SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 2054
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): January 12, 1996
CABLETRON SYSTEMS, INC.
(Exact name of registrant as specified in charter)
DELAWARE 1-10228 04-2797263
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
35 Industrial Way, Rochester, NH 03867
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 332-9400
Item 2. Acquisition of Assets
On January 12, 1996, Cabletron Systems Acquisition, Inc. ("CS
Acquisition"), a Delaware corporation and a wholly-owned
subsidiary of Cabletron Systems, Inc. (the "Registrant"), a
Delaware corporation, purchased substantially all of the assets
(the "Assets") and certain liabilities of Standard Microsystems
Corporation, a Delaware corporation, and SMC Enterprise
Networks, Inc., a wholly-owned subsidiary of Standard
Microsystems Corporation and a Delaware corporation (collectively
"SMC") related to SMC's Enterprise Networks switching product
line pursuant to an Asset Purchase Agreement dated January 9,
1996 among the Registrant, CS Acquisition and SMC (the
"Agreement"). SMC's Enterprise Networks switching product line
consists of scalable Fast Ethernet switching products for small,
medium and large networks. The purchase price for the Assets was
$75,900,000, subject to adjustment following the closing. The
Company expects to recognize an after tax expense of
approximately $58 to $68 million ($.80 to $.95 per share) in the
fourth quarter of Fiscal year 1996 for in-process research and
development and acquisition related expenses. The purchase was
funded out of available cash of the Registrant. The terms of the
sale, including the consideration, were determined by arm's
length negotiations.
The foregoing description is qualified in its entirety by
reference to the Agreement, a copy of which is attached hereto as
Exhibit 2.1 and incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
(a)Audited Financial Statements of Standard Microsystems
Corporation's Enterprise Networks Business Unit for the fiscal year
ended February 28, 1995.
1. Report of Independent Accountants.
2. Statement of Net Assets as of February 28, 1995.
3. Statement of Revenues and Expenses Before Corporate Overhead
Allocations, Interest and Income Taxes for the fiscal year ended
February 28, 1995.
4. Notes to Financial Statements.
(b)Unaudited Financial Statements of Standard Microsystems Corporation's
Enterprise Networks Business Unit for the period ended November 30, 1995.
1. Statement of Net Assets as of November 30, 1995.
2. Statement of Revenues and Expenses Before Corporate Overhead, Interest
and Income Taxes for the nine months ended November 30, 1995.
(c)Unaudited Pro Forma Financial Statements of Cabletron Systems, Inc..
1. Pro Forma Combined Balance Sheet as of November 30, 1995.
2. Pro Forma Combined Statement of Income for the fiscal year ended
February 28, 1995.
3. Pro Forma Combined Statement of Income for the nine months ended
November 30, 1995.
Exhibits:
2.1 Asset Purchase Agreement dated January 9, 1996 by and among the
Registrant, CS Acquisition and SMC.
20.1 Press Release of the Registrant dated January 15, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
CABLETRON SYSTEMS, INC.
By: /s/ David Kirkpatrick
Name: David J. Kirkpatrick
Title: Chief Financial Officer
Date: January 26, 1996
EXHIBIT INDEX
7(a)1 Report of Independent Accountants.
7(a)2 Statement of Net Assets as of February 28, 1995.
7(a)3 Statement of Revenues and Expenses Before Corporate
Overhead Allocations, Interest and Income Taxes for
the fiscal year ended February 28, 1995.
7(a)4 Notes to Financial Statements.
7(b)1 Unaudited Statement of Net Assets as of November 30, 1995.
7(b)2 Unaudited Statement of Revenues and Expenses Before Corporate
Overhead Allocations, Interest and Income Taxes for the nine
months ended November 30, 1995.
7(c)1 Pro Forma Combined Balance Sheet as of November 30, 1995.
7(c)2 Pro Forma Combined Statement of Income for the fiscal year ended
February 28, 1995.
7(c)3 Pro Forma Combined Statement of Income for the nine months ended
November 30, 1995.
2.1 Asset Purchase Agreement dated January 9, 1996 by and among the
Registrant, CS Acquisition and SMC.
20.1 Press Release of the Registrant dated January 15, 1996.
Exhibit 7(a)1
Report of Independent Accountants
To the Shareholders and Board of Directors of Standard Microsystems
Corporation:
We have audited the accompanying Statement of Net Assets of the
Enterprise Networks Business Unit, an operating unit of Standard
Microsystems Corporation (a Delaware Corporation) and
subsidiaries as of February 28, 1995 and the related Statement of
Revenues and Expenses Before Corporate Overhead Allocations,
Interest and Income Taxes for the year ended February 28, 1995.
These statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
These statements have been prepared pursuant to the Asset
Purchase Agreement described in Note 1 between Standard
Microsystems Corporation and Cabletron Systems, Inc. dated
January 9, 1996, and are not intended to be a complete
presentation of Standard Microsystems Corporation's assets and
liabilities or its results of operations.
In our opinion, the statements referred to above present fairly,
in all material respects, the net assets of the Enterprise
Networks Business Unit as of February 28, 1995, and the related
revenues and expenses before corporate overhead allocations,
interest and income taxes for the year ended February 28, 1995 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
January 17, 1996
Washington, D.C.
Exhibit 7(a)2
Standard Microsystems Corporation and Subsidiaries
Enterprise Networks Business Unit
Statement of Net Assets (Note 1)
as of February 28, 1995
(in thousands)
Assets February 28, 1995
Accounts receivable, net of allowance for
doubtful accounts of $300 $6,353
Inventories 6,535
Other current assets 1,578
Total Current Assets 14,466
Property and Equipment:
Leasehold improvements 617
Machinery and equipment 4,585
5,202
Less: accumulated depreciation
and amortization (1,519)
Property and Equipment, net 3,683
Intangible assets 5,235
$23,384
Liabilities
Accounts payable $3,801
Accrued expenses and other liabilities 1,267
Accrued warranty 100
5,168
Net Assets $18,216
The accompany notes are an integral part of these financial statements.
Exhibit 7(a)3
Standard Microsystems Corporation and Subsidiaries
Enterprise Networks Business Unit (Note 1)
Statement of Revenues and Expenses Before Corporate Overhead
Allocations, Interest and Income Taxes
Year Ended February 28, 1995
(in thousands)
Year Ended
February 28, 1995
Revenues $22,113
Cost of goods sold 11,336
Gross profit 10,777
Operating expenses
Research and development 7,604
Marketing 3,699
Selling 3,464
General and administrative 2,223
Amortization of intangible assets 1,083
Total operating expenses 18,073
Excess of expenses over revenues before corporate
overhead allocations, interest
and income taxes $(7,296)
The accompany notes are an integral part of these financial statements.
Exhibit 7(a)4
Standard Microsystems Corporation and Subsidiaries
Enterprise Networks Business Unit
Notes to Statement of Net Assets and Statement of Revenues and
Expenses Before Corporate Overhead Allocations, Interest and
Income Taxes as of February 28, 1995
(1) Organization and Basis of Presentation
The Enterprise Networks Business Unit ("ENBU") is an operating
unit of the Systems Products Division (the "Division") of
Standard Microsystems Corporation (the "Company"), whose focus is
the marketing, engineering and development of the Company's local
area network switching products.
In January, 1996, Cabletron Systems, Inc. (Cabletron) entered
into an Asset Purchase Agreement with the Company, under which
the Company sold certain net assets of its local area network
switching products business to Cabletron. The sales price was
approximately $76 million in cash, subject to certain purchase
price adjustments as defined in the Asset Purchase Agreement.
Through this transaction, Cabletron acquired specific assets and
intellectual properties and assumed certain liabilities directly
related to the ENBU.
The accompanying Statement of Net Assets reflects the historical
carrying values of the assets and liabilities of the Enterprise
Networks Business Unit. The statement does not include the
income tax accounts or intercompany accounts related to the ENBU.
The accompanying Statement of Revenues and Expenses Before
Corporate Overhead Allocations, Interest and Income taxes
includes the direct costs of the ENBU and an allocation of
certain indirect costs related to the operations of the ENBU.
Such allocations are based upon determinations that management
believes are reasonable. In connection with its overall
operation, the Company provides certain financial, legal and
professional, human resource, accounting, information systems,
and executive management services to the ENBU. The accompanying
statements do not include these corporate expenses, interest
expense, interest income or income taxes. Therefore, the net
operating results before corporate overhead allocations, interest
and income taxes as presented herein may not be representative of
future operating results and are not intended to be a full
presentation of the ENBU's operating results.
All of the cash management functions of the ENBU are performed by
the Company. As a result, cash receipts for the ENBU are
deposited in the Company's general corporate bank accounts.
Similarly, operating expenses, capital expenditures, corporate
services and other cash requirements of the ENBU are paid by the
Company and charged directly by the Company or allocated to the
ENBU.
(2) Summary of Significant Accounting Policies
Inventories
Inventories are valued at the lower of first-in, first-out cost
(material, direct labor and overhead) or market. Raw materials
shared with other product lines within the Company have been
excluded from these financial statements.
Property and Equipment
Property and equipment used directly by the ENBU in marketing and
development of the ENBU products are carried at cost and are
depreciated on a straight-line basis over the estimated useful
lives of the machinery and equipment (3 to 7 years). Leasehold
improvements are amortized over the remaining life of the lease.
Upon sale or retirement of property and equipment, the related
cost and accumulated depreciation are removed from the respective
accounts and any gain or loss is reflected currently.
Intangible Assets
The excess of acquisition cost over fair value of net assets
acquired in the acquisition of Sigma Network Systems, Inc. is
approximately $7,582,000, net of accumulated amortization of
$2,347,000. The goodwill is being amortized on a straight-line
basis over an estimated useful life of seven years.
Product Warranty
The Company's products developed by the ENBU are under warranty
against defects in material and workmanship for periods of up to
one year. Estimated warranty costs are accrued when the products
are sold.
Allocation of Operating Expenses
Included in the accompanying Statement of Revenues and Expenses
Before Corporate Overhead Allocations, Internet and Income Taxes
are direct research and development, marketing, and general and
administrative expenses of the ENBU. Selling expenses are
generally incurred on a Division-wide basis. The selling
expenses associated with the North American direct sales force
related to the ENBU have been included in their entirety.
Certain Divisional marketing, general and administrative, sales
administration and international selling expenses have been
allocated based upon the ratio that ENBU revenues represented in
comparison to the Division's total revenues. The total of such
allocated expenses was approximately $1,400,000 in fiscal 1995.
Use of Estimates
The preparation of the financial statements of the ENBU in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts revenues and expenses during
the period.
Estimated reserves have been recorded for excess and obsolete
inventory and estimated sales returns. Actual results could
differ from those estimates.
(3) Other Current Assets
Other current assets consist of the following at February 28, 1995:
(in thousands)
Evaluation inventory, net of reserves $800
Security deposits 303
Employee loans and advances 259
Other current assets 216
$1,578
(4) Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following at
February 28, 1995:
(in thousands)
Accrued compensation and benefits $915
Accrued professional fees 109
Accrued rent 137
Accrued royalties 106
$1,267
(5) Commitments and Contingencies
Operating Lease
The ENBU leases a facility in Andover, Massachusetts that expires
in 2001. Rent expense for fiscal 1995 was $378,000. Future
minimum rental each fiscal year under this lease are as follows:
1996 $269,000
1997 386,000
1998 406,000
1999 421,000
2000 436,000
Thereafter 565,000
Litigation
In the ordinary course of business, various lawsuits and claims
are filed against the Company. While the outcome of these
matters is currently not determinable, management believes that
the ultimate resolution of these matters will not have a material
adverse effect on the Company's operations or financial position.
