fair, from a financial point of view, to Stanford
Telecom's stockholders.
The Stanford Telecom board of directors and its advisors also considered and
reviewed potentially negative factors relating to the merger, including the
following:
. the uncertainty as to the ultimate value the stockholders would receive
on the contingent value rights;
. the significant diversion of management and other resources in order to
find buyers for, and to sell, the government and contract manufacturing
businesses, in addition to working toward completing the merger with
Newbridge;
. the volatility of the market price of the Newbridge stock over the past
two years; and
. the potential value that alternative actions, such as remaining an
independent company and continuing to grow the wireless broadband
business internally and subsequently spinning-off Stanford Wireless
Broadband, Inc., could provide to Stanford Telecom stockholders.
In the course of deliberations, the Stanford Telecom board of directors
reviewed with Stanford Telecom management and outside advisors a number of
additional factors relevant to the merger, including:
. the terms of the merger agreement;
. the status of the sales of the government and contract manufacturing
businesses;
. the status of Stanford Telecom's businesses and the current status of
the telecommunications industry and applicable markets;
. the severance payments to be paid to certain Stanford Telecom employees
who could be terminated after the merger; and
. the indemnification to be provided to present Stanford Telecom directors
and officers.
The foregoing discussion of the information and factors considered by the
Stanford Telecom board of directors is not intended to be exhaustive, but is
believed to include all material factors considered by the
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Stanford Telecom board of directors. In light of the wide variety of
information and factors considered in connection with the proposed merger, the
Stanford Telecom board of directors did not consider it practicable to, nor did
it attempt to, quantify or otherwise assign relative weights to the specific
factors it considered in reaching its decision.
Recommendation of the Stanford Telecom Board of Directors
After careful consideration, the Stanford Telecom board of directors
unanimously has determined the merger is fair to you and in your best interest,
and has declared that the merger is advisable. The Stanford Telecom board of
directors has approved the merger agreement and unanimously recommends your
adoption of the merger agreement and your approval of the merger.
In considering the recommendation of the Stanford Telecom board of directors
with respect to the merger agreement, you should be aware that certain
directors and officers of Stanford Telecom have interests in the merger that
are different from, or are in addition to, yours. Please see the discussion
under "--Interests of Executive Officers and Directors of Stanford Telecom in
the Merger" below.
The Stanford Telecom board of directors unanimously recommends that the
Stanford Telecom stockholders vote "for" approval of the merger agreement.
Opinion of Stanford Telecom's Financial Advisor
Stanford Telecom retained Ferris, Baker Watts to investigate the proposed
consideration offered to Stanford Telecom stockholders and to provide an
opinion as to the fairness, from a financial point of view, to the Stanford
Telecom stockholders of the consideration to be paid in connection with the
merger agreement and the merger. Stanford Telecom requested Ferris, Baker Watts
to undertake the assignment because Ferris, Baker Watts is familiar with
telecommunications companies such as Stanford Telecom and has experience
advising companies with market capitalizations of similar size.
On June 16, 1999, Ferris, Baker Watts delivered a presentation to the board
of directors of Stanford Telecom and subsequently delivered an opinion letter
dated June 21, 1999 that, based upon and subject to the considerations set
forth therein, as of that date, the consideration to be received by Stanford
Telecom stockholders pursuant to the merger agreement and the merger was fair
from a financial point of view. The opinion of Ferris, Baker Watts was based
upon economic, market and other conditions in effect as of the date of the
letter. No limitations were imposed by the board of directors of Stanford
Telecom upon Ferris, Baker Watts with respect to its investigation or
procedures followed by them in rendering the opinion. The opinion of Ferris,
Baker Watts, which sets forth assumptions made, material reviewed, matters
considered, and the limits of the review, is attached as Appendix 5 and is
incorporated by reference in this proxy statement/prospectus.
The following is a summary of the opinion of Ferris, Baker Watts. Stanford
Telecom stockholders are urged to read the opinion in its entirety. Ferris,
Baker Watts has consented to the inclusion of its opinion in this proxy
statement/prospectus and has reviewed the following summary of its opinion.
In connection with its opinion, Ferris, Baker Watts reviewed, among other
things:
. the proposed merger agreement;
. Stanford Telecom's annual reports on Form 10-K for the fiscal years
ended March 31, 1998, 1997, 1996, and 1995;
. Stanford Telecom's annual report for the fiscal year ended March 31,
1999;
. Stanford Telecom's quarterly reports on Form 10-Q for the periods ended
December 31, 1998, September 30, 1998, June 30, 1998, December 31, 1997,
September 30, 1997, June 30, 1997, December 31, 1996, September 30,
1996, and June 30, 1996; and
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. projected financial results for fiscal years 2000 through 2002 provided
by Stanford Telecom management.
Ferris, Baker Watts also held discussions with management of Stanford
Telecom regarding its past and current business operations, financial condition
and future prospects. Ferris, Baker Watts considered the business relationship
Stanford Telecom had established with Newbridge and the fact that other systems
integrators had either already pursued mergers with suppliers or had proceeded
with internal development of their own technology. Ferris, Baker Watts reviewed
the reported price and trading activity of Stanford Telecom stock, compared
certain financial and stock market information concerning Stanford Telecom with
similar information for other comparable companies, the securities of which are
publicly traded, and performed other studies and analyses which Ferris, Baker
Watts deemed appropriate.
Ferris, Baker Watts assumed and relied upon the accuracy and completeness of
all financial and other information reviewed for purposes of its opinion,
whether publicly available or provided to Ferris, Baker Watts by Stanford
Telecom, and did not independently verify the information or make an
independent evaluation or appraisal of assets or liabilities of Stanford
Telecom.
The preparation of a fairness opinion involves determinations as appropriate
and relevant methods of financial analysis and, therefore, reference should be
made to the Ferris, Baker Watts opinion in its entirety and not to a summary
description. In performing its analysis, Ferris, Baker Watts made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters, many of which are beyond the control of Stanford
Telecom. The analyses performed by Ferris, Baker Watts are not necessarily
indicative of future results and do not purport to be appraisals or to reflect
prices at which businesses actually may be sold.
Ferris, Baker Watts considered several methods to evaluate the value of
Stanford Telecom, including:
. the discounted future free cash flow of Stanford Telecom;
. the earnings and book value multiple comparisons to publicly traded
comparable companies;
. the merger and acquisition activity of companies engaged in similar
businesses;
. the control premiums paid by acquirors over the market price of target
companies prior to the takeover announcement date; and
. a breakup analysis.
Ferris, Baker Watts also considered the market value of Stanford Telecom's
shares as well as its trading history.
The discounted future free cash flow analysis ascribes value only to the
cash flows that can ultimately be taken out of the business. These free cash
flows are then discounted to the present at the firm's weighted average cost of
capital. The weighted average cost of capital can be described as the average
price a company must pay to attract both debt and equity to properly capitalize
the firm's growth. It is these series of free cash flows that, when discounted
to the present and after subtracting claims by debtholders and others,
represents the economic value of a firm to its stockholders. This method of
valuation depends upon the accuracy of the financial projections. Ferris, Baker
Watts assumed that the projections were reasonably prepared by management of
Stanford Telecom on bases reflecting the best currently available estimates and
judgments as to the expected future financial performance. The offer value per
share represents a 25.3% to 34.7% premium to the intrinsic value of the shares
as determined by the discounted cash flow analysis.
The earnings and book value multiple comparison analysis examines the
operating earnings, net income (both historical and projected), revenue and
book value multiples. Ferris, Baker Watts analyzed publicly available
historical financial information and projected financial results, including
multiples of price to expected earnings for the current fiscal year, price to
expected earnings for the next fiscal year, price to revenues and
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price to book ratios. The comparable companies were found to have average
multiples of 26.2x price to current fiscal year expected earnings, 17.2x price
to next fiscal year expected earnings, 3.7x market value to book value and 2.9x
market value to revenue. Applying the multiples to Stanford Telecom's results
yielded values ranging from $23.35 to $33.53 per share, resulting in premiums
from -6.2% to 44.8%.
The comparable merger and acquisition transaction analysis examines publicly
available records for sale transactions in Stanford Telecom's industry. This
method of valuation is often difficult to perform due to the lack of publicly
available data on the target companies involved in the transactions. Ferris,
Baker Watts examined six transactions which disclosed target financial
information. The consideration offered in the merger is at a premium to the
value implied from this analysis.
The control premium analysis examines stock prices of target companies prior
to takeover announcements and adjusts for takeover speculation. Market data for
the fourth quarter of 1998 indicated mean and median control premiums for
electrical components designers and manufacturers of 43.3% and 38.1%,
respectively, with a range of 11.1% to 113.1%. The consideration offered in the
merger is consistent with the values implied from the application of this
methodology.
None of the companies utilized in the comparable company analysis,
comparable merger and acquisition transaction analysis, and the control premium
analysis for comparative purposes is, of course, identical to Stanford Telecom.
Accordingly, a complete analysis of the results of the foregoing calculations
cannot be limited to a quantitative review of the results and involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies and other factors that could affect
the value of the comparable companies as well as Stanford Telecom.
The breakup analysis ascribes value based upon the value the components of
the business would receive in the event of a sale. Stanford Telecom had
received indications of interest from several parties interested in the
purchase of its government business. Stanford Telecom had also received an
indication of interest from a third party for its Telecom Component Products
division. The merger value represents a 29% to 38.7% premium to the value
derived from this analysis.
From these analyses, Ferris, Baker Watts determined that the consideration
to be received by the Stanford Telecom stockholders was fair from a financial
point of view.
Stanford Telecom is obligated to pay Ferris, Baker Watts a fee of $250,000
and to reimburse Ferris, Baker Watts for its out-of-pocket expenses in
connection with its opinion.
The opinion of Ferris, Baker Watts relates only to whether the consideration
to be received by Stanford Telecom stockholders is fair from a financial point
of view and does not constitute a recommendation to any Stanford Telecom
stockholder as to how a stockholder should vote at the special meeting.
Newbridge's Reasons for the Merger
The Newbridge board of directors approved of the merger, in part, due to its
belief that the acquisition of Stanford Telecom would constitute a significant
component of its strategy to penetrate the wireless broadband products market.
Newbridge estimates that its wireless broadband network business will
generate $66 million (Cdn$100 million) in revenue in 1999, $198 million
(Cdn$300 million) in 2000 and $396 million (Cdn$600 million) in 2001. To date,
Newbridge has agreements with five LMDS licensees in the United States,
including Tri Corners Telecommunications, Gateway Telecom, South Central
Telecom, Home Telephone Inc. and Central Texas Communications. Newbridge is
also supplying LMDS networks to Korean Telecom and Canada's sole nationwide
spectrum holder, MaxLink Communications.
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Newbridge began the development of wireless broadband products in 1996 in
order to address the large potential market opportunity. Newbridge's products
incorporate components developed for Newbridge by Stanford Telecom, including a
wireless access system that Newbridge integrates with its Network Management
System and Switch. The wireless access system has become a strategic part of
the Newbridge solution.
As a result of the growing acceptance of the Newbridge LMDS/MMDS solution,
Newbridge believes that the acquisition of Stanford Telecom is important to
securing access to this strategic technology. In addition, because of recent
acquisitions of MMDS spectrum holders by other telecommunications companies,
Newbridge believes such a time-to-market gain for its MMDS product line is
particularly timely.
Some of the specific benefits to Newbridge of the merger include:
. a more cost-competitive product line to offer customers by virtue of
increased vertical integration and manufacturing cost reductions, which
will be achieved by moving the Stanford Telecom designs into Newbridge's
much larger scale manufacturing operations;
. a more feature-rich product line to offer customers by combining two
product management and engineering teams into a single team that will
have a higher productivity from increased focus, better coordination and
common and improved design tools; and
. an integrated LMDS/MMDS product line that Newbridge expects will be
available to market sooner as a result of the incorporation of Stanford
Telecom's early work in MMDS into Newbridge's LMDS platform.
Interests of Executive Officers and Directors of Stanford Telecom in the Merger
In considering the recommendation of the Stanford Telecom board of
directors, you should be aware that the Stanford Telecom executive officers and
directors have interests in the merger that are different from, or are in
addition to, yours. These interests include:
. severance payments;
. accelerated vesting of stock options;
. contributions to the 401(k) plan accounts of the executive officers;
. payments under Standford Telecom's management incentive plan;
. an employment agreement for one Stanford Telecom executive officer; and
. continued indemnification for pre-merger actions.
Severance Payments. If Newbridge requests the resignation of a Stanford
Telecom executive officer as of the effective time of the merger or terminates
a Stanford Telecom executive officer within 90 days after the merger, Newbridge
will pay the executive officer one year's base salary as a one-time severance
payment.
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Accelerated Vesting of Stock Options. Unvested options granted under
Stanford Telecom's 1991 Stock Option Plan to employees, including executive
officers, who will not be employed by Stanford Telecom, Newbridge or a
purchaser of the government or contract manufacturing businesses following the
merger or who will be employed by a purchaser of the government or contract
manufacturing business assets but whose options will not be assumed (1) will
become fully vested and exercisable at the time the merger is completed and (2)
will be converted into stock options to purchase shares of Newbridge common
stock based on the exchange ratio. See "The Merger Agreement--Treatment of
Stock Options" and "The Merger Agreement--Employee Benefits." The following
table sets forth information regarding the unvested stock options held by the
executive officers as of the record date:
<TABLE>
<CAPTION>
Number of Unvested Stanford
Name of Officer Telecom Stock Options
--------------- ---------------------------
<S> <C>
Dr. James J. Spilker, Jr..................... 5,500
Dr. Val P. Peline............................ 25,000
Gary S. Wolf................................. 50,250
Jerome F. Klajbor............................ 24,625
Ernest L. Dickens............................ 19,500
Bronic C. Knarr.............................. 14,375
Dr. John Ohlson.............................. 11,875
Leonard Schuchman............................ 11,875
-------
Total...................................... 163,000
=======
</TABLE>
Contributions to 401(k) Plan Accounts. At the time the merger is completed,
Stanford Telecom employees, including executive officers, will receive
contributions to their 401(k) plan accounts. The amount of each contribution
will be a percentage of the employee's salary consistent with past practice,
prorated for the portion of the fiscal year completed as of the time of the
merger.
Management Incentive Plan. At the time the merger is completed, the
executive officers will receive prorated payments under Stanford Telecom's
Management Incentive Plan if the performance goals of the plan have been met as
of the time of the merger.
Employment Agreement. At effective time of the merger, John Ohlson,
currently the Chief Technical Officer of Stanford Telecom, is expected to enter
into an employment agreement with Newbridge. Dr. Ohlson is expected to serve as
Vice President, Satellite Personal Communications. During the term of the
employment agreement, Newbridge will pay Dr. Ohlson a base salary of
$205,836.80 per year. Dr. Ohlson will be entitled to participate in certain
Newbridge bonus and incentive plans and programs.
Indemnification. Newbridge has, for a period of six years after the merger,
agreed in the merger agreement to:
. indemnify each present director and officer of Stanford Telecom and its
subsidiaries against costs, damages, liabilities or expenses incurred in
connection with claims arising out of or pertaining to the transactions
contemplated by the merger agreement; and
. subject to some limitations, maintain directors' and officers' liability
insurance for the benefit of Stanford Telecom directors and officers
currently covered by Stanford Telecom's directors' and officers'
liability insurance on terms comparable to Stanford Telecom's existing
coverage.
Material United States Federal Income Tax Consequences
General. The following discussion summarizes the opinions of Heller Ehrman
White & McAuliffe, U.S. tax counsel to Newbridge, and Thelen Reid & Priest LLP,
U.S. tax counsel to Stanford Telecom, as to the material federal income tax
consequences of the merger. This discussion is based upon the Internal Revenue
Code, the regulations promulgated under the Code, Internal Revenue Service
rulings, and judicial and administrative rulings presently in effect, all of
which are subject to change, possibly retroactively. This
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<PAGE>
discussion does not address all aspects of federal income taxation that may be
relevant to a stockholder in light of the stockholder's particular
circumstances or to those Stanford Telecom stockholders subject to special
rules, such as stockholders who are not citizens or residents of the United
States, financial institutions, tax-exempt organizations, insurance companies,
dealers in securities, stockholders who acquired their Stanford Telecom stock
pursuant to the exercise of options or as compensation, stockholders who hold
their Stanford Telecom stock as part of a straddle or similar transaction, U.S.
stockholders of Stanford Telecom who will own 5% or more of Newbridge after the
merger, or stockholders who exercise appraisal rights with respect to their
Stanford Telecom stock. This discussion assumes that Stanford Telecom
stockholders hold their shares of Stanford Telecom stock as capital assets.
It is a condition of the obligations of Stanford Telecom and Newbridge to
complete the merger that each receive a legal opinion from its counsel that the
merger constitutes a tax-free reorganization, within the meaning of Section 368
of the Internal Revenue Code, for federal income tax purposes. These legal
opinions will assume the absence of certain changes in the existing facts and
rely on assumptions and/or representations made by Stanford Telecom and
Newbridge, including those contained in certificates of their officers. If any
of these factual assumptions is inaccurate, the tax consequences of the merger
could differ from those described here. The opinions regarding the tax-free
nature of the merger neither bind the IRS nor preclude the IRS from adopting a
contrary position. We do not intend to obtain a ruling from the IRS with
respect to the tax consequences of the merger.
Although Stanford Telecom and Newbridge have the right to waive the
requirement for tax opinions as of the effective date of the merger, we do not
currently intend to do so. In the unlikely event that either company decides to
waive the opinions, we would send you additional information describing any
changes in the material United States federal income tax consequences and would
resolicit your proxy if there were any material adverse changes in the expected
consequences.
Federal Income Tax Consequences to Stanford Telecom Stockholders
. You will not recognize gain or loss on the exchange of your Stanford
Telecom common stock for Newbridge common stock and a CVR in the merger.
. You will not recognize gain or loss on the receipt of additional shares
of Newbridge common stock pursuant to the CVR.
. If you receive cash in lieu of a fractional share of Newbridge common
stock (including under the CVR), you will recognize gain or loss
measured by the difference between the amount of cash received and the
part of your tax basis in shares of Stanford Telecom stock apportioned
to the fractional share of Newbridge common stock to which you would
otherwise be entitled. Your gain or loss will be long term capital gain
or loss if you have held your Stanford Telecom common stock for more
than one year as of the closing date of the merger.
. You must transfer your tax basis in your Stanford Telecom common stock
to the Newbridge common stock (including fractional shares) received in
the merger, either at the effective date of the merger or subsequently
pursuant to the CVR. If you sell your Newbridge common stock before the
CVRs mature, and thus before you know how much Newbridge common stock
you will ultimately be entitled to receive, there is no clear rule
stating how you would determine the portion of your tax basis in your
Stanford Telecom shares to be allocated to the Newbridge common stock
sold.
. Your holding period for Newbridge common stock received in the merger
(including stock received pursuant to the CVR) will include your holding
period for your Stanford Telecom common stock.
Federal Income Tax Consequences to Stanford Telecom and Newbridge
The merger will be tax-free to Stanford Telecom and Newbridge. However, the
sales of the government and contract manufacturing businesses will be taxable
transactions to Stanford Telecom.
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<PAGE>
Foreign Tax Credits for Canadian Tax Withheld
Newbridge will generally be required to withhold Canadian income tax from
any dividends paid to holders who are not resident in Canada. See the
discussion under "--Canadian Federal Income Tax Consequences of Holding
Newbridge Common Stock" below. If you receive a dividend from Newbridge that is
subject to Canadian withholding:
. You must include the gross amount of the dividend, not reduced by the
amount of Canadian tax withheld, in your U.S. taxable income.
. You may be able to claim the Canadian tax withheld as a foreign tax
credit against your U.S. income tax liability.
. The foreign tax credit is subject to significant limitations. For
taxpayers generally, the credit can offset only the part of your U.S.
tax attributable to your net foreign source passive income. Additional
special rules apply to taxpayers predominantly engaged in the active
conduct of a banking, insurance, financing or similar business.
Additionally, if Newbridge pays dividends at a time when more than 50%
of Newbridge's stock is owned by U.S. persons, you may be required to
treat the part of the dividend attributable to U.S. source earnings and
profits as U.S. source income, possibly reducing the allowable credit,
unless you elect to calculate your foreign tax credit separately with
respect to Newbridge dividends.
. If you do not elect to claim foreign taxes as a credit, you will be
entitled to deduct the Canadian income tax withheld from your Newbridge
dividends in determining your taxable income.
. If you are a U.S. corporation holding Newbridge stock, you cannot claim
the dividends-received deduction with respect to Newbridge dividends.
The foregoing discussion is not intended to be a complete analysis or
description of all potential United States federal income tax consequences of
the merger. In addition, the discussion does not address tax consequences that
are dependent on your own circumstances. Moreover, the discussion does not
address any non-income tax consequences or any state, local or foreign tax
consequences of the merger. Accordingly, you are strongly urged to consult with
your tax advisor to determine the particular United States federal, state,
local or foreign income or other tax consequences of the merger to you.
Canadian Federal Income Tax Considerations of Holding Newbridge Common Stock
The following is a general summary of the principal Canadian federal income
tax considerations in respect of the holding or disposition of Newbridge common
stock generally applicable to a person (a "U.S. Holder") who acquires Newbridge
common stock and a CVR as contemplated by this proxy statement/prospectus, and
who at all relevant times is not resident in Canada, deals at arm's length with
Newbridge, holds his or her Newbridge common stock and CVR as capital property,
does not use or hold his or her Newbridge common stock or CVR as part of a
business in Canada, and is a resident of the United States for the purposes of
the Canada-United States Income Tax Convention.
This summary is of a general nature only and is not intended to be legal,
business or tax advice to any particular U.S. Holder. This summary does not
apply to the holders that are taxed under special provisions of the Income Tax
Act (Canada), such as financial institutions or insurers. Accordingly, U.S.
Holders should consult their own tax advisors with respect to their particular
circumstances.
All amounts relevant in computing a U.S. Holder's liability under the Income
Tax Act (Canada) are to be computed in Canadian dollars.
Under the Income Tax Act (Canada), if dividends (including stock dividends)
are paid or credited, or deemed to be paid or credited, on Newbridge common
stock, they will be subject to withholding tax at a rate of 25% of the gross
amount of such dividends. Under the Canada-United States Income Tax Convention,
the rate
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<PAGE>
of withholding tax applicable to a U.S. Holder who is the beneficial owner of
such dividends is reduced to 15% of the gross amount of such dividends, and is
reduced to 5% if the U.S. Holder is a company that beneficially owns at least
10% of the voting stock of Newbridge. Moreover, under the Canada-United States
Income Tax Convention, dividends paid to certain charitable organizations and
pension funds that are resident in, and exempt from tax in, the U.S. may be
exempted from Canadian withholding tax. Newbridge would not be required to
withhold from dividends paid or credited to the exempt organization if it
follows certain Canadian administrative procedures.
Under the Canada-United States Income Tax Convention, so long as the value
of Newbridge is not derived principally from Canadian real property, a U.S.
Holder will not be subject to Canadian tax on any capital gain realized on the
disposition of Newbridge common stock. In addition, Canadian law presently
exempts such sales from Canadian tax so long as Newbridge common stock is
listed on a recognized stock exchange (which includes the NYSE and the TSE)
provided the U.S. Holder does not use or hold such shares in the course of
carrying on a business in Canada, unless at any time during the five-year
period that ends at the time of the disposition of the Newbridge common stock,
the U.S. Holder, persons with whom the U.S. Holder did not deal at arm's
length, or the U.S. Holder together with persons with whom the U.S. Holder did
not deal at arm's length, owned 25% or more of the issued shares of any class
or series of shares of Newbridge. For this purpose, a person is considered to
own any shares of Newbridge in respect of which the person has or had an option
or other interest (such as the CVR).
Regulatory Approvals
Consummation of the merger is conditioned upon the receipt of all
governmental authorizations, consents, orders or approvals, the filing of all
governmental declarations or filings and the expiration of waiting periods
imposed by any government entity, which if not obtained, filed or completed
would have a material adverse effect on Newbridge or Stanford Telecom. Although
Newbridge and Stanford Telecom have agreed to use all commercially reasonable
efforts to secure all the approvals, there can be no assurance regarding the
timing of the approvals or that the approvals will, in fact, be obtained. Set
forth below is a summary of the regulatory approvals needed in order to
complete the merger.
Hart-Scott-Rodino. Under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 and the rules promulgated thereunder by the Federal Trade Commission, the
merger may not be completed until notifications have been given and information
has been furnished to the FTC and the Antitrust Division of the United States
Department of Justice and specified waiting period requirements have been
satisfied. Newbridge and Stanford Telecom filed notification and report forms
relating to the merger under the Hart-Scott-Rodino Act with the FTC and the
Antitrust Division on August 3, 1999, and the waiting period was terminated on
August 16, 1999.
At any time before or after consummation of the merger, the Antitrust
Division or the FTC could take action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
consummation of the merger or seeking divestiture of substantial assets or
business of Newbridge or Stanford Telecom. At any time before or after the
consummation of the merger, and despite the termination of the Hart-Scott-
Rodino Act waiting period, any state could take action under its antitrust laws
as it deems necessary or desirable in the public interest. That action could
include seeking to enjoin the consummation of the merger or seeking divestiture
of substantial assets or businesses of Newbridge or Stanford Telecom. Private
parties may also seek to take legal action under antitrust laws.
Based on information available to them, Newbridge and Stanford Telecom
believe that the merger can be effected in compliance with federal and state
antitrust laws. However, a challenge to the consummation of the merger on
antitrust grounds may be made and if a challenge is made, Newbridge and
Stanford Telecom may not prevail or may be required to accept conditions,
possibly including divestitures, in order to consummate the merger.
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<PAGE>
Exon-Florio. The merger agreement provides for the parties to file a
voluntary notice under Section 721 of the Defense Production Act of 1950, as
amended by Section 5021 of the Omnibus Trade and Competitiveness Act of 1988
("Exon-Florio Amendment"). The Exon-Florio Amendment provides for national
security reviews and investigations by the Committee on Foreign Investment in
the United States (CFIUS) when a foreign company acquires control of a U.S.
company. CFIUS consists of representatives of various government agencies
including the Departments of State, Defense and Justice and is chaired by the
Treasury Department. The CFIUS review period is 30 days. If commenced, an
investigation must be completed within 45 days. The President then has 15 days
to decide whether to block the transaction or to take other action. On October
1, 1999, Newbridge and Stanford Telecom filed a voluntary notice because
Newbridge is a Canadian corporation and Stanford Telecom has a substantial
number of contracts with the U.S. government, including classified contracts.
CFIUS considers many factors in determining whether a proposed transaction
threatens to impair national security, including domestic production needed for
national defense requirements, the capability of domestic industries to meet
national defense requirements, and the potential effects on U.S. international
technological leadership in areas affecting national security.
CFIUS reviews also provide an opportunity for U.S. government agencies to
ensure compliance with various regulations relating to national security, such
as the requirement to obtain export licenses for exports of controlled
technical data. The parties are required to submit information about classified
and other defense-related contracts of the acquired company. Department of
Defense rules prohibit the performance of classified contracts by companies
that are subject to foreign ownership, control or influences (FOCI) unless
steps are taken to mitigate FOCI by such means as the establishment of a proxy
company or voting trust. It is expected that the Department of Defense will
carefully examine compliance with these rules as part of the CFIUS review of
the transaction.
We believe that the merger will not give rise to national security issues
that would cause the transaction to be blocked under the Exon-Florio Amendment.
If the sale of government business assets is completed prior to the effective
time of the merger, Newbridge will not acquire ownership, control or influence
over Stanford Telecom's classified U.S. government contracts. If the sale has
not been completed prior to the effective time of the merger, it will be
necessary for Newbridge to transfer ownership of the government business assets
to a proxy company or make other arrangements so that Newbridge would not be in
a position to exercise FOCI pending the sale of the government business assets
to a U.S. company. Any such arrangements will be subject to discussions with
the Department of Defense and other CFIUS representatives.
Accounting Treatment
The merger will be accounted for by Newbridge under the purchase method of
accounting in accordance with Canadian and U.S. generally accepted accounting
principles. Newbridge expects the merger to reduce its reported earnings for at
least 4 years, and perhaps as many as 5 years. The reported results of
operations of Newbridge will include the results of Stanford Telecom from and
after the closing date of the merger. The assets, including intangible assets,
and liabilities of Stanford Telecom will be recorded at their fair values as of
the closing date. Any excess of the purchase consideration over the fair values
of the assets and liabilities will be recorded as goodwill. At closing, the
value of certain acquired intangible assets referred to as in-process research
and development will be amortized over their expected useful life in accordance
with Canadian GAAP and expensed at the time of the merger in accordance with
U.S. GAAP. Other acquired intangible assets including goodwill will be
amortized by Newbridge over a period ranging from 3 to 5 years.
Appraisal Rights
If the sales of the government and contract manufacturing businesses are not
completed by the effective time of the merger and the CVRs are issued, you may
have the right to seek an appraisal of, and to be paid the "fair value" for,
your shares of Stanford Telecom common stock, instead of receiving the
Newbridge common stock that you would otherwise be entitled to under the merger
agreement. In order to assert these rights you must follow the procedures set
forth in Section 262 of the General Corporation Law of the State of Delaware.
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These rights are commonly referred to as "appraisal rights" or "dissenters'
rights." The following summary of appraisal rights is qualified in its entirety
by the text of Section 262 of the Delaware corporations code, which is
reproduced in Appendix 6 to this proxy statement/prospectus.
This summary does not constitute a recommendation that you exercise your
appraisal rights, if they become available, or otherwise constitute any legal
or other advice. If you wish to exercise your appraisal rights, you are urged
to contact your legal counsel or advisors. Failure to follow strictly the
procedures set forth in Section 262 will result in a loss of your appraisal
rights. If you lose your appraisal rights, you will be entitled to receive
Newbridge common stock as determined under the merger agreement.
Appraisal rights are available only to the record holder of shares.
References in Section 262 to "stockholders" are to record holders. References
in the summary below to "you" assume that you are a record holder. If you wish
to exercise appraisal rights but have a beneficial interest in shares which are
held of record by or in the name of another person, such as a broker or
nominee, you should act promptly to cause the record holder to follow the
procedures set forth in Section 262 to perfect your appraisal rights.
Section 262 requires Stanford Telecom to notify you, at least 20 days prior
to the special meeting, as to the availability of appraisal rights and to
provide you with a copy of the text of Section 262. This proxy
statement/prospectus, including Appendix 6, serves as the required notice and
text.
To claim your appraisal rights, you must do each of the following:
. deliver to Stanford Telecom prior to the vote on the merger a written
demand for an appraisal of your shares;
. continuously hold your shares from the date you deliver a written demand
for an appraisal through the completion of the merger;
. not vote in favor of the merger agreement; and
. file within 120 days after the effective time of the merger, if Stanford
Telecom does not file within that time, a petition in the Delaware Court
of Chancery demanding a determination of the fair value of your shares.
Stanford Telecom is under no obligation and has no intent to file any
petition.
If you sell or otherwise transfer or dispose of your shares before the
merger is completed, you will lose your appraisal rights with respect to those
shares. If neither any stockholder who has demanded appraisal rights nor
Stanford Telecom has filed a petition in the Delaware Court of Chancery within
120 days after the effective time of the merger, then all stockholders'
appraisal rights will be lost.
Voting against the merger or otherwise failing to vote for the merger will
not by itself constitute a demand for an appraisal or sufficient notice of your
election to exercise your appraisal rights. Any demand for an appraisal must be
in writing, signed and mailed or delivered to:
Stanford Telecommunications, Inc.
1221 Crossman Avenue
Sunnyvale, California 94089
Attention: Secretary
A written demand must reasonably inform Stanford Telecom of the identity of
the stockholder and of the stockholder's intent to demand appraisal of his, her
or its shares of Stanford Telecom common stock.
A demand for appraisal should be signed by or on behalf of the stockholder
exactly as the stockholder's name appears on the stockholder's stock
certificates. If the shares are owned of record in a fiduciary capacity, such
as by a trustee, guardian or custodian, the demand should be executed in that
capacity, and if the shares are owned of record by more than one person, as in
a joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all joint owners. An authorized agent, including one or more joint
owners, may execute a demand for appraisal on behalf of a record holder;
however, in the demand the agent must identify
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<PAGE>
the record owner or owners and expressly disclose that the agent is executing
the demand as an agent for the record owner or owners. A record holder such as
a broker who holds shares as nominee for several beneficial owners may exercise
appraisal rights for the shares held for one or more beneficial owners and not
exercise rights for the shares held for other beneficial owners. In this case,
the written demand should state the number of shares for which appraisal rights
are being demanded. When no number of shares is stated, the demand will be
presumed to cover all shares held of record by the broker or nominee.
If appraisal rights are available, Stanford Telecom will send notice of the
effective time of the merger to each stockholder who has properly demanded
appraisal rights under Section 262 and has not voted in favor of the merger
agreement. Stanford Telecom will send this notice within 10 days after the
effective time of the merger.
If appraisal rights are available and if you have complied with the
requirements for claiming your appraisal rights, then during the 120 days
following the effective time of the merger, you may request from Stanford
Telecom a statement as to the aggregate number of shares not voted in favor of
the merger agreement and with respect to which demands for appraisal have been
received and the number of holders of those shares. Upon any request, which
must be made in writing, Stanford Telecom will mail a statement of that
information to you within 10 days.
If a petition for an appraisal is filed timely, the Delaware Court of
Chancery will hold a hearing on the petition to determine the stockholders
entitled to appraisal rights and the "fair value" of their shares. The
determination of fair value will not include any element of value arising from
the accomplishment or expectation of the merger. The court will also determine
a fair rate of interest, if any, to be paid upon the amount determined to be
the fair value of the shares. The court may determine that the fair value of
the shares is more than, the same as or less than the value of the Newbridge
common stock you would have received under the merger agreement. An investment
banking opinion as to fairness from a financial point of view is not
necessarily an opinion as to fair value under Section 262. The Delaware Supreme
Court has stated that "proof of value by any techniques or methods that are
generally considered acceptable in the financial community and otherwise
admissible in court" should be considered in the appraisal proceedings.
The costs of the action may be determined by the Delaware Court of Chancery
and taxed upon the parties as the court deems equitable in the circumstances.
Upon application of a stockholder, the court may order that all or a portion of
the expenses incurred by any stockholder in an appraisal proceeding, including,
without limitation, reasonable attorneys' fees and the fees and expenses of
experts utilized in the appraisal proceeding, be charged pro rata against the
value of all of the shares entitled to appraisal.
If you have duly demanded an appraisal of your shares, you will not, after
the effective time of the merger, be entitled to vote those shares for any
purpose, nor will you be entitled to the payment of dividends or other
distributions on those shares, except for dividends or other distributions
payable to stockholders as of a record date prior to the effective time of the
merger.
You may withdraw your demand for appraisal of your shares within 60 days
after the effective time of the merger. Any attempt to withdraw your demand
more than 60 days after the effective time of the merger will require the
written approval of Stanford Telecom. Once a petition for appraisal is filed
with the Delaware Court of Chancery, the appraisal proceeding may not be
dismissed without court approval.
If you properly demand appraisal of your shares, but fail to perfect your
appraisal rights, otherwise lose your appraisal rights or effectively withdraw
your demand for an appraisal, your shares will be converted into the right to
receive Newbridge shares as determined under the merger agreement, without
interest.
Newbridge will not be obligated to close the merger if the aggregate number
of shares held by Stanford Telecom stockholders demanding appraisal rights
exceeds 10% of the number of shares of Stanford Telecom common stock issued and
outstanding immediately prior to the effective time of the merger. The legal
opinions as to the tax-free nature of the merger will be based in part on the
assumption that this 10% threshold will not be exceeded. See the discussion
under "--Material United States Federal Income Tax Consequences" above.
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the merger
agreement and the other agreements entered into in connection with the merger
agreement. This summary is qualified in its entirety by reference to the full
text of the merger agreement and the other agreements which are attached as
Appendices 1 through 4 to this document.
The Merger
The merger will close no later than the first business day after
satisfaction or waiver of the conditions to the merger agreement, or on
another date as the parties agree. The merger will become effective upon the
filing of a certificate of merger with the Secretary of State of the State of
Delaware or at a later time as may be agreed to in writing by Newbridge and
Stanford Telecom, as specified in the certificate of merger. The closing date
is expected to be on or about November 16, 1999.
At the effective time:
. Saturn Acquisition Corp. will merge with and into Stanford Telecom;
. the separate corporate existence of Saturn Acquisition Corp. will cease;
and
. Stanford Telecom will be the surviving corporation and a wholly owned
subsidiary of Newbridge.
Any further reference to the surviving corporation in this proxy
statement/prospectus refers to Stanford Telecom following the time the merger
becomes effective.
Conversion of Shares
At the effective time, each outstanding share of Stanford Telecom common
stock will be automatically converted into the right to receive that number of
shares of fully paid and nonassessable Newbridge common stock that equals:
. $30 of Newbridge common stock; plus
. additional Newbridge common stock based on a formula that depends on the
proceeds from the sales of the government and contract manufacturing
businesses (the "contingent value").
The exact number of shares of Newbridge common stock each stockholder will
be entitled to receive for the $30 will be determined using the "Exchange
Ratio." The Exchange Ratio is equal to $30 divided by the average closing
price per share of Newbridge common stock as reported on the New York Stock
Exchange Composite Tape during the ten-day trading period ending on the fifth
trading day immediately preceding the Stanford Telecom special meeting or, if
applicable, any postponement or adjournment of the special meeting (the
"Newbridge Closing Value"), except that if the Newbridge Closing Value is less
than $24, the Exchange Ratio will be 1.25. In that case, Newbridge will have
the option (the "Newbridge Adjustment Option") to adjust the Exchange Ratio to
an amount that exceeds 1.25. The Newbridge Adjustment Option is exercisable by
notice to Stanford Telecom prior to the close of business on the third trading
day prior to the Stanford Telecom special meeting. If the Newbridge Closing
Value falls below $24 and Newbridge does not adjust the Exchange Ratio or does
adjust the Exchange Ratio, but after adjustment the value of Newbridge common
stock to be received is less than $30, then Stanford Telecom may terminate the
merger agreement. See the discussion under "--Termination of the Merger
Agreement" below.
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The exact number of shares of common stock each stockholder will be entitled
to receive for the contingent value will be determined using the "Contingent
Value Ratio." The Contingent Value Ratio is based on a formula which takes into
account the proceeds from the sales of Stanford Telecom's government and
contract manufacturing businesses. The Contingent Value Ratio will be equal to:
B + C - D + E
------------
/V
SS
where,
. B equals the lesser of (a) the pre-tax gross proceeds from the sales of
the government and contract manufacturing businesses and (b) $173
million, minus $102 million;
. C equals 50% of the greater of (a) the pre-tax gross proceeds from the
sales of the government and contract manufacturing businesses minus $173
million and (b) 0;
. D equals 50% of any state and federal income taxes payable on the
proceeds from the sales of the government and contract manufacturing
businesses, based on the applicable tax rates;
. E equals $625,000;
. SS equals the number of shares of Stanford Telecom common stock and
Stanford Telecom stock options issued and outstanding immediately prior
to the effective time of the merger; and
. V equals the greater of (a) the Newbridge Closing Value and (b) $24,
unless Newbridge exercises the Newbridge Adjustment Option, in which
case V equals $30 divided by the Exchange Ratio.
In the event that any consideration from the sales of the government and
contract manufacturing businesses is not in cash or is affected by a
contingency, unless Stanford Telecom and Newbridge have agreed otherwise, the
parties will appoint an independent expert in business valuation to calculate
the net present value of that consideration, and the amount will be included in
the calculation of the proceeds from the sales.
If the sales of the government and contract manufacturing businesses have
not closed prior to the effective time of the merger, the holder of each share
of Stanford Telecom common stock will receive one contingent value right (or
CVR) representing the right to receive Newbridge common stock based on the
Contingent Value Ratio. The CVRs will have the terms set forth in the CVR
Agreement. See the discussion under "--CVR Agreement" below.
As of the effective time, each share of common stock of Saturn Acquisition
Corp. outstanding immediately prior to the effective time will be automatically
converted into one share of Stanford Telecom common stock as the surviving
corporation.
The Exchange Ratio and the Contingent Value Ratio will be adjusted to
reflect the effect of any stock split, reverse stock split, stock dividend
(including any dividend or distribution of securities convertible into
Newbridge common stock or Stanford Telecom common stock), reorganization,
recapitalization or other like change with respect to Newbridge common stock or
Stanford Telecom common stock occurring or having a record date or an effective
date on or after June 22, 1999 and prior to the effective time of the merger.
No fractional shares of Newbridge common stock will be issued. Instead, each
holder of shares of Stanford Telecom common stock who would otherwise be
entitled to a fraction of a share of Newbridge common stock (after aggregating
all fractional shares of Newbridge common stock to be received by the holder)
will receive from Newbridge an amount of cash (rounded down to the nearest
whole cent) equal to the product of (1) the fraction, multiplied by (2) the
closing price per share of Newbridge common stock as reported on the New York
Stock Exchange Composite Tape on the trading day immediately preceding the
effective time of the merger. If CVRs are issued, any fractional shares
otherwise issuable in the merger will be held until the maturity of the CVRs.
The fractional shares will then be aggregated with any fractional shares
issuable with respect to the CVRs in order to issue to the holder the maximum
number of whole shares of Newbridge common stock. The holder will then receive
cash in lieu of any remaining fractional share as described above. See the
discussion under "--CVR Agreement" below.
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Treatment of Stock Options
At the effective time of the merger, Newbridge will, to the fullest extent
permitted by applicable law, assume all options to purchase Stanford Telecom
common stock then outstanding under Stanford Telecom's 1991 Stock Option Plan.
Each Stanford Telecom stock option, whether or not exercisable at the effective
time of the merger, to the extent permitted by applicable law, will be assumed
by Newbridge in a manner so that it will be exercisable after the effective
time of the merger upon substantially the same terms and conditions as under
the Stanford Telecom Stock Option Plan and the applicable stock option
agreement. See the more detailed discussion under "--Employee Benefits" below.
Stock Ownership Following the Merger
Based on the closing price of the Newbridge common stock on September 29,
1999, and assuming the contingent value is $3.75, Newbridge will issue an
aggregate of approximately 18,000,536 shares of Newbridge common stock to
Stanford Telecom stockholders in the merger. Based on the number of shares of
Newbridge common stock issued and outstanding, and after giving effect to the
issuance of Newbridge common stock in the merger, the former holders of
Stanford Telecom common stock would hold, and have voting power with respect to
approximately 9% of Newbridge's total issued and outstanding shares immediately
after the effective time of the merger. Newbridge will assume Stanford Telecom
options outstanding immediately prior to the effective time of the merger.
Assuming the Newbridge common stock price and the contingent value are as
stated above, Newbridge may issue up to approximately 1,822,195 shares of
common stock upon exercise of currently outstanding Stanford Telecom stock
options.
Representations and Warranties
Stanford Telecom, Newbridge and Saturn Acquisition Corp. have made
representations in the merger agreement, relating to, among other things:
. their respective capital structures and organization and similar
corporate matters;
. authorization, execution, delivery and enforceability of the merger
agreement and the related agreements;
. absence of conflicts under their charters and bylaws;
. required consents or approvals;
. no violations of any agreements or law;
. documents filed with the SEC;
. financial statements;
. absence of undisclosed liabilities;
. absence of material adverse events or changes;
. litigation;
. compliance with laws, including those relating to the export or import
of goods or technology; and
. information included in the proxy statement/prospectus.
Stanford Telecom has made additional representations, relating to among
other things:
. capital stock of subsidiaries;
. insurance;
. contracts and commitments;
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. labor matters, including employment and labor contracts;
. requirements regarding government contracts;
. intellectual property matters;
. accounts receivable;
. inventories;
. order backlog;
. product and services warranties;
. tax laws and tax returns;
. employee benefit plans and compliance with applicable laws;
. environmental matters;
. finders' or brokers' fees;
. title to real and personal property; and
. year 2000 compliance.
None of the representations and warranties of Stanford Telecom, Newbridge or
Saturn Acquisition Corp. will survive the effective time of the merger.
Conduct of Stanford Telecom's Business Prior to the Merger
Until the earlier of the termination of the merger agreement or the
effective time of the merger, Stanford Telecom has agreed to:
. conduct its operations according to its ordinary and usual course of
business consistent with past practice;
. use all commercially reasonable efforts to:
-- preserve intact its business organization;
-- keep available the services of its officers and employees in each
business function; and
-- maintain satisfactory relationships with suppliers, distributors,
customers and others with whom it has employment and business
relationships; and
. not take any action which would adversely affect its ability to
consummate the merger or the other transactions contemplated by the
merger agreement.
During the period from the date of the merger agreement until the effective
time of the merger, Stanford Telecom has also agreed that neither it nor any of
its subsidiaries will, without the prior written consent of Newbridge, directly
or indirectly, subject to some exceptions, do any of the following:
. enter into, violate, amend or waive any of the terms of:
-- any agreement relating to the joint development or transfer of
technology or Stanford Telecom intellectual property rights; or
-- any other agreements or contracts, except in the ordinary course of
business and consistent with past practice;
. accept any new or incremental work orders from current customers or
enter into any new contractual obligations with customers other than
Newbridge with respect to Stanford Telecom's wireless broadband and
satellite personal communications products;
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. agree to undertake research and development work for any third party
with a term extending beyond May 31, 2000 with respect to Stanford
Telecom's telecom component products;
. authorize, solicit, propose or enter into any agreement with respect to:
-- any plan of liquidation or dissolution;
-- any acquisition or disposition of a material amount of assets or
securities, any material change in capitalization; or
-- any partnership, association, joint venture, joint development,
technology transfer, or other material business alliance;
. fail to renew, terminate or materially alter any insurance policy naming
it as a beneficiary or a loss payee, except in the ordinary course of
business and consistent with past practice and following written notice
to Newbridge;
. maintain its books and records in a manner other than in the ordinary
course of business and consistent with past practice;
. enter into any hedging, option, derivative or other similar transaction
or any foreign exchange position or contract for the exchange of
currency other than in the ordinary course of business and consistent
with past practice;
. institute any change in its accounting methods;
. pay any material claims or obligations other than the payment of
liabilities in the ordinary course of business and consistent with past
practice, or collect, or accelerate the collection of, any amounts owed
other than the collection in the ordinary course of business;
. split, combine or reclassify any shares of its capital stock;
. issue any capital stock or other options, warrants or rights to purchase
or acquire capital stock or change the terms of any outstanding
securities, except that Stanford Telecom may (1) issue capital stock
upon the exercise of options, warrants or rights outstanding as of June
22, 1999, and (2) accelerate the Stanford Telecom options that are not
to be assumed or substituted with equivalent options or other economic
benefits by Newbridge or by the purchasers of Stanford Telecom's
government and contract manufacturing businesses;
. waive, release, assign, settle or compromise any material claim or
litigation, or commence a lawsuit other than as specifically provided in
the merger agreement;
. make any change or material election with respect to taxes; or
. take or agree to take, any of the specific actions described in the
merger agreement, or any action which would make any of its
representations or warranties contained in the merger agreement untrue
or incorrect or prevent it from performing its covenants under the
merger agreement.
Conduct of Business Following the Merger
Pursuant to the merger, Saturn Acquisition Corp. will merge into Stanford
Telecom and Stanford Telecom will be the surviving corporation. All property,
rights, privileges, powers and franchises of Stanford Telecom and Saturn
Acquisition Corp. will vest in the surviving corporation. All debts,
liabilities and duties of Stanford Telecom and Saturn Acquisition Corp. will
become the debts, liabilities and duties of the surviving corporation. The
surviving corporation will be a wholly owned subsidiary of Newbridge.
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Pursuant to the merger agreement, the certificate of incorporation of
Stanford Telecom in effect immediately prior to the effective time of the
merger will become the certificate of incorporation of the surviving
corporation. The name of the surviving corporation will be "Stanford
Telecommunications, Inc." and the bylaws of Saturn Acquisition Corp. will
become the bylaws of Stanford Telecommunications, Inc. following the effective
time of the merger. The directors of Saturn Acquisition Corp. at the effective
time of the merger will become the initial directors of the surviving
corporation. The officers of Saturn Acquisition Corp. immediately prior to the
effective time of the merger will become the initial officers of the surviving
corporation.
No Solicitation; Board Recommendation
Stanford Telecom has agreed that it will not take specified actions with
respect to an "acquisition proposal" or an "acquisition transaction," except
for actions that may be taken with respect to a "superior proposal."
The term acquisition proposal means any bona fide offer or proposal made by
a third party relating to an acquisition transaction. An acquisition
transaction means any transaction or series of related transactions involving:
. any purchase or acquisition by any third party or any group of persons
who have a total interest of 15% or more of the total outstanding voting
securities of Stanford Telecom or any of its subsidiaries, or any tender
offer or exchange offer that if completed would result in any third
party (or its stockholders) beneficially owning 15% or more of the total
outstanding voting securities of Stanford Telecom or any of its
subsidiaries;
. any merger, consolidation, business combination or similar transaction
involving Stanford Telecom or any of its subsidiaries;
. any sale, lease (other than in the ordinary course of business),
exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of a material portion of the
assets of Stanford Telecom (excluding the assets related to Stanford
Telecom's government and contract manufacturing businesses);
. any liquidation or dissolution of Stanford Telecom; or
. the acquisition (or potential acquisition) by a third party of control
of the Stanford Telecom board of directors or the election or
appointment of nominees of a third party (or the ability of a third
party to elect or appoint its nominees) to a majority of the seats on
the Stanford Telecom board of directors.
The term superior proposal means any bona fide acquisition proposal made in
writing and not initiated, solicited or encouraged in violation of the merger
agreement which is:
. on terms which the Stanford Telecom board of directors determines in
good faith to be more favorable to Stanford Telecom and its stockholders
or to its stockholders than the merger, after receiving written advice
from its financial advisor that the consideration in the proposal is
superior to the value of the merger consideration; and
. reasonably capable of being financed by the potential acquirer.
Specifically, Stanford Telecom has agreed that it and its subsidiaries will
not, nor will they authorize or permit any of their officers, directors,
affiliates, agents, employees, or any investment banker, attorney or other
advisor retained by any of them to, directly or indirectly:
. solicit, initiate, encourage or induce the making, submission or
announcement of any acquisition proposal;
. participate in any discussions or negotiations, or furnish any non-
public information regarding an acquisition proposal, or take any other
action to facilitate any inquiry or proposal which is or may reasonably
be expected to lead to an acquisition proposal;
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. engage in discussions regarding an acquisition proposal;
. approve, endorse or recommend any acquisition proposal; or
. enter into any agreement, letter of intent or similar document relating
to any acquisition transaction.
Stanford Telecom and the Stanford Telecom board of directors may:
. participate in discussions or negotiations with or furnish non-public
information to any third party that has made an unsolicited acquisition
proposal; and
. approve or accept an unsolicited acquisition proposal; but only if, in
each case, the Stanford Telecom board of directors first:
-- determines in good faith, after receiving written advice from its
financial advisor, that the acquisition proposal is a superior
proposal; and
-- determines in good faith, after consultation with outside legal
counsel, that the failure to participate in the discussions or
negotiations, or to furnish the information, or approve or accept
that acquisition proposal, would violate the Stanford Telecom board
of directors' fiduciary duties under applicable law.
