<PAGE>
As filed with the Securities and Exchange Commission on November 22, 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 [_]
Check the appropriate box: [_] Confidential, for Use of the
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:
--------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------
(5) Total fee paid:
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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
November 22, 1999 94088-3733
Facility
Address
1221 Crossman
Avenue
Sunnyvale, CA
94089-1117
Tel:(408) 745-
0818
Fax:(408) 745-
7756
A Revised Merger Proposal--Your Vote Is Very Important
To the Stockholders of Stanford Telecommunications, Inc.:
Due to the recent market volatility of Newbridge Networks
Corporation's common stock price, we have entered into an amended and
restated merger agreement with Newbridge. The amended agreement provides
that, rather than receiving Newbridge common stock, you will receive
$34.22 in cash for each share of Stanford Telecom stock you hold. Other
than the change in the form of consideration you will receive, the terms
of the revised merger agreement are substantially the same as those
presented for your approval in our previous proxy statement dated October
12, 1999. Upon the merger, Stanford Telecom will become a subsidiary of
Newbridge. The merger agreement also provides for the sales to third
parties of our government and contract manufacturing businesses.
We cannot complete the merger or the sale of our government business
assets without the approval of our stockholders. Even if you submitted a
proxy in connection with our previous proxy statement dated October 12,
1999, you will need to complete the enclosed proxy in order to vote on
the merger and government business asset sale. Proxies submitted in
connection with our previous proxy statement dated October 12, 1999 will
not be counted toward approval of the merger and government business
asset sale.
We have scheduled a special meeting on Monday, December 13, 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 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 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 DECEMBER 13, 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 $34.22, in cash without interest, in
exchange for each share of Stanford Telecom common stock that you hold.
We will hold a special meeting of stockholders on Monday, December 13, 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 and restated as of November 10, 1999, 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 describes the merger agreement and the sale
of the government business assets in detail. The merger agreement is attached
as Appendix A to the proxy statement.
Only persons who held Stanford Telecom stock as of the close of business on
November 11, 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.
Under Delaware law, you 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 $34.22. 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.
By Order of the Board of Directors
/s/ Jerome F. Klajbor
Jerome F. Klajbor
Secretary
Sunnyvale, California
November 22, 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.
PROXY STATEMENT
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Stanford Telecom and Newbridge have entered into an amended and restated
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's government business 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:
December 13, 1999
10:00 a.m., local time
Sunnyvale Hilton
1250 Lakeside Drive
Sunnyvale, California 94086
The merger agreement provides that you will receive $34.22 in cash in
exchange for each share of Stanford Telecom stock you hold. Based on the number
of shares of Stanford Telecom common stock outstanding on November 11, 1999,
the aggregate amount of cash consideration to be paid to Stanford Telecom
stockholders in the merger will be approximately $454.5 million.
Please give all of the information contained in this proxy statement your
careful attention.
This proxy statement is dated November 22, 1999 and is first being mailed to
Stanford Telecom stockholders on or about November 22, 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
United States federal income tax consequences........................... 1
The special meeting..................................................... 2
Record date; voting power............................................... 2
Voting by proxy......................................................... 2
Vote required........................................................... 2
Appraisal rights........................................................ 2
Voting agreements....................................................... 2
Recommendations of the Stanford Telecom board to Stanford Telecom
stockholders........................................................... 2
Fairness opinion of financial advisor................................... 2
Interests of Stanford Telecom's executive officers and directors in the
merger and
the sale of the government business assets............................. 3
Conditions to the merger................................................ 3
Termination of the merger agreement..................................... 3
Termination fee......................................................... 4
Technology license option agreement..................................... 4
Stock option agreement.................................................. 4
Sales of Stanford Telecom's assets...................................... 4
Conditions to the sale of the Stanford Telecom government business
assets................................................................. 4
Termination of the government business asset purchase agreement......... 5
Regulatory approvals.................................................... 5
Accounting treatment.................................................... 5
Recent event............................................................ 5
Special note regarding forward-looking statements....................... 5
Selected Historical Financial Data........................................ 6
Market Price and Dividend Information..................................... 7
The Special Meeting....................................................... 8
Date, Time and Place.................................................... 8
Purpose................................................................. 8
Record Date............................................................. 8
Quorum; Vote Required................................................... 8
Proxies................................................................. 9
Revocation of Proxies................................................... 9
Solicitation of Proxies and Expenses.................................... 9
Proposal No. 1--The Merger................................................ 10
Background of the Merger................................................ 10
Stanford Telecom's Reasons for the Merger............................... 12
Recommendation of the Stanford Telecom Board of Directors............... 13
Opinion of Stanford Telecom's Financial Advisor......................... 13
Newbridge's Reasons for the Merger...................................... 16
Interests of Executive Officers and Directors of Stanford Telecom in the
Merger................................................................. 16
Material United States Federal Income Tax Consequences.................. 18
Regulatory Approvals.................................................... 19
Accounting Treatment.................................................... 20
Appraisal Rights........................................................ 20
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Merger Agreement...................................................... 23
The Merger.............................................................. 23
Conversion of Shares.................................................... 23
Treatment of Stock Options.............................................. 23
Representations and Warranties.......................................... 23
Conduct of Stanford Telecom's Business Prior to the Merger.............. 24
Conduct of Business Following the Merger................................ 26
No Solicitation; Board Recommendation................................... 26
Additional Covenants.................................................... 28
Conditions to the Merger................................................ 28
Termination of the Merger Agreement..................................... 30
Fees, Expenses and Termination Fees..................................... 31
Employee Benefits....................................................... 32
Technology License Option Agreement..................................... 33
Stock Option Agreement.................................................. 34
Voting Agreements....................................................... 35
Proposal No. 2--Sale of the Government Business Assets.................... 36
Background of the Sale of the Government Business Assets................ 36
Reasons for the Sale of the Government Business Assets.................. 37
Recommendation of the Stanford Telecom Board............................ 37
Interests of Executive Officers of Stanford Telecom in the Sale of the
Government Business Assets............................................. 38
Regulatory Approvals.................................................... 38
Accounting Treatment.................................................... 38
Appraisal Rights ....................................................... 38
Federal Income Tax Consequences......................................... 38
Information about ITT Industries........................................ 39
The Government Business Asset Purchase Agreement........................ 39
Business of Stanford Telecom.............................................. 45
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 52
Ownership of Certain Beneficial Owners.................................... 60
Independent Public Accountants............................................ 61
Stockholder Proposals..................................................... 61
Where You Can Find More Information....................................... 61
Consolidated Annual and Quarterly Financial Data.......................... F-1
Appendices
Amended and Restated Agreement and Plan of Merger....................... A-1
Technology License Option Agreement..................................... B-1
Stock Option Agreement.................................................. C-1
Opinion of Ferris, Baker Watts.......................................... D-1
Delaware General Corporation Law Section 262............................ E-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 61). 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 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 23)
For each share of Stanford Telecom common stock you hold, you will receive
$34.22 in cash without interest.
Based on the outstanding number of shares of Stanford Telecom common stock on
November 11, 1999, the aggregate amount of cash consideration to be paid to
Stanford Telecom stockholders in the merger will be approximately $454.5
million.
You should not send in your stock certificates until instructed to do so after
the merger is completed.
United States federal income tax consequences (page 18)
The receipt of cash by a Stanford Telecom stockholder in the merger will be a
taxable transaction for federal income tax purposes and may also be a taxable
transaction for state, local, foreign and other tax purposes. In general, for
federal income tax purposes, under current law, a Stanford Telecom stockholder
in whose hands the shares of Stanford Telecom common stock are capital assets
will recognize gain or loss equal to the difference between the stockholder's
adjusted tax basis in each block of the shares converted to cash in the merger
and the amount of cash received for those shares.
Because individual circumstances may differ, you should consult your tax
advisors for a full understanding of the tax consequences of the merger to you.
1
<PAGE>
The special meeting (page 8)
The Stanford Telecom special meeting will be held at the Sunnyvale Hilton, 1250
Lakeside Drive, Sunnyvale, California 94086 on Monday, December 13, 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 8)
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 November 11, 1999, the
record date for the special meeting.
On the record date, there were 13,280,750 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 9)
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 8)
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 20)
Stanford Telecom is a Delaware corporation. Stanford Telecom stockholders 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 35)
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 13 and 37)
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 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 13)
On November 10, 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
amended and restated 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 November 10, 1999 to this proxy statement as Appendix D. 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
2
<PAGE>
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 16 and 38)
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.
Conditions to the merger (page 28)
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;
. 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;
. 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.
Termination of the merger agreement (page 30)
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 31.
3
<PAGE>
Termination fee (page 31)
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 33)
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 34)
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 36)
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 business
assets if the merger with Newbridge is not approved by its stockholders.
Sale of government business assets. Stanford Telecom has entered into an
agreement with ITT Industries, Inc. to sell to ITT Industries the government
business assets for $191 million, subject to adjustment based on the net worth
of the government business on the closing date of the sale. The ITT Industries
agreement is described in this proxy statement beginning on page 39. The
agreement is subject to conditions. As a result, we cannot assure you that the
sale will be completed or that it will be completed at this price.
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.
Sale of contract manufacturing business assets. On October 29, 1999, Stanford
Wireless Broadband, Inc., a wholly owned subsidiary of Stanford Telecom, sold
the contract manufacturing business to Dii Semiconductor, Inc. for
approximately $11 million.
Conditions to the sale of the Stanford Telecom government business assets (page
43)
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
4
<PAGE>
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 44)
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 19 and 38)
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 each filed the required notification and report
form relating to 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, and the waiting
period was terminated on October 14, 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. Newbridge and Stanford Telecom filed a joint voluntary
notification of the transaction, and on November 1, 1999, the Department of the
Treasury notified Newbridge and Stanford Telecom that it would not commence an
investigation in connection with the merger.
Accounting treatment (pages 20 and 38)
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 event
On November 15, 1999, Stanford Telecom sold its Telecom Component Products
division to Intel Corporation.
Special note regarding forward-looking statements
This proxy statement 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. 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.
5
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SELECTED HISTORICAL FINANCIAL DATA
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 six months ended
September 30, 1998 and 1999. The results of operations for the first six months
of fiscal year 2000 ended September 30, 1999 are not necessarily indicative of
results to be expected for the fiscal year ending March 31, 2000. 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 in this proxy
statement and 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 61.
Stanford Telecom Selected Consolidated Financial Data
(U.S. dollars in thousands, except per share data)
Statements of Income Data
<TABLE>
<CAPTION>
Six Months Ended
September 30, Fiscal Year Ended
------------------ ------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Products and Services.. $ 74,077 $ 69,743 $165,405 $153,260 $167,002 $145,100 $114,384
Licenses............... 17,750 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Revenues......... 91,827 69,743 165,405 153,260 167,002 145,100 114,384
Cost of revenues........ 60,342 52,859 131,311 116,629 127,432 116,014 95,679
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 31,485 16,884 34,094 36,631 39,570 29,086 18,705
Expenses:
Research and
development........... 5,608 7,126 14,105 13,647 11,868 8,429 7,723
Marketing and
administrative........ 10,070 7,493 19,926 17,321 16,808 12,213 9,362
-------- -------- -------- -------- -------- -------- --------
Total expenses........ 15,678 14,619 34,031 30,968 28,676 20,642 17,085
-------- -------- -------- -------- -------- -------- --------
Operating income........ 15,807 2,265 63 5,663 10,894 8,444 1,620
Interest income......... 931 901 1,880 1,896 1,336 839 657
Arbitration settlement
charge................. -- -- -- -- -- -- (2,075)
-------- -------- -------- -------- -------- -------- --------
Income from continuing
operations before
provision for income
taxes.................. 16,738 3,166 1,943 7,559 12,230 9,285 202
Provision for income
taxes.................. (5,188) (981) (602) (2,343) (4,219) (3,110) (71)
-------- -------- -------- -------- -------- -------- --------
Income from continuing
operations............. 11,550 2,185 1,341 5,216 8,011 6,173 131
Discontinued operations
Operating loss from
discontinued
operations before
income tax benefits... (1,320) (1,165) -- -- -- -- --
Income tax benefits.... 409 361 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Loss from discontinued
operations............. (911) (804) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 10,639 $ 1,381 $ 1,341 $ 5,216 $ 8,011 $ 6,173 $ 131
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per
share--U.S. GAAP
Basic
Continuing operations.. $ 0.88 $ 0.17 $ 0.10 $ 0.40 $ 0.61 $ 0.49 $ 0.01
Discontinued
operations............ (0.07) (0.06) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
$ 0.81 $ 0.11 $ 0.10 $ 0.40 $ 0.61 $ 0.49 $ 0.01
Diluted
Continuing operations.. $ 0.85 $ 0.17 $ 0.10 $ 0.40 $ 0.61 $ 0.49 $ 0.01
Discontinued
operations............ (0.07) (0.06) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
$ 0.78 $ 0.11 $ 0.10 $ 0.40 $ 0.61 $ 0.49 $ 0.01
Basic shares
outstanding............ 13,177 12,984 12,992 12,902 12,775 12,556 12,408
Diluted shares
outstanding............ 13,608 13,146 13,145 13,179 13,070 12,702 12,484
</TABLE>
Balance Sheet Data
<TABLE>
<CAPTION>
As of March 31,
As of ------------------------------------------
September 30, 1999 1999 1998 1997 1996 1995
------------------ -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total assets............ $119,272 $115,063 $112,141 $103,518 $90,948 $88,005
Long-term obligations,
less current
maturities............. 62 73 41 30 85 161
Other long-term
liabilities............ 485 595 855 910 986 927
Total stockholders
equity................. $102,384 $ 89,429 $ 86,873 $ 79,706 $69,589 $62,097
</TABLE>
6
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
Set forth below are the last reported sale prices of Stanford Telecom common
stock on Nasdaq on June 21, 1999, the last trading day prior to the public
announcement of the merger agreement, on November 9, 1999, the last trading day
prior to the public announcement of the amended and restated merger agreement,
and on November 19, 1999, the most recent practicable date prior to the
printing of this proxy statement.
<TABLE>
<CAPTION>
Stanford Telecom
Common Stock
----------------
<S> <C>
June 21, 1999.................................................. $26.44
November 9, 1999............................................... $29.75
November 19, 1999.............................................. $33.75
</TABLE>
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.................................................. $20.25 $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 November 19, 1999)...................... 33.88 25.44
</TABLE>
Stanford Telecom has never declared or paid any cash dividends on Stanford
Telecom common stock.
7
<PAGE>
THE SPECIAL MEETING
This proxy statement 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:
December 13, 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 and restated as of November 10, 1999 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
November 11, 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 or postponements thereof.
On the record date, there were 13,280,750 shares of Stanford Telecom common
stock outstanding, which were held by approximately 1,664 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
8
<PAGE>
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 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 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, and to
complete, date, sign and promptly return the enclosed proxy in the enclosed
postage-paid envelope.
Even if you submitted a proxy in connection with our previous proxy
statement dated October 12, 1999, you will need to complete the enclosed proxy
in order to vote on the merger and government business asset sale. Proxies
submitted in connection with our previous proxy statement dated October 12,
1999 will not be counted toward approval of the merger and government business
asset sale.
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.
9
<PAGE>
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 for stock 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.
10
<PAGE>
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.
11
<PAGE>
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.
At a meeting held at the request of Newbridge on November 8, 1999 in
Sunnyvale, California and attended by Dr. Peline, Mr. Wolf and Dr. Spilker of
Stanford Telecom and Mr. Lewis and Mr. Nadeau of Newbridge, along with their
legal and financial advisors, Newbridge proposed, because of the substantial
decline in its stock price since the announcement of the merger and the
dilutive effects of acquiring Stanford Telecom for stock, to change the
transaction to an all cash merger. After negotiations, the parties agreed to a
purchase price of $34.22 per share.
On November 9, 1999, representatives of Newbridge and Stanford Telecom and
their legal and financial advisors met in Palo Alto, California to negotiate
revisions to the merger agreement.
At a meeting held on November 10, 1999, the Newbridge board of directors
approved the amended and restated merger agreement.
At a meeting of the Stanford Telecom board of directors held on November 10,
1999, Ferris, Baker Watts delivered a revised fairness opinion to the Stanford
Telecom board of directors in connection with the change of the transaction to
an all cash merger. After review of the terms of the amended and restated
merger agreement and the financial and other considerations of the new
transaction, the Stanford Telecom board of directors unanimously approved the
amended and restated merger agreement and authorized the officers of Stanford
Telecom to finalize and execute the amended and restated merger agreement.
The amended and restated merger agreement was signed on behalf of Newbridge,
Stanford Telecom and Saturn Acquisition Corp. on November 10, 1999.
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 cash-for-stock transaction, which will
enable Stanford Telecom's stockholders to receive $34.22 in cash for
each share of Stanford Telecom stock they hold, thereby not subjecting
the stockholders to the risks of receiving or holding Newbridge's
currently volatile 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 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 change from a tax-free transaction to a taxable transaction;
. the significant diversion of management and other resources in working
toward completing the merger with Newbridge; 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.
12
<PAGE>
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 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. On November 10, 1999, Ferris, Baker Watts
delivered a revised opinion stating that the transaction, as described in the
amended and restated merger agreement, is fair to the stockholders from a
financial point of view. The November 10, 1999 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, dated November 10, 1999, which sets forth assumptions made,
material reviewed, matters considered, and the limits of the review, is
attached as Appendix D and is incorporated by reference in this proxy
statement.