The Company and wholly-owned subsidiary, SMC Enterprise Networks,
Inc. are currently defendants in litigation claiming breach of
contract and fraud. Penril Datacomm Networks, Inc. has asserted
that the Company did not honor the terms of a product development
contract, and as a result, has caused them damage through their
inability to enter the backbone switching marketplace and has
asserted damages of approximately $50 million, which it seeks to
treble. While the Company believes it has meritorious defenses
against the suit, the ultimate resolution of the matter is not
determinable. The Company has made no accruals with respect to
this litigation.
In June 1995, several actions were filed against the Company and
certain of its directors and officers. The consolidated claims
purport to be a class action on behalf of the purchasers of the
Company's common stock from September 19, 1994 through June 2,
1995. The consolidated complaint asserts claims under federal
securities laws, and alleges that the Company artificially
inflated the price of its common stock during the class action
period by false and misleading statements and the failure to
disclose certain information. The Company intends to vigorously
defend against these claims.
(6) Compensation Plans
Employees of the ENBU generally participate in various
compensation and benefits plans provided by the Company. The
Company maintains a defined contribution Incentive Savings and
Retirement Plan (401(k)) which permits employees to contribute up
to 15% of their earnings. The Company makes contributions equal
to one half of the employees contribution up to to 6%. The
Company's contribution is invested in its common stock. the
Company's contribution attributed to employees of the ENBU was
approximately $100,000 in fiscal 1995. Certain employees of the
ENBU also participate in the Company's stock option plans.
The Company has employment agreements with certain key employees
of the ENBU which provide for the base salaries totaling $600,000
per year through fiscal 1996. Incentive payments aggregating up
to $830,000 per year are also payable under these contracts
through fiscal 1996, subject to achieving certain product
development and revenue milestones as defined in the contracts.
(7) Significant Concentrations
Sources of Supply
The ENBU currently utilizes a single sub-contract supplier to
manufacture substantially all of its products. Although there
are a limited number of sub-contract manufacturers for these
products, management believes that other suppliers could provide
similar products on comparable terms. A change in suppliers,
however, could cause a delay in manufacturing and a possible loss
of sales, which could adversely effect operating results.
Credit Risk
The ENBU sells most of its products to value added resellers,
original equipment manufacturers and end users and, as a result,
maintains individually significant receivable balances from its
major customers. The Company performs credit evaluations on a
regular basis and generally requires no collateral. Allowances
for credit losses are maintained, and actual losses have been
within management's expectations.
Geographic and Customer Information
International sales accounted for 47% of total revenues for the
ENBU during fiscal 1995. There was a single customer for ENBU
products which represented 13% of the total ENBU revenues.
Exhibit 7(b)1
Unaudited Financial Statements of Standard Microsystems
Corporation's Enterprise Networks Business Unit
Statement of Net Assets as of November 30, 1995
(in thousands)
Assets November 30, 1995
Accounts receivable, net $3,774
Inventories 8,485
Deferred taxes 1,448
Total current assets 13,707
Property plant and equipment, net 4,128
Goodwill 4,423
$22,258
Liabilities
Accounts payable $1,846
Accrued liabilities 1,609
3,455
Net Assets $18,803
Exhibit 7(b)2
Unaudited Financial Statements of Standard Microsystems
Corporation's Enterprise Networks Business Unit
Statement of Revenues and Expenses Before Corporate Overhead Allocations,
Interest and Income Taxes for the nine months ended November 30, 1995
(in thousands)
November 30, 1995
Net sales $13,708
Cost of goods sold 11,210
Gross profit 2,498
Operating expenses:
Research and development 7,616
Selling, general and administrative 10,353
Total operating expenses 17,696
Excess of expenses over revenues before
corporate Overhead allocations, interest
and income taxes $(15,471)
Exhibit 7(c)1
Pro Forma Combined Balance Sheet as of November 30, 1995
(in thousands)
Pro Forma
Cabletron Pro Forma Balance
Systems ENBU Adjustments Sheet
Assets
Cash & short-term
investments $281,862 $(76,400)a $205,462
Accounts receivable,
net 127,168 3,774 130,942
Inventories 139,820 8,485 (3,000)b 145,305
Deferred taxes 20,086 1,448 24,916 f 46,450
9,806 g 9,806
Other assets 25,850 25,580
Total current assets 594,516 13,707 (46,247) 561,976
Investments 173,520 173,520
Property plant and
equipment, net 139,191 4,128 143,319
Capitalized software,
net 386 386
Goodwill 4,423 (2,923)c 1,500
Total assets $907,613 $22,258 $(49,170) $880,701
Liabilities and
Stockholders' Equity
Accounts payable $38,120 $1,846 $39,966
Accrued liabilities 80,391 1,609 22,000b,d,e 104,000
Income taxes payable 24,072 24,072
Total current
liabilities 142,583 3,455 22,000 168,038
Deferred taxes 6,117 6,117
Stockholders' equity 758,913 758,913
(63,520)a (63,520)
(7,000)e (7,000)
(15,000)d (15,000)
24,916 f 24,916
9,806 g 9,806
Total liabilities and
stockholders' equity $907,613 $3,455 $(28,798) $882,270
Pro Forma Adjustments
a. Purchase price of $76,400 paid out of cash, including acquisition
costs of $500. In-process research and development costs of $63,520
were written off in connection with the acquisition. The fair value
of the acquired technology in process was determined with the help of
an independent appraiser. The anticipated charge to operations for
such acquired technology in process is excluded from the unaudited
Pro Forma Combined Statements of Operations as it is non-recurring
and unusual and relates directly to the acquisition.
b. Adjustments of inventory and warranty reserves of $4,000 to
conform to Cabletron's policies.
c. Elimination of Seller's goodwill of $2,923 and application of
purchase price accounting.
d. Cabletron's assumption of liabilities of $15,000.
e. Accrual of (i) like product vendor commitments of $1,000; (ii)
accrual of manufacturing reorganization and facilities charge of
$2,000; and (iii) accrual of new employees compensation packages of
$3,000.
f. Tax effect of write off of in process research and development
costs and transaction costs (a) at Cabletron's marginal rate of 39.225%.
g. Tax effect of (b, d and e).
Exhibit 7(c)2
Pro Forma Combined Statement of Income for the fiscal year ended
February 28, 1995
(in thousands)
Pro Forma
Cabletron Pro Forma Balance
Systems ENBU Adjustments Sheet
Net sales $810,684 $22,113 $832,797
Cost of sales 329,843 11,336 341,179
Gross profit 480,841 10,777 491,618
Operating expenses:
Research and
development 84,404 7,604 92,008
Selling, general and
administrative 158,074 10,469 (932) b 167,611
Operating income
before interest 238,363 (7,296) 932 231,999
Interest income 9,597 --- (3,438)a 6,159
Income from operations
before income taxes 247,960 (7,296) (2,506) 238,158
Income taxes 85,986 --- (983)c 85,003
Net income (loss) $161,974 $(7,296) $(1,523) $153,155
Earnings per share $2.27 $2.14
shares outstanding 71,494 71,494
Pro Forma Adjustments
a. Net reduction of interest income due to purchase price paid
of $76,400 out of available cash at Cabletron's historical
investment rate of return of 4.5%.
b. Net reduction of amortization related to seller's goodwill.
c. Tax effect of (a) and (b) at Cabletron's marginal tax rate of
39.225%.
Exhibit 7(c)3.
Pro Forma Combined Statement of Income for the nine months ended
November 30, 1995
(in thousands)
Pro Forma
Cabletron Pro Forma Balance
Systems ENBU Adjustments Sheet
Net sales $773,517 $13,708 $787,225
Cost of sales 313,226 11,210 324,436
Gross profit 460,291 2,498 462,789
Operating expenses:
Research and
development 83,434 7,616 91,050
Selling, general and
administrative 149,902 10,353 (699)b 159,556
Operating income
before interest 226,955 (15,471) 699 212,183
Interest income 12,260 --- (2,579)a 9,681
Income from operations
before income taxes 239,215 (15,471) (1,880) 221,864
Income taxes 82,285 --- (737)c 81,548
Net income (loss) $156,930 $(15,471) $(1,143) $140,316
Earnings per share $2.19 $1.97
Weighted average common
shares outstanding 71,227 71,227
Pro Forma Adjustments
a. Net reduction of interest income due to purchase price paid
of $76,400 out of available cash at Cabletron's historical investment
rate of return of 4.5%.
b. Net reduction of amortization related to seller's goodwill.
c. Tax effect of (a) and (b) at Cabletron's marginal tax rate of
39.225%.
ASSET PURCHASE AGREEMENT
AMONG
CABLETRON SYSTEMS, INC.,
CABLETRON SYSTEMS ACQUISITION, INC.,
SMC ENTERPRISE NETWORKS, INC.
AND
STANDARD MICROSYSTEMS CORPORATION
JANUARY 9, 1996
TABLE OF CONTENTS
Table of Contents
1.Definitions
2. Acquisition of Assets by Buyer
2.1. Purchase and Sale of Assets
2.2. Excluded Assets
2.3. Assumption of Liabilities
2.4. Liabilities Not Assumed
2.5. Purchase Price
2.6. Adjustment to Purchase Price; Closing Date Audit
2.7. The Closing
2.8. Deliveries at the Closing
2.9. Preliminary Allocation of Purchase Price
2.10.Joint Software
3. Representations and Warranties of the Sellers
3.1. Organization of the Sellers
3.2. [Reserved]
3.3. Authorization of Transaction
3.4. Noncontravention
3.5. Brokers' Fees
3.6. Title to Assets
3.7. Acquired Assets Used in Business
3.8. Subsidiaries
3.9. Financial Statements
3.10.Indebtedness; Guarantees
3.11.Absence of Changes
3.12.Absence of Undisclosed Liabilities
3.13.Legal and Other Compliance
3.14.Taxes
3.15.Property, Plant and Equipment
3.16.Intellectual Property
3.17.Inventories
3.18.Contracts
3.19.Notes and Accounts Receivable
3.20.Powers of Attorney
3.21.Litigation
3.22.Product Warranties; Defects; Liability
3.23.Employees
3.24.Employee Benefits
3.25.[Reserved]
3.26.Affiliated Transactions
3.27.[Reserved]
3.28.Distributors, Customers, Suppliers
3.29.No Illegal Payments, Etc.