In addition, Stanford Telecom has agreed to, within 24 hours, inform
Newbridge orally and in writing if Stanford Telecom receives an acquisition
proposal, or is asked to provide non-public information or receives an inquiry
which it reasonably believes would lead to an acquisition proposal. In each
case, Stanford Telecom has also agreed to furnish to Newbridge the identity of
the person making the proposal and/or inquiry and the material terms of the
third party's proposal, request or inquiry and to keep Newbridge informed of
the status of the proposal, request or inquiry.
The Stanford Telecom board of directors is required to unanimously recommend
the adoption and approval of the merger agreement and approval of the merger to
the Stanford Telecom stockholders. Neither the Stanford Telecom board of
directors, nor any board committee, may withdraw, amend or modify, or propose
or resolve to withdraw, amend or modify the unanimous recommendation of the
Stanford Telecom board of directors to the Stanford Telecom stockholders in a
manner than is adverse to Newbridge unless:
. a superior proposal is made to Stanford Telecom and not withdrawn;
. Stanford Telecom gives Newbridge written notice of the superior proposal
specifying the material terms and conditions of the proposal and
identifying the person or entity making the proposal;
. Newbridge has not, within five business days of its receipt of notice of
the superior proposal, made an offer that the Stanford Telecom board of
directors, by a majority vote, determines in good faith, on the basis of
the written advice of its financial advisor, to be at least as favorable
to the Stanford Telecom stockholders as the superior proposal;
. the Stanford Telecom board of directors, determines in good faith, after
consultation with outside counsel, that the recommendation to approve
the merger would violate its fiduciary obligations to the Stanford
Telecom stockholders under applicable law; and
. Stanford Telecom has not violated its non-solicitation obligations under
the merger agreement.
For the purposes of the merger agreement, the recommendation of the Stanford
Telecom board of directors will be modified in a manner adverse to Newbridge if
the recommendation is no longer unanimous. An action by the Stanford Telecom
board of directors or any committee is unanimous if each member of the board of
directors or committee has approved the action other than (1) any member who
has appropriately abstained from voting because of a potential conflict of
interest and (2) any member who is unable to vote in connection as a result of
death or disability.
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Additional Covenants
In connection with the merger, Stanford Telecom has agreed to:
. use its best efforts to sell the government and contract manufacturing
businesses for minimum after-tax net cash proceeds of not less than $102
million; and
. use all commercially reasonable efforts to amend any of its existing
agreements that would give a third party Stanford Telecom intellectual
property rights as a result of the merger.
In connection with the merger, Stanford Telecom and Newbridge have agreed to
use all commercially reasonable efforts to enter into a transitional contract
manufacturing agreement with the purchaser of Stanford Telecom's contract
manufacturing facility.
The merger agreement also contains other covenants, including obtaining
necessary consents for the merger, cooperation of the parties with respect to
any governmental filings or applications, making public announcements and
obtaining affiliates' agreements.
Conditions to the Merger
The respective obligations of Stanford Telecom, Newbridge, and Saturn
Acquisition Corp. to complete the merger are subject to the fulfillment or
waiver of the following conditions on or before the effective time of the
merger:
. the registration statement covering the Newbridge stock is effective and
not subject to any stop order or proceedings seeking a stop order;
. Stanford Telecom stockholders approve and adopt the merger agreement and
the merger;
. the Newbridge common stock issuable in connection with the merger is
approved for listing subject to official notice of issuance on the New
York Stock Exchange and approved for listing subject to the satisfaction
of customary conditions on the Toronto Stock Exchange;
. the waiting periods applicable to consummation of the merger under the
Hart-Scott-Rodino Act and Exon-Florio Amendment have expired or been
terminated, and all similar governmental requirements, authorizations,
consents, filings or expiration of waiting periods have been obtained or
complied with other than those which would not be reasonably likely to
have a material adverse effect on Stanford Telecom or Newbridge; and
. no writ, order, temporary restraining order, preliminary injunction or
injunction has been enacted, entered into, promulgated or enforced by
any court or other tribunal or governmental body or authority, which
remains in effect, and prohibits the consummation of the merger or
otherwise makes it illegal, nor will any governmental agency have
instituted any action, suit or proceeding which remains pending and
which seeks, and which is reasonably likely, to enjoin, restrain or
prohibit the consummation of the merger in accordance with the terms of
the merger agreement.
In addition, the obligations of Stanford Telecom to effect the merger are
subject to the fulfillment of the following conditions on or before the
effective time of the merger, any one of which may be waived by Stanford
Telecom:
. the representations and warranties of Newbridge and Saturn Acquisition
Corp. in the merger agreement are true and correct in all material
respects, at the effective time of the merger, with the same force and
effect as if made at the effective time of the merger except:
--for changes specifically permitted by the merger agreement;
-- that the accuracy of the representations and warranties that by
their terms speak as of the date of the merger agreement or some
other date will be determined as of that date; and
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-- for those inaccuracies as, in the aggregate, would not reasonably be
expected to have a material adverse effect on Newbridge;
. Newbridge and Saturn Acquisition Corp. have performed and complied in
all material respects with all agreements, obligations and conditions
required to be performed or complied with by them on or prior to the
closing date of the merger;
. Newbridge and Saturn Acquisition Corp. have furnished certificates of
their respective officers to evidence compliance with the conditions set
forth in the merger agreement;
. Stanford Telecom has received an opinion of Thelen Reid & Priest LLP
substantially to the effect that:
-- the merger will be treated as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code;
-- each of Newbridge, Saturn Acquisition Corp. and Stanford Telecom
will be a party to the reorganization under Section 368(b) of the
Internal Revenue Code;
-- except with respect to cash received in lieu of fractional share
interests in Newbridge common stock, no gain or loss will be
recognized, for United States federal income tax purposes, by a
stockholder of Stanford Telecom as a result of the merger with
respect to the shares of Stanford Telecom common stock converted
into Newbridge common stock; and
. if the sales of the government and contract manufacturing businesses
have not closed on or prior to the effective time of the merger,
Newbridge and a rights agent have executed the CVR Agreement.
In addition, the obligations of Newbridge and Saturn Acquisition Corp. to
effect the merger are subject to the fulfillment of the following conditions on
or before the effective time of the merger, any one of which may be waived by
Newbridge:
. the representations and warranties of Stanford Telecom contained in the
merger agreement are true and correct in all material respects at the
effective time of the merger, with the same force and effect as if made
at the effective time of the merger except:
-- for changes related to the balance sheets or assets of the
government and contract manufacturing businesses;
-- for changes in the prospects of a personal satellite communication
system being developed by a third party;
-- for other changes specifically permitted by the merger agreement;
-- that the accuracy of the representations and warranties that by
their terms speak as of the date of the merger agreement or some
other date will be determined as of that date; and
-- for those inaccuracies as, in the aggregate, would not reasonably be
expected to have a material adverse effect on Stanford Telecom;
. Stanford Telecom has performed and complied in all material respects
with all agreements, obligations and conditions required by the merger
agreement to be performed or complied with by it on or prior to the date
of the closing of the merger;
. Stanford Telecom has furnished officers' certificates that evidence the
accuracy of all representations and warranties made by Stanford Telecom
and that evidence performance and compliance with Stanford Telecom's
obligations and conditions in the merger agreement;
. Newbridge and Saturn Acquisition Corp. will have received an opinion of
Heller Ehrman White & McAuliffe substantially to the effect that:
-- the merger will be treated as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code;
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-- each of Newbridge, Saturn Acquisition Corp. and Stanford Telecom
will be a party to the reorganization under Section 368(b) of the
Internal Revenue Code; and
-- except with respect to cash received in lieu of fractional share
interests in Newbridge common stock, no gain or loss will be
recognized, for United States federal income tax purposes, by a
stockholder of Stanford Telecom as a result of the merger with
respect to the shares of Stanford Telecom common stock converted
into Newbridge common stock;
. any consents, approvals, notifications, disclosures, filings and
registrations listed in the Stanford Telecom disclosure statement have
been obtained or made;
. Stanford Telecom has entered into binding agreements reasonably
acceptable to Newbridge with respect to the sales of the government and
contract manufacturing businesses for an aggregate purchase price
resulting in the after-tax net cash proceeds to Stanford Telecom of not
less than $102 million;
. Stanford Telecom has delivered to Newbridge a statement that the
interest in Stanford Telecom is not a United States real property
interest as contemplated by Section 1.1445-2(c)(3) of the regulations
promulgated under the Internal Revenue Code;
. Stanford Telecom has entered into employment agreements or arrangements
satisfactory to Newbridge with certain Stanford Telecom employees;
. Stanford Telecom has delivered to Newbridge the resignations of
directors and officers of Stanford Telecom and its subsidiaries
specified by Newbridge;
. the aggregate number of shares of Stanford Telecom common stock
demanding appraisal rights under Section 262 of the Delaware Law does
not exceed 10% of the outstanding Stanford Telecom common stock
immediately prior to the effective time of the merger; and
. no material adverse change, event or effect with respect to Stanford
Telecom or its subsidiaries will have occurred, except for changes
specifically permitted by the merger agreement.
If the sale of the government business assets is not approved by the
Stanford Telecom stockholders or if the sale of the government business assets
has not closed prior to the merger, the merger will be completed and Newbridge
will effect the sale of the government business assets after the merger.
Termination of the Merger Agreement
The merger agreement provides that it may be terminated at any time prior to
the effective time of the merger, whether before or after approval of the
merger by the stockholders of Stanford Telecom:
. by mutual written consent of the board of directors of each of
Newbridge, Saturn Acquisition Corp. and Stanford Telecom;
. by either Newbridge or Stanford Telecom if the merger has not closed by
January 31, 2000 (provided that the right to terminate will not be
available to any party whose action or failure to act has proximately
contributed to the failure to close the merger by January 31, 2000 and
the action or failure to act constitutes a material breach of the merger
agreement);
. by either Newbridge or Stanford Telecom if:
-- a statute, rule, regulation or executive order has been enacted,
entered or promulgated prohibiting the consummation of the merger
substantially on the terms contemplated by the merger agreement; or
-- a court of competent jurisdiction or other governmental entity has
issued a final and non-appealable order, decree, ruling or
injunction, or taken any other final and non-appealable action, that
permanently restrains, enjoins or otherwise prohibits the merger
(provided that the party exercising the right to terminate has used
its reasonable best efforts to remove that order, decree, ruling or
injunction);
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. by either Stanford Telecom or Newbridge if the required approval of the
merger by the Stanford Telecom stockholders has not been obtained at the
Stanford Telecom special meeting; provided, however, that the right to
terminate will not be available to Stanford Telecom where:
-- Stanford Telecom has breached in any material respect its
obligations under the merger agreement in any manner that will have
proximately contributed to the failure to obtain stockholder
approval; or
-- the failure was caused by a breach of any voting agreement by a
party other than Newbridge;
.by Newbridge if any of the following Stanford Telecom "triggering events"
occur:
-- the Stanford Telecom board of directors or any board committee
withdraws or modifies in a manner adverse to Newbridge its unanimous
recommendation in favor of the adoption and approval of the merger
agreement and the merger;
-- Stanford Telecom has not included or maintained in the proxy
statement/prospectus the unanimous recommendation of the Stanford
Telecom board of directors in favor of the adoption and approval of
the merger agreement and the merger;
-- the Stanford Telecom board of directors has not reaffirmed its
unanimous recommendation in favor of the adoption and approval of
the merger agreement and the merger within five days after Newbridge
requests in writing that the recommendation be reaffirmed;
-- the Stanford Telecom board of directors or any committee has failed
to reject any acquisition proposal;
-- Stanford Telecom has entered into any letter of intent or agreement
contemplating or relating to an acquisition proposal;
-- subject to Stanford Telecom's ability under the merger agreement to
adjourn or postpone the Stanford Telecom special meeting, Stanford
Telecom has failed to hold the special meeting within 45 days of the
effectiveness of the registration statement;
-- a tender or exchange offer relating to Stanford Telecom securities
is commenced by a third party and Stanford Telecom has not sent or
given to its stockholders pursuant to Rule 14e-2 under the
Securities Act, within ten business days after the publication of
the offer, a statement disclosing that the Stanford Telecom board of
directors recommends rejection of the tender or exchange offer; or
-- Stanford Telecom has breached its non-solicitation obligations under
the merger agreement;
. by Stanford Telecom if:
-- the Newbridge Closing Value is less than $24 per share;
-- Newbridge does not exercise the Newbridge Adjustment Option, or if
after Newbridge exercises that option, the Exchange Ratio is still
less than $30 divided by the Newbridge Closing Value; and
-- Stanford Telecom delivers a written termination notice prior to the
close of business on the day immediately preceding the Stanford
Telecom special meeting;
. by Newbridge or Stanford Telecom upon breach by the other party of its
representations or warranties in a manner that the closing conditions
have not been met, if that breach has not been cured within 30 days
after notice of the breach has been received by the party allegedly in
breach; provided that neither party may terminate the agreement if it
has breached in any material respect its obligations under the merger
agreement in any manner that proximately caused the breach by the other
party.
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Fees, Expenses and Termination Fees
Except as set forth below, all fees and expenses incurred in connection with
the merger agreement and the merger will be paid by the party that incurs them.
Newbridge and Stanford Telecom will share equally all fees and expenses, other
than attorneys' and accountants' fees and expenses, incurred in relation to the
printing and filing fees paid in connection with the filing of this proxy
statement/prospectus and the registration statement and the costs of printing
and mailing this proxy statement/prospectus.
Stanford Telecom has agreed to pay Newbridge a nonrefundable termination fee
of $25 million if:
. Newbridge terminates the merger agreement because a Stanford Telecom
triggering event has occurred; or
. Newbridge or Stanford Telecom terminates the merger agreement because
either the merger has not been completed by January 31, 2000 or the
Stanford Telecom stockholders have not approved the merger agreement and
the merger at the Stanford Telecom special meeting; and
-- prior to the termination, a third party has publicly announced an
acquisition proposal; and
-- within 12 months following the termination, Stanford Telecom
executes an agreement providing for an acquisition transaction or an
acquisition transaction has been completed.
If the termination fee is payable because of a triggering event, Stanford
Telecom will pay the fee within 10 business days of termination of the merger
agreement. If the termination fee is payable because the merger has not been
completed by January 31, 2000 or the Stanford Telecom stockholders do not
approve the merger agreement, Stanford Telecom will pay the fee within 10
business days of the execution of an agreement providing for, or consummation
of, the acquisition transaction.
If Newbridge terminates the merger agreement because the Stanford Telecom
stockholders do not approve the merger agreement and the merger and Stanford
Telecom is not obligated to pay Newbridge the $25 million termination fee,
Stanford Telecom will reimburse Newbridge for all documented expenses incurred
by Newbridge in connection with the merger no later than July 7, 2000.
If Newbridge terminates the merger agreement because Stanford Telecom
breaches any of its representations, warranties in a manner that the closing
conditions have not been met and Stanford Telecom is not obligated to pay
Newbridge the $25 million termination fee, Stanford Telecom will reimburse
Newbridge for all documented expenses incurred by Newbridge in connection with
the merger agreement no later than 10 business days after the date of
termination.
Employee Benefits
Stock Options. At the effective time of the merger, to the full extent
permitted by applicable law, Newbridge will assume all of the outstanding
Stanford Telecom stock options whether or not the options are exercisable. Each
stock option assumed will continue to have and be subject to substantially the
same terms and conditions as under the Stanford Telecom stock plan under which
the stock option was granted except that:
. if the sales of the government and contract manufacturing businesses
have closed on or prior to the effective time of the merger:
-- each Stanford Telecom option will be exercisable for the number of
whole shares of Newbridge common stock equal to the product obtained
from multiplying the number of shares of Stanford Telecom common
stock covered by the option immediately prior to the effective time
by the sum of the Exchange Ratio and the Contingent Value Ratio,
rounded down to the nearest whole share; and
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-- the option price per share of Newbridge common stock will be equal
to the quotient obtained from dividing the option price per share of
Stanford Telecom common stock subject to the option in effect
immediately prior to the effective time by the sum of the Exchange
Ratio and the Contingent Value Ratio, rounded up to the nearest
whole cent; and
. if the sales of the government and contract manufacturing businesses
have not closed on or prior to the effective time of the merger, CVRs
are issued and a Stanford Telecom option is exercised on or prior to the
maturity date of the CVRs:
-- each Stanford Telecom option will be exercisable for the number of
shares of Newbridge common stock equal to the product obtained from
multiplying the number of shares of Stanford Telecom common stock
covered by the option immediately prior to the effective time by the
Exchange Ratio, rounded down to the nearest whole share, plus the
number of CVRs equal to the number of shares of Stanford Telecom
common stock covered by the option immediately prior to the
effective time; and
-- the option price will be equal to the quotient obtained from
dividing the option price per share of Stanford Telecom common stock
subject to the option immediately prior to the effective time by the
Exchange Ratio, rounded up to the nearest whole cent;
. if the sales of the government and contract manufacturing businesses
have not closed on or prior to the effective time of the merger, CVRs
are issued and a Stanford Telecom option is exercised after the maturity
date of the CVRs:
-- each Stanford Telecom option will be exercisable for the number of
whole shares of Newbridge common stock equal to the product obtained
from multiplying the number of shares of Stanford Telecom common
stock covered by the option immediately prior to the effective time
by the sum of the Exchange Ratio and the Contingent Value Ratio,
rounded down to the nearest whole share; and
-- the option price per share of Newbridge common stock will be equal
to the quotient obtained from dividing the option price per share of
Stanford Telecom common stock subject to the option in effect
immediately prior to the effective time by the sum of the Exchange
Ratio and the Contingent Value Ratio, rounded up to the nearest
whole cent.
Newbridge will file a registration statement on Form S-8 or other
appropriate form under the Securities Act covering the shares of Newbridge
common stock issuable upon exercise of the options assumed in the merger not
later than ten business days after the effective time of the merger.
In addition, Newbridge and Stanford Telecom have agreed to use all
commercially reasonable efforts to have the purchasers of the government and
contract manufacturing businesses assume or substitute equivalent options (or
equivalent economic benefits) for stock options which will not qualify for
accelerated vesting under Stanford Telecom's 1991 Stock Option Plan. If these
options are not assumed or substituted by the purchasers, Stanford Telecom may
accelerate the vesting of these options.
Employee Stock Purchase Plan. Stanford Telecom's 1992 Employee Stock
Purchase Plan will terminate following the purchase of shares on September 30,
1999 for the participation period that began on July 2, 1999. All funds
contributed to the 1992 Stock Purchase Plan that are not used to purchase
shares of Stanford Telecom common stock on the termination date of the 1992
Stock Purchase Plan will be returned to the Stanford Telecom employees after
the termination date in accordance with the 1992 Stock Purchase Plan.
Other Benefit Plans. Contributions under Stanford Telecom's 401(k) plan will
continue in accordance with past practice up to and including the closing date
of the merger. Payments to employees under Stanford Telecoms profit sharing
program and Stanford Telecom's management incentive plan will continue up to
and including the closing date of the merger in accordance with practice.
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Severance. Executive officers of Stanford Telecom who resign at Newbridge's
request or are terminated on or within 90 days of the effective time of the
merger will be paid severance equal to one year's base salary. Other Stanford
Telecom employees who are terminated on or within 90 days of the effective time
of the merger will be paid severance equal to the greater of one month's salary
or one month's salary for every two years of employment, prorated for partial
years.
CVR Agreement
If the sales of the government and contract manufacturing businesses do not
close on or before the effective time of the merger, Newbridge and a rights
agent will enter into a contingent value rights agreement (the "CVR
Agreement"). The following is a brief summary of the material terms of the CVR
Agreement, a form of which is attached as Appendix 2 to this proxy
statement/prospectus and incorporated herein by this reference. This summary is
qualified in its entirety by reference to the CVR Agreement. Stanford Telecom
stockholders are urged to read the CVR Agreement in its entirety for a more
complete description of the rights and obligations of the parties under the CVR
Agreement.
The CVRs will mature at the close of business on the earlier to occur of:
. the date on which Stanford Telecom completes the sales of the government
and contract manufacturing businesses; and
. May 31, 2000.
The number of shares of Newbridge common stock issuable per CVR upon the
maturity date will be a fraction of a share of Newbridge common stock as is
determined by using a formula based on the proceeds of the sales of the
government and contract manufacturing businesses that is substantially the same
as the formula used to determine the Contingent Value Ratio.
If the maturity date is May 31, 2000, Newbridge will be required to include
in the calculation of the proceeds from the sales of the government and
contract manufacturing businesses an amount equal to: (1) the sales price for
any of these assets specified in a binding contract in effect on the maturity
date or (2) the fair cash value of the most recent bona fide offer to purchase
any of these assets as determined by an independent expert in business
valuation familiar with Stanford Telecom's government and contract
manufacturing businesses. If clauses (1) or (2) do not apply, then the proceeds
from the sales of the government and contract manufacturing businesses will be
equal to the amounts received from any sales which are completed on or prior to
the maturity date.
On the maturity date, or as soon as practicable after that date, but in no
event later than (1) ten business days after the maturity date or (2) if an
independent expert in business valuation is appointed to give an appraisal as
described above, ten business days after receipt of the appraisal, Newbridge
will deliver a notice to the rights agent setting forth the number of shares of
common stock, if any, issuable per CVR. The rights agent will then deliver, to
each record holder of CVRs, stock certificates representing that number of
shares due to each holder and cash in lieu of fractional shares as the holder
may be entitled. Any Newbridge shares issued upon payment in respect of CVRs
will be deemed to have been issued as of the close of business on the maturity
date, and the CVRs will be deemed to have been canceled at that time; except if
the maturity date is a date on which the stock transfer books of Newbridge are
closed, the shares will be deemed to have been issued on the next business day
on which the stock transfer books of Newbridge are open.
Any fractional share of common stock issuable to a CVR holder will be
aggregated with any fractional share issuable to the holder at the effective
time of the merger in order to issue to the holder the maximum number of whole
shares of Newbridge common stock. The holder will receive cash in lieu of any
remaining fractional share as described in the merger agreement. The number of
shares of Newbridge common stock issuable per CVR is subject to adjustment for
stock dividends, stock splits, and combinations. In addition, in the event of a
reorganization, reclassification of Newbridge common stock, any consolidation
or merger of Newbridge with another person, or any sale, lease or transfer of
all or substantially all of the assets of Newbridge prior to the maturity date,
if the transaction is effected so that Newbridge common stockholders
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receive solely voting stock of Newbridge, then the holder of each CVR will be
entitled to receive the number of shares of Newbridge voting stock that would
have been payable with respect to the stock represented by each CVR if the
transaction had not occurred, calculated by equating the fair market value of
the stock represented by the CVR with the fair market value of the
consideration paid in the transaction. If the consideration received in any
transaction is not solely voting stock of Newbridge, then prior to the
transaction, Newbridge will appoint an independent expert in valuation, and
each CVR holder will receive that number of shares represented by that holder's
CVRs as determined by the expert.
The CVRs, and any interest in the CVRs, cannot be sold, transferred or
assigned other than by will or pursuant to the laws of descent and
distribution. The CVRs and Newbridge common stock issuable in payment of the
CVRs have been registered under the Securities Act. The holder of any CVR will
not, by virtue thereof, be entitled to any rights of a stockholder of
Newbridge, either at law or in equity, and the rights of the holder are limited
to those expressed in the CVR Agreement.
Technology License Option Agreement
Stanford Telecom has granted Newbridge an option to acquire a license to its
intellectual property to make and distribute wireless broadband products upon
the terms and subject to the conditions set forth in the Technology License
Option Agreement. The following is a brief summary of the material terms of the
Technology License Option Agreement, which is attached as Appendix 3 to this
proxy statement/prospectus and incorporated herein by this reference. This
summary is qualified in its entirety by reference to the Technology License
Option Agreement.
The option is exercisable by Newbridge at an exercise price of $69 million
at any time after a change in control of Stanford Telecom. A change in control
means the occurrence of an acquisition transaction, except that a spin-off of
Stanford Telecoms wireless broadband products business through a distribution
to Stanford Telecom stockholders will not constitute an acquisition
transaction, unless subsequent to the spin-off and during the period the option
is still exercisable, an acquisition transaction occurs involving the new
company conducting the wireless broadband products business.
The option will continue to be exercisable until the earliest of:
. May 24, 2001;
. nine months after the termination of the merger agreement by Newbridge
if the agreement has been terminated because Stanford Telecom has
breached any of its representations or warranties;
. twelve months after the termination of the merger agreement by either
Newbridge or Stanford Telecom if the merger has:
-- not been completed by January 31, 2000;
-- been prohibited by statute, regulation or executive order; or
-- been permanently prohibited by an order of a government entity or
court; and
. the date of termination of the merger agreement by Stanford Telecom if
the agreement is terminated because:
-- the Newbridge Closing Value is less than $24 per share and Newbridge
has not exercised the Newbridge Adjustment Option or the Exchange
Ratio is still less than $30 divided by the Newbridge Closing Value;
or
-- because Newbridge or Saturn Acquisition Corp. has breached any of
its representations or warranties.
Upon Newbridge's exercise of the option, Stanford Telecom will grant to
Newbridge an irrevocable, perpetual, nonexclusive, nontransferable and royalty-
free license to its intellectual property necessary to make, have made, import,
use, sell and have sold wireless broadband products. Newbridge may sublicense
its rights to its affiliates, third party OEMs and end users of the products.
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Stock Option Agreement
In connection with the merger, Stanford Telecom has granted to Newbridge an
irrevocable option to acquire a number of shares of Stanford Telecom common
stock equal to 19.9% of the issued and outstanding Stanford Telecom shares as
of the first date the option becomes exercisable. The following is a brief
summary of the material terms of the stock option agreement, which is attached
as Appendix 4 to this proxy statement/prospectus and incorporated herein by
this reference. This summary is qualified in its entirety by reference to the
stock option agreement.
Newbridge may exercise the option at any time after the occurrence of one of
the following exercise events:
. triggering event; or
. the public announcement of an acquisition proposal.
The option is exercisable at a purchase price of $35 per share and will
expire upon the earliest of:
. the effective time of the merger;
. the termination of the merger agreement if no exercise event has
occurred and the merger agreement is terminated:
-- by the mutual consent of Newbridge, Saturn Acquisition Corp. and
Stanford Telecom;
-- as a result of a governmental order or decree;
-- because the Newbridge Closing Value is less than $24 per share and
Newbridge has not exercised the Newbridge Adjustment Option or the
Exchange Ratio is still less than $30 divided by the Newbridge
Closing Value; or
-- due to the breach of representations or warranties by either party;
or
. 18 months following termination of the merger agreement for any other
reason.
If Newbridge acquires the option shares and the proceeds from any sale of,
or dividend on, the option shares, plus any termination fee received by
Newbridge under the merger agreement exceeds the sum of (1) $25 million plus
(2) the exercise price of the option shares purchased by Newbridge, then all
proceeds in excess of that aggregate amount will be repaid by Newbridge to
Stanford Telecom.
Upon notice (the "Put Notice") by Newbridge during the period in which the
option is exercisable, if Stanford Telecom consummates an acquisition
transaction or enters into an agreement providing for an acquisition
transaction, Stanford Telecom, or any successor entity, will purchase:
. the options not exercised by Newbridge at a per share price equal to the
difference between the Market/Tender Offer Price (as defined in the
stock option agreement) and $35 as of the date of the Put Notice; and
. any option shares acquired by Newbridge at a per share price equal to
(1) the exercise price paid by Newbridge for the option shares plus (2)
the difference between the Market/Tender Offer Price and $35.
If Newbridge acquires option shares and neither (1) an acquisition
transaction has been completed within 18 months after the termination of the
merger agreement nor (2) has Stanford Telecom entered into an agreement which
remains in effect at the end of the 18-month period, then Stanford Telecom may
repurchase any option shares held by Newbridge at $35 per share.
Following the termination of the merger agreement, Newbridge may require
Stanford Telecom to register under the Securities Act all or any part of the
option shares acquired by Newbridge under the stock option agreement.
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Resale Restrictions; Affiliates' Agreements
United States. All shares of Newbridge common stock received by Stanford
Telecom stockholders in the merger have been registered under the Securities
Act of 1933 and will be freely transferable in the United States, except that
shares of Newbridge common stock received by persons who are deemed to be
"affiliates" (as that term is defined under the Securities Act) of Stanford
Telecom at the time of the special meeting, or affiliates of Newbridge after
the merger, may be resold by them only in transactions permitted by the resale
provisions of Rule 145 promulgated under the Securities Act or as otherwise
permitted under the Securities Act. Persons who may be deemed to be affiliates
of Stanford Telecom or Newbridge generally include individuals or entities that
control, are controlled by, or are under common control with, that party and
may include certain officers and directors of that party as well as principal
stockholders of that party.
The merger agreement requires Stanford Telecom to use commercially
reasonable efforts to cause each of its affiliates to execute a written
affiliates' agreement to the effect that person will not sell, transfer, or
otherwise dispose of any of the shares of Newbridge common stock issued to that
person in or pursuant to the merger unless:
. the sale, transfer or other disposition has been registered under the
Securities Act;
. the sale, transfer or other disposition is made in conformity with Rule
145 under the Securities Act;
. the limitations imposed by Rule 145 no longer apply; or
. in the opinion of counsel the sale, transfer or other disposition is
exempt from registration under the Securities Act.
Canada. If Stanford Telecom's share register lists a significant number of
Stanford Telecom stockholders with addresses in Canada, Newbridge will apply
for orders and rulings from the various securities commissions and regulatory
authorities in the provinces of Canada, if and where required, to the effect
that the Newbridge common stock issued to Stanford Telecom stockholders in
Canada in connection with the merger will be exempt from the registration and
prospectus requirements of applicable Canadian securities laws.
The shares of Newbridge common stock issuable to Stanford Telecom
stockholders in the merger may be resold without restriction in Ontario through
the Toronto Stock Exchange or otherwise by the holders provided the following
conditions (among others) are met at the time of the transaction:
. the selling stockholder does not hold (alone or in combination with
others) more than 20% of the outstanding voting securities of Newbridge
and does not otherwise hold a sufficient number of any securities of
Newbridge to affect materially the control of Newbridge;
. if the selling stockholder is in a "special relationship" (as defined
below) with Newbridge, the selling stockholder has reasonable grounds to
believe that Newbridge is not in default of any requirement under
applicable Canadian securities laws;
. certain disclosures are made to the applicable Canadian securities
regulatory authorities (which Newbridge intends to make);
. no unusual effort is made to prepare the market or to create a demand
for the stock; and
. no extraordinary commission or consideration is paid in respect of the
resale.
A selling stockholder is in a special relationship with Newbridge if, among
other things, the selling stockholder is:
. a director, officer or employee of Newbridge;
. a director or senior officer of a subsidiary of Newbridge, including the
surviving corporation; or
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. a person or corporation who beneficially owns, directly or indirectly,
or exercises control or direction over, voting securities carrying more
than 10% of the voting rights attached to all voting securities of
Newbridge, or a director or senior officer of such corporation.
The Voting Agreements
Each of Michael Berberian, Leonard Schuchman, Dr. James J. Spilker, Jr. and
Dr. Val P. Peline, directors of Stanford Telecom, and Gary S. Wolf and Dr. John
E. Ohlson, officers of Stanford Telecom, has entered into a voting agreement
with Newbridge. As of the record date, these individuals own an aggregate of
2,585,515 shares of Stanford Telecom common stock, representing approximately
19.5% of the votes entitled to be cast by the holders of Stanford Telecom
common stock issued and outstanding as of the record date.
Pursuant to the voting agreements, each of the Stanford Telecom directors
and/or officers, in his capacity as a stockholder, has agreed to vote his
shares of Stanford Telecom common stock in favor of adoption of the merger
agreement and approval of the other actions contemplated by the merger
agreement. Each of the directors and/or officers has further agreed not to take
any action which would cause Stanford Telecom to directly or indirectly violate
its non-solicitation obligations under the merger agreement. Each of the
directors and/or officers has also agreed not to directly or indirectly take
any other action that would make any of his representations or warranties
contained in the voting agreement untrue or incorrect.
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PROPOSAL NO. 2--SALE OF THE GOVERNMENT BUSINESS ASSETS
You are being asked to approve the sale of Stanford Telecom's government
business assets to a third party. The government business accounted for 71.3%
of Stanford Telecom's revenues in fiscal 1998 and 74.6% in fiscal 1999. The
contingent value you will receive in connection with the merger will vary
depending on the proceeds of the sales of the government and contract
manufacturing businesses, the taxes to be paid on the proceeds and the number
of Stanford Telecom options that Newbridge assumes.
Stanford Telecom has entered into an agreement with ITT Industries, Inc. to
sell to ITT Industries the government business assets for approximately $191
million. This agreement is subject to a number of conditions. As a result, we
cannot assure you that the sale to ITT Industries will be completed or that it
will be completed at this price. If we do not sell the government business
assets to ITT Industries, we will seek to sell the government business assets
to another party. Approval of the proposal for the sale of the government
business assets to a third party will also constitute approval of the sale to
ITT Industries.
If the Stanford Telecom stockholders do not approve the sale of the
government business assets or if the sale of the government business assets has
not been completed prior to the merger, the merger will be completed and
Newbridge will effect the sale of the government business assets after the
merger. Stanford Telecom does not intend to sell the government business assets
if the merger with Newbridge is not approved by its stockholders and completed
under the terms of the merger agreement.
Background of the Sale of the Government Business Assets
In May 1999, CIBC World Markets Corp., on behalf of Newbridge, began working
with Stanford Telecom to provide assistance in identifying purchasers and
facilitating the sales of Stanford Telecom's government and contract
manufacturing businesses. A confidential offering memorandum describing the
government business was prepared for distribution to potential purchasers.
In May 1999, more than 40 potential purchasers were contacted in connection
with the sale of the government business assets. Thirty-six of those contacted
signed confidentiality agreements with Stanford Telecom and were provided with
copies of the offering memorandum.
Potential purchasers were asked to submit non-binding indications of
interest. Stanford Telecom received indications of interest from 11 potential
purchasers for the government business assets by July 12, 1999. Of the
interested parties, a limited number of parties were invited to continue in the
sale process and begin due diligence review of the government business assets.
On July 23, 1999, Stanford Telecom provided each potential purchaser of the
government business assets with a draft agreement and bidding procedures for
the transaction.
Stanford Telecom received three final bids from potential purchasers on
August 6, 1999. From August 9 to August 18, 1999, CIBC World Markets Corp.
discussed with each of the bidders the terms and conditions of their respective
bids.
On August 20, 1999, representatives of CIBC World Markets Corp. called
representatives of ITT Industries to inform the representatives of ITT
Industries that Stanford Telecom desired to continue discussions relating to
the negotiation of a definitive agreement for the sale of the government
business assets.
On August 25, 1999, Mr. Gary S. Wolf, Executive Vice President of Stanford
Telecom, Mr. Ralph Meoni, Vice President and Director of Corporate Development
and Operations Support of ITT Defense (a division of ITT Industries), Mr.
Lawrence Swire, Vice President and Associate General Counsel of ITT Industries,
Mr. Peter Nadeau, Vice President and General Counsel of Newbridge and
representatives of Simpson Thacher & Bartlett, counsel to ITT Industries,
Thelen Reid & Priest LLP, counsel to Stanford Telecom, Heller Ehrman White &
McAuliffe, counsel to Newbridge, and CIBC World Markets Corp., financial
advisor to Newbridge, met in San Jose, California to negotiate the terms of the
transaction.
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On August 31, 1999, Dr. Val Peline, President and Chief Executive Officer of
Stanford Telecom, Mr. Martin Kamber, Executive Vice President of ITT
Industries, Messrs. Wolf, Meoni, Swire and Nadeau and representatives of
Simpson Thacher & Bartlett, Thelen Reid & Priest LLP, Heller Ehrman White &
McAuliffe and CIBC World Markets Corp. held a teleconference call to negotiate
further the terms of a definitive agreement relating to the sale of the
government business assets.
From August 31, 1999 to September 2, 1999, representatives of Stanford
Telecom, ITT Industries and Newbridge met to review and discuss matters related
to the separation of Stanford Telecom's government business assets and
transition matters related to the transfer of the government business assets
from Stanford Telecom to ITT Industries.
On September 2, 1999, Dr. Peline, Mr. Robert Seitter, Assistant General
Counsel and General Patent Counsel of ITT Industries, Messrs. Wolf, Kamber,
Meoni and Swire, and representatives of Simpson Thacher & Bartlett, Thelen Reid
& Priest LLP, Heller Ehrman White & McAuliffe and CIBC World Markets Corp. held
a teleconference to discuss the separation of Stanford Telecom's government
business assets.
From September 2, 1999 through September 22, 1999, management of Stanford
Telecom, ITT Industries and Newbridge and their legal and financial advisors
continued to negotiate the terms of a definitive agreement.
At a meeting held on September 16, 1999, the Stanford Telecom board of
directors reviewed and discussed the terms of the proposed transaction. The
Stanford Telecom board of directors unanimously approved the sale of the
government business assets to ITT Industries and authorized the officers of
Stanford Telecom to finalize and execute the asset purchase agreement.
The definitive asset purchase agreement was signed on behalf of ITT
Industries and Stanford Telecom on September 22, 1999.
Reasons for the Sale of the Government Business Assets
The merger agreement with Newbridge contemplates the sales of Stanford
Telecom's government and contract manufacturing businesses. As a Canadian
corporation, Newbridge would be prohibited from performing Stanford Telecom's
classified contracts with the U.S. government unless steps were taken to
mitigate foreign ownership, control and influence by means such as
establishment of a proxy company or voting trust to manage the operation of the
government business.
Stanford Telecom currently anticipates that the sale price of the government
business assets will be approximately $191 million, based on the results of the
auction process by CIBC World Markets Corp. and the agreement with ITT
Industries. In determining the adequacy of the anticipated sale price, the
Stanford Telecom board of directors consulted with Stanford Telecom management
and reviewed and analyzed the historical financial results and future prospects
of the government business, comparable valuations of businesses similar to
those of the government business to the extent that comparable information was
available from public and private transactions and other relevant information.
The Stanford Telecom board of directors determined that selling the
government business assets in connection with the merger with Newbridge is in
the interests of the Stanford Telecom stockholders because it enables the
stockholders to share in the proceeds from the sale. See "The Merger
Agreement--Conversion of Shares" for information as to how the Stanford Telecom
stockholders will share in the proceeds. See "The Merger--Stanford Telecom's
Reasons for the Merger" for information as to why the Stanford Telecom board of
directors determined that the terms of the merger with Newbridge, which
includes the sale of the government business assets, are in the best interests
of the Stanford Telecom stockholders.
Recommendation of the Stanford Telecom Board
After careful consideration, the Stanford Telecom board has approved the
sale of the government business assets, and has specifically approved the sale
of the government business assets to ITT Industries.
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The Stanford Telecom board unanimously recommends that the Stanford Telecom
stockholders vote "for" approval of the sale of the government business assets.
Interests of Executive Officers of Stanford Telecom in the Sale of the
Government Business Assets
In considering the recommendation of the Stanford Telecom board of directors
with respect to the sale of the government business assets, you should be aware
that some of the Stanford Telecom executive officers have interests in the sale
that are different from, or are in addition to, yours. These interests may
include severance payments and accelerated vesting of stock options. In
addition, some of the executive officers may enter into employment agreements
with the purchaser of the government business assets.
If the government business assets are sold to ITT Industries, two of
Stanford Telecom's executive officers are expected to be employed by ITT
Industries. ITT Industries will not assume any of the Stanford Telecom stock
options. As a result, Stanford Telecom intends to accelerate the vesting of the
options as of the effective date of the merger with Newbridge. See "The
Merger--Interests of Executive Officers and Directors of Stanford Telecom in
the Merger--Accelerated Vesting of Stock Options" on page 26.
Regulatory Approvals
Hart-Scott-Rodino. In connection with the sale of the government business
assets, Stanford Telecom and the purchaser of the government business assets
will need to file notification and report forms with the FTC and the Antitrust
Division of the United States Department of Justice and satisfy the specified
waiting period requirements under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 and the rules thereunder. Stanford Telecom and ITT Industries filed
notification and report forms relating to the sale of the government business
assets under the Hart-Scott-Rodino Act with the FTC and the Antitrust Division
on October 1, 1999.
Federal Acquisition Regulation. Federal law prohibits the transfer of U.S.
government contracts from a contractor to a third party unless the government
recognizes that third party as the successor in interest to the contract or
contracts and enters into a novation agreement. In connection with the sale of
Stanford Telecom's government business assets, it will be necessary to obtain
that recognition and to enter into a novation agreement or agreements with the
government in accordance with the provisions of the Federal Acquisition
Regulation. In determining whether such recognition is in the interest of the
government, the government considers a number of factors concerning the
prospective transferee's capability to perform the contracts and responsibility
as a prospective contractor and evidence that any security clearance
requirements have been met.
Accounting Treatment
The sale of the government business assets will be accounted for by Stanford
Telecom as a sale of assets in accordance with U.S. generally accepted
accounting principles. Stanford Telecom expects to record a gain on its
financial statements for the difference between the total proceeds from the
sale of the government business assets and the net book value of those assets.
Appraisal Rights
Under Delaware law, you will not have "appraisal rights" or "dissenters'
rights" in connection with the sale of the government business assets.
Federal Income Tax Consequences
The following is a general summary of the principal federal income tax
consequences to Stanford Telecom of the sale of the government business assets.
It does not address any state or local tax consequences. Stanford
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Telecom stockholders are advised to consult with their tax advisors for a more
detailed analysis of any federal, state or local tax consequences.
The sale of the government business assets will be a taxable transaction to
Stanford Telecom. Stanford Telecom expects that the net proceeds of the sale
will exceed the adjusted tax bases of the assets and that, accordingly,
Stanford Telecom will realize a taxable gain. Stanford Telecom's tax liability
attributable to the sale of the government business assets is one factor taken
into account in calculating the contingent value. For additional information
regarding how the payment of these taxes by Stanford Telecom will affect the
contingent value, see "The Merger Agreement--Conversion of Shares." For more
information regarding the federal income tax consequences to Stanford Telecom
stockholders in connection with the merger, see "The Merger--Material United
States Federal Income Tax Consequences."
Information about ITT Industries
ITT Industries is a global engineering and manufacturing company which had
sales of $4.4 billion in 1998. ITT Industries is a major supplier of
sophisticated military defense systems, and provides advanced technical and
operational services to a broad range of government agencies. ITT Industries
also produces connectors, switches and cabling used in telecommunications,
computing, aerospace and industrial applications, as well as network services.
ITT Industries is the world's largest pump manufacturer and also designs
systems and services to move and control water and other fluids.
ITT Industries is an Indiana corporation. ITT Industries' principal offices
are located at 4 West Red Oak Lane, White Plains, New York 10604. The telephone
number of ITT Industries' principal office is (914) 641-2000.
The Government Business Asset Purchase Agreement
On September 22, 1999, Stanford Telecom entered into a definitive asset
purchase agreement with ITT Industries. Pursuant to the asset purchase
agreement, ITT Industries has agreed to purchase the assets of Stanford
Telecom's government business. The closing of the sale of the government
business asset sale is expected to take place on or about November 16, 1999.
The following is a brief summary of the material provisions of the asset
purchase agreement between ITT Industries and Stanford Telecom. This summary is
qualified in its entirety by reference to the asset purchase agreement filed by
Stanford Telecom as an exhibit to its Current Report on Form 8-K filed with the
SEC on September 28, 1999, and incorporated in this proxy statement/prospectus
by reference. See "Where You Can Find More Information" on page 86.
Purchase and Sale of Assets
Description of Assets To Be Acquired. Stanford Telecom has agreed, on the
terms set forth in the asset purchase agreement, to sell to ITT Industries all
of the assets that relate to and are used in its government business, except
for:
. cash generated by the government business before April 1, 1999;
. insurance policies, unless they apply solely to the government business;
and
. computer, accounting, administrative, telephone or other communications
systems.
The Stanford Telecom government business is comprised of four Stanford Telecom
divisions: the Satcom Ground Systems division, the Communications Systems
Integration division, the Applied Technology Operation division and the
Advanced Communications Systems division. These divisions design, manufacture
and market advanced digital communications products and systems to establish or
enhance communications via satellites, terrestrial wireless and cable.
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Assumption of Liabilities
Concurrently with its purchase of the government business assets, ITT
Industries will assume substantially all of the liabilities and obligations of
the government business, but will not assume:
. Stanford Telecom's tax liabilities for periods ending on or before the
closing;
. liabilities and obligations with respect to certain employees of the
government business, including severance obligations relating to those
employees who are offered employment with ITT Industries and refuse such
employment;
. liabilities and obligations disclosed by Stanford Telecom as exceptions
to the representations and warranties it provided in the asset purchase
agreement; and
. liabilities and obligations associated with the vesting or payment of
any options to purchase common stock of Stanford Telecom held by any
employee of the government business.
Purchase Price
ITT Industries will purchase the government business assets for $191 million
in cash, subject to adjustment if the net book value of the assets and
liabilities of the government business as of the closing date is greater or
less than $40.2 million. The amount to be paid by ITT Industries at the closing
will be based on the parties' estimate of the net worth of the government
business assets as of the closing date. ITT Industries will have the
opportunity to audit the estimated net worth after the closing. The purchase
price will be adjusted up or down following the audit, if the audited net worth
differs from the estimated net worth by more than $1 million. Stanford Telecom
and Newbridge intend to use the amount paid by ITT Industries at the closing to
determine the contingent value.
Any sales, purchase or use tax which may be payable as a result of the asset
purchase agreement or the transactions contemplated by the agreement will be
paid by ITT Industries.
Representations and Warranties
Stanford Telecom and ITT Industries have each made representations in the
asset purchase agreement relating to, among other things:
. its capital structure, organization and similar corporate matters;
. authorization, execution, delivery and enforceability of the asset
purchase agreement and related transactions;
. required consents and approvals;
. litigation; and
. finders' or brokers' fees;
Stanford Telecom has made additional representations relating to:
. absence of conflict under its charter and bylaws;
. no violations of any agreements or law;
. documents filed with the SEC;
. financial statements and data;
. absence of undisclosed liabilities;
. absence of material adverse events or changes;
. insurance;
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. contracts and commitments;
. labor matters, including employment and labor contracts;
. compliance with laws, including those relating to the export or import
of goods or technology;
. requirements regarding government contracts;
. intellectual property matters;
. accounts receivable and government business inventories;
. product and services warranties;
. tax laws and tax returns;
. environmental matters;
. sufficiency of assets to be transferred;
. title to real and personal property;
. year 2000 compliance; and
. employee benefit plans and compliance with applicable laws.
ITT Industries has made additional representations relating to:
. investigation of the government business; and
. ownership of Stanford Telecom stock.
Conduct of Stanford Telecom's Business Prior to the Asset Sale
Until the earlier of the termination of the asset purchase agreement or the
closing of the sale of the government business assets, Stanford Telecom has
agreed to:
. conduct its government business operations according to its ordinary and
usual course of business consistent with past practice;
. use all commercially reasonable efforts to:
-- preserve intact the organization of the government business;
-- keep available the services of its government business employees in
each business function;
-- maintain satisfactory relationships with suppliers, distributors,
customers and others with whom it has employment and business
relationships with respect to its government business; and
. not take any action which would adversely affect its ability to
consummate the transactions contemplated by the asset purchase
agreement.
Stanford Telecom has also agreed that neither it nor any of its subsidiaries
will, without the prior written consent of ITT Industries, directly or
indirectly, subject to some exceptions, do any of the following with respect to
the government business during the period from the date of the asset purchase
agreement until the closing of the asset sale:
. amend or otherwise modify or waive any of the terms of contracts
relating to the government business;
. enter into or accept new work under any systems engineering and
technical assistance contracts;
. enter into any contract that would require establishing a loss contract
reserve (under GAAP);
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. maintain its books and records in a manner other than in the ordinary
course of business and consistent with past practice;
. institute any change in its accounting methods, principles or practices
other than as required by GAAP or the rules and regulations promulgated
by the SEC;
. take or agree to take, any of the following actions:
-- increase the compensation of any of its directors, officers or,
other than in the ordinary course of business, non-officer
employees;
-- grant any severance or termination pay to any one person in excess
of $25,000;
-- enter into any oral or written employment, consulting,
indemnification or severance agreement outside the ordinary course
of business, which (1) provides for payments to any one person in
excess of $5,000 per month or (2) is not terminable by Stanford
Telecom, or is not to be performed in full, within six months;
-- approve any capital expenditures in any calendar month which exceed
$250,000 in the aggregate;
-- pay, discharge or satisfy any material claims, liabilities or
obligations, other than the payment, discharge or satisfaction of
liabilities in the ordinary course of business and consistent with
past practice, or collect, or accelerate the collection of, any
amounts owed, other than in the ordinary course of business;
-- waive, release, assign, settle or compromise any material claim or
litigation, or commence a lawsuit other than for the routine
collection of bills; or
-- take any action that would prevent it from performing or cause it
not to perform its covenants under the asset purchase agreement.
Additional Covenants
In connection with the asset purchase agreement, Stanford Telecom and ITT
Industries have agreed:
. to use all commercially reasonable efforts to take all actions
necessary, proper or appropriate under applicable laws and regulations
to consummate the asset sale and the transactions contemplated by the
asset purchase agreement, including obtaining the following:
-- government notifications, agreements and filings;
-- necessary governmental or private party consents, approvals or
waivers; and
-- stockholder approval of the sale of the government business assets;
. to execute documents and instruments and to take actions as may be
necessary or desirable to effect the transfer and assignment of the
assets to ITT Industries or to effect any other transactions
contemplated by the asset purchase agreement; and
. to enter into a transition services agreement.
In connection with the asset purchase agreement, Stanford Telecom has
agreed:
. to grant to ITT Industries a worldwide, perpetual, royalty-free, non-
exclusive license to manufacture, use and sell products and services
which are made, used or sold by the government business or included in
Stanford Telecom's plans for the government business as of date of the
closing of the sale of the government business assets;
. to prepare unaudited balance sheet data relating to the government
business as of August 31, 1999 or such other date between the date of
the asset purchase agreement and the closing date as Stanford Telecom
may determine; and
. to comply with all bulk transfer laws at the request of ITT Industries.
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Employee Benefits
With respect to each person employed full-time and part-time by the
government business immediately prior to the closing date (other than persons
absent from work due to long-term disability and persons on any unpaid leave of
absence), ITT Industries will, effective as the closing, offer employment to
each employee:
. at a salary at least equal to that employee's current salary; and
. for a position (including seniority level) comparable to the employee's
current position (except that the title of such positions will be in
accordance with ITT Industries' usual and customary practice for
similarly situated employees).
Offers of employment by ITT Industries will include, effective as of the
closing date, employee benefits substantially equivalent in the aggregate to
those offered by Stanford Telecom to its similarly situated employees. If ITT
Industries terminates a former government business employee for reasons other
than cause within 180 days following the closing date, ITT Industries will pay
the employee a severance amount set forth in the asset purchase agreement.