13
<PAGE>
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 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, as amended and restated as of November
10, 1999;
. 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
June 30, 1999, 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
. 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.
14
<PAGE>
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 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. In order for Ferris, Baker Watts to deliver its opinion dated
November 10, 1999, Ferris, Baker Watts updated the analysis described above and
concluded the consideration to be received by the Stanford Telecom stockholders
is 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.
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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.
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.
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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.
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................................. 37,750
Jerome F. Klajbor............................ 24,625
Ernest L. Dickens............................ 19,500
Dr. John Ohlson.............................. 11,875
Leonard Schuchman............................ 11,875
-------
Total...................................... 136,125
=======
</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.
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Material United States Federal Income Tax Consequences
General. The following discussion summarizes 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 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, or stockholders who hold their Stanford Telecom
stock as part of a straddle or similar transaction.
Federal Income Tax Consequences to Stanford Telecom Stockholders
For federal income tax purposes, the merger will be a taxable transaction
for Stanford Telecom stockholders and may be a taxable transaction for state,
local, foreign and other tax purposes. You will be treated as having sold your
Stanford Telecom common stock to Newbridge for cash. Accordingly:
. You will recognize taxable gain or loss measured by the difference
between your tax basis in your Stanford Telecom common stock and the
amount of cash that you receive in the merger or upon the exercise of
your appraisal rights.
. If you have acquired separate blocks of Stanford Telecom common stock at
different times or prices, you must calculate your gain or loss
separately for each separate block.
. If you hold your Stanford Telecom common stock as a capital asset, your
gain or loss will be capital gain or loss, and 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.
. Generally, you must net your capital gains and capital losses against
each other in determining their tax consequences.
. Generally, if you are an individual, your tax rate on long-term capital
gains is substantially lower than your tax rate on ordinary income. Your
tax rate on short term capital gains will be the same as your tax rate
on ordinary income.
. If you are an individual, you may deduct capital losses in a taxable
year first against your capital gains and then against up to $3,000 of
ordinary income.
. Individuals may carry their net capital losses that are not currently
deductible forward indefinitely for deduction in future years, subject
to the limitations applicable in the future years.
. Corporations generally may deduct capital losses only against capital
gains. Corporations may carry their capital losses in excess of capital
gains back to the three preceding taxable years and forward to the five
succeeding taxable years for deduction against capital gains realized in
those years.
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 business will be taxable
transactions to Stanford Telecom.
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 dependant on your own circumstances. Moreover, the discussion does not
address any non-income tax consequences nor details 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.
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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.
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. 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. On November 1, 1999, Newbridge and Stanford
Telecom received notification from CFIUS that it would not commence an
investigation in connection with the merger.
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.
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. 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
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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 as a purchase in accordance
with Canadian and U.S. generally accepted accounting principles.
Appraisal Rights
Under Delaware law, you are entitled to appraisal rights in connection with
the merger. If you object to the merger, you may elect to have your shares
appraised under the procedures of the Delaware law and to be paid the fair
value of your shares. The fair value of the shares will not include any value
arising from the merger but may include a fair rate of interest. It is
possible that the fair value determined may be more or less than the merger
consideration. In order to assert these rights you must follow the procedures
set forth in Section 262 of the Delaware law. These rights are commonly
referred to as "appraisal rights" or "dissenters' rights." This proxy
statement affords stockholders of Stanford Telcom the notice required by
Section 262(d)(1) of the Delaware law. The following summary of appraisal
rights is not a complete summary of the law pertaining to appraisal rights
under the Delaware law and is qualified in its entirety by the text of Section
262 of the Delaware law, which is reproduced in Appendix E to this proxy
statement.
This summary does not constitute a recommendation that you exercise your
appraisal rights 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 the cash consideration
described in 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.
To claim your appraisal rights and receive fair value for your shares, 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 make a written demand
for an appraisal through the effective date of the merger;
. not vote in favor of the merger; and
. file within 120 days after the effective time of the merger, if Stanford
Telecom or another stockholder 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
effective date of the merger, 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 cease.
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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 written demand for appraisal should be executed by or on behalf of the
stockholder of record 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 written
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 written demand for
appraisal on behalf of a stockholder of record; however, in the written demand
the agent must identify 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
beneficial owner of shares of Stanford Telecom held in "street name" who
desires appraisal should take such actions as may be necessary to ensure that a
timely and proper demand for appraisal is made by the record holder of such
shares. Shares held through brokerage firms, banks and other financial
institutions are frequently deposited with and held of record in the name of a
nominee of a central security depository. Any beneficial holder desiring
appraisal who holds shares through a brokerage firm, bank or other financial
institute is responsible for ensuring that the demand for appraisal is made by
the record holder. The beneficial holder of such shares should instruct such
firm, bank or institution that the demand for appraisal may be made by the
record holder of the shares, which may be the nominee of a central security
depository if the shares have been so deposited. As required by Section 262, a
demand for appraisal must reasonable inform Stanford Telecom of the identify of
the holder of record and of such holder's intention to seek appraisal of such
shares. 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.
Stanford Telecom will send notice of the effective date of the merger to
each stockholder who has properly demanded appraisal rights under Section 262
and who has not voted in favor of the merger. Stanford Telecom will send this
notice within 10 days after the effective date of the merger.
If you have complied with the requirements for claiming your appraisal
rights under Section 262, then within the 120 days following the effective date
of the merger, you may request in writing from Stanford Telecom a statement as
to the aggregate number of shares not voted in favor of the merger and with
respect to which demands for appraisal have been received and the number of
holders of those shares. Upon Stanford Telecom's receipt of such 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 and a copy is delivered to
Stanford Telecom, Stanford Telecom will then be obligated within 20 days to
provide the Register in Chancery with a duly verified list containing the names
and addresses of all stockholders of Stanford Telecom who have demanded an
appraisal of their shares and with whom agreements as to the value of their
shares have not been reached by Stanford Telecom. The Delaware Court of
Chancery will hold a hearing on the petition to determine the stockholders who
have complied with Section 262 and who have become entitled to appraisal
rights. After determining the stockholders entitled to appraisal, the Delaware
Court of Chancery shall appraise the shares, determining their fair value. 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
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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 cash 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 Delaware Court of Chancery may require the holders of shares who have
demanded an appraisal of their shares to submit their stock certificates to the
Register in Chancery for notation of the appraisal proceeding; and if any
stockholder fails to comply with such direction, the Delaware Court of Chancery
may dismiss the proceedings as to that stockholder.
The costs of the appraisal proceeding 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 connection with
the appraisal proceeding, including, without limitation, reasonable attorneys'
fees and the fees and expenses of experts, to be charged pro rata against the
value of all of the shares entitled to appraisal.
From and after the effective date of the merger, if you have duly demanded
an appraisal of your shares, you will not, 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 of record at a date prior to the effective date of the
merger.
You may withdraw your demand for appraisal of your shares at any time within
60 days after the effective date of the merger and accept the terms offered
pursuant to the merger. Any attempt to withdraw your appraisal demand more than
60 days after the effective date 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 cancelled and extinguished
and be converted into the right to receive the cash consideration described in
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.
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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 A through C 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 December 14, 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
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 (other than those cancelled by the merger agreement and any dissenting
shares), will be automatically converted into the right to receive $34.22 in
cash without interest. At or before the effective time of the merger,
Newbridge will designate a bank or trust company to act as the paying agent in
the merger. The paying agent will receive the merger consideration from
Newbridge. The paying agent will distribute the merger consideration to each
Stanford Telecom stockholder after delivery by the stockholder of their
Stanford Telecom stock certificates and a signed letter of transmittal.
As of the effective time, each share of Saturn Acquisition Corp.
outstanding immediately prior to the effective time will be automatically
converted into one share of common stock of the surviving corporation.
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; provided that, as of the effective time of the merger,
holders of Stanford Telecom options will have the ability to "cash out" their
vested options for the difference between $34.22 and the exercise price of the
options, less applicable taxes. See the more detailed discussion under "--
Employee Benefits" below.
Representations and Warranties
Stanford Telecom, Newbridge and Saturn Acquisition Corp. have made
representations in the merger agreement, relating to, among other things:
. their respective 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;
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. required consents or approvals;
. no violations of any agreements or law;
. litigation; and
. information included in the proxy statement.
Stanford Telecom has made additional representations, relating to among
other things:
. its capital structure and the capital stock of its subsidiaries;
. insurance;
. contracts and commitments;
. documents filed with the SEC;
. financial statements;
. absence of undisclosed liabilities;
. absence of material adverse events or changes;
. compliance with laws, including those relating to the export or import
of goods or technology;
. 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.
Newbridge has made an additional representation relating to its financial
resources to consummate the transactions contemplated by the merger agreement.
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;
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. 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;
. 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
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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.
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
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. 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;
. 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
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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.
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:
. Stanford Telecom stockholders approve and adopt the merger agreement and
the merger;
. 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
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. 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
-- 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; and
. Newbridge and Saturn Acquisition Corp. have furnished certificates of
their respective officers to evidence compliance with the conditions set
forth in the merger 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;
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. 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 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 after
the expiration of the 10-day waiting period on the preliminary proxy
statement or, if Stanford Telecom receives SEC comments on the proxy
statement, the date that all such comments are cleared with SEC;
-- 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 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.
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 and the costs of printing and mailing this proxy statement.
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
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. 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:
. each Stanford Telecom option will be exercisable for the number of whole
shares of Newbridge common stock, rounded down to the nearest whole
share, 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 option exchange ratio,
which is equal to $34.22 divided by the average of the daily average of
the high and low prices of the Newbridge common stock on the New York
Stock Exchange for the five trading days ending the second trading day
before the special meeting; 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 option exchange ratio,
rounded up to the nearest whole cent.
In addition, persons holding Stanford Telecom options which are vested or
will be vested at the effective time of the merger will be able to exercise
those options on a "cash-out" basis as of the effective time of the merger.
Option holders who exercise their options in this manner will receive, after
the effective time of the merger, a cash payment for each share exercised equal
to $34.22 less the exercise price of the shares and any applicable withholding
or employment taxes.
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.
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Employee Stock Purchase Plan. Pursuant to the merger agreement, Stanford
Telecom's 1992 Employee Stock Purchase Plan was terminated following the
purchase of shares on September 30, 1999. All funds contributed to the 1992
Stock Purchase Plan that were not used to purchase shares of Stanford Telecom
common stock were returned to the Stanford Telecom employees 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.
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.
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 B to this
proxy statement 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.
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 C to this proxy statement 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;
-- 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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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.
Stanford Telecom has entered into an agreement with ITT Industries, Inc. to
sell to ITT Industries the government business assets for $191 million, subject
to adjustment based on the net worth of the government business on the closing
date of the sale. 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 17.
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
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 each
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, and the waiting period terminated on October 14,
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. 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 December 14, 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 by
reference. See "Where You Can Find More Information" on page 61.
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.
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);
. maintain its books and records in a manner other than in the ordinary
course of business and consistent with past practice;
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. 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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BUSINESS OF STANFORD TELECOM
Stanford Telecom designs, manufactures, and markets advanced digital
communications products and systems to establish or enhance communications via
satellites, terrestrial wireless and cable. Our technical strengths include:
system design, communication waveforms, modulation and demodulation techniques,
ASIC design, Radio Frequency (RF) antennas and downconverters, software and
firmware, Asynchronous Transfer Mode (ATM) design and advanced manufacturing
techniques and processes.
Stanford Telecom was incorporated in California in 1973 and reincorporated
in Delaware in 1988.
Government Business
Our government business is conducted through four divisions: Satcom Ground
Systems, Communications Systems Integration, Applied Technology Operation and
Advanced Communications Systems. Our ground equipment supports many of the
Department of Defense high priority satellites including military
communications satellites such as Defense Satellite Communications System (DSCS
III) and MILSTAR, as well as Global Positioning Systems (GPS), the
military/civil navigation satellite system.
DSCS Operational Control System
We provide critical on-site operations and maintenance support, software
support, integrated logistic support, training and depot support services for
the U.S. Army's DSCS program under a five-year contract called DSCS Operations
Control System Support Services (DOCS3). We have been performing critical
services in support of DSCS for the U.S. government since 1981.
The DOCS is a complex collection of network management and control
subsystems that are used as tools for managing DSCS ground station and space
communication payload assets. The DSCS must be operated and maintained at peak
efficiency and maximum availability as it is often the only means of
communication with deployed forces.
Over the past two years, the U.S. government has issued individual task
orders for system adaptation tasks. These tasks often require hardware and/or
software enhancements and modifications to extend the life expectancy of the
system. The addition of these tasks to the base contract makes DOCS3 our
largest single contract.
Global Broadcast Services
The U.S. government counterpart to Direct Broadcast Satellite (DBS)
television is the Global Broadcast Service. This military satellite system
operates in the Ka- and Ku-bands using special payloads on UFO Follow-on
Satellites. We provide the uplink terminals termed the Primary Injection Point
(PIP) and Tactical Injection Point (TIP) terminals.
During the past year, we integrated and delivered two Global Broadcast
Service (GBS) Primary Injection Points terminals, under subcontract to Raytheon
Information Systems Company. We were awarded options to design, manufacture,
and deliver the initial Transportable Injection Point for the GBS program. The
TIP, comprised of a Transportable Satellite Broadcast Manager and a
Transportable Theater Injection terminal, will be installed on High Mobility
MultiWheeled Vehicles (HMMWV) and provide GBS uplink capability from deployed
locations worldwide. Stanford Telecom anticipates additional TIP orders during
fiscal 2000.
Digital Satellites Terminals
The DST satellite communications terminals differ from many other satellite
terminals in that they operate with both military X-band satellites and
commercial C- and Ku-band communications satellites. We design, manufacture and
deliver commercial earth stations that offer highly reliable communications
over military and commercial satellite systems operating in C-, X-, and Ku-
bands.
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Replacement Satellite Configuration Control Element
We have a production contract for the manufacture, test and installation of
the Replacement Satellite Configuration Control Element (RSCCE), a critical
component of the U.S. Army's Defense Satellite Communications System (DSCS).
The RSCCE system we developed completed formal acceptance and operational
testing in December 1998. Our RSCCE provides satellite commanding and telemetry
monitoring and processing capabilities to the U.S. Army at the DSCS Operations
Centers located worldwide. The production contract also includes an additional
development phase during which the system will be enhanced to provide
operational capabilities requested by the customer. This program is scheduled
to last about four years and will culminate with the installation of 18 RSCCE
systems in late 2002 and 2003.
RBATSON Satellite Command Systems
The U.S. Army Communications Electronics Command (CECOM) exercised a major
production option on the Replacement BATSON (RBATSON) program during fiscal
1999. The RBATSON program, originally awarded to Stanford Telecom in December
1996, is a technology insertion effort, which replaces 1970's era BATSON
cryptographic security equipment for DSCS ground control stations with new
form, fit, and function replacement units. The RBATSON system (KI-34) consists
of two components, the KIG-34 and the KIT-34, and new Maintenance Test
Equipment (MTE), also known as the KT-43A.
We are now under contract to produce and deliver 17 additional RBATSON units
(KIG-34s and KIT-34s) and 2 KT-43, and their associated spares. CECOM also
approved two engineering change proposals, which increase the capabilities of
the MTE.
GPS Block IIF Satellite Test System
We are under contract to deliver a state-of-the-art factory test system to
Boeing North American for use in factory testing of the next generation Global
Positioning System (GPS) Block IIF satellites. The system consists of a
combination of modern Commercial-Off-The-Shelf test equipment and Stanford
Telecom designed GPS equipment. Specially developed Stanford Telecom software
controls the equipment and digitally processes measurement data to provide
extremely accurate determination of critical satellite parameters. The test set
is fully automated to significantly reduce satellite test time and to reduce
the effect of "human error" in the measurement process.
Atmospheric Sensing Systems
We have developed a new type of atmospheric turbulence monitoring instrument
that measures the strength and rate of change of atmospheric turbulence. The
measurements are essential for the design of systems with applications that
depend on the ability to bring light to a sharp focus. In particular, the
measurements are essential to those that use the technique known as adaptive
optics to partially cancel the distorting effects of the atmosphere.
We have a dedicated facility on the grounds of the George Washington
University Northern Virginia Campus for the development and test of new optical
and RF atmospheric sensing systems. This facility includes an astronomical
observation center including a weather station and a local operations center
for collection and processing of atmospheric data.
Milstar Instrumented Calibration Terminal
We recently delivered three transportable MILSTAR Instrumented Calibration
Terminals to Lockheed Martin to conduct on-orbit tests of the MILSTAR
satellites at various locations throughout the world. This terminal is based on
our proprietary MILSTAR Transportable Terminal System. The terminal will be
able to test both the current MILSTAR I and the soon to be launched next
generation MILSTAR II satellites.
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Microwave Signal Products
We are developing wide bandwidth, GHz-rate microwave products for high-data
rate communications and high-resolution radars.
We completed the first two production phases of the synthesizer for the
Army's SCAMP Portable MILSTAR Satellite Terminal. The synthesizer is a key
component of this satellite terminal. Since it will be used by soldiers in the
field, the terminal must be lightweight and run on battery power for extended
periods. Using cost effective commercial manufacturing practices, we were
recently authorized to proceed with the third phase of the contract along with
options, extending this contract though fiscal 2001.