3.30.Books and Records
3.31.Consents
3.32.Disclosure
4. Representations and Warranties of Cabletron and Acquisition
4.1. Organization of Cabletron and Acquisition
4.2. Authority for Agreement
4.3. Noncontravention
4.4. Brokers' Fees
5. Covenants
5.1. General
5.2. Notices and Consents
5.3. Preservation of Business
5.4. Full Access
5.5. Notice of Developments
5.6. Exclusivity
5.7. Employee Matters
5.8. Retention of and Access to Records after Closing
5.9. Bulk Sales Compliance; Liens under Chapter 62C,
Section 51 of the Massachusetts General Laws
5.10.Transfer Taxes
5.11.Product Warranty Repair and Service
5.12.Delivery of Audited Financial Statements
5.13.License of Trademarks
5.14.Cooperation in Connection with Pending Litigation
5.15.General Skill and Knowledge
5.16.Relationship with Nu-Link
5.17.License under Multimedia Patent
5.18.Trillium Software
6. Conditions to Obligation to Close
6.1. Conditions to Obligation of the Buyer
6.2. Conditions to Obligations of the Sellers
7. Confidentiality
7.1. Confidential Information Related Exclusively to the
Business Relating to the Assets of the ENBU
7.2. Shared Confidential Information
8. Noncompetition
8.1. Noncompetition
8.2. Reserved
9. Indemnification
9.1. Survival of Representations and Warranties
9.2. Indemnity by Sellers
9.3. Environmental Indemnification
9.4. Indemnity by Buyer
9.5. Matters Involving Third Parties
9.6. Other Indemnification Provisions
10. Termination
10.1.Termination of Agreement
10.2.Effect of Termination
11. Miscellaneous
11.1. Press Releases and Public Announcements
11.2. No Third Party Beneficiaries
11.3. Entire Agreement
11.4. Succession and Assignment
11.5. Counterparts
11.6. Headings
11.7. Notices
11.8. Governing Law
11.9. Amendments and Waivers
11.10.Severability
11.11.Expenses
11.12.Construction
11.13.Incorporation of Exhibits and Schedules
11.14.Specific Performance
11.15.Resolution of Disputes
Exhibits A - Form of Escrow Agreement
B-1 - Assignment and Assumption Agreement
B-2 - Bill of Sale
B-3 - Inventory Bill of Sale
C - Allocation of Purchase Price
D - Financial Statements
E - Form of Opinion of Wilson, Sonsini, Goodrich & Rosati
F - Form of Opinion of Ropes & Gray
G - Form of Product Agreement
H - Form of Assignment of Patent Application
Schedules
Schedule 1.1 - Retained Products
Schedule 2.1(a) - Encumbrances on Acquired Assets
Schedule 2.1(b) - Leases
Schedule 2.1(c) - Permits
Schedule 2.1(d) - Intellectual Property
Schedule 2.1(e) - Contracts
Schedule 2.3(e) - Penril Litigation
Schedule 2.6(a) - Preliminary Closing Net Assets
Acquired Statement
Schedule 6.1(m) - Contracts to be Terminated
Disclosure Letter - Exceptions to Representations and Warranties
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is
entered into on January 9, 1996 by and among
Cabletron Systems, Inc., a Delaware corporation
("Cabletron"), Cabletron Systems Acquisition, Inc., a
Delaware corporation and a wholly-owned subsidiary of
Cabletron ("Acquisition") (Cabletron and Acquisition
are collectively referred to herein as the "Buyer"),
Standard Microsystems Corporation, a Delaware
corporation ("SMC") and SMC Enterprise Networks,
Inc., a Delaware corporation and a wholly-owned
subsidiary of SMC, ("Subsidiary") (SMC and Subsidiary
are collectively referred to herein as the
"Sellers"). The Buyer and the Sellers are referred
to collectively herein as the "Parties."
This Agreement contemplates a transaction in
which the Buyer will purchase substantially all of
the assets (and assume certain of the liabilities) of
the Enterprise Networks business unit of SMC in
consideration of the Purchase Price (as defined
below).
Now, therefore, in consideration of the premises
and the mutual promises herein made, and in
consideration of the representations, warranties, and
covenants herein contained, the Parties agree as
follows.
1. Definitions.
"694 Chip" means the device marketed by SMC
under the part number SMC83C694 for implementing the
10BASE-T interface and Manchester Encoder/Decoder
functions.
"Acquired Assets" shall have the meaning set
forth in 2.1.
"Acquisition" shall have the meaning set forth
in the preamble above.
"Affiliate" has the meaning set forth in Rule
12b-2 of the regulations promulgated under the
Securities Exchange Act.
"Affiliated Group" means any affiliated group
within the meaning of Code 1504(a) or any similar
group defined under a similar provision of state,
local, or foreign law.
"Agreement" shall have the meaning set forth in
the preamble above.
"Assets of the ENBU" means the Products,
Technology and other assets, rights, business and
operations that directly relate to, are incorporated
or embodied in, or are used in or necessary to the
development, manufacture, testing or marketing of the
Products.
"Assumed Liabilities" shall have the meaning in
5 2.3.
"Bacon Chip" means the device marketed by SMC under
the part number SMC83C110 that implements the 100BASE-
TX conveyance sub-layer, 4B/5B encoding/decoding, and
stream ciphering functions.
"Basis" means any past or present fact,
situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could
reasonably form the basis for any specified
consequence.
"Buyer" has the meaning set forth in the
preamble above.
"Cabletron" shall have the meaning set forth in
the preamble above.
"Cash" means cash and cash equivalents
(including marketable securities and short term
investments) calculated in accordance with GAAP
applied on a basis consistent with the preparation of
the Financial Statements.
"Chemical Substance" means any chemical
substance, including but not limited to any: (i)
pollutant, contaminant, irritant, chemical, raw
material, intermediate, product, by-product, slag,
construction debris; (ii) industrial, solid, liquid
or gaseous toxic or hazardous substance, material or
waste, (iii) petroleum or any fraction thereof; (iv)
asbestos or asbestos-containing material; (v)
polychlorinated biphenyl; (vi) chlorofluorocarbons;
and, (vii) any other substance, material or waste,
which is identified or regulated under any
Environmental Law or Safety Law, as now and
hereinafter in effect, or other comparable laws.
"Closing" has the meaning set forth in 2.7
below.
"Closing Date" has the meaning set forth in
2.7 below.
"Closing Date Audit" has the meaning set forth
in 2.6 below.
"Code" means the Internal Revenue Code of 1986,
as amended.
"Component Products Division" means the
Component Products Division of SMC located
principally in Hauppauge, New York.
"Confidential Information" means any and all
information concerning the Assets of the ENBU that is
not already generally or readily obtainable by the
public or is publicly known or becomes publicly known
through no fault of the Sellers.
"Contracts" has the meaning set forth in
2.1(e).
"Controlled Group of Corporations" means a group
of corporations that is treated as a single employer
by reason of Code 401(b), (c) or (m).
"Desktop Networks Business Unit" means the
Desktop Networks Business Unit of SMC located
principally in Irvine, California.
"Disclosure Letter" has the meaning set forth in
3 below.
"Employee Benefit Plan" means any (a)
nonqualified deferred compensation or retirement plan
or arrangement which is an Employee Pension Benefit
Plan, (b) qualified defined contribution retirement
plan or arrangement which is an Employee Pension
Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee
Pension Benefit Plan (including any Multiemployer
Plan), or (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning
set forth in ERISA 3(2).
"Employee Welfare Benefit Plan" has the meaning
set forth in ERISA 3(1).
"ENBU" means the Sellers with respect to its
Enterprise Networks business unit.
"Environment" means real property and any
improvements thereon, and also includes, but is not
limited to, ambient air, surface water, drinking
water, groundwater, land surface, subsurface strata
and water body sediments.
"Environmental Laws" mean any federal, state,
local and foreign law, regulation or legal
requirement relating to pollution, or protection or
cleanup of the Environment, including, without
limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, the
Resource Conservation and Recovery Act, as amended,
the Clean Air Act, as amended, the Clean Water Act,
as amended, and any other law or legal requirement,
as now or hereinafter in effect, relating to: (a)
the Release, containment, removal, remediation,
response, cleanup or abatement of any sort of any
Chemical Substance; (b) the manufacture, generation,
formulation, processing, labeling, distribution,
introduction into commerce, use, treatment, handling,
storage, recycling, disposal or transportation of any
Chemical Substance; (c) exposure of persons,
including employees, to any Chemical Substance; or,
(d) the physical structure, use or condition of a
building, facility, fixture or other structure,
including, without limitation, those relating to the
management, use, storage, disposal, cleanup or
removal of asbestos, asbestos-containing materials,
polychlorinated biphenyls or any other Chemical
Substance.
"Environmental Liabilities and Costs" means all
Losses incurred: (i) that are required by a
governmental agency or third party in order to comply
with any Environmental Law or Environmental Permit;
(ii) that are required by a governmental agency or
third party as a result of a Release of any Chemical
Substance; or, (iii) that are required by a
governmental agency or third party as a result of any
environmental conditions present at, created by or
arising out of the past or present operations of
Sellers through the Closing Date or of any prior
owner or operator of a facility or site at which
Sellers now operates or has previously operated.
"Environmental Permit" means any Permit or
authorization from any governmental authority
required under, issued pursuant to, or authorized by
any Environmental Law.
"Escrow Agreement" means the Escrow Agreement
entered into by the Parties pursuant to Section
6.1(o).
"ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
"Excluded Assets" has the meaning set forth in
2.2 below.
"Extremely Hazardous Substance" has the meaning
set forth in 302 of the Emergency Planning and
Community Right-to-Know Act of 1986, as amended.
"FEAST Chip" means the device marketed by SMC
under the part number SMC91C100 for implementing the
Fast Ethernet Media Access Control (MAC) functions in
all its revisions. The functions of this chip are
documented in the SMC91C100 data sheet dated
12/09/94.
"FEAST Full Duplex Chip" means the pin
compatible successor to the SMC91C100 that adds full
duplex communications capability to the functions
implemented by the SMC91C100. The details of the
functions of this chip are documented in the
engineering spec titled "FEAST Full Duplex"
specification dated 12/04/95.
"Fiduciary" has the meaning set forth in ERISA
3(21).
"Final Balance Sheet" has the meaning set forth
in 2.6 below.
"Final Closing Net Assets Acquired Statement"
has the meaning set forth in 2.6 below.
"Financial Statement" has the meaning set forth
in 3.9 below.
"GAAP" means United States generally accepted
accounting principles as in effect from time to time.
"Hart-Scott-Rodino Act" means the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as
amended.
"Indebtedness" has the meaning set forth in
3.10.
"Intellectual Property" means the entire right,
title and interest in and to all proprietary rights
of every kind and nature, including Patents,
copyrights, Trademarks, mask works, trade secrets and
proprietary information, all applications for any of
the foregoing, and any license or agreements granting
rights related to the foregoing: (i) subsisting in,
covering, reading on, directly applicable to or
existing in the Products or the Technology,
including, without limitation, all Technology
identified in Schedule 2.1(d); or (ii) that are
owned, licensed or controlled in whole or in part by
ENBU and directly relate to the Assets of the ENBU;
or (iii) that are used in or necessary to the
development, manufacture, marketing or testing of the
Products.
"Interim Financial Statements" has the meaning
set forth in 3.9.
"Inventory" means the inventory of Products,
including all raw materials and supplies,
manufactured and purchased parts, goods in process,
and finished goods, comprising the Acquired Assets.