Subject to the terms of the asset purchase agreement, ITT Industries will also
pay severance amount to certain government business employees who decline to
accept employment by ITT Industries at locations more than 70 miles from their
current Stanford Telecom work site.
Conditions to the Asset Purchase Agreement
The respective obligations of ITT Industries and Stanford Telecom to
complete the purchase of the government business assets are subject the
satisfaction of the following conditions:
. the representations and warranties of the parties were true and correct,
in all material respects, as of the date of the asset purchase agreement
and are true and correct as of the closing;
. all covenants, conditions and other obligations under the asset purchase
agreement which are to be performed or complied with by each party as of
the closing shall have been fully performed and complied with at or
prior to the closing;
. each party has delivered an officer's certificate to evidence compliance
with the conditions in the asset purchase agreement;
. the waiting period applicable to the government business asset sale
under the Hart-Scott-Rodino Act has expired or been terminated;
. the stockholders of Stanford Telecom have approved the asset sale; and
. no writ, order, temporary restraining order, preliminary injunction or
injunction has been enacted, entered, promulgated or enforced by any
government body, which remains in effect and prohibits the consummation
of the asset sale or otherwise makes it illegal, nor will any government
body have instituted any action which remains pending and which seeks,
and is reasonably likely to enjoin, restrain or prohibit the
consummation of the asset sale in accordance with the terms of the asset
purchase agreement.
In addition, the obligation of ITT Industries to complete the purchase of
the government business assets is subject to Stanford Telecom obtaining each of
the consents or approvals listed in the asset purchase agreement.
In addition, the obligation of Stanford Telecom to complete the purchase of
the government business assets is subject to the merger agreement being either
(1) fully performed or (2) in full force and effect and Stanford Telecom having
no knowledge of any event or circumstance that will prevent or materially delay
the merger.
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Termination of the Asset Purchase Agreement
The asset purchase agreement may be terminated at any time prior to the
closing of the sale of the government business assets, whether before or after
approval of the sale by the stockholders of Stanford Telecom:
. by mutual written consent duly authorized by the boards of directors of
ITT Industries and Stanford Telecom;
. by either ITT Industries or Stanford Telecom if the asset sale has not
closed by March 31, 2000 (provided that the right to terminate the asset
purchase agreement will not be available to any party whose action or
failure to act has proximately contributed to the failure to close the
asset sale by March 31, 2000 and the action or failure to act
constitutes a breach of the asset purchase agreement);
. by either ITT Industries or Stanford Telecom if:
-- a statute, rule, regulation or executive order has been enacted,
entered or promulgated prohibiting consummation of the asset sale
substantially on the terms contemplated by the asset purchase
agreement;
-- the U.S. government advises that it will not enter into a novation
agreement with respect to any of the government contracts identified
in the asset purchase agreement; or
-- a court of competent jurisdiction or other government body has
issued a final and non-appealable order, decree, ruling or
injunction, or taken any other action, having the effect of
permanently restraining, enjoining or otherwise prohibiting the
asset sale substantially on the terms contemplated in the asset
purchase agreement (provided that a party exercising the right to
terminate has used its reasonable efforts to remove that order,
decree, ruling or injunction);
. by Stanford Telecom or ITT Industries upon breach by the other party of
its representations and warranties in a manner that the closing
conditions have not been met, if that breach has not been cured within
30 days after notice of the breach has been received by the party
allegedly in breach; provided that neither party may terminate the
agreement if it has breached in any material respect its obligations
under the asset purchase agreement in any manner that proximately caused
the breach by the other party; or
. by ITT Industries or Stanford Telecom, if after the date of the asset
purchase agreement, events occur or circumstances exist that will
prevent satisfaction before March 31, 2000 of the conditions to the
terminating party's obligations.
Post-Termination Options To Purchase
If the merger of Stanford Telecom with Newbridge is not completed and, as a
result, the sale of the government business assets is not completed, and if
prior to June 30, 2000 Stanford Telecom decides to sell the government business
assets, in whole or in part, then before the assets may be sold to a third
party ITT Industries would have the right to purchase the government business
assets that Stanford Telecom decides to sell. If Stanford Telecom decides to
sell all of the government business assets, then the terms of the sale,
including the purchase price, would be substantially the same as in the current
asset purchase agreement, provided that if Stanford Telecom receives a superior
offer for the government business assets from a third party, then ITT
Industries would have the right to purchase the government business assets on
the terms of the superior offer.
Stanford Telecom has agreed that, in the event the merger and the sale of
the government business assets are not completed, neither it nor any of its
employees, affiliates or other representatives will take specified actions
prior to June 30, 1999 to encourage or induce a third party to offer to
purchase any of the government business assets, unless the action is necessary
in order for the Stanford Telecom board of directors to fulfill its fiduciary
duties to the Stanford Telecom stockholders.
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DESCRIPTION OF NEWBRIDGE CAPITAL STOCK
Authorized Share Capital. Newbridge's authorized share capital comprises an
unlimited number of shares of common stock and an unlimited number of shares of
preferred stock which are issuable in series. Newbridge does not have a
stockholder rights plan or agreement similar to the Stanford Telecom Rights
Agreement dated as of May 9, 1995.
Common Stock. The holders of Newbridge common stock are entitled to one vote
for each share on all matters submitted to a vote of stockholders and do not
have cumulative voting rights. The holders of Newbridge common stock are
entitled to receive any dividend declared by the Newbridge board of directors
in respect of the Newbridge common stock. Subject to the prior rights of the
holders, if any, of then outstanding preferred stock and of then outstanding
stock of any other class ranking senior to the Newbridge common stock, the
holders of Newbridge common stock are entitled to share equally in all assets
of Newbridge which are legally available for distribution, after payment of all
debts and other liabilities.
The holders of Newbridge common stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of Newbridge common
stock are fully paid and nonassessable. The rights, preferences and privileges
of holders of Newbridge common stock are subject to the rights of the holders
of shares of any series of preferred shares which Newbridge may issue in the
future. As of September 30, 1999, there were 181,029,529 shares of Newbridge
common stock outstanding.
Preferred Stock. The Newbridge board of directors may from time to time
issue preferred stock in one or more series and determine for any series, by
resolution before the issue, its designation, number of shares and respective
rights, privileges, restrictions and conditions, such as voting rights,
conversion rights, dividend rates and terms of redemption, without further
action by the stockholders. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of
holders of Newbridge common stock and, under certain circumstances, make it
more difficult for a third party to gain control of Newbridge. As of the date
of this proxy statement/prospectus, there are no outstanding shares of
preferred stock of any series.
The rights and terms of Newbridge preferred stock as a class are set forth
in its articles of amalgamation and may not be changed without approval of the
Newbridge stockholders. The preferred stock of each series ranks on a parity
with the preferred stock of every other series in respect of priority in
payment of dividends and in the distribution of assets in the event of
liquidation, dissolution or winding-up of Newbridge. In the event of the
liquidation, dissolution or winding-up of Newbridge, the holders of preferred
stock are entitled to receive the redemption price specified for the preferred
stock, together with any unpaid cumulative dividends and all declared and
unpaid non-cumulative dividends. In the event of a voluntary liquidation,
dissolution or winding-up of Newbridge, the holders of preferred stock are also
entitled to receive the premium, if any, which would have been payable if the
preferred stock had been called for redemption. No dividends may be declared or
paid on the Newbridge common stock unless all cumulative dividends accruing on
preferred stock have been declared and paid or set apart for payment.
Transfer Agent and Registrar. The transfer agent and registrar for the
Newbridge common stock is Montreal Trust Company of Canada and its telephone
number is (800) 663-9097.
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COMPARISON OF RIGHTS OF STOCKHOLDERS
The rights of holders of Stanford Telecom common stock are currently
governed by:
. the laws of Delaware, particularly the General Corporation Law of the
State of Delaware;
. Stanford Telecom's certificate of incorporation, as amended, referred to
as the "Stanford Telecom charter;"
. Stanford Telecom's bylaws; and
. the United States securities laws.
When the merger is effective, Stanford Telecom stockholders will become
stockholders of Newbridge, a Canadian corporation. The rights of holders of
Newbridge common stock are currently governed by:
. the Canada Business Corporations Act;
. Newbridge's articles of amalgamation, as amended, referred to as the
"Newbridge charter;"
. Newbridge's bylaws; and
. the securities laws applicable in Canada and the United States.
While the rights and privileges of stockholders of a Canada Business
Corporations Act corporation such as Newbridge are, in many instances,
comparable to those of stockholders of a Delaware corporation such as Stanford
Telecom, there are material differences. The following is a summary of the
material differences between the rights of holders of Stanford Telecom common
stock and Newbridge common stock. These differences arise from differences
between the Delaware General Corporation Law and the Canada Business
Corporations Act and between the charters and bylaws of Stanford Telecom and
Newbridge.
This summary does not purport to be complete and is qualified in its
entirety by reference to the Delaware General Corporation Law and the Canada
Business Corporations Act and the respective charters and bylaws of Stanford
Telecom and Newbridge. You should review this document and the other documents
referred to in this section for a more complete understanding of the
differences between being a Stanford Telecom stockholder and a Newbridge
stockholder. Upon request, we will send you copies of the charters and bylaws
of Stanford Telecom and Newbridge.
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General Provisions
Director Requirements
Delaware General Corporation Law
Delaware General Corporation Law permits a corporation's certificate of
incorporation or bylaws to contain provisions governing the number and terms of
directors. If the certificate of incorporation fixes the number of directors,
that number may not be changed without amending the certificate of
incorporation.
Stanford Telecom's charter provides that the number of directors must be a
minimum of 5 and a maximum of 9 with the actual number to be determined from
time to time by resolution of the board of directors. Currently, the number of
directors on the Stanford Telecom board is set at 6.
Canada Business Corporations Act
Under the Canada Business Corporations Act, the number of directors is governed
by the articles of a corporation.
Newbridge's articles provide that the number of directors will consist of a
minimum of 1 and a maximum of 15 with the actual number of directors being
determined from time to time by resolution of the directors. Currently, the
number of directors on the Newbridge board is set at 10.
Director Qualifications
Delaware General Corporation Law
Delaware General Corporation Law does not have any residency or other director
qualification requirements.
Canada Business Corporations Act
Under the Canada Business Corporations Act a majority of the directors of the
corporation generally must be Canadian residents, except if a corporation's
revenues earned in Canada, directly or through its subsidiaries, are less than
five percent of its gross revenues, then only one-third of the corporation's
directors are required to be Canadian residents. In addition, a corporation
whose securities are publicly traded must have at least three directors,
including two who are not officers or employees of the corporation or any of
its affiliates.
Vacancy on the Board of Directors
Delaware General Corporation Law
Under Delaware General Corporation Law, vacancies and newly created
directorships may be filled by a majority of the remaining directors, though
less than a quorum, or by a sole remaining director unless otherwise provided
in the certificate of incorporation or the bylaws. However, Delaware General
Corporation Law also provides that if the directors then in office constitute
less than a majority of the whole board, the Delaware Court of Chancery may,
upon application of any stockholder(s) holding at least 10% of the total number
of shares outstanding entitled to vote for directors, order an election of
directors to be held to fill any vacancies.
Canada Business Corporations Act
Generally, under the Canada Business Corporations Act, if the board of
directors has a vacancy, the remaining directors, if constituting a quorum, may
appoint a qualified person to fill the vacancy for the remainder of the
vacating director's term. In the absence of a quorum, the remaining directors
must call a meeting of stockholders to fill the vacancy.
In addition, if provided by the articles of a corporation, the directors may
increase the number of directors within the range provided in the articles and
may fill the resulting vacancies for a term expiring not later than the next
annual meeting of stockholders; provided that the total number of
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directors so appointed does not exceed one-third of the number of directors
elected at the previous annual meeting of stockholders. Newbridge's articles
contain this provision.
Removal of Directors
Delaware General Corporation Law
Generally, under Delaware General Corporation Law, stockholders may remove
directors, with or without cause, by a vote of the holders of a majority of the
shares entitled to vote in an election of directors. However, if a Delaware
corporation has a board with staggered terms, or if its certificate of
incorporation provides otherwise, then stockholders may only remove directors
for cause.
Stanford Telecom's bylaws allow the removal of a director with or without cause
by the vote of a majority of the outstanding stock entitled to vote at an
election of directors.
Canada Business Corporations Act
Under the Canada Business Corporations Act, the stockholders of a corporation
such as Newbridge may, with or without cause, by resolution passed by a
majority of the votes cast at a meeting of stockholders called for that
purpose, remove any director.
Amendment to Governing Documents
Delaware General Corporation Law
Delaware General Corporation Law generally requires a vote of the corporation's
board of directors and the affirmative vote of the holders of a majority of the
outstanding stock of each class entitled to vote for any amendments to the
certificate of incorporation. If an amendment alters the powers, preferences or
special rights of a particular class or series of stock so as to affect them
adversely, that class or series generally has the power to vote as a class
notwithstanding the absence of any specifically enumerated power in the
certificate of incorporation.
Delaware General Corporation Law also states that the power to adopt, amend, or
repeal the bylaws of a corporation is vested with stockholders entitled to
vote, except that the corporation may also confer that power on the board of
directors in its certificate of incorporation. The Stanford Telecom certificate
of incorporation empowers the directors to amend the bylaws.
Canada Business Corporations Act
Under the Canada Business Corporations Act, an amendment to a corporations
articles generally requires stockholder approval by special resolution. A
"special resolution" is a resolution passed by at least two-thirds of the votes
cast by stockholders who are entitled to vote on the resolution. In addition,
if an amendment to the articles of incorporation adversely affects the rights
of a particular class or series of shares, that class or series is designated
as voting shares.
Under the Canada Business Corporations Act, unless the articles or bylaws
otherwise provide, the directors may, by resolution, make, amend, or repeal any
bylaw that regulates the business or affairs of a corporation. Where the
directors make, amend or repeal a bylaw, they are required to submit the bylaw,
amendment or repeal to the stockholders at the next stockholders meeting, and
the stockholders may, by an "ordinary resolution" confirm, reject or amend the
bylaw, amendment or repeal. An "ordinary resolution" is a resolution passed by
a majority of the votes cast by stockholders who voted on the resolution.
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Quorum of Stockholders
Delaware General Corporation Law
Under Delaware General Corporation Law, a majority of shares entitled to vote,
present in person or represented by proxy, constitutes a quorum for the
transaction of business, unless the certificate of incorporation or bylaws
provide otherwise. A quorum may not consist of less than one-third of the
shares entitled to vote at the meeting.
Stanford Telecom's bylaws provide that a quorum consists of a majority of
shares entitled to vote, present in person or represented by proxy.
Canada Business Corporations Act
Under the Canada Business Corporations Act, the holders of a majority of the
shares entitled to vote at a meeting, present in person or represented by
proxy, constitute a quorum for the transaction of business, irrespective of the
number of persons present at the meeting, unless the bylaws provide otherwise.
Newbridge's bylaws provide that a quorum at any stockholder meeting will be
five individuals present in person, each being a stockholder entitled to vote
at the meeting or being a duly appointed proxy for a stockholder entitled to
vote at the meeting, and together holding or representing shares carrying at
least ten percent of the votes entitled to be cast at the meeting.
Annual Meeting of Stockholders
Delaware General Corporation Law
Under Delaware General Corporation Law, a corporation must hold an annual
meeting of stockholders for the election of directors on the date and time
designated by or in the manner provided in the bylaws. If the corporation does
not hold an annual meeting to elect directors for a period of 30 days after the
date designated for the annual meeting, or if no date has been designated for a
period of 13 months after the last annual meeting to elect directors, the
Delaware Court of Chancery may order a meeting to be held upon the application
of a stockholder or director.
Canada Business Corporations Act
Under the Canada Business Corporations Act, the directors of a corporation must
call an annual meeting not later than 18 months after the corporation comes in
to existence and thereafter, not later than 15 months after holding the last
preceding annual meeting.
Call of Special Stockholder Meeting
Delaware General Corporation Law
Under Delaware General Corporation Law, written notice of any meeting of
stockholders must be given to each stockholder entitled to vote at the meeting
between 10 and 60 days before the meeting date; provided that for a merger, a
minimum of 20 days notice is required and the holders of all stock, both voting
and nonvoting, are entitled to the notice. A special meeting of stockholders
may be called by the board of directors of a corporation, or by persons as may
be authorized by the corporation's certificate of incorporation or bylaws.
The Stanford Telecom bylaws provide that special meetings may be called by the
chairman of the board, the president, a majority of directors or by Stanford
Telecom stockholders owning at least 10% of the outstanding voting stock.
Canada Business Corporations Act
The Canada Business Corporations Act provides that stockholder meetings may be
called by the board of directors, and must be called by the board of directors
when so requisitioned by holders of not less than 5% of the issued shares of
the corporation that carry the right to vote at the meeting sought. Under
Newbridge's bylaws, the board of directors has the power to call a special
meeting at any time.
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Stockholder Consent Instead of a Meeting
Delaware General Corporation Law
Under Delaware General Corporation Law, unless otherwise provided in the
certificate of incorporation, any action required to be taken or which may be
taken at an annual or special meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing is
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize the action at a meeting.
Canada Business Corporations Act
Under the Canada Business Corporations Act, stockholder action may be taken
without a meeting only by a written resolution signed by all stockholders who
would be entitled to vote on that action at a meeting.
Stockholder Proposals
Delaware General Corporation Law
Under Delaware General Corporation Law, a corporation's certificate of
incorporation or bylaws may contain procedural requirements for submitting
stockholder proposals. Neither the certificate of incorporation nor the bylaws
of Stanford Telecom include specific requirements for stockholder proposals.
Generally, under the U.S. securities laws, a stockholder may submit a proposal
to be included in a company's proxy statement if the stockholder:
. owns at least 1% or $2,000 market value of the securities entitled to be
voted on the proposal;
. has owned the securities for at least one year prior to the date of the
proposal; and
. continues to own the securities through the date of the meeting.
A stockholder must also comply with procedural requirements described in the
Securities Exchange Act of 1934, as amended.
Canada Business Corporations Act
Under the Canada Business Corporations Act, a stockholder entitled to vote at
an annual meeting of stockholders may submit to the corporation a proposal with
matters that the stockholder proposes to raise at the next annual meeting. Upon
receipt of a proposal, a corporation that solicits proxies will include the
proposal in the management proxy circular and, if requested by the stockholder,
include in the management proxy circular a statement by the stockholder of not
more than 200 words in support of the proposal, and the name and address of the
stockholder.
A corporation may, within 10 days after receiving a stockholder proposal,
notify the stockholder of its intention to omit the proposal from the
management proxy circular if:
. the proposal is not submitted at least 90 days before the anniversary date
of the previous annual meeting;
. it appears that the proposal is submitted by the stockholder for the purpose
of securing publicity or enforcing a personal claim or grievance, or
primarily for the purpose of promoting general economic, political, racial,
religious, social or similar causes;
. the corporation, in the previous two years, included a substantially similar
proposal at the request of the stockholder and the stockholder failed to
present the proposal at the annual meeting; or
. a substantially similar proposal was submitted to stockholders within the
past two years and the proposal was defeated.
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Appraisal Rights
Delaware General Corporation Law
Under Delaware General Corporation Law, stockholders have the right, in certain
circumstances, to dissent from a merger or consolidation of the corporation by
demanding payment in cash for the fair value of their shares, as determined by
the Delaware Court of Chancery. Delaware General Corporation Law grants
appraisal rights only for mergers or consolidations and not for a sale or
transfer of assets, unless otherwise provided in the certificate of
incorporation. In addition, no appraisal rights are available in a merger or
consolidation for shares of any class or series which are, at the record date
for the transaction:
. 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 by more than 2,000 stockholders, unless the transaction agreement
requires the stockholders to receive anything other than:
-- stock of the surviving corporation;
-- stock of another corporation which is 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
stockholders;
-- cash in lieu of fractional shares; or
-- some combination of the above.
Canada Business Corporations Act
The Canada Business Corporations Act provides that stockholders entitled to
vote on certain matters are entitled to exercise dissent rights and to be paid
the fair value of their shares. The Canada Business Corporations Act does not
distinguish for this purpose between listed and unlisted shares. Such matters
include the following:
. any amalgamation with a corporation, other than with, or between subsidiary
corporations;
. an amendment to the articles to add, change or remove any provisions
restricting the issue, transfer or ownership of shares;
. an amendment to the articles to add, change or remove any restriction upon
the business or businesses that the corporation may carry on;
. a continuance under the laws of another jurisdiction;
. a sale, lease or exchange of all or substantially all of the property of the
corporation other than in the ordinary course of business;
. a court order permitting a stockholder to dissent in connection with an
application to the court for an order approving an arrangement proposed by
the corporation; or
. amendments to the articles of a corporation which require a separate class
or series vote, provided that a stockholder is not entitled to dissent if an
amendment to the articles is effected by a court order made in connection
with an action for an oppression remedy.
Under the Canada Business Corporations Act, a stockholder may, in addition to
exercising dissent rights, seek an oppression remedy for any act of omission of
a corporation which is oppressive, unfairly prejudicial to or that unfairly
disregards a stockholders interest.
Stockholder Derivative Actions
Delaware General Corporation Law
Derivative actions may be brought in Delaware by a stockholder on behalf of,
and for the benefit of, the corporation. Delaware General Corporation Law
provides that a stockholder must state in the Canada Business Corporations Act
Under the Canada Business Corporations Act, a complainant may apply to the
court for leave to bring an action in the name of, and on behalf of, a
corporation or any subsidiary, or to intervene in a
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<PAGE>
complaint that he or she was a stockholder of the corporation at the time of
the transaction of which he or she complains. A stockholder may not sue
derivatively unless he or she first makes demand on the board of directors of
the corporation that it bring suit and the demand has been refused, unless it
is shown that the demand would have been futile or the refusal was wrongful.
existing action to which any corporation is a party, for the purpose of
prosecuting, defending or discontinuing the action on behalf of the
corporation. Under the Canada Business Corporations Act, no action may be
brought and no intervention in an action may be made unless the court is
satisfied that:
. the complainant has given reasonable notice to the directors of the
corporation or its subsidiary of the complainant's intention to apply to the
court and the directors of the corporation or its subsidiary do not bring,
diligently prosecute or defend or discontinue the action;
. the complainant is acting in good faith; and
. it appears to be in the interests of the corporation or its subsidiary that
the action be brought, prosecuted, defended or discontinued.
Under the Canada Business Corporations Act, the court in a derivative action
may make any order it thinks fit including:
. an order authorizing the complainant or any other person to control the
conduct of the action;
. an order directing the conduct of the action;
. an order directing that any damages payable by a defendant in the action
will be paid, in whole or in part, directly to former and present security
holders of the corporation or its subsidiary instead of the corporation or
its subsidiary; and
. an order requiring the corporation or its subsidiary to pay reasonable legal
fees and any other costs reasonably incurred by the complainant in
connection with the action.
Additionally, under the Canada Business Corporations Act, a court may order a
corporation or its subsidiary to pay the complainant's interim costs, including
reasonable legal fees and disbursements. Although the complainant may be held
accountable for the interim costs on final disposition of the complaint, the
complainant is not required to give security for costs in a derivative action.
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Oppression Remedy
Delaware General Corporation Law
Delaware General Corporation Law does not provide for an oppression remedy.
Canada Business Corporations Act
The Canada Business Corporations Act provides an oppression remedy that enables
a court to issue interim and final orders to rectify the matters complained of,
if the court is satisfied, upon application of a complainant as defined below,
that:
. any act or omission of the corporation or an affiliate effects a result; or
. the business or affairs of the corporation or an affiliate are or have been
carried on or conducted in a manner; or
. the powers of the directors of the corporation or an affiliate are or have
been exercised in a manner;
that is oppressive or unfairly prejudicial to, or that unfairly disregards the
interests of, any security holder, creditor, director or officer of the
corporation.
A complainant includes:
. a present or former registered holder or beneficial owner of securities of a
corporation or any of its affiliates;
. a present or former officer or director of the corporation or any of its
affiliates;
. the director appointed under Section 260 of the Canada Business Corporations
Act; and
. any other person who in the discretion of the court is a proper person to
make a complaint.
Because of the breadth of the conduct which can be complained of and the scope
of the court's remedial powers, the oppression remedy is very flexible and may
be relied upon to safeguard the interests of stockholders and others having a
substantial interest in a corporation. Under the Canada Business Corporations
Act, it is not necessary to prove that the directors of a corporation acted in
bad faith in order to seek an oppression remedy. Additionally, a court may
order a corporation or its subsidiary to pay the complainant's interim costs,
including reasonable legal fees and disbursements. Although the complainant may
be held accountable for the interim costs on final disposition, a complainant
is not required to give security for costs in an oppression action.
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<PAGE>
Payment of Dividends
Delaware General Corporation Law
Delaware General Corporation Law permits a corporation, unless otherwise
restricted by the certificate of incorporation, to declare dividends out of
surplus, or if there is no surplus, out of the net profits for the fiscal year
in which the dividend is declared and/or the preceding fiscal year, provided
that the amount of capital of the corporation is not less than the aggregate
amount of the capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets. In addition,
Delaware General Corporation Law generally provides that a corporation may
redeem or repurchase its shares only if the redemption or repurchase would not
impair the capital of the corporation.
Canada Business Corporations Act
Under the Canada Business Corporations Act, a corporation may pay a dividend by
issuing fully paid shares of the corporation. A corporation may also pay a
dividend in money or property unless there are reasonable grounds for believing
that (1) the corporation is, or would after the payment be, unable to pay its
liabilities as they become due; or (2) the realizable value of the
corporation's assets would be less than the aggregate of its liabilities and
stated capital of all classes.
Fiduciary Duties of Directors
Delaware General Corporation Law
Under Delaware General Corporation Law, the duty of care requires that the
directors act in an informed and deliberative manner and inform themselves,
prior to making a business decision, of all material information reasonably
available to them. The duty of care also requires that directors exercise care
in overseeing and investigating the conduct of corporate employees. The duty of
loyalty may be summarized as the duty to act in good faith, not out of self-
interest, and in a manner which the directors reasonably believe to be in the
best interests of the stockholders.
Canada Business Corporations Act
Pursuant to section 122 of the Canada Business Corporations Act, the duty of
loyalty requires directors of a Canadian corporation to act honestly and in
good faith with a view to the best interests of the corporation, and the duty
of care requires that the directors exercise the care, diligence and skill that
a reasonably prudent person would exercise in comparable circumstances.
Indemnification of Officers and Directors
Delaware General Corporation Law
Delaware General Corporation Law provides that a corporation may indemnify any
of its present and former directors, officers, employees and agents, who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that the person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or other enterprise. A corporation may indemnify these persons
against all reasonable Canada Business Corporations Act
Under the Canada Business Corporations Act, except in respect of an action by
or on behalf of the corporation, a corporation may indemnify a director a
officer, a former director or officer or a person who acts or acted at the
corporation's request as a director or officer of an entity of which the
corporation is or was a stockholder or creditor, and his or her heirs and legal
representatives, against all costs, charges and expenses, including an amount
paid in settlement or to satisfy a judgment, reasonably incurred by him or her
in respect of any civil, criminal or administrative action or proceeding to
which he or she is made a party by reason of
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expenses, including attorneys fees and, except in actions initiated by or for
the corporation, against all judgments, fines and settlement amounts if the
indemnified person:
. acted in good faith;
. acted in a manner which he or she reasonably believed to be in, or not
opposed to, the best interests of the corporation; and
. in the case of a criminal proceeding, had no reasonable cause to believe
that his or her conduct was unlawful.
A corporation may not indemnify a person in connection with an action initiated
by, or for the corporation, for any claim, issue or matter where the person is
judged to be liable to the corporation unless, and only to the extent that, the
court in which the action was brought determines that the person is entitled to
indemnity. Delaware General Corporation Law provides that a corporation will
indemnify a present or former director or officer to the extent that he or she
is successful on the merits or otherwise in the defense of any claim, issue or
matter associated with the action.
Generally, the Stanford Telecom certificate of incorporation and bylaws
indemnify the corporation's directors and officers to the fullest extent
permitted by applicable law.
being or having been a director or officer of the corporation or the body
corporate, if:
. he or she acted honestly and in good faith with a view to the best interests
of the corporation;
. in the case of a criminal or administrative action or proceeding that is
enforced by a monetary penalty, he or she had reasonable grounds to believe
that his or her conduct was lawful; and
. he or she was substantially successful on the merits of his or her defense
of the action or proceeding.
A corporation may, with the approval of a court, also indemnify a person in
connection with an action by or for the corporation or the other entity to
procure a judgment in its favor, to which the indemnified person is made a
party by reason of being or having been a director or officer of the
corporation or other entity, if he or she fulfills the conditions set out in
the first two bullets above.
The Newbridge bylaws require indemnification to the full extent authorized by
applicable law.
Director Liability
Delaware General Corporation Law
Delaware General Corporation Law provides that a corporation's certificate of
incorporation may include a provision which limits or eliminates the liability
of directors to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director; provided that the liability does not
arise from certain proscribed conduct, including intentional misconduct and
breach of the duty of loyalty.
Stanford Telecom's charter contains a provision limiting the liability of its
directors to the fullest extent permitted by Delaware General Corporation Law.
Canada Business Corporations Act
The Canada Business Corporations Act has no comparable provision.
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Access to Corporate Records
Delaware General Corporation Law
Under Delaware General Corporation Law, any stockholder of a Delaware
corporation may examine the list of stockholders and any stockholder making a
written demand may inspect any other corporate books and records for any
purpose reasonably related to the stockholder's interest as a stockholder.
Canada Business Corporations Act
Under the Canada Business Corporations Act, stockholders, creditors, their
agents and legal representatives may examine the consolidated financial
statements and certain of the records of a corporation such as Newbridge during
usual business hours and take copies of extracts free of charge.
Preemptive Rights
Delaware General Corporation Law
Under Delaware General Corporation Law, a stockholder does not have preemptive
rights unless they are specifically granted in the corporation's certificate of
incorporation.
Stanford Telecom's charter does not provide for preemptive rights.
Canada Business Corporations Act
Under the Canada Business Corporations Act, if provided in the articles of a
corporation, no shares of a class will be issued unless the shares have first
been offered to stockholders holding shares of that class, and those
stockholders have preemptive rights to acquire the offered shares in proportion
to their holdings of the shares of that class, at the price and on the terms
that those shares are to be offered to others.
Newbridge's charter does not provide for preemptive rights.
Transactions with Interested Directors
Delaware General Corporation Law
Under Delaware General Corporation Law, a contract or transaction between a
corporation and a director with a financial interest in the contract or
transaction is not void or voidable if:
. the director discloses the material facts of his or her relationship or
interest in the contract or transaction to the board of directors or the
board of directors knows of the material facts of the interested director's
relationship or interest in the contract or transaction, and the board of
directors authorizes the contract or transaction in good faith by
affirmative vote of a majority of disinterested directors, although less
than a quorum;
. the director discloses the material facts of his or her relationship or
interest in the contract or transaction to the stockholders entitled to vote
on the matter or the stockholders entitled to vote on the matter know of the
material facts of the interested director's relationship or interest in the
contract or transaction, and the Canada Business Corporations Act
Under the Canada Business Corporations Act, contracts or transactions in which
a director or officer has an interest are not invalid because of the interest,
provided that the director or officer who is party to a material contract or
transaction discloses his or her interest in writing to the corporation or
requests to have entered in the minutes of meetings of directors the nature and
extent of his or her interest. If an interest exists, the director generally
may not vote on any resolution to approve the contract or transaction. No
contract is void or voidable by reason only of the relationship if the interest
is properly disclosed, the contract is approved by the other directors or by
the stockholders and it was fair and reasonable to the corporation at the time
it was approved.
Where a contract or transaction is proposed that, in the ordinary course of the
corporation's business, would not require approval by the directors or
stockholders, the interested director or officer will disclose in writing to
the corporation or request to
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stockholders authorize the contract or transaction in good faith; or
. the contract or transaction is fair to the corporation at the time it is
authorized, approved, or ratified, by the board of directors, a committee of
the board or the stockholders.
have entered in the minutes of meetings of directors the nature and the extent
of his or her interest after the director or officer becomes aware of the
contract or transaction or proposed contract or transaction.
Requirements for Extraordinary Corporate Transactions
Vote Required for Extraordinary Transactions,
Including Sale or Lease of Substantially All Assets
Delaware General Corporation Law
Delaware General Corporation Law generally requires the affirmative vote of the
holders of a majority of the outstanding voting stock to authorize any merger,
consolidation, dissolution or sale of all or substantially all of the assets of
a corporation. Unless required by the corporation's certificate of
incorporation, no authorizing stockholder vote is required of a corporation
surviving a merger if:
. the merger agreement does not amend the surviving corporation's certificate
of incorporation;
. each share of stock of the surviving corporation outstanding immediately
prior to the effective date of the merger will be an identical outstanding
or treasury share of the surviving corporation after the merger; and
. the number of shares to be issued in the merger plus those initially issued
upon conversion do not exceed 20% of the surviving corporation's outstanding
common stock immediately prior to the merger.
Approval by a parent corporation's stockholders is not required under Delaware
General Corporation Law for any merger of consolidation of a subsidiary with
and into its parent corporation if the parent corporation owns at least 90% of
the outstanding shares of each class of stock of the subsidiary.
Canada Business Corporations Act
Under the Canada Business Corporations Act, extraordinary corporate actions,
such as amalgamations, continuances, sales, leases or exchanges of all or
substantially all of the property of a corporation other than in the ordinary
course of business, and other extraordinary actions such as liquidations or
dissolutions are required to be approved by special resolution. For such
approvals, each share of the corporation carries the right to vote, whether or
not the shares are designated as voting shares in the corporation's articles.
In some cases the special resolution to approve an extraordinary corporate
action must also be approved separately by the holders of a class or series of
shares, including a class or series that does not otherwise have the right to
vote.
A corporation may also apply to a court for an order approving an arrangement
which includes an amalgamation, a transfer of all or substantially all the
property of a corporation to another corporation in exchange for property,
money or securities of the corporation, or liquidation and dissolution where it
is not insolvent and where it is not practicable for the corporation to make
such fundamental change under other provisions of The Canada Business
Corporations Act. The court may make any interim or final order it thinks fit
with respect to the proposed arrangement.
Stockholder approval is not required for an amalgamation between a parent
corporation and one or more of its wholly owned subsidiaries or between two or
more wholly owned subsidiaries.
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Anti-takeover Provisions and Interested Stockholder Transactions
Delaware General Corporation Law
Delaware General Corporation Law generally provides that any person who owns
15% of the corporation's voting stock is an "interested stockholder" and may
not engage in certain "business combinations" with the corporation for a period
of three years following the time the person became an interested stockholder,
unless:
. the corporation's board of directors has approved, before the time the
person became an interested stockholder, either the business combination or
the transaction that resulted in the person becoming an interested
stockholder;
. upon completion of the transaction that resulted in the person becoming an
interested stockholder, the interested stockholder person owns at least 85%
of the corporation's voting stock outstanding at the time the transaction is
commenced, excluding shares owned by (1) persons who are both directors and
officers and (2) employee stock plans in which participants do not have a
right to determine confidentially whether shares will be tendered in a
tender or exchange offer; or
. the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders and not by
written consent, of the affirmative vote of at least 66 2/3% of the
outstanding voting stock not owned by the interested stockholder.
For the purposes of determining whether a person is the "owner" of 15% or more
of a corporation's voting stock, ownership is defined broadly to include direct
and indirect beneficial ownership and the right, directly or indirectly, to
acquire the stock or to control the voting or disposition of the stock. A
"business combination" is also defined broadly to include:
. mergers and sales or other dispositions of 10% or more of the assets of a
corporation with or to an interested stockholder;
. transactions resulting in the issuance or transfer to the interested
stockholder of any stock of the corporation or its subsidiaries;
. transactions which would result in increasing the proportionate share of the
stock of a corporation or its subsidiaries owned by the interested
stockholder; and
Canada Business Corporations Act
Under the Canada Business Corporations Act, extraordinary corporate actions,
such as amalgamations, continuances, sales, leases or exchanges of all or
substantially all of the property of a corporation other than in the ordinary
course of business, and other extraordinary actions such as liquidations or
dissolutions are required to be approved by special resolution. For such
approvals, each share of the corporation carries the right to vote, whether or
not the shares are designated as voting shares in the corporation's articles.
In some cases the special resolution to approve an extraordinary corporate
action must also be approved separately by the holders of a class or series of
shares, including a class or series that does not otherwise have the right to
vote.
A corporation may also apply to a court for an order approving an arrangement
which includes an amalgamation, a transfer of all or substantially all the
property of a corporation to another corporation in exchange for property,
money or securities of the corporation, or liquidation and dissolution where it
is not insolvent and where it is not practicable for the corporation to make
such fundamental change under other provisions of The Canada Business
Corporations Act. The court may make any interim or final order it thinks fit
with respect to the proposed arrangement.
Stockholder approval is not required for an amalgamation between a parent
corporation and one or more of its wholly owned subsidiaries or between two or
more wholly owned subsidiaries.
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. receipt by the interested stockholder of the benefit, except proportionately
as a stockholder, of any loans, advances, guarantees, pledges or other
financial benefits.
These restrictions placed on interested stockholders do not apply under certain
circumstances, including, but not limited to, the following:
. if the corporation's original certificate of incorporation contains a
provision expressly electing not to be governed by Section 203 of the
Delaware General Corporation Law; or
. if the corporation, by action of its stockholders, adopts an amendment to
its bylaws or certificate of incorporation expressly electing not to be
governed by the section, provided that the amendment:
-- is approved by the affirmative vote of a majority of the outstanding
shares entitled to vote;
-- will not be effective until 12 months after its adoption; and
-- will not apply to any business combination with a person who became an
interested stockholder at or prior to adoption.
Stanford Telecom's charter does not exempt it from the application of the
business combination section of Delaware General Corporation Law. Stanford
Telecom's certificate of incorporation provides that certain "business
combinations" (including mergers) with "interested stockholders" require higher
approval by the outstanding shares. Stanford Telecom's certificate of
incorporation generally defines an "interested stockholder" to be a person who
is entitled to cast 5% or more of the total votes in an election of directors.
Stanford Telecom's certificate of incorporation requires that business
combinations with interested stockholders require approval by 66 2/3% of the
outstanding stock of Stanford Telecom, unless the business combination has been
approved by a majority of the disinterested directors and meets certain price
and procedure requirements.
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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF NEWBRIDGE NETWORKS
CORPORATION
The following unaudited Pro Forma Consolidated Financial Information of
Newbridge Networks Corporation was prepared to illustrate the estimated effects
of the merger for balance sheet purposes as at August 1, 1999 and for the
purpose of the statements of earnings for the three months ended August 1, 1999
and for the year ended May 2, 1999.
Based upon the terms of the merger agreement, and the resulting attributes
of the merger, the Pro Forma Consolidated Financial Statements have been
prepared in accordance with Canadian GAAP using the purchase method of
accounting for the merger which is consistent in all material respects with the
method to be used under U.S. GAAP, except as indicated in note 2.11. The
unaudited Pro Forma Consolidated Financial Information of Newbridge presented
has been derived from Stanford Telecom financial information, which is prepared
in accordance with U.S. GAAP, and Newbridge financial information, which is
prepared in accordance with Canadian GAAP. With respect to Stanford Telecom
financial information, material differences between Canadian and U.S. GAAP have
been adjusted and disclosed in the Pro Forma Consolidated Financial Statements.
The balance sheet and statements of earnings of Stanford Telecom have been
summarized and reclassified on a basis consistent with the presentation adopted
for the purposes of the Pro Forma Consolidated Financial Statements. The
reclassifications relate primarily to disclosure of discontinued operations and
assets held for disposal attributable to Stanford Telecom's non-core
businesses. Stanford Telecom's operations in wireless broadband network
products and satellite personal communications are collectively referred to in
the pro forma statements as the "core" operations. Stanford Telecom's
government, contract manufacturing and telecom component product operations are
collectively referred to in the Pro Forma Consolidated Financial Statements as
the "non-core" operations. The financial results and financial position of
Stanford Telecom's core operations and non-core operations have not been
separately audited.
As more fully described in note 2 to the Pro Forma Consolidated Financial
Statements, the Pro Forma Consolidated Balance Sheet gives effect to the
transactions set out in the merger agreement as though they had occurred on
August 1, 1999. The Pro Forma Consolidated Statements of Earnings for the three
months ended August 1, 1999 and for the year ended May 2, 1999 give effect to
these transactions as if they had occurred on May 1, 1998. The Pro Forma
Consolidated Financial Statements are not necessarily indicative of the results
that actually would have been achieved if the transactions reflected therein
had been completed on the dates indicated or the results which may be obtained
in the future.
The allocation of the aggregate purchase price reflected in the unaudited
Pro Forma Consolidated Financial Statements is preliminary. The final
allocation of the purchase price upon closing and after sale of the Stanford
Telecom non-core assets will be based upon Management's evaluation of the fair
values of the assets acquired and liabilities assumed following the effective
date of the merger and may differ materially from the preliminary allocation
included herein.
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<PAGE>
NEWBRIDGE NETWORKS CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
For the three months ended August 1, 1999
(Canadian dollars, amounts in thousands except per share data)
<TABLE>
<CAPTION>
Pro forma adjustments
-----------------------------------------------
Purchase Eliminations/ GAAP Pro forma
Notes Newbridge Stanford(1) Subtotal price Conforming differences consolidated
----------- --------- ----------- -------- -------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................... 2.6 $495,070 $ 2,346 $497,416 (1,904) $495,733
2.8 221
Cost of sales........... 2.6 215,521 4,340 219,861 (969) 218,994
2.9 102
-------- ------- -------- --------
Gross margin............ 279,549 (1,994) 277,555 276,739
Expenses
Selling, general and
administrative........ 141,037 1,040 142,077 142,077
Research and
development........... 2.6 67,621 2,325 69,946 (935) 69,941
2.5 1,129
2.10 (199)
Purchased research and
development in
process............... 2.11 & 2.14 -- -- -- --
Amortization of
patents............... 2.14 -- -- -- 3,300 3,300
Amortization of
goodwill.............. 2.14 2,745 -- 2,745 23,370 26,115
-------- ------- -------- --------
Income (loss) from
operations............. 68,146 (5,359) 62,787 35,306
Interest income......... 7,345 579 7,924 7,924
Interest expense on long
term obligations....... (6,059) -- (6,059) (6,059)
Net gain on
investments............ 3,512 -- 3,512 3,512
Other expenses.......... (2,618) -- (2,618) (2,618)
-------- ------- -------- --------
Earnings (loss) before
income taxes, non-
controlling interest
and discontinued
operations............. 70,326 (4,780) 65,546 38,065
Provision for income
taxes.................. 2.10 21,705 (199) 21,506 199 21,705
Non-controlling
interest............... 1,335 -- 1,335 1,335
-------- ------- -------- ------- ------ ---- --------
Net earnings (loss) from
continuing operations.. $ 47,286 $(4,581) $ 42,705 $26,670 $1,010 $-- $ 15,025
======== ======= ======== ======= ====== ==== ========
Earnings (loss) per
share from continuing
operations
Basic.................. $ 0.26 $ (0.35) $ 0.08
Fully diluted.......... $ 0.26 $ (0.35) $ 0.08
Weighted average number
of shares
Basic.................. 180,399 13,139 198,271
Fully diluted.......... 180,399 13,139 198,271
</TABLE>
- --------
(1)See note 4 to the Pro Forma Consolidated Financial Statements.
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<PAGE>
NEWBRIDGE NETWORKS CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
For the year ended May 2, 1999
(Canadian dollars, amounts in thousands except per share data)
<TABLE>
<CAPTION>
Pro forma adjustments
-----------------------------------------------
Purchase Eliminations/ GAAP Pro forma
Notes Newbridge Stanford(1) Subtotal price Conforming differences consolidated
----------- ---------- ----------- ---------- -------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales.................. 2.6 $1,790,705 $ 6,475 $1,797,180 (1,389) $1,795,791
Cost of sales.......... 2.6 751,874 5,837 757,711 (592) 757,119
---------- -------- ---------- ----------
Gross margin........... 1,038,831 638 1,039,469 1,038,672
Expenses
Selling, general and
administrative....... 531,308 4,541 535,849 535,849
Research and
development.......... 2.6 264,421 15,002 279,423 (797) 278,784
2.5 976
2.10 (818)
Restructuring costs... 118,030 -- 118,030 118,030
Purchased research and
development in
process.............. 2.11 & 2.14 -- -- -- 112,044 112,044
Amortization of
patents.............. 2.14 -- -- -- 13,199 13,199
Amortization of
goodwill............. 2.14 3,437 -- 3,437 93,478 96,915
---------- -------- ---------- ----------
Income (loss) from
operations............ 121,635 (18,905) 102,730 (116,149)
Interest income........ 34,248 2,847 37,095 37,095
Interest expense on
long term
obligations........... (26,127) (11) (26,138) (26,138)
Net gain on
investments........... 188,726 -- 188,726 188,726
Other expenses......... (17,365) -- (17,365) (17,365)
---------- -------- ---------- ----------
Earnings (loss) before
income taxes, non-
controlling interest
and discontinued
operations............ 301,117 (16,069) 285,048 66,168
Provision for income
taxes................. 2.10 121,303 (818) 120,485 818 121,303
Non-controlling
interest.............. 653 -- 653 653
---------- -------- ---------- -------- ------ ---- ----------
Net earnings (loss)
from continuing
operations............ $ 179,161 $(15,251) $ 163,910 $218,721 $ 976 $ -- $ (55,787)
========== ======== ========== ======== ====== ==== ==========
Earnings (loss) per
share from continuing
operations
Basic................. $ 1.01 $ (1.17) $ (0.29)
Fully diluted......... $ 1.01 $ (1.17) $ (0.29)
Weighted average number
of shares
Basic................. 177,630 12,992 195,302
Fully diluted......... 177,630 12,992 195,302
</TABLE>
- --------
(1)See note 4 to the Pro Forma Consolidated Financial Statements.
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NEWBRIDGE NETWORKS CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
(Unaudited)
As at August 1, 1999
(Canadian dollars in thousands)
<TABLE>
<CAPTION>
Pro forma adjustments
----------------------------------------------------------------
Purchase price
------------------------- Eliminations/ GAAP Pro forma
Notes Newbridge Stanford(1) Subtotal FV decrements Intangibles Conforming differences consolidated
----------- ---------- ----------- ---------- ------------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
------
Cash and cash
equivalents..... 2.4 $ 432,459 $ 23,009 $ 455,468 1,748 $ 457,216
Marketable
securities...... 198,283 43,720 242,003 242,003
Accounts
receivable, net
of provision for
returns and
doubtful
accounts........ 2.3 560,204 5,005 565,209 (2,002) 560,330
2.4 (1,748)
2.5 (1,129)
Inventories...... 2.3 271,373 6,141 277,514 (4,756) 272,656
2.9 (102)
Prepaid
expenses........ 2.3 50,657 4,753 55,410 (103) 50,657
2.7 (4,650)
Other current
assets.......... 29,055 -- 29,055 29,055
---------- -------- ---------- ----------
1,542,031 82,628 1,624,659 1,611,917
Property, plant
and equipment... 2.3 463,242 3,520 466,762 (675) 466,087
Intangible assets
Purchased
research and
development in
process........ 2.11 & 2.13 -- -- -- 112,044 112,044
Patents......... 2.13 -- -- -- 39,598 39,598
Goodwill........ 2.13 38,939 -- 38,939 467,390 506,329
Software
development
costs........... 37,809 -- 37,809 37,809
Future tax
benefits........ 2.7 52,569 -- 52,569 5,700 58,269
Assets held for
disposal........ 2.3 -- 100,881 100,881 (2,550) 98,331
Other assets..... 2.3 387,744 1,569 389,313 (519) 387,744
2.7 (1,050)
---------- -------- ---------- -------- -------- ------- ----- ----------
$2,522,334 $188,598 $2,710,932 $(10,605) $619,032 $(1,231) $ -- $3,318,128
========== ======== ========== ======== ======== ======= ===== ==========
LIABILITIES AND
SHAREHOLDERS'
EQUITY
---------------
Current
liabilities
Accounts
payable........ 2.8 $ 178,333 $ 6,336 $ 184,669 (221) $ 184,448
Accrued
liabilities.... 2.3 187,622 16,586 204,208 300 229,265
2.2 24,757
Income taxes.... 85,488 13,125 98,613 98,613
Current portion
of long term
obligations.... 2,037 46 2,083 2,083
---------- -------- ---------- ----------
453,480 36,093 489,573 514,409
Long term
obligations..... 390,583 912 391,495 391,495
Future tax
obligations..... 54,277 -- 54,277 54,277
Non-controlling
interest........ 24,348 -- 24,348 24,348
---------- -------- ---------- ----------
922,688 37,005 959,693 984,529
---------- -------- ---------- ----------
Share capital
Common shares... 2.1 589,956 67,210 657,166 734,963 1,324,919
2.12 (67,210)
Accumulated
foreign currency
translation
adjustment...... 33,413 -- 33,413 33,413
Retained
earnings........ 2.3 976,277 84,383 1,060,660 (10,905) 975,267
2.12 (73,478)
2.9 (102)
2.8 221
2.5 (1,129)
---------- -------- ---------- ----------
1,599,646 151,593 1,751,239 2,333,599
---------- -------- ---------- -------- -------- ------- ----- ----------
$2,522,334 $188,598 $2,710,932 $(10,605) $619,032 $(1,231) $ -- $3,318,128
========== ======== ========== ======== ======== ======= ===== ==========
</TABLE>
- -------
(1)See note 4 to the Pro Forma Consolidated Financial Statements.
78
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
(Canadian dollars, tabular amounts in thousands, except per share data)
1. Basis of Presentation
The Pro Forma Consolidated Financial Statements have been prepared using the
purchase method of accounting for the merger. The total purchase price will be
allocated to the assets acquired and liabilities assumed, based on their
respective fair values. The allocation of the aggregate purchase price
reflected in the Pro Forma Consolidated Financial Statements is preliminary and
is based upon Management's preliminary evaluation of the fair values of the
assets to be acquired and liabilities to be assumed. The final allocation of
the purchase price upon closing and after sale of the Stanford Telecom non-core
assets may differ materially from the preliminary allocation included herein.
Calculation of pro forma earnings per share data included in the Pro Forma
Consolidated Financial Statements is based upon the closing price of Newbridge
common shares on September 29, 1999 and assumes a contingent value of US$3.75
per Stanford Telecom share.
The accompanying Pro Forma Consolidated Financial Statements have been
prepared by Management of Newbridge based on the unaudited and audited
consolidated financial statements of Newbridge as at and for the three months
ended August 1, 1999, and for the year ending May 2, 1999, respectively, and
the unaudited consolidated financial statements of Stanford Telecom as at and
for the three months ended June 30, 1999 and for the year ended March 31, 1999,
adjusted to reflect classifications consistent with the presentation adopted by
Newbridge. These adjustments relate primarily to disclosure of discontinued
operations and assets held for disposal attributable to Stanford Telecom's non-
core businesses. Stanford Telecom's operations in wireless broadband network
products and satellite personal communications are collectively referred to in
the pro forma statements as the "core" operations. Stanford Telecom's
government contracting, manufacturing operations and telecom components
products are collectively referred to herein as the "non-core" operations. The
financial results and financial position of Stanford Telecom's core operations
and non-core operations have not been separately audited.