Direct Digital Chirp Synthesizer
The STEL-2375 is being used to support customer requirements in diverse
applications such as commercial automotive test equipment and state-of-the-art
radars for missiles and aircraft. The chip is implemented in high-speed GaAs
technology to run at a leading edge rate of 1 GHz clock rate.
Direct Digital Synthesizer
The STEL-9944 builds on our earlier success with our STEL-2373 DDS
Synthesizer that has been designed into aircraft radars such as the F-18 and
the newer F-22. The STEL-9944 developed for the SM-II Missile program is now in
full production having successfully passed our engineering pre-production
phase.
NASA Tracking and Data Relay Satellites
We support NASA in its major communications satellite program, the Tracking
and Data Relay Satellite that provides communication to the Space Shuttle. We
continue our 22 years of support to NASA's Tracking and Data Relay Satellite
System including both systems engineering services and hardware and software
development, which includes:
. Low Power Programmable Transceiver (LPT), which utilizes innovative
state-of-the-art technology to develop a multifunctional low power space
based transceiver. One version of the LPT integrates GPS with the
transceiver.
. Software Programmable Advanced Receiver (SPAR), which applies advanced
signal processing into a software-programmable radio that provides
highly flexible communication support across a broad range of signaling
formats, spread-spectrum operations, and integrated tone ranging. The
SPAR has successfully supported two Titan IV-B launches where it is used
to receive signals from the Inertial Upper Stage (IUS). On its last
mission it stayed in lock and tracked telemetry though the thermal roll
maneuvering of the rocket, a period when dropout of the signal due to
antenna misalignment was expected to cause the SPAR to lose signal lock.
The SPAR's performance has been highly praised by NASA.
. Third Generation Beamforming System (TGBFS), which will provide low-
cost, ground-based beamforming of TDRSS-phased array signals for
emerging users of NASA's Demand Access System. The TGBFS applies state-
of-the-art optical and digital processing with applicability to smart,
adaptive antennas.
. Space Station Early Communication System (ECOMM), which is an S-band
receiver that provides a spread-spectrum, command and telemetry data
link, and a high-rate video conferencing link for International Space
Station astronauts. Two ECOMM terminals are currently deployed on the
Space Station.
Next Generation GPS Signal Design
We also support the U.S. government in the Global Positioning System (GPS),
the U.S. satellite navigation system. We are working with the Air Force through
Boeing Corporation to investigate candidate
47
<PAGE>
signals for the next generation GPS signal structure. The U.S. Administration
recently announced that the next generation GPS signal would include both new
civil and military signals. Stanford Telecom is helping to design these
signals.
Federal Aviation Administration
We have been supporting the FAA for the past 20 years. This past year we
have provided support in the following areas:
. Communication: Supported the development of requirements for the
modernization of the FAA's Operation Network.
. Automation: Supported planning and engineering for the upgrading of the
Enroute Automation System.
. Surveillance: Supported planning and engineering for the upgrading of
the surveillance automation processing subsystem.
. Security: Supported planning and engineering for the security of the NAS
Automated System.
. Navigation: Supported the Satellite National Testbed.
We also provide engineering support to the FAA's Telecommunications
Integrated Product Team (TIPT). These engineering efforts will be focused on
support to the continued effective operation of the existing networks as well
as planning and supporting the implementation of network modernization to allow
the FAA to meet the challenges of the 21st century. The FAA's TIPT is
responsible for providing the communications infrastructure essential to the
accomplishment of the FAA's mission.
Wireless Broadband Business
There are two separate but closely related wireless broadband communications
systems: Multichannel Multipoint Distribution System (MMDS), sometimes called
wireless cable operating in the 2.5 GHz frequency band, and the wider bandwidth
Local Multipoint Distribution System (LMDS) that operates in the 28-31 GHz
frequency region. The FCC completed the auction of the LMDS frequencies in
March 1998.
We have increased our investment in the development of a product line of
modems and service interface cards that will enable wireless delivery of high-
speed data and telephony services to commercial and residential customers. Our
product line supports a true point-to-multipoint architecture which uses large
TDM downstream channels and smaller bandwidth-on-demand upstream channels to
provide ATM transport of multimedia services to small-to-medium sized
businesses and home offices. A complete product line has been developed which
offers both data and a variety of telephony services. The simplest customer
premise product suitable for the small office provides a single 10Mbps data
line and two analog telephone connections. More sophisticated users can be
provided with additional capability of up to two data lines and eight T1 (or
E1) connections for a single user. Our family of wireless broadband products
are capable of operating over a wide range of frequencies with programmable
data rates.
Technology demonstrations and field trials using prototype hardware and
software were successfully completed during fiscal 1999. At year-end, hardware
development was essentially complete, with low volume production deliveries
under way for initial deployments in Canada, Europe, and the United States. Our
customers forecast a rapid acceleration of production orders in fiscal 2000.
Software development is essentially complete, with a period of final testing
and evaluation planned for the first quarter of fiscal 2000.
Strong market interest continues in both the United States and offshore. We
have responded to several opportunities with our partners and expect that we
will see strong market expansion in Europe, Latin and South America, and Asia.
In the U.S., a significant consolidation of spectrum holders took place after
the completion
48
<PAGE>
of the auction process, and it now appears that the major LMDS spectrum holders
are dedicated to begin nationwide deployment. On the MMDS front, two national
interexchange carriers have acquired spectrum that will allow them to deploy
wireless data and telephony networks in many regions throughout the U.S. This
acquisition is seen as a very positive development for the MMDS industry and
will likely result in deployment decisions later this year.
We have developed an extensive and very flexible product line for LMDS and
MMDS equipment to support both telephony and high-speed Internet access. These
products include headend and subscriber equipment and network management
systems.
General
Manufacturing
Our products are generally manufactured from standard components, our
proprietary ASICs and other components or subsystems produced to our
specifications. Most of our current products contain microprocessors for which
proprietary software is designed and tested by our engineers. We do not have a
semiconductor foundry or fabrication facility. For the production of ASICs, we
contract with companies that have foundry capability.
In many cases only a single source is available for specific components, and
thus there is a risk of delay in delivering finished systems within contractual
schedules. We attempt to minimize this risk by securing second sources, finding
alternate technologies to perform the same function and maintaining adequate
inventories of single source components. Many of our products are covered by a
90-day to one-year warranty under which we will repair or replace defective
parts. To date, warranty expense has not been significant.
Marketing and Customers
We market our products and services to agencies of the U.S. government,
prime contractors to these agencies and an increasing number of commercial
customers. Our marketing is conducted by our management and technical staff,
and in the case of our commercial business, domestic and international sales
representatives are also utilized. Our marketing efforts for our government
business consist of responding to requests for proposals and solicitations for
bids from U.S. government agencies or prime contractors to these agencies and
direct marketing of our off-the-shelf, standardized products. We also place
advertisements for commercial products, particularly our Wireless Broadband
(LMDS/MMDS) products, in a number of trade magazines and participate in trade
shows and industry symposiums. In some cases, the major communication system
integrators who are pursuing wireless broadband opportunities market our
products directly to the service providers. We are requested to support these
marketing activities from time to time.
Competition
Competition is intense among providers of digital telecommunications
equipment, products and services. In the government base business, competitors
include major defense contractors, telecommunications equipment and electronics
firms, and systems integrators, most of which have significantly greater
financial, marketing and operating resources than we do, as well as broader
product lines and technological capabilities. As a result of reduced defense
spending by the U.S. and other governments, competition has become more intense
in the government base business. Although no single competitor competes with us
in all of our product lines, a number of competitors such as Harris
Corporation, Loral-Space, Lockheed-Martin, TRW, BDM, Hughes, and CSC compete
with us in various market segments. Certain of our customers have technological
capabilities in our product areas and could choose to develop and manufacture
certain products themselves rather than purchase from us.
49
<PAGE>
Backlog and Bookings
Funded backlog includes: (i) projects and orders covered by signed contracts
for which the government has specifically allocated funding; and (ii) purchase
orders from commercial customers. Our backlog is largely attributable to
agencies of the U.S. government. In the case of certain long-term contract
awards, the U.S. government typically makes the funds available over the life
of the contract as opposed to the time of the contract award. In such cases we
report as funded bookings only the amount of the funds specifically allocated
and the resultant backlog as funded backlog. We do not include unexercised
options in backlog. Our contracts typically contain contingency provisions
permitting termination by the customer at any time. Cancellation of pending
contracts or termination or reductions of contracts in progress may have a
material adverse effect on our results of operations.
Research and Development
The telecommunications industry is characterized by rapid technological
change, requiring a continuous effort to enhance existing products and develop
new products. We conduct extensive research, development and engineering
activities with the objective of developing products and systems that provide
for cost-effective, digital wireless telecommunications and high-quality
satellite communications. We have developed a number of innovative and
proprietary digital telecommunications technologies through a combination of
customer and internally funded research and development.
Our revenues have historically been derived primarily from performing
contract research and development and engaging in limited production contracts
with agencies of the U.S. government and their prime contractors. As a result,
a substantial portion of the digital telecommunications research and
development we have performed has been funded by our customers.
Employees
As of September 30, 1999, we employed 1,019 full-time and 23 part-time
employees and 19 professional consultants. Of the full-time employees, 603 are
in technical operations, 113 in manufacturing operations, 130 in management,
105 professional non-technical, and 68 in support positions. The majority of
our employees are highly skilled technical personnel. Several are nationally
known leaders in the field of digital telecommunications. None of the employees
are represented by a labor union and we have never had a work stoppage. We
believe our employee relations to be good. Due to the nature of our business, a
large number of our technical employees must obtain security clearances from
the U.S. government, which limits the available pool of eligible candidates for
such positions to those who can satisfy prerequisites for such clearances.
Government Regulation
Our operations are subject to compliance with regulatory requirements of
federal, state and local authorities, including regulations concerning
employment obligations and affirmative action, workplace safety and protection
of the environment. In addition, many of our products and proposed products are
or will be subject to various regulations including regulations promulgated by
the FCC, the FAA and the Department of Defense.
We must comply with detailed government procurement and contracting
regulations and with U.S. government security regulations, including those
necessary to maintain required facility clearances. Certain of these
regulations carry substantial penalty provisions for nonperformance or
misrepresentation in the course of negotiations. Failure to comply with our
government procurement, contracting or security obligations could result in
penalties or our suspension from government contracting, which would have a
material adverse effect on our results of operations.
We are required to maintain a U.S. government facility clearance at most of
our locations. This clearance could be suspended or revoked if we are found not
to be in compliance with applicable security regulations. Any such revocation
or suspension would delay our delivery of our products to customers.
50
<PAGE>
Properties
Our headquarters and principal engineering and manufacturing facilities are
currently located in four adjacent buildings in Sunnyvale, California where we
lease approximately 172,000 square feet. Our Sunnyvale facility leases will
expire in December 2000. We also lease the following premises, primarily for
the performance of study, system engineering and hardware contracts:
<TABLE>
<CAPTION>
Appx. Expiration
Location Sq. Ft. of Lease
- -------- ------- ----------
<S> <C> <C>
Reston, Virginia............................................. 84,000 2008
Colorado Springs, Colorado................................... 100,000 2009
Ashburn, Virginia............................................ 39,900 2008
Annapolis Junction, Maryland................................. 30,900 2003
Lowell, Massachusetts........................................ 15,300 2001
Seabrook, Maryland........................................... 11,300 2001
Tinton Falls, New Jersey..................................... 8,000 2002
Washington, D.C.............................................. 28,500 2004
</TABLE>
51
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Company Overview
Since our inception in 1973, revenues have been generated primarily from
sales to agencies of the U.S. government, including the Department of Defense,
the U.S. Air Force, Army and Navy, NASA and the FAA, or their prime
contractors. Such revenues are generated from many contracts including programs
requiring multi-year hardware and software development and limited production
of products and systems. Our contracts often require the design, production,
operation and maintenance of sophisticated equipment and systems and provision
of system integration services in the digital telecommunications and satellite
communications fields. A substantial portion of the digital telecommunications
and satellite communications research and development we have performed since
our inception has been funded by our customers and recorded by us as revenues.
Accordingly, the cost of performing this customer-funded research and
development is included in "Cost of Revenues" in our financial statements. Our
government contracts are generally cost-reimbursement plus profit or fixed-
price contracts. We generally recognizes revenues from our long-term government
contracts on a percentage-of-completion basis.
Commencing in the late 1980's, we began to pursue commercial opportunities
utilizing the digital telecommunications technology we had developed and
enhanced since our inception. Commercial revenues have risen from less than 6%
of total revenues in fiscal year 1989 to approximately 36% of total revenues in
fiscal year 1999. During the first six months of fiscal year 2000, commercial
revenues from continuing operations amounted to approximately 34% of our total
revenues reported and included approximately $17.8 million in licensing fees
for certain patents and products associated with our cable modem technology.
During fiscal year 1999, commercial revenues amounted to approximately $59.9
million and included: (i) contract manufacturing revenues from our contract
manufacturing segment ($27.0 million); (ii) sales of ASICs, circuit boards and
subsystems to the telecommunications industry ($11.4 million); (iii) wireless
broadband products ($3.5 million) and (iv) other commercial systems and product
business ($18.0 million). We include in commercial revenues sales of
standardized or off-the-shelf products to any customers, including government
customers.
On October 29, 1999, we sold to Dii Semiconductor, Inc. substantially all of
the assets of our contract manufacturing business. On November 15, 1999, we
sold to Intel Corporation substantially all of the assets of our telecom
component products business.
Our operating results have from time to time been adversely affected by non-
recoverable cost overruns on certain fixed-price contracts, primarily fixed-
price development contracts which have included significant software and
hardware development. We have instituted additional management controls to more
closely monitor our bidding process and costs incurred on fixed-price
development contracts, however, even with these controls in place, we still
might incur losses on future fixed-price contracts or additional losses on
existing contracts. We believe that development contracts are an important
element in maintaining our technological leadership position in digital
telecommunications. As a result, we may incur losses on certain fixed-price
contracts. Such losses will be charged against results of operations in the
period when they first become known, typically near the initiation of the
contract and may have a material adverse effect on our results of operations.
Parent-Subsidiary Overview
We have invested heavily in the development of a family of products to
deliver telephone and data services over wireless broadband links. The high
level of research and development expenses associated with the development of
the wireless broadband family has impacted our earnings results over the past
several years. During the first six months of fiscal year 2000, we delivered
initial LMDS/MMDS production units and anticipate that production revenues will
continue to increase as the demand in the broadband wireless market
materializes. In order to provide further detail as to the level of revenues,
cost of revenues, and operating expenses incurred by the base business and the
corresponding financial performance of the broadband wireless business, we
established a wholly owned subsidiary, Stanford Wireless Broadband, Inc., in
June 1998. In
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<PAGE>
addition to providing financial visibility, the establishment of the subsidiary
allows our wireless broadband customers the benefit of working with a unique
and separate entity dedicated to the development, manufacturing, sales and
support of our broadband family of products.
The table below provides a summary of the financial performance of our base
business operations and Stanford Wireless Broadband, Inc. for the year ended
March 31, 1999.
<TABLE>
<CAPTION>
Base Stanford Wireless
Business Broadband, Inc.
-------- -----------------
(in thousands)
<S> <C> <C>
Revenues from unaffiliated customers.............. $134,940 $ 30,465
Cost of revenue................................... 101,868 29,443
-------- --------
Gross profit...................................... 33,072 1,022
-------- --------
Expenses
Research and development........................ 4,323 9,782
Marketing and administrative.................... 13,150 6,776
-------- --------
Total expenses.................................. 17,473 16,558
-------- --------
Operating income (loss)........................... $ 15,599 $(15,536)
======== ========
</TABLE>
For fiscal year 1999, revenues for the base business segment consisted of
$105.5 million of government revenues and $29.4 million of commercial revenues.
For fiscal year 1999, revenues for Stanford Wireless Broadband, Inc. consisted
of $27.0 million from our contract manufacturing segment and $3.5 million from
our wireless broadband segment. Our wireless broadband subsidiary's operating
loss for the twelve months of fiscal year 1999 was attributable to a continued
high level of research and development in the wireless broadband family of
products, high level of costs associated with activities necessary to support
worldwide LMDS and MMDS field trials, and an operating loss associated with our
contract manufacturing segment. Operating income from the base business segment
of $15.6 million was essentially equal to the operating loss incurred by our
wireless broadband subsidiary.
The table shown below provides a summary of the financial performance of our
base business operations and Stanford Wireless Broadband, Inc. for the six
months ended September 30, 1999.
<TABLE>
<CAPTION>
Base Stanford Wireless
Business Broadband, Inc.
-------- -----------------
(in thousands)
<S> <C> <C>
Revenues from unaffiliated customers
Products and services........................... $70,803 $ 3,274
Licenses........................................ 17,750 --
------- -------
Total revenues.................................. $88,553 $ 3,274
------- -------
Cost of revenue................................... 54,913 5,429
------- -------
Gross profit (loss)............................... 33,640 (2,155)
------- -------
Expenses
Research and development........................ 3,010 2,598
Marketing and administrative.................... 8,535 1,535
------- -------
Total expenses.................................. 11,545 4,133
------- -------
Operating income (loss)....................... $22,095 $(6,288)
======= =======
</TABLE>
For the first six months of fiscal year 2000, revenues of our base business
operations consisted of $70.8 million and $17.8 million of products/services
and licensing fees, respectively. The $70.8 million of revenues realized by the
base business operations products/services consisted of $60.6 million and $10.2
million of government and commercial revenues, respectively. Operating income
for the base business operations of $22.1 million was primarily derived from
$17.8 million in licensing fees for certain patents and
53
<PAGE>
products associated with our cable modem technology. Our wireless broadband
subsidiary's operating loss of $6.3 million for the first six months of fiscal
year 2000 was attributable to lower margins on the initial LMDS product
deliveries.