"Joint Software" means the source code, object
code, programmer documentation and user
documentation, as further developed pursuant to
Section 2.10, comprising: (i) the software programs
known as EliteView 3.1 (Microsoft Windows version)
for the following - 3512 Ethernet Hub, 3812 Ethernet
Hub, Tigerstack Ethernet Hub, PC Agent, 4008 Token
Ring MAU, 4016 Token Ring MAU, Tigerswitch XE, ES/1,
ES/1 ATX; (ii) the software programs known as
EliteView 4.3 (Microsoft Windows version); (iii) the
software programs known as EliteView Snap-in (Novell
NMS version); and (iv) the software program known as
Agent Emulator.
"Knowledge" means actual knowledge after
reasonable investigation.
"Leases" has the meaning set forth in 2.1(b).
"Liability" means any liability or obligation
(whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or
unliquidated, whether incurred or consequential and
whether due or to become due), including any
liability for Taxes.
"Lien" means any mortgage, pledge, lien,
security interest, charge, claim, equity,
encumbrance, restriction on transfer, conditional
sale or other title retention device or arrangement
(including, without limitation, a capital lease),
transfer for the purpose of subjection to the payment
of any Indebtedness, or restriction on the creation
of any of the foregoing, whether relating to any
property or right or the income or profits therefrom;
provided, however, that the term "Lien" shall not
include (i) statutory liens for Taxes to the extent
that the payment thereof is not in arrears or
otherwise due, (ii) encumbrances in the nature of
zoning restrictions, easements, rights or
restrictions of record on the uses of real property
if the same do not materially detract from the value
of the property encumbered thereby or impair the use
of such property in the Assets of the ENBU as
currently conducted, (iii) statutory or common law
liens to secure landlords, lessors or renters under
leases or rental agreements confined to the premises
rented to the extent that no payment or performance
under any such lease or rental agreement is in
arrears or is otherwise due, (iv) deposits or pledges
made in connection with, or to secure payment of,
worker's compensation, unemployment insurance, old
age pension programs mandated under applicable laws
or other social security regulations and (v)
statutory or common law liens in favor of carriers,
warehousemen, mechanics and materialmen, statutory or
common law liens to secure claims for labor,
materials or supplies and other like liens, which
secure obligations to the extent that payment thereof
is not in arrears or otherwise due.
"Losses" has the meaning set forth in 9.2.
"Most Recent Balance Sheet" means the statement
of assets and liabilities dated November 30, 1995
prepared by Sellers and included in the Financial
Statements attached as Exhibit D hereto.
"Most Recent Fiscal Year End" has the meaning
set forth in 3.9 below.
"Multiemployer Plan" has the meaning set forth
in ERISA 3(37).
"Net Asset Value" means the excess of the
Acquired Assets over the Assumed Liabilities as shown
on the Final Closing Net Assets Acquired Statement
prepared as of the Closing Date and determined in
accordance with GAAP applied on a basis consistent
with the preparation of the Financial Statements;
provided, however, that assets, liabilities, gains,
losses, revenues, and expenses for interim periods or
as of dates other than fiscal year-end will be
determined, for purposes of the Final Closing Net
Assets Acquired Statement, through the full
application of the procedures which would be used in
preparing an audited balance sheet.
"Ordinary Course of Business" means the ordinary
course of business consistent with past practice
(including with respect to quantity and frequency).
"Parties" has the meaning set forth in the
preamble above.
"Patent" means any: (i) United States or foreign
patent, patent application, patent disclosure or
other patent right; (ii) any division, continuation,
continuation-in-part or similar extension of an
application that is a Patent; and (iii) any patent or
other patent right that issues or is based upon an
application that is a Patent.
"PBGC" means the Pension Benefit Guaranty
Corporation.
"Penril Litigation" has the meaning set forth in
2.3(e) below.
"Person" means an individual, a partnership, a
corporation, an association, a joint stock company, a
trust, a joint venture, an unincorporated
organization, or a governmental entity (or any
department, agency, or political subdivision
thereof).
"Preliminary Closing Net Assets Acquired
Statement" has the meaning set forth in 2.6 below.
"Product Agreement" means the Product Agreement
entered into by the Parties attached hereto as
Schedule G.
"Products" means all current products and
services that are identified in Schedule 2.1(d), any
subsequent versions of such products currently being
developed, any products currently being developed by
ENBU which are designed to supersede, replace or
function as a component of such products, and any
upgrades, enhancements, improvements and
modifications to the foregoing currently being
developed.
"Prohibited Transaction" has the meaning set
forth in ERISA 406 and Code 4975.
"Purchase Price" has the meaning set forth in
2.5 below.
"Release" means any actual or, to the Knowledge
of the Seller, alleged spilling, leaking, pumping,
pouring, emitting, dispersing, emptying, discharging,
injecting, escaping, leaching, dumping, or disposing
of any Chemical Substance into the Environment that
would cause an Environmental Liability and Cost
(including the abandonment or discarding of barrels,
containers, tanks or other receptacles containing or
previously containing any Chemical Substance).
"Reportable Event" has the meaning set forth in
ERISA 4043.
"Retained Products" means all current products
and services that are identified in Schedule 1.1, all
current products and services of and products
currently under development by the Component Products
Division and Desktop Networks Business Unit, any
subsequent versions of such products currently being
developed, any products currently being developed
which are designed to supersede, replace or function
as a component of such products, and any upgrades,
enhancements, improvements and modifications to the
foregoing currently being developed.
"Retained Technology" means all inventions,
copyrightable works, integrated circuit masks,
discoveries, innovations, know-how, information
(including ideas, research and development, know-how,
formulas, compositions, manufacturing and production
processes and techniques, technical data, designs,
drawings, specifications, customer and supplier
lists, pricing and cost information, business and
marketing plans and proposals, documentation, and
manuals), computer software, computer hardware,
integrated circuits, electronic, electrical and
mechanical equipment and all other forms of
technology, including improvements, modifications,
derivatives or changes, whether tangible or
intangible, embodied in any form, whether or not
protectible or protected by patent, copyright, mask
work right, trade secret law or otherwise, that are
incorporated, embodied or used in or are used to
develop, manufacture, test or market the Retained
Products.
"Safety Laws" means any federal, state, local
and foreign law, regulation or legal requirement
relating to health or safety, including the
Occupational Safety and Health Act, as amended, as
now or hereinafter in effect relating to (a) exposure
of employees to any Chemical Substance or (b) the
physical structure, use or condition of a building,
facility, fixture or other structure, including,
without limitation, those relating to equipment or
manufacturing processes, or the management, use,
storage, disposal, cleanup or removal of any Chemical
Substance.
"Safety Liabilities and Costs" means all Losses
incurred to comply with any Safety Law or as a result
of any health or safety conditions present at,
created by or arising out of the past or present
operations of the ENBU through the Closing Date.
"Securities Act" means the Securities Act of
1933, as amended.
"Securities Exchange Act" means the Securities
Exchange Act of 1934, as amended.
"Security Interest" means any mortgage, pledge,
lien, encumbrance, charge, or other security
interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due
and payable, (c) purchase money liens and liens
securing rental payments under capital lease
arrangements, and (d) other liens arising in the
Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"Subsidiary" means any corporation with respect
to which a specified Person (or a Subsidiary thereof)
owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities
to elect a majority of the directors.
"Tax" or "Taxes" means any federal, state,
local, or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental
(including taxes under Code 59A), customs duties,
capital stock, franchise, profits, withholding,
social security (or similar, including FICA),
unemployment, disability, real property, personal
property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated, or
other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether
disputed or not.
"Tax Return" means any return, declaration,
report, claim for refund, or information return or
statement relating to Taxes, including any schedule
or attachment thereto, and including any amendment
thereof.
"Technology" means all inventions, copyrightable
works, integrated circuit masks, discoveries,
innovations, know-how, information (including ideas,
research and development, know-how, formulas,
compositions, manufacturing and production processes
and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing
and cost information, business and marketing plans
and proposals, documentation, and manuals), computer
software, computer hardware, integrated circuits,
electronic, electrical and mechanical equipment and
all other forms of technology, including
improvements, modifications, derivatives or changes,
whether tangible or intangible, embodied in any form,
whether or not protectible or protected by patent,
copyright, mask work right, trade secret law or
otherwise, that are incorporated, embodied or used in
or are used to develop, manufacture, test or market
the Products.
"Trademarks" means any trademarks, service
marks, trade dress, and logos, together with all
translations, adaptations, derivations, and
combinations thereof and including all goodwill
associated therewith.
2. Acquisition of Assets by Buyer.
2.1. Purchase and Sale of Assets. The Sellers
agree to sell and transfer to the Buyer, and the
Buyer agrees to purchase from the Sellers at the
Closing, subject to and upon the terms and conditions
contained herein, free and clear of any Lien or
Security Interest except as listed on Schedule
2.1(a), all of the Sellers' right, title, and
interest in and to the following properties and
assets, except as provided in 2.2 (collectively,
the "Acquired Assets"):
(a) All assets of the ENBU reflected on the
Most Recent Balance Sheet and all assets of the ENBU
of the same nature as those reflected on the Most
Recent Balance Sheet that have been acquired by
Sellers in the Ordinary Course of Business since
November 30, 1995 (other than assets reflected on the
Most Recent Balance Sheet that have been disposed of
in the Ordinary Course of Business since November 30,
1995) including without limitation:
(i) all tangible personal property (such as
machinery, equipment, inventories, raw materials,
supplies, manufactured and purchased parts, works in
progress, finished goods, furniture, tools, jigs and
dies) included in the Most Recent Balance Sheet;
(ii) prepaid expenses and other similar current
assets of the ENBU included in Most Recent Balance
Sheet;
(b) All leasehold interests and subleases and
rights thereunder relating to the real and personal
property as listed on Schedule 2.1(b) (the "Leases");
(c) All licenses (other than Intellectual
Property), permits, authorizations, orders,
registrations, certificates, variances, approvals,
consents and franchises pertaining to or used in
connection with the Assets of the ENBU or any pending
applications relating to any of the foregoing,
including without limitation all governmental
permits, licenses, authorizations, approvals and
consents described in Schedule 2.1(c);
(d) All Intellectual Property, except as set
forth in Section 2.2, goodwill associated therewith,
licenses and sublicenses granted in respect thereto
and rights thereunder, remedies against infringements
thereof and rights to protection of interest therein,
including without limitation the Intellectual
Property described in Schedule 2.1(d) hereto;
(e) All contracts, indentures, mortgages,
instruments, Security Interests, guaranties, or other
agreements relating to the Assets of the ENBU as
listed on Schedule 2.1(e) (the "Contracts");
(f) (i) All customer, distribution, supplier
and mailing lists of any of the Sellers relating
exclusively to the business of ENBU and (ii) copies
of all other customer, distribution, supplier and
mailing lists of any of the Sellers relating to the
Assets of ENBU, excluding the Excluded Assets;
(g) All claims, deposits, prepayments, refunds,
causes of action, choses in action, rights of
recovery, rights of set off and rights of recoupment
relating to the Assets of the ENBU or the other
Acquired Assets, excluding the Excluded Assets,
except as set forth on Schedule 2.3(e); and
(h) (i) All business and financial records,
books, ledgers, files, plans, documents,
correspondence, lists, architectural plans, drawings,
notebooks, creative materials, advertising and
promotional materials, marketing materials, studies,
reports, equipment repair, maintenance or service
records exclusively relating to the Assets of the
ENBU excluding the Excluded Assets whether written or
electronically stored or otherwise recorded and (ii)
copies of all other business and financial records,
books, ledgers, files, plans, documents,
correspondence, lists, architectural plans, drawings,
notebooks, creative materials, advertising and
promotional materials, marketing materials, studies,
reports, equipment repair, maintenance or service
records relating in part to the Assets of the ENBU
excluding the Excluded Assets and relating in part to
businesses retained by SMC whether written or
electronically stored or otherwise recorded.