The accounting policies used in the preparation of the Pro Forma
Consolidated Financial Statements are in accordance with Canadian GAAP as
disclosed in the Newbridge Annual Report on Form 10-K. The consolidated
financial statements of Stanford Telecom have been prepared in accordance with
U.S. GAAP, and any material differences between Canadian and U.S. GAAP have
been adjusted and disclosed. Stanford Telecom's Consolidated Statements of
Earnings were translated from U.S. dollars to Canadian dollars using the daily
average exchange rate for the three months ended August 1, 1999 of $0.6787 and
the daily average exchange rate for the year ended May 2, 1999 of $0.6629.
Stanford Telecom's Consolidated Balance Sheet at June 30, 1999 was translated
from U.S. dollars to Canadian dollars using an exchange rate of $0.6667.
In the opinion of the Management of Newbridge, these Pro Forma Consolidated
Financial Statements include all adjustments necessary for fair presentation of
pro forma financial statements.
The Pro Forma Consolidated Financial Statements also are not necessarily
indicative of the results that actually would have been achieved if the
transactions reflected therein had been completed on the dates indicated or the
results which may be obtained in the future. In preparing these Pro Forma
Consolidated Financial Statements, no adjustments have been made to reflect
transactions which have occurred since the dates indicated or to reflect the
operating benefits and general and administrative cost savings expected to
result from combining the operations of Newbridge and Stanford Telecom.
The Pro Forma Consolidated Financial Statements should be read in
conjunction with the description of the merger in this proxy
statement/prospectus, the unaudited and audited consolidated financial
statements of Newbridge as at and for the three months ended August 1, 1999 and
for the year ended May 2, 1999, respectively, and notes thereto, incorporated
by reference in this proxy statement/prospectus, and the unaudited
79
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
(Canadian dollars, tabular amounts in thousands, except per share data)
and audited consolidated financial statements of Stanford Telecom as at and for
the three months ended June 30, 1999 and for the year ended March 31, 1999 and
notes thereto, also incorporated by reference in this proxy
statement/prospectus.
2. Pro Forma Assumptions and Adjustments
The Pro Forma Consolidated Financial Statements incorporate the following
assumptions:
. Completion of the transactions contemplated by the merger agreement,
more fully described elsewhere herein, resulting in the combination of
the businesses of Newbridge and Stanford Telecom.
. Absence of any material transactions by, or changes in operations of,
Newbridge and Stanford Telecom subsequent to August 1, 1999, including
disposition of the non-core assets of Stanford Telecom, and other than
as described elsewhere in this proxy statement/prospectus.
These Pro Forma Consolidated Financial Statements give effect to the
following assumptions and adjustments (as if the merger had occurred on August
1, 1999 in respect of the Pro Forma Consolidated Balance Sheet and on May 1,
1998 in respect of the Pro Forma Consolidated Statements of Earnings):
Transactions Giving Effect to the Merger and Agreements Related Thereto
2.1 The issuance of approximately 18,000,536 common shares by Newbridge in
exchange for all the issued and outstanding shares of Stanford Telecom
and the issuance of approximately 1,822,195 common shares by Newbridge
upon exercise of all outstanding Stanford Telecom stock options. Common
shares issued by Newbridge to effect the merger are based upon the
September 29, 1999 closing price for Newbridge common stock, assume a
contingent value of US$3.75 per Stanford Telecom share and have an
estimated fair value of US$490,000,000 (Cdn$734,963,000).
2.2 To record estimated direct costs of the acquisition of $24,757,000
which will be allocated in the purchase price allocation.
2.3 To record fair value adjustments to Stanford Telecom assets and
liabilities as follows:
<TABLE>
<S> <C>
Accounts receivable............................................. $ 2,002
Inventories..................................................... 4,756
Prepaid expenses................................................ 103
Property, plant and equipment................................... 675
Assets held for disposal........................................ 2,550
Other assets.................................................... 519
-------
Total fair value reduction in assets.......................... 10,605
Accrued liabilities............................................. 300
-------
$10,905
=======
</TABLE>
Eliminations and Conforming Adjustments
2.4 To record $1,748,000 payment by Newbridge to Stanford Telecom in
settlement of trade account balances subsequent to June 30, 1999 and
before Newbridge's quarter end of August 1, 1999.
2.5 To recognize research and development expense for unbilled research and
development subcontracting work performed by Stanford Telecom on behalf
of Newbridge.
80
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
(Canadian dollars, tabular amounts in thousands, except per share data)
2.6 To eliminate Stanford Telecom product sales to Newbridge and research
and development expenses for subcontracting work performed by Stanford
Telecom for Newbridge.
2.7 To reclassify Stanford Telecom's deferred tax assets of $5,700,000 as
future tax benefits on the Pro Forma Consolidated Balance Sheet in
accordance with the disclosure adopted by Newbridge.
2.8 To record subcontracting revenue for research and development work
performed by Stanford Telecom for Newbridge subsequent to June 30, 1999
and before Newbridge's quarter end of August 1, 1999.
2.9 To eliminate intercompany profits held in Newbridge inventory of
Stanford Telecom products.
Generally Accepted Accounting Principle ("GAAP") Differences
2.10 To reclassify research and development tax credits to research and
development expenses because these credits are treated as recoveries
of research and development expenses under Canadian GAAP.
2.11 Under Canadian GAAP, purchased research and development in process
acquired in the merger is capitalized and amortized over its expected
useful life which Newbridge has estimated to be six months. Under U.S.
GAAP, purchased research and development in process is expensed at the
time of the merger. Adjusting the Pro Forma Consolidated Financial
Statements to conform to U.S. GAAP would not result in any change to
the Pro Forma Consolidated Statements of Earnings and would result in
no purchased research and development in process asset on the Pro
Forma Consolidated Balance Sheet.
Adjustments to Record the Purchase
2.12 To eliminate on consolidation the shareholders' equity of Stanford
Telecom after giving effect to the adjustment described in 2.3 above.
2.13 To allocate the aggregate purchase price to Stanford Telecom's net
assets in accordance with the purchase method of accounting as
follows:
<TABLE>
<S> <C>
Fair value of Newbridge shares to be issued, (Note 2.1)........ $734,963
Estimated acquisition costs, (Note 2.2)........................ 24,757
--------
Total purchase price......................................... $759,720
========
Shareholders' equity acquired, before adjustments.............. $151,593
Deduct effect of adjustments (Note 2.3)........................ (10,905)
--------
Adjusted fair value of net tangible assets acquired.......... 140,688
Add fair value of intangible assets acquired:
Purchased research and development in process................ 112,044
Patents...................................................... 39,598
Goodwill..................................................... 467,390
--------
Total fair value of identifiable assets acquired............. $759,720
========
</TABLE>
The above allocation of the aggregate purchase price is preliminary and
may change materially, particularly as a result of the anticipated
disposition of Stanford Telecom's non-core assets prior to the
effective date of the merger. Based upon current expectations of the
proceeds of disposition of the non-core operations relative to the
adjusted book value of the net assets of these operations, Newbridge
expects the amount allocated to acquired goodwill in the final
allocation of the aggregate purchase price to be approximately
$225,000,000 less than in the preliminary allocation above.
81
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
(Canadian dollars, tabular amounts in thousands except per share data)
2.14 To record amortization of acquired intangible assets including
goodwill as a result of the purchase price allocation described in
2.13 above. Each intangible asset will be amortized over its estimated
useful life which has been estimated on a preliminary basis by
Newbridge as follows:
<TABLE>
<S> <C>
Purchased research and development in
process................................... -- 6 months, straight line
Patents.................................... -- 3 years, straight line
Goodwill................................... -- 5 years, straight line
</TABLE>
The amortization adjustments reflected in the Pro Forma Consolidated
Statements of Earnings are preliminary and may change materially based
upon the final allocation of the purchase price and the final
determination of the estimated useful life of each intangible asset
acquired. The actual amortization of intangibles will commence
subsequent to the effective date of the merger.
3. Earnings (Loss) Per Share
Under Canadian GAAP, basic earnings (loss) per share is calculated on the
basis of net earnings (loss) divided by the daily weighted average number of
common shares outstanding during the period. The calculation of fully diluted
earnings (loss) per share assumes that, if a dilutive effect is produced, all
outstanding options had been exercised at the later of the beginning of the
fiscal period and the option issue date, and includes an allowance for imputed
earnings (for the three months ended August 1, 1999, Newbridge--$10,893,000,
Stanford Telecom--$159,000; for the year ended May 2, 1999, Newbridge--
$28,943,000, Stanford Telecom--$845,000) derived from the investment of funds
which would have been received at an after tax rate of 3.5%.
Under U.S. GAAP, basic earnings per share is calculated as net earnings
(loss) divided by the daily weighted average number of common shares
outstanding during the period, consistent with the calculation of basic
earnings per share under accounting principles generally accepted in Canada.
Diluted earnings per share is calculated using the treasury stock method. The
calculation of earnings per share under U.S. GAAP is as follows.
<TABLE>
<CAPTION>
Three Months Ended August 1, 1999
-------------------------------------
Newbridge Stanford Pro Forma
----------- ---------- -----------
<S> <C> <C> <C>
Net earnings (loss) per share from
continuing operations
Basic........................... $ 0.26 $ (0.35) $ 0.08
Diluted......................... $ 0.26 $ (0.35) $ 0.07
Weighted average number of shares
Basic........................... 180,399 13,139 198,271
Net effect of dilutive stock
options........................ 2,101 -- 3,084
----------- ---------- -----------
Diluted......................... 182,500 13,139 201,355
=========== ========== ===========
<CAPTION>
Year Ended May 2, 1999
-------------------------------------
Newbridge Stanford Pro Forma
----------- ---------- -----------
<S> <C> <C> <C>
Net earnings (loss) per share from
continuing operations
Basic........................... $ 1.01 $ (1.17) $ (0.29)
Diluted......................... $ 0.99 $ (1.17) $ (0.29)
Weighted average number of shares
Basic........................... 177,630 12,992 195,302
Net effect of dilutive stock
options........................ 2,746 -- --
----------- ---------- -----------
Diluted......................... 180,376 12,992 195,302
=========== ========== ===========
</TABLE>
82
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
(Canadian dollars, tabular amounts in thousands except per share data)
4. Conversion of Stanford Telecom Financial Statements
The following table illustrates the reclassification and foreign currency
translation of Stanford Telecom's Consolidated Financial Statements. The
information titled "Summarized Financial Statements" is derived from Stanford
Telecom's unaudited and audited consolidated financial statements as at and for
the three months ended June 30, 1999 and for the year ended March 31, 1999,
respectively. Stanford Telecom's Consolidated Statements of Earnings were
translated from U.S. dollars to Canadian dollars using the daily average
exchange rate for the three months ended June 30, 1999 of $0.6787 and the daily
average exchange rate for the year ended March 31, 1999 of $0.6629. Stanford
Telecom's Consolidated Balance Sheet at June 30, 1999 was translated from U.S.
dollars to Canadian dollars using an exchange rate of $0.6667.
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
-----------------------------------------
Summarized
Financial Non-core Adjusted Adjusted
Statements Businesses U.S.$ Cdn$
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Consolidated Statement of
Earnings
Sales........................ $ 60,996 $ (59,404) $ 1,592 $ 2,346
Cost of sales................ 37,329 (34,384) 2,945 4,340
-------- --------- -------- --------
Gross margin................. 23,667 (25,020) (1,353) (1,994)
Expenses..................... 8,795 (6,511) 2,284 3,365
-------- --------- -------- --------
Operating income............. 14,872 (18,509) (3,637) (5,359)
Interest income.............. 393 -- 393 579
Income taxes................. (4,732) 4,867 135 199
-------- --------- -------- --------
Net earnings................. $ 10,533 $ (13,642) $ (3,109) $ (4,581)
======== ========= ======== ========
<CAPTION>
Year Ended March 31, 1999
-----------------------------------------
Summarized
Financial Non-core Adjusted Adjusted
Statements Businesses U.S.$ Cdn$
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Consolidated Statement of
Earnings
Sales........................ $165,405 $(161,113) $ 4,292 $ 6,475
Cost of sales................ 131,311 (127,442) 3,869 5,837
-------- --------- -------- --------
Gross margin................. 34,094 (33,671) 423 638
Expenses..................... 34,031 (21,076) 12,955 19,543
-------- --------- -------- --------
Operating income............. 63 (12,595) (12,532) (18,905)
Interest income.............. 1,880 -- 1,880 2,836
Income taxes................. (602) 1,144 542 818
-------- --------- -------- --------
Net earnings................. $ 1,341 $ (11,451) $(10,110) $(15,251)
======== ========= ======== ========
</TABLE>
83
<PAGE>
NEWBRIDGE NETWORKS CORPORATION
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
(Canadian dollars, tabular amounts in thousands except per share data)
<TABLE>
<CAPTION>
As at June 30, 1999
---------------------------------------
Summarized
Financial Non-core Adjusted Adjusted
Statements Businesses U.S.$ Cdn$
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Consolidated Balance Sheet
Total current assets............. $112,974 $(57,886) $ 55,088 $ 82,628
Non-current assets............... 12,764 (9,371) 3,393 5,089
Assets held for disposal......... -- 67,257 67,257 100,881
-------- -------- -------- --------
Total assets..................... $125,738 $ -- $125,738 $188,598
======== ======== ======== ========
Total current liabilities........ $ 24,063 $ -- $ 24,063 $ 36,093
Long term liabilities............ 608 -- 608 912
Shareholders' equity............. 101,067 -- 101,067 151,593
-------- -------- -------- --------
Total liabilities and
shareholders' equity............ $125,738 $ -- $125,738 $188,598
======== ======== ======== ========
</TABLE>
84
<PAGE>
LEGAL MATTERS
The validity of the Newbridge common stock to be issued to Stanford Telecom
stockholders pursuant to the merger will be passed upon by Hunton & Williams,
New York, New York, and Osler, Hoskin & Harcourt, Ottawa and Toronto, Canada,
counsel to Newbridge. As of July 6, 1999, Kent H. E. Plumley, a director of
Newbridge and a member of Osler, Hoskin & Harcourt, or members of his immediate
family, beneficially owned 274,687 shares of Newbridge common stock.
Heller Ehrman White & McAuliffe will provide an opinion to Newbridge and
Thelen Reid & Priest LLP will provide an opinion to Stanford Telecom as to the
qualification of the merger as a reorganization under the Internal Revenue
Code.
EXPERTS
The consolidated financial statements of Newbridge incorporated in this
proxy statement/prospectus by reference from Newbridge's Annual Report on Form
10-K for the year ended May 2, 1999 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein
by reference, and has been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements and schedule of Stanford Telecom as of
March 31, 1999 and 1998 and for each of the three years in the period ended
March 31, 1999, incorporated by reference in this proxy statement of Stanford
Telecom, which are referred to and made part of this proxy statement/prospectus
and registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as set forth in their report which is also
incorporated by reference. The Stanford Telecom consolidated financial
statements are incorporated by reference in reliance upon their report given
upon their authority as experts in accounting and auditing.
A representative of Arthur Andersen LLP, the independent public accountants
for Stanford Telecom for the current year and for the most recently completed
fiscal year, is expected to be present at the Stanford Telecom special meeting.
The representative of Arthur Andersen LLP who attends the special meeting will
have the opportunity to make a statement if he or she desires to do so, and is
expected to be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
If the merger is not completed, the next annual meeting of stockholders of
Stanford Telecom will be held on or around June 2000. To be considered for
presentation at the year 2000 annual meeting, a stockholder proposal must be
received at the offices of Stanford Telecom not later than January 28, 2000, as
provided in the proxy statement relating to annual meeting held on June 23,
1999. The proxies solicited by management for the year 2000 annual meeting will
confer discretionary authority to vote on any stockholder proposal presented to
that meeting unless Stanford Telecom is provided with notice of the stockholder
proposal on or prior to April 13, 2000.
85
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Newbridge and Stanford Telecom each file annual, quarterly and special
reports, proxy statements and other information with the United States
Securities and Exchange Commission. You may read and copy any document filed
by Newbridge or Stanford Telecom at the SEC's public reference facilities:
Washington D.C. New York Chicago
Judiciary Plaza Seven World Trade Center Citicorp Center500 West
450 Fifth Street, N.W. Suite 1300 Madison Street
Room 1024 New York, NY 10048 Suite 1400
Washington, D.C. 20549 Chicago, IL 60661-2511
You may call the SEC at 1-800-SEC-0330 for further information about its
public reference facilities. In addition, these SEC filings are also available
to the public at the SEC's web site at "http://www.sec.gov." Reports, proxy
statements and other information concerning Newbridge can also be inspected at
the offices of the New York Stock Exchange, 20 Broad Street, New York, New
York 10005. Reports, proxy statements and other information concerning
Stanford Telecom can be inspected at the Nasdaq National Market, Operations,
1735 K Street, N.W., Washington, D.C. 20006.
The SEC allows us (Newbridge and Stanford Telecom) to "incorporate by
reference" the information we file with the SEC, which means that we can
disclose important information to you by referring you to documents that we
have previously filed with the SEC. The information incorporated by reference
is considered to be a part of this proxy statement/prospectus. Any later
information that we file with the SEC will automatically update and supersede
this information.
We incorporate by reference the documents listed below, and any further
filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until the offering of the securities is
terminated. This proxy statement/prospectus is part of a registration
statement on Form S-4 filed by Newbridge with the SEC (Registration No. 333-
88763).
The Newbridge documents we incorporate by reference are its:
. Annual Report on Form 10-K for the fiscal year ended May 2, 1999, as
amended;
. Quarterly Report on Form 10-Q for the quarter ended August 1, 1999;
. Current Report on Form 8-K filed with the SEC on June 30, 1999; and
. Description of common stock in Newbridge's registration statement on
Form 8-A filed on September 1, 1994 under the Securities Exchange Act of
1934 and any amendment or report filed for the purpose of updating the
description.
You can obtain copies of the documents relating to Newbridge, without
charge, by contacting Mike Stephens, Corporate Communications at:
Newbridge Networks Corporation
600 March Road, P.O. Box 13600
Kanata, Ontario, Canada K2K 2E6
Telephone: (613) 591-3600
In order to ensure timely delivery of the documents, any requests should be
made by November 5, 1999.
86
<PAGE>
The Stanford Telecom documents we incorporate by reference are its:
. Annual Report on Form 10-K for the fiscal year ended March 31, 1999;
. Quarterly Report on Form 10-Q for the quarter ended June 30, 1999;
. Current Report on Form 8-K filed with the SEC on June 25, 1999;
. Current Report on Form 8-K filed with the SEC on September 28, 1999; and
. Description of common stock in Stanford Telecom's Current Report on Form
8-K filed on August 4, 1998, and any amendment or report filed for the
purpose of updating the description.
You can obtain copies of the documents relating to Stanford Telecom,
without charge, by contacting Gary S. Wolf at:
Stanford Telecommunications, Inc.
1221 Crossman Avenue, P.O. Box 3733
Sunnyvale, California 94089
Telephone: (408) 745-0818
In order to ensure timely delivery of the documents, any requests should be
made by November 5, 1999.
87
<PAGE>
APPENDIX 1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NEWBRIDGE NETWORKS CORPORATION
SATURN ACQUISITION CORP.
AND
STANFORD TELECOMMUNICATIONS, INC.
Dated as of June 22, 1999
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE I--THE MERGER...................................................... 4
1.1 The Merger........................................................ 4
1.2 Closing; Effective Time........................................... 4
1.3 Effects of the Merger............................................. 5
1.4 Certificate of Incorporation; Bylaws.............................. 5
1.5 Directors and Officers of the Surviving Corporation............... 5
ARTICLE II--CONVERSION OF SHARES........................................... 5
2.1 Conversion of Stock............................................... 5
2.2 Stel Options; Stock Purchase Plan................................. 7
2.3 Exchange of Stel Stock Certificates............................... 8
2.4 Lost, Stolen or Destroyed Certificates............................ 9
2.5 Tax Consequences.................................................. 9
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF STEL........................ 9
3.1 Organization, Etc. ............................................... 9
3.2 Authority Relative to This Agreement.............................. 10
3.3 No Violations, Etc. .............................................. 10
3.4 Board Recommendation.............................................. 11
3.5 Fairness Opinion.................................................. 11
3.6 Capitalization.................................................... 11
3.7 SEC Filings....................................................... 12
3.8 Financial Statements.............................................. 12
3.9 Absence of Undisclosed Liabilities................................ 12
3.10 Absence of Changes or Events...................................... 12
3.11 Capital Stock of Subsidiaries..................................... 14
3.12 Litigation........................................................ 14
3.13 Insurance......................................................... 14
3.14 Contracts and Commitments......................................... 14
3.15 Labor Matters; Employment and Labor Contracts..................... 15
3.16 Compliance with Laws.............................................. 16
3.17 Government Contracts.............................................. 16
3.18 Intellectual Property Rights...................................... 18
3.19 Accounts Receivable; Inventories.................................. 19
3.20 Order Backlog..................................................... 20
3.21 Product and Service Warranties.................................... 20
3.22 Taxes............................................................. 20
3.23 Employee Benefit Plans; ERISA..................................... 22
3.24 Environmental Matters............................................. 24
3.25 Officer's Certificate as to Tax Matters........................... 26
3.26 Affiliates........................................................ 26
3.27 Finders or Brokers................................................ 26
3.28 Registration Statement; Proxy Statement/Prospectus................ 26
3.29 Title to Property................................................. 26
3.30 Year 2000 Compliance.............................................. 27
ARTICLE IV--REPRESENTATIONS AND WARRANTIES OF NEWBRIDGE AND MERGER SUB..... 27
4.1 Organization, Etc. ............................................... 27
4.2 Authority Relative to This Agreement.............................. 27
4.3 No Violations, Etc. .............................................. 28
4.4 Capitalization.................................................... 28
4.5 Registration Statement; Proxy Statement/Prospectus................ 28
4.6 SEC Filings....................................................... 29
</TABLE>
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4.7 Compliance with Laws............................................ 29
4.8 Financial Statements............................................ 29
4.9 Absence of Undisclosed Liabilities.............................. 29
4.10 Absence of Changes or Events.................................... 29
4.11 Litigation...................................................... 29
ARTICLE V--COVENANTS..................................................... 30
5.1 Conduct of Business During Interim Period....................... 30
5.2 No Solicitation................................................. 31
5.3 Access to Information........................................... 32
5.4 Special Meeting; Registration Statement; Board Recommendation... 32
5.5 Commercially Reasonable Efforts................................. 34
5.6 Public Announcements............................................ 34
5.7 Notification of Certain Matters................................. 34
5.8 Indemnification................................................. 35
5.9 Affiliate Agreements............................................ 36
5.10 Listing......................................................... 36
5.11 Resignation of Directors and Officers........................... 36
5.12 Form S-8........................................................ 36
5.13 SEC Filings..................................................... 36
5.14 Employee Matters................................................ 37
5.15 Termination of Stel Purchase Plan............................... 37
5.16 Stock Option Agreement.......................................... 37
5.17 Technology Option Agreement..................................... 37
5.18 Non-core Asset Sale............................................. 37
5.19 Assumption of Options........................................... 37
5.20 Transitional Contract--Manufacturing Arrangement................ 38
5.21 Stel IP Rights.................................................. 38
5.22 Appraisal Rights................................................ 38
ARTICLE VI--CONDITIONS TO THE OBLIGATIONS OF EACH PARTY.................. 38
6.1 Registration Statement.......................................... 38
6.2 Stockholder Approval............................................ 38
6.3 Listing of Additional Shares.................................... 38
6.4 Government Clearances........................................... 38
6.5 Statute or Decree............................................... 38
ARTICLE VII--CONDITIONS TO THE OBLIGATIONS OF STEL AND NEWBRIDGE......... 39
7.1 Additional Conditions To The Obligations Of Stel................ 39
7.2 Additional Conditions To The Obligations Of Newbridge And Merger
Sub............................................................. 39
ARTICLE VIII--TERMINATION................................................ 40
8.1 Termination..................................................... 40
8.2 Notice of Termination; Effect of Termination.................... 42
8.3 Fees and Expenses............................................... 42
ARTICLE IX--MISCELLANEOUS................................................ 43
9.1 Amendment and Modification...................................... 43
9.2 Waiver of Compliance; Consents.................................. 43
9.3 Survival; Investigations........................................ 43
9.4 Notices......................................................... 43
9.5 Assignment; Third Party Beneficiaries........................... 44
9.6 Governing Law................................................... 44
9.7 Counterparts.................................................... 44
9.8 Severability.................................................... 44
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9.9 Interpretation.................................................... 44
9.10 Entire Agreement.................................................. 44
9.11 Definition of "law"............................................... 44
9.12 Rules of Construction............................................. 45
</TABLE>
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Exhibits
Exhibit A Stock Option Agreement
Exhibit B Technology Option Agreement
Exhibit C Form of Voting Agreement
Exhibit D Certificate of Merger
Exhibit E Form of CVR Agreement
Exhibit F Form of Stel Affiliates Agreement
Schedule 5.8(b) Other Indemnified Parties
Schedule 5.14 Employee Severance
Schedule 7.1(h) Employment Agreements
</TABLE>
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DEFINED TERMS
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"Accounts Receivable"...................................... Section 3.19(a)
"Acquisition Proposal"..................................... Section 5.2(c)
"Acquisition Transaction".................................. Section 5.2(c)
"Action"................................................... Section 3.12(a)
"Affiliates"............................................... Section 3.26
"Antitrust Division"....................................... Section 5.5
"CERCLA"................................................... Section 3.24(a)(iii)
"CFIUS".................................................... Section 5.5
"Certificate of Merger".................................... Section 1.2
"Closing".................................................. Section 1.2
"Closing Date"............................................. Section 1.2
"COBRA".................................................... Section 3.15(b)
"Code"..................................................... Recitals
"Confidentiality Agreement"................................ Section 5.3
"Contingent Value Ratio"................................... Section 2.1(a)(ii)
"Contractor"............................................... Section 3.24(a)(i)
"CVR Agreement"............................................ Section 2(a)(iii)
"CVR Certificates"......................................... Section 2(b)
"Delaware Law"............................................. Section 1.1
"Effective Time"........................................... Section 1.2
"End Date"................................................. Section 8.1(b)
"Employee Benefit Plans"................................... Section 3.23(a)
"Environment".............................................. Section 3.24(a)(ii)
"Environmental Law"........................................ Section 3.24(a)(iii)
"Environmental Permit"..................................... Section 3.24(a)(iv)
"ERISA".................................................... Section 3.23(a)
"ERISA Affiliate".......................................... Section 3.23(a)
"Exchange Act"............................................. Section 3.3
"Exchange Agent"........................................... Section 2.3(a)
"Exchange Fund"............................................ Section 2.3(c)
"Exchange Ratio"........................................... Section 2.1(a)(i)
"Exon-Florio Amendment".................................... Section 3.3
"Foreign Plan"............................................. Section 3.23(n)
"FTC"...................................................... Section 5.5
"GAAP"..................................................... Section 3.8
"Government Bid"........................................... Section 3.17(a)(ii)
"Government Contract"...................................... Section 3.17(a)(iii)
"Government Entity"........................................ Section 3.3
"Government Body".......................................... Section 3.17(a)(i)
"Group Health Plan"........................................ Section 3.23(k)
"Hazardous Material"....................................... Section 3.24(a)(v)
"Holder"................................................... Section 2.3(c)
"HSR Act".................................................. Section 3.3
"Indemnified Parties"...................................... Section 5.8(b)
"IRS"...................................................... Section 3.22(b)(iii)
"law"...................................................... Section 9.11
"Legal Requirement"........................................ Section 3.17(a)(iv)
"Maturity Date"............................................ Section 2.1(a)(ii)
"Merger"................................................... Recitals
"Merger Sub"............................................... Preamble
</TABLE>
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"Merger Sub Common Stock"................................... Section 2.1(d)
"Newbridge"................................................. Preamble
"Newbridge Adjustment Option"............................... Section 2.1(a)(i)
"Newbridge Balance Sheet"................................... Section 4.8
"Newbridge Certificates".................................... Section 2.1(b)
"Newbridge Closing Value"................................... Section 2.1(a)(i)
"Newbridge Common Stock".................................... Recitals
"Newbridge Disclosure Statement"............................ Article IV
"Newbridge Exchange Options"................................ Section 2.2(a)(iii)
"Newbridge Financial Statements"............................ Section 4.8
"Newbridge Fractional Share Value".......................... Section 2.1(f)
"Newbridge Material Adverse Effect"......................... Section 4.1(a)
"Newbridge Material Subsidiaries............................ Section 4.1(a)
"Newbridge SEC Reports"..................................... Section 4.6
"Newbridge Stock Certificate"............................... Section 2.1(b)
"Non-core Assets"........................................... Section 5.18
"Non-core Asset Sale"....................................... Section 5.18
"Non-core Asset Sale Proceeds".............................. Section 2.1(a)(ii)
"Notice of Superior Proposal"............................... Section 5.4(c)
"Pension Benefit Plans"..................................... Section 3.23(a)
"Person".................................................... Section 2.1(g)
"Potential Acquiror"........................................ Section 5.2(a)
"Proxy Statement/Prospectus"................................ Section 3.28
"Real Property"............................................. Section 3.24(b)(iv)
"Reference Date"............................................ Section 3.8
"Registration Statement".................................... Section 3.3
"Returns"................................................... Section 3.22(b)(i)
"Stel"...................................................... Preamble
"Stel Affiliates"........................................... Section 5.9
"Stel Affiliates Agreement"................................. Section 5.9
"Stel Balance Sheet"........................................ Section 3.8
"Stel Certificate".......................................... Section 2.3(c)
"Stel Common Stock"......................................... Recitals
"Stel Contract"............................................. Section 3.14(b)
"Stel Disclosure Statement"................................. Article III
"Stel Financial Statements"................................. Section 3.8
"Stel IP Rights"............................................ Section 3.18(a)
"Stel Material Adverse Effect".............................. Section 3.1(a)
"Stel Options".............................................. Section 2.2(a)
"Stel Purchase Plan"........................................ Section 2.2(b)
"Stel Rights"............................................... Section 3.4
"Stel Rights Plan".......................................... Section 3.4
"Stel SEC Reports".......................................... Section 3.7(a)
"Stel Special Meeting"...................................... Section 5.4(a)
"Stel Stock Plans".......................................... Section 2.2(a)
"Stel Triggering Event"..................................... Section 8.1(i)
"SEC"....................................................... Section 3.7(a)
"Securities Act"............................................ Section 3.7(a)
"Stock Option Agreement".................................... Recitals
"Subsidiary"................................................ Section 2.1(g)
"Superior Proposal"......................................... Section 5.2(d)
"Surviving Corporation"..................................... Section 1.1
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"Tax" or "Taxes"............................................ Section 3.22(a)
"Technology Option Agreement"............................... Recitals
"Termination Fee"........................................... Section 8.3(b)(i)
"Third Party"............................................... Section 5.2(c)
"Voting Agreements"......................................... Recitals
"Welfare Benefit Plans"..................................... Section 3.23(a)
"Year 2000 Compliant"....................................... Section 3.30
</TABLE>
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of June 22, 1999 by and among Newbridge Networks Corporation, a
Canadian corporation ("Newbridge"), Saturn Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Newbridge ("Merger Sub"), and
Stanford Telecommunications, Inc., a Delaware corporation ("Stel"), with
respect to the following facts:
A. The respective boards of directors of Newbridge, Merger Sub and Stel have
approved and declared advisable the merger of Merger Sub with and into Stel
(the "Merger"), upon the terms and subject to the conditions set forth herein,
and have determined that the Merger and the other transactions are fair to, and
in the best interests of, their respective stockholders.
B. Pursuant to the Merger, among other things, the outstanding shares of
Stel Common Stock, $.01 par value ("Stel Common Stock"), will be converted into
Common Shares of Newbridge ("Newbridge Common Stock"), at the rate set forth
herein.
C. For United States federal income tax purposes, it is intended that the
Merger will qualify as a reorganization under the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code").
D. Simultaneously with the execution and delivery of this Agreement and as a
condition and inducement to Newbridge's and the Merger Sub's willingness to
enter into this Agreement, Newbridge is entering into a Stock Option Agreement
dated the date hereof in the form of Exhibit A (the "Stock Option Agreement")
with Stel, pursuant to which Stel is granting to Newbridge the right and option
to purchase shares of Stel Common Stock from Stel equal to up to 19.9% of
issued and outstanding Stel Common Stock.
E. Simultaneously with the execution and delivery of this Agreement and as a
condition and inducement to Newbridge's and the Merger Sub's willingness to
enter into this Agreement, Newbridge is entering into the Wireless Broadband
Products Technology License Option Agreement in the form of Exhibit B (the
"Technology Option Agreement") with Stel.
F. Simultaneously with the execution and delivery of this Agreement and as a
condition and inducement to Newbridge's and the Merger Sub's willingness to
enter into this Agreement, Newbridge is entering into Voting Agreements in the
form of Exhibit C with certain directors and officers of Stel in their
respective capacities as stockholders of Stel (the "Voting Agreements").
The parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware General Corporation Law (the "Delaware Law"),
(i) Merger Sub shall be merged with and into Stel, (ii) the separate corporate
existence of Merger Sub shall cease, and (iii) Stel shall be the surviving
corporation. Stel as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "Surviving Corporation."
1.2 Closing; Effective Time. The closing of the Merger and the other
transactions contemplated hereby (the "Closing") will take place at 10:00 a.m.,
local time, on a date to be specified by the parties (the "Closing Date"),
which shall be no later than the first business day after satisfaction or
waiver of the conditions set forth in Articles VI and VII, unless another time
or date is agreed to by the parties hereto. The Closing shall take
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place at the offices of Heller Ehrman White & McAuliffe, 525 University Avenue,
Palo Alto, California, or at such other location as the parties hereto shall
mutually agree. At the Closing, the parties hereto shall cause the Merger to be
consummated by filing a certificate of merger substantially in the form of
Exhibit D (the "Certificate of Merger") with the Secretary of State of the
State of Delaware, in accordance with the relevant provisions of the Delaware
Law (the time of such filing, or such later time as may be agreed in writing by
the parties and specified in the Certificate of Merger, being the "Effective
Time").
1.3 Effects of the Merger. The effects of the Merger shall be as provided in
this Agreement, the Certificate of Merger and the applicable provisions of the
Delaware Law. Without limiting the foregoing, at the Effective Time all the
property, rights, privileges, powers and franchises of Stel and Merger Sub
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of Stel and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) Subject to Section 5.8, from and after the Effective Time, the
certificate of incorporation of Stel, as in effect immediately prior to the
Effective Time, shall be the certificate of incorporation of the Surviving
Corporation, until changed or amended as provided by law.
(b) Subject to Section 5.8, from and after the Effective Time, the bylaws of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
bylaws of the Surviving Corporation.
1.5 Directors and Officers of the Surviving Corporation. The directors and
officers of Merger Sub immediately prior to the Effective Time shall serve as
the initial directors and officers of the Surviving Corporation, until their
respective successors are duly elected or appointed and qualified.
ARTICLE II
CONVERSION OF SHARES
2.1 Conversion of Stock. Pursuant to the Merger, and without any action on
the part of the holders of any outstanding shares of capital stock or other
securities of Stel or Merger Sub:
(a) As of the Effective Time:
(i) each share of Stel Common Stock issued and outstanding immediately prior
to the Effective Time (other than shares of Stel Common Stock to be canceled
pursuant to Section 2.1(c)) shall be automatically converted into the right to
receive that number of shares (the "Exchange Ratio") of fully paid and
nonassessable Newbridge Common Stock that equals U.S. $30.00 divided by the
average closing price per share of Newbridge Common Stock as reported on the
New York Stock Exchange ("NYSE") Composite Tape on the ten trading days ending
on the fifth trading day immediately preceding the Stel Special Meeting (the
"Newbridge Closing Value"). Notwithstanding the foregoing, if the Newbridge
Closing Value is less than U.S. $24.00, the Exchange Ratio shall be 1.25;
provided, however, that, in such event, Newbridge shall have the option (the
"Newbridge Adjustment Option"), exercisable by notice to Stel prior to the
close of business on the third trading day prior to the Stel Special Meeting,
to adjust the Exchange Ratio, to an amount that exceeds 1.25;
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(ii) if the "Non-core Asset Sale" (as defined in Section 5.18) has closed on
or prior to the Effective Time, the holder of each share of Stel Common Stock
shall have the right to receive for each share of Stel Common Stock, an
additional fraction of a share (the "Contingent Value Ratio") of fully paid and
nonassessable Newbridge Common Stock as is determined using the following
formula:
[(B + C-D + E) / SS] / V
where,
"B" equals the lesser of (A) the gross proceeds from the Non-core Asset
Sale before deduction of any state and federal income taxes payable on such
proceeds (the "Non-core Asset Sale Proceeds") and (B) $173,000,000, minus
$102,000,000;
"C" equals 50% of the greater of (A) the Non-core Asset Sale Proceeds
minus $173,000,000 and (B) 0;
"D" equals 50% of any state and federal income taxes payable on the Non-
core Asset Sale Proceeds, based on the applicable rates as determined in
good faith by Newbridge;
"E" equals $625,000;
"SS" equals the number of shares of Stel Common Stock and Stel Options
issued and outstanding immediately prior to the Effective Time (other than
shares of Stel Common Stock to be canceled pursuant to Section 2.1(c)); and
"V" equals the greater of (a) the Newbridge Closing Value and (b)
$24.00, unless the Newbridge Adjustment Option is exercised, in which case
"V" equals $30.00 divided by the Exchange Ratio;
in the event that any consideration received from the Non-core Asset Sale is
not cash or is affected by some contingency, the parties shall appoint an
independent expert in business valuation to calculate the net present value of
such consideration, and such amount shall be included in the calculation of the
Non-core Asset Sale Proceeds;
(iii) if the Non-core Asset Sale has not closed on or prior to the Effective
Time, the holder of each share of Stel Common Stock, shall have the right to
receive, for each share of Stel Common Stock, one contingent value right
("CVR"), with substantially the terms set forth in the form of Contingent Value
Rights Agreement attached hereto as Exhibit E (the "CVR Agreement").
(b) As of the Effective Time, each holder of a certificate or certificates
which immediately prior to the Effective Time represented outstanding shares of
Stel Common Stock shall cease to have any rights with respect thereto, except
the right to receive (i) a certificate (or direct registration) representing
the number of whole shares of Newbridge Common Stock into which such shares
have been converted (the "Newbridge Stock Certificates"), (ii) cash in lieu of
fractional shares of Newbridge Common Stock in accordance with Section 2.1(f),
without interest, and (iii) in the event the Non-core Asset Sale has not closed
prior to the Effective Time, a certificate (or direct registration)
representing the CVRs (the "CVR Certificates" and, together with the Newbridge
Stock Certificates, the "Newbridge Certificates").
(c) As of the Effective Time, each share of Stel Common Stock held of record
immediately prior to the Effective Time by Stel, Merger Sub, Newbridge or any
wholly-owned subsidiary of Stel or of Newbridge shall be canceled and
extinguished without any conversion thereof.
(d) As of the Effective Time, each share of Common Stock, $0.01 par value,
of Merger Sub (the "Merger Sub Common Stock") issued and outstanding
immediately prior to the Effective Time shall be canceled, extinguished and
automatically converted into one validly issued, fully paid and nonassessable
share of Common Stock, $0.01 par value, of the Surviving Corporation. Each
certificate evidencing ownership of a number of shares of Merger Sub Common
Stock shall be deemed to evidence ownership of the same number of shares of
Common Stock, $0.01 par value, of the Surviving Corporation.
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(e) The Exchange Ratio shall be adjusted, or Newbridge shall make
appropriate provision, to reflect appropriately the effect of any stock split,
reverse stock split, stock dividend (including any dividend or distribution of
securities convertible into Newbridge Common Stock or Stel Common Stock),
reorganization, recapitalization or other like change with respect to Newbridge
Common Stock or (subject to Section 5.1) Stel Common Stock occurring or having
a record date or an effective date on or after the date hereof and prior to the
Effective Time.
(f) No fraction of a share of Newbridge Common Stock will be issued by
virtue of the Merger. Instead, each holder of shares of Stel Common Stock who
would otherwise be entitled to a fraction of a share of Newbridge Common Stock
(after aggregating all fractional shares of Newbridge Common Stock to be
received by such holder) shall receive from Newbridge an amount of cash
(rounded down to the nearest whole cent) equal to the product of (i) such
fraction, multiplied by (ii) the Newbridge Fractional Share Value. For the
purposes of this Agreement, "Newbridge Fractional Share Value" shall mean the
closing price per share of Newbridge Common Stock as reported on the NYSE
Composite Tape on the trading day immediately preceding the Effective Time.
(g) For purposes of this Agreement, (i) the term "Subsidiary", when used
with respect to any Person, means any corporation or other organization,
whether incorporated or unincorporated, of which (A) at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such Person (through ownership of securities,
by contract or otherwise) or (B) such Person or any Subsidiary of such Person
is a general partner of any general partnership or a manager of any limited
liability company. For the purposes of this Agreement, the term "Person" means
any individual, group, organization, corporation, partnership, joint venture,
limited liability company, trust or entity of any kind.
2.2 Stel Options; Stock Purchase Plan.
(a) As of the Effective Time, Newbridge shall, to the full extent permitted
by applicable law, assume all of the stock options of Stel outstanding
immediately prior to the Effective Time under the Stel Stock Plans (as defined
below) (the "Stel Options"). For purposes of this Agreement, "Stel Stock Plans"
means Stel's 1982 Stock Option Plan, and 1991 Stock Option Plan. Each Stel
Option, whether or not exercisable at the Effective Time, shall, to the full
extent permitted by applicable law, be assumed by Newbridge in such a manner
that it shall be exercisable upon the same terms and conditions as under the
Stel Stock Plan pursuant to which it was granted and the applicable option
agreement issued thereunder; provided that:
(i) if the Non-core Asset Sale has closed on or prior to the Effective Time,
(A) each such option shall thereafter be exercisable for the number of shares
of Newbridge Common Stock (rounded down to the nearest whole share) equal to
the product obtained from multiplying the number of shares of Stel Common Stock
covered by such option immediately prior to the Effective Time by the sum of
the Exchange Ratio and the Contingent Value Ratio and (B) the option price per
share of Newbridge Common Stock thereafter shall be equal to the quotient
(rounded up to the nearest whole cent) obtained from dividing the option price
per share of Stel Common Stock subject to such option in effect immediately
prior to the Effective Time by the sum of the Exchange Ratio and the Contingent
Value Ratio;
(ii) if the Non-core Asset Sale does not close on or prior to the Effective
Time and a Stel Option is exercised on or prior to the Maturity Date of the
CVRs, (A) each option shall be exercisable for (1) the number of shares of
Newbridge Common Stock (rounded down to the nearest whole share) equal to the
product obtained from multiplying the number of shares of Stel Common Stock
covered by such option immediately prior to the Effective Time by the Exchange
Ratio and (2) the number of CVRs equal to the number of shares of Stel Common
Stock covered by such option immediately prior to the Effective Time and (B)
the option price thereafter shall be equal to the quotient (rounded up the
nearest whole cent) obtained from dividing the option price per share of Stel
Common Stock subject to such option in effect immediately prior to the
Effective Time by the Exchange Ratio; and
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(iii) if the Non-core Asset Sale does not close on or prior to the Effective
Time, and a Stel Option is exercised after the Maturity Date of the CVRs, such
option shall thereafter be exercisable as described in Section 2.2(a)(i).
Stel Options assumed in the manner described in this Section are referred to
in this Agreement as the "Newbridge Exchange Options". Prior to the Effective
Time, Stel shall make all adjustments provided for in the Stel Stock plan with
respect to the Stel Options to facilitate the implementation of the provisions
of this Section 2.2(a).
(b) All the purchase rights under Stel's 1992 Employee Stock Purchase Plan
("Stel Purchase Plan") shall terminate following the purchase of shares in
respect of the Participation Period (as defined in the Stel Purchase Plan)
beginning on or about June 30, 1999 and no Participation Period shall be
commended thereafter. All funds contributed to the Stel Purchase Plan that have
not been used to purchase shares of Stel Common Stock by the termination date
of the Stel Purchase Plan shall be returned after such termination date in
accordance with Section 8 of the Stel Purchase Plan.
2.3 Exchange of Stel Stock Certificates.
(a) At or prior to the Effective Time, Newbridge shall enter into an
agreement with a bank or trust company selected by Newbridge to act as the
exchange agent for the Merger (the "Exchange Agent").
(b) At or prior to the Effective Time, Newbridge shall supply or cause to be
supplied to or for the account of the Exchange Agent in trust for the benefit
of the holders of Stel Common Stock, for exchange pursuant to this Section 2.3
(i) the Newbridge Stock Certificates issuable pursuant to Section 2.1 to be
exchanged for outstanding shares of Stel Common Stock, (ii) cash in an
aggregate amount sufficient to make the payments in lieu of fractional shares
provided for in Section 2.1(f), and (iii) in the event the Non-core Asset Sale
has not closed prior to the Effective Time, the CVR Certificates.
(c) Promptly after the Effective Time, Newbridge shall mail or shall cause
to be mailed to each Holder a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Stel Certificates
shall pass, only upon proper delivery of the Stel Certificates to the Exchange
Agent) and instructions for surrender of the Stel Certificates. Upon surrender
to the Exchange Agent of a Stel Certificate, together with such letter of
transmittal duly executed, the Holder shall be entitled to receive in exchange
therefor (i) Newbridge Stock Certificates evidencing that number of shares of
Newbridge Common Stock issuable to such Holder in accordance with this Article
II; (ii) any dividends or other distributions that such Holder has the right to
receive pursuant to Section 2.3(d); (iii) cash in respect of fractional shares
as provided in Section 2.1(f); and (iv) in the event the Non-core Asset Sale
has not closed prior to the Effective Time, CVR Certificates evidencing that
number of CVRs issuable to such Holder in accordance with this Article II, and
such Stel Certificate so surrendered shall forthwith be canceled. Such
Newbridge Certificates, dividends and other distributions and cash are referred
to collectively as the "Exchange Fund." No Newbridge Certificates will be
issued to a Person who is not the registered owner of a surrendered Stel
Certificate, unless (i) the Stel Certificate so surrendered has been properly
endorsed or otherwise is in proper form for transfer, and (ii) such Person
shall either (A) pay any transfer or other tax required by reason of such
issuance or (B) establish to the satisfaction of the Surviving Corporation that
such tax has been paid or is not applicable. Until surrendered in accordance
with the provisions of this Section 2.3, from and after the Effective Time,
each Stel Certificate shall be deemed to represent, for all purposes other than
payment of dividends, the right to receive a certificate representing the
number of full shares of Newbridge Common Stock as determined in accordance
with this Article II, cash in lieu of fractional shares as provided in Section
2.1(f) and a certificate representing the number of CVRs as determined in
accordance with this Article II. For purposes of this Agreement, "Stel
Certificate" means a certificate which immediately prior to the Effective Time
represented shares of Stel Common Stock, and "Holder" means a person who holds
one or more Stel Certificates as of the Effective Time.
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(d) No dividend or other distribution declared with respect to Newbridge
Common Stock with a record date after the Effective Time will be paid to
Holders of unsurrendered Stel Certificates until such Holders surrender their
Stel Certificates. Upon the surrender of such Stel Certificates, there shall be
paid to such Holders, promptly after such surrender, the amount of dividends or
other distributions, excluding interest, declared with a record date after the
Effective Time and not paid because of the failure to surrender Stel
Certificates for exchange.
(e) Any portion of the Exchange Fund which remains undistributed to the
former stockholders of Stel for twelve (12) months after the Effective Time
shall be delivered to Newbridge, upon demand of Newbridge, and any such former
stockholders who have not theretofore complied with this Section 2.3 shall
thereafter look only to Newbridge for payment of their claims for Newbridge
Common Stock, any cash in lieu of fractional shares of Newbridge Common Stock,
any dividends or distributions with respect to Newbridge Common Stock and any
CVRs.
(f) Notwithstanding anything to the contrary in this Agreement, none of the
Exchange Agent, Newbridge, the Surviving Corporation nor any party hereto shall
be liable to any holder of shares of Stel Common Stock for shares of Newbridge
Common Stock or cash in lieu of fractional shares delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
2.4 Lost, Stolen or Destroyed Certificates. In the event that any Stel
Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue and pay in respect of such lost, stolen or destroyed Stel
Certificates, upon the making of an affidavit of that fact by the holder
thereof, Newbridge Stock Certificates evidencing the shares of Newbridge Common
Stock and CVR Certificates evidencing the CVRs, each as may be required
pursuant to Section 2.1, cash in respect of fractional shares, if any, as may
be required by Section 2.1(f) and any dividends or distributions payable
pursuant to Section 2.3(d); provided, however, that Newbridge may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Stel Certificate to deliver a bond in
such sum as it may reasonably direct as indemnity against any claim that may be
made against Newbridge or the Exchange Agent with respect to the Stel
Certificates alleged to have been lost, stolen or destroyed.
2.5 Tax Consequences. For United States federal income tax purposes, it is
intended by the parties hereto that the Merger qualify as a reorganization
within the meaning of Section 368(a) of the Code.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF STEL
Stel makes to Newbridge and Merger Sub the representations and warranties
contained in this Article III, in each case subject to the exceptions set forth
in the disclosure statement, dated as of the date hereof (the "Stel Disclosure
Statement"). The Stel Disclosure Statement shall be arranged in schedules
corresponding to the numbered and lettered Sections of this Article III, and
the disclosure in any Schedule of the Stel Disclosure Statement shall qualify
only the corresponding Section of this Article III.
3.1 Organization, Etc.
(a) Each of Stel and its Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Each of Stel and its Subsidiaries is duly qualified as a foreign Person to do
business, and is in good standing, in each jurisdiction where the character of
its owned or leased properties or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified or in good
standing would not, individually or in the aggregate, have a Stel Material
Adverse Effect. For the purposes of this Agreement, "Stel Material Adverse
Effect" means any change, event or effect that is materially adverse to either
(i) the business, operations or assets of Stel's wireless
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broadband products division or its telecom products components division, or
(ii) the general affairs, business, operations, assets, condition (financial or
otherwise) or results of operations of Stel and its Subsidiaries taken as a
whole.
(b) Stel is not in violation of any provision of its certificate of
incorporation or bylaws. None of Stel's Subsidiaries is in violation of its
certificate of incorporation or other charter document or in material violation
of its bylaws. Schedule 3.1(b) of the Stel Disclosure Statement sets forth (i)
the full name of each Subsidiary of Stel, its capitalization and the ownership
interest of Stel and each other Person (if any) therein, (ii) the jurisdiction
in which each such Subsidiary is organized, (iii) each jurisdiction in which
Stel and each Subsidiary of Stel is qualified to do business as a foreign
Person, (iv) a brief summary of the business and material operations of each
Subsidiary of Stel, and (v) the names of the current directors and officers of
Stel and of each Subsidiary of Stel. Stel has made available to Newbridge
accurate and complete copies of the certificate of incorporation, bylaws and
any other charter documents, as currently in effect, of Stel and each of its
Subsidiaries.