Business Segments Overview
For fiscal years prior to fiscal year 2000, we classified our business into
three reportable segments: base business, wireless broadband and contract
manufacturing. On October 29, 1999, we sold to Dii Semiconductor, Inc.
substantially all of the assets of our contract manufacturing business. As a
result, information in this proxy statement relating to the first six months of
fiscal year 2000 reflects the remaining two reportable segments: base business
and wireless broadband. The base business segment primarily includes multi-year
hardware and software engineering services for data and voice communications.
The primary customer for the base business segment is the U.S. government,
however, 22% of the revenues during fiscal year 1999 were derived from the sale
of commercial products and services. During the first six months of fiscal year
2000, 32% of the base business revenues were derived from the sale of
commercial products and services, including $17.8 million of licensing fees for
certain patents and products associated with our cable modem technology. The
wireless broadband segment develops and produces hardware for broadband
wireless applications for the two-way, high-speed transmission of voice and
data. Finally, the contract manufacturing segment was in the business of
providing manufacturing services both for our products as well as products for
other companies.
<TABLE>
<CAPTION>
Fiscal Years ended March 31,
-----------------------------------------------------------
Revenue Operating Income (loss)(1)
---------------------------- -----------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Base Business........... $138,777 $127,596 $133,997 $ 15,599 $ 16,212 $ 14,980
Wireless Broadband...... 3,543 2,571 2,047 (12,203) (7,371) (4,315)
Contract Manufacturing.. 31,236 30,625 40,556 (3,333) (3,178) 229
Less: Intra-Company
Revenues............... (8,151) (7,532) (9,598) -- -- --
-------- -------- -------- --------- -------- --------
Stanford
Telecommunications,
Inc.................... $165,405 $153,260 $167,002 $ 63 $ 5,663 $ 10,894
======== ======== ======== ========= ======== ========
</TABLE>
- --------
(1) Operating income of $63 thousand, $5.7 million and $10.9 million in fiscal
years 1999, 1998 and 1997 includes intra-company eliminations of profit of
approximately $0.3 million, $0.5 million and $0.4 million, respectively,
related to the contract manufacturing segment.
Segment Revenues. The decrease in base business segment revenues from $134.0
million in fiscal year 1997 to $127.6 million in fiscal year 1998 was the
result of a $3.0 million decrease in commercial catalog product sales and a
$3.4 million decrease in other base business segment product and service
revenues. The increase in the base business segment revenues from $127.6
million in fiscal year 1998 to $138.8 million in fiscal year 1999 was primarily
attributable to a $16.5 million increase in other base business segment product
and service revenues offset by a $5.0 million decrease in revenues from the
sale of commercial cable and VSAT catalog products, and satellite personnel
communications system design support.
The increases in the wireless broadband segment revenues from fiscal year
1997 to fiscal year 1998 and from fiscal year 1998 to fiscal year 1999 resulted
from increased sales associated with LMDS/MMDS field trials and deliveries of
initial production hardware during the fourth quarter of fiscal year 1999. The
decrease in the contract manufacturing segment revenues from $40.6 million in
fiscal year 1997 to $30.6 million in fiscal year 1998 was primarily the result
of an $8.6 million decrease in sales associated with the contract manufacturing
of products for other companies. Sales to external customers increased by $1.5
million from fiscal year 1998 to fiscal year 1999, however, this was offset by
a $0.9 million decrease in internal manufacturing sales.
Segment Operating Income (Loss). The increase in operating income of the
base business segment from $15.0 million in fiscal year 1997 to $16.2 million
in fiscal year 1998 was primarily the result of higher gross margins realized
on our government and commercial revenues. Operating income decreased from
$16.2 million
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<PAGE>
in fiscal year 1998 to $15.6 million in fiscal year 1999 primarily due to
decreasing gross margins realized on government and commercial revenues. The
decrease in operating income for fiscal year 1999 was also affected by an
increase in administration and marketing expenses related to the pursuit of new
opportunities in the government market and legal fees related to patent
infringement litigation.
The increase in operating loss of the wireless broadband segment from $4.3
million in fiscal year 1997 to $7.4 million in fiscal year 1998 was primarily
the result of increased research and development costs and increased marketing
and administrative costs. The increase in operating loss for the segment from
$7.4 million in fiscal year 1998 to $12.2 million in fiscal year 1999 was
mainly the result of increased research and development costs and lower gross
margins realized due to the increased costs associated with activities to
support worldwide LMDS and MMDS field trials.
The contract manufacturing segment operating loss of $3.2 million in fiscal
year 1998 compared to a fiscal year 1997 operating profit of $0.2 million was
primarily attributable to the decrease in revenue of $9.9 million. The
operating loss for fiscal year 1999 was approximately the same as experienced
in fiscal year 1998.
Results of Operations
Our revenues and results of operations are subject to fluctuation from
period to period. Factors that could cause our revenues and operating results
to vary from period to period include: underestimating costs on fixed-price
contracts, particularly for software and hardware development, timing, bidding
activity and delivery of significant contracts and orders, termination of
contracts, mix of products and systems sold, and services provided, reduced
levels of operation during the holidays which occur primarily in our third
fiscal quarter, disruptions in delivery of components or subsystems, regulatory
developments, and general economic conditions. Research and development
expenses include both research and development costs as well as bid and
proposal expenses. Bid and proposal expenses vary significantly from period to
period based on the number of proposals being prepared at any time. These
requests for proposals are not received evenly during the year or in any
predictable pattern.
Fiscal years ended March 31, 1999, 1998 and 1997
The following table sets forth, for the periods indicated, certain items
from our Consolidated Statements of Income expressed as a percentage of our
total revenues:
<TABLE>
<CAPTION>
Year Ended March
31
-------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Revenues................................................ 100.0% 100.0% 100.0%
Cost of revenues........................................ 79.4 76.1 76.3
Gross profit.......................................... 20.6 23.9 23.7
----- ----- -----
Expenses
Research and development.............................. 8.5 8.9 7.1
Marketing and administrative.......................... 12.1 11.3 10.1
----- ----- -----
Total expenses........................................ 20.6 20.2 17.2
----- ----- -----
Operating income........................................ 0.0 3.7 6.5
Interest income, net.................................... 1.2 1.2 0.8
----- ----- -----
Income before provision for income taxes................ 1.2 4.9 7.3
Provision for income taxes.............................. 0.4 1.5 2.5
----- ----- -----
Net income.............................................. 0.8% 3.4% 4.8%
===== ===== =====
</TABLE>
Revenues. Our revenues were $167.0 million, $153.3 million, and $165.4
million in fiscal year 1997, 1998, and 1999, respectively, representing a year-
to-year decrease of 8% in fiscal year 1998 and a year-to-year increase in
fiscal year 1999 of 8%. The decrease in revenues from fiscal year 1997 to
fiscal year 1998 was
55
<PAGE>
primarily the result of a decrease in revenues from our contract manufacturing
segment amounting to $8.6 million and a decrease of $5.7 million in revenues
from our base business segment. The increase in revenues from fiscal year 1998
to fiscal year 1999 was primarily attributed to a $9.8 million increase in
revenues from our base business segment.
We expect that commercial sales in our wireless broadband segment will
increase during fiscal year 2000. In addition, as a result of strong bookings
in the base business segment in fiscal year 1999, we anticipate growth in this
segment primarily associated with sales to the government.
Cost of Revenues. Cost of revenues were $127.4 million, $116.6 million and
$131.3 million in fiscal year 1997, 1998 and 1999, respectively. The cost of
revenues as a percentage of revenues was approximately 76% for fiscal years
1997 and 1998. The increase in cost of revenues as a percentage of revenues in
fiscal year 1999 was attributable to lower gross margins experienced by our
wireless broadband segment due to increased costs associated with worldwide
LMDS and MMDS field trials, a decrease in gross margins for the base business
segment, and increased operating costs within our contract manufacturing
segment.
Gross Profit. Gross profit was $39.6 million, $36.6 million and $34.1
million in fiscal year 1997, 1998 and 1998, respectively. The decrease in gross
profit during fiscal year 1998 relative to fiscal year 1997 was primarily due
to a lower revenue base. The decrease in gross profit during fiscal year 1999
relative to fiscal year 1998 was primarily due to decreases in gross profits of
our base business segment and our wireless broadband segment in fiscal year
1999.
Research and Development. Research and development expenses, including bid
and proposal expenses were $11.9 million, $13.6 million and $14.1 million in
fiscal year 1997, 1998 and 1999, respectively. We applied much of our research
and development expenditures to commercial products and initiatives in the
areas of wireless and cable broadband communications. We expect research and
development expenses in fiscal year 2000 to decrease as a percentage of
revenues compared to that experienced in fiscal year 1999, especially in the
wireless broadband segment as the LMDS/MMDS products transition from
development to full scale production. Our research and development expenses
include bid and proposal expenses associated with government contracts and
certain large commercial programs. Bid and proposal expenses comprised between
16% to 20% of the total research and development expenses during the past three
fiscal years. Bid and proposal expenditures are largely the initial advanced
technology development efforts directed toward a specific product or technical
task for which we must show technical viability. We expect an increase in bid
proposal expenses during the fiscal year 2000 resulting from increased business
opportunities in the base business segment.
Marketing and Administrative. Marketing and administrative expenses were
$16.8 million, $17.3 million and $19.9 million in fiscal year 1997, 1998, and
1999, respectively. The increase in costs from fiscal year 1997 to fiscal year
1998 was the result of increased legal expenses primarily associated with a
patent infringement case brought by us against Broadcom Corporation in December
1996 and increased marketing expenses in pursuit of commercial opportunities.
The increased costs from fiscal year 1998 to fiscal year 1999 was the result of
additional legal expenses associated with the patent infringement litigation
which is scheduled for trial in May 1999. These legal fees associated with the
patent litigation decreased after the completion of the trial. In addition, we
experienced increased marketing expenses primarily associated with pursuit of
opportunities in the base business segment.
Operating Income. Operating income was $10.9 million, $5.7 million, and $0.1
million for fiscal year 1997, 1998 and 1999. The decrease in operating income
from fiscal year 1997 to fiscal year 1998 was primarily the result of a
decrease in revenues, an increase in research and development and an increase
in marketing and administrative expenses. The decrease in operating income from
fiscal year 1998 to fiscal year 1999 was the result of lower overall gross
margins, an increase in marketing and administrative expenses, and an increase
in research and development expenses.
Interest Income. Interest income was $1.3 million, $1.9 million and $1.9
million in fiscal years 1997, 1998 and 1999 respectively. In fiscal years 1998
and 1999, we increased our interest income over previous
56
<PAGE>
periods as a result of maintaining a higher overall average balance in U.S.
Treasury instruments and money market accounts.
Provision for Income Taxes. Provision for income taxes was $4.2 million,
$2.3 million and $0.6 million in fiscal years 1997, 1998 and 1999,
respectively. This represents an effective tax rate of 34.5% for fiscal year
1997, 31% for fiscal year 1998 and 31% for fiscal year 1999. The decrease in
the effective tax rate during fiscal year 1998 and 1999 compared to fiscal year
1997 results primarily from increased Research and Development (R&D) tax
credits and other state income tax credits. We anticipate that our effective
tax rate in fiscal year 2000 will be approximately the same as experienced in
fiscal year 1999 assuming continued extension of the federal R&D tax credit.
Bookings and Backlog. Funded bookings were $168.5 million, $163.0 million
and $174.4 million in fiscal year 1997, 1998 and 1999, respectively. Government
contract bookings were $103.5 million, $102.8 million and $120.1 million during
fiscal years 1997, 1998 and 1999, respectively. Commercial contract bookings
were $65.0 million, $60.2 million and $54.3 million during fiscal years 1997,
1998 and 1999, respectively. Our backlog increased from $83.9 million at the
end of fiscal year 1997 to $93.6 million at the end of fiscal year 1998 and
further increased to $102.6 million at the end of fiscal year 1999.
Six months ended September 30, 1999 and 1998 for continuing operations
Revenues. Revenues from continuing operations were $91.8 million for the six
months ended September 30, 1999 and $69.7 million for the six months ended
September 30, 1998, representing an increase of 32%. Base business operations
revenues increased by 31% from $67.7 million in the first six months of fiscal
year 1999 to $88.5 million in the first six months of fiscal year 2000. The
increase in revenues for the base business operations was primarily the result
of $17.8 million in licensing fees, and the sale of commercial
telecommunication chip and board level products totaling $8.3 million for the
first six months of fiscal 2000, up from $4.7 million achieved during the first
half of the previous fiscal year. This increase was significantly offset by a
$6.0 million decrease in commercial engineering services. The wireless
broadband operations revenues increased from $2.0 million in the first six
months of fiscal 1999 to $3.3 million in the first six months of fiscal 2000
primarily due to the second quarter shipment of $1.1 million of LMDS production
hardware.
Cost of Revenues. Cost of revenues was $60.3 million for the six months
ended September 30, 1999 and $52.9 million for the six months ended September
30, 1998. Base business operations recorded cost of revenues of $54.9 million
for the six months ended September 30, 1999 and $51.4 million for the six
months ended September 30, 1998. The base business operations increase in cost
of revenues during the first six months of fiscal year 2000 was the result of
the recognition of costs on a higher revenue base. The wireless broadband
operations increase in the cost of revenues in the first six months of fiscal
year 2000 was the result of recognition of costs on a higher revenue base and
higher cost of goods associated with initial LMDS production units.
Research and Development. Research and development expenses, including bid
and proposal expenses were $5.6 million for the six months ended September 30,
1999 and $7.1 million for the six months ended September 30, 1998. Excluding
bid and proposal expenses, our research and development expenses applied to the
development of products such as wireless broadband communications and
telecommunication chip and board level products were $4.4 million for the six
months ended September 30, 1999 and $6.2 million for the six months ended
September 30, 1998. The decrease in research and development is mainly
attributable to a decrease in expenses within the wireless broadband operations
as the LMDS/MMDS products transition from development to production. Base
business operations research and development expenses increased from $2.0
million in the first half of fiscal year 1999 to $3.0 million in the first half
of fiscal year 2000. The increase in expenses is attributable to higher levels
of expenditures in both research and development and bid and proposals
associated with the government related opportunities in the base business
operations.
Marketing and Administrative. Marketing and administrative expenses were
$10.1 million for the six months ended September 30, 1999 and $7.5 million for
the six months ended September 30, 1998. The increase
57
<PAGE>
in cost was primarily in the base business operations as a result of increased
legal expenses associated with a patent infringement case we brought against
Broadcom Corporation and legal, consulting and other expenses related to the
merger with Newbridge and the sale of certain business operations and increased
marketing expenses in pursuit of government business. The patent infringement
case was settled during the latter part of the first quarter of fiscal 2000.
Marketing and administrative expenses for the wireless broadband operations for
the first six months of fiscal year 2000 were substantially equal to the
expenses recorded in the first six months of fiscal year 1999.
Operating Income. Operating income was $15.8 million and $2.3 million for
the first half of fiscal 2000 and 1999, respectively. The increase in operating
income was primarily the result of recording $17.8 million in licensing fees
for certain patents associated with the base business operations' cable modem
technology, offset by increased costs in marketing and administrative expenses.
Interest Income. Interest income for the six months of fiscal 2000 remained
unchanged at approximately $0.9 million.
Provision for Income Taxes. For continuing operations, provision for income
taxes was $5.2 million for the first half of fiscal year 2000 and $1.0 million
for the first half of fiscal year 1999. Discontinued operations had tax
benefits of $0.4 for the first half of both fiscal years 2000 and 1999. These
represent a provisional tax rate of 31.0% for the first half of fiscal year
2000 and 1999.
Bookings and Backlog. Funded bookings of continuing operations were $91.1
million for the six months ended September 30, 1999 and $57.3 million for the
six months ended September 30, 1998. Bookings were derived from both our
commercial operations as well as our government business operations. At the end
of the second quarter of fiscal 2000 and 1999, backlog for continuing
operations stood at $89.9 million and $66.9 million, respectively. Our bookings
and backlog are largely dependent upon the timing of funding by our government
customers.
Liquidity and Capital Resources
Our working capital increased from $66.4 million at March 31, 1999 to $83.7
million at September 30, 1999. The increase in working capital is attributable
to cash generated from net income related to the revenues for licensing fees
for certain patents and products associated with our cable modem technology.
Licensing fees recognized during the first half of fiscal 2000 totaled $17.8
million.
Net cash provided by operating activities for the years ended March 31,
1997, 1998 and 1999 was $18.6 million, $4.4 million and $0.3 million
respectively. The decrease from fiscal year 1997 to fiscal year 1998 is the
result of lower net income and an increase in inventories to support future
delivery of commercial products. The decrease from fiscal year 1998 to fiscal
year 1999 is the result of lower net income and an increase in receivables.