2.2. Excluded Assets. There shall be excluded
from the Acquired Assets to be sold, assigned,
transferred, conveyed and delivered to Buyer
hereunder, and to the extent in existence on the
Closing Date, there shall be retained by the Sellers,
the following assets, properties and rights
(collectively, the "Excluded Assets"):
(a) all accounts receivable and notes
receivable;
(b) all Patents owned by the Sellers other than
that certain application for U.S. Letters Patent
known as Multimedia Bandwidth Accelerator, Serial
No. 08/428,403, and any division, continuation,
continuation-in-part in similar extension of such
application;
(c) the entire right, title and interest in and
to all proprietary rights of every kind and nature,
including Patents, copyrights, Trademarks, mask
works, trade secrets and proprietary information, all
applications for any of the foregoing, and any
license or agreements granting rights related to the
foregoing subsisting in, covering, reading on,
directly applicable to or existing in the Feast Chip,
the Feast Full Duplex Chip, the Bacon Chip and the
694 Chip and, any subsequent versions of such chips
currently being developed, and any upgrades,
enhancements, improvements and modifications to such
chips currently being developed.
(d) the entire right, title and interest in and
to all proprietary rights of every kind and nature,
including Patents, copyrights, Trademarks, mask
works, trade secrets and proprietary information, all
applications for any of the foregoing, and any
license or agreements granting rights related to the
foregoing: (i) subsisting in, covering, reading on,
directly applicable to or existing in the Retained
Products or the Retained Technology; or (ii) that are
owned, licensed or controlled in whole or in part by
ENBU and directly relate to the Retained Products or
Retained Technology; or (iii) that are used in or
necessary to the development, manufacture, marketing
or testing of the Retained Products including but not
limited to a non-exclusive, non-transferable right
to: (i) use the technology claimed in the application
for U.S. Letters Patent known as Multimedia Bandwidth
Accelerator, Serial No. 08/428,403 (the "Multimedia
Patent") to the extent such technology is embodied in
the Retained Products; and (ii) license the
Multimedia Patent to the extent SMC is contractually
required to do so pursuant to the licenses described
in Section 3.16(e) of the Disclosure Letter;
(e) all rights in and to the trademarks
EliteView and TigerSwitch except as set forth in
Section 5.13;
(f) any goodwill of the Sellers;
(g) loans by Sellers to employees of Sellers;
(h) fixed assets not directly relating to
employees of the ENBU; and
(i) deferred service revenue.
2.3. Assumption of Liabilities. On the terms
and subject to the conditions set forth herein and
subject to Section 2.4 hereof, from and after the
Closing, the Buyer will assume and satisfy or perform
when due only the following Liabilities and
obligations of the Sellers and its Subsidiaries (the
"Assumed Liabilities"):
(a) all Liabilities of the ENBU set forth on
the face of the Most Recent Balance Sheet;
(b) all Liabilities of the ENBU incurred after
November 30, 1995 in the Ordinary Course of Business
that would, if incurred during the last fiscal year,
be required in accordance with GAAP to be set forth
on the face of the Most Recent Balance Sheet;
(c) all Liabilities and obligations of the ENBU
under the Leases listed on Schedule 2.1(b);
(d) all Liabilities and obligations under the
Contracts listed in Schedule 2.1(e); and
(e) all Liabilities and obligations of the
Sellers and the ENBU in respect of the case pending
in the Circuit Court in Maryland captioned Penril
Datacomm Networks, Inc. v. Standard Microsystems
Corporation et al. (Cir. Ct. MD, No. 106878) (the
"Penril Litigation") but only to the extent and
subject to the terms described on Schedule 2.3(e).
2.4. Liabilities Not Assumed. Except as
expressly set forth in this Agreement, the Buyer will
not assume or perform any Liabilities or obligations
not specifically contemplated by 2.3 hereof nor any
of the following Liabilities and obligations (whether
or not contemplated by 2.3 unless specifically
contemplated by this 2.4):
(a) any Liability or obligation of any of the
Sellers for Taxes of any Person attributable to any
taxable period or activities or events that occurred
prior to the Closing Date regardless of whether
reserved on the Financial Statements;
(b) any Liability of any of the Sellers for the
unpaid Taxes of any Person prior to the Closing Date
or as a consequence of the Closing, including Taxes
imposed on any of the Sellers as a transferee or
successor, by contract, or otherwise;
(c) any Liability or obligation of any of the
Sellers to indemnify any Person (including any of the
Sellers) by reason of the fact that such Person was a
director, officer, employee, or agent of any of the
Sellers or was serving at the request of such entity
as a partner, trustee, director, officer, employee,
or agent of another entity;
(d) any Liability or obligation of any of the
Sellers as a result of any legal or equitable action
or judicial or administrative proceeding initiated at
any time caused by any action that occurred or
condition that existed prior to the Closing Date and
in respect of anything done, suffered to be done or
omitted to be done by such Seller or any of their
directors, officers, employees or agents except as
set forth in 2.3(e);
(e) any Liability of any of the Sellers for
costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby;
(f) any Liability or obligation of any of the
Sellers under this Agreement (or under any side
agreement between any of the Sellers on the one hand
and the Buyer on the other hand) entered into on or
after the date of this Agreement;
(g) any Liability or obligation of any of the
Sellers incurred in connection with the making or
performance of this Agreement;
(h) any Liability or obligation for products
manufactured or sold (or, in the case of warranty
obligations, for products sold prior to Closing) or
services rendered by the ENBU prior to the Closing
Date (i) except (A) to the extent described on
Schedule 2.3(e) and (B) any Liability for product
warranty repair and replacement (as described in
5.11) to the extent of the reserve as set forth in
the Most Recent Balance Sheet and in 2.3(b) above,
and (ii) including, without limitation, any Liability
relating to the pending dispute between the Sellers
and Willemijn Houdstermaatschappiuj BV regarding the
Soderblom Patent (U.S. Patent No. Re. 31,852) and
related contractual Liabilities except as described
on Schedule 2.3(e);
(i) any Liability or obligation of any of the
Sellers arising out of any Employee Benefit Plan
established or maintained by any of the Sellers for
the benefit of past or present employees of ENBU or
to which the ENBU contributes or any liability or the
termination of any such plan;
(j) any Liability or obligation of any of the
Sellers for making payments or providing benefits of
any kind to its employees or former employees
(including, without limitation, (A) as a result of
the sale of the Acquired Assets or as a result of the
termination by any of the Sellers of any employees,
(B) any Liability or obligation arising out of, or
relating to, the Worker Adjustment and Retaining Act
of 1988, (C) any obligation to provide former
employees (including individuals who become former
employees by reason of the consummation of the
transactions contemplated by this Agreement) so-
called COBRA continuation coverage, (D) any Liability
or obligation in respect of medical and other
benefits for existing and future retirees and for
claims made after Closing in respect of costs and
expenses incurred prior to Closing, (E) any Liability
or obligation in respect of work-related employee
injuries or worker's compensation claims (F) any
Liability of Sellers pursuant to 5.7 hereof
(G) any Liability or obligation in respect of the
Sellers' 401(k) savings plan, except as set forth in
5.7, and (H) any Liability or obligation in respect
of employee bonuses);
(k) any Liability pertaining to the ENBU or its
business and arising out of or resulting from
noncompliance prior to the Closing Date with any
national, regional or local laws, statutes,
ordinances, rules, regulations, orders,
determinations, judgments, or directives, whether
legislatively, judicially or administratively
promulgated (including, without limitation, any
Environmental Liabilities and Costs whether or not
arising out of or resulting from Sellers'
noncompliance with Environmental Laws);
(l) any Liability or obligation of any of the
Sellers under any leases, contracts, or agreements
not listed on Schedules 2.1(b) and 2.1(e);
(m) any Liability or obligation of any of the
Sellers in respect of Environmental Liabilities and
Costs arising out of any condition existing at or
prior to Closing which constitutes a violation of or
gives rise to a duty to remediate under any
Environmental Law which is occurring or occurred on
either (A) property which is not owned or leased by
any of the Sellers on the Closing Date or (B)
property which is owned or leased by any of the
Sellers on the Closing Date, in both cases without
limit as to point of time, knowledge or amount
(including, without limitation, any Liability or
obligation to remediate any Chemical Substance, (i)
generated, used, stored, disposed of or Released
(specifically including naphtha) at any property or
facility owned or leased by the Sellers or their
Affiliates at any time prior to the Closing Date,
(ii) Released from or in connection with any
underground or above-ground storage tank maintained
at any property or facility owned or leased by any of
the Sellers or its Affiliates at any time prior to
the Closing Date or (iii) generated, used, stored,
disposed of or Released in connection with the ENBU's
past or present operations);
(n) all Safety Liabilities and Costs;
(o) any Liability or obligation in respect of
accounts payable; and
(p) any Liabilities or obligations for accrued
royalties for Soderblom, accrued payroll, accrued
legal fees, accrued bonuses, incentives and accrued
vacation, and accrued Taxes; and
(q) any Liabilities or obligations of the
Sellers and Buyer in respect of the Penril Litigation
in excess of the amounts described on Schedule 2.3(e)
except for any Liabilities (including damages) of
Buyer in the Penril Action arising from actions taken
by Buyer post-closing.
2.5. Purchase Price. The Buyer agrees to pay to
SMC the purchase price (the "Purchase Price") as
follows:
2.5.1. Cash. At closing, $68,850,000 in cash
payable by wire transfer upon such wire instructions
delivered by SMC to Buyer two business days prior to
the Closing; and
2.5.2. Escrow Amount. $7,050,000 in cash
payable by wire to Fleet National Bank of
Massachusetts as escrow agent (the "Escrow Agent"),
to be held in escrow pursuant to the Escrow Agreement
among the Parties and the Escrow Agent in the form of
Exhibit A hereto.
2.6. Adjustment to Purchase Price; Closing Date
Audit Closing Date Audit;. Within 20 days following
the Closing Date, SMC shall prepare a closing
statement that shall consist solely of a balance
sheet of the Assets Acquired and the Assumed
Liabilities relating to the ENBU as of the Closing
Date (the "Final Closing Net Assets Acquired
Statement") prepared consistently with the
Preliminary Closing Net Assets Acquired Statement
attached hereto as Schedule 2.6(a) (the "Preliminary
Closing Net Assets Acquired Statement") and (ii) a
Final Balance Sheet of the ENBU dated as of the
Closing Date prepared in accordance with GAAP
consistently with the Most Recent Balance Sheet (the
"Final Balance Sheet") and shall deliver them to
Buyer. The Final Closing Net Assets Acquired
Statement shall be derived from the Final Balance
Sheet and shall specifically describe the derivation
from such Final Balance Sheet. Within 30 days of
receipt of the Final Closing Net Assets Acquired
Statement, KPMG Peat Marwick will, at Buyer's
expense, conduct an examination in accordance with
generally accepted auditing standards or such other
similar procedures reasonably considered necessary by
KPMG Peat Marwick (the "Closing Date Audit") of the
Acquired Assets and Assumed Liabilities as reflected
on the Final Closing Net Assets Acquired Statement as
of the close of business on the Closing Date. SMC
shall make its work papers and back up materials used
in preparation of the Final Closing Net Assets
Acquired Statement and the Final Balance Sheet
available for review by Buyer and KPMG Peat Marwick.