3.2 Authority Relative to This Agreement. Stel has full corporate power and
authority to (i) execute and deliver this Agreement, (ii) execute and deliver
the Stock Option Agreement, (iii) execute and deliver the Technology Option
Agreement, (iv) consummate the transactions contemplated by the Stock Option
Agreement and Technology Option Agreement, and (v) assuming the approval of the
Merger by a majority of the outstanding shares of Stel Common Stock at the Stel
Special Meeting or any adjournment or postponement thereof in accordance with
Delaware Law, consummate the Merger and the other transactions contemplated
hereby. The execution and delivery of this Agreement, the Stock Option
Agreement and the Technology Option Agreement, and the consummation of the
Merger and the other transactions contemplated hereby and thereby, have been
duly and validly authorized by the unanimous vote of the board of directors of
Stel, and no other corporate proceedings on the part of Stel are necessary to
authorize this Agreement, the Stock Option Agreement and the Technology Option
Agreement or to consummate the Merger and the other transactions contemplated
hereby and thereby (other than, with respect to the Merger, the approval of the
Merger by a majority of the outstanding shares of Stel Common Stock at the Stel
Special Meeting or any adjournment or postponement thereof in accordance with
the Delaware Law). Each of this Agreement, the Stock Option Agreement and the
Technology Option Agreement has been duly and validly executed and delivered by
Stel and, assuming due authorization, execution and delivery by Newbridge and,
in the case of this Agreement, by Merger Sub, constitutes a valid and binding
agreement of Stel, enforceable against Stel in accordance with its terms,
except to the extent that its enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting the
enforcement of creditors' rights generally or by general equitable principles.
3.3 No Violations, Etc. No filing with or notification to, and no permit,
authorization, consent or approval of, any court, administrative agency,
commission, or other governmental or regulatory body, authority or
instrumentality ("Government Entity") is necessary on the part of Stel for the
consummation by Stel of the Merger and the other transactions contemplated
hereby and by the Stock Option Agreement and the Technology Option Agreement,
or for the exercise by Newbridge and the Surviving Corporation of full rights
to own and operate the business of Stel and its Subsidiaries as presently being
conducted, except for (i) the filing of the Certificate of Merger as required
by Delaware Law, (ii) compliance with the applicable requirements of the
Securities Exchange Act of 1934, as amended (together with the Rules and
Regulations promulgated thereunder, the "Exchange Act") including the filing of
a proxy statement on Schedule 14A which is expected to be incorporated into a
Registration Statement on Form S-4 to be filed by Newbridge registering the
Newbridge Common Stock to be issued hereunder (the "Registration Statement"),
state securities or "blue sky" laws and state takeover laws, (iii) any filing
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR Act") and (iv) the voluntary notice to be filed under Section 721 of the
Defense Production Act of 1950, as amended by Section 5021 of the Omnibus Trade
and Competitiveness Act of 1988 (the "Exon-Florio Amendment"). Neither the
execution and delivery of this Agreement, the Stock Option Agreement, and the
Technology Option Agreement nor the consummation of the
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Merger and the other transactions contemplated hereby and thereby nor
compliance by Stel with all of the provisions hereof and thereof, nor the
exercise by Newbridge and the Surviving Corporation of full rights to own and
operate the business of Stel and its Subsidiaries as presently being conducted
will, subject to obtaining the approval of this Agreement by the holders of a
majority of the outstanding shares of Stel Common Stock at the Stel Special
Meeting or any adjournment thereof in accordance with Delaware Law, (i)
conflict with or result in any breach of any provision of the certificate of
incorporation, bylaws or other charter document of Stel or any of its
Subsidiaries, (ii) violate any material order, writ, injunction, decree,
statute, rule or regulation applicable to Stel, or any of its Subsidiaries, or
by which any of their properties or assets may be bound, or (iii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default under, or result in any material change in, or give
rise to any right of termination, cancellation, acceleration, redemption or
repurchase under, any of the terms, conditions or provisions of any material
note, bond, mortgage, indenture, deed of trust, license, lease, contract,
agreement or other instrument or obligation to which Stel or any of its
Subsidiaries is a party or by which any of them or any of their properties or
assets may be bound. Schedule 3.3 of the Stel Disclosure Statement lists all
consents, waivers and approvals required to be obtained in connection with the
consummation of the transactions contemplated hereby or by the Stock Option
Agreement or Technology Option Agreement under any of Stel's or any of its
Subsidiaries' notes, bonds, mortgages, indentures, deeds of trust, licenses or
leases, contracts, agreements or other instruments or obligations the failure
to obtain which would have a Stel Material Adverse Effect.
3.4 Board Recommendation. The board of directors of Stel has, at a meeting
of such board duly held on June 21, 1999, unanimously (i) approved and adopted
this Agreement, the Stock Option Agreement and the Technology Option Agreement
(ii) determined that this Agreement is fair to and in the best interests of the
stockholders of Stel, (iii) resolved to recommend approval of this Agreement to
the stockholders of Stel, (iv) resolved that Stel take all action necessary to
exempt the execution and delivery of this Agreement, the Stock Option Agreement
and the Technology Option Agreement and the consummation of the transactions
contemplated hereby and thereby from the provisions of all applicable state
antitakeover statutes and regulations, including, but not limited to, Section
203 of the Delaware Law, and (v) amended the Stel Rights Agreement (the "Stel
Rights Plan") dated as of May 9, 1995 between Stel and the First National Bank
of Boston to render the rights issued thereunder (the "Stel Rights")
inapplicable to the Merger, this Agreement, the Stock Option Agreement and the
Technology Option Agreement and the other transactions contemplated hereby, and
to terminate the Stel Rights Plan as of the Effective Time.
3.5 Fairness Opinion. Stel has received the opinion of Ferris, Baker, Watts
dated the date of the approval of this Agreement by the board of directors of
Stel to the effect that the Exchange Ratio is fair to Stel's stockholders from
a financial point of view, and has provided a copy of such opinion to
Newbridge.
3.6 Capitalization.
(a) The authorized capital stock of Stel consists of 25,000,000 shares of
Stel Common Stock. As of June 16, 1999, there were (i) 13,152,959 shares of
Stel Common Stock outstanding, and (ii) no treasury shares.
(b) Other than the Stel Common Stock, there are no equity securities of any
class of Stel, or any securities convertible into or exercisable for any such
equity securities, issued, reserved for issuance or outstanding. Except for the
Stel Options, Stel Rights, and purchase rights under the Stel Purchase Plan
there are no warrants, options, convertible securities, calls, rights, stock
appreciation rights, preemptive rights, rights of first refusal, or agreements
or commitments of any nature obligating Stel to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or
other equity interests of Stel, or obligating Stel to grant, issue, extend,
accelerate the vesting of, or enter into, any such warrant, option, convertible
security, call, right, stock appreciation right, preemptive right, right of
first refusal, agreement or commitment. To the knowledge of Stel, except for
the Voting Agreements, there are no voting trusts, proxies or other agreements
or understandings with respect to the capital stock of Stel.
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(c) True and complete copies of each Stel Stock Plan and the Stel Purchase
Plan, and of the forms of all agreements and instruments relating to or issued
under each thereof, have been made available to Newbridge. Such agreements,
instruments, and forms have not been amended, modified or supplemented, and
there are no agreements to amend, modify or supplement any such agreements,
instruments or forms.
(d) Schedule 3.6(d) of the Stel Disclosure Statement sets forth the
following information with respect to Stel Options outstanding as of June 16,
1999: the aggregate number of shares issuable thereunder, the type of option,
the grant date, the expiration date, the exercise price and the vesting
schedule. Each Stel Option was granted in accordance with the terms of the Stel
Stock Plan applicable thereto. The terms of each of the Stel Stock Plans do not
prohibit the assumption of the Stel Options as provided in Section 2.2(a).
Consummation of the Merger will accelerate vesting of all Stel Options, except
those which have been outstanding for less than one year as of the Effective
Time.
3.7 SEC Filings.
(a) Stel has filed with the Securities and Exchange Commission (the "SEC")
all required forms, reports, registration statements and documents required to
be filed by it with the SEC (collectively, all such forms, reports,
registration statements and documents filed since April 1, 1996 are referred to
herein as the "Stel SEC Reports"). All of the Stel SEC Reports complied as to
form, when filed, in all material respects with the applicable provisions of
the Securities Act of 1933, as amended (together with the rules and regulations
promulgated thereunder, the "Securities Act") and the Exchange Act. Accurate
and complete copies of the Stel SEC Reports have been made available to
Newbridge. As of their respective dates, the Stel SEC Reports (including all
exhibits and schedules thereto and documents incorporated by reference therein)
did not contain any untrue statement of a material fact or omit 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. Stel has been advised by each of its officers and directors that
each such person and such persons' affiliates have complied with all filing
requirements under Section 13 and Section 16(a) of the Exchange Act.
3.8 Financial Statements. Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in the Stel SEC
Reports (the "Stel Financial Statements"), (a) was prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited interim financial statements, as may be
permitted by the SEC on Form 10-Q under the Exchange Act) and (b) fairly
presented the consolidated financial position of Stel and its Subsidiaries as
at the respective dates thereof and the consolidated results of its operations
and cash flows for the periods indicated, consistent with the books and records
of Stel, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not, or are not
expected to be, material in amount. The balance sheet of Stel contained in
Stel's Annual Report to Stockholders for the year ended March 31, 1999 (the
"Reference Date") is hereinafter referred to as the "Stel Balance Sheet."
3.9 Absence of Undisclosed Liabilities. Neither Stel nor any of its
Subsidiaries has any liabilities (absolute, accrued, contingent or otherwise)
other than (i) liabilities included in the Stel Balance Sheet and the related
notes to the financial statements, (ii) normal or recurring liabilities
incurred since the Reference Date in the ordinary course of business consistent
with past practice which, individually or in the aggregate, would not be
reasonably likely to have a Stel Material Adverse Effect, and (iii) liabilities
under this Agreement, the Stock Option Agreement and the Technology Option
Agreement.
3.10 Absence of Changes or Events. Except as contemplated by this Agreement,
since the Reference Date no Stel Material Adverse Effect has occurred and, in
addition, Stel and its Subsidiaries have not, directly or indirectly:
(a) purchased, otherwise acquired, or agreed to purchase or otherwise
acquire, any shares of capital stock of Stel or any of its Subsidiaries, or
declared, set aside or paid any dividend or otherwise made a distribution
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(whether in cash, stock or property or any combination thereof) in respect of
their capital stock (other than dividends or other distributions payable solely
to Stel or a wholly owned Subsidiary of Stel);
(b) authorized for issuance, issued, sold, delivered, granted or issued any
options, warrants, calls, subscriptions or other rights for, or otherwise
agreed or committed to issue, sell or deliver any shares of any class of
capital stock of Stel or its Subsidiaries or any securities convertible into or
exchangeable or exercisable for shares of any class of capital stock of Stel or
its Subsidiaries, other than pursuant to and in accordance with the Stel Stock
Plans;
(c) (i) created or incurred any indebtedness for borrowed money exceeding
U.S. $100,000 in the aggregate, (ii) assumed, guaranteed, endorsed or otherwise
as an accommodation become responsible for the obligations of any other
individual, firm or corporation, made any loans or advances to any other
individual, firm or corporation exceeding U.S. $100,000 in the aggregate, (iii)
entered into any oral or written material agreement or any commitment or
transaction or incurred any liabilities material to Stel and its Subsidiaries
taken as a whole, or involving in excess of U.S. $100,000;
(d) instituted any change in accounting methods, principles or practices
other than as required by GAAP or the rules and regulations promulgated by the
SEC and disclosed in the notes to the Stel Financial Statements;
(e) revalued any assets, including without limitation, writing down the
value of inventory or writing off notes or accounts receivable in excess of
amounts previously reserved as reflected in the Stel Balance Sheet;
(f) suffered any damage, destruction or loss, whether covered by insurance
or not, except for such as would not, individually and in the aggregate exceed
$250,000;
(g) (i) increased in any manner the compensation of any of its directors,
officers or, other than in the ordinary course of business and consistent with
past practice, non-officer employees, (ii) granted any severance or termination
pay to any Person; (iii) entered into any oral or written employment,
consulting, indemnification or severance agreement with any Person; (iv)
adopted, become obligated under, or amended any employee benefit plan, program
or arrangement; or (v) repriced any Stel Options;
(h) sold, transferred, leased, licensed, pledged, mortgaged, encumbered, or
otherwise disposed of, or agreed to sell, transfer, lease, license, pledge,
mortgage, encumber, or otherwise dispose of, any material properties,
(including intangibles, real, personal or mixed);
(i) amended its certificate of incorporation, bylaws, or any other charter
document, or effected or been a party to any merger, consolidation, share
exchange, business combination, recapitalization, reclassification of shares,
stock split, reverse stock split or similar transaction;
(j) made any capital expenditure in any calendar month which, when added to
all other capital expenditures made by or on behalf of Stel and its
Subsidiaries in such calendar month resulted in such capital expenditures
exceeding U.S. $250,000 in the aggregate;
(k) paid, discharged or satisfied any material claims, liabilities or
obligations (absolute, accrued, contingent or otherwise), other than the
payment, discharge or satisfaction of liabilities (including accounts payable)
in the ordinary course of business and consistent with past practice, or
collected, or accelerated the collection of, any amounts owed (including
accounts receivable) other than their collection in the ordinary course of
business;
(l) waived, released, assigned, settled or compromised any material claim or
litigation, or commenced a lawsuit other than for the routine collection of
bills;
(m) agreed or proposed to do any of the things described in the preceding
clauses (a) through (l) other than as expressly contemplated or provided for in
this Agreement.
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3.11 Capital Stock of Subsidiaries. Stel is directly or indirectly the
record and beneficial owner of all of the outstanding shares of capital stock
or other equity interests of each of its Subsidiaries (other than qualifying
shares, the ownership of which is set forth in Schedule 3.11 of the Stel
Disclosure Statement). All of such shares have been duly authorized and are
validly issued, fully paid, nonassessable and free of preemptive rights with
respect thereto and are owned by Stel free and clear of any claim, lien or
encumbrance of any kind with respect thereto. There are no proxies or voting
agreements with respect to such shares, and there are not any existing options,
warrants, calls, subscriptions, or other rights or other agreements or
commitments obligating Stel or any Subsidiaries to issue, transfer or sell any
shares of capital stock of any Subsidiary or any other securities convertible
into, exercisable for, or evidencing the right to subscribe for any such
shares. Stel does not directly or indirectly own any interest in any Person
except the Subsidiaries.
3.12 Litigation.
(a) There is no private or governmental claim, action, suit (whether in law
or in equity), investigation or proceeding of any nature ("Action") pending or,
to the knowledge of Stel, threatened against Stel or any of its Subsidiaries,
or any of their respective officers and directors (in their capacities as
such), or involving any of their assets, before any court, governmental or
regulatory authority or body, or arbitration tribunal, except for those Actions
which, individually and in the aggregate, would not have a Stel Material
Adverse Effect. There is no Action pending or, to the knowledge of Stel,
threatened which in any manner challenges, seeks to, or is reasonably likely to
prevent, enjoin, alter or delay the transactions contemplated by this
Agreement, the Stock Option Agreement or the Technology Option Agreement.
(b) There is no outstanding judgment, order, writ, injunction or decree of
any court, governmental or regulatory authority or body, or arbitration
tribunal in a proceeding to which Stel, any Subsidiary of Stel, or any of their
assets is or was a party or by which Stel, any Subsidiary of Stel, or any of
their assets is bound.
3.13 Insurance. Schedule 3.13 of the Stel Disclosure Statement lists all
insurance policies (including without limitation workers' compensation
insurance policies) covering the business, properties or assets of Stel and its
Subsidiaries, the premiums and coverages of such policies, and all claims in
excess of U.S. $50,000 made against any such policies since April 1, 1996. All
such policies are in effect, and true and complete copies of all such policies
have been made available to Newbridge. Stel has not received notice of the
cancellation or threat of cancellation of any of such policy.
3.14 Contracts and Commitments.
(a) Except as filed as an exhibit to Stel's SEC Reports, neither Stel nor
its Subsidiaries is a party to or bound by any oral or written contract,
obligation or commitment of any type in any of the following categories:
(i) agreements or arrangements that contain severance pay, understandings
with respect to tax arrangements, understandings with respect to expatriate
benefits, or post-employment liabilities or obligations;
(ii) agreements or plans under which benefits will be increased or
accelerated by the occurrence of any of the transactions contemplated by this
Agreement, or the Stock Option Agreement or under which the value of the
benefits will be calculated on the basis of any of the transactions
contemplated by this Agreement or the Stock Option Agreement;
(iii) agreements, contracts or commitments currently in force relating to
the disposition or acquisition of material assets other than in the ordinary
course of business, or relating to an ownership interest in any corporation,
partnership, joint venture or other business enterprise;
(iv) agreements, contracts or commitments (A) relating to the acquisition,
transfer, development, sharing, license (to or by Stel), or use of any Stel IP
Right (except for any contract pursuant to which any Stel IP Right is licensed
to Stel under any third party software license generally available to the
public), or (B) with respect to the manufacturing, distribution or marketing of
any products of Stel;
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(v) agreements, contracts or commitments for the purchase of materials,
supplies or equipment which provide for purchase prices substantially greater
than those presently prevailing for such materials, supplies or equipment, or
which are with sole or single source suppliers, other than those which if
terminated would not constitute a Material Adverse Effect;
(vi) guarantees or other agreements, contracts or commitments under which
Stel or any of its Subsidiaries is absolutely or contingently liable for (A)
the performance of any other person, firm or corporation (other than Stel or
its Subsidiaries), or (B) the whole or any part of the indebtedness or
liabilities of any other person, firm or corporation (other than Stel or its
Subsidiaries);
(vii) powers of attorney authorizing the incurrence of a material obligation
on the part of Stel or its Subsidiaries;
(viii) agreements, contracts or commitments which limit or restrict (A)
where Stel or any of its Subsidiaries may conduct business, (B) the type or
lines of business (current or future) in which they may engage, or (C) any
acquisition of assets or stock (tangible or intangible) by Stel or any of its
Subsidiaries;
(ix) agreements, contracts or commitments containing any agreement with
respect to a change of control of Stel or any of its Subsidiaries;
(x) agreements, contracts or commitments for the borrowing or lending of
money, or the availability of credit (except credit extended by Stel or any of
its Subsidiaries to customers in the ordinary course of business and consistent
with past practice); and
(xi) any hedging, option, derivative or other similar transaction and any
foreign exchange position or contract for the exchange of currency;
(b) Neither Stel nor any of its Subsidiaries, nor to Stel's knowledge any
other party to a Stel Contract (as defined below), has breached, violated or
defaulted under, or received notice that it has breached, violated or defaulted
under, (nor does there exist any condition under which, with the passage of
time or the giving of notice or both, could reasonably be expected to cause
such a breach, violation or default under), any material agreement, contract or
commitment to which Stel or any of its Subsidiaries is a party or by which any
of them or any of their properties or assets may be bound (any such agreement,
contract or commitment, a "Stel Contract"), other than any breaches, violations
or defaults which individually or in the aggregate would not have a Stel
Material Adverse Effect.
(c) Each Stel Contract is a valid, binding and enforceable obligation of
Stel and to Stel's knowledge, of the other party or parties thereto, in
accordance with its terms, and in full force and effect, except where the
failure to be valid, binding, enforceable and in full force and effect would
not have a Stel Material Adverse Effect and to the extent enforcement may be
limited by applicable bankruptcy, insolvency, moratorium or other laws
affecting the enforcement of creditors' rights governing or by general
principles of equity.
(d) An accurate and complete copy of each Stel Contract has been made
available to Newbridge.
3.15 Labor Matters; Employment and Labor Contracts.
(a) None of Stel or any of its Subsidiaries is a party to any union contract
or other collective bargaining agreement, nor to the knowledge of Stel or any
of its Subsidiaries are there any activities or proceedings of any labor union
to organize any of its employees. Each of Stel and its Subsidiaries is in
compliance with all applicable (i) laws, regulations and agreements respecting
employment and employment practices, (ii) terms and conditions of employment,
and (iii) occupational health and safety requirements, except for those
failures to comply which, individually or in the aggregate, would not have a
Stel Material Adverse Effect.
(b) There is no labor strike, slowdown or stoppage pending (or any labor
strike or stoppage threatened) against Stel or any of its Subsidiaries. No
petition for certification has been filed and is pending before the National
Labor Relations Board with respect to any employees of Stel or any of its
Subsidiaries who are not
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currently organized. Neither Stel nor any of its Subsidiaries has any
obligations under the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended ("COBRA"), with respect to any former employees or qualifying
beneficiaries thereunder, except for obligations that would not have,
individually or in the aggregate, a Stel Material Adverse Effect. There are no
controversies pending or, to the knowledge of Stel or any of its Subsidiaries,
threatened, between Stel or any of its Subsidiaries and any of their respective
employees, which controversies would have, individually or in the aggregate, a
Stel Material Adverse Effect.
(c) Neither Stel nor any of its Subsidiaries is a party to or bound by any
employment agreements or arrangements that are not terminable at will by Stel
or its Subsidiaries.
3.16 Compliance with Laws. Neither Stel nor any of its Subsidiaries has
violated or failed to comply with any statute, law, ordinance, rule or
regulation (including without limitation relating to the export or import of
goods or technology) of any foreign, federal, state or local government or any
other governmental department or agency, except where any such violations or
failures to comply would not, individually or in the aggregate, have a Stel
Material Adverse Effect. Stel and its Subsidiaries have all permits, licenses
and franchises from governmental agencies required to conduct their businesses
as now being conducted and as proposed to be conducted, except for those, the
absence of which, would not, individually or in the aggregate, have a Stel
Material Adverse Effect.
3.17 Government Contracts.
(a) For purposes of this Agreement:
(i) "Government Body" shall mean any: (A) nation, state, commonwealth,
province, territory, county, municipality, district or other jurisdiction of
any nature; (B) federal, state, local, municipal, foreign or other government;
or (C) governmental or quasi-governmental authority of any nature (including
any governmental division, department, agency, commission, instrumentality,
official, organization, unit, body or entity and any court or other tribunal).
(ii) "Government Bid" shall mean any quotation, bid or proposal submitted to
any Government Body or any proposed prime contractor or higher-tier
subcontractor of any Government Body.
(iii) "Government Contract" shall mean any prime contract, subcontract,
letter contract, purchase order or delivery order executed or submitted to or
on behalf of any Government Body or any prime contractor or higher-tier
subcontractor, or under which any Government Body or any such prime contractor
or subcontractor otherwise has or may acquire any right or interest.
(iv) "Legal Requirement" shall mean any federal, state, local, municipal,
foreign or other law, statute, constitution, resolution, ordinance, code,
edict, decree, rule, regulation, ruling or requirement issued, enacted,
adopted, promulgated, implemented or otherwise put into effect by or under the
authority of any Government Body.
(b) Since April 1, 1996, except as set forth in Schedule 3.17 of the Stel
Disclosure Statement:
(i) neither Stel nor any Subsidiary has had any determination of
noncompliance, entered into any consent order or undertaken any internal
investigation relating directly or indirectly to any Government Contract or
Government Bid;
(ii) neither Stel nor any Subsidiary has failed to comply in all material
respects with all Legal Requirements with respect to all Government Contracts
and Government Bids;
(iii) neither Stel nor any Subsidiary has, in obtaining or performing any
Government Contract, violated any applicable procurement law or regulation or
other material Legal Requirement;
(iv) all facts set forth in or acknowledged by Stel or any Subsidiary in any
certification, representation or disclosure statement submitted by Stel or any
Subsidiary with respect to any Government Contract or Government Bid were
current, accurate and complete as of the date of submission;
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(v) neither Stel nor any Subsidiary has, nor to the best of Stel's
knowledge, have any of their respective employees been debarred or suspended
from doing business with any Government Body, nor have any proceedings been
initiated against Stel, any Subsidiary or, to the best of Stel's knowledge, any
employee of Stel or any Subsidiary that might result in such debarment or
suspension;
(vi) no negative determination of responsibility has been issued against
Stel or any Subsidiary in connection with any Government Contract or Government
Bid;
(vii) no direct or indirect costs incurred by Stel or any Subsidiary have
been questioned or disallowed as a result of a finding or determination of any
kind by any Government Body;
(viii) no Government Body, or prime contractor or higher-tier subcontractor
of any Government Body, has withheld or set off, or threatened to withhold or
set off, any amount due to Stel or any Subsidiary under any Government
Contract;
(ix) there have been no material irregularities, misstatements or omissions
relating to any Government Contract or Government Bid that have led to or have
a reasonable prospect of leading to (A) any administrative, civil, criminal or
other investigation, legal proceeding or indictment involving Stel, any
Subsidiary or any of their employees, (B) the questioning or disallowance of
any costs submitted for payment by Stel or any Subsidiary, (C) the recoupment
of any payments previously made to Stel or any Subsidiary, (D) a finding or
claim of fraud, defective pricing, mischarging or improper payments on the part
of Stel or any Subsidiary, or (E) the assessment of any penalties or damages of
any kind against Stel or any Subsidiary;
(x) there are not nor have there been any (A) outstanding claims against
Stel or any Subsidiary by, or dispute involving Stel or any Subsidiary with,
any prime contractor, subcontractor, vendor or other Person arising under or
relating to the award or performance of any Government Contract, (B) facts
known by Stel upon which any such claim may be based or which may give rise to
any such dispute, (C) final decisions of any Government Body against Stel or
any Subsidiary;
(xi) neither Stel nor any Subsidiary is undergoing, or has undergone an
audit, and Stel has no knowledge of any impending audit, arising under or
relating to any Government Contract (other than normal routine audits conducted
in the ordinary course of business);
(xii) neither Stel nor any Subsidiary has entered into any financing
arrangement or assignment of proceeds with respect to the performance of any
Government Contract;
(xiii) no payment has been made by Stel or any Subsidiary or by any Person
acting on Stel's or any Subsidiary's behalf to any Person (other than to any
bona fide employee or agent of Stel or any Subsidiary) which is or was
contingent upon the award of any Government Contract or which would otherwise
be in violation of any applicable procurement law or regulation or any other
Legal Requirement;
(xiv) Stel's and each of its Subsidiaries cost accounting system is in
material compliance with applicable regulations and other applicable Legal
Requirements, and has not has been determined by any Government Body not to be
in material compliance with any Legal Requirement;
(xv) to the best of Stel's knowledge, Stel and its Subsidiaries have
complied with all applicable regulations and other Legal Requirements and with
all applicable contractual requirements relating to the placement of legends or
restrictive markings on technical data, computer software and other
intellectual property;
(xvi) neither Stel nor any Subsidiary has made any disclosure to any
Government Body pursuant to any formal agency disclosure program;
(xvii) Stel and its Subsidiaries have reached agreement with the cognizant
government representatives approving and "closing" all indirect costs charged
to Government Contracts;
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(xviii) the responsible government representatives have agreed with Stel and
each Subsidiary on the "forward pricing rates" that Stel or such Subsidiary is
charging on cost-type Government Contracts and including in Government Bids;
and
(xix) with the exception of potential novation or change-of-name agreement
that may be required by a Government Body under applicable Legal Requirements,
neither Stel nor any Subsidiary is or will be required to make any filing with
or give any notice to, or to obtain any consent from, any Government Body under
or in connection with any Government Contract or Government Bid as a result of
or by virtue of (A) the execution, delivery or performance of this Agreement or
any of the other agreements referred to in this Agreement, or (B) the
consummation of the transactions contemplated by this Agreement, the Stock
Option Agreement and the Technology Option Agreement.
3.18 Intellectual Property Rights.
(a) Stel and its Subsidiaries own or have the right to use all intellectual
property used in or necessary to conduct their respective businesses (such
intellectual property and the rights thereto are collectively referred to
herein as the "Stel IP Rights").
(b) Schedule 3.18 of Stel Disclosure Statement sets forth, with respect to
all Stel IP Rights registered with any Government Body or for which an
application has been filed with any Government Body, (i) a brief description of
such Stel IP Rights, and (ii) the names of the jurisdictions covered by the
applicable registration or application. Schedule 3.18 of Stel Disclosure
Statement identifies and provides a brief description of, and identifies any
ongoing royalty or payment obligations with respect to, each Stel IP Right that
is licensed or otherwise made available to Stel by any Person (except for any
Stel IP Right that is licensed to Stel under any third party software license
generally available to the public), and identifies the agreement under which
such Stel IP Right is being licensed or otherwise made available to Stel. Stel
has good, valid and marketable title to all of Stel IP Rights (except for
licensed rights), free and clear of all encumbrances, except (i) as set forth
in Schedule 3.18 of the Stel Disclosure Statement, (ii) for any lien for
current taxes not yet due and payable, and (iii) for minor liens that have
arisen in the ordinary course of business and that do not (individually or in
the aggregate) materially detract from the value of the rights subject thereto
or materially impair the operations of Stel. To Stel's knowledge, Stel has a
valid right to use, license and otherwise exploit all Stel IP Rights. Except as
set forth in Schedule 3.18 of Stel Disclosure Statement, Stel has not developed
jointly or does not jointly own or have joint rights with any other Person any
Stel IP Right that is material to the business of Stel. Except as set forth in
Schedule 3.18 of the Stel Disclosure Statement, there is no agreement or
arrangement pursuant to which any Person has any right (whether or not
currently exercisable) to use, license or otherwise exploit any Stel IP Rights.
(c) Stel has taken all commercially reasonable measures and precautions to
protect and maintain the confidentiality and secrecy of all Stel IP Rights
(except Stel IP Rights whose value would be unimpaired by public disclosure)
and otherwise to maintain and protect the value of all Stel IP Rights.
(d) To the knowledge of Stel, Stel is not misappropriating or making any
unlawful use of, and Stel has not at any time misappropriated or made any
unlawful use, of, or received any notice or other communication (in writing or
otherwise) of any actual, alleged, possible or potential infringement,
misappropriation or unlawful use of, any intellectual property rights owned or
used by any other Person. Stel is not aware that any Person is
misappropriating, or making unlawful use of any of the Stel IP Rights.
(e) Stel has not licensed any of the Stel IP Rights to any Person on an
exclusive basis.
(f) The execution, delivery and performance of this Agreement, the Stock
Option Agreement or the Technology Option Agreement and the consummation of the
transactions contemplated hereby will not constitute a material breach of any
instrument or agreement governing any Stel IP Rights, and will not (i) cause
the modification of any terms of any licenses or agreements relating to any
Stel IP Rights, (ii) cause the forfeiture or termination of any Stel IP Rights,
(iii) give rise to a right of forfeiture or termination of any Stel
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IP Rights or (iv) materially impair the right of Stel, the Surviving
Corporation or Newbridge to use, sell or license any Stel IP Rights or portion
thereof.
(g) Neither the manufacture, marketing, license, sale nor intended use of
any product or technology currently licensed or sold or under development by
Stel or any of its Subsidiaries (i) violates in any material respect any
license or agreement between Stel or any of its Subsidiaries and any third
party or (ii) infringes in any material respect any patents or other
intellectual property rights of any other party; and there is no pending or
threatened claim or litigation contesting the validity, ownership or right to
use, sell, license or dispose of any Stel IP Rights, or asserting that any Stel
IP Rights or the proposed use, sale, license or disposition thereof, or the
manufacture, use or sale of any Stel products, conflicts or will conflict with
the rights of any other party.
(h) Stel has provided to Newbridge a true and complete copy of its standard
form of employee confidentiality agreement and taken all commercially
reasonably necessary steps to ensure that all employees have executed such an
agreement. All consultants or third parties with access to proprietary
information of Stel have executed appropriate non-disclosure agreements which
adequately protect the Stel IP Rights.
(i) Neither Stel nor any of its Subsidiaries is aware or has reason to
believe that any of its employees or consultants is obligated under any
contract, covenant or other agreement or commitment of any nature, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of such employee's or consultant's best efforts to
promote the interests of Stel and its Subsidiaries or that would conflict with
the business of Stel as presently conducted or proposed to be conducted.
Neither Stel nor any of its Subsidiaries has entered into any agreement to
indemnify any other person, including but not limited to any employee or
consultant of Stel or any of its Subsidiaries, against any charge of
infringement, misappropriation or misuse of any intellectual property, other
than indemnification provisions contained in purchase orders or customer
agreements arising in the ordinary course of business. All current and former
employees of Stel or any of its Subsidiaries, and all current and former
consultants of Stel or any of its Subsidiaries who have provided services
related to Stel IP Rights, have signed valid and enforceable written
assignments to Stel or its Subsidiaries of any and all rights or claims in any
intellectual property that any such employee or consultant has or may have by
reason of any contribution, participation or other role in the development,
conception, creation, reduction to practice or authorship of any invention,
innovation, development or work of authorship or any other intellectual
property that is used in the business of Stel, and Stel and its Subsidiaries
possess signed copies of all such written assignments by such employees and
consultants.
3.19 Accounts Receivable; Inventories.
(a) Except as set forth in the Stel Balance Sheet, (i) each account
receivable of Stel and its Subsidiaries (the "Accounts Receivable") represents
a sale made in the ordinary course of business and which arose pursuant to an
enforceable contract for a bona fide sale of goods or for services performed,
and Stel and its Subsidiaries have performed all of their obligations to
produce the goods or perform the services to which such Accounts Receivable
relate, other than amounts recorded as deferred revenue, and (ii) no Account
Receivable is subject to any claim for reduction, counterclaim, set-off,
recoupment or other claim for credit, allowances or adjustment by the obligor
thereof.
(b) Subject to amounts reserved therefor on the Stel Balance Sheet, the
values at which all inventories are carried on the Stel Balance Sheet reflect
the historical inventory valuation policy of Stel and its Subsidiaries set
forth in the Stel SEC Reports. Stel and its Subsidiaries have good and
marketable title to the inventories free and clear of all liens and
encumbrances. The inventories do not consist of, in any material amount, items
that are obsolete, damaged or slow-moving beyond amounts reserved on the Stel
Balance Sheet. The inventories do not consist of any items held on consignment.
Neither Stel nor any of its Subsidiaries is under any obligation or liability
with respect to accepting returns of items of inventory or merchandise in the
possession of their customers other than in the ordinary course of business and
consistent with past practice. No clearance or extraordinary sale of the
inventories has been conducted since the Stel Reference Date. Subject to the
amounts
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reserved therefor on the Stel Balance Sheet, the inventories are in good and
merchantable condition in all material respects, are suitable and usable for
the purposes for which they are intended and are in a condition such that they
can be sold in the ordinary course of business consistent with past practice.
3.20 Order Backlog. Schedule 3.20 of the Stel Disclosure Statement contains
a list of the aggregate orders for the products of Stel and its Subsidiaries as
of the Stel Reference Date and as of April 30, 1999, and identifies each
customer included in the backlog and the range of products and prices by
customer constituting the backlog. Except as set forth on Schedule 3.20, all
such orders have been included in backlog on a basis consistent with Stel's
historical practices and Stel is not aware of any customer who has placed an
order included in such backlog having refused or who intends to refuse delivery
of any ordered products in accordance with the terms of such orders.
3.21 Product and Service Warranties. The standard written forms of product
and service warranties and guarantees utilized by Stel and its Subsidiaries as
of the date of this Agreement have been provided to Newbridge. Except as set
forth on Schedule 3.21 of the Stel Disclosure Statement, during a period of
three years prior to the date of this Agreement, neither Stel nor any
Subsidiary or any of their affiliates have made any other written material
warranties (which remain in effect) with regard to products and/or services
supplied by Stel or its Subsidiaries.
3.22 Taxes.
(a) For the purposes of this Agreement, a "Tax" or, collectively, "Taxes,"
means (i) any and all federal, state, local, foreign and other taxes,
assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
gains, franchise, capital stock, severance, withholding, payroll, recapture,
employment, excise, unemployment insurance, social security, business license,
occupation, business organization, stamp, environmental and property taxes,
together with all interest, penalties and additions imposed with respect to
such amounts; (ii) any liability for the payment of any amounts described in
clause (i) as a result of being a successor to or transferee of any individual
or entity or a member of an affiliated, consolidated or unitary group for any
period (including pursuant to Treas. Reg. (S) 1.1502-6 or comparable provisions
of state, local or foreign tax law); and (iii) any liability for the payment of
amounts described in clause (i) or clause (ii) as a result of any express or
implied obligation to indemnify any Person or as a result of any obligations
under agreements or arrangements with any Person.
(b) (i) Stel and each of its Subsidiaries have filed all material returns,
estimates, information statements and reports relating to Taxes ("Returns")
required to be filed by them prior to Closing, and such Returns are true and
correct and completed in accordance with applicable law. Schedule 3.22 of the
Stel Disclosure Statement lists all jurisdictions in which Returns are required
to be filed by Stel and its Subsidiaries (or have been required since April 1,
1996 of the Stel) and the types of Returns required to be filed in each such
jurisdiction.
(ii) Stel and each of its Subsidiaries have (A) timely paid all Taxes due
and payable by them as shown on the Returns, (B) timely paid all Taxes for
which a notice of assessment or collection has been received (other than
amounts properly accrued on the Stel Financial Statements, described in
paragraph (iii), below, and being contested in good faith by appropriate
proceedings), (C) accrued on the Stel Financial Statements all Taxes
attributable to periods covered by such statements that are not yet due and
payable, and (D) properly reserved, in accordance with GAAP, for all Taxes not
yet due but which are expected to become due and payable in the future.
(iii) Neither the Internal Revenue Service (the "IRS") nor any other taxing
authority has asserted any claim for Taxes in writing, or to the actual
knowledge of the executive officers of Stel, is threatening to assert any
claims for Taxes. No Tax deficiency notice or notice of assessment of
collection has been received in writing by Stel except as described on Schedule
3.22 of the Stel Disclosure Statement. No audit or, to Stel's knowledge, other
examination of any Return of Stel or any of its Subsidiaries is presently in
progress, nor have
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Stel or any of its Subsidiaries been notified in writing of any request for
such an audit or other examination. No power of attorney to deal with Tax
matters or waiver of any statute of limitations with respect to Taxes has been
granted by Stel or its Subsidiaries. Except as described on Schedule 3.22 of
the Stel Disclosure Statement the relevant statute of limitations for the
assessment or proposal of a deficiency for Taxes has expired for all years
before fiscal year 1995. None of Stel or its Subsidiaries has availed itself of
any Tax Amnesty, tax holiday or similar relief in any jurisdiction.
(iv) Stel and its Subsidiaries have withheld or collected and paid over to
the appropriate governmental authorities (or are properly holding for such
payment) all Taxes required by law to be withheld or collected with respect to
their operations, including withholdings on payments to Stel or its
Subsidiaries for sales and use taxes or payments by Stel or its Subsidiaries to
employees or independent contractors on account of federal, state, and foreign
income Taxes, the Federal Insurance Contribution Act, and the Federal
Unemployment Tax Act.
(v) There are no liens for Taxes upon the assets of Stel or any of its
Subsidiaries (other than liens for property Taxes that are not yet due or
delinquent).
(vi) There is no contract, agreement, plan or arrangement, including but not
limited to the provisions of this Agreement, covering any employee or former
employee of Stel or any of its Subsidiaries that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
pursuant to Sections 280G, 404 or 162 of the Code.
(vii) None of Stel nor any of its Subsidiaries has filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by Stel.
(viii) Neither Stel nor any of its Subsidiaries is or has been a member of
an affiliated group of corporations filing a consolidated federal income tax
return (or a group of corporations filing a consolidated, combined or unitary
income tax return under comparable provisions of state, local or foreign tax
law) other than a group the common parent of which is or was Stel.
(ix) Neither Stel nor any of its Subsidiaries has any obligation under any
agreement or arrangement with any other Person with respect to Taxes of such
other Person (including pursuant to Treas. Reg. (S) 1.1502-6 or comparable
provisions of state, local or foreign tax law) and including any liability for
Taxes of any predecessor entity.
(x) Stel has made available to Newbridge true copies of all Returns that
Stel or its Subsidiaries have filed since April 1, 1996 and true copies of all
correspondence and other written submissions to or communications with any Tax
authorities.
(xi) None of the assets of Stel is "tax-exempt use property" within the
meaning of Section 168(h) of the Code.
(xii) Stel has not agreed to make, nor is it required to make, any
adjustment under Section 481 of the Code by reason of a change in accounting
method or otherwise.
(xiii) Except as set forth in Schedule 3.22 of the Disclosure Statement,
Stel is not and has not been a party to any joint venture, partnership, or
other arrangement or contract that could be treated as a partnership for
federal income tax purposes.
(xiv) None of Stel nor any of its Subsidiaries has indemnified any person
against Tax in connection with any arrangement for the leasing of real or
personal property, except for indemnity with respect to acts of Stel or its
Subsidiaries.
(xv) None of Stel and its Subsidiaries has or has had operations or assets
outside of the United States taxable as a "branch" by the United States or as a
"permanent establishment" by any foreign country.
(xvi) None of Stel and its Subsidiaries is aware of any reason why the
Merger will fail to qualify as a reorganization under the provisions of Section
368(a) of the Code.
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3.23 Employee Benefit Plans; ERISA.
(a) Except as set forth on Schedule 3.23 of the Stel Disclosure Statement,
there are no "employee pension benefit plans" as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("Pension
Plans"), "welfare benefit plans" as defined in Section 3(1) of ERISA ("Welfare
Plans"), or stock bonus, stock option, restricted stock, stock appreciation
right, stock purchase, bonus, incentive, deferred compensation, severance,
holiday, or vacation plans, or any other employee benefit plan, program, policy
or arrangement covering employees (or former employees) employed in the United
States that either is maintained or contributed to by Stel or any of its
Subsidiaries or any of their ERISA Affiliates (as hereinafter defined) or to
which Stel or any of its Subsidiaries or any of their ERISA Affiliates is
obligated to make payments or otherwise may have any liability (collectively,
the "Employee Benefit Plans") with respect to employees or former employees of
Stel, its Subsidiaries, or any of their ERISA Affiliates. For purposes of this
Agreement, "ERISA Affiliate" shall mean any person (as defined in Section 3(9)
of ERISA) that is or has been a member of any group of persons described in
Section 414(b), (c), (m) or (o) of the Code, including without limitation Stel
or a Subsidiary.
(b) Stel and each of its Subsidiaries, and each of the Pension Plans and
Welfare Plans, are in compliance with the applicable provisions of ERISA, the
Code and other applicable laws, except where the failure to comply would not,
individually or in the aggregate, have a Stel Material Adverse Effect.
(c) All contributions to, and payments from, the Pension Plans which are
required to have been made in accordance with the Pension Plans have been
timely made, except where the failure to make such contributions or payments on
a timely basis would not, individually or in the aggregate, have a Stel
Material Adverse Effect.
(d) All of Stel's Pension Plans intended to qualify under Section 401 of the
Code have been determined by the Internal Revenue Service ("IRS") to be so
qualified, and no event has occurred and no condition exists with respect to
the form or operation of such Pension Plans which would cause the loss of such
qualification or exemption or the imposition of any material liability, penalty
or tax under ERISA or the Code.
(e) To the best of Stel's knowledge, there are no (i) investigations pending
by any Government Entity involving the Pension Plans or Welfare Plans, nor (ii)
pending or threatened claims (other than routine claims for benefits), suits or
proceedings against any Pension or Welfare Plan, against the assets of any of
the trusts under any Pension or Welfare Plan or against any fiduciary of any
Pension or Welfare Plan with respect to the operation of such plan or asserting
any rights or claims to benefits under any Pension Plan or against the assets
of any trust under such plan, except for those which would not, individually or
in the aggregate, give rise to any liability which would have a Stel Material
Adverse Effect. To the best of Stel's knowledge, there are no facts which would
give rise to any liability under this Section 3.24(e) except for those which
would not, individually or in the aggregate, have a Stel Material Adverse
Effect in the event of any such investigation, claim, suit or proceeding.
(f) None of Stel, any of its Subsidiaries or any employee of the foregoing,
nor any trustee, administrator, other fiduciary or any other "party in
interest" or "disqualified person" with respect to the Pension Plans or Welfare
Plans, has engaged in a "prohibited transaction" (as such term is defined in
Section 4975 of the Code or Section 406 of ERISA), other than such transactions
that would not, individually or in the aggregate, have a Stel Material Adverse
Effect.
(g) None of Stel, any of its Subsidiaries, or any of their ERISA Affiliates
maintain or contribute to, nor have they ever maintained or contributed to, any
pension plan subject to Title IV of ERISA or Section 412 of the Code or Section
302 of ERISA.
(h) Neither Stel nor any Subsidiary of Stel nor any ERISA Affiliate has
incurred any material liability under Title IV of ERISA that has not been
satisfied in full.
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(i) Neither Stel, any of its Subsidiaries nor any of their ERISA Affiliates
has any material liability (including any contingent liability under Section
4204 of ERISA) with respect to any multiemployer plan, within the meaning of
Section 3(37) of ERISA, covering employees (or former employees) employed in
the United States.
(j) With respect to each of the Employee Benefit Plans, true, correct and
complete copies of the following documents have been made available to
Newbridge: (i) the plan document and any related trust agreement, including
amendments thereto, (ii) any current summary plan descriptions and other
material communications to participants relating to the Employee Benefit Plans,
(iii) the three most recent Forms 5500, if applicable, and (iv) the most recent
IRS determination letter, if applicable.
(k) None of the Welfare Plans maintained by Stel or any of its Subsidiaries
provides for continuing benefits or coverage for any participant or any
beneficiary of a participant following termination of employment, except as may
be required under COBRA, or except at the expense of the participant or the
participant's beneficiary. Stel and each of its Subsidiaries which maintain a
"group health plan" within the meaning of Section 5000(b)(1) of the Code have
complied with the notice and continuation requirements of Section 4980B of the
Code, COBRA, Part 6 of Subtitle B of Title I of ERISA and the regulations
thereunder, except where the failure to comply would not, individually or in
the aggregate, have a Stel Material Adverse Effect.
(l) No liability under any Pension Plan or Welfare Plan has been funded nor
has any such obligation been satisfied with the purchase of a contract from an
insurance company as to which Stel or any of its Subsidiaries has received
notice that such insurance company is in rehabilitation or a comparable
proceeding.
(m) The consummation of the transactions contemplated by this Agreement will
not result in an increase in the amount of compensation or benefits or
accelerate the vesting or timing of payment of any benefits or compensation
payable to or in respect of any employee of Stel or any of its Subsidiaries
under any Employee Benefit Plan.
(n) Schedule 3.23(n) of the Stel Disclosure Statement lists each Foreign
Plan (as hereinafter defined). Stel and each of its Subsidiaries and each of
the Foreign Plans are in compliance with applicable laws, and all required
contributions have been made to the Foreign Plans, except where the failure to
comply or make contributions would not, individually or in the aggregate, have
a Stel Material Adverse Effect. Each of the Foreign Plans that is a funded
defined benefit plan has a fair market value of plan assets that is greater
than the plan's liabilities, as determined in accordance with applicable laws.
For purposes hereof, the term "Foreign Plan" shall mean any plan, program,
policy, arrangement or agreement maintained or contributed to by, or entered
into with, Stel or any Subsidiary with respect to employees (or former
employees) employed outside the United States to the extent the benefits
provided thereunder are not mandated by the laws of the applicable foreign
jurisdiction.
(o) To the best of Stel's knowledge, there are no claims, suits or facts
concerning the operation or benefits of any Employee Benefit Plan other than a
Pension or Welfare Plan except for those which would not, individually or in
the aggregate, give rise to any liability which would have a Stel Material
Adverse Effect.
(p) Each of the Employee Benefit Plans and the Foreign Plans can be
terminated by Stel within a period of 30 days following the Effective Time in
accordance with the terms of such Plan (and the provisions of ERISA and the
Code), without any additional contribution to such Employee Benefit Plan or
Foreign Plan or the payment of any additional compensation or amount or the
additional vesting or acceleration of any vesting provided under the Employee
Benefit Plan or Foreign Plan.
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3.24 Environmental Matters.
(a) For purposes of this Agreement:
(i) "Contractor" shall mean any person or entity, including but not limited
to partners, licensors, and licensees, with which Stel formerly or presently
has any agreement or arrangement (whether oral or written) under which such
person or entity has or had physical possession of, and was or is obligated to
develop, test, process, manufacture or produce any product or substance on
behalf of Stel.
(ii) "Environment" shall mean any land including, without limitation,
surface land and sub-surface strata, seabed or river bed and any water
(including, without limitation, coastal and inland waters, surface waters and
ground waters and water in drains and sewers) and air (including, without
limitation, air within buildings) and other natural or manmade structures above
or below ground.
(iii) "Environmental Law" means any law or regulation, now or hereafter in
effect and as amended, and any judicial or administrative interpretation
thereof, in each case relating to the Environment or harm to or the protection
of human health or animals or plants, including, without limitation, laws
relating to public and workers health and safety, emissions, discharges or
releases of chemicals or any other pollutants or contaminants or industrial,
radioactive, dangerous, toxic or hazardous substances or wastes (whether in
solid or liquid form or in the form of a gas or vapor and including noise and
genetically modified organisms) into the Environment or otherwise relating to
the manufacture, processing, use, treatment, storage, distribution, disposal
transport or handling of substances or wastes. Environmental Laws include,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act, as amended 42 USC 9601 et seq. ("CERCLA"), the Resource
Conservation and Recovery Act 42 USC, 6901 et seq., the Hazardous Materials
Transportation Act 49 USC, 6901 et seq., the Clean Water Act 33, 1251 et seq.,
the Toxic Substances Control Act 15 USC, 2601 et seq., the Clean Air Act 42
USC, 7401 et seq., the Safe Drinking Water Act 42 USC, 300f et seq., the Atomic
Energy Act 42 USC, 2201 et seq., the Federal Food Drug and Cosmetic Act 21 USC,
136 et seq., and the Federal Food Drug and Cosmetic Act 21 USC, 301 et seq.,
and equivalent state and local ordinances and statutes, and statutes and
ordinances in countries other than the United States of America.
(iv) "Environmental Permit" shall mean any permit, license, consent,
approval, certificate, qualification, specification, registration and other
authorization, and the filing of all notifications, reports and assessments,
required by any federal, state, local or foreign government or regulatory
entity pursuant to any Environmental Law.
(v) "Hazardous Material" shall mean any pollutant, contaminant, or
hazardous, toxic, medical, biohazardous, infectious or dangerous waste,
substance, gas, constituent or material, defined or regulated as such in, or
for purposes of, any Environmental Law, including, without limitation, any
asbestos, any petroleum, oil (including crude oil or any fraction thereof), any
radioactive substance, any polychlorinated biphenyls, any toxin, chemical,
virus, infectious disease or disease causing agent, and any other substance
that can give rise to liability under any Environmental Law.
(b) Except for such cases that, individually or in the aggregate, have not
and would not reasonably be expected to have a Stel Material Adverse Effect:
(i) Each of Stel and its Subsidiaries possesses all Environmental Permits
required under applicable Environmental Laws to conduct its current business
and to use and occupy the Real Property for its current business. All
Environmental Permits are in full force and effect and Stel and each of its
Subsidiaries are, and to Stel's knowledge have, at all times been in compliance
with the terms and conditions of such Environmental Permits.