During the six months ended September 30, 1999, $4.6 million of cash was
provided by continuing operations compared to cash used in continuing operating
activities of $3.2 million during the six months ended September 30, 1998. This
increase resulted from the licensing fees collected and the decrease in
accounts receivable, partly offset by estimated tax payments and reduced
accounts payable. The decrease in accounts receivable is related to the payment
of $2.5 million against a $3.9 million secured note receivable. Accounts
receivable as of September 30, 1999 include the unpaid balance of $1.4 million
against this secured note. We expect to recover the full value of the note
receivable. Discontinued operations generated approximately $3.0 million for
the first six months of fiscal years 2000 and 1999. We used cash for the
purchase of property and equipment totaling $5.5 million, $5.9 million and $5.0
million in fiscal years 1997, 1998 and 1999, respectively. Capital expenditures
in recent years are primarily attributable to increased investments in
electronic test equipment to support both commercial and government activities.
During fiscal years 1997, 1998 and 1999 $1.6 million, $1.6 million and $0.6
million, respectively, of net cash was provided by financing activities. These
amounts represent primarily the proceeds from transactions under our stock
plans.
We have a bank credit commitment of $15.0 million, which we have used to
augment cash flow needs and to secure term loans or standby letters of credit.
Available borrowings under this line at September 30, 1999,
58
<PAGE>
were $15.0 million. Under this credit line, we must maintain certain financial
covenants. We were in compliance with all covenants throughout fiscal year 1999
and the first six months of fiscal year 2000. At September 30, 1999, our long-
term obligations (including current maturities) and capital lease obligations
totaled approximately $0.1 million. At September 30, 1999, cash and cash
equivalents of $7.8 million were held in money market accounts. In addition,
short-term investments of $29.1 million were held in U.S. government treasury
securities.
We believe that our current cash position, funds generated from operations,
and funds available from our existing bank credit agreement, will be adequate
to meet our requirements for working capital, capital expenditure and debt
service for fiscal year 2000.
Year 2000 Issue
The "Year 2000 Issue", also known as "Y2K", exists because many computer
programs store and process dates using only the last two digits of the year in
the date field. If not corrected, many computer applications could create
miscalculations or erroneous results causing disruptions of operations.
We have made this issue a significant priority and has formed an
Interdisciplinary Steering Committee, which has been meeting regularly since
January 1998, dedicated to the evaluation and mitigation of any Y2K issues. The
Committee is responsible for overseeing and providing guidelines to four task
force committees whose function is to focus on specific areas of the Y2K issue,
namely products, software, customers and suppliers. Our Y2K Plan has been
presented to and approved by the Board of Directors.
In March 1998, the Corporate Steering Committee implemented a remediation
plan to address mission-critical software (mission-critical is defined as
software or systems that can seriously impair our ability to conduct our
business) and products impacted by the Y2K issue. This plan included
Information Technology "IT" systems, and non-IT systems such as building
security systems. Our Information Technology "IT" system is compliant and
currently operating without any significant problems for our fiscal year 2000
which commenced on April 2, 1999. Other mission-critical software has been
tested or is in the process of being tested, updated, or replaced. This was the
first two phases of our plan. At this time the costs associated with these
phases have been less than $100,000, and software that has been replaced has
been done so in conjunction with planned changes not in connection with the Y2K
issue.
The third phase of our plan involved our assessment of our products that
might be impacted by the Y2K issue. At this time 96% of our products over the
last 10 years have been reviewed. The remaining 4% are being reviewed as well
as our current products. We estimate that we will complete this review by the
end of November 1999.
The final phase of our plan is to draft and put into effect any contingency
plan necessary to mitigate any Y2K issues. We have completed our contingency
plan for our primary IT systems and expect to complete, if necessary, any other
contingency plans during November 1999. This phase is expected to be completed
by the end of November 1999.
The above statements describing our plans and objectives for handling the
Y2K Issue and the expected impact, involve risks and uncertainties that could
cause actual results to differ from those discussed above, thereby having an
adverse effect on our future results of operations. Uncertainties that might
cause such a difference include, but are not limited to, delays in executing
the plan or unforeseen costs associated with the implementation of the plan.
Further, even if we successfully implement the plan, there is no assurance that
we will not be adversely affected by the failure of others to become Year 2000
compliant.
Qualitative and Quantitative Disclosure About Market Risk
Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of our investments are in
short-term instruments. Due to the nature of short-term investments, we have
concluded that there is no material interest rate risk exposure. Therefore no
quantitative tabular disclosures are provided.
59
<PAGE>
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of November 11, 1999, certain information
with respect to the beneficial ownership of Stanford Telecom common stock by
(1) each stockholder known by Stanford Telecom to be the beneficial owner of
more than 5% of Stanford Telecom stock, (2) each director of Stanford Telecom,
(3) the chief executive officer and the four other most highly compensated
executive officers who were executive officers as of November 11, 1999, and (4)
all directors and executive officers of Stanford Telecom as a group. The total
number of shares of common stock shown includes shares subject to options
exercisable within 60 days after November 11, 1999 as if such shares were
outstanding on November 11, 1999.
<TABLE>
<CAPTION>
Shares subject to
options exercisable
Total within 60 days of Percentage of
Name of beneficial owner number record date(1) common stock
- ------------------------ --------- ------------------- -------------
<S> <C> <C> <C>
Newbridge Networks Corporation
(2).............................. 5,228,356 2,642,841 32.8%
600 March Road
Kanata, Ontario, Canada K2K 2E6
Kopp Investment Advisors, Inc.;... 2,404,665 -- 18.1%
Leroy C. Kopp (3)
7701 France Avenue South, Suite
500
Edina, Minnesota 55435
James J. Spilker, Jr., Chairman of
the Board (4).................... 1,281,354 20,000 9.6%
1221 Crossman Avenue
Sunnyvale, California 94089
Michael Berberian, Director....... 822,850 -- 6.2%
1221 Crossman Avenue
Sunnyvale, California 94089
Val P. Peline, President and Chief
Executive Officer................ 336,500 334,000 2.5%
Leonard Schuchman, Vice President
and Director..................... 298,064 19,589 2.2%
John E. Ohlson, Vice President.... 170,885 19,095 1.3%
Gary S. Wolf, Executive Vice
President (5).................... 157,196 88,650 1.2%
John W. Brownie, Director (6)..... 44,950 -- *
Ernest L. Dickens, Vice
President........................ 16,188 13,480 *
C. Jerome Waylan, Director........ 1,000 -- *
Robert Calafell, Director......... -- -- --
All directors and executive
officers as a group (11
persons)......................... 3,151,682 516,189 22.8%
</TABLE>
- --------
* Less than 1%.
(1) In addition to the shares shown as exercisable within 60 days, upon the
merger, all unvested options held by executive officers are expected to
accelerate. As of November 11, 1999, the number of shares covered by
unvested options held by Dr. Spilker, Dr. Peline, Mr. Schuchman, Dr.
Ohlson, Mr. Wolf and Mr. Dickens were 5,500, 25,000, 11,875, 11,875, 37,750
and 19,500, respectively.
(2) Includes 2,642,841 shares issuable upon the exercise of a stock option to
purchase shares of Stanford Telecom common stock. The stock option was
issued pursuant to a Stock Option Agreement dated June 22, 1999 in
connection with the merger. The remaining 2,585,515 shares are held of
record by existing stockholders of Stanford Telecom who entered into voting
agreements with Newbridge. See "The Merger Agreement--Stock Option
Agreement" and "--Voting Agreements."
(3) According to Schedule 13G filed March 4, 1999 (the "Schedule 13G") filed
with the SEC by (1) Kopp Investment Advisors, Inc., a Minnesota corporation
and a registered investment advisor, (2) Kopp Holding Company, a Minnesota
corporation and the parent corporation of Kopp Investment Advisors, and
(3) LeRoy C. Kopp, the sole stockholder of Kopp Holding, Kopp Investment
Advisors beneficially owns 2,226,665 shares of common stock and LeRoy Kopp
beneficially owns 2,404,665 shares of common stock (including the shares
beneficially owned by Kopp Investment Advisors). Kopp Holding, as the
parent corporation of Kopp Investment Advisors reports indirect ownership
of the common stock beneficially owned by Kopp Investment Advisors. Kopp
Investment Advisors reports shared investment power with respect to all of
the shares of common stock it beneficially owns (by virtue of limited
powers of attorney and/or investment advisory agreements) and reports sole
voting power with respect to 36,000 shares. LeRoy Kopp reports sole voting
and sole investment power with respect to 178,000 shares of Stanford
Telecom common stock he beneficially owns. Kopp Investment Advisors, Kopp
Holding and LeRoy Kopp all have the same business address.
(4) Includes 96,316 shares as to which voting and investment power are shared
with Dr. Spilker's wife.
(5) Includes 3,000 shares held by Mr. Wolf's minor daughter.
(6) Consists of shares held in trust for John W. and Alice Brownie.
60
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
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 included in this proxy statement have been audited by Arthur
Andersen LLP, independent public accountants, as set forth in their report.
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.
WHERE YOU CAN FIND MORE INFORMATION
Stanford Telecom files 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 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.
61
<PAGE>
CONSOLIDATED ANNUAL AND QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
Page
----
<S> <C>
Annual Financial Data
Report of Independent Public Accountants.................................. F-2
Consolidated Statements of Income for the three years ended March 31,
1999, March 31, 1998 and March 31, 1997.................................. F-3
Consolidated Balance Sheets for the three years ended March 31, 1999,
March 31, 1998 and March 31, 1997........................................ F-4
Consolidated Statements of Stockholders' Equity........................... F-5
Consolidated Statements of Cash Flows for the three years ended March 31,
1999, March 31, 1998 and March 31, 1997.................................. F-6
Notes to Consolidated Financial Statements................................ F-7
Consolidated Quarterly Results (Unaudited)................................ F-15
Quarterly Financial Data
Unaudited Condensed Consolidated Financial Statements..................... F-16
Unaudited Condensed Consolidated Statements of Income for the three months
ended September 30, 1999 and 1998 and the six months ended September 30,
1999 and 1998............................................................ F-17
Condensed Consolidated Balance Sheets as at September 30, 1999 (unaudited)
and March 31, 1999....................................................... F-18
Unaudited Condensed Consolidated Statements of Cash Flows for the six
months ended September 30, 1999 and 1998................................. F-19
Unaudited Notes to Condensed Consolidated Interim Financial Statements
dated September 30, 1999................................................. F-20
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Stanford Telecommunications, Inc.:
We have audited the accompanying consolidated balance sheets of Stanford
Telecommunications, Inc. (a Delaware Corporation) and subsidiaries as of March
31, 1999 and 1998, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended March 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Stanford Telecommunications, Inc. and subsidiaries as of March 31, 1999 and
1998 and the consolidated results of its operations and its consolidated cash
flows for each of the three years in the period ended March 31, 1999 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
San Jose, California
May 1, 1999
F-2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended March 31,
--------------------------
1999 1998 1997
-------- -------- --------
(In thousands, except for
per share amounts)
<S> <C> <C> <C>
Revenues............................................ $165,405 $153,260 $167,002
Cost of revenues.................................... 131,311 116,629 127,432
-------- -------- --------
Gross profit.................................... 34,094 36,631 39,570
-------- -------- --------
Expenses:
Research and development.......................... 14,105 13,647 11,868
Marketing and administrative...................... 19,926 17,321 16,808
-------- -------- --------
Total expenses.................................. 34,031 30,968 28,676
-------- -------- --------
Operating income.................................... 63 5,663 10,894
Interest income..................................... 1,880 1,896 1,336
-------- -------- --------
Income before provision for income taxes............ 1,943 7,559 12,230
Provision for income taxes.......................... 602 2,343 4,219
-------- -------- --------
Net income.......................................... $ 1,341 $ 5,216 $ 8,011
======== ======== ========
Earnings per share--basic and diluted............. $ 0.10 $ 0.40 $ 0.61
======== ======== ========
Shares used in computing basic earnings per
share............................................ 12,992 12,902 12,775
======== ======== ========
Shares used in computing diluted earnings per
share............................................ 13,145 13,179 13,070
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Year ended March
31,
-------------------
1999 1998
-------- ---------
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 19,400 $ 13,914
Short-term investments.................................. 9,934 19,493
Accounts receivable..................................... 30,086 26,958
Unbilled receivables.................................... 23,955 20,911
Inventories............................................. 13,973 14,276
Prepaid taxes and other................................. 3,963 1,919
-------- ---------
Total current assets.................................. 101,311 97,471
-------- ---------
Property and equipment at cost:
Electronic test equipment............................... 50,557 46,768
Furniture and fixtures.................................. 4,021 3,887
Leasehold improvements.................................. 4,472 3,996
-------- ---------
59,050 54,651
Less: Accumulated depreciation and amortization......... (46,385) (40,516)
-------- ---------
Net property and equipment............................ 12,665 14,135
-------- ---------
Other assets.............................................. 1,087 535
-------- ---------
$115,063 $112,141
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term obligations............. $ 40 $ 44
Accounts payable........................................ 10,426 10,739
Advance payments from customers......................... 2,738 1,909
Accrued liabilities..................................... 7,801 8,218
Accrued income taxes.................................... 3,961 3,462
-------- ---------
Total current liabilities............................. 24,966 24,372
-------- ---------
Long-term obligations, less current maturities............ 73 41
-------- ---------
Other long-term liabilities............................... 595 855
-------- ---------
Commitments and contingencies (Notes 3 and 7)
Stockholders' equity:
Common stock--par value $.01; 25,000 shares authorized;
13,067 and 12,975 shares issued and outstanding in 1999
and 1998, respectively................................. 131 130
Paid-in capital......................................... 43,573 42,359
Retained earnings....................................... 45,725 44,384
-------- ---------
Total stockholders' equity............................ 89,429 86,873
-------- ---------
$115,063 $ 112,141
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
--------------
Total
Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
------ ------ ------- -------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1996........ 12,656 $127 $38,305 $31,157 $69,589
Sale of common stock under
Employee Stock Purchase
Plan........................ 67 -- 959 -- 959
Sale of common stock under
Employee Stock Option Plan.. 105 1 729 -- 730
Issuance of common stock as
awards to employees......... 5 -- 102 -- 102
Tax benefits from employee
stock transactions.......... -- -- 315 -- 315
Net income................... -- -- -- 8,011 8,011
------ ---- ------- ------- -------
Balance, March 31, 1997........ 12,833 128 40,410 39,168 79,706
Sale of common stock under
Employee Stock Purchase
Plan........................ 91 1 1,198 -- 1,199
Sale of common stock under
Employee Stock Option Plan.. 49 1 417 -- 418
Issuance of common stock as
awards to employees......... 2 -- 50 -- 50
Tax benefits from employee
stock transactions.......... -- -- 284 -- 284
Net income................... -- -- -- 5,216 5,216
------ ---- ------- ------- -------
Balance, March 31, 1998........ 12,975 130 42,359 44,384 86,873
Sale of common stock under
Employee Stock Purchase
Plan........................ 141 1 1,299 -- 1,300
Sale of common stock under
Employee Stock Option Plan.. 36 1 290 -- 291
Issuance of common stock as
awards to employees......... 2 -- 29 -- 29
Tax benefits from employee
stock transactions.......... -- -- 484 -- 484
Repurchases of common stock.. (87) (1) (888) -- (889)
Net income................... -- -- -- 1,341 1,341
------ ---- ------- ------- -------
Balance, March 31, 1999........ 13,067 $131 $43,573 $45,725 $89,429
====== ==== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------
1999 1998 1997
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Operating activities:
Net income..................................... $ 1,341 $ 5,216 $ 8,011
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 6,417 5,807 5,558
Issuances of stock to employees under award
plans....................................... 29 50 102
Change in provision for losses on
receivables, contracts and inventories...... (1,020) (2,041) 1,388
Loss on disposition of property and
equipment................................... 56 20 305
(Increase) decrease in assets:
Receivables billed and unbilled.............. (5,594) (1,549) (11,803)
Inventories.................................. 745 (6,934) 11,446
Prepaid taxes and other assets............... (2,112) 2,021 724
Increase (decrease) in liabilities:
Accounts payable, advance payments and
accrued liabilities......................... 184 2,782 1,489
Other long-term liabilities.................. (260) (55) (76)
Accrued income taxes......................... 499 (954) 1,463
-------- -------- --------
Net cash provided by operating activities.. 285 4,363 18,607
-------- -------- --------
Investing activities:
Proceeds from maturities of short-term
investments................................... 43,117 33,793 33,746
Purchases of short-term investments............ (33,558) (28,212) (44,693)
Purchases of property and equipment............ (5,003) (5,852) (5,501)
Proceeds from sale of property and equipment... -- 3 25
-------- -------- --------
Net cash provided by (used
in) investing activities.................. 4,556 (268) (16,423)
-------- -------- --------
Financing activities:
Payments on capital lease obligations.......... (57) (33) (47)
Repurchases of common stock.................... (889) -- --
Proceeds from transactions under stock plans... 1,591 1,617 1,689
-------- -------- --------
Net cash provided by financing activities.. 645 1,584 1,642
-------- -------- --------
Net increase in cash and cash equivalents........ 5,486 5,679 3,826
Cash and cash equivalents at beginning of year... 13,914 8,235 4,409
-------- -------- --------
Cash and cash equivalents at end of year......... $ 19,400 $ 13,914 $ 8,235
======== ======== ========
Supplemental Cash Flow Information:
Cash paid for:
Interest....................................... $ 7 $ 19 $ 7
Income taxes................................... $ 1,878 $ 942 $ 1,736
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company. Stanford Telecommunications, Inc. (the Company), incorporated
in Delaware, designs, manufactures and markets advanced digital
telecommunication products and systems to establish or enhance communications
via satellites, terrestrial wireless and cable. The Company's technical
strengths include: system design, communication waveforms, modulation and
demodulation techniques, ASIC design Radio Frequency (RF) antennas and
downconverters, software and firmware, Asynchronous Transfer Mode (ATM) design
and advanced manufacturing techniques and processes. The Company's government
revenues are generated from U.S. government contracts where the Company may be
either the prime contractor or a subcontractor. The Company's commercial
revenues include contract manufacturing revenues, sales of integrated circuits,
circuit boards and subsystems, wireless broadband products, and development
programs. In addition to the U.S. government, the principle markets for the
Company's products include telecommunications and electronics markets primarily
located in the U.S.
Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions are eliminated in consolidation.
Fiscal Year. The Company's fiscal year ending March 31, 1999 is comprised of
one 14-week quarter (quarter ended June 30, 1998) and three 13-week quarters,
each of which ends on the Thursday closest to the corresponding calendar
quarter end. The Company's fiscal year 1998 consisted of four 13-week quarters.
For convenience, the Company has presented its fiscal year as ending on March
31.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
The Company prepares and evaluateson-going cost to complete estimates in order
to monitor its project costs. These estimates form the basis for calculating
revenues and gross margins for each project under the percentage-of-completion
method of accounting. Due to uncertainties inherent in the estimation process,
estimated total costs are subject to revision on an on-going basis as
additional information becomes available. The estimates are subject to change
and actual results could be materially different from these estimates.
Cash Equivalents. The Company considers cash equivalents to be cash in the
bank and money market accounts.
Short-term Investments. The Company's short-term investments consist of U.S.
Treasury securities that mature at various dates within one year. The Company
classifies these securities as held-to-maturity and carries them at amortized
cost. At March 31, 1999, the fair value of the Company's investments
approximated amortized costs and, as such, unrealized holding gains were
insignificant. At March 31, 1998 unrealized holding gains totaled $270,000.
Receivables. Accounts receivable as of March 31, 199, included a $3.9
million secured note receivable from one of the Company's customers. In January
1999, due to the customer's liquidity condition, the Company agreed to exchange
it's trade receivables for a note receivable secured by an interest in certain
of the customer's equipment with a historical cost of $13.4 million. The note
bears interest at 10% per annum and matured on May 1, 1999. The Company's
customer has paid $500,000 on May 1, 1999 and asked for an extension on the
balance of this note. The Company is considering the requested extension. The
Company provides a reserve for doubtful accounts where circumstances indicate
that one is necessary. As of March 31, 1999 and 1998 the Company's reserve for
doubtful accounts was $533,000 and $711,000, respectively.
F-7
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Unbilled Receivables. Unbilled receivables represent differences between
billings and revenues recognized. At March 31, 1999, approximately 62% of the
unbilled receivables represent revenues recognized on fixed price contracts
under the percentage-of-completion method of accounting which exceed the
amounts that are billable according to contract terms and are expected to be
significantly collected within one year. In general, the Company is authorized
to bill between 75% to 100% of the costs expended on a contract. The remaining
portion of unbilled receivables at March 31, 1999 represents timing differences
for billings and revenues recognized on cost type contracts and differences
between actual indirect rates and government approved billing rates. The
indirect rates are not billable until approval of final indirect rates by the
respective governmental agencies. The Company has received final indirect rate
approval for charges through fiscal 1995.
Inventories. Inventories are stated at the lower of cost (first-in, first-
out) or market. Cost includes materials, labor and related indirect expenses.
General and administrative costs are only included in inventory for government
contracts, as such costs are reimbursed by the government. Work-in-process
mainly represents costs incurred on short-term contracts. The components of
inventory are as follows:
<TABLE>
<CAPTION>
Year ended
March 31,
----------------
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Work-in-process............................................... $11,250 $11,176
Finished goods................................................ 2,696 3,066
Allocated general and administrative costs.................... 83 136
Less: Progress billings....................................... (56) (102)
------- -------
$13,973 $14,276
======= =======
</TABLE>
The Company purchases certain inventories that have long purchase lead times
and may be single sourced. Although there are a limited number of manufacturers
of these particular inventory items, management believes that other suppliers
could provide similar inventory on comparable terms. A change in suppliers,
however, could cause a delay in manufacturing and a possible loss of sales,
which may affect operating results adversely.
Depreciation and Amortization. Depreciation and amortization are provided
over the estimated useful lives of the assets (3 to 7 years or the term of the
lease if shorter), using the straight-line method.
Accrued Liabilities. Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
Year ended
March 31,
-------------
1999 1998
------ ------
(in
thousands)
<S> <C> <C>
Compensation and employee benefits............................... $6,500 $6,543
Accrued contract cost............................................ 573 956
Other............................................................ 728 719
------ ------
$7,801 $8,218
====== ======
</TABLE>
Revenue Recognition. The Company principally uses the percentage-of-
completion method of accounting for contract revenues. The percentage-of-
completion method is based on total costs incurred to date compared with
estimated total costs upon completion of contracts. Certain contracts provide
for milestone billings which are recorded as revenues when the defined
milestones are met. The Company recognizes revenues for standard, off-the-shelf
products and certain commercial products upon shipment to the customer. The
Company charges all losses on contracts to cost of sales in the period when the
loss is known. The principal government agencies to which the Company sells are
the Department of Defense (DoD), NASA and the FAA. The DoD accounted
F-8
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
for 34%, 33%, and 33% of total revenues in 1999, 1998 and 1997, respectively.
The Company has a contract with another company whose Chief Executive Officer
is a Board member of the Company. In fiscal year 1999, the Company has
recognized $580,000 in revenues and $467,000 in cost of revenues related to
this contract
Earnings Per Share. Basic earnings per share (EPS) is computed by dividing
net income by the weighted average number of common shares outstanding. Diluted
EPS is computed by dividing net income by the diluted weighted average number
of common shares outstanding. Diluted EPS reflects the potential dilution that
could occur upon exercise of outstanding stock options.
The following is a summary of the calculation of the number of shares used
in calculating basic and diluted EPS:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Shares used to compute basic EPS....................... 12,992 12,902 12,775
Add effect of dilutive securities:
Stock options........................................ 153 277 295
------ ------ ------
Shares used to compute diluted EPS..................... 13,145 13,179 13,070
====== ====== ======
</TABLE>
Options to purchase 679,000, 86,000 and 75,000 weighted shares outstanding
during fiscal years 1999, 1998 and 1997, respectively were excluded from the
computation of diluted EPS because the options' exercise prices were greater
than the average market price of the Company's common stock during those years.
Comprehensive Income. Effective April 1, 1998 the Company adopted Statement
of Financial Accounting Standards No. 130 ("SFAS 130") "Reporting Comprehensive
Income", which establishes standards for reporting and displaying comprehensive
income and its components in the financial statements. For fiscal years 1999,
1998 and 1997, the Company's net income was equal to comprehensive income as
defined in SFAS 130.
Concentration of Credit Risk. Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
cash equivalents, short-term investments, and trade receivables. Concentrations
of credit risk with respect to trade receivables are limited due to a balanced
mix of receivables due from the U.S. government and other customers which are
dispersed across different industries and geographic regions.
Classification. Consistent with industry practice, assets and liabilities
relating to government long-term contracts are classified as current although a
portion of these amounts is not expected to be realized within one year.
NOTE 2. LINE OF CREDIT
On December 18, 1998, the Company amended its bank line agreement extending
the expiration date until December 17, 1999. The Company has $15,000,000 in
credit under this line, all of which is available at March 31, 1999. Under this
line of credit the Company must maintain certain financial covenants. As of
March 31, 1999, the Company was in compliance with all such covenants.
NOTE 3. COMMITMENTS
The Company leases its buildings and other equipment under noncancelable
operating lease agreements that expire at various dates through 2009. The
Company also leases certain office equipment under capital leases which expire
during 2004. The terms of several of the Company's leases provide for deferral
of cash rental payments over various periods. Rental expense under these
agreements is recognized on a straight-line
F-9
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
basis. As of March 31, 1999 the Company has accrued approximately $518,000 in
related expense which is included in other long-term liabilities in the
accompanying consolidated balance sheets. Approximate future minimum lease
payments under these leases are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending March 31, Operating Leases Capital Leases
--------------------- ---------------- --------------
<S> <C> <C>
2000......................................... $ 5,098 $ 39
2001......................................... 4,976 26
2002......................................... 3,501 25
2003......................................... 3,553 24
2004......................................... 3,045 4
Thereafter................................... 9,631 --
------- ----
Total minimum lease payments................. $29,804 118
=======
Less: interest............................... (5)
----
113
(40)
Less: current portion ....................... $ 73
====
</TABLE>
Lease payments and other rental expenses charged to operations totaled
approximately $5,675,000, $4,676,000, and $4,279,000 for the years ended March
31, 1999, 1998 and 1997, respectively. During 1999, 1998, and 1997 the Company
acquired equipment under capital leases in the amounts of $85,000, $41,000, and
$30,000, respectively.
NOTE 4. RETIREMENT PLAN
The Company maintains a defined contribution plan covering substantially all
employees. Amounts contributed are based on a percentage of eligible employees
annual compensation. Percentages contributed equaled 3% in 1999, 3% in 1998 and
4% in 1997. The Company's contributions totaled approximately $1,645,000 in
1999, $1,403,000 in 1998, and $1,566,000 in 1997. The Plan also permits
eligible employees to make voluntary before-tax salary deferral contributions.
NOTE 5. INCOME TAXES
The provision for income taxes charged to operations was comprised of the
following:
<TABLE>
<CAPTION>
Year ended March 31,
----------------------
1999 1998 1997
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Provision for (benefit from) income taxes:
Current
Federal............................................ $1,140 $1,570 $3,602
State.............................................. 111 176 555
Deferred, net
Federal............................................ (772) 647 96
State.............................................. 123 (50) (34)
------ ------ ------
Net tax provision................................ $ 602 $2,343 $4,219
====== ====== ======
</TABLE>
F-10
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The provision for income taxes for the three years ended March 31, 1999
differs from the U.S. statutory rate principally as follows:
<TABLE>
<CAPTION>
Year ended March 31,
----------------------
1999 1998 1997
------ ------ ------
% % %
<S> <C> <C> <C>
Statutory Federal income tax rate.................... 34.0 34.0 35.0
State income taxes, net of Federal benefit........... 1.5 1.5 2.8
Research and development credits..................... (3.8) (7.3) (3.6)
Other................................................ (0.7) 2.8 0.3
------ ------ ------
Effective income tax rate............................ 31.0 31.0 34.5
====== ====== ======
</TABLE>
The major components of deferred tax assets and liabilities consisted of the
following:
<TABLE>
<CAPTION>
Year ended
March 31,
--------------
1999 1998
------ ------
(in
thousands)
<S> <C> <C>
Reserves and accruals not currently deductible for tax
purposes................................................. $3,134 $3,235
Tax credits............................................... 520 373
Accelerated depreciation.................................. 729 223
------ ------
Total deferred tax asset................................ 4,383 3,831
Percentage of completion contract accounting.............. (513) (610)
------ ------
Net deferred tax asset.................................. $3,870 $3,221
====== ======
</TABLE>
The $3,870,000 net deferred tax asset as of March 31, 1999 was allocated on
the accompanying consolidated balance sheets with $729,000 included in other
assets, and $3,141,000 included in prepaid taxes and other.
NOTE 6. COMMON STOCK
In August 1998, the Board of Directors authorized a plan to repurchase the
Company's common stock in open-market transactions. The plan authorizes the
purchase of up to 1,000,000 shares of STII Common Stock. Since the
authorization of this plan, the Company repurchased 86,500 shares in open
market transactions at an average price of $10.27 per share.
On January 29, 1997, the Company's Board of Directors declared a two-for-one
split of the Company's common stock effected in the form of a 100% stock
dividend distributed on February 28, 1997 to stockholders' of record as of
February 10, 1997. Approximately 6.4 million shares of common stock were issued
in connection with the split. The stated par value of each share was not
changed from $.01. A total of $64,000 was reclassified from the Company's paid-
in capital account to the Company's common stock account. All share and per
share amounts included in these financial statements have been restated to
retroactively reflect the stock split.
On May 9, 1995, the Board of Directors adopted a Stockholder's Rights Plan
and declared a dividend of one Common Share Purchase Right (the "Right") for
each share of the Company's common stock outstanding on May 25, 1995. Each
Right entitles the holder thereof to purchase one share of the Company's common
stock for $30. The Rights will be exercisable if a person or group acquires 15%
or more of the Company's common stock. Upon such acquisition, each Right (other
than those held by the acquiring person or group) will
F-11
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
be exercisable for the number of shares of the Company's common stock having a
market value at that time of twice the exercise price of the Right. If the
Company subsequently enters into certain business combinations, each Right
(other than those held by the acquiring person or group) will be exercisable
for that number of shares of common stock of the other party to the business
combination having a market value of two times the exercise price of the Right.
The Rights are subject to redemption at the option of the Board of Directors at
a price of $.01 per Right. The Rights expire on May 9, 2005.
The Company's Stock Option Plan provides for the issuance of either
incentive or non-qualified options to employees and certain non-employee
directors. Incentive options can be granted at an exercise price not less than
fair market value of the stock on the date of grant. Non-qualified options can
be granted at an exercise price not less than 85% of the fair market value of
the stock on the date of the grant. Options granted under the Plan generally
vest 25% one year after the date of grant and ratably thereafter over three
years and options generally expire ten years from the date of grant. The Plan
will expire in the year 2001.
Information with respect to this plan is as follows:
<TABLE>
<CAPTION>
Stock Option Plan
------------------------------------
Available Average
for Grant Outstanding Option Prices
--------- ----------- -------------
<S> <C> <C> <C>
Balance at March 31, 1996.................. 1,143,830 697,366 $ 7.49
Granted.................................... (375,300) 375,300 $16.54
Exercised.................................. -- (64,534) $ 7.65
Terminated................................. 45,711 (45,711) $10.39
--------- --------- ------
Balance at March 31, 1997.................. 814,241 962,421 $10.92
Granted.................................... (167,900) 167,900 $16.57
Exercised.................................. -- (49,409) $ 8.51
Terminated................................. 45,222 (45,222) $13.08
--------- --------- ------
Balance at March 31, 1998.................. 691,563 1,035,690 $11.85
Granted.................................... (558,350) 558,350 $14.91
Exercised.................................. -- (35,812) $ 8.11
Terminated................................. 35,400 (35,400) $15.67
--------- --------- ------
Balance at March 31, 1999.................. 168,613 1,522,828 $12.97
========= ========= ======
</TABLE>
Under the Stock Option Plan the options outstanding on March 31, 1999 were
as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- ----------------------------
Weighted Average
remaining Weighted Average Weighted Average
Number Contractual Life Exercise Number Exercise
Range of Exercise Prices Outstanding In Years Price Exercisable Price
- ------------------------ ----------- ------------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 2.50--$ 7.38.......... 322,870 4.52 $ 6.85 309,199 $ 6.82
$ 7.88--$13.63.......... 235,008 3.18 $ 9.65 198,508 $ 9.14
$14.25--$14.25.......... 342,100 9.99 $14.25 -- --
$14.38--$16.00.......... 382,250 8.13 $15.46 102,350 $14.84
$16.75--$31.50.......... 240,600 7.65 $18.66 160,300 $19.37
--------- ---- ------ ------- ------
Total................. 1,522,828 6.94 $12.97 770,357 $11.10
========= =======
</TABLE>
F-12
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro Forma Information. The Company applies APB No.25 "Accounting for Stock
Issued to Employees" and related interpretations in accounting for the stock
compensatory plans (the Plans) described above. Accordingly, no compensation
cost has been recognized for the Plans.
If compensation cost for the Plans had been determined consistent with SFAS
No.123 "Accounting for Stock-Based Compensation", the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below):
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(in thousands except
per share data)
<S> <C> <C> <C>
Net income as reported................................... $1,341 $5,216 $8,011
Pro forma (loss) net income.............................. $ (32) $4,037 $6,755
Basic and diluted earnings per share as reported......... $ 0.10 $ 0.40 $ 0.61
Pro forma basic and diluted (loss) earnings per share.... $(0.00) $ 0.31 $ 0.52
</TABLE>
Because the method of accounting prescribed by SFAS No.123 has not been
applied to options granted prior to April 1, 1995, and because the Black-
Scholes option valuation model was developed for traded options and requires
the input of subjective assumptions, the resulting pro forma compensation cost
may not be representative of that to be expected in future years.
The fair value of each option grant is estimated based on the date of grant
using the Black-Scholes option pricing model with the following assumptions
used for fiscal years 1999, 1998 and 1997: risk-free interest rates of
approximately 5.3% for 1999, 6.6% for 1998 and 6.0% for 1997, dividend yields
of 0%, volatility factor of the expected market price of the Company's common
stock of 74%, and a weighted average expected life of an option of
approximately three years. The weighted average fair values of options granted
in fiscal years 1999, 1998 and 1997 respectively were $8.03, $8.33 and $7.34.