Within ten days of the completion of the Closing
Audit, Buyer shall provide SMC with written notice of
any adjustments to the Final Closing Net Assets
Acquired Statement provided to Buyer from SMC
excluding issues relating to inventory valuation and
including adjustments to the total amount of accounts
receivable less accounts payable as reflected on the
Final Balance Sheet ("Dispute Notice"). If Buyer
does not provide a Dispute Notice to SMC within such
10 day period, Buyer shall be deemed to have accepted
the Final Closing Net Assets Acquired Statement as
prepared by SMC and shall be final and binding on the
parties in the absence of fraud or manifest error.
Based upon the Final Balance Sheet as audited
and as agreed to by the Parties as contemplated by
this 2.6, (i) Seller will pay to Buyer, within 5
days of the resolution of such disputes, an amount
equal to the amount by which (A) the accounts
receivable less the accounts payable as reflected on
Final Balance Sheet exceeds (B) $1,900,000 or (ii)
Buyer will pay Sellers, within 5 days of the
resolution of such disputes, an amount equal to the
amount by which (A) the accounts receivable less the
accounts payable as reflected on Final Balance Sheet
is less than (B) $1,900,000. Any other payments that
may be determined based on the above, shall be made
by Sellers to Buyer within 5 days of such resolution.
The Dispute Notice shall set forth the amounts
as to which the Buyer disagrees. The Parties shall
attempt in good faith to resolve such dispute. In
the event that the Parties cannot so agree, the
Parties shall, at Sellers' and Buyer's joint expense,
resolve the dispute by arbitration. The Buyer and
Sellers have selected Price Waterhouse to resolve any
remaining objections. The determination of such
accounting firm shall be made within 30 days of the
notification of Price Waterhouse by Buyer and
Sellers, shall be set forth in writing and shall be
conclusive and binding on the Parties. The fees and
expenses of Price Waterhouse shall be shared equally
by the Buyer and the SMC. The Final Closing Net
Assets Acquired Statement shall be revised to reflect
the resolutions of any objections thereto.
2.7. The Closing. The closing of the
transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Ropes &
Gray in Boston, Massachusetts, commencing at 10:00
a.m. eastern time five business days following
satisfaction of the Closing Conditions set forth in
section 6.1 and 6.2, and in any event on or prior to
45 days following the expiration or termination of
the waiting period under the Hart-Scott Rodino Act,
or such other date as the Parties may mutually
determine (the "Closing Date").
2.8. Deliveries at the Closing. At the Closing,
(i) the Sellers will deliver to the Buyer the various
certificates, instruments, and documents referred to
in 6.1 below; (ii) the Sellers will execute,
acknowledge (if appropriate), and deliver to the
Buyer (A) assignments of the Leases, Permits,
Intellectual Property and Contracts, listed in 3.31
of the Disclosure Letter (including Intellectual
Property transfer documents), (B) such other
instruments of sale, transfer, conveyance, and
assignment as the Buyer and its counsel may
reasonably request; (C) the Escrow Agreement; and (D)
the Product Agreement; (iii) the Buyer and Sellers
will execute, acknowledge (if appropriate), and
deliver the Assignment and Assumption Agreement in
the form attached hereto as Exhibit B-1, the Bill of
Sale in the form attached hereto as Exhibit B-2, and
the Inventory Bill of Sale in the form attached
hereto as Exhibit B-3; (iv) the Sellers will deliver
copies of all material items among the items
identified in Section 2.1(h)(ii), identifying in
connection with such delivery that Sellers have
retained a copy of such materials; and (v) the Buyer
will deliver to SMC the consideration payable at
Closing specified in 2.5 above.
Simultaneously with such delivery, each of the
Sellers will use its reasonable best efforts and take
all action as may be necessary to put Buyer and, in
respect of Inventory, Cabletron Sales & Service, Inc.
in possession and operating control of the Acquired
Assets.
At any time and from time to time after the
Closing, at the request of Buyer and without further
consideration, except as stated below, any of the
Sellers: (a) will execute and deliver such other
instruments of sale, transfer, conveyance, assignment
and confirmation and take such action as Buyer may
reasonably determine is necessary to transfer, convey
and assign to Buyer, and to confirm Buyer's title to
or interest in the Acquired Assets, to put Buyer in
actual possession and operating control thereof and
to assist Buyer in exercising all rights with respect
thereto; (b) will deliver to Buyer copies of all non-
material items among the items identified in Section
2.1(h)(ii).
2.9. Preliminary Allocation of Purchase Price.
The Parties agree that the preliminary allocation of
the Purchase Price for the Acquired Assets shall be
as determined by the allocation formula set forth on
Exhibit C hereto, as may be adjusted to reflect any
Additional Payment or other adjustments. The Sellers
and Buyer agree that the allocation may be amended or
modified by mutual agreement prior to the filing of
the applicable Tax Returns of Buyer and the Sellers.
The Sellers and Buyer shall use such final allocation
in all Tax Returns.
2.10. Joint Software. Buyer shall use
reasonable efforts to perform such further
development of the Joint Software as is currently
anticipated by the Parties, provided, however, that
Buyer's sole obligation will be to devote ten man
hours a week through April 7, 1996 to further
development of the Joint Software. Sellers hereby
assign an undivided 50% interest in the Joint
Software, and all intellectual property, including
copyrights, therein, to Buyer, and Buyer hereby
assigns an undivided 50% interest in the Joint
Software, and all intellectual property, including
copyrights, therein, to Sellers. The Parties agree
that Sellers shall receive no title in any
enhancements, upgrades, modifications or new versions
of the Joint Software developed by Buyer other than
developed pursuant to the first sentence of this
paragraph. THE PARTIES AGREE THAT THE SELLERS ARE
RECEIVING THE JOINT SOFTWARE "AS IS", AND THAT BUYER
MAKES NO REPRESENTATION OR WARRANTY WHATSOEVER, AND
EXPRESSLY DISCLAIMS ALL WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE, CONCERNING THE
JOINT SOFTWARE.
3. Representations and Warranties of the Sellers.
The Sellers each severally and not jointly represent
and warrant to the Buyer that the statements
contained in this 3 are correct and complete as of
the date of this Agreement and, if different than the
date of this Agreement, will be correct and complete
as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date
of this Agreement throughout this 3), except as set
forth in the Disclosure Letter accompanying this
Agreement and initialed by the Parties (the
"Disclosure Letter"). The Disclosure Letter will be
arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this 3.
3.1. Organization of the Sellers. Each of the
Sellers is a corporation duly organized, validly
existing, and in good standing under the laws of the
State of Delaware. Copies of the certificate of
incorporation and bylaws of each of the Sellers, as
amended to date, have been heretofore delivered to
Buyer and are accurate and complete.
3.2. [Reserved].
3.3. Authorization of Transaction. Each of the
Sellers has the power and authority (including full
corporate power and authority) to execute and deliver
this Agreement and to perform its respective
obligations hereunder. All corporate and other
actions or proceedings to be taken by or on the part
of each of the Sellers to authorize and permit the
execution and delivery by it of this Agreement and
the instruments required to be executed and delivered
by it pursuant hereto, the performance by each of the
Sellers of its obligations hereunder, and the
consummation by each of the Sellers of the
transactions contemplated herein, have been duly and
properly taken. This Agreement has been duly
executed and delivered by each of the Sellers and
constitutes the legal, valid and binding obligation
of each of the Sellers, enforceable in accordance
with its terms and conditions.
3.4. Noncontravention. Neither the execution
and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby
(including the assignments and assumptions referred
to in 2 above), will (i) violate any constitution,
statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to
which any of the Sellers or the Acquired Assets is
subject or any provision of the charter or by-laws of
any of the Sellers or (ii) conflict with, result in a
breach of, constitute a default under, result in the
acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease,
license, instrument, Lien, Security Interest or other
arrangement to which any of the Sellers is a party or
by which it is bound or to which any of their assets
is subject (or result in the imposition of any
Security Interest upon any of their assets) except
where such violation, conflict, breach, default,
acceleration, termination, modification,
cancellation, failure to give notice or Security
Interest would not have a material adverse effect on
the financial condition of the ENBU or on the ability
of the Sellers to consummate the transactions
contemplated by this Agreement. None of the Sellers
needs to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any
government or governmental agency in order for the
Parties to consummate the transactions contemplated
by this Agreement (including the assignments and
assumptions referred to in 2 above) except for the
required filings under the Hart-Scott-Rodino Act,
which filings have been made, and except where the
failure to give notice, to file, or to obtain any
authorization, consent, or approval would not have a
material adverse effect on the financial condition of
the ENBU or on the ability of the Sellers to
consummate the transactions contemplated by this
Agreement.
3.5. Brokers' Fees. None of the Sellers has any
Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with
respect to the transactions contemplated by this
Agreement for which the Buyer could become liable or
obligated.
3.6. Title to Assets. The Sellers collectively
have good and valid title to, or a valid and
subsisting leasehold interest in, and the power to
sell the Acquired Assets, free and clear of all
Security Interests, except for properties and assets
disposed of in the Ordinary Course of Business since
November 30, 1995 and not in contravention of
provisions of 3.11.
3.7. Acquired Assets Used in Business. The
Acquired Assets comprise all of the assets,
properties and rights of every type and description,
real, personal, tangible and intangible used by the
ENBU in product development, manufacturing, marketing
and testing of the Products other than the Excluded
Assets set forth in 2.2(d) and (e) above.
3.8. Subsidiaries. 3.8 of the Disclosure
Letter sets forth for the Subsidiary (i) its name and
jurisdiction of incorporation, (ii) the number of
shares of authorized capital stock of each class of
its capital stock, (iii) the number of issued and
outstanding shares of each class of its capital
stock, the names of the holders thereof and the
number of shares held by each such holder, (iv) the
number of shares of its capital stock held in
treasury, and (v) its directors and officers. SMC
holds of record and owns beneficially all of the
outstanding shares of the Subsidiary, free and clear
of any restrictions on transfer, Taxes, Security
Interests, options, warrants, purchase rights,
contracts, commitments, equities, claims, and
demands.
3.9. Financial Statements. Attached hereto as
Exhibit D are the following financial statements
(collectively the "Financial Statements"): (i)
unaudited balance sheet (statement of net assets and
liabilities) and an unaudited statement of revenues
and expenses for the fiscal year ended February 28,
1995 (the "Most Recent Fiscal Year End") for the
Acquired Assets and (ii) unaudited Most Recent
Balance Sheet as of November 30, 1995 and unaudited
statement of revenues and expenses relating to the
Acquired Assets for the nine- and three-month periods
ending November 30, 1995 ("Interim Financial
Statements"). The Financial Statements have been
prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered
thereby and are consistent with the books and records
of the ENBU. The Parties agree that inventory
reserves for valuation as of the date of the Most
Recent Balance Sheet are deemed to be adequate.