(ii) There are no facts or circumstances indicating that any Environmental
Permits possessed by Stel or any of its Subsidiaries would or might be revoked,
suspended, canceled or not renewed, and all appropriate necessary action in
connection with the renewal or extension of any Environmental Permits possessed
by Stel or any of its Subsidiaries relating to their current business and the
Real Property has been taken.
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(iii) The execution and delivery of this Agreement and the Stock Option
Agreement and the consummation by Stel of the Merger and other transactions
contemplated hereby (and thereby) and the exercise by Newbridge and the
Surviving Corporation of rights to own and operate the business of Stel and its
Subsidiaries and use and occupy the Real Property and carry on its business
substantially as presently conducted will not affect the validity or require
the transfer of any Environmental Permits held by Stel or any of its
Subsidiaries and will not require any notification, disclosure, registration,
reporting, filing, investigation or remediation under any Environmental Law.
(iv) Stel and each of its Subsidiaries and, to the knowledge of Stel, all
previous owners, lessees and occupants of the real property now or previously
owned, leased or occupied by Stel and its Subsidiaries (the "Real Property"),
are in compliance with, and within the period of all applicable statutes of
limitation, have complied with all applicable Environmental Laws and have not
received notice of any liability under any Environmental Law; and neither Stel
or any of its Subsidiaries nor any portion of the Real Property is in violation
of any Environmental Law.
(v) There is no civil, criminal or administrative action, suit, demand,
claim, complaint, hearing, notice of violation, notice or demand letter,
proceeding or request for information pending or any liability (whether actual
or contingent) to make good, repair, reinstate, sample, investigate or clean up
any of the Real Property, including but not limited to ground water beneath
such Real Property. There is no act, omission, event or circumstance giving
rise or likely to give rise in the future to any such action, suit, demand,
claim, complaint, hearing, notice of violation, notice or demand letter,
proceeding, or request or any such liability or other liabilities (A) against
Stel or any of its Subsidiaries, or (B) against any person or entity, including
but not limited to any Contractor, in connection with which liability could
reasonably be imputed or attributed by law or contract to Stel or any of its
Subsidiaries.
(vi) No property or facility presently or formerly owned operated or leased
by Stel or any of its present or former Subsidiaries or by any respective
predecessor in interest is listed or proposed for listing, nor are there are
any facts or circumstances which would or might give rise to such an entry on
the National Priorities List or the CERCLA Information System ("CERCLIS"), both
under the CERCLA or on any comparable list established under any state or local
Environmental Law of a country other than the United States of America, nor has
Stel or any of its Subsidiaries received any notification of potential or
actual liability or any request for information under CERCLA or any comparable
foreign, state or local law.
(vii) There has not been any disposal, spill, discharge, or release of any
Hazardous Material generated, used, owned, stored, or controlled by Stel, any
of its Subsidiaries, or respective predecessors in interest, on, at, or under
any property presently or formerly owned, leased, or operated by Stel, its
Subsidiaries, any predecessor in interest, or any Contractor, and there are no
Hazardous Materials located in, at, on, or under, or in the vicinity of, any
such facility or property, or at any other location, in either case that could
reasonably be expected to require investigation, removal, remedial, or
corrective action by Stel or any of its Subsidiaries or that would reasonably
likely result in liability of, or costs in excess of, U.S. $250,000,
individually or in the aggregate, to Stel or any of its Subsidiaries under any
Environmental Law.
(viii) (A) Other than cleaning and office supplies normally used in the
operation of an office, Hazardous Materials have not been generated, used,
treated, handled or stored on, or transported to or from, or released on any
Real Property or, any property adjoining any Real Property; (B) Stel and its
Subsidiaries have disposed of all wastes, including those wastes containing
Hazardous Materials, in compliance with all applicable Environmental Law and
Environmental Permits; and (C) neither Stel nor any of its Subsidiaries has
transported or arranged for the transportation of any Hazardous materials to
any location that is listed or proposed for listing on the National Priorities
List under CERCLA or on the CERCLIS or any analogous state or country list or
which is the subject of any environmental claim.
(ix) There has not been any underground or aboveground storage tank or other
underground storage receptacle or related piping, or any impoundment or other
disposal area containing Hazardous Materials located
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on any Real Property owned, leased or operated by Stel, any of its
Subsidiaries, or respective predecessors in interest during the period of such
ownership, lease or operation, and no asbestos or polychlorinated biphenyls
have been used or disposed of, or have been located at, on, or under any such
facility or property during the period of such ownership lease or operation;
(x) Stel and its Subsidiaries have taken all actions necessary under
applicable requirements of Environmental Law to register any products or
materials required to be registered by Stel or any of its Subsidiaries (or any
of their respective agents) thereunder.
(c) After a reasonable investigation made by Stel, Stel has made available
to Newbridge all records and files, including, but not limited to, all
assessments, reports, studies, audits, analyses, tests and data in possession
of Stel and its Subsidiaries concerning the existence of Hazardous Materials at
facilities or properties currently or formerly owned, operated, or leased by
Stel or any present or former Subsidiary or predecessor in interest, or
concerning compliance by Stel and its Subsidiaries with, or liability under,
any Environmental Law.
3.25 Officer's Certificate as to Tax Matters. Stel knows of no reason why it
will be unable to deliver to Heller Ehrman White & McAuliffe and Thelen Reid &
Priest LLP at the Closing an Officer's Certificate in form sufficient to enable
each such counsel to render the opinions required by Section 7.2(d).
3.26 Affiliates. Stel has delivered to Newbridge in accordance with Section
5.9 a list identifying all persons who to Stel's knowledge may be deemed to be
"affiliates" of Stel for purposes of Rule 145 under the Securities Act
("Affiliates").
3.27 Finders or Brokers. Except for Ferris, Baker Watts, Incorporated, whose
fees have been disclosed to Newbridge, neither Stel nor any of its Subsidiaries
has employed any investment banker, broker, finder or intermediary in
connection with the transactions contemplated hereby who might be entitled to a
fee or any commission the receipt of which is conditioned upon consummation of
the Merger.
3.28 Registration Statement; Proxy Statement/Prospectus. The information
supplied by Stel for inclusion or incorporation by reference in the
Registration Statement (as defined herein) as it relates to Stel, at the time
the Registration Statement is declared effective by the SEC shall not 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. The information supplied by Stel for inclusion in the
proxy statement/prospectus to be sent to the stockholders of Stel in connection
with the Stel Special Meeting (such proxy statement/prospectus, as amended and
supplemented is referred to herein as the "Proxy Statement/Prospectus"), at the
date the Proxy Statement/Prospectus is first mailed to stockholders, at the
time of the Stel Special Meeting and at the Effective Time shall not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. If at any time prior to the Effective Time any event with respect
to Stel or any of its Subsidiaries shall occur which is required to be
described in the Proxy Statement/Prospectus, such event shall be so described,
and an amendment or supplement shall be promptly filed with the SEC and, as
required by law, disseminated to the stockholders of Stel.
3.29 Title to Property. Stel and its Subsidiaries have good and valid title
to all of their respective properties, interests in properties and assets, real
and personal, reflected in the Stel Balance Sheet or acquired after the
Reference Date, and have valid leasehold interests in all leased properties and
assets, in each case free and clear of all mortgages, liens, pledges, charges
or encumbrances of any kind or character, except (i) liens for current taxes
not yet due and payable, (ii) such imperfections of title, liens and easements
as do not and will not materially detract from or interfere with the use of the
properties subject thereto or affected thereby, or otherwise materially impair
business operations involving such properties, (iii) liens securing debt
reflected on the Stel Balance Sheet, (iv) liens recorded pursuant to any
Environmental Law or (v) liens which would not, individually or in the
aggregate, have a Stel Material Adverse Effect. Schedule 3.29 of the Stel
Disclosure Statement identifies each parcel of real property owned or leased by
Stel or any of its Subsidiaries.
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3.30 Year 2000 Compliance. All of Stel's products (including products sold
to date, products currently being sold or products under development), both
individually and when operating in conjunction with all other systems or
products with which they are designed to interface, and all computer software
and hardware (including microcode, firmware, system and application programs,
files, databases, computer services, and microcontrollers, including those
embedded in computer and noncomputer equipment) contained in Stel's products
(including products sold to date, products currently being sold or products
under development) are Year 2000 Compliant. "Year 2000 Compliant" means that
such hardware or software will: (a) process date data from at least the years
1900 through 2101 without error or interruption; (b) maintain functionality
with respect to the introduction, processing, or output of records containing
dates falling on or after January 1, 2000; and (c) be interoperable with other
software or hardware which may deliver records to, receive records from, or
interact with such hardware or software in the course of conducting the
business of Stel, including processing data and manufacturing the products of
Stel. All of Stel's internal computer systems are, both individually and in
conjunction with all other systems with which they interface, Year 2000
Compliant. Stel has made inquiries of its manufacturers, suppliers and
customers and, to its knowledge, Stel is not relying on any third party whose
systems are not Year 2000 Compliant. Stel does not have any material expenses
or other material liabilities associated with securing Year 2000 Compliance, or
making contingency arrangements to address Year 2000 Compliance issues, with
respect to Stel's products (including products sold to date, products currently
being sold or products under development), internal computer systems or the
computer systems or products or services of Stel's manufacturers, suppliers or
customers.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NEWBRIDGE AND MERGER SUB
Newbridge and Merger Sub make to Stel the representations and warranties
contained in this Article IV, in each case subject to the exceptions set forth
in the disclosure statement, dated as of the date hereof, delivered by
Newbridge to Stel in connection with the execution of this Agreement (the
"Newbridge Disclosure Statement"). The Newbridge Disclosure Statement shall be
arranged in schedules corresponding to the numbered and lettered Sections of
this Article IV, and the disclosure in any schedule of the Newbridge Disclosure
Statement shall qualify only the corresponding Section of this Article IV.
4.1 Organization, Etc.
(a) Each of Newbridge, its material subsidiaries listed on Section 4.1(a) of
the Newbridge Disclosure Statement (the "Newbridge Material Subsidiaries") and
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. Newbridge and the Newbridge
Material Subsidiary are each duly qualified as a foreign Person to do business,
and are each in good standing, in each jurisdiction where the character of its
owned or leased properties or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified or in good
standing would not, individually and in the aggregate, have an Newbridge
Material Adverse Effect. None of Newbridge or any Newbridge Material Subsidiary
is in violation of any provision of its certificate of incorporation, bylaws or
any other charter document. For the purposes of this Agreement, "Newbridge
Material Adverse Effect" means any change, event or effect that is materially
adverse to the general affairs, business, operations, assets, condition
(financial or otherwise) or results of operations of Newbridge and the
Newbridge Material Subsidiaries taken as a whole.
(b) Neither Newbridge, the Newbridge Material Subsidiaries nor Merger Sub is
in violation of any provision of its certificate of incorporation, bylaws or
other charter documents.
4.2 Authority Relative to This Agreement. Each of Newbridge and Merger Sub
has full corporate power and authority to execute and deliver this Agreement,
the Stock Option Agreement and the Technology Option
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Agreement, as applicable, and to consummate the Merger and the other
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement, the Stock Option Agreement and the Technology Option Agreement,
and the consummation of the Merger and the other transactions contemplated
hereby and thereby, have been duly and validly authorized by the board of
directors of each of Newbridge and Merger Sub, as applicable, and no other
corporate proceedings on the part of either Newbridge or Merger Sub are
necessary to authorize this Agreement, the Stock Option Agreement or the
Technology Option Agreement or to consummate the Merger and the other
transactions contemplated hereby and thereby. Each of this Agreement, the Stock
Option Agreement and the Technology Option Agreement has been duly and validly
executed and delivered by Newbridge and Merger Sub, as applicable, and,
assuming due authorization, execution and delivery by Stel, constitutes a valid
and binding agreement of each of Newbridge and Merger Sub as applicable,
enforceable against each of them in accordance with its terms, except to the
extent that its enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the enforcement
of creditors' rights generally or by general equitable principles.
4.3 No Violations, Etc. No filing with or notification to, and no permit,
authorization, consent or approval of, any Government Entity is necessary on
the part of either Newbridge or Merger Sub for the consummation by Newbridge or
Merger Sub of the Merger or the other transactions contemplated hereby, and by
the Stock Option Agreement and the Technology Option Agreement, except for (i)
the filing of the Certificate of Merger as required by Delaware Law, (ii) the
filing with the SEC and the effectiveness of the Registration Statement, (iii)
the applicable requirements of the Exchange Act, state or Canadian provincial
securities or "blue sky" laws, state takeover laws and the listing requirements
of the NYSE and the Toronto Stock Exchange, (iv) any filings required under and
in compliance with the HSR Act, and (v) the voluntary notice under the Exon-
Florio Amendment. Neither the execution and delivery of this Agreement, the
Stock Option Agreement and the Technology Option Agreement, nor the
consummation of the Merger or the other transactions contemplated hereby or
thereby, nor compliance by Newbridge and Merger Sub with all of the provisions
hereof and thereof will (i) conflict with or result in any breach of any
provision of the certificate of incorporation, bylaws or other charter
documents of Newbridge or any Newbridge Material Subsidiary, (ii) violate any
material order, writ, injunction, decree, statute, rule or regulation
applicable to Newbridge, any Newbridge Material Subsidiary or by which any of
their properties or assets may be bound, or (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both)
a default, or give rise to any right of termination, cancellation,
acceleration, redemption or repurchase under, any of the terms, conditions or
provisions of any material note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which Newbridge
or any Newbridge Material Subsidiary is a party or by which any of them or any
of their properties or assets may be bound.
4.4 Capitalization. The authorized capital stock of Newbridge consists of an
unlimited number of Common Shares, of which there were 180,427,602 shares
issued and outstanding as of June 17, 1999, and an unlimited number of
participating Preferred Shares, of which no shares are issued or outstanding.
The authorized capital stock of Merger Sub consists of 1,000 shares of Common
Stock, $.01 par value, 1,000 of which, as of the date hereof, are issued and
outstanding and are held by Newbridge. Merger Sub was formed for the purpose of
consummating the Merger and has no material assets or liabilities except as
necessary for such purpose. All outstanding shares of Newbridge Common Stock
are duly authorized, validly issued, fully paid and nonassessable and are not
subject to preemptive rights created by statute, the certificate of
incorporation or bylaws of Newbridge or any agreement to which Newbridge is a
party or by which it is bound.
4.5 Registration Statement; Proxy Statement/Prospectus. The information
supplied by Newbridge for inclusion or incorporation by reference in the
Registration Statement as it relates to Newbridge or Merger Sub, at the time
the Registration Statement is declared effective, shall not 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. If at any time prior to the Effective Time any event with respect
to Newbridge or any Newbridge Material Subsidiary shall occur which is required
to be described in the Registration Statement, such event shall be so
described, and an amendment or supplement shall be promptly filed with the SEC
and, as required by law, disseminated to the shareholders of Stel.
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4.6 SEC Filings. Newbridge has filed with the SEC all required forms,
reports, registration statements and documents required to be filed by it with
the SEC (collectively, all such forms, reports, registration statements and
documents filed after May 1, 1996 are referred to herein as the "Newbridge SEC
Reports"), all of which complied as to form when filed in all material respects
with the applicable provisions of the Securities Act and the Exchange Act, as
the case may be. Accurate and complete copies of the Newbridge SEC reports have
been made available to Stel. As of their respective dates the Newbridge SEC
Reports (including all exhibits and schedules thereto and documents
incorporated by reference therein) did not contain any untrue statement of a
material fact or omit 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.
4.7 Compliance with Laws. Neither Newbridge nor any Newbridge Material
Subsidiary has violated or failed to comply with any statute, law, ordinance,
rule or regulation (including, without limitation, relating to the export or
import of goods or technology) of any foreign, federal, state or local
government or any other governmental department or agency, except where any
such violations or failures to comply would not, individually or in the
aggregate, have a Newbridge Material Adverse Effect. Newbridge and the
Newbridge Material Subsidiaries have all permits, licenses and franchises from
governmental agencies required to conduct their businesses as now being
conducted and as proposed to be conducted, except for those the absence of
which would not, individually or in the aggregate, have an Newbridge Material
Adverse Effect.
4.8 Financial Statements. Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in the Newbridge
SEC Reports (the "Newbridge Financial Statements"), (a) was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on Form
10-Q under the Exchange Act) and (b) fairly presented the consolidated
financial position of Newbridge and its Subsidiaries as at the respective dates
thereof and the consolidated results of its operations and cash flows for the
periods indicated, consistent with the books and records of Newbridge, except
that the unaudited interim financial statements were or are subject to normal
and recurring year-end adjustments which were not, or are not expected to be,
material in amount. The balance sheet of Newbridge contained in Newbridge's
Form 10-K for the fiscal year ended May 2, 1999 is hereinafter referred to as
the "Newbridge Balance Sheet."
4.9 Absence of Undisclosed Liabilities. Neither Newbridge nor any of its
Subsidiaries has any liabilities (absolute, accrued, contingent or otherwise)
other than (i) liabilities included in the Newbridge Balance Sheet and the
related notes to the financial statements, (ii) normal or recurring liabilities
incurred since May 2, 1999 in the ordinary course of business consistent with
past practice, which, individually or in the aggregate, are not or would not be
reasonably likely to have, an Newbridge Material Adverse Effect and
(iii) liabilities under this Agreement, the Stock Option Agreement and the
Technology Option Agreement.
4.10 Absence of Changes or Events. Except as contemplated by this Agreement,
between May 2, 1999, and the date of this Agreement, no Newbridge Material
Adverse Effect has occurred.
4.11 Litigation.
(a) Except as set forth in the Newbridge SEC Reports, there is no Action
pending or, to the knowledge of Newbridge, threatened against Newbridge or any
of its Subsidiaries, or any of their respective officers and directors (in
their capacities as such), or involving any of their assets, before any court,
or governmental or regulatory authority or body, or arbitration tribunal,
except for those Actions which, individually or in the aggregate, would not
have an Newbridge Material Adverse Effect. There is no Action pending or, to
the knowledge of Newbridge, threatened which in any manner challenges, seeks
to, or is reasonably likely to prevent, enjoin, alter or delay the transactions
anticipated by this Agreement.
(b) There is no outstanding judgment, order, writ, injunction or decree of
any court, governmental agency or arbitration tribunal in a proceeding to which
Newbridge, any Newbridge Material Subsidiary or any of their assets is a party,
or by which Newbridge, any Newbridge Material Subsidiary or any of their assets
is bound.
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ARTICLE V
COVENANTS
5.1 Conduct of Business During Interim Period. Except as contemplated or
required by this Agreement or as expressly consented to in writing by
Newbridge, during the period from the date of this Agreement to the earlier of
the termination of this Agreement or the Effective Time, each of Stel and its
Subsidiaries will (i) conduct its operations according to its ordinary and
usual course of business consistent with past practice, (ii) use all
commercially reasonable efforts to preserve intact its business organization,
to keep available the services of its officers and employees in each business
function and to maintain satisfactory relationships with suppliers,
distributors, customers and others having business relationships with it, and
(iii) not take any action which would adversely affect its ability to
consummate the Merger or the other transactions contemplated by this Agreement,
the Stock Option Agreement or the Technology Option Agreement. Without limiting
the generality of the foregoing, and except as otherwise expressly provided in
this Agreement, prior to the earlier of the termination of this Agreement or
Effective Time neither Stel nor any of its Subsidiaries will, without the prior
written consent of Newbridge, directly or indirectly, do any of the following:
(a) enter into, violate, amend or otherwise modify or waive any of the terms
of, (i) any license or partnership, joint venture, or other agreement relating
to the joint development or transfer of technology or Stel IP Rights; or (ii)
any other agreements, commitments or contracts, except in the ordinary course
of business and consistent with past practice;
(b) (i) with respect to Stel's wireless broadband and satellite personal
communications products, accept any new or incremental work orders from current
customers or enter into any new contractual obligations with customers other
than Newbridge and, (ii) with respect to Stel's telcom component products,
agree to undertake research and development work for any third party with a
term extending beyond May 31, 2000;
(c) authorize, solicit, propose or announce an intention to authorize,
recommend or propose, or enter into any agreement in principle or an agreement
with any other person with respect to, any plan of liquidation or dissolution,
any acquisition of a material amount of assets or securities, any disposition
of a material amount of assets or securities, any material change in
capitalization, or any partnership, association, joint venture, joint
development, technology transfer, or other material business alliance;
(d) fail to renew any insurance policy naming it as a beneficiary or a loss
payee, or take any steps or fail to take any steps that would permit any
insurance policy naming it as a beneficiary or a loss payee to be canceled,
terminated or materially altered, except in the ordinary course of business and
consistent with past practice and following written notice to Newbridge;
(e) maintain its books and records in a manner other than in the ordinary
course of business and consistent with past practice;
(f) enter into any hedging, option, derivative or other similar transaction
or any foreign exchange position or contract for the exchange of currency other
than in the ordinary course of business and consistent with past practice;
(g) institute any change in its accounting methods, principles or practices
other than as required by GAAP, or the rules and regulations promulgated by the
SEC, or revalue any of its respective assets, including without limitation,
writing down the value of inventory or writing off notes or accounts
receivables;
(h) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, contingent or otherwise), other than the
payment, discharge or satisfaction of liabilities (including accounts payable)
in the ordinary course of business and consistent with past practice, or
collect, or accelerate the collection of, any amounts owed (including accounts
receivable) other than the collection in the ordinary course of business;
(i) split, combine or reclassify any shares of its capital stock;
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(j) issue any capital stock or other options, warrants or rights to purchase
or acquire capital stock or change the terms of any such outstanding
securities, except that Stel may (i) issue capital stock upon the exercise of
options, warrants or rights outstanding as of the date of this Agreement and
(ii) accelerate those Stel Options that are not to be assumed or substituted
with equivalent options or other economic benefits by Newbridge or by the
purchasers of Stel's Non-core Assets;
(k) waive, release, assign, settle or compromise any material claim or
litigation, or commence a lawsuit other than (i) for the routine collection of
bills, (ii) the settlement of the litigation with Cabletron Systems, Inc.,
(iii) in such cases where Stel determines in good faith that failure to
commence suit would result in the material impairment of a valuable aspect of
its business, provided that Stel consults with Newbridge prior to the filing of
such a suit, or (iv) for a breach of this Agreement;
(l) in respect of any Taxes, make or change any material election change any
accounting method, enter into any closing agreement, settle any material claim
or assessment, or consent to any extension or waiver of the limitation period
applicable to any material claim or assessment except as required by applicable
law;
(m) take or agree to take, any of the actions described in Section 3.10, or
any action which would make any of its representations or warranties contained
in this Agreement untrue or incorrect or prevent it from performing or cause it
not to perform its covenants hereunder.
5.2 No Solicitation.
(a) From and after the date of this Agreement until the Effective Time or
termination of this Agreement pursuant to Article VIII, Stel and its
Subsidiaries will not, nor will they authorize or permit any of their
respective officers, directors, affiliates, agents or employees or any
investment banker, attorney or other advisor or representative retained by any
of them to, directly or indirectly, (i) solicit, initiate, encourage or induce
the making, submission or announcement of any Acquisition Proposal (as defined
in Section 5.2(c)), (ii) participate in any discussions or negotiations
regarding, or furnish to any person any non-public 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
Acquisition Proposal, (iii) engage in discussions with any person with respect
to any Acquisition Proposal, (iv) approve, endorse or recommend any Acquisition
Proposal or (v) enter into any letter of intent or similar document or any
agreement or commitment contemplating or otherwise relating to any Acquisition
Transaction (as defined in Section 5.2(c)). Notwithstanding anything to the
contrary contained in this Section 5.2 or in any other provision of this
Agreement, Stel and its board of directors (i) may participate in discussions
or negotiations with or furnish non-public information to any third party that
has made an unsolicited Acquisition Proposal (a "Potential Acquiror") and/or
(ii) subject to the provisions of Section 5.4(c), may approve or accept an
unsolicited Acquisition Proposal, in each case only if the board of directors
of Stel determines in good faith (A) after receiving written advice from its
financial advisor, that such Acquisition Proposal is a Superior Proposal (as
defined in Section 5.2(d) hereof), and (B) following consultation with outside
legal counsel, that the failure to participate in such discussions or
negotiations or to furnish such information or approve or accept an Acquisition
Proposal would violate the board's fiduciary duties under applicable law. Stel
may not furnish any non-public information to a Potential Acquiror unless it is
furnished pursuant to a confidentiality agreement containing provisions at
least as favorable to Stel as the confidentiality provisions of the
Confidentiality Agreement (as defined in Section 5.3) and is simultaneously
provided to Newbridge. Without limiting the foregoing, it is understood that
any violation of the restrictions set forth in this Section 5.2(a) by any
officer, director or employee of Stel or any of its Subsidiaries or any
investment banker, attorney or other advisor or representative of Stel or any
of its Subsidiaries shall be deemed to be a breach of this Section 5.2(a) by
Stel.
(b) In addition to the obligations of Stel set forth in Section 5.2(a), Stel
as promptly as practicable, and in any event within 24 hours, shall advise
Newbridge orally and in writing of any Acquisition Proposal or any request for
non-public information or inquiry which Stel reasonably believes would lead to
an Acquisition Proposal or to any Acquisition Transaction, the material terms
and conditions of such Acquisition Proposal,
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request or inquiry, and the identity of the person or group making any such
Acquisition Proposal, request or inquiry. Stel will keep Newbridge informed as
promptly as practicable in all material respects of the status and details
(including material amendments or proposed material amendments) of any such
Acquisition Proposal, request or inquiry.
(c) For purposes of this Agreement, "Acquisition Proposal" shall mean any
offer or proposal made by a Third Party (as defined below) relating to any
Acquisition Transaction. For purposes of this Agreement, "Acquisition
Transaction" shall mean any transaction or series of related transactions
involving: (i) any purchase from Stel or acquisition by any Person (or any
group of Persons acting in concert for the specific purpose of allowing Stel to
evade the provisions of this Section 5.2) other than Newbridge, Stel or Merger
Sub or any affiliate thereof (a "Third Party") of 15% or more of the total
interest in the total outstanding voting securities of Stel or any of its
Subsidiaries or any tender offer or exchange offer that if consummated would
result in any Third Person (or its shareholder) beneficially owning 15% or more
of the total outstanding voting securities of Stel or any of its Subsidiaries;
(ii) any merger, consolidation, business combination or similar transaction
involving Stel or any of its Subsidiaries; (iii) any sale, lease (other than in
the ordinary course of business), exchange, transfer, license (other than in
the ordinary course of business), acquisition or disposition of a material
portion of the assets of Stel (excluding the Non-core Assets); (iv) any
liquidation or dissolution of Stel; or (v) the acquisition by a Third Party (or
potential acquisition upon the completion of a transaction or series of related
transactions) of control of the board of directors of Stel or the election or
appointment of nominees of a Third Party (or the ability of a Third Party to
elect or appoint its nominees) to a majority of the seats on the board of
directors of Stel.
(d) The term "Superior Proposal" means any bona fide Acquisition Proposal,
made in writing and not initiated, solicited or encouraged in violation of
Section 5.2(a) of this Agreement, on terms which the board of directors of Stel
determines in good faith to be more favorable to Stel and its stockholders or
to its stockholders than the Merger (after receiving the written advice from
Stel's financial advisor that the value of the consideration provided for in
such proposal is superior to the value of the consideration provided for in the
Merger), for which financing, to the extent required, is then committed or
which, in the good faith judgment of the board of directors of Stel, after
receiving written advice from its financial advisor, is reasonably capable of
being financed by the Potential Acquiror.
5.3 Access to Information. From the date of this Agreement until the
Effective Time, Stel will afford Newbridge and its authorized representatives
(including counsel, environmental and other consultants, accountants, auditors
and agents) full access during normal business hours and upon reasonable notice
to all of its facilities, personnel and operations and to all books and records
of it and its Subsidiaries, will permit Newbridge and its authorized
representatives to conduct inspections as they may reasonably request and will
instruct its officers and those of its Subsidiaries to furnish such persons
with such financial and operating data and other information with respect to
its business and properties as they may from time to time request, subject to
the restrictions set forth in the Confidentiality Agreement (as defined below).
Newbridge and Merger Sub agree that each of them will treat any such
information in accordance with the Confidentiality Agreement, effective as of
March 1, 1999, between Newbridge and Stel (the "Confidentiality Agreement"),
which Confidentiality Agreement, except for the standstill provisions, shall
remain in full force and effect in accordance with its terms.
5.4 Special Meeting; Registration Statement; Board Recommendation.
(a) Promptly after the date hereof, Stel will take all action necessary in
accordance with Delaware Law and its certificate of incorporation and bylaws to
convene a meeting of Stel's stockholders to consider adoption and approval of
this Agreement and approval of the Merger (the "Stel Special Meeting") to be
held as promptly as practicable, and in any event (to the extent permissible
under applicable law) within 45 days after the declaration of effectiveness of
the Registration Statement. Subject to Section 5.4(c), Stel will use its
commercially reasonable efforts to solicit from its stockholders proxies in
favor of the adoption and approval of this Agreement and the approval of the
Merger and will take all other action necessary or advisable to secure
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the vote or consent of its stockholders required by the rules of Nasdaq or
Delaware Law to obtain such approvals. Notwithstanding anything to the contrary
contained in this Agreement, Stel may adjourn or postpone the Stel Special
Meeting to the extent necessary to ensure that any necessary supplement or
amendment to the Prospectus/Proxy Statement is provided to Stel's stockholders
in advance of a vote on the Merger and this Agreement or, if as of the time for
which the Stel Special Meeting is originally scheduled (as set forth in the
Prospectus/Proxy Statement) there are insufficient shares of Stel Common Stock
represented (either in person or by proxy) to constitute a quorum necessary to
conduct the business of the Stel Special Meeting. Stel shall ensure that the
Stel Special Meeting is called, noticed, convened, held and conducted, and that
all proxies solicited by Stel in connection with the Stel Special Meeting are
solicited, in compliance with the Delaware Law, Stel's certificate of
incorporation and bylaws, the rules of Nasdaq and all other applicable legal
requirements. Stel's obligation to call, give notice of, convene and hold the
Stel Special Meeting in accordance with this Section 5.4(a) shall not be
limited to or otherwise affected by the commencement, disclosure, announcement
or submission to Stel of any Acquisition Proposal, or by any withdrawal,
amendment or modification of the recommendation of the board of directors of
Stel with respect to the Merger and/or this Agreement.
(b) Subject to Section 5.4(c), (i) the board of directors of Stel shall
unanimously recommend that Stel's stockholders vote in favor of and adopt and
approve this Agreement and approve the Merger at the Stel Special Meeting; (ii)
Stel shall cause the Prospectus/Proxy Statement to include a statement to the
effect that the board of directors of Stel has unanimously recommended that
Stel's stockholders vote in favor of and adopt and approve this Agreement and
the Merger at the Stel Special Meeting; and (iii) neither the board of
directors of Stel nor any committee thereof shall withdraw, amend or modify, or
propose or resolve to withdraw, amend or modify in a manner adverse to
Newbridge, the unanimous recommendation of the board of directors of Stel that
Stel's stockholders vote in favor of and adopt and approve this Agreement and
the Merger. For purposes of this Agreement, said recommendation of the board of
directors shall be deemed to have been modified in a manner adverse to
Newbridge if said recommendation shall no longer be unanimous, provided that,
for all purposes of this Agreement, an action by any board of directors or
committee thereof shall be unanimous if each member of such board of directors
or committee has approved such action other than (i) any such member who has
appropriately abstained from voting on such matter because of an actual or
potential conflict of interest and (ii) any such member who is unable to vote
in connection with such action as a result of death or disability.
(c) Nothing in Section 5.4(b) shall prevent the board of directors of Stel
from withholding, withdrawing, amending or modifying its unanimous
recommendation that Stel stockholders vote in favor of and adopt and approve
this Agreement and approve the Merger if (i) a Superior Proposal is made to
Stel and is not withdrawn, (ii) Stel shall have provided written notice to
Newbridge (a "Notice of Superior Proposal") advising Newbridge that Stel has
received a Superior Proposal, specifying the material terms and conditions of
such Superior Proposal and identifying the person or entity making such
Superior Proposal, (iii) Newbridge shall not have, within five business days of
Newbridge's receipt of the Notice of Superior Proposal, made an offer that the
board of directors of Stel by a majority vote determines in its good faith
judgment (based on the written advice of its financial advisor) to be at least
as favorable to Stel's stockholders as such Superior Proposal (it being agreed
that the board of directors of Stel shall convene a meeting to consider any
such offer by Newbridge promptly following the receipt thereof), (iv) after
such board meeting, the board of directors of Stel shall have concluded in good
faith, after consultation with its outside counsel, that, in light of such
Superior Proposal, the withholding, withdrawal, amendment or modification of
such recommendation is required in order for the board of directors of Stel to
comply with its fiduciary obligations to Stel's stockholders under applicable
law and (v) Stel shall not have violated any of the restrictions set forth in
Section 5.2 or this Section 5.4(c). Subject to applicable laws, nothing
contained in this Section 5.4(c) shall limit Stel's obligation to hold and
convene the Stel Special Meeting (regardless of whether the unanimous
recommendation of the board of directors of Stel shall have been withheld,
withdrawn, amended or modified). If the Stel board has withheld, withdrawn,
amended or modified its recommendation as provided in this Section 5.4(c), Stel
shall not be required to solicit proxies from its stockholders to vote in favor
of and approve
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and adopt this Agreement and the Merger; provided that Stel shall use its
commercially reasonable efforts to solicit a sufficient number of proxies
(without regard to the manner in which votes are cast by those proxies) to
ensure the presence of a quorum of stockholders at the Stel Special Meeting.
(d) Nothing contained in this Agreement shall prohibit Stel or its board of
directors from complying with the requirements of Rules 14d-9 and 14e-2(a)
promulgated under the Exchange Act.
(e) As promptly as practicable after the execution of this Agreement, Stel
and Newbridge shall mutually prepare, and Stel shall file with the SEC, a
preliminary form of the Proxy Statement/Prospectus. As promptly as practicable
following receipt of SEC comments on such preliminary Proxy
Statement/Prospectus, Newbridge and Stel shall mutually prepare a response to
such comments. Upon resolution of all comments, Newbridge shall file the
Registration Statement with the SEC. Newbridge and Stel shall use all
commercially reasonable efforts to have the preliminary Proxy
Statement/Prospectus cleared by the SEC and the Registration Statement declared
effective by the SEC as promptly as practicable. Newbridge shall also take any
action required to be taken under applicable state blue sky or securities laws
in connection with Newbridge Common Stock to be issued in exchange for the
shares of Stel Common Stock. Newbridge and Stel shall promptly furnish to each
other all information, and take such other actions (including without
limitation using all commercially reasonable efforts to provide any required
consents of their respective independent auditors), as may reasonably be
requested in connection with any action by any of them in connection with the
preceding sentences of this Section 5.4(e). Whenever any party learns of the
occurrence of any event which is required to be set forth in an amendment or
supplement to the Proxy Statement/Prospectus, the Registration Statement or any
other filing made pursuant to this Section 5.4(e), Newbridge or Stel, as the
case may be, shall promptly inform the other of such occurrence and cooperate
in filing with the SEC or its staff and/or mailing to stockholders of Stel such
amendment or supplement.
5.5 Commercially Reasonable Efforts. Subject to the terms and conditions
herein provided, Newbridge, Merger Sub and Stel shall use all commercially
reasonable efforts to take, or cause to be taken, all other actions and do, or
cause to be done, all other things necessary, proper or appropriate under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation, (a)
promptly filing Notification and Report Forms under the HSR Act with the
Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division") and responding as promptly as
practicable to any inquiries received from the FTC or the Antitrust Division
for additional information or documentation, (b) promptly filing a notification
with the Committee on Foreign Investment in the United States ("CFIUS") under
the Exon-Florio Amendment and responding as promptly as practicable to any
inquiries received from CFIUS for additional information or documentation,
including, without limitation, taking such actions as may be required by the
U.S. Department of Defense to mitigate foreign ownership, control or influence
with respect to the performance of classified Government Contracts; (c)
obtaining all necessary governmental and private party consents, approvals or
waivers, and (d) lifting any legal bar to the Merger and the exercise of the
option granted in the Stock Option Agreement. Newbridge shall cause Merger Sub
to perform all of its obligations under this Agreement and shall not take any
action which would cause Stel to fail to perform its obligations hereunder.
Stel shall not take any action which would cause Newbridge or Merger Sub to
fail to perform their obligations hereunder.
5.6 Public Announcements. Before issuing any press release or otherwise
making any public statement with respect to the Merger or any of the other
transactions contemplated hereby, Newbridge, Merger Sub and Stel agree to
consult with each other as to its form and substance, and agree not to issue
any such press release or general communication to employees or make any public
statement prior to obtaining the consent of the other (which shall not be
unreasonably withheld or delayed), except as may be required by applicable law
or by the rules and regulations of or listing agreement with the NYSE, the
Nasdaq, The Toronto Stock Exchange or as may otherwise be required by of the
NYSE, Nasdaq, the SEC or Canadian securities authorities.
5.7 Notification of Certain Matters. Each of Stel and Newbridge shall
promptly notify the other party of the occurrence or non-occurrence of any
event the respective occurrence or non-occurrence of which would
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be likely to cause any condition to the obligations of the notifying party to
effect the Merger not to be fulfilled. Each of Stel and Newbridge shall also
give prompt notice to the other of any communication from any Person alleging
that the consent of such Person is or may be required in connection with the
Merger or other transactions contemplated hereby.
5.8 Indemnification.
(a) The certificate of incorporation and bylaws of the Surviving Corporation
shall contain, and Newbridge shall cause the Surviving Corporation to fulfill
and honor, the provisions with respect to indemnification set forth in the
certificate of incorporation and bylaws of Stel as of the date of this
Agreement, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who, immediately
prior to the Effective Time, were directors and officers of Stel, unless such
modification is required by law.
(b) After the Effective Time the Surviving Corporation, to the fullest
extent permitted under applicable law or under the Surviving Corporation's
certificate of incorporation or bylaws, shall hold harmless, (i) each present
director or officer of Stel and each of its Subsidiaries, and (ii) each person
identified on Schedule 5.8(b) as presently serving at the request of Stel or
any Subsidiary of Stel as a director, officer, trustee, partner, fiduciary,
employee or agent of another corporation, partnership, joint venture, trust,
pension or other employee benefit plan or enterprise (collectively, the
"Indemnified Parties") against any costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, to the
extent arising out of or pertaining to any action or omission in his or her
capacity as a director or officer of Stel arising out of or pertaining to the
transactions contemplated by this Agreement for a period of six years after the
date hereof. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) any
counsel retained by the Indemnified Parties for any period after the Effective
Time must be reasonably satisfactory to Newbridge, (ii) after the Effective
Time, Newbridge shall cause the Surviving Corporation to pay the reasonable
fees and expenses of such counsel, promptly after statements therefor are
received and (iii) Newbridge shall cause the Surviving Corporation to cooperate
in the defense of any such matter; provided, however, that neither Newbridge
nor the Surviving Corporation shall be liable for any settlement effected
without its written consent (which consent shall not be unreasonably withheld);
and provided, further, that, in the event that any claim or claims for
indemnification are asserted or made within such six-year period, all rights to
indemnification in respect of any such claim or claims shall continue until the
disposition of any and all such claims; and provided, further, that nothing in
this Section 5.8 shall impair any rights or obligations of any present or
former directors or officers of Stel. The Indemnified Parties as a group may
retain only one law firm (in addition to local counsel) to represent them with
respect to any single action unless there is, under applicable standards of
professional conduct, a conflict on any significant issue between the positions
of any two or more Indemnified Parties. In the event Newbridge or the Surviving
Corporation or any of their respective successors or assigns (i) consolidates
with or merges into any other Person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger, or (ii)
transfers or conveys all or substantially all of its properties and assets to
any Person, then, and in each such case, to the extent necessary to effectuate
the purposes of this Section 5.8, proper provision shall be made so that the
successors and assigns of Newbridge and the Surviving Corporation assume the
obligations of such party set forth in this Section 5.8 and none of the actions
described in clause (i) or (ii) shall be taken until such provision is made.
(c) For a period of six years after the Effective Time, Newbridge shall or
shall cause the Surviving Corporation to maintain in effect, if available,
directors' and officers' liability insurance covering those persons who are
currently covered by Stel's directors' and officers' liability insurance policy
on terms comparable to those applicable under the policy of directors' and
officers' liability insurance currently maintained by Stel; provided, however,
that in no event shall Newbridge or the Surviving Corporation be required to
expend in excess of 150% of the annual premium currently paid by Stel for such
coverage, and that if the annual
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premiums of such insurance coverage exceed such amount, the Surviving
Corporation shall be obligated instead to obtain a policy with the greatest
coverage available for a cost not exceeding such amount.
(d) Newbridge shall cause the Surviving Corporation to perform its
obligations under this Section 5.8 and shall, in addition, guarantee, as co-
obligor with the Surviving Corporation, the performance of such obligations by
the Surviving Corporation.
5.9 Affiliate Agreements. Concurrently with the execution and delivery
hereof, Stel shall deliver to Newbridge a list (reasonably satisfactory to
counsel for Newbridge), setting forth the names of all Persons who are expected
to be, at the Effective Time, in Stel's reasonable judgment, "affiliates" of
Stel as that term is used in paragraphs (c) and (d) of Rule 145 under the
Securities Act (the "Stel Affiliates"). Stel shall furnish such information and
documents as Newbridge may reasonably request for the purpose of reviewing such
list. Stel shall use commercially reasonable efforts to deliver a written
agreement in substantially the form of Exhibit F hereto (a "Stel Affiliate
Agreement") executed by each Person identified as a Stel Affiliate in the list
furnished pursuant to this Section 5.9 within ten days of the execution of this
Agreement. Stel shall deliver to Newbridge an updated list reflecting any
change in the identity of the Stel Affiliates within five days of Stel's having
knowledge of such change. In the event additional Persons become Stel
Affiliates after the date hereof, Stel shall use commercially reasonable
efforts to cause each such Person to deliver to Newbridge a written agreement
in substantially the form of Exhibit F hereto with each such Person within ten
days after Stel has knowledge that such Person has become a Stel Affiliate.
5.10 Listings. Newbridge shall use commercially reasonable efforts to list
on the NYSE, upon official notice of issuance, the shares of Newbridge Common
Stock to be issued in connection with the Merger. Newbridge shall use
commercially reasonable efforts to list on the Toronto Stock Exchange, subject
to the satisfaction of customary conditions, the shares of Newbridge Common
Stock to be issued in connection with the Merger.
5.11 Resignation of Directors and Officers. Prior to the Effective Time,
Stel shall deliver to Newbridge the resignations of such directors and officers
of Stel and its Subsidiaries as Newbridge shall specify at least ten business
days prior to the Closing, effective at the Effective Time.
5.12 Form S-8. No later than ten business days after the Effective Time,
Newbridge shall file with the SEC a Registration Statement, on Form S-8 or
other appropriate form under the Securities Act to register Newbridge Common
Stock issuable upon exercise of the Newbridge Exchange Options. Newbridge shall
use commercially reasonable efforts to cause such Registration Statement to
remain effective until the exercise or expiration of such options.
5.13 SEC Filings.
(a) Stel will deliver promptly to Newbridge true and complete copies of each
report, registration statement or statement mailed by it to its security
holders generally or filed by it with the SEC, in each case subsequent to the
date hereof and prior to the Effective Time. As of their respective dates, such
reports, including the consolidated financial statements included therein, and
statements (excluding any information therein provided by Newbridge or Merger
Sub, as to which Stel makes no representation) will not contain any untrue
statement of a material fact or omit 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 are made, not misleading and will comply in all
material respects with all applicable requirements of law. Each of the
consolidated financial statements (including, in each case, any related notes
thereto) contained in such reports, (i) shall comply as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, (ii) shall be prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on Form
10-Q under the Exchange Act) and (iii) shall fairly present the consolidated
financial position of Stel and its Subsidiaries as at the respective dates
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thereof and the consolidated results of its operations and cash flows for the
periods indicated, except that the unaudited interim financial statements were
or are subject to normal and recurring year-end adjustments which were not, or
are not expected to be, material in amount.
(b) Newbridge will deliver promptly to Stel true and complete copies of each
report filed by it with the SEC subsequent to the date hereof and prior to the
Effective Time. As of their respective dates, such reports, including the
consolidated financial statements included therein, and statements (excluding
any information therein provided by Stel, as to which Newbridge makes no
representation) will not contain any untrue statement of a material fact or
omit 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 are
made, not misleading and will comply in all material respects with all
applicable requirements of law. Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in such reports
(i) shall comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, (ii) shall be prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto or, in the case of unaudited interim financial statements, as
may be permitted by the SEC on Form 10-Q under the Exchange Act) and
(iii) shall fairly present the consolidated financial position of Newbridge and
its Subsidiaries as at the respective dates thereof and the consolidated
results of its operations and cash flows for the periods indicated, except that
the unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not, or are not expected to be,
material in amount.
5.14 Employee Matters. Newbridge agrees to make severance payments to
persons who are Stel employees immediately prior to the Effective Time and who
are terminated on or within 90 days of the Effective Time and to pay to
employees of Stel as of the Effective Time the other benefits as set forth in
Schedule 5.14.
5.15 Termination of Stel Purchase Plan. Stel, acting through its board of
directors, shall take all action necessary to discontinue the Stel Purchase
Plan effective upon purchase of Stel Common Stock for the Participation Period
ending September 30, 1999.
5.16 Stock Option Agreement. Stel agrees not to take any action that would
impede, bar, restrict or otherwise interfere in any manner with Newbridge's
rights under the Stock Option Agreement.
5.17 Technology Option Agreement. Stel agrees not to take any action that
would impede, bar, restrict or otherwise interfere in any manner with
Newbridge's rights under the Technology Option Agreement.
5.18 Non-core Asset Sale. Stel shall use its best efforts to cause the sale
or sales (the "Non-core Asset Sale") of all assets (or the shares of the legal
entity or entities to which they belong) of all Stel's current operating
divisions other than its wireless broadband products division, its telecom
component products division and its satellite personal communications division
(the "Non-core Assets") for an aggregate purchase price which will result in
after-tax net cash proceeds of not less than U.S. $102,000,000. Newbridge
agrees that the Non-core Asset Sale may include net cash generated by the Non-
core Assets subsequent to March 31, 1999. Stel agrees that it will inform
Newbridge of any proposals, discussions or negotiations concerning the sale of
such divisions and that it will include Newbridge and Newbridge's advisors,
including CIBC World Markets, in all such discussions and negotiations
regarding the Non-core Asset Sale. Newbridge and Stel agree to use commercially
reasonable efforts to maximize the Non-core Asset Sale Proceeds.
5.19 Assumption of Options. The parties will use all commercially reasonable
efforts to obtain the agreement of purchasers of the Non-core Assets to assume
or substitute equivalent options or other economic benefits for the unvested
Stel Options that would not qualify for accelerated vesting pursuant to Stel's
Stock Option Plan as of the Effective Time held by Stel employees to be hired
by such purchasers.
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5.20 Transitional Contract-Manufacturing Arrangement. Stel and Newbridge
will use all commercially reasonable efforts to enter into a transitional
contract manufacturing arrangement with the contract manufacturing facility
that will be sold as part of the Non-core Asset Sale.
5.21 Stel IP Rights. Stel will use all commercially reasonable efforts to
amend any agreements giving any Third Party rights to Stel IP Rights as a
result of the execution and delivery of this Agreement, the Stock Option
Agreement, the Technology Option Agreement or the consummation of the Merger
and the other transactions contemplated hereby or thereby.
5.22 Appraisal Rights. Stel and Newbridge will take all necessary and
appropriate action to enable the holders of Stel Common Stock to exercise
appraisal rights, if available, under Section 262 of the Delaware Law and
otherwise to comply with the terms of such statute.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF EACH PARTY
The respective obligations of each party to this Agreement to effect the
Merger shall be subject to the fulfillment on or before the Effective Time of
each of the following conditions, any one or more of which may be waived in
writing by all the parties hereto:
6.1 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 remain in effect and no proceedings for such purpose
shall be pending before or threatened by the SEC.
6.2 Stockholder Approval. The approval of the holders representing a
majority of the outstanding shares of Stel Common Stock for adoption of the
Merger Agreement and approval of the Merger shall have been obtained at the
Stel Special Meeting or any adjournment or postponement thereof.
6.3 Listing of Additional Shares. The Newbridge Common Stock issuable in
connection with the Merger shall have been approved for listing subject to
official notice of issuance on the NYSE and shall have been approved for
listing subject to the satisfaction of customary conditions on the Toronto
Stock Exchange.
6.4 Government Clearances. The waiting periods applicable to consummation of
the Merger under the HSR Act and Exon-Florio Amendment shall have expired or
been terminated. Other than the filing of the Certificate of Merger which shall
be accomplished as provided in Section 1.2, all authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any Government Entity the failure of which to
obtain or comply with prior to the Effective Time would be reasonably likely to
have a Stel Material Adverse Effect or a Newbridge Material Adverse Effect
shall have been obtained or filed.
6.5 Statute or Decree. No writ, order, temporary restraining order,
preliminary injunction or injunction shall have been enacted, entered,
promulgated or enforced by any court or other tribunal or governmental body or
authority, which remains in effect, and prohibits the consummation of the
Merger or otherwise makes it illegal, nor shall any governmental agency have
instituted any action, suit or proceeding which remains pending and which
seeks, and which is reasonably likely, to enjoin, restrain or prohibit the
consummation of the Merger in accordance with the terms of this Agreement.
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ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF STEL AND NEWBRIDGE
7.1 Additional Conditions To The Obligations Of Stel. The obligations of
Stel to effect the Merger shall be subject to the fulfillment of each of the
following additional conditions, any one or more of which may be waived in
writing by Stel:
(a) The representations and warranties of Newbridge and Merger Sub contained
in this Agreement (without regard to any materiality exceptions or provisions
therein) shall be true and correct, in all material respects, as of the
Effective Time, with the same force and effect as if made at the Effective
Time, except (i) for changes specifically permitted by the terms of this
Agreement, (ii) that the accuracy of the representations and warranties that by
their terms speak as of the date of this Agreement or some other date will be
determined as of such date, and (iii) for such inaccuracies as, in the
aggregate, would not reasonably be expected to have a Newbridge Material
Adverse Effect.
(b) Newbridge and Merger Sub shall have performed and complied in all
material respects with all agreements, obligations and conditions required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date.
(c) Newbridge and Merger Sub shall have furnished certificates of their
respective officers to evidence compliance with the conditions set forth in
Sections 7.1(a) and (b) of this Agreement.