Under an Employee Stock Purchase Plan, the Company makes offerings of its
common stock to its employees at such time and of such duration as its Board
determines. A total of 700,000 shares of common stock has been reserved for
issuance. In fiscal years 1999, 1998 and 1997, the Company has sold
140,883 shares, 90,631 shares and 66,512 shares. The weighted average fair
value of such shares for fiscal years 1999, 1998 and 1997 were $3.88, $4.88 and
$5.27 respectively. As of March 31,1999, 234,318 shares remained available for
purchase.
NOTE 7. LITIGATION AND CONTINGENCIES
The Company is contingently liable with respect to lawsuits and other
matters which arise in the normal course of business. The Company must comply
with detailed government procurement and contracting regulations. The Company
has prepared and presented documentation and support to a customer addressing
its post-award audit recommendations. Management believes that the outcome of
such contingencies will not have a material adverse effect on the Company's
financial position or results of operations.
NOTE 8. SEGMENT REPORTING
On March 31, 1999 Stanford Telecommunications, Inc. adopted statement of
Financial Accounting Standard (SFAS) Number 131 "Disclosures about segments of
an Enterprise and Related Information." SFAS 131 establishes standards for
public companies relating to the reporting of financial and descriptive
information about their operating segments in financial statements. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly
F-13
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
by the chief operating decision maker when deciding how to allocate resources
and when assessing performance. The Company's chief operating decision making
group is the Executive Staff, which is comprised of the Chief Executive Officer
and Executive Vice Presidents. The adoption of SFAS 131 did not have a material
effect on the Company's primary financial statements, but has expanded the
disclosure of segment information contained elsewhere herein.
The Company classifies its business into three operating segments: base
business, wireless broadband and contract manufacturing. Base business consists
of multiyear hardware and software engineering services for data and voice
communications systems. Wireless broadband consists of the development and
production of products for two-way transmission of high-speed digital data and
voice. Contract manufacturing provides manufacturing services for both the
Company's products as well as products for other companies. Stanford Wireless
Broadband Inc., consists of contract manufacturing and wireless broadband
segments.
Information as to the operation of the Company in different business
segments is set forth below based on the nature of the products and services
offered. The Company evaluates performances based on several functions of which
the primary financial measure is business segment operating income. The
accounting polices of the segments are the same as those described in the
summary of significant accounting policies within the notes within the
consolidated financial statements. Intersegment sales are generally accounted
for at cost.
The following summarize selected financial information by segment:
<TABLE>
<CAPTION>
Non Segment
Base Wireless Contract Property, Plant
Business Broadband Manufacturing & Equipment Total
-------- --------- ------------- --------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Segments (in thousands)
1999
Revenues before
elimination............ $138,777 $ 3,543 $31,236 $173,556
Revenues--Other
segments............... (3,837) (58) (4,256) (8,151)
Revenues--Unaffiliated
customers.............. 134,940 3,485 26,980 165,405
Operating Income (loss)
(1).................... 15,599 (12,203) (3,333) 63
Net Property Plant and
Equipment.............. 7,153 2,423 2,301 $ 788 12,665
Capital Expenditures.... 3,183 1,297 130 393 5,003
1998
Revenues before
elimination............ 127,596 2,571 30,625 160,792
Revenues--Other
segments............... (2,423) -- (5,109) (7,532)
Revenues--Unaffiliated
customers.............. 125,173 2,571 25,516 153,260
Operating Income (loss)
(1).................... 16,210 (7,371) (3,176) 5,663
Net Property Plant and
Equipment.............. 7,747 2,079 3,464 845 14,135
Capital Expenditures.... 2,834 1,209 1,457 352 5,852
1997
Revenues before
elimination............ 133,997 2,047 40,556 176,600
Revenues--Other
segments............... (3,136) -- (6,462) (9,598)
Revenues--Unaffiliated
customers.............. 130,861 2,047 34,094 167,002
Operating Income (loss)
(1).................... 14,980 (4,315) 229 10,894
Net Property Plant and
Equipment.............. 8,331 1,452 3,370 960 14,113
Capital Expenditures.... $ 3,086 $ 636 $ 1,126 $ 653 $ 5,501
</TABLE>
- --------
(1) Operating Income of $63,000, $5.7 million and $10.9 million in fiscal years
1999, 1998 and 1997 include intra-company eliminations of profit of
approximately $0.3 million, $0.5 million and $0.4 million, respectively,
related to the contract manufacturing segment.
F-14
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's assets are located in the United States. Through March 31,
1999, the Company has derived its revenues primarily from customers located in
the United States.
Consolidated Quarterly Results
Statements of Operations Data. The following table presents the Company's
consolidated financial results by quarter for fiscal years 1999, 1998 and 1997.
These consolidated quarterly financial results are unaudited. In the opinion of
management, however, they have been prepared on the same basis as the audited
financial information and include all adjustments necessary for a fair
presentation of the information set forth therein. The consolidated operating
results for any quarter are not necessarily indicative of the results that may
be expected for any future period.
<TABLE>
<CAPTION>
1999
-----------------------------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Revenues...................... $44,362 $40,705 $37,132 $43,206
Gross profit.................. 9,443 7,981 7,276 9,394
Net income (loss)............. 1,039 342 (479) 439
Earnings (loss) per share--
basic and diluted............ $ 0.08 $ 0.03 $ (0.04) $ 0.03
<CAPTION>
1998
-----------------------------------------------
<S> <C> <C> <C> <C>
Revenues...................... $35,331 $36,838 $40,713 $40,378
Gross profit.................. 8,901 9,373 9,935 8,422
Net income.................... 1,382 928 1,577 1,329
Earnings per share--basic and
diluted...................... $ 0.11 $ 0.07 $ 0.12 $ 0.10
<CAPTION>
1997
-----------------------------------------------
<S> <C> <C> <C> <C>
Revenues...................... $40,843 $41,058 $42,028 $43,073
Gross profit.................. 8,850 10,169 9,723 10,828
Net income.................... 1,888 1,911 1,960 2,252
Earnings per share--basic and
diluted...................... $ 0.14 $ 0.15 $ 0.15 $ 0.17
</TABLE>
F-15
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes the
disclosures which are made are adequate to make the information presented not
misleading. Further, the condensed consolidated financial statements have been
prepared in all material respects in conformity with the standards of
accounting measurement set forth in Accounting Principles Board Opinion No. 28
and reflect, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position and results of operations as of and for the periods indicated.
It is suggested that these condensed consolidated financial statements be
read in conjunction with the financial statements and the notes thereto
included in the Stanford Telecommunications, Inc. 1999 Annual Report.
The results of operations for the first six months of fiscal year 2000 ended
September 30, 1999 are not necessarily indicative of results to be expected for
the entire year ending March 31, 2000.
F-16
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months Six months
ended September ended September
30, 30,
---------------- ----------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues
Products and services................... $36,503 $33,443 $74,077 $69,743
Licenses................................ -- -- 17,750 --
------- ------- ------- -------
Total revenues........................ $36,503 $33,443 $91,827 $69,743
Cost of revenues.......................... 28,850 25,563 60,342 52,859
------- ------- ------- -------
Gross profit.......................... 7,653 7,880 31,485 16,884
------- ------- ------- -------
Expenses
Research and development................ 2,854 3,417 5,608 7,126
Marketing and administrative............ 4,836 3,643 10,070 7,493
------- ------- ------- -------
Total expenses........................ 7,690 7,060 15,678 14,619
------- ------- ------- -------
Operating income (loss)................... (37) 820 15,807 2,265
Interest income........................... 538 417 931 901
------- ------- ------- -------
Income from continuing operations before
provision for income taxes............... 501 1,237 16,738 3,166
Provision for income taxes................ (155) (383) (5,188) (981)
------- ------- ------- -------
Income from continuing operations......... 346 854 11,550 2,185
------- ------- ------- -------
Discontinued operations...................
Operating loss from discontinued
operations before income tax benefits.... (348) (741) (1,320) (1,165)
Income tax benefits....................... 108 229 409 361
------- ------- ------- -------
Loss from discontinued operations......... (240) (512) (911) (804)
------- ------- ------- -------
Net income............................ $ 106 $ 342 $10,639 $1,381
======= ======= ======= =======
Earnings (loss) per share
Shares used in computing basic earnings
per share............................. 13,214 12,993 13,177 12,984
Basic earnings (loss) per share
Continuing operations................. $ 0.03 $ 0.07 $0.88 $0.17
Discontinued operations............... (0.02) (0.04) (0.07) (0.06)
------- ------- ------- -------
$ 0.01 $ 0.03 $ 0.81 $ 0.11
======= ======= ======= =======
Shares used in computing diluted
earnings (loss) per share............. 13,721 13,122 13,608 13,146
Diluted earnings (loss) per share
Continuing operations................. $ 0.03 $ 0.07 $0.85 $0.17
Discontinued operations............... (0.02) (0.04) (0.07) (0.06)
------- ------- ------- -------
$ 0.01 $ 0.03 $ 0.78 $ 0.11
======= ======= ======= =======
</TABLE>
Accompanying notes are an integral part of these condensed consolidated
statements.
F-17
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amount)
<TABLE>
<CAPTION>
September 30, March
1999 31, 1999
------------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 7,767 $ 19,400
Short-term investments............................... 29,149 9,934
Accounts receivable.................................. 21,966 25,414
Unbilled receivables................................. 24,825 23,955
Inventories, net of related progress billings........ 6,494 6,782
Prepaid taxes and other.............................. 9,843 3,859
-------- --------
Total current assets............................. 100,044 89,344
-------- --------
Property and equipment at cost:
Electronic test equipment............................ 44,114 43,740
Furniture and fixtures............................... 4,169 3,584
Leasehold improvements............................... 4,613 4,472
-------- --------
52,896 51,796
Less: Accumulated depreciation and amortization (42,664) (41,327)
-------- --------
Net property and equipment....................... 10,232 10,469
-------- --------
Other assets........................................... 832 1,087
-------- --------
Net assets of discontinued operation................... 8,164 12,089
-------- --------
$119,272 $112,989
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations.......... $ 28 $ 40
Accounts payable..................................... 4,407 9,276
Advance payments from customers...................... 1,649 2,051
Accrued liabilities.................................. 6,572 7,567
Accrued income taxes................................. 3,685 3,961
-------- --------
Total current liabilities........................ 16,341 22,895
-------- --------
Long-term obligations, less current maturities......... 62 73
-------- --------
Other long-term liabilities............................ 485 592
-------- --------
Shareholders' equity:
Common shares--par value $.01; 25,000 shares
authorized
Outstanding --13,264 shares at September 30,
1999................................................ 133 131
--13,067 shares at March 31, 1999
Paid-in capital...................................... 45,887 43,573
Retained earnings.................................... 56,364 45,725
-------- --------
Total shareholders' equity....................... 102,384 89,429
-------- --------
$119,272 $112,989
======== ========
</TABLE>
Accompanying notes are an integral part of these condensed consolidated
statements.
F-18
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Six months ended
September 30,
------------------
1999 1998
-------- --------
<S> <C> <C>
Operating activities:
Income from continuing operation......................... $ 11,550 $ 2,185
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 2,557 1,748
Change in provision for losses on receivables,
contracts and inventories............................. 1,319 (520)
Other.................................................. 42 53
(Increase) decrease in assets:
Receivables billed and unbilled........................ 2,027 (3,798)
Inventories............................................ (480) (692)
Prepaid taxes and other assets......................... (5,729) (2,837)
Increase (decrease) in liabilities:
Accounts payable, advance payments, and accrued
liabilities........................................... (6,266) (128)
Other long-term liabilities............................ (107) (160)
Accrued income taxes................................... (276) 894
-------- --------
Net cash provided by (used in) operating activities.. 4,637 (3,255)
-------- --------
Investing activities:
Proceeds from maturities of short-term investments....... 9,934 25,363
Purchases of short-term investments...................... (29,149) (13,738)
Purchases of property and equipment...................... (2,338) (3,078)
-------- --------
Net cash (used in) provided by investing activities.. (21,553) 8,547
-------- --------
Financing activities:
Payments on capital lease obligations.................... (23) (33)
Common stock repurchases................................. 0 (598)
Proceeds from transactions under stock plans............. 2,292 712
-------- --------
Net cash provided by financing activities............ 2,269 81
-------- --------
Net (decrease) increase in cash and cash equivalents from
continuing operations (14,647) 5,373
Net increase in cash and cash equivalents from discontinued
operations 3,014 3,506
-------- --------
Cash and cash equivalents at beginning of period........... 19,400 13,914
-------- --------
Cash and cash equivalents at end of period................. $ 7,767 $ 22,793
======== ========
</TABLE>
Accompanying notes are an integral part of these condensed consolidated
statements.
F-19
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(Unaudited)
September 30, 1999
1. Basis of Presentation: The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with generally accepted
accounting principals for interim financial information.
2. Fiscal Year: The Company's fiscal year ending March 31, 2000 is comprised
of four 13-week quarters. Fiscal year ended March 31, 1999 was comprised of one
14-week quarter (quarter ended June 30, 1998) and three 13-week quarters.
3. Inventories: Inventories are stated at the lower of cost (first-in,
first-out) or market. Cost includes materials, labor and related indirect
expenses. General and administrative costs are only included in inventory for
government contracts, as such costs are reimbursed by the government.
The components of inventory are as follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
------------------ --------------
<S> <C> <C>
Work-in-progress......................... $3,257 $4,059
Finished goods........................... 3,209 2,696
Allocated general and administrative
costs................................... 105 83
Less: progress billings.................. (77) (56)
------ ------
$6,494 $6,782
====== ======
</TABLE>
4. Earnings (loss) per share: Basic earnings per share (EPS) of continuing
operations is computed by dividing net income of continuting operations by the
weighted average number of common shares outstanding. Diluted EPS of continuing
operations is computed by dividing net income of continuing operations by the
diluted weighted average number of common shares outstanding. Diluted EPS
reflects the potential dilution that could occur upon exercise of outstanding
stock options. Loss per share of discontinued operations is computed using the
weighted average number of common shares outstanding during the period.
The following is a summary of the calculation of the number of shares used
in calculating basic and diluted EPS (in thousands):
<TABLE>
<CAPTION>
Second Quarter First Half Ended
--------------------- ---------------------------
September 30, September 30,
of FY 2000 of FY 1999 1999 1998
---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Shares used to compute
basic EPS............... 13,214 12,993 13,177 12,984
Add effect of dilutive
securities:
Stock options.......... 507 129 431 162
------ ------ ------ ------
Shares used to compute
diluted EPS............. 13,721 13,122 13,608 13,146
====== ====== ====== ======
</TABLE>
Options to purchase approximately 5,000 and 686,000 weighted shares
outstanding during the first six months of fiscal years 2000 and 1999
respectively were excluded from the computation of diluted EPS because the
options' exercise prices were greater than the average market price of the
Company's common stock during those periods.
5. Comprehensive Income: Effective April 1, 1998 the Company adopted
Statement of Financial Accounting Standards No. 130 ("SFAS 130") "Reporting
Comprehensive Income", which establishes standards for reporting and displaying
comprehensive income and its components in the financial statements. For the
first six months of fiscal years 2000 and 1999, the Company's net income was
equal to comprehensive income as defined in SFAS 130.
F-20
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(Continued)
6. Segment reporting: On March 31, 1999 Stanford Telecommunications, Inc.
adopted statement of Financial Accounting Standard (SFAS) Number 131
"Disclosures about segments of an Enterprise and Related Information." SFAS 131
establishes standards for public companies relating to the reporting of
financial and descriptive information about their operating segments in
financial statements. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker when deciding how to
allocate resources and when assessing performance. The Company's chief
operating decision making group is the Executive Staff, which is comprised of
the Chief Executive Officer and Executive Vice Presidents. The adoption of SFAS
131 did not have a material effect on the company's primary financial
statements, but has expanded the disclosure of segment information contained
elsewhere herein.
The Company classifies its business into two reportable segments: base
business and wireless broadband. The base business segment primarily includes
multi-year hardware and software engineering services for data and voice
communications. The primary customer for the base business segment is the U.S.
government, however, 30.5% of the revenues during the first six months of
fiscal year 2000 were derived from the sale of commercial products and services
including $17.8 million of licensing fees for certain patents and products
associated with the Company's cable modem technology. The wireless broadband
segment develops and produces hardware for broadband wireless applications for
the two-way, high-speed transmission of voice and data.
Information as to the operation of the Company in different business
segments is set forth below based on the nature of the products and services
offered. The Company evaluates performances based on several functions of which
the primary financial measure is business segment operating income. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies within the notes within the
consolidated financial statements. Intersegment sales are generally accounted
for at cost.
The following summarize selected financial information of continuing
operations by segment for the six months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Non
Segment
Base Wireless Property &
Operating Segments Business Broadband Equipment Total
- ------------------ -------- --------- ---------- -------
(in thousands)
<S> <C> <C> <C> <C>
September 30, 1999
Revenues before elimination............ $90,892 $ 3,274 $94,166
Revenues--Other segments............... (2,339) -- (2,339)
Revenues--Unaffiliated customers....... 88,553 3,274 91,827
Operating Income (loss)................ 22,095 (6,288) 15,807
Net Property and Equipment............. 7,731 1,992 $509 10,232
Capital Expenditures................... 1,631 653 54 2,338
September 30, 1998
Revenues before elimination............ 69,487 2,050 71,537
Revenues--Other segments............... (1,794) -- (1,794)
Revenues--Unaffiliated customers....... 67,693 2,050 69,743
Operating Income (loss)................ 8,416 (6,151) 2,265
Net Property and Equipment............. 8,379 2,306 726 11,411
Capital Expenditures................... $ 1,697 $ 847 $534 $ 3,078
</TABLE>
The Company's assets are located in the United States. Through September 30,
1999, the Company has derived its revenues primarily from customers located in
the United States.