3.10. Indebtedness; Guarantees Guarantees;.
Except as set forth on the Most Recent Balance Sheet,
none of the Sellers has any indebtedness for money
borrowed or for the deferred purchase price of
property or services, excluding trade payables and
other accrued current liabilities incurred in the
ordinary course of business, or capital lease
obligations, conditional sale or other title
retention agreements relating to the Assets of the
ENBU ("Indebtedness"). None of the Sellers is a
guarantor or otherwise liable for any Liability or
obligation, of any other Person for any matter which
relates to or affects or will affect the Assets of
the ENBU.
3.11. Absence of Changes. Since the Most
Recent Balance Sheet date and except as disclosed in
3.11 of the Disclosure Letter, there has not been
any material adverse change in the business,
financial condition, operations or results of
operations of the ENBU. Without limiting the
generality of the foregoing, since that date:
(a) none of the Sellers has sold, leased,
transferred, or assigned any of the ENBU's assets,
tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
(b) none of the Sellers has entered into (i)
any agreement, contract, lease, or license (or series
of related agreements, contracts, leases, and
licenses) involving payments of more than $25,000
relating to the Assets of the ENBU or (ii) any
exclusive distribution agreement or any agreement
that would limit Buyer's rights to select
distribution channels for the Products;
(c) no party (including the ENBU and the
Sellers) has accelerated, terminated, modified, or
canceled any agreement, contract, lease, or license
(or series of related agreements, contracts, leases,
and licenses) involving payments of more than $25,000
relating to the Assets of the ENBU;
(d) none of the Sellers has imposed any
Security Interest upon any of the ENBU's assets,
tangible or intangible;
(e) the ENBU has not made any capital
expenditure (or series of related capital
expenditures) involving more than $10,000 singly or
$50,000 in the aggregate.
(f) none of the Sellers has made any capital
investment in, any loan to, or any acquisition of the
securities or assets of, any other Person (or series
of related capital investments, loans, and
acquisitions) involving payments of more than $25,000
relating to the Assets of the ENBU;
(g) the ENBU has not issued any note, bond, or
other debt security or created, incurred, assumed, or
guaranteed any indebtedness for borrowed money or
capitalized lease obligation involving payments of
more than $25,000;
(h) the ENBU has not delayed or postponed the
payment of accounts payable and other Liabilities
outside the Ordinary Course of Business;
(i) the ENBU has not canceled, compromised,
waived, or released any right or claim (or series of
related rights and claims) involving payments of more
than $25,000;
(j) none of the Sellers or the ENBU has
granted any license or sublicense of any rights under
or with respect to any Intellectual Property;
(k) none of the Sellers has any reason to
believe that its major vendors, licensors,
distributors and customers do not intend to continue
with Buyer a business relationship on terms at least
as favorable as the relationship such vendors,
licensors, distributors and customers, as the case
may be, currently have with Sellers.
(l) the ENBU has not experienced any material
damage, destruction, or loss (whether or not covered
by insurance) to its property;
(m) none of the Sellers has made any loan to,
or entered into any other transaction with, any of
the ENBU's directors, officers, and employees outside
the Ordinary Course of Business;
(n) none of the Sellers has entered into any
employment contract or collective bargaining
agreement, written or oral, or modified the terms of
any existing such contract or agreement relating to
the Assets of the ENBU;
(o) none of the Sellers has granted any
increase in the base compensation of any of the
directors, officers, and employees of the ENBU
outside the Ordinary Course of Business;
(p) none of the Sellers has adopted, amended,
modified or terminated any bonus, profit-sharing,
incentive, severance, or other plan, contract, or
commitment for the benefit of any of the directors,
officers, and employees of the ENBU(or taken any such
action with respect to any other Employee Benefit
Plan);
(q) none of the Sellers has made any payment
pursuant to any Employee Benefit Plan, or bonus,
profit-sharing, incentive, severance or other plan,
contract or commitment for the benefit of any of
ENBU's directors, officers and employees;
(r) none of the Sellers has changed employment
terms for any of the directors, officers, and
employees of the ENBU outside the Ordinary Course of
Business;
(s) the ENBU has not made or pledged to make
any charitable or other capital contribution outside
the Ordinary Course of Business;
(t) none of the Sellers or the ENBU has
modified or changed the application of GAAP from the
manner in which it was applied in the Financial
Statements;
(u) there has not been any other occurrence,
event, incident, action, failure to act, or
transaction outside the Ordinary Course of Business
involving the ENBU; and
(v) none of the Sellers has accelerated the
collection or conversion of accounts receivable or
notes receivable by offering any incentive for such
acceleration, including but not limited to prepayment
discounts, allowances or enhancements; and
(w) none of the Sellers has committed to do
any of the foregoing.
3.12. Absence of Undisclosed Liabilities.
There is no Liability (and, to the Sellers' knowledge
without additional investigation there is no Basis
for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or
demand against any of them giving rise to any
Liability) of the ENBU, except for (i) Liabilities
set forth on the face of the Most Recent Balance
Sheet (rather than in any notes thereto), (ii)
Liabilities which have arisen after the date of the
Most Recent Balance Sheet in the Ordinary Course of
Business, and (iii) Liabilities not assumed pursuant
to 2.3.
3.13. Legal and Other Compliance. Each of
the ENBU and its respective predecessors is in
compliance with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments (and
all agencies thereof) the violation of which would
have a material adverse effect on the ENBU or its
operations, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against any of
them alleging any failure so to comply. Neither the
ownership nor use of the properties of the ENBU,
excluding Intellectual Property, nor the conduct of
the business relating to the Assets of the ENBU
conflicts with the rights of any other Person or
violates, with or without the giving of notice or the
passage of time or both, any terms or provisions of
any Lien or Security Interest, lease, license,
agreement, understanding, law, ordinance, rule or
regulation, or any order, judgment or decree to which
the ENBU is a party or by which they or their assets
are bound or affected.
3.14. Taxes.
(a) Each of the Sellers has timely filed all
Tax Returns that they were required to file
concerning the ENBU. All Taxes owed by the Sellers
concerning the ENBU (whether or not shown on any Tax
Return) have been paid. The Sellers currently are
not the beneficiary of any extension of time within
which to file any Tax Return relating to the Assets
of the ENBU. No claim has ever been made by an
authority in a jurisdiction where any of the Sellers
does not file Tax Returns that they may be subject to
taxation by that jurisdiction in respect of Assets of
the ENBU. There are no Security Interests in any of
the Assets of the ENBU that arose in connection with
any failure (or alleged failure) to pay any tax.
(b) There is no dispute or claim concerning any
Tax Liability relating to the Assets of the ENBU
either (A) claimed or raised by any authority in
writing or (B) as to which the Sellers have Knowledge
based upon contact with any agent of such authority.
The federal Tax Returns for SMC and its consolidated
subsidiaries have been audited for all years from
February 28, 1988 through February 28, 1993.
Included in that return were the ENBU operations for
the short period January 1, 1993 to February 28,
1993. No other income Tax Returns filed with respect
to the ENBU Assets have been audited. All returns
filed for periods subsequent to February 28, 1993
remain open, but are not currently under audit. Each
of the Sellers has delivered to the Buyer correct and
complete copies of all federal Income Tax Returns,
examination reports and statements of deficiencies
assessed against or agreed to relating to the Assets
of the ENBU.
(c) The unpaid Taxes of the Sellers for the
business relating to the Assets of the ENBU (A) did
not, as of the Most Recent Balance Sheet, exceed the
reserve for Tax Liability (rather than any reserve
for deferred Taxes established to reflect timing
differences between book and Tax Income) set forth on
the face of the Most Recent Balance Sheet (rather
than in any notes thereto) and (B) do not exceed that
reserve as adjusted for the passage of time through
the Closing Date.
(d) At the Closing, the Sellers will provide
the Buyer with a certificate substantially in the
form specified in Treas. Reg. 1.1445-2(b)(2)(iii)(B)
to the effect that the Sellers are not foreign
persons for purposes of sections 897 and 1445 of the
Internal Revenue Code of 1986, as amended.
3.15. Property, Plant and Equipment.
(a) None of the Sellers owns any real property
that is used in the Acquired Assets other than
incidental assets located at SMC's sites in New York;
(b) Section 3.15(b) of the Disclosure Letter
lists all real property leased or subleased to the
Sellers that is used in the Assets of the ENBU. The
Sellers have delivered to the Buyer correct and
complete copies of the leases and subleases listed in
3.15(b) which have not been amended or modified
since the date thereof of the Disclosure Letter (as
amended to date). With respect to each lease and
sublease listed in 3.15(b) of the Disclosure
Letter:
(i) to the Sellers' Knowledge, the lease or
sublease is legal, valid, binding, enforceable, and
in full force and effect;
(ii) to the Sellers' Knowledge, the lease or
sublease will continue to be in full force and effect
on identical terms following the consummation of the
transactions contemplated hereby (including the
assignments and assumptions referred to in 2
above);
(iii) to the Sellers' Knowledge, no party to
the lease or sublease is in breach or default, and no
event has occurred which, with notice or lapse of
time, would constitute a material breach or default
or permit termination, modification, or acceleration
thereunder;
(iv) to the Sellers' Knowledge, no party to the
lease or sublease has repudiated any provision
thereof;
(v) none of the Sellers has granted any sublease
under the lease or sublease;
(vi) none of the Sellers has assigned,
transferred, conveyed, mortgaged, deeded in trust, or
encumbered any interest in the leasehold or
subleasehold; and
(vii) all facilities leased or subleased
thereunder have received all approvals of
governmental authorities (including licenses and
permits) required in connection with the operation
thereof and have been operated and maintained in
accordance with applicable laws, rules, and
regulations.
(c) All improvements, machinery, equipment and
other tangible assets which are included in the
Acquired Assets and used in the development,
manufacture and testing of the Products are free from
defects (patent and latent), have been reasonably
maintained, are in good operating condition and
repair (subject to normal wear and tear) and are
suitable in all material respects for the purposes
for which they presently are used.
3.16. Intellectual Property.
(a) To the Seller's Knowledge, the Sellers own
or have the right to use pursuant to a written
license or agreement, all Intellectual Property.
(b) Except as disclosed in 3.16 of the
Disclosure Letter and except for Patents owned by
parties other than the Sellers, the Assets of the
ENBU have not infringed upon or misappropriated any
intellectual property rights of third parties (and,
to Sellers' Knowledge, there is no Basis for a claim
of such infringement or misappropriation), and none
of the Sellers and the officers (and employees with
responsibility for Intellectual Property matters at
the ENBU) of the ENBU has ever received any notice
alleging any such infringement or misappropriation.
(c) All of the Sellers' employees that have
participated in the development of the Products have
entered into employee agreements with one of the
Sellers assigning all right, title and interest in
the Intellectual Property therein to a Seller.
Pursuant to such employee agreements or applicable
law, the Sellers own all of the right, title and
interest of their employees to any Intellectual
Property in the Products.