(d) Stel shall have received an opinion of Thelen Reid & Priest LLP, counsel
to Stel, dated as of the Closing Date, substantially to the effect that on the
basis of the facts, representations and assumptions set forth in such opinions,
(i) the Merger will be treated as a reorganization within the meaning of
Section 368(a) of the Code; (ii) each of Newbridge, Merger Sub and Stel will be
a party to such reorganization within the meaning of Section 368(b) of the
Code; and (iii) except with respect to cash received in lieu of fractional
share interests in Newbridge Common Stock, no gain or loss will be recognized,
for United States federal income tax purposes, by a stockholder of Stel as a
result of the Merger with respect to the shares of Stel Common Stock converted
into Newbridge Common Stock.
(e) If the Non-core Asset Sale has not closed on or prior to the Effective
Time, Newbridge and the Rights Agent (as defined in the CVR Agreement) shall
have executed the CVR Agreement substantially in the form attached hereto as
Exhibit E.
7.2 Additional Conditions To The Obligations Of Newbridge And Merger
Sub. The obligations of Newbridge and Merger Sub to effect the Merger shall be
subject to the fulfillment of each of the following additional conditions, any
one or more of which may be waived in writing by Newbridge:
(a) The representations and warranties of Stel contained in this Agreement
(without regard to any materiality exceptions or provisions therein) shall be
true and correct, in all material respects, as of the Effective Time, with the
same force and effect as if made at the Effective Time, except, (i) for changes
related to the balance sheets or assets of the Non-core Assets, (ii) for
changes in the prospects of Stel's constellation project, (iii) for other
changes specifically permitted by the terms of this Agreement, (iv) that the
accuracy of the representations and warranties that by their terms speak as of
the date of this Agreement or some other date will be determined as of such
date, and (v) for such inaccuracies as, in the aggregate, would not have a Stel
Material Adverse Effect.
(b) Stel shall have performed and complied in all material respects with all
agreements, obligations and conditions required by this Agreement to be
performed or complied with by it on or prior to the Closing Date.
(c) Stel shall have furnished certificates of its officers to evidence
compliance with the conditions set forth in Sections 7.2(a) and (b) of this
Agreement.
(d) Newbridge and Merger Sub shall have received an opinion of Heller Ehrman
White & McAuliffe, counsel to Newbridge and Merger Sub, dated as of the Closing
Date, substantially to the effect that on the
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<PAGE>
basis of the facts, representations and assumptions set forth in such opinions,
(i) the Merger will be treated as a reorganization within the meaning of
Section 368(a) of the Code; (ii) each of Newbridge, Merger Sub and Stel will be
a party to such reorganization within the meaning of Section 368(b) of the
Code; and (iii) except with respect to cash received in lieu of fractional
share interests in Newbridge Common Stock, no gain or loss will be recognized,
for United States federal income tax purposes, by a stockholder of Stel as a
result of the Merger with respect to the shares of Stel Common Stock converted
into Newbridge Common Stock.
(e) Any consents, approvals, notifications, disclosures, and filings and
registrations listed in Schedule 3.3 of the Stel Disclosure Statement shall
have been obtained or made.
(f) Stel shall have entered into binding agreements reasonably acceptable to
Newbridge with respect to the Non-core Asset Sale for an aggregate purchase
price which will result in after-tax net cash proceeds to Stel of not less than
U.S. $102,000,000.
(g) Stel shall have delivered to Newbridge a statement that the interest in
Stel is not a United States real property interest as contemplated by Section
1.1445-2(c)(3) of the regulations promulgated under the Code.
(h) Stel shall have entered into employment agreements or achieved retention
arrangements which are satisfactory to Newbridge with Stel employees listed on
Schedule 7.1(h).
(i) Stel shall have delivered to Newbridge the resignations of such
directors and officers of Stel and its Subsidiaries as Newbridge shall specify
at least ten days prior to the Closing, effective at the Effective Time.
(j) The aggregate number of shares of Stel Common Stock demanding or
purporting to demand appraisal rights under Section 262 of the Delaware Law
shall not exceed 10% of the outstanding shares of Stel Common Stock immediately
prior to the Effective Time.
(k) There shall not have occurred, since the date hereof, any Stel Material
Adverse Effect, except for the occurrence of conditions specifically excepted
in clauses (i) and (ii) of Section 7.2(a) hereof.
ARTICLE VIII
TERMINATION
8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the requisite approval of the
stockholders of Stel:
(a) by mutual written consent duly authorized by the boards of directors of
Newbridge, Stel and Merger Sub;
(b) by either Stel or Newbridge if the Merger shall not have been
consummated by January 31, 2000 (the "End Date"), which date may be extended by
mutual consent of the parties hereto; provided, however, that the right to
terminate this Agreement under this Section 8.1(b) shall not be available to
any party whose action or failure to act has proximately contributed to the
failure of the Merger to occur on or before such date and such action or
failure to act constitutes a material breach of this Agreement;
(c) by either Stel or Newbridge if (i) a statute, rule, regulation or
executive order shall have been enacted, entered or promulgated prohibiting the
consummation of the Merger substantially on the terms contemplated hereby or
(ii) a court of competent jurisdiction or other Government Entity shall have
issued an order, decree, ruling or injunction, or taken any other action,
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger substantially on the terms contemplated hereby, and such
order, decree, ruling, injunction or other action shall have become final and
non-appealable; provided, that a party shall not be permitted to terminate this
Agreement pursuant to this Section 8.1(c) unless such party shall have used its
reasonable efforts to remove such order, decree, ruling or injunction;
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<PAGE>
(d) by either Stel or Newbridge if the required approval of the stockholders
of Stel contemplated by this Agreement shall not have been obtained by reason
of the failure to obtain the required vote at a meeting of Stel stockholders
duly convened therefore or at any adjournment thereof; provided, however, that
the right to terminate this Agreement under this Section 8.1(d) shall not be
available to Stel where (i) Stel shall have breached in any material respect
its obligations under this Agreement in any manner that shall have proximately
contributed to the failure to obtain such stockholder approval (it being
specifically understood that a withholding, withdrawal, amendment or
modification of the board of directors recommendation to Stel stockholders to
vote in favor of and approve and adopt this Agreement and approve the Merger in
accordance with the conditions of Section 5.4(c) is not a breach of this
Agreement) or (ii) such failure was caused by a breach of any Voting Agreement
by a party thereto other than Newbridge;
(e) by Newbridge if a Stel Triggering Event (as defined below) shall have
occurred;
(f) by Stel if (i) the Newbridge Closing Value is less than $24.00 per
share, (ii) Newbridge does not exercise the Newbridge Adjustment Option or, if
after Newbridge exercises such option, the Exchange Ratio is still less than
the quotient obtained by dividing U.S. $30.00 by the Newbridge Closing Value,
and (iii) Stel delivers a written termination notice prior to the close of
business on the trading day immediately prior to the Stel Special Meeting.
(g) by Stel, if there exists a breach or breaches of any representation or
warranty of Newbridge or Merger Sub contained in this Agreement such that the
Closing condition set forth in Section 7.1(a) or Section 7.1(b) would not be
satisfied; provided, however, that if such breach or breaches are capable of
being cured prior to the Effective Time such that such condition would be
satisfied, then Stel shall not be permitted to terminate this Agreement
pursuant to this Section 8.3(g) unless Stel shall have delivered to Newbridge
written notice of such breach or breaches and such breach or breaches shall not
have been so cured within 30 days after delivery to Newbridge of such written
notice; provided, further, that Stel shall not be permitted to terminate this
Agreement pursuant to this Section 8.3(g) if Stel shall have breached in any
material respect its obligations under this Agreement in any manner that shall
have proximately caused such breach or breaches of Newbridge; or
(h) by Newbridge, if there exists a breach or breaches of any representation
or warranty of Stel contained in this Agreement such that the Closing condition
set forth in Section 7.2(a) or 7.2(b) would not be satisfied; provided,
however, that if such breach or breaches are capable of being cured prior to
the Effective Time such that such condition would be satisfied, then Newbridge
shall not be permitted to terminate this Agreement pursuant to this Section
8.1(h) unless Newbridge shall have delivered to Stel written notice of such
breach or breaches and such breach or breaches shall not have been so cured
within 30 days after delivery to Stel of such written notice; provided, further
that Newbridge shall not be permitted to terminate this Agreement pursuant to
this Section 8.2(h) if Newbridge shall have breached in any material respect
its obligations under this Agreement in any manner that shall have proximately
caused such breach or breaches of Stel.
(i) For the purposes of this Agreement, a "Stel Triggering Event" shall be
deemed to have occurred if: (i) the board of directors of Stel or any committee
thereof shall for any reason have withdrawn or shall have amended or modified
in a manner adverse to Newbridge its unanimous recommendation in favor of, the
adoption and approval of the Agreement or the approval of the Merger; (ii) Stel
shall have failed to include or maintain in the Prospectus/Proxy Statement the
unanimous recommendation of the board of directors of Stel in favor of the
adoption and approval of the Agreement and the approval of the Merger; (iii)
the board of directors of Stel shall have failed to reaffirm its unanimous
recommendation in favor of the adoption and approval of the Agreement and the
approval of the Merger within five days after Newbridge requests in writing
that such recommendation be reaffirmed; (iv) the board of directors of Stel or
any committee thereof shall have failed to reject any Acquisition Proposal; (v)
Stel shall have entered into any letter or intent or similar document or any
agreement or commitment contemplating or otherwise relating to an Acquisition
Proposal; (vi) subject to Stel's ability to adjourn or postpone a meeting
pursuant to the third sentence of Section 5.4(a), Stel shall have failed to
hold the Stel Special Meeting as promptly as practicable and in any event (to
the extent permissible under
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applicable law) within 45 days after the declaration of the effectiveness of
the Registration Statement; (vii) a tender or exchange offer relating to
securities of Stel shall have been commenced by a Person unaffiliated with
Newbridge and Stel shall not have sent to its security holders pursuant to Rule
14e-2 promulgated under the Securities Act, within ten business days after such
tender or exchange offer is first published, sent or given, a statement
disclosing that the board of directors of Stel recommends rejection of such
tender or exchange offer; or (viii) Stel shall have breached any of its
obligations under Section 5.2 of this Agreement.
8.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement under Section 8.1 will be effective immediately upon the delivery of
a valid written notice of the terminating party to the other parties hereto. In
the event of the termination of this Agreement as provided in Section 8.1, this
Agreement shall be of no further force or effect, except (i) as set forth in
the last sentence of Section 5.3, this Section 8.2, Section 8.3, Sections 9.4,
9.5, 9.6, 9.10, 9.11 and 9.12, each of which shall survive the termination of
this Agreement, and (ii) nothing herein shall relieve any party from liability
for any willful breach of this Agreement. No termination of this Agreement
shall affect the obligations of the parties contained in the Confidentiality
Agreement, the Stock Option Agreement or the Technology Option Agreement, all
of which obligations shall survive termination of this Agreement in accordance
with their terms.
8.3 Fees and Expenses.
(a) General. Except as set forth in this Section 8.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses whether or not the
Merger is consummated; provided, however, that Newbridge and Stel shall share
equally all fees and expenses, other than attorneys' and accountants' fees and
expenses, incurred in relation to the printing and filing (with the SEC) of the
Prospectus/Proxy Statement (including any preliminary materials related
thereto) and the Registration Statement (including financial statements and
exhibits) and any amendments or supplements thereto.
(b) Stel Payments.
(i) In the event that this Agreement is terminated by Newbridge pursuant to
Section 8.1(e), Stel shall promptly, but in no event later than ten business
days after the date of such termination, pay Newbridge a nonrefundable fee
equal to U.S. $25 million in immediately available funds (the "Termination
Fee").
(ii) In the event that this Agreement is terminated by Newbridge or Stel, as
applicable, pursuant to Section 8.1 (b) or (d), (A) Stel shall pay Newbridge
the Termination Fee only if following the date hereof and prior to the
termination of this Agreement, a Third Party has publicly announced an
Acquisition Proposal and within 12 months following the termination of this
Agreement, Stel executes with a Third Party an agreement providing for an
Acquisition Transaction or an Acquisition Transaction has been consummated and
(B) such payment shall be made promptly, but in no event later than ten
business days after the execution of such agreement.
(iii) In the event that this Agreement is terminated by Newbridge or Stel
pursuant to Section 8.1(d) and Stel is not required to pay Newbridge the
Termination Fee, Stel shall reimburse Newbridge for all documented expenses
incurred by Newbridge in connection with this Agreement, the Stock Option
Agreement, the Technology Option Agreement and the transactions contemplated
hereby (the "Newbridge Expenses") in immediately available funds not later than
ten business days after the first anniversary of the execution of this
Agreement.
(iv) In the event that this Agreement is terminated by Newbridge pursuant to
Section 8.1(h) because the Closing condition set forth in Section 7.2(b) is not
satisfied, Stel shall promptly, but in no event later than ten business days
after the date of such termination, reimburse Newbridge for the Newbridge
Expenses in immediately available funds.
(v) Stel acknowledges that the agreements contained in this Section 8.3(b)
are an integral part of the transactions contemplated by this Agreement, and
that, without these agreements, Newbridge would not enter
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into this Agreement; accordingly, if Stel fails to pay in a timely manner the
amounts due pursuant to this Section 8.3(b), and, in order to obtain such
payment, Newbridge makes a claim that results in a judgment against Stel for
the amounts set forth in this Section 8.3(b), Stel shall pay to Newbridge its
reasonable costs and expenses (including reasonable attorneys' fees and
expenses) in connection with such suit, together with interest on the amounts
set forth in this Section 8.3(b) at the prime rate of The Chase Manhattan Bank
in effect on the date such payment was required to be made. Payment of the fees
described in this Section 8.3(b) shall not be in lieu of damages incurred in
the event of breach of this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 Amendment and Modification. Subject to applicable law, this Agreement
may be amended, modified or supplemented only by written agreement of
Newbridge, Merger Sub and Stel at any time prior to the Effective Time;
provided, however, that after approval of this Agreement by the stockholders of
Stel, no such amendment or modification shall change the amount or form of the
consideration to be received by Stel's stockholders in the Merger.
9.2 Waiver of Compliance; Consents. Any failure of Newbridge or Merger Sub,
on the one hand, or Stel, on the other hand, to comply with any obligation,
covenant, agreement or condition herein may be waived by Stel or Newbridge or
Merger Sub, respectively, only by a written instrument signed by the party
granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
9.2.
9.3 Survival; Investigations. The respective representations and warranties
of Newbridge, Merger Sub and Stel contained herein or in any certificates or
other documents delivered prior to or at the Closing shall not be deemed waived
or otherwise affected by any investigation made by any party hereto and shall
not survive the Effective Time.
9.4 Notices. All notices and other communications hereunder shall be in
writing and shall be delivered personally by overnight courier or similar means
or sent by facsimile with written confirmation of receipt, to the parties at
the addresses specified below (or at such other address for a party as shall be
specified by like notice. Any such notice shall be effective upon receipt, if
personally delivered or on the next business day following transmittal if sent
by confirmed facsimile. Notices, including oral notices, shall be delivered as
follows:
<TABLE>
<S> <C>
if to Stel, to: Stanford Telecommunications, Inc.
1221 Crossman Avenue
P.O. Box 3733
Sunnyvale, California 94089
Telephone: (408) 735-0818
Facsimile: (408) 745-2410
Attention: Gary Wolf
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
with a copy to: Thelen Reid & Priest LLP
333 West San Carlos Street, 17th Floor
San Jose, California 95110-2701
Telephone: (408) 292-5800
Facsimile: (408) 287-8040
Attention: Jay L. Margulies
if to Newbridge, or Newbridge Networks Corporation
Merger Sub, to: 600 March Road, P.O. Box 13600
Kanata, Ontario, Canada K2K 2E6
Telephone: (613) 591-3600
Facsimile: (613) 599-3672
Attention: Peter Nadeau
with a copy to: Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, California 94301
Telephone: (650) 324-7000
Facsimile: (650) 324-0638
Attention: Stephen C. Ferruolo (Matter #21969-0009)
</TABLE>
9.5 Assignment; Third Party Beneficiaries. Neither this Agreement nor any
right, interest or obligation hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other parties. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. This Agreement is not intended to
confer any rights or remedies upon any Person other than the parties hereto,
with respect only to Section 5.8, the officers and directors of Stel, or as
otherwise expressly provided herein.
9.6 Governing Law. This Agreement shall be governed by the laws of the State
of Delaware without reference to principles of conflicts of laws.
9.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.8 Severability. In case any one or more of the provisions contained in
this Agreement should be finally determined to be invalid, illegal or
unenforceable in any respect against a party hereto, it shall be adjusted if
possible to effect the intent of the parties. In any event, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby, and such invalidity, illegality
or unenforceability shall only apply as to such party in the specific
jurisdiction where such final determination shall have been made.
9.9 Interpretation. The Article and Section headings contained in this
Agreement are solely for the purpose of reference and shall not in any way
affect the meaning or interpretation of this Agreement.
9.10 Entire Agreement. This Agreement, including the exhibits hereto and the
documents and instruments referred to herein, embody the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no representations, promises, warranties, covenants, or
undertakings, other than those expressly set forth or referred to herein and
therein.
9.11 Definition of "law". When used in this Agreement "law" refers to any
applicable law (whether civil, criminal or administrative) including, without
limitation, common law, statute, statutory instrument, treaty, regulation,
directive, decision, code, order, decree, injunction, resolution or judgment of
any government, quasi-government, supranational, federal, state or local
government, statutory or regulatory body, court, or agency.
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<PAGE>
9.12 Rules of Construction. Each party to this Agreement has been
represented by counsel during the preparation and execution of this Agreement,
and therefore waives any rule of construction that would construe ambiguities
against the party drafting the agreement.
IN WITNESS WHEREOF, Newbridge Networks Corporation, Saturn Acquisition Corp.
and Stanford Telecommunications, Inc. have caused this Agreement to be signed
by their respective duly authorized officers as of the date first above
written.
NEWBRIDGE NETWORKS CORPORATION
/s/ Alan G. Lutz
By: _________________________________
Title: President and Chief Operating
Officer
/s/ Peter Nadeau
By: _________________________________
Title: Vice President and General
Counsel
SATURN ACQUISITION CORP.
/s/ Peter Nadeau
By: _________________________________
Title: President, Treasurer and
Secretary
STANFORD TELECOMMUNICATIONS, INC.
/s/ Val P. Peline
By: _________________________________
Title: President and Chief Executive
Officer
/s/ James J. Spilker, Jr.
By: _________________________________
Title: Chairman
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<PAGE>
AMENDMENT
TO AGREEMENT AND PLAN OF MERGER
This AMENDMENT ("Amendment") to the Agreement and Plan of Merger is made and
entered into as of August 20, 1999, by and among Newbridge Networks
Corporation, a Canadian Corporation ("Newbridge"), Saturn Acquisition Corp., a
Delaware Corporation and wholly-owned subsidiary of Newbridge ("Merger Sub"),
and Stanford Telecommunications, Inc., a Delaware corporation ("Stel") with
respect to the following facts:
A. Newbridge, Merger Sub and Stel entered into that certain Agreement and
Plan of Merger ("Merger Agreement") dated June 22, 1999; and
B. The parties desire to make certain modifications to the Merger Agreement.
The parties hereto agree as follows:
1. Section 2.1(f) of the Merger Agreement is hereby amended in its entirety
to read as follows:
"(f) No fraction of a share of Newbridge Common Stock will be issued by
virtue of the Merger. Instead, each holder of shares of Stel Common Stock who
would otherwise be entitled to a fraction of a share of Newbridge Common Stock
(after aggregating all fractional shares of Newbridge Common Stock to be
received by such holder) shall receive from Newbridge an amount of cash
(rounded down to the nearest whole cent) equal to the product of (i) such
fraction, multiplied by (ii) the Newbridge Fractional Share Value. For the
purposes of this Agreement, "Newbridge Fractional Share Value" shall mean the
closing price per share of Newbridge Common Stock as reported on the NYSE
Composite Tape on the trading day immediately preceding the Effective Time.
Notwithstanding the foregoing, if the Non-core Asset Sale has not closed on or
prior to the Effective Time and CVRs are issued, payment with respect to
fractional shares of Newbridge Common Stock issuable at the Effective Time of
the Merger will occur concurrently with the issuance of the additional
Newbridge Common Stock after the maturity date of the CVRs. At such time, such
fractional shares will be aggregated with any fractional shares of Newbridge
Common Stock issuable with respect to the CVRs, and any resulting whole shares
of Newbridge Common Stock will be issued and any remaining fractional shares
will be paid by Newbridge in cash in accordance with this Section 2.1(f)."
2. Section 3.2 of the Merger Agreement is hereby amended in its entirety to
read as follows:
"3.2 Authority Relative to This Agreement. Stel has full corporate power and
authority to (i) execute and deliver this Agreement, (ii) execute and deliver
the Stock Option Agreement, (iii) execute and deliver the Technology Option
Agreement, (iv) consummate the transactions contemplated by the Stock Option
Agreement and Technology Option Agreement, and (v) assuming the approval of the
Merger and the approval of the sale of Stel's government business assets by a
majority of the outstanding shares of Stel Common Stock at the Stel Special
Meeting or any adjournment or postponement thereof in accordance with Delaware
Law, consummate the Merger and the other transactions contemplated hereby. The
execution and delivery of this Agreement, the Stock Option Agreement and the
Technology Option Agreement, and the consummation of the Merger, the sale of
the government business assets and the other transactions contemplated hereby
and thereby, have been duly and validly authorized by the board of directors of
Stel, and no other corporate proceedings on the part of Stel are necessary to
authorize this Agreement, the Stock Option Agreement and the Technology Option
Agreement or to consummate the Merger, and the other transactions contemplated
hereby and thereby (other than, (a) with respect to the Merger, the approval of
the Merger by a majority of the outstanding shares of Stel Common Stock at the
Stel Special Meeting or any adjournment or postponement thereof in accordance
with the Delaware Law or (b) with respect to the sale of the government
business assets, the approval of such sale by a majority of the outstanding
shares of Stel Common Stock.) Each of this Agreement, the Stock Option
Agreement and the Technology Option Agreement has been duly and validly
executed and delivered by Stel and, assuming due
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authorization, execution and delivery by Newbridge and, in the case of this
Agreement, by Merger Sub, constitutes a valid and binding agreement of Stel,
enforceable against Stel in accordance with its terms, except to the extent
that its enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of
creditors' rights generally or by general equitable principles."
3. Section 5.14 of the Merger Agreement is hereby amended in its entirety to
read as follows:
"5.14 Employee Matters. Newbridge agrees to make severance payments to
persons who are Stel employees immediately prior to the Effective Time and who
are terminated on or within 90 days of the Effective Time and to pay the other
benefits as set forth in Schedule 5.14."
IN WITNESS WHEREOF, Newbridge Networks Corporation, Saturn Acquisition Corp.
and Stanford Telecommunications, Inc. have caused this Amendment to the Merger
Agreement to be signed by their respective duly authorized officers as of the
date first above written.
NEWBRIDGE NETWORKS CORPORATION
By: /s/ Conrad Lewis
-----------------------------------
Title: Executive Vice President
---------------------------------
By: /s/ Peter Nadeau
-----------------------------------
Title: Vice President and General
Counsel
---------------------------------
SATURN ACQUISITION CORP.
By: /s/ Peter Nadeau
-----------------------------------
Title: President, Treasurer &
Secretary
---------------------------------
STANFORD TELECOMMUNICATIONS, INC.
By: /s/ Val P. Peline
-----------------------------------
Title: President and Chief Executive
Officer
---------------------------------
By: /s/ Gary Wolf
-----------------------------------
Title: Executive Vice President
---------------------------------
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<PAGE>
APPENDIX 2
CONTINGENT VALUE RIGHTS AGREEMENT
THIS CONTINGENT VALUE RIGHTS AGREEMENT, dated as of , 1999,
between Newbridge Networks Corporation, a Canadian corporation ("Newbridge"),
and , as Rights Agent (the "Rights Agent"), in favor of each
person who acquires from time to time Contingent Value Rights (the "CVRs") to
receive, in accordance with the terms hereof, shares (the "CVR Shares") of
Newbridge's common stock ("Newbridge Common Stock"). The CVR Shares are
issuable pursuant to a registration statement on Form S-4 (No. 333- )
(the "Registration Statement") filed by Newbridge with the Securities and
Exchange Commission (the "Commission").
1. Appointment of Rights Agent. Newbridge hereby appoints the Rights Agent
to act as agent for Newbridge in accordance with the instructions set forth
herein, and the Rights Agent hereby accepts such appointment, upon the terms
and conditions hereinafter set forth.
2. Certain Definitions. Capitalized terms used herein without definition
shall have the meanings given them in the Agreement and Plan of Merger, dated
June 22, 1999, by and among Newbridge, Saturn Acquisition Corp. and Saturn
Corporation (the "Merger Agreement"). For purposes of this Agreement, and in
addition to the terms defined elsewhere in this Agreement, the following terms
shall have the following meanings:
2.1 "Common Stock" means (i) the Newbridge Common Stock or (ii) any other
class of stock resulting from successive changes of reclassification of such
shares consisting solely of changes in par value, or from par value to no par
value, or from no par value to par value. Unless the context requires
otherwise, all references to Common Stock and CVR Shares in this Agreement and
in the CVR Certificates (as defined herein) shall, in the event of an
adjustment pursuant to Section 13 hereof, be deemed to refer also to any other
securities or property then issuable upon maturity of the CVRs as a result of
such adjustment.
2.2 "Fair Market Value" with respect to any security shall mean the closing
sales price of such security on the day in question on the principal national
securities exchange on which such security is listed or admitted to trading or,
if not listed or traded on any such exchange, the closing price of such
security on the Nasdaq National Market or, if not listed or traded on any
exchange or the Nasdaq National Market, the average of the closing bid and ask
prices per share on the National Association of Securities Dealers, Inc.
Automated Quotation System ("Nasdaq") on the day in question or, if such
quotations are not available, the fair market value on the day in question as
reasonably determined by the Board of Directors of Newbridge or any duly
authorized committee of such Board after consultation with its legal and
financial advisors.
2.3 "Issuance Date" means the Effective Time as defined in the Merger
Agreement.
3. Form of CVR Certificate.
3.1 The CVRs shall be evidenced by certificates (the "CVR Certificates")
substantially in the form attached hereto as Exhibit A. The CVR Certificates
may have such letters, numbers or other marks of identification or designation
and such legends, summaries or endorsements printed, lithographed or engraved
thereon as Newbridge may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto. Newbridge will use its
reasonable efforts to advise the Rights Agent of any material change in any
such rule or regulation of which it becomes aware.
3.2 The CVR Certificates shall be executed on behalf of Newbridge by the
manual or facsimile signature of the present or any future President or Vice
President of Newbridge, under its corporate seal, affixed or in facsimile,
attested by the manual or facsimile signature of the present or any future
Secretary or Assistant Secretary of Newbridge. CVR Certificates shall be dated
as of the date of the initial issuance thereof.
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4. Registration and Countersignature.
4.1 The Rights Agent shall maintain books for the registration of the CVR
Certificates. The CVR Certificates shall be countersigned by the Rights Agent
and shall not be valid for any purpose unless so countersigned. The CVR
Certificates shall be so countersigned, however, by the Rights Agent and shall
be delivered by the Rights Agent, notwithstanding that the persons whose manual
or facsimile signatures appear thereon as proper officers of Newbridge shall
have ceased to be such officers at the time of such countersigned or delivery.
4.2 Prior to due presentment for registration of the CVR Certificates,
Newbridge and the Rights Agent may deem and treat the registered holder thereof
as the absolute owner of the CVR Certificates (notwithstanding any notation of
ownership or other writing thereof made by anyone other than Newbridge or the
Rights Agent) for the purpose of payment of CVR Shares upon maturity of the
CVRs and for all other purposes, and neither Newbridge nor the Rights Agent
shall be affected by any notice to the contrary.
5. Maturity and Payment of CVRs.
5.1 The CVRs will mature at the close of business on the Maturity Date (as
defined herein) without any further action by the holders of CVRs. For purposes
of this Agreement, "Maturity Date" means the earlier to occur of (a) the date
on which Saturn completes the Non-core Asset Sale; and (b) May 31, 2000. On or
as soon as practicable after the Maturity Date, but in no event later than (i)
ten business days after the Maturity Date or (ii) if an independent expert in
business valuation is appointed under Section 6.1 or 6.2 hereof, ten business
days after receipt of the appraisal from such expert, Newbridge shall deliver a
notice to the Rights Agent setting forth the number of shares of Common Stock,
if any, or other consideration issuable per CVR pursuant to this Agreement.
5.2 As soon as practicable after receipt of the notice referred to in
Section 5.1 hereof, the Rights Agent shall cause to be delivered to each record
holder of CVRs stock certificates representing that number of CVR Shares due to
each such holder as determined pursuant to Section 6 hereof and/or such other
consideration (including payment of cash in lieu of fractional shares) as such
holder may be entitled under this Agreement. Any CVR Shares or other securities
issued upon payment in respect of CVRs shall be deemed to have been issued as
of the close of business on the Maturity Date, and the CVRs shall be deemed to
have been canceled at such time; provided, however, that if the Maturity Date
is a date on which the stock transfer books of Newbridge are closed, any such
CVR Shares shall be deemed to have been issued to the holders of CVRs on the
next business day on which the stock transfer books of Newbridge are open.
6. CVR Shares Issuable Upon Maturity of CVRs.
6.1 The number of CVR Shares issuable per CVR upon maturity of the CVRs
shall be a fraction of a share of Common Stock (the "Contingent Value Ratio")
as is determined by using the following formula:
[(B+C-D+E) / N] / V
where,
"B" equals [the lesser of (A) the gross proceeds from the Non-core Asset
Sale before deduction of any state and federal taxes payable on such
proceeds (the "Non-core Asset Sale Proceeds") and (B) $173,000,000], minus
$102,000,000;
"C" equals 50% of the greater of (A) the Non-core Asset Sale Proceeds
minus $173,000,000 and (B) 0;
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"D" equals 50% of any state or federal income taxes payable on the Non-
core Asset Sale Proceeds, based on the applicable rates, determined in good
faith by Newbridge;
"E" equals $625,000;
"N" equals the number of CVRs issued and outstanding on the Maturity
Date plus the number of CVRs issuable upon exercise of Saturn Options
assumed by Newbridge pursuant to Section 2.2(a) of the Merger Agreement;
and
"V" equals the greater of (a) the average closing price per share of
Newbridge Common Stock as reported on the New York Stock Exchange Composite
Tape on the ten trading days ending on the fifth trading day immediately
preceding the Saturn Special Meeting and (b) $24.00, unless the Newbridge
Adjustment Option is exercised pursuant to Section 2.1(a) of the Merger
Agreement, in which case "V" equals $30.00 divided by the Exchange Ratio.
6.2 In the event that consideration received from the Non-core Asset Sale is
not cash or is affected by some contingency, Newbridge shall appoint an
independent expert in business valuation to calculate the net present value of
such consideration, and such amount shall be included in the calculation of the
Non-core Asset Sale Proceeds.
6.3 In the event that the Maturity Date is the date set forth in clause (b)
of Section 5.1, Newbridge shall be required to include in the calculation of
the Non-core Asset Sale Proceeds an amount equal to (a) the sales price for
such assets specified in a binding contract to sell such assets in effect on
the Maturity Date or (b) the fair cash value of the most recent bona fide offer
to purchase such assets as determined by an independent expert in business
valuation familiar with Saturn's Non-Core Asset business. If clauses (a) or (b)
do not apply, then the amount included in the Non-core Asset Sale Proceeds
shall be equal to those amounts received from the Non-core Asset Sale on or
prior to the Maturity Date. The number of CVR Shares issuable per CVR pursuant
to this Section 6 is subject to adjustment as hereinafter set forth in this
Agreement.
7. Fractional Shares. No fractional shares of Common Stock shall be issued
to any holder of CVRs in respect of the CVRs. Instead of any fractional shares
of Common Stock that would otherwise be issuable to any such holder, Newbridge
will pay to such holder a cash adjustment in respect of such fractional
interest in an amount equal to the product of (a) such fractional interest
multiplied by (b) the Newbridge Fractional Share Value.
8. Payment of Taxes. Newbridge will pay all documentary stamp taxes
attributable to the original issuance of the CVRs and the CVR Shares; provided,
however, that Newbridge shall not be required to (a) pay any tax which may be
payable in respect of the issuance or delivery of certificates for CVR Shares
in a name other than that of the registered holder of the CVR Certificates as
of the Maturity Date or (b) issue or deliver any certificate for CVR Shares
upon the Maturity Date until any such tax required to be paid under clause (a)
shall have been paid, all such tax being payable by the holder of such CVR at
the time of surrender.
9. Mutilated or Missing Certificates. In case any CVR Certificate shall be
mutilated, lost, stolen or destroyed, Newbridge may in its discretion issue,
and the Rights Agent may countersign and deliver in exchange and substitution
for an upon cancellation of the mutilated CVR Certificate, or in lieu of a
substitution for the lost, stolen or destroyed CVR Certificate, a new CVR
Certificate of like tenor and evidencing the number of CVRs evidenced by the
CVR Certificate so mutilated, lost, stolen or destroyed, but only upon receipt
of evidence satisfactory to the Rights Agent of such mutilation, loss, theft or
destruction of such CVR Certificate and indemnity, if requested, also
satisfactory to it. Applicants for such substitute CVR Certificate shall also
comply with such other reasonable regulations and pay such other reasonable
charges as Newbridge or the Rights Agent may prescribe. Any such new CVR
Certificate shall constitute an original contractual obligation of Newbridge,
whether or not the allegedly mutilated, lost, stolen or destroyed CVR
Certificate shall be at any time enforceable by anyone.
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10. Reservation of CVR Shares; Stock Certificates. Newbridge shall at all
times reserve for issuance and delivery upon maturity of the CVRs such number
of CVR Shares or other shares of capital stock of Newbridge from time to time
issuable upon maturity of the CVRs. All such shares shall be duly authorized
and, when issued, shall be validly issued, fully paid and nonassessable, free
and clear of all liens, security interests, charges and other encumbrances or
restrictions on sale and free and clear of all preemptive rights. The Rights
Agent is hereby irrevocably authorized to requisition a reasonable time prior
to the Maturity Date, as applicable, from Newbridge's transfer agent stock
certificates issuable upon maturity of the CVRs. Newbridge will supply such
transfer agent with duly executed stock certificates for such purpose.
Newbridge shall keep a copy of this Agreement on file with its transfer agent
and with every transfer agent for any shares of Common Stock.
11. Transfer and Registration of CVRs and CVR Shares.
11.1 The CVRs, and any interest therein, shall in no circumstances be sold,
assigned or otherwise transferred other than by will or pursuant to the laws of
descent and distribution.
11.2 The CVRs and CVR Shares have been registered pursuant to the
Registration Statement under the Securities Act of 1933, as amended (the
"Act"). Newbridge covenants and agrees:
(a) to prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective through the Maturity Date and to use its commercially
reasonable efforts to keep such Registration Statement effective during
such period;
(b) as expeditiously as possible, to use its commercially reasonable
efforts to register or qualify the CVRs and the CVR Shares to be delivered
upon the Maturity Date under the securities or Blue Sky laws of each
jurisdiction in which such registration or qualification is necessary; and
(c) to pay all expenses incurred by Newbridge in complying with this
Section 11.2, including, without limitation, (i) all registration and
filing fees, (ii) all printing expenses, (iii) all fees and disbursements
of counsel and independent public accountants for Newbridge, (iv) all Blue
Sky fees and expenses (including fees and expenses of counsel in connection
with any Blue Sky surveys), and (v) the entire expense of any special
audits incident to or required by any such registration.
12. Rights of CVR Certificate Holder. The holder of any CVR Certificate or
CVR shall not, by virtue thereof, be entitled to any rights of a stockholder of
Newbridge, either at law or in equity, and the rights of the holder are limited
to those expressed in this Agreement.
13. Antidilution Provisions. The number of CVR Shares issuable upon the
maturity of the CVRs pursuant to Section 5 hereof is subject to change or
adjustment as follows:
13.1 Stock Dividends, Stock Splits and Combinations of Stock. If at any time
after the Issuance Date and before 5:00 p.m., [ time], on the Maturity
Date, (a) Newbridge shall fix a record date for the issuance of any stock
dividend payable in shares of Common Stock, (b) the number of shares of Common
Stock shall have been increased by a subdivision or split-up of shares of
Common Stock or (c) the number of shares of Common Stock shall have been
decreased by a combination of the outstanding shares of Common Stock, then the
number of CVR Shares issuable pursuant to Section 6 hereof shall be multiplied
by a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such dividend, subdivision, split-up or
combination and the denominator of which is the number of shares of Common
Stock outstanding immediately prior to such dividend, subdivision, split-up or
combination. The time of occurrence of an event giving rise to an adjustment
made pursuant to this Section 13.1 shall, in the case of a subdivision, split-
up or combination, be the effective date thereof and shall, in the case of
dividend, be the record date thereof.
13.2 Consolidation, Merger, etc. If at any time after the Issuance Date and
before 5:00 p.m., [ time], on the Maturity Date any capital
reorganization of Newbridge, or any reclassification of the Common
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Stock, or any consolidation of Newbridge with or merger of Newbridge with or
into any other corporation or person or any sale, lease or other transfer of
all or substantially all of the assets of Newbridge to any other person,
including any individual, corporation, partnership, joint venture, trust or
group thereof (a "Transaction"), shall be effected in such a way that the
holders of the Common Stock shall be entitled to receive solely voting stock of
Newbridge with respect to or in exchange for Common Stock, then each holder of
a CVR shall have the right to receive on or after the Maturity Date (as
provided in Section 5 hereof) the Equivalent Payment (as defined below). For
purposes of this Agreement, "Equivalent Payment" means the number of shares of
voting stock of Newbridge that would have been payable in the Transaction in
respect of the number of shares of Common Stock that would have been payable
upon maturity of the CVRs held by such holder had the Transaction not occurred,
calculated by equating the Fair Market Value of the Common Stock with the Fair
Market Value of the consideration payable in the Transaction in respect of the
Common Stock. If, instead of or in addition to voting stock of Newbridge, the
consideration in such transaction would consist of cash, securities or other
assets, then prior to such transaction Newbridge shall appoint in independent
expert in valuation to determine the number of shares of Common Stock
represented, in such expert's best judgment, by the CVRs, and each holder of a
CVR shall be issued that number of shares of Common Stock represented by such
holder's CVR.
13.3 Readjustments, etc. If an adjustment is made under Section 13.1 or 13.2
above, and the event to which the adjustment relates does not occur, then any
adjustments in the number of CVR Shares issuable upon maturity of the CVRs that
were made in accordance with such Section shall be adjusted back to the number
of CVR Shares that were issuable immediately prior to the effective date or the
record date of such event, as the case may be.
13.4 Preservation of Purchase Rights upon Merger, Consolidation,
etc. Newbridge shall not effect any reorganization, reclassification,
consolidation, merger, or sale under Section 13.2 hereof unless prior to or
simultaneously with the consummation thereof the successor corporation or
person (if other than Newbridge) resulting from such reorganization,
reclassification, consolidation or merger or the person (if other than
Newbridge) purchasing such assets shall assume by written instrument, executed
and mailed or delivered to the Rights Agent, the obligation to deliver to such
holder such shares of stock, cash, securities or assets as, in accordance with
Section 13.2 hereof, such holder may be entitled to receive, and containing the
express assumption of such person or the due and punctual performance and
observance by Newbridge and of all liabilities and obligations of Newbridge
hereunder. Such written agreement shall provide for adjustments, which shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Section 13 and shall provide that such adjustments that similarly apply
the successive reorganizations, reclassifications, consolidations, mergers,
sales, transfers or leases.
14. Officer's Certificate. Whenever the number of CVR Shares that may be
issued upon the Maturity Date is adjusted as required by the provisions of this
Agreement, Newbridge will forthwith file in the custody of its Secretary or an
Assistant Secretary at its principal office and with the Rights Agent an
officer's certificate showing the adjusted number of CVR Shares that may be
issued upon maturity of the CVRs, determined as herein provided, setting forth
in reasonable detail the facts requiring such adjustment and the manner of
computing such adjustment. Each such officer's certificate shall be made
available at all reasonable times for inspection by each holder of CVRs.
Newbridge shall, forthwith after each such adjustment, cause a copy of such
certificate to be mailed to the holder. The Rights Agent shall be entitled to
rely conclusively on the contents of certificates furnished pursuant to this
Section 14 and shall not be required to make any independent inquiry as to
facts not established through such certificates.
15. Listing on NYSE. Newbridge will use its commercially reasonable efforts
to list on the NYSE the shares of the Common Stock issuable in respect of the
CVRs, and will use its commercially reasonable efforts to maintain such listing
or approval so long as any other shares of Common Stock are so listed or
approved; and Newbridge shall use its commercially reasonable efforts to so
list on each national securities exchange or obtain approval for quotation on
the Nasdaq National Market, or such other over-the-counter quotation system,
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and shall use its commercially reasonable efforts to maintain such listing or
approval of, any other shares of capital stock of Newbridge issuable in respect
of the CVRs if and so long as the shares of capital stock of the same class are
listed on such national securities exchange or are traded on the Nasdaq
National Market or such over-the-counter quotation system. Any such listing or
quotation will be at Newbridge's expense.
16. Availability of Information. Newbridge will comply with all applicable
periodic public information reporting requirements of the Commission to which
it may from time to time be subject.
17. Merger, Consolidation or Change of Name of Rights Agent. Any corporation
into which the Rights Agent may be merged or with which it may be consolidated,
or any corporation resulting from any merger or consolidation to which the
Rights Agent shall be a party, or any corporation succeeding to the corporate
trust business of the Rights Agent, shall be the successor to the Rights Agent
hereunder without the execution or filing of any paper or any further act on
the part of any of the parties hereto, provided that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 19 hereof. In case at the time such successor to the Rights Agent shall
succeed to the agency created by this Agreement, and in case at that time any
of the CVRs shall have been countersigned but not delivered, any such successor
to the Rights Agent may adopt the countersignature of the predecessor Rights
Agent and deliver such CVRs so countersigned; and in case at that time any of
the CVRs shall not have been countersigned, any successor to the Rights Agent
may countersign such CVRs either in the name of the predecessor Rights Agent or
in the name of the successor Rights Agent; and in all such cases such CVRs
shall have the full force and effect provided in the CVRs and in this
Agreement.
In the case at any time the name of the Rights Agent shall be changed and at
such time any of the CVRs shall have been countersigned but not delivered, the
Rights Agent may adopt the countersignature under its prior name and deliver
CVRs so countersigned; and in case at that time any of the CVRs shall not have
been countersigned, the Rights Agent may countersign such CVRs either in its
prior name or in its changed name; and in all such cases such CVRs shall have
the full force and effect provided in the CVRs and in this Agreement.
18. Duties of Rights Agent. The Rights Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which Newbridge and the holders of the CVRs, by their acceptance
thereof, shall be bound:
18.1 The statements contained herein and in the CVR Certificate shall be
taken as statements of Newbridge, and the Rights Agent assumes no
responsibility for the correctness of any of the same except such as describe
the Rights Agent or actions taken or to be taken by it. The Rights Agent
assumes no responsibility with respect to the delivery of CVRs except as herein
otherwise provided.
18.2 The Rights Agent shall not be responsible for any failure of Newbridge
to comply with any of the covenants contained in this Agreement or in the CVRs
to be complied with by Newbridge.
18.3 The Rights Agent may consult at any time with counsel satisfactory to
it (who may be counsel for Newbridge), and the Rights Agent shall incur no
liability or responsibility to Newbridge or to any holder of any CVR in respect
of any action taken, suffered or omitted by it hereunder in good faith and in
accordance with the opinion or the advice of such counsel, provided the Rights
Agent shall have exercised reasonable care in the selection and continued
employment of such counsel.
18.4 The Rights Agent shall incur no liability or responsibility to
Newbridge or to any holder of any CVR for any action taken in reliance on any
notice, resolution, waiver, consent, order, certificate or other paper,
document or instrument believed by it to be genuine and to have been signed,
sent or presented by the party or parties.
18.5 Newbridge agrees (a) to pay to the Rights Agent reasonable compensation
for all services rendered by the Rights Agent in the execution of this
Agreement, (b) to reimburse the Rights Agent for all expenses, taxes and
governmental charges and other charges of any kind and nature incurred by the
Rights Agent in the
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execution of this Agreement (other than taxes measured by the Rights Agent's
net income), and (c) upon request, to advance to the Rights Agent funds to pay
cash in lieu of fractional shares of Common Stock issuable upon maturity of the
CVRs.
18.6 The Rights Agent shall be under no obligation to institute any action,
suit or legal proceeding or to take any other action likely to involve expense
unless Newbridge shall furnish the Rights Agent with reasonable security and
indemnity for any costs and expenses which may be incurred. All rights of
action under this Agreement or under any of the CVRs may be enforced by the
Rights Agent without the possession of any of the CVRs or the production
thereof at any trial or other proceeding relative thereto, and any such action,
suit or proceeding instituted by the Rights Agent shall be brought in its name
as Rights Agent, and any recovery of judgment shall be for the ratable benefit
of the registered holders of the CVRs, as their respective rights or interests
may appear.
18.7 The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the CVRs or other securities
of Newbridge or become pecuniarily interested in any transaction in which
Newbridge may be interested, or contract with or lend money to or otherwise act
as fully and freely as though it were not the Rights Agent under this
Agreement. Nothing herein shall preclude the Rights Agent from acting in any
other capacity for Newbridge or for any other legal entity.
18.8 The Rights Agent shall act hereunder solely as agent, and its duties
shall be determined solely by the provisions hereof. The Rights Agent shall not
be liable for anything which it may do or refrain from doing in connection with
this Agreement except for its own gross negligence or bad faith.
19. Change of Rights Agent. The Rights Agent may resign and be discharged
from its duties under this Agreement by giving to Newbridge notice in writing,
and to the holders of the CVRs notice in writing and sent by first-class mail,
postage prepaid, to each registered holder of a CVR at such holder's address
appearing in the register maintained by the Rights Agent with respect to the
CVRs, specifying a date when such resignation shall take effect, which notice
shall be sent at least two weeks prior to the date so specified. If the Rights
Agent shall resign or otherwise become incapable of acting, Newbridge shall
appoint a successor to the Rights Agent. If Newbridge shall fail to make such
appointment within a period of 30 days after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Rights Agent
or by the registered holder of a CVR (who shall, with such notice, submit his
CVR for inspection by Newbridge), then the registered holder of any CVR may
apply to any court of competent jurisdiction for the appointment of a successor
of the Rights Agent. After appointment the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed; but the
former Rights Agent shall deliver and transfer to the successor Rights Agent
any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Failure
to give any notice provided for in this Section 19, however, or any defect
therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent,
as the case may be.
20. Identity of Transfer Agent. Forthwith upon the appointment after the
date hereof of any transfer agent for the Common Stock, or of any subsequent
transfer agent for shares of the Common Stock, Newbridge will file with the
Rights Agent a statement setting forth the name and address of such transfer
agent, unless the Rights Agent is such transfer agent.
21. Successors. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. This Agreement is not intended to confer any rights or remedies upon
any Person other than the parties hereto.
22. Termination. This Agreement shall terminate at 5:00 p.m., [ time],
on the Maturity Date or on such later date on which all of the obligations of
the Rights Agent have been fulfilled hereunder.
23. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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24. Interpretation. The Section headings contained in this Agreement are
solely for the purpose of reference and shall not in any way affect the meaning
or interpretation of this Agreement.
25. Amendments. This Agreement may be amended by the written consent of
Newbridge and the affirmative vote or the written consent of holders holding
not less than one-half in interest of the CVRs. Notwithstanding the foregoing,
Newbridge and the Rights Agent may from time to time supplement or amend this
Agreement, without the approval of any holder of CVRs, in order to cure any
ambiguity or to correct or supplement any provision contained in this Agreement
which may be defective or inconsistent with any other provision in this
Agreement, or to make any other provisions in regard to matters or questions
arising under this Agreement which Newbridge and the Rights Agent may deem
necessary or desirable and which shall not be inconsistent with the provisions
of the CVRs and which shall not materially adversely affect the interests of
the holders of CVRs.
26. Notices. All notices and other communications hereunder shall be in
writing and shall be delivered personally by overnight courier or similar means
or sent by facsimile with written confirmation of receipt, to the parties at
the addresses specified below (or at such other address for a party as shall be
specified by like notice. Any such notice shall be effective upon receipt, if
personally delivered or on the next business day following transmittal if sent
by confirmed facsimile. Notices shall be delivered as follows:
if to Rights Agent, to:
__________________________
__________________________
Telephone: _______________
Facsimile: _______________
if to Newbridge, to:
Newbridge Networks Corporation
600 March Road, P.O. Box 13600
Kanata, Ontario, Canada K2K 2E6
Telephone: (613) 591-7300
Facsimile: (613) 599-3672
Attention: Peter Nadeau
with a copy to:
Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, California 94301
Telephone: (650) 324-7000
Facsimile: (650) 324-0638
Attention: Stephen C. Ferruolo (Matter #21969-0009)
27. Benefits of This Agreement. Nothing in this Agreement shall be construed
to give to any person or corporation, other than Newbridge, the Rights Agent
and the registered holders of the CVRs, any legal or equitable right, remedy or
claim under this Agreement; and this Agreement shall be for the sole and
exclusive benefit of Newbridge, the Rights Agent and the registered holders of
CVRs.
28. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without reference to
principles of conflicts laws.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the first date written above.
NEWBRIDGE NETWORKS CORPORATION
By __________________________________
Title _______________________________
By __________________________________
Title _______________________________
[RIGHTS AGENT]
By __________________________________
Title _______________________________
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Exhibit A to
Contingent Value
Rights Agreement
[FORM OF CVR CERTIFICATE]
VOID AFTER 5:00 P.M., [ TIME], ON MAY 31, 2000
CVR No. CVRs
NEWBRIDGE NETWORKS CORPORATION
CONTINGENT VALUE RIGHTS TO RECEIVE SHARES OF COMMON STOCK
THIS CERTIFIES THAT, FOR VALUE RECEIVED, , or its permitted
assigns, is the registered holder of the number of Contingent Value Rights
("CVRs") set forth above. Each CVR entitles the holder thereof to receive from
Newbridge Networks Corporation, a Canadian corporation ("Newbridge"), subject
to the terms and conditions set forth hereinafter and in the Continent Value
Rights Agreement, dated , 1999, between Newbridge and [Rights Agent]
("CVR Agreement"), to shares (the "CVR Shares") of Newbridge's common stock
(the "Common Stock"). The number of CVR shares issuable per CVR on the Maturity
Date (as defined in the CVR Agreement) shall be equal to the Contingent Value
Ratio (as defined in the CVR Agreement).
The number of CVR Shares are subject to change or adjustment upon the
occurrence of certain events set forth in the CVR Agreement, including the
issuance of any stock dividend payable in shares of Common Stock, any increase
in the number of shares of Common Stock by a subdivision or split-up of shares
of Common Stock or any decrease in the number of shares of Common Stock by a
combination of the outstanding shares of Common Stock. The time of occurrence
of an event giving rise to such an adjustment shall, in the case of a
subdivision, split-up or combination, be the effective date thereof and shall,
in the case of a dividend, be the record date thereof. Furthermore, unless
otherwise earlier terminated pursuant to the terms of the CVR Agreement, the
type and amount of consideration payable upon maturity of the CVRs is subject
to adjustment upon the occurrence of any capital reorganization,
reclassification of the Common Stock, any consolidation of Newbridge with or
merger of Newbridge with or into any other corporation or person or any sale,
lease or other transfer of all or substantially all of the assets of Newbridge
to any other corporation or person.