F-21
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(Continued)
7. On June 22, 1999 the Company entered into an agreement and plan of merger
with Newbridge which provided for the acquisition of the Company by Newbridge
in a tax-free, stock-for-stock exchange valued at approximately $490 million.
On November 10, 1999 the boards of directors of Newbridge and the Company
approved a renegotiated agreement and plan of merger ("Amended Merger
Agreement"), which provides for the acquisition of the Company by Newbridge in
a taxable, cash-for-stock transaction. Under the Amended Merger Agreement,
Newbridge will pay Stanford Telecom stockholders $34.22 for each share of
common stock of Stanford Telecom that they own. Newbridge will pay for the
acquisition from its existing cash balance.
Consummation of the merger is subject to approval by the Company's
stockholders at a special meeting of Standford Telecom stockholders which is
expected to be scheduled for the second week of December 1999. The exact date
will be announced once regulatory authorities clear the proxy statement.
Pursuant to the merger agreement, the Company has granted Newbridge an
option to acquire a non-exclusive license to the Company's wireless broadband
technology (the "Technology Option Agreement"), which option would be
exercisable at $69 million if a third party acquired control of the Company.
Also pursuant to the merger agreement, the Company has granted Newbridge an
option to purchase shares of the Company's common stock equal to 19.9% of its
issued and outstanding common stock at the time the option becomes exercisable
(the "Stock Option Agreement"). The option becomes exercisable only in
specified circumstances that could result in termination of the merger
agreement. The option has an exercise price of $35 per share.
Certain officers and directors of the Company have entered into voting
agreements with Newbridge providing that they will vote, in their capacity as
stockholders, in favor of the adoption of the merger agreement and approval of
the merger.
The foregoing summaries of the Amended Merger Agreement, Technology Option
Agreement, Stock Option Agreement and Voting Agreements are not complete and
are qualified in their entirety by reference to the agreements.
8. On September 22, 1999 the Company entered into a definitive Asset
Purchase Agreement (the "ITT Agreement") with ITT Industries, Inc., an Indiana
corporation. Pursuant to the ITT Agreement, ITT will purchase substantially all
of the assets of Stanford Telecom's government business for $191 million in
cash, subject to adjustment for an increase or decrease in the net book value
of the assets and liabilities of the government business between March 31, 1999
and the closing, which is expected to take place in December 1999. Completion
of the asset purchase is subject to the satisfaction of certain conditions,
including the expiration or termination of the waiting period under the Hart-
Scott Rodino Antitrust Improvements Act of 1976, approval of the asset purchase
by the stockholders of Stanford Telecom and consummation of the pending merger
with Newbridge. The Hart-Scott-Rodino waiting period was terminated on October
15, 1999.
9. Subsequent events--On October 29, 1999 Stanford Wireless Broadband, Inc.,
a wholly owned subsidiary of the Company, sold to Dii Semiconductor, Inc.
substantially all of the assets of Stanford Wireless Broadband's contract
manufacturing business ("MQA") and associated supply agreement with Newbridge.
Because the disposition plans were finalized before the Company's Form 10-Q was
filed for the second quarter, the Company's consolidated condensed financial
statements and notes included herein reflect MQA as a discontinued operation in
accordance with Accounting Principle Board Opinion No. 30.
F-22
<PAGE>
STANFORD TELECOMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(Continued)
Net revenue and loss from MQA operations, which include results through
September 30, 1999, are summarized below. The sale proceeds of MQA are expected
to exceed the net asset value of the discontinued operation.
<TABLE>
<CAPTION>
Three months Six months
ending ending
September 30, September 30,
-------------- ----------------
1999 1998 1999 1998
(in thousands) ------ ------ ------- -------
<S> <C> <C> <C> <C>
Net Revenues $5,145 $7,262 $10,817 $15,324
Operating loss (348) (741) (1,320) (1,165)
Income tax benefits 108 229 409 361
------ ------ ------- -------
Net loss from discontinued operations,
net of tax $ (240) $ (512) $ (911) $ (804)
====== ====== ======= =======
</TABLE>
Net assets of MQA discontinued operations as of September 30, 1999 and March
31, 1999 are summarized below:
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
(in thousands) ------------------ --------------
<S> <C> <C>
Assets:
Total current assets $10,055 $11,967
Net property and equipment 1,582 2,196
Liabilities:
Total current liabilities (3,470) (2,071)
Long term obligations (3) (3)
------- --------
Net loss from discontinued operations $ 8,164 $ 12,089
======= ========
</TABLE>
On November 15, 1999, the Company sold to Intel Corporation substantially
all of the assets of the Company's telecom component products business, which
is a component of the Company's base business operations. The purchase price
was $37.5 million, and the Company realized an after-tax gain of approximately
$20 million.
F-23
<PAGE>
APPENDIX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NEWBRIDGE NETWORKS CORPORATION
SATURN ACQUISITION CORP.
AND
STANFORD TELECOMMUNICATIONS, INC.
Dated as of June 22, 1999 and
amended and restated as of November 10, 1999
<PAGE>
DEFINITIONS
<TABLE>
<CAPTION>
<S> <C>
"Accounts Receivable"..................................... Section 3.19(a)
"Acquisition Proposal".................................... Section 5.2(c)
"Acquisition Transaction"................................. Section 5.2(c)
"Action".................................................. Section 3.12(a)
"Antitrust Division"...................................... Section 5.5
"Cash Consideration"...................................... Section 2.1(a)
"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".................................................... Section 3.22(b)(vi)
"Confidentiality Agreement"............................... Section 5.3
"Contractor".............................................. Section 3.24(a)(i)
"Delaware Law"............................................ Section 1.1
"Dissenting Shares"....................................... Section 2.5
"Dissenting Stockholder".................................. Section 2.5
"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
"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)
"Merger".................................................. Recitals
"Merger Sub".............................................. Preamble
"Merger Sub Common Stock"................................. Section 2.1(d)
"Newbridge"............................................... Preamble
"Newbridge Disclosure Statement".......................... Article IV
"Newbridge Exchange Options".............................. Section 2.2(a)
</TABLE>
<PAGE>
DEFINITIONS--(Continued)
<TABLE>
<CAPTION>
<S> <C>
"Newbridge Material
Adverse Effect"........ Section 4.1(a)
"Newbridge Material
Subsidiaries".......... Section 4.1(a)
"Non-core Assets"....... Section 5.18
"Non-core Asset Sale"... Section 5.18
"Notice of Superior
Proposal".............. Section 5.4(c)
"Option Exchange
Ratio"................. Section 2.2(a)
"Paying Agent".......... Section 2.3(a)
"Pension Benefit
Plans"................. Section 3.23(a)
"Person"................ Section 2.1(g)
"Potential Acquiror".... Section 5.2(a)
"Proxy Statement"....... Section 3.3
"Real Property"......... Section 3.24(b)(iv)
"Reference Date"........ Section 3.8
"Returns"............... Section 3.22(b)(i)
"Stel".................. Preamble
"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(c)
"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
"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>
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
This AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "Agreement") is
made and entered into as of June 22, 1999, amended as of August 20, 1999 and
amended and restated as of November 10, 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. 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, $.01 par value ("Stel Common Stock")
from Stel equal to up to 19.9% of issued and outstanding Stel Common Stock.
C. 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.
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 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").
E. For the purpose of this Agreement, the date of this Agreement and the
date of the execution and delivery of this Agreement shall be deemed to be June
22, 1999.
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 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
A-1
<PAGE>
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 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) or as provided in
Section 2.5 with respect to shares of Stel Common Stock as to which appraisal
rights have been exercised under Delaware Law) shall be automatically converted
into the right to receive in cash without interest an amount equal to U.S.
$34.22 (the "Cash Consideration").
(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 a cash payment equal to the number of shares represented
by such Stel Certificate multiplied by the Cash Consideration.
(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) For purposes of this Agreement, 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) 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 a fraction (the "Option Exchange Ratio"), the numerator of which is the
Cash Consideration and the denominator of which is the average of the daily
averages of the high and low per share prices of Newbridge Common Stock as
reported on the New York Stock Exchange Composite Tape on the five trading
days ending on the second trading day immediately preceding the Stel
Special Meeting; and
(ii) 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 Option Exchange Ratio.
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) Notwithstanding the provisions of clause (a) above, the holders of Stel
Options which are vested or will be vested as of the Effective Time shall have
the ability to exercise such options effective as of the Effective Time on a
"cash-out" basis. Newbridge and Stel will provide a mechanism whereby, after
the Effective Time, each such Stel Option holder who has so exercised will
receive a cash payment equal to (i) the product of (A) the number of shares of
Stel Common Stock exercised and (B) the excess of the Cash Consideration over
the exercise price per share of Stel Common Stock, less (ii) any applicable
withholding or employment taxes.
(c) 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.
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2.3 Paying Agent.
(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
paying agent for the Merger (the "Paying Agent").
(b) At or prior to the Effective Time, Newbridge shall supply or cause to be
supplied to or for the account of the Paying Agent in trust for the benefit of
the holders of Stel Common Stock the funds necessary to make the payments
contemplated by Section 2.1. Such funds shall be invested by the Paying Agent
as directed by Newbridge in accordance with Newbridge's investment policy.
(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 Paying
Agent) and instructions for surrender of the Stel Certificates. Upon surrender
to the Paying Agent of a Stel Certificate, together with such letter of
transmittal duly executed, the Holder shall be entitled to receive in exchange
therefor a cash payment equal to the number of shares represented by such Stel
Certificate multiplied by the Cash Consideration, and such Stel Certificate so
surrendered shall forthwith be canceled. No cash payment 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 the right to receive a cash payment
equal to the number of shares represented by such Stel Certificate multiplied
by the Cash Consideration. 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.
(d) Any portion of the funds supplied to the Paying Agent 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 (subject to abandoned
property, escheat and other similar laws) only as general creditors of
Newbridge with respect to any consideration set forth in Section 2.1 that may
be payable upon surrender of their Stel Certificates.
(e) Notwithstanding anything to the contrary in this Agreement, none of the
Paying Agent, Newbridge, the Surviving Corporation nor any party hereto shall
be liable to any holder of shares of Stel Common Stock for any consideration
set forth in Section 2.1 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 Paying Agent shall
make in respect of such lost, stolen or destroyed Stel Certificates, upon the
making of an affidavit of that fact by the holder thereof, a cash payment equal
to the number of shares represented by such Stel Certificate multiplied by the
Cash Consideration; provided, however, that Newbridge may, in its discretion
and as a condition precedent to the payment thereof, require the owner of such
lost, stolen or destroyed Stel Certificate to deliver a bond in such sum as
Newbridge may reasonably direct as indemnity against any claim that may be made
against Newbridge or the Paying Agent with respect to the Stel Certificates
alleged to have been lost, stolen or destroyed.
2.5 Appraisal Rights; Dissenting Shares. Any issued and outstanding shares
of Stel Common Stock held by a person who has properly demanded an appraisal
and perfected the right to dissent under Delaware Law and who has not
effectively withdrawn or lost such rights as of the Effective Time (the
"Dissenting Shares") shall not be converted into or represent the right to
receive the Cash Consideration, and the holders thereof shall be entitled only
to such rights as are granted by Delaware Law. Stel shall give Newbridge prompt
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notice upon receipt by Stel of any such written demands for payment of the fair
value of such shares of Stel Common Stock and of withdrawals of such demands
and any other instruments provided pursuant to Delaware Law (any stockholder
duly making such demands being hereafter called a "Dissenting Stockholder").
Any payments made in respect of Dissenting Shares shall be made by Newbridge.
If any Dissenting Stockholder shall effectively withdraw or lose (through
failure to perfect or otherwise) his right to such payment at or prior to the
Effective Time, such holder's shares of Stel Common Stock shall be converted
into a right to receive the Cash Consideration in accordance with the
applicable provisions of this Agreement.
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 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 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
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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, (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 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 (the "Proxy 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 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 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
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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 June 21, 1999, as amended on November 10, 1999, to the effect that the
consideration to be received by the Stel stockholders in the merger is fair the
Stel stockholders from a financial point of view, and has provided a copy of
the written 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.
(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
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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
(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;
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(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.
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.
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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;
(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;
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(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 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
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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;
(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
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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;
(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
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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 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 employees or consultants 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
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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 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,
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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 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 Internal Revenue
Code of 1986, as amended (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.
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(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.
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.
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(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.
(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.
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(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 plans 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.
3.24 Enviromental 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.
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(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 Stels 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. 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.
(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.
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(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 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 [Reserved].
3.26 [Reserved].
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.
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3.28 Proxy Statement. The information supplied by Stel for inclusion in the
Proxy Statement to be sent to the stockholders of Stel in connection with the
Stel Special Meeting, at the date the Proxy Statement 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, 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.
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.
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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 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
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, (iii) any
filings required under and in compliance with the HSR Act, and (iv) the
voluntary notice under the Exon-Florio Amendment. Neither the execution and
delivery of this
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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 Proxy Statement. The information supplied by Newbridge for inclusion in
the Proxy Statement as it relates to Newbridge or Merger Sub, at the time the
Proxy Statement 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 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 Proxy 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.
4.5 Litigation. Except as set forth in the Newbridge's forms, reports,
registration statements and documents required to be filed with the SEC, 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.
4.6 Financial Resources. As of November 10, 1999, Newbridge has the
financial resources to consummate the transactions contemplated by this
Agreement and to pay the consideration in the Merger set forth in Article II.
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
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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;
(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;
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(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.
(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, 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
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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; 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 expiration of the 10-day waiting
period on the preliminary Proxy Statement or, if Stel receives SEC comments on
the Proxy Statement, the date that all such comments are cleared with the SEC.
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 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 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 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.
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(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 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 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. As promptly as practicable following
receipt of SEC comments on such preliminary Proxy Statement, Newbridge and Stel
shall mutually prepare a response to such comments. Newbridge and Stel shall
use all commercially reasonable efforts to have the preliminary Proxy Statement
cleared by the SEC. 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 or any other filing made pursuant to this Section 5.4(e),
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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 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
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benefit plan or enterprise (collectively, the "Indemnified Parties") against
any costs or expenses (including attorney's 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 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 [Reserved].
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 upon exercise of the Newbridge Exchange Options. 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 issued upon exercise of the Newbridge Exchange Options.
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 the
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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 Stel SEC Filings. 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 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 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 proceeds of the Non-core Asset Sale.
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.
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.
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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 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 [Reserved].
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 [Reserved].
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.
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
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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.
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) 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.
(e) 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.
(f) 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.
(g) 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).
(h) 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.
(i) 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.
(j) 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.
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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;
(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) [Reserved].
(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
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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 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 applicable law) within 45 days after the
expiration of the 10-day waiting period on the preliminary Proxy Statement or,
if Stel receives SEC comments on the Proxy Statement, the date that all such
comments are cleared with the SEC; (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
Proxy Statement (including any preliminary materials related thereto) and any
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").
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(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
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.
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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:
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
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 Merger Sub, to:
Newbridge Networks Corporation
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)
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
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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.
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.
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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
By: /s/ Peter Nadeau
___________________________________
Title: Corporate Vice President,
General Counsel
By: /s/ John Farmer
___________________________________
Title: Corporate Secretary
SATURN ACQUISITION CORP.
By: /s/ Peter Nadeau
___________________________________
Title: President, Treasurer and
Secretary
STANFORD TELECOMMUNICATIONS, INC.
By: /s/ Val P. Peline
___________________________________
Title: President and Chief Executive
Officer
v
By: /s/ James J. Spilker, Jr.
___________________________________
Title: Chairman of the Board
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APPENDIX B
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
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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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(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
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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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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
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APPENDIX C
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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(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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(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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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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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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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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APPENDIX D
[Letterhead of Ferris, Baker Watts, Incorporated]
November 10, 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"). 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 equal to $34.22 in cash.
In connection with the opinion, we have reviewed, among other things, (i)
the proposed Transaction, (ii) the letter of intent dated May 24, 1999, (iii)
the draft of the Amended and Restated Agreement and Plan of Merger dated June
10, 1999, amended as of August 20, 1999 and amended and restated as of November
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 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 the date
hereof. 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,
/s/ Ferris, Baker Watts, Incorporated
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APPENDIX E
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.
(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.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to 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
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
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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 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.
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(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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1920-SPS-99
<PAGE>
EXHIBIT 99.3
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PROXY STANFORD TELECOMMUNICATIONS, INC. PROXY
Proxy Solicited by the Board of Directors
for Special Meeting of Stockholders December 13, 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, December 13, 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 December 13, 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.
1. Proposal to approve the Agreement and Plan of Merger, dated as of June 22,
1999, as amended and restated as of November 10, 1999, by and among Newbridge
Networks Corporation, Saturn Acquisition Corp. and Stanford
Telecommunications, Inc. FOR [_] AGAINST [_] ABSTAIN [_]
2. Proposal to approve the sale of the government business assets of Stanford
Telecommunications, Inc. FOR [_] AGAINST [_] ABSTAIN [_]
3. In their discretion, to transact any other business that is properly
brought before the special meeting.
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