REFERENCE IS MADE TO THE PROVISIONS OF THIS CVR CERTIFICATE SET FORTH ON THE
REVERSE SIDE HEREOF, AND SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE
THE SAME EFFECT AS THOUGH FULLY SET FORTH ON THE FRONT OF THIS CERTIFICATE.
This CVR Certificate shall be governed by and construed in accordance with
the laws of the State of Delaware.
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IN WITNESS WHEREOF, Newbridge has caused this CVR Certificate to be executed
by its duly authorized officer.
Dated: NEWBRIDGE NETWORKS CORPORATION
By __________________________________
Title _______________________________
Countersigned:
[RIGHTS AGENT] By __________________________________
as Rights Agent Title _______________________________
By __________________________________
Title _______________________________
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[REVERSE SIDE]
The CVR Certificate is subject to all of the terms, provisions and
conditions of the Contingent Value Rights Agreement, dated as of
, 1999 (the "CVR Agreement"), between Newbridge Networks
Corporation and the Rights Agent, to all of which terms, provisions and
conditions the registered holder of the CVR consents by acceptance hereof. The
CVR Agreement and certain definitions included in the Agreement and Plan of
Merger, dated June 22, 1999 (the "Merger Agreement"), by and among Newbridge,
Saturn Acquisition Corp. and Saturn Corporation are incorporated herein by
reference and made part hereof and reference is made to the CVR Agreement and
the Merger Agreement for a full description of the rights, limitations of
rights, obligations, duties and immunities of the Rights Agent, Newbridge and
the holders of the CVR Certificates. Copies of the CVR Agreement and the Merger
Agreement are available for inspection at the principal office of the Rights
Agent or may be obtained upon written request addressed to the Rights Agent at
its principal office at [ ].
Newbridge shall not be required upon maturity of the CVRs evidenced by this
CVR Certificate to issue fractional shares, but shall make adjustment therefor
in cash as provided in the CVR Agreement.
Newbridge has filed and caused to become effective a registration statement
under the Securities Act of 1933, as amended, covering the CVRs and CVR Shares
and has agreed to use commercially reasonable efforts to maintain the
effectiveness of such registration statement through the Maturity Date and to
register or qualify the CVRs and the CVR Shares to be delivered upon maturity
of the CVRs under the laws of each jurisdiction in which such registration or
qualification is necessary.
This CVR Certificate is not transferable or assignable other than by will or
pursuant to the laws of descent and distribution.
The holder of this CVR Certificate shall not, by virtue hereof, be entitled
to any of the rights of a stockholder in Newbridge, either at law or in equity,
and the rights of the holder are limited to those expressed in the CVR
Agreement.
Every holder of this CVR Certificate, by accepting the same, consents and
agrees with Newbridge, the Rights Agent and with every other holder of a CVR
Certificate that Newbridge and the Rights Agent may deem and treat the person
in whose name this CVR Certificate is registered as the absolute owner hereof
(notwithstanding any notation of ownership or other writing hereon made by
anyone other than Newbridge or the Rights Agent) for all purposes whatsoever
and neither Newbridge nor the Rights Agent shall be affected by any notice to
the contrary.
This CVR Certificate shall not be valid or obligatory for any purpose until
it shall have been countersigned by the Rights Agent.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<C> <S>
TEN COM as tenants in common
TEN ENT as tenants by the entireties
JT TEN as joint tenants with right of survivorship and not as tenants in
common
COM PROP as community property
</TABLE>
2-12
<PAGE>
<TABLE>
<C> <S>
UNIF GIFT MIN ACT ___________ Custodian ___________
(Cust) (Minor)
under Uniform Gifts to Minors Act
_________________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
2-13
<PAGE>
APPENDIX 3
WIRELESS BROADBAND PRODUCTS
TECHNOLOGY LICENSE OPTION AGREEMENT
BETWEEN
STANFORD TELECOMMUNICATIONS INC.
a Delaware Corporation having its principal place of business at
1221 Crossman Avenue, P.O. Box 3733, Sunnyvale, California 94089
("Stel")
AND
NEWBRIDGE NETWORKS CORPORATION
a Canadian Corporation having its principal place of business at
600 March Road, P.O. Box 13600, Kanata, Ontario, Canada K2K 2E6
("Newbridge")
This Agreement is made effective as of the 22nd day of June 1999 (the
"Effective Date").
BACKGROUND
A. Stel designs, manufactures and markets advanced digital communications
products and systems to establish or enhance communications via satellites,
terrestrial wireless and cable.
B. Newbridge designs, manufactures, markets and services a comprehensive
family of networking products and systems.
C. Pursuant to that certain Agreement and Plan of Merger (the "Merger
Agreement") executed concurrently herewith by Stel and Newbridge (each a
"Party" and collectively "Parties") and Saturn Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of Newbridge ("Merger Sub"), as a
condition and as a inducement to Newbridge and the Merger Sub to enter the
Merger Agreement, Stel is providing an option to license Stel's wireless
broadband products technology upon the terms and subject to the conditions set
forth in this Agreement.
THEREFORE THE PARTIES AGREE:
1. Definitions. The following capitalized terms shall have these meanings
ascribed to them:
1.1 "Affiliate" means any person that controls, is controlled by or is
under common control with a Party
1.2 "Agreement" means this Wireless Broadband Products Technology License
Option Agreement.
1.3 "Change of Control" means an "Acquisition Transaction", as such term is
defined in the Merger Agreement; provided, however, that the spin-off of the
WBP business of Stel by distribution to Stel's stockholders shall not
constitute a Change of Control, unless subsequent to such spin-off and during
the Option Period an Acquisition Transaction occurs involving the new company
conducting the WBP business.
1.4 "Escrow Agreement" means an escrow agreement to be entered into by the
parties and an escrow agent (the "Escrow Agent") selected by the parties
within 30 days of the Effective Date, which rovides under the circumstances
described in Section 3.2 the release to Newbridge of the Stel Designs and
related information for the Stel Intellectual Property.
1.5 "Intellectual Property" means patents, copyrights, mask work rights,
trade secrets and any other intellectual or industrial properties as may be
recognized around the world, including without limitation, applications and
registrations for any of the foregoing.
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1.6 "License" has the meaning set forth in Section 2.3
1.7 "Licensed Patents" means: (i) the patent and patent applications
specified in Exhibit A attached hereto; (ii) the resulting patents, reissues,
reexaminations, and continuations, continuations-in-part and divisionals of any
of the foregoing; and (iii) corresponding foreign patent applications and
resulting patents of any of the foregoing.
1.8 "Licensed Products" are products that incorporate or are produced by the
practice of subject matter of Stel Intellectual Property or whose manufacture,
use, sale, export, or offer for sale would constitute an infringement of Stel
Intellectual Property but for the License granted under this Agreement.
1.9 "Option" has the meaning set forth in Section 2.1
1.10 "Option Period" means the period beginning on the Effective Date and
ending on the earlier of: (i) May 24, 2001; (ii) nine months after the
termination by Newbridge of the Merger Agreement pursuant to Section 8.1(h)
thereof; (iii) twelve months after the termination by either Party of the
Merger Agreement pursuant to Section 8.1(b) or 8.1(c) thereof; and (iv) the
date of termination if the Merger Agreement is terminated by Stel pursuant to
Section 8.1(f) or Section 8.1(g) thereof.
1.11 "Stel Designs" means the designs for Stel's WBP specified in Exhibit B
attached hereto, including without limitation, the schematics, net lists, mask
works, test data, simulations and specifications therefore.
1.12 "Stel Intellectual Property" means all Intellectual Property owned or
sublicensable by Stel at any time during the Term relating to, or otherwise
used by its WBP business, including without limitation, the Licensed Patents
and the Stel Designs, and Stel's written technical information and know-how
therefor.
1.13 "Term" means the period beginning on the Effective Date and ending
upon: (i) the end of the Option Period, if Newbridge does not exercise the
Option by such time; or (ii) the expiration of the last of Licensed Patents,
otherwise.
1.14 "WBP" means wireless broadband products.
2. License Option and Grant; Technology Transfer
2.1 Option Grant. Stel hereby grants to Newbridge an option (the "Option")
to acquire the license specified in Section 2.3.
2.2 Exercise of Option. The Option shall be exercisable by Newbridge upon a
Change of Control. In order to exercise the Option, Newbridge shall: (i)
provide Stel notice of its exercise of the Option; and (ii) pay Stel the option
fee specified in Section 4.1.
2.3 License. Effective upon Newbridge's exercise of the Option, Stel hereby
grants to Newbridge a perpetual, nonexclusive, nontransferable, worldwide,
irrevocable, fully paid-up and royalty-free license (the "License") without the
right to sublicense except as set forth below to make, have made, import, use,
sell and have sold Licensed Products covered by Stel Intellectual Property.
Newbridge shall have the right to sublicense the rights set forth in this
Section 2.3 to its Affiliates, third party OEMs and end-users of the Licensed
Products.
2.4 License of "Intellectual Property". All rights and licenses granted
under or pursuant to this Agreement by Stel to Newbridge with respect to the
Stel Intellectual Property are, and shall otherwise be deemed to be, for
purposes of Section 365(n) of Title 11 of the United States Code (the
"Bankruptcy Code"), licenses of rights to "intellectual property" as defined
under Section 101(56) of the Bankruptcy Code. The Parties agree that Newbridge,
as a licensee of such rights and licenses, shall retain and may fully exercise,
provided it abides by the terms of this Agreement, all of its rights and
elections under the Bankruptcy Code. The Parties further agree that, in the
event that any proceeding shall be instituted by or against Stel seeking to
3-2
<PAGE>
adjudicate it bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking an entry of an order for
relief or the appointment of a receiver, trustee or other similar official for
it or any substantial part of its property, or Stel shall take any action to
authorize any of the foregoing actions (each a "Proceeding"), Newbridge shall
have the right to retain and enforce its rights under this Agreement
including, but not limited to, the right obtain the License for the Stel
Intellectual Property in accordance with the terms of this Agreement.
2.5 Technology Transfer. Upon the effectiveness of the License in
accordance with Section 2.3, (i) Stel shall provide Newbridge all reasonably
applicable information pertinent to the manufacture of Stel Designs or
otherwise to exploit the Stel Intellectual Property; and (ii) for a period of
one year after the exercise of the Option, Stel shall make available to
Newbridge at least three engineers that are thoroughly familiar with the Stel
Intellectual Property for the purposes of facilitating the technology transfer
required to fully exploit the License, including without limitation, applying
the Stel Designs to Licensed Products.
3. Escrow
3.1 Deposit. Stel shall deposit in a timely manner into escrow with the
Escrow Agent all reasonably applicable information pertinent to the
manufacture of Stel Designs or otherwise to exploit the Stel Intellectual
Property (the "Escrow Materials"), in accordance with the Escrow Agreement.
Stel shall periodically update the Escrow Materials based on any improvements
to the Stel Intellectual Property made during the Term. The Escrow Agent fees
shall be borne by Stel.
3.2 Release Events. The Escrow Materials shall be released only under the
following circumstances:
(a) To Newbridge, due to the failure of Stel or Stel's successor-in-
interest after a Change of Control to carry out the technology transfer under
Section 2.5;
(b) To Newbridge, at its option, due to Stel's bankruptcy, liquidation or
winding up of its business; or
(c) To Stel, due to the expiration of the Option Period, without the Option
being exercised in accordance with Section 2.2.
3.3 Post-Release Use. Provided the Escrow Materials have been rightfully
released by the Escrow Agent to Newbridge in accordance with Section 3.2, the
Escrow Materials shall be subject to the License.
4. Payments
4.1 Option Fee. Upon exercising the Option, Newbridge shall pay Stel the
sum of $69 million in consideration of the License and the technology transfer
specified in Section 2.5, including without limitation, the salaries, travel,
lodging and other expenses of the Stel personnel involved.
4.2 Payment Terms. Newbridge shall pay Stel by check or wire transfer in
immediately available funds within ten business days of notice of Newbridge's
exercise of the Option.
5. Confidentiality
Newbridge and Stel agree that each of them shall treat any confidential
information disclosed hereunder in accordance with the Confidentiality
Agreement effective as of March 1, 1999 between the Parties, which
Confidentiality Agreement, except with respect to the standstill provisions
thereof, shall remain in full force and effect in accordance with its terms.
6. Ownership
6.1 Newbridge. As between Newbridge and Stel, Newbridge shall retain
ownership of all right, title and interest in and to any and all Intellectual
Property: (i) held by Newbridge as of the Effective Date; or
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<PAGE>
(ii) solely developed by Newbridge following exercise of the Option using the
Stel Intellectual Property. Any and all Intellectual Property jointly developed
by the Parties pursuant to Section 2.5 shall be jointly owned.
6.2 Stel. Subject to the License granted hereunder, Stel shall retain
ownership of all right, title and interest in and to the Stel Intellectual
Property.
7. Representations, Warranties and Indemnification
7.1 Representations and Warranties. Stel represents, warrants and covenants
that:
(a) Other than the Licensed Patents and Stel Designs scheduled on Exhibit A
and Exhibit B, respectively, there are no other Intellectual Property rights:
(i) used in the WBP business or (ii) required to exploit the License;
(b) Stel owns and shall continue to own the Stel Intellectual Property free
and clear of any liens or encumbrances; and
(c) Stel is able and shall remain able to grant the License specified in
Section 2.3 for the Term and shall not commit any acts, or through inaction
allow any events to occur, which would impair such ability.
7.2 Indemnification. Stel shall indemnify, hold harmless, and defend
Newbridge, its officers, employees, and agents against any claims, suits,
losses, damages, costs, fees, and expenses resulting from or arising out of
exercise of the License granted under this Agreement or any breach of any
representation or warranty hereunder. Stel shall pay all costs incurred by
Newbridge to enforce this indemnification, including reasonable attorneys'
fees.
8. Term and Survival
8.1 Term. This Agreement shall be in effect for the Term.
8.2 Survival. Upon the expiration of this Agreement, the provisions of
Articles 1, 5 and 6, Section 7.2, this Section 8.2, Section 9.4, Section 9.13
and Section 9.14 shall survive and continue into perpetuity.
9. Miscellaneous
9.1 Waiver. No provision of this Agreement is deemed waived and no breach
excused unless such waiver or consent is made in writing and signed by the
Party to have waived or consented. Failure on the part of either Party to
exercise or enforce any right of such Party under this Agreement shall not be a
waiver by such Party of any right, or operate to bar the enforcement or
exercise of the right at any time thereafter.
9.2 Assignability. This Agreement is binding on and inures to the benefit of
the Parties and their respective successors and assigns. Newbridge's rights and
obligations hereunder shall survive any change in the status of Stel, including
without limitation, Change of Control, bankruptcy or receivership.
9.3 Notices. Any report, payment, notice, or other communication that either
party receives must be in writing and shall be properly given and effective on
the date of delivery if delivered in person, or the fifth day after mailing if
mailed by first-class certified mail, postage paid, to the addresses given
below (or to an address designated by written notice to the other party):
In the case of Newbridge:
Newbridge Networks Corporation
600 March Road, P.O. Box 13600
Kanata, Ontario, Canada K2K 2E6
Phone: (613) 591-3600
Fax: (613) 599-3672
Attention: Peter Nadeau
3-4
<PAGE>
In the case of Stel:
Stanford Telecommunications, Inc.
1221 Crossman Avenue, P.O. Box 3733
Sunnyvale, California 94089
Telephone:(408) 735-0818
Facsimile:(408) 745-2410
Attention: Gary Wolf
9.4 Governing Law. This Agreement and performance hereunder shall be
governed by the laws of the State of California, without regard to its conflict
of laws provisions. The Parties hereby acknowledge and agree that the United
Nations Convention on Contracts for the International Sale of Goods shall not
apply to this Agreement.
9.5 Export Control. Newbridge shall observe all applicable United States and
foreign laws and regulations concerning the transfer of Licensed Products and
related technical data, including International Traffic in Arms Regulations
(ITAR) and Export Administration Regulations. The foregoing notwithstanding,
Stel shall be responsible for obtaining any export permits hereunder for the
License that may be exercised hereunder.
9.6 Force Majeure. This Agreement is not breached and no liability is
created when a Party fails to perform an obligation under this Agreement if the
failure or omission arises from a cause beyond the reasonable control of such
Party. These causes include, but are not limited to, the following: acts of
God; acts or omissions of any government or governmental agency; compliance
with requirements, rules, regulations, or order of any governmental authority
or any office, department, agency, or instrumentality thereof; fire, storm,
flood, earthquake; accident; acts of the public enemy, war, rebellion,
insurrection, riot, sabotage, invasion; quarantine, restriction; transportation
embargoes; or failures or delays in transportation.
9.7 Interpretation. The Section headings contained in this Agreement are
solely for purpose of reference and shall not in any way affect the meaning or
interpretation of this Agreement.
9.8 Amendments. Subject to applicable law, this Agreement may be amended,
modified or supplemented only by written agreement of Newbridge and Stel.
9.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.10 Severability. In case any one or more of the provisions contained in
this Agreement should be finally determined to be invalid, illegal or
unenforceable in any respect against a Party hereto, it shall be adjusted if
possible to effect the intent of the parties. In any event, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby, and such invalidity, illegality
or unenforceability shall only apply as to such party in the specific
jurisdiction where such final determination shall have been made.
9.11 No Agency. Neither Party is an agent of the other and neither shall
have any power to contract for the other Party for any purpose.
9.12 Entire Agreement. This Agreement, including the exhibits hereto and the
documents and instruments referred to herein, and the Merger Agreement,
including the exhibits thereto and the documents and instruments referred to
therein, embody the entire agreement and understanding of the parties hereto in
respect of the subject matter contained herein.
9.13 Rules of Construction. Each party to this Agreement has been
represented by counsel during the preparation and execution of this Agreement,
and therefore waives any rule of construction that would construe ambiguities
against the party drafting the Agreement.
9.14 Jury Waiver. The Parties irrevocably waive trial by jury.
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<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement, on the date
first above written.
NEWBRIDGE NETWORKS CORPORATION
/s/ Alan G. Lutz
By: _________________________________
Alan G. Lutz
President and Chief Operating
Officer
/s/ Peter Nadeau
By: _________________________________
Peter Nadeau
Vice President and General
Counsel
STANFORD TELECOMMUNICATIONS, INC.
/s/ Val P. Peline
By: _________________________________
Val P. Peline
President and Chief Executive
Officer
3-6
<PAGE>
APPENDIX 4
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT is made and entered into as of June 22, 1999
(the "Agreement") by and between Newbridge Networks Corporation, a Canadian
corporation ("Newbridge"), and Stanford Telecommunications, Inc., a Delaware
corporation ("Stel"), with respect to the following facts:
A. Concurrently with the execution and delivery of this Agreement,
Newbridge, Stel and Stel Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of Newbridge ("Merger Sub"), are entering into an Agreement
and Plan of Merger (the "Merger Agreement"), which provides that, among other
things, upon the terms and subject to the conditions thereof, Newbridge and
Stel will to enter into a business combination transaction (the "Merger").
B. As a condition and inducement to Newbridge's willingness to enter into
the Merger Agreement, Newbridge has requested that Stel agree, and Stel has so
agreed, to grant to Newbridge an option to acquire shares of Stel's Common
Stock, par value $.01 per share ("Stel Shares"), upon the terms and subject to
the conditions set forth herein.
C. Capitalized terms used and not otherwise defined herein that are defined
in the Merger Agreement shall have the respective meanings ascribed thereto in
the Merger Agreement.
The parties agree as follows:
1. Grant of Option.
Stel hereby grants to Newbridge an irrevocable option (the "Option") to
acquire up to the number of Stel Shares which equals 19.9% of the issued and
outstanding Stel Shares (the "Option Shares") as of the first date, if any,
upon which an Exercise Event (as defined in Section 2(a) below) shall occur
(provided that the Option Shares shall not upon timely issuance constitute more
than 19.9% of the then issued and outstanding Stel Shares) at a purchase price
of U.S. $35.00 per share (the "Exercise Price"), payable in cash. All
references in this Agreement to Option Shares issued to Newbridge shall be
deemed to include the associated Stel Rights.
2. Exercise of Option; Maximum Proceeds.
(a) The Option may be exercised by Newbridge, in whole or in part, at any
time or from time to time only: (i) upon the occurrence of a Triggering Event,
as defined in the Merger Agreement, or (ii) upon the public announcement of an
Acquisition Proposal, as defined in the Merger Agreement (any of the events
specified in clauses (i) or (ii) of this sentence being referred to herein as
an "Exercise Event").
(b) In the event Newbridge wishes to exercise the Option, Newbridge shall
deliver to Stel a written notice (each an "Exercise Notice") specifying the
total number of Option Shares it wishes to acquire and a closing date and time
prior to the expiration of the Option for the purchase of such Option Shares (a
"Closing"). The Exercise Notice may be withdrawn by Newbridge at any time prior
to a Closing. Unless an Exercise Notice is withdrawn, the Closing shall occur
on the specified date at the principal offices of Stel.
(c) The Option shall expire upon the earliest of (i) the Effective Time,
(ii) the termination of the Merger Agreement pursuant to any of Section 8.1(a),
8.1(c), 8.1(f), 8.1(g) or 8.1(h) thereof, (iii) the termination of the Merger
Agreement pursuant to either Section 8.1(b) or 8.1(d) thereof, if prior thereto
no Exercise Event shall have occurred, or (iv) 18 months following the
termination of the Merger Agreement under any other circumstances; provided,
however, that if the Option cannot be exercised by reason of any applicable
statute, rule, regulation or government order, or because any applicable
waiting period related to issuance of the Option Shares under the HSR Act shall
not have expired or been terminated, then the Option shall not expire until the
tenth business day after such impediment to exercise shall have been removed or
shall have become final and not subject to appeal.
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<PAGE>
(d) If Newbridge receives an amount pursuant to Section 8.3(b)(i) or (ii) of
the Merger Agreement which, when aggregated with proceeds received by Newbridge
in connection with any sales or other dispositions of Option Shares and any
dividends received by Newbridge declared on Option Shares, is equal to more
than the sum of (i) $25,000,000 plus (ii) the Exercise Price multiplied by the
number of Stel Shares purchased by Newbridge pursuant to the Option, then all
proceeds to Newbridge in excess of such sum shall be remitted by Newbridge to
Stel.
3. Conditions to Closing.
The obligation of Stel to issue Option Shares to Newbridge hereunder is
subject to the conditions that (a) all filings and declarations required to be
made, all authorizations, consents, orders and approvals required to be
obtained, and all waiting periods required to expire or be terminated, pursuant
to a requirement of any Government Entity or applicable law (including, without
limitation the HSR Act) shall have been made or obtained or shall have expired
or been terminated, in each case in connection with the exercise of the Option
hereunder; and (b) no preliminary or permanent injunction or other order by any
court of competent jurisdiction prohibiting or otherwise restraining such
issuance shall be in effect. It is understood and agreed that at any time
during which the Option is exercisable, the parties will use their respective
reasonable efforts to satisfy all conditions to Closing, so that a Closing may
take place as promptly as practicable, and in any event, prior to consummation
of a tender or exchange offer for shares of Stel capital stock.
4. Closing.
At each Closing, (a) Stel shall deliver to Newbridge a single certificate in
definitive form representing the number of Stel Shares designated by Newbridge
in its Exercise Notice, such certificate to be registered in the name of
Newbridge and to bear the legend set forth in Section 10 hereof, against
delivery of (b) payment by Newbridge to Stel of the aggregate purchase price
for the Stel Shares so designated and being purchased by wire transfer or
delivery of a certified check or bank check.
5. Representations and Warranties of Stel.
Stel represents and warrants to Newbridge that:
(a) Stel is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has full corporate power
and authority to execute and deliver this Agreement and to carry out its
obligations hereunder;
(b) the execution and delivery of this Agreement by Stel and consummation by
Stel of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of Stel, and no other
corporate proceedings on the part of Stel are necessary to authorize this
Agreement or any of the transactions contemplated hereby;
(c) this Agreement has been duly and validly executed and delivered by Stel,
constitutes a legal, valid and binding obligation of Stel and, assuming this
Agreement constitutes a legal, valid and binding obligation of Newbridge, is
enforceable against Stel in accordance with its terms, except as enforceability
may be limited by bankruptcy and other laws affecting the rights and remedies
of creditors generally and general principles of equity;
(d) except for any filings required under the HSR Act, Stel has taken all
necessary corporate and other action to authorize and reserve for issuance and
to permit it to issue upon exercise of the Option, and at all times from the
date hereof until the termination of the Option will have reserved for
issuance, a sufficient number of unissued Stel Shares for Newbridge to exercise
the Option in full and will take all necessary corporate or other action to
authorize and reserve for issuance all additional Stel Shares or other
securities which may be issuable pursuant to Section 9 upon exercise of the
Option, all of which, upon their issuance and delivery in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable;
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<PAGE>
(e) upon delivery of the Stel Shares and any other securities to Newbridge
upon exercise of the Option, Newbridge will acquire such Stel Shares or other
securities free and clear of all material claims, liens, charges, encumbrances
and security interests of any kind or nature whatsoever, excluding those
imposed by Newbridge;
(f) the execution and delivery of this Agreement by Stel do not, and the
performance of this Agreement by Stel will not, (i) conflict with the
certificate of incorporation or bylaws of Stel, (ii) violate any order
applicable to Stel or any of its Subsidiaries or by which they or any of their
property is bound or affected, or (iii) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give rise to any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the property or assets of Stel or any of its Subsidiaries
pursuant to, any contract or agreement to which Stel or any of its Subsidiaries
is a party or by which Stel or any of its Subsidiaries or any of their property
is bound or affected;
(g) the execution and delivery of this Agreement by Stel does not, and the
performance of this Agreement by Stel will not, require any consent, approval,
authorization or permit of, or filing with, or notification to, any Government
Entity, except pursuant to the HSR Act; and
(h) the board of directors of Stel has resolved to render the rights issued
under the Stel Rights Plan inapplicable to this Agreement and the transactions
contemplated hereby.
6. Certain Rights.
(a) At the request of and upon notice by Newbridge (the "Put Notice"), if at
any time during the period during which the Option is exercisable pursuant to
Section 2, Stel executes with a Third Party an agreement providing for an
Acquisition Transaction or an Acquisition Transaction has been consummated (the
"Purchase Period"):
(i) Stel (or any successor entity thereof) shall purchase from Newbridge the
Option, to the extent not previously exercised, at a price equal to the
difference between the "Market/Tender Offer Price" for Stel Shares as of the
date Newbridge gives notice of its intent to exercise its rights under this
Section 6(a) and the Exercise Price, multiplied by the number of Stel Shares
purchasable pursuant to the Option. For purposes of this Agreement,
"Market/Tender Offer Price" means the higher of (A) the highest price per share
offered as of such date pursuant to any Acquisition Proposal which was made
prior to such date and not terminated or withdrawn as of such date and (B) the
highest closing sale price of Stel Shares on the Nasdaq National Market
("Nasdaq") during the twenty (20) trading days ending on the trading day
immediately preceding such date. For purposes of determining the highest price
offered pursuant to any Acquisition Proposal which involves consideration other
than cash, the value of such consideration shall be equal to the higher of (x)
if securities of the proponent of the same class as such consideration are
traded on any national securities exchange or by any registered securities
association, a value based on the closing sale price for such securities on
their principal trading market on such date and (y) the value ascribed to such
consideration by the proponent of such Acquisition Proposal, or if no such
value is ascribed, a value determined in good faith by the board of directors
of Stel.
(ii) Stel (or any successor entity thereof) shall purchase the Option
Shares, if any, acquired by Newbridge at a price equal to (A) the Exercise
Price paid by Newbridge for such Stel Shares plus (B) (1) the difference
between the Market/Tender Offer Price and such Exercise Price multiplied by (2)
the number of Stel Shares so purchased.
(iii) Notwithstanding subparagraphs (i) and (ii) above, pursuant to this
Section 6(a), Stel shall not be required to pay Newbridge in excess of an
aggregate of (A) $25,000,000 plus (B) the Exercise Price paid by Newbridge for
Stel Shares acquired pursuant to the exercise of the Option minus (C) any
amounts paid or to be paid to Newbridge by Stel pursuant to Section 8.3(b)(i)
or (ii) of the Merger Agreement.
(b) In the event Newbridge exercises its rights under Section 6(a), Stel
shall, within ten business days after Newbridge delivers notice pursuant to
Section 6(a), pay the required amount to Newbridge in immediately available
funds. Newbridge shall thereupon surrender to Stel the Option and the
certificates evidencing the Stel
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Shares purchased by Newbridge pursuant thereto, and shall represent and warrant
that such shares are then free and clear of all claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever, other
than those imposed by Stel.
(c) If Newbridge shall have acquired Option Shares pursuant to exercise of
the Option and neither (i) any Acquisition Transaction with respect to Stel
shall have been consummated at any time after the date of this Agreement and
prior to 18 months after the termination of the Merger Agreement nor (ii) shall
Stel have entered into an agreement with respect to such an Acquisition
Transaction, which agreement remains in effect at the end of such 18 months,
then, at any time after the earlier of (A) 18 months after the termination of
the Merger Agreement and (B) the day prior to the effectiveness of a
registration statement filed by Stel pursuant to Section 7 below, and prior to
the date 24 months following the termination of Merger Agreement, Stel may
require Newbridge, upon delivery to Newbridge of written notice, to sell to
Stel any Stel Shares held by Newbridge as of the day that is ten business days
after the date of such notice ("Call Shares"), up to a number of Call Shares
equal to the number of Option Shares acquired by Newbridge in connection with
such Exercise Date. The per share purchase price for such sale (the "Stel Call
Price") shall be equal to the Exercise Price less any dividends paid on the
Call Shares to be purchased. The closing of any sale of Call Shares shall take
place at the principal offices of Stel at a time and on a date designated by
Stel in the aforementioned notice to Newbridge, which date shall be no more
than 20 and no less than 12 business days from the date of such notice. The
Stel Call Price shall be paid in immediately available funds.
7. Registration Rights.
(a) Following the termination of the Merger Agreement, Newbridge and its
permitted assigns or successors (a "Holder") may by written notice (a
"Registration Notice") to Stel (the "Registrant") request the Registrant to
register under the Securities Act all or any part of the shares of Registrant
acquired by such Holder pursuant to this Agreement (the "Registrable
Securities"), in order to permit the sale or other disposition of such shares
pursuant to a Permitted Offering (as defined below); provided, however that any
such Registration Notice must relate to a number of shares equal to at least 1%
of the outstanding shares of Common Stock of the Registrant on a fully diluted
basis and that any rights to require registration hereunder shall terminate
with respect to any shares that may be sold pursuant to Rule 144(k) under the
Securities Act. For purposes of this Agreement, a "Permitted Offering" means a
bona fide firm commitment underwritten public offering in which the Holder and
the underwriters shall effect as wide a distribution of such Registrable
Securities as is reasonably practicable and shall use all reasonable efforts to
prevent any person or group from purchasing through such offering shares
representing more than 1% of the outstanding shares of Common Stock of the
Registrant on a fully diluted basis. The Registration Notice shall include a
certificate executed by the Holder and its proposed managing underwriter, which
underwriter shall be an investment banking firm of nationally recognized
standing (the "Manager"), stating that (i) the Holder and the Manager have a
good faith intention to commence a Permitted Offering, and (ii) the Manager in
good faith believes that, based on the then prevailing market conditions, it
will be able to sell the Registrable Securities at a per share price equal to
at least 80% of the per share average of the closing sale prices of the
Registrant's Common Stock on Nasdaq for the 20 trading days immediately
preceding the date of the Registration Notice. The Registrant shall thereupon
have the option, exercisable by written notice delivered to the Holder within
10 business days after the receipt of the Registration Notice, irrevocably to
agree to purchase all or any part of the Registrable Securities for cash at a
price (the "Option Price") equal to the product of (i) the number of
Registrable Securities so purchased and (ii) the per share average of the
closing sale prices of the Registrant's Common Stock on Nasdaq for the
20 trading days immediately preceding the date of the Registration Notice. Any
such purchase of Registrable Securities by the Registrant hereunder shall take
place at a closing to be held at the principal executive offices of the
Registrant or its counsel at any reasonable date and time designated by the
Registrant in such notice within 10 business days after delivery of such
notice. The payment for the shares to be purchased shall be made by delivery at
the time of such closing of the Option Price in immediately available funds.
(b) If the Registrant does not elect to exercise its option to purchase
pursuant to Section 7(a) with respect to all Registrable Securities, the
Registrant shall use all reasonable efforts to effect, as promptly as
practicable, the registration under the Securities Act of the unpurchased
Registrable Securities requested to be registered in
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the Registration Notice; provided, however, that (i) the Holder shall not be
entitled to more than an aggregate of two effective registration statements
hereunder and (ii) the Registrant will not be required to file any such
registration statement during any period of time (not to exceed 40 days after a
Registration Notice in the case of clause (A) below or 90 days after a
Registration Notice in the case of clauses (B) and (C) below) when: (A) the
Registrant is in possession of material non-public information which it
reasonably believes would be detrimental to be disclosed at such time and, in
the written opinion of counsel to the Registrant, such information would have
to be disclosed if a registration statement were filed at that time; (B) the
Registrant is required under the Securities Act to include audited financial
statements for any period in such registration statement and such financial
statements are not yet available for inclusion in such registration statement;
or (C) the Registrant determines, in its reasonable judgment, that such
registration would interfere with any financing, acquisition or other material
transaction involving such Registrant. If consummation of the sale of any
Registrable Securities pursuant to a registration hereunder does not occur
within 180 days after the filing with the SEC of the initial registration
statement therefor, the provisions of this Section 7 shall again be applicable
to any proposed registration, it being understood that the Holder shall not be
entitled to more than an aggregate of two effective registration statements
hereunder. The Registrant shall use all reasonable efforts to cause any
Registrable Securities registered pursuant to this Section 7 to be qualified
for sale under the securities or blue sky laws of such jurisdictions as the
Holder may reasonably request, and shall continue such registration or
qualification in effect in such jurisdictions; provided, however, that the
Registrant shall not be required to qualify to do business in, or consent to
general service of process in, any jurisdiction by reason of this provision.
(c) The registration rights set forth in this Section 7 are subject to the
condition that the Holder shall provide the Registrant with such information
with respect to such Holder's Registrable Securities, the plan for distribution
thereof, and such other information with respect to the Holder as, in the
reasonable judgment of counsel for the Registrant, is necessary to enable the
Registrant to include in a registration statement all material facts required
to be disclosed with respect to a registration thereunder.
(d) A registration effected under this Section 7 shall be effected at the
Registrant's expense, except for underwriting discounts and commissions and the
fees and expenses of counsel to the Holder, and the Registrant shall provide to
the underwriters such documentation (including certificates, opinions of
counsel and "comfort" letters from auditors) as are customary in connection
with underwritten public offerings and as such underwriters may reasonably
require. In connection with any registration, the Holder and the Registrant
agree to enter into an underwriting agreement reasonably acceptable to each
such party, in form and substance customary for transactions of this type with
the underwriters participating in such offering.
8. Indemnification.
(a) The Registrant will indemnify the Holder, each of its directors and
officers and each person who controls the Holder within the meaning of Section
15 of the Securities Act, and each underwriter of the Registrant's securities,
with respect to any registration, qualification or compliance which has been
effected pursuant to this Agreement, against all expenses, claims, losses,
damages or liabilities (or actions in respect thereof), including any of the
foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement)
of a material fact contained in any registration statement, prospectus,
offering circular or other document, or any amendment or supplement thereto,
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or any violation by the
Registrant of any rule or regulation promulgated under the Securities Act
applicable to the Registrant in connection with any such registration,
qualification or compliance. The Registrant will reimburse the Holder and each
of its directors and officers and each person who controls the Holder within
the meaning of Section 15 of the Securities Act, and each underwriter for any
legal or any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability
or action, provided that the Registrant will not be liable in any such case
only to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
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<PAGE>
statement or omission, made in reliance upon and in conformity with written
information furnished to the Registrant by such Holder or director or officer
or controlling person or underwriter seeking indemnification.
(b) The Holder will indemnify the Registrant, each of its directors and
officers and each underwriter of the Registrant's securities covered by such
registration statement and each person who controls the Registrant within the
meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages and liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, or any
violation by the Holder of any rule or regulation promulgated under the
Securities Act applicable to the Holder in connection with any such
registration, qualification or compliance. The Holder will reimburse the
Registrant and each of its directors and officers and each person who controls
the Registrant within the meaning of Section 15 of the Securities Act, and each
underwriter for any legal or any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the
extent, that any such claim, loss, damage, liability or expense arises out of
or is based on any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with written information
furnished to the Registrant by such Holder or director or officer or
controlling person or underwriter for use therein, provided that in no event
shall any indemnity under this Section 8(b) exceed the gross proceeds of the
offering received by the Holder.
(c) Each party entitled to indemnification under this Section 8 (an
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such claim
or any litigation resulting therefrom. Counsel for the Indemnifying Party, who
shall conduct the defense of such claim or litigation, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense;
provided, however, that the Indemnifying Party shall pay such expense if
representation of the Indemnified Party by counsel retained by the Indemnifying
Party would be inappropriate due to actual or potential differing interests
between the Indemnified Party and any other party represented by such counsel
in such proceeding. The failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 8(c) unless the failure to give such notice is materially
prejudicial to an Indemnifying Party's ability to defend such action. No
Indemnifying Party, in the defense of any such claim or litigation shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include the claimant's or
plaintiff's unconditional release of Indemnified Party from all liability in
respect to such claim or litigation. No Indemnifying Party shall be required to
indemnify any Indemnified Party with respect to any settlement entered into
without such Indemnifying Party's prior consent (which shall not be
unreasonably withheld).
(d) If the indemnification provided for in this Section 8 is held by a court
of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any expenses, claims, losses, damages and liabilities referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such any expenses, claims, losses, damages and
liabilities in such proportion as is appropriate to reflect the relative fault
of the Indemnifying Party on the one hand and of the Indemnified Party on the
other in connection with the statements or omissions that resulted in such any
expenses, claims, losses, damages and liabilities as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party and of
the Indemnified Party shall be determined by reference to, among other things,
whether the untrue (or alleged untrue statement) of a material fact or the
omission (or alleged omission) to state a material fact relates to information
supplied
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by the Indemnifying Party or by the Indemnified Party and the parties' relative
intent, knowledge, access to information, and opportunity to correct or prevent
such statement or omission.
9. Adjustment Upon Changes in Capitalization: Rights Plans.
(a) If any change shall occur in the Stel Shares by reason of stock
dividends, stock splits, reverse stock splits, mergers (other than the Merger),
recapitalizations, combinations, exchanges of shares and the like, then (i) the
type and number of shares or securities subject to the Option, and (ii) the
Exercise Price shall be adjusted appropriately, and proper provision shall be
made in the agreements governing such transaction so that Newbridge shall
receive, upon exercise of the Option, the number and class of shares or other
securities or property that Newbridge would have received in respect of the
Stel Shares if the Option had been exercised immediately prior to such change
or the record date therefor, as applicable.
(b) Prior to such time as the Option is terminated, and at any time after
the Option is exercised (in whole or in part), (i) Stel shall not take any
action to reverse or amend the resolution referred to in Section 5(h) of this
Agreement and (ii) Stel shall not amend, (nor permit the amendment of) its
Rights Agreement nor adopt (nor permit the adoption of) a new stockholders
rights plan that contains provisions for the distribution or exercise of rights
thereunder as a result of Newbridge, or any affiliate or transferee, being the
beneficial owner of Stel Shares by virtue of the Option being exercisable or
having been exercised or as a result of beneficially owning shares issuable in
respect of the Option Shares.
10. Restrictive Legend.
Each certificate representing Option Shares issued to Newbridge hereunder
shall include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
Certificates representing shares sold in a registered public offering
pursuant to Section 7 shall not be required to bear the legend set forth in
Section 10.
11. Listing and HSR Filing.
Stel, upon the request of Newbridge, shall promptly file an application to
list the Stel Shares to be acquired upon exercise of the Option on Nasdaq and
shall use all reasonable efforts to obtain approval of such listing as soon as
practicable. Promptly after a request by Newbridge, Stel shall file
Notification and Report Forms under the HSR Act with the FTC and the Antitrust
Division. Stel shall use all reasonable efforts to respond as promptly as
practicable to any inquiries received from the FTC or the Antitrust Division
for additional information or documentation.
12. Assignment; Binding Effect.
Neither this Agreement nor the Option created hereunder nor any right,
interest or obligation hereunder shall be assigned by either party without the
prior written consent of the other. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement is not intended to confer any rights or
remedies upon any Person other than the parties hereto. Any shares sold by a
party in compliance with the provisions of Section 7 hereof shall, upon
consummation of such sale, be free of the restrictions imposed with respect to
such shares by this Agreement and any transferee of such shares shall not be
entitled the rights of the transferor under this Agreement.
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13. Specific Performance.
Each of the parties hereto recognizes and acknowledges that a breach by it
of any covenants or agreements contained in this Agreement will cause the other
party to sustain damages for which it would not have an adequate remedy at law
for money, damages. Therefore, in the event of any such breach, the aggrieved
party shall be entitled to the remedy of specific performance of such covenants
and agreements and injunctive and other equitable relief in addition to any
other remedy to which it may be entitled, at law or in equity.
14. Entire Agreement.
This Agreement and the Merger Agreement, including the exhibits thereto and
the documents and instruments referred to therein, embody the entire agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. There are no representations, promises, warranties,
covenants, or undertakings, other than those expressly set forth or referred to
herein and therein.
15. Further Assurances.
Each party will execute and deliver all such further documents and
instruments and take all such further action as may be necessary in order to
consummate the transactions contemplated hereby.
16. Severability.
If any term, provision, covenant, or restriction of this Agreement is held
by a court of competent jurisdiction or a federal or state regulatory agency to
be invalid, void, or unenforceable, the other terms, provisions, covenants, and
restrictions of this Agreement shall remain in full force and effect and shall
not be affected, impaired, or invalidated. If for any reason such court or
regulatory agency determines that the Option does not permit Newbridge to
acquire, or does not require Stel to repurchase, the full number of Option
Shares provided herein (as adjusted pursuant to Section 9), it is the express
intention of Stel to allow Newbridge to acquire, or to require Stel to
repurchase, such lesser number of shares as may be permissible without any
amendment or modification hereof.
17. Notices.
All notices and other communications hereunder shall be in writing and shall
be delivered personally by overnight courier or similar means or sent by
facsimile with written confirmation of receipt, to the parties at the addresses
specified below (or at such other address for a party as shall be specified by
like notice). Any such notice shall be effective upon receipt, if personally
delivered or on the next business day following transmittal if sent by
confirmed facsimile. Notices, including oral notices, shall be delivered as
follows:
if to Stel, to:
Stanford Telecommunications, Inc.
1221 Crossman Avenue, P.O. Box 3733
Sunnyvale, California
Telephone: (408) 735-0818
Facsimile: (408) 745-2410
Attention: Gary Wolf
with a copy to:
Thelen Reid & Priest LLP
333 West San Carlos, 17th Floor
San Jose, CA 95110-2701
Telephone: (408) 292-5800
Facsimile: (408) 287-8040
Attention: Jay L. Margulies
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<PAGE>
if to Newbridge, to:
Newbridge Networks Corporation
600 March Road, P.O. Box 136000
Kanata, Ontario, Canada K2K 2E6
Telephone: (613) 591-3600
Facsimile: (613) 599-3672
Attention: Peter Nadeau
with a copy to:
Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, California 94301
Telephone: (650) 324-7000
Facsimile: (650) 324-0638
Attention: Stephen C. Ferruolo
(Matter #21969-0009)
18. Governing Law.
This Agreement shall be governed by the laws of the State of Delaware
without reference to principles of conflicts of laws.
19. Counterparts.
This Agreement may be executed in two counterparts, each of which shall be
deemed to be an original, but both of which together shall constitute one and
the same instrument.
20. Expenses.
Except as otherwise expressly provided herein or in the Merger Agreement,
all costs, and expenses incurred in connection with the transactions
contemplated by this Agreement shall be paid by the party incurring such
expenses.
21. Amendments; Waiver.
Subject to applicable law, this Agreement may be amended, modified or
supplemented only by written agreement of the parties. The terms and conditions
hereof may be waived only by an instrument in writing signed by the party
granting such waiver, but such waiver or failure to insist upon strict
compliance with a term or condition shall not operate as a waiver or estoppel
with respect to, any subsequent or other failure.
22. Rules of Construction.
Each party to this Agreement has been represented by counsel during the
preparation and execution of this Agreement, and therefore waives any rule of
construction that would construe ambiguities against the party drafting the
agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective duly authorized officers as of the date first above
written.
NEWBRIDGE NETWORKS CORPORATION
/s/ Alan G. Lutz
By: _________________________________
Name: Alan G. Lutz
Title: President and Chief Operating
Officer
/s/ Peter Nadeau
By: _________________________________
Name: Peter Nadeau
Title: Vice President and General
Counsel
STANFORD TELECOMMUNICATIONS, INC.
/s/ Val P. Peline
By: _________________________________
Name: Val P. Peline
Title: President and Chief Executive
Officer
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<PAGE>
APPENDIX 5
June 21, 1999
The Board of Directors
Stanford Telecommunications, Inc.
1221 Crossman Avenue
Sunnyvale, CA 94089
Gentlemen:
Stanford Telecommunications, Inc. ("Stanford" or the "Company") has
requested a review of the proposed transaction (the "Transaction") involving
the proposed acquisition of Stanford by Newbridge Networks Corporation
("Newbridge") in a stock for stock merger (the "Transaction"). Specifically,
you have requested a review of the financial consideration to be offered to the
Company's stockholders as consideration for their shares in the Transaction. We
were retained by the Board of Directors and commenced our investigation of the
Transaction on June 7, 1998.
Pursuant to the Transaction, Newbridge will pay to Stanford shareholders an
amount in Newbridge stock equal to the following formula:
(A + B + C - D + E)
whereby
A = US$30.00
B = [(the lesser of the gross proceeds from the non-core asset sale or
US$173 million) US$102 million] / Stanford shares outstanding
C = 50% X [the greater of (the gross proceeds from the non-core asset sale
US$173 million) or 0] / Stanford shares outstanding
D = 50% X (taxes payable on the non-core asset sale) / Stanford shares
outstanding
E = 50% X (any proceeds in excess of $15 million resulting from a
settlement or a final judgement of a court of competent jurisdiction in
connection with the Broadcom lawsuit after exhausting all opportunities
for appeal, provided that the proceeds are obtained before the
Participation Rights are redeemed) / Stanford shares outstanding.
In connection with the opinion, we have reviewed, among other things, (i)
the proposed Transaction, (ii) the letter on intent dated May 24, 1999, (iii)
the draft of the Agreement and Plan of Merger dated June 10, 1999, (iv)
historical operating results of Stanford, (v) internally prepared projections
for Stanford, and (vi) the historical trading performance of the Company's
stock. We have held discussions with the members of the management of the
Company regarding the past and current business operations as well as the
future prospects of the Company. We have reviewed industry specific data
regarding the valuation of publicly traded companies in the digital
communications market as well as other such information as we considered
appropriate.
Currently, we make a market in the Company's common stock and we
periodically prepare research reports on the Company. Ferris, Baker Watts,
Incorporated, its clients, its officers or its employees, in the normal course
of business, may have a position in the common stock of the Company.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all financial and other information reviewed by us for purposes
of this opinion whether publicly available or provided to us by the Company or
representatives of the Company, and we have not assumed any responsibility for
independent verification of such information. We express no opinion as to the
consideration to be received by
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<PAGE>
holders of shares who may perfect dissenters' statutory fair appraisal
remedies, if available. Based upon the foregoing and based upon other such
matters that we considered relevant, it is our opinion that the consideration
to be received by the stockholders of the Company as a result of the
Transaction is fair from a financial point of view as of the date hereof.
Our opinion is necessarily based upon economic, market and other conditions
as in effect on, and the information made available to us as of June 18, 1999.
Our opinion is directed to the Board of Directors of the Company and does not
constitute a recommendation to any stockholder of the Company as to how the
stockholder should vote at the stockholder's meeting held in connection with
the Transaction. It is understood that subsequent developments may affect the
conclusions reached in this opinion and that we do not have any obligation to
update, revise or reaffirm this opinion.
Very truly yours,
Ferris, Baker Watts, Incorporated
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APPENDIX 6
DELAWARE GENERAL CORPORATION LAW
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S) 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 (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 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 (S) 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 (S)(S)
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts 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.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 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 stockholder's
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
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<PAGE>
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 stockholder's. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 120 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
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<PAGE>
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that such
stockholder is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this 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>
1920-SPS-99
<PAGE>
- -------
PROXY STANFORD TELECOMMUNICATIONS, INC. PROXY
Proxy Solicited by the Board of Directors
for Special Meeting of Stockholders November 15, 1999
James J. Spilker, Jr., Val P. Peline and Jerome F. Klajbor, or any of them
each with the power of substitution, are hereby authorized to represent and
vote as designated on the reverse side the shares of the undersigned at the
Special Meeting of Stockholders of Stanford Telecommunications, Inc. to be
held on Monday, November 15, 1999 at 10:00 a.m., local time, or at any
adjournments or postponements of the Special Meeting.
YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO THE VOTE AT THE SPECIAL
MEETING.
The undersigned hereby revokes any proxy or proxies heretofore given to vote
such shares, and acknowledges receipt of the Notice of Special Meeting and
Proxy Statement relating to the November 15, 1999 Special Meeting of
Stockholders.
Shares represented by this proxy will be voted as directed by the
stockholder. If no such directions are indicated, the proxies will have the
authority to vote "FOR" the proposal to approve the merger agreement and "FOR"
the proposal to approve the sale of the government business assets.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT IN THE ACCOMPANYING
ENVELOPE.
(Continued and to be Signed on the reverse side)
<PAGE>
- ----------
COMMON
Please mark
your votes [X]
like this
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT AND A VOTE "FOR" APPROVAL OF THE SALE OF THE GOVERNMENT BUSINESS
ASSETS.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. Proposal to approve the Agreement and Plan of Merger, dated as of June 22, [ ] [ ] [ ]
1999, as amended, by and among Newbridge Networks Corporation, Saturn
Acquisition Corp. and Stanford Telecommunications, Inc.
2. Proposal to approve the sale of the government business assets of Stanford [ ] [ ] [ ]
Telecommunications, Inc.
3. In their discretion, to transact any other business that is properly
brought before the special meeting.
</TABLE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER AND, IF NO DIRECTIONS ARE GIVEN, WILL BE VOTED FOR
THE PROPOSALS.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [_]
Signature(s) Dated ,1999
---------------------------- ------------------------
Please sign exactly as your name appears on this proxy. If signing for
executor, trust, or corporation, title and capacity should be stated. If
shares are held jointly, each holder should sign.
2