(d) Schedule 2.1(d) identifies: (i) certain
items of Intellectual Property, and (ii) each license
or agreement which the Sellers have granted to any
third party with respect to any of the Intellectual
Property. With respect to each item of Intellectual
Property:
(i) the Sellers own all Intellectual Property
designated as owned by Sellers, free and clear of any
Security Interest and are in compliance with all
material terms of all licenses relating to any
Intellectual Property licensed to Sellers;
(ii) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or
charge;
(iii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is
pending, or to the Knowledge of the Sellers, is
threatened, which challenges the legality, validity,
enforceability, use, or ownership of the item, and to
the Sellers' actual knowledge without independent
investigation, there is no Basis therefor; and
(iv) none of the Sellers has agreed to
indemnify any Person (other than customers of the
Sellers or users of the Sellers' products) for or
against any infringement or misappropriation with
respect to the item.
(e) Section 3.16(e) of the Disclosure Letter
identifies each item of Intellectual Property among
the Acquired Assets which, to the Knowledge of the
Sellers, is owned by a third party and is used
pursuant to license or agreement. The Sellers have
provided to the Buyer correct and complete copies of
all such licenses and agreements. With respect to
each item of Intellectual Property, except as set
forth in 3.16(e) of the Disclosure Letter:
(i) the underlying item of Intellectual
Property is not subject to any outstanding
injunction, judgment, order, decree, ruling or
charge;
(ii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand is
pending or, to the Knowledge of the Sellers, is
threatened, which challenges the legality, validity,
or enforceability of the underlying item of
Intellectual Property;
(iii) none of the Sellers or the ENBU has
granted any sublicense or similar right with respect
to the license, sublicense, agreement or permission;
and
(iv) the license or agreement is legal, valid,
binding, enforceable, and in full force and effect,
and, to the Sellers' Knowledge, will continue to be
legal, valid, binding, enforceable, and in full force
and effect on identical terms following the
consummation of the transactions contemplated hereby.
(f) To the Knowledge of the Sellers, the
Acquired Assets do not infringe upon any Patents
owned by parties other than the Sellers. It is
expressly understood that for the purposes of this
Section 3.16(f), the Sellers have not searched any
patent records and the Sellers do not undertake to
make a search of any patent records.
(g) To the Knowledge of the Sellers, no third
party has infringed upon or misappropriated any
Intellectual Property. It is expressly understood
that for the purposes of this Section 3.16(g), the
Sellers have not conducted any independent
investigation intended to reveal any such
infringement or misappropriation.
3.17. Inventories. The inventory of the
ENBU consists of raw materials and supplies,
manufactured and purchased parts, goods in process,
and finished goods, none of which is damaged, or
defective, subject only to the reserve for inventory
writedown set forth on the face of the Most Recent
Balance Sheet as adjusted for the passage of time
through the Closing Date in accordance with GAAP and
the past custom and practice of the Sellers. The
inventory, taken as a whole, as reflected in the Most
Recent Balance Sheet and books and records of the
ENBU is valued at the lower of cost (on a first-in,
first-out basis) or market in accordance with GAAP,
consistently applied. Since the date of the Most
Recent Balance Sheet, no inventory has been sold or
disposed of except through sales in the Ordinary
Course of Business. The Parties agree that the
inventory reserves for valuation as of the date of
the Most Recent Balance Sheet are deemed to be
adequate.
3.18. Contracts. 3.18 of the Disclosure
Letter lists the following contracts and other
agreements (including the Contracts, and Leases
listed on Schedules 2.1(b) and 2.1(e)) related to the
Assets of the ENBU to which any of the Sellers is a
party:
(a) any agreement (or group of related
agreements) for the lease of personal property to or
from any Person providing for lease payments in
excess of $25,000;
(b) any agreement (or group of related
agreements) for the purchase or sale of raw
materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt
of services, the performance of which will involve
consideration in excess of $25,000;
(c) any agreement concerning a partnership or
joint venture;
(d) any agreement (or group of related
agreements) under which it has created, incurred,
assumed, or guaranteed any Indebtedness in excess of
$25,000 or under which it has imposed a material
Security Interest on any of its assets, tangible or
intangible of the ENBU;
(e) any agreement concerning confidentiality or
noncompetition;
(f) any agreement for the employment of any
individual on a full-time, part-time, consulting or
other basis in excess of $25,000 or providing
severance benefits;
(g) any agreement under which it has advanced
or loaned any amount to any directors, officers, and
employees of the ENBU outside the Ordinary Course of
Business;
(h) any agreement which will be assigned to
Buyer pursuant to 2.1(e), under which the
consequences of a default or termination could have a
material adverse effect on the business, financial
condition, operations, results of operations of the
Assets of the ENBU;
(i) any contract or arrangement with any
federal, state or local government agency relating to
the Assets of the ENBU; or
(j) any support contract with customers
relating exclusively to the Acquired Assets.
The Sellers have delivered to the Buyer a correct and
complete copy of each written agreement listed in
3.18 of the Disclosure Letter (as amended to date).
Except as disclosed in 3.18 of the Disclosure
Letter, with respect to each such material agreement:
(A) the agreement is legal, valid, and binding and in
full force and effect; (B) the Sellers are not, and
to the Sellers' Knowledge, no other party is in
breach or default, and no event has occurred which
with notice or lapse of time would constitute a
breach or default, or permit termination,
modification, or acceleration, under the agreement;
and (C) to the Sellers' Knowledge, no party has
repudiated any provision of the agreement.
3.19. Notes and Accounts Receivable. All
notes and accounts receivable of the Sellers
pertaining to the Assets of the ENBU are reflected
properly on the Sellers' books and records in
accordance with GAAP, are valid receivables, arose in
the Ordinary Course of Business subject to no setoffs
or counterclaims except as recorded as accounts
payable, are current and collectible and will be
collected in accordance with their terms at their
recorded amounts, except as reflected as net of
allowance for bad debts on the face of the Most
Recent Balance Sheet (rather than in any notes
thereto or reserve therefor) as adjusted for the
passage of time in accordance with GAAP and past
practice and custom of the Sellers.
3.20. Powers of Attorney. There are no
outstanding powers of attorney executed on behalf of
any of the Sellers in respect of the Assets of the
ENBU, its assets, liabilities or business.
3.21. Litigation. Except as disclosed in
3.21 of the Disclosure Letter, there are no
judicial or administrative actions, claims, suits,
proceedings or investigations pending or, to the
actual knowledge of the Sellers without independent
investigation, threatened, that may result in any
material adverse change in the business relating to
the Assets of the ENBU or the Acquired Assets or
which may materially interfere with any part of the
business relating to the Assets of the ENBU as
currently conducted, or that question the validity of
this Agreement or of any action taken or to be taken
pursuant to or in connection with the provisions of
this Agreement, nor, to the actual knowledge of
Sellers' without independent investigation, is there
any Basis for any such action, claim, suit,
proceeding or investigation. There are no judgments,
orders, decrees, citations, fines or penalties
heretofore assessed against the Sellers affecting the
business relating to the Assets of the ENBU or the
Acquired Assets under any federal, state or local
law, except for such judgments, orders, decrees,
citations, fines or penalties which would not have a
material adverse effect on the Assets of the ENBU or
the Acquired Assets.
3.22. Product Warranties; Defects; Liability
Defects; Liability;. Except as set forth in 3.22
of the Disclosure Statement, each product
manufactured, sold, leased, or delivered by the ENBU
which is an Acquired Asset or was a predecessor
product to any product which is an Acquired Asset
(collectively, the "Acquired Products"), has complied
with and conformed to all applicable federal, state,
local or foreign laws and regulations, contractual
commitments and all applicable warranties, and none
of the Sellers or the ENBU has any Liability (and
there is no Basis for any present or future action,
suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand giving rise to any
Liability) for replacement or repair thereof or other
damages in connection therewith, subject in each case
only to the reserve for product warranty claims set
forth on the face of the Most Recent Balance Sheet.
Except as disclosed in 3.22 of the Disclosure
Letter, no Acquired Product is subject to any
guaranty, warranty, or other indemnity beyond the
applicable standard terms and conditions of sale or
lease including any Liability as a result of field
and epidemic failures. Section 3.22 of the
Disclosure Letter includes copies of the standard
terms and conditions of sale or lease for the
Products of the ENBU (containing applicable guaranty,
warranty, and indemnity provisions).
3.23. Employees. Since January 1, 1993,
none of the Sellers has experienced any labor
disputes or work stoppage due to labor disagreements
with respect to the employees of the Sellers engaged
in the Assets of the ENBU. The Sellers are in
compliance with all applicable laws respecting
employment and employment practices, terms and
conditions of employment and wages and hours and have
not been and are not engaged in any unfair labor
practice as defined in the National Labor Relations
Act, as amended, the violation of which could have a
material adverse effect on the Assets of the ENBU.
There is no unfair labor practice charge or complaint
against the Sellers pertaining to the Assets of the
ENBU pending or, to the Knowledge of the Sellers,
threatened before the National Labor Relations Board.
Section 3.23 of the Disclosure Letter lists any
collective bargaining agreement to which the any of
the Sellers is party. No grievance which may have an
adverse affect on the ENBU and its operations or
prospects nor any arbitration proceeding arising out
of or under any collective bargaining agreement is
pending and no pending claims therefore have been
made. Except as disclosed in 3.23 of the
Disclosure Letter, no collective bargaining agreement
to which the any of the Sellers is a party restricts
such Seller or the ENBU from relocating, closing or
subcontracting any of the ENBU's operations.
3.24. Employee Benefits.
(a) Section 3.24 of the Disclosure Letter lists
each Employee Benefit Plan that the Sellers maintain
or to which any of the Sellers contributes relating
to employees of the ENBU and any other profit
sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or
other material plan or arrangement for the benefit of
the ENBU's current or former directors, officers, or
employees.
(i) Each such Employee Benefit Plan (and each
related trust, insurance contract, or fund)
materially complies in form and in operation in all
respects with the applicable requirements of ERISA,
the Code, and other applicable laws.
(ii) All required reports and descriptions
(including Form 5500 Annual Reports, Summary Annual
Reports and Summary Plan Descriptions) have been
filed or distributed appropriately with respect to
each such Employee Benefit Plan. The requirements of
Part 6 of Subtitle B of Title I of ERISA and of Code
4980B have been met with respect to each such
Employee Benefit Plan which is an Employee Welfare
Benefit Plan subject to such Part.
(iii) All contributions (including all employer
contributions and employee salary reduction
contributions) which are due have been paid to each
such Employee Benefit Plan which is an Employee
Pension Benefit Plan. All premiums or other payments
for all periods ending on or before the Closing Date
have been paid with respect to each such Employee
Benefit Plan which is an Employee Welfare Benefit
Plan.
(iv) Each such Employee Benefit Plan which is
an Employee Pension Plan intended to be qualified
under 401(a) of the Code is so qualified.
(v) The Sellers have delivered to the Buyer
correct and complete copies of the plan documents,
summary plan descriptions, insurance contracts and
similar contractual or descriptive materials with
respect to each Employee Benefit Plan listed in
Section 3.24 of the Disclosure Letter.
(b) No Employee Benefit Plan that any of the
Sellers and their Subsidiaries and the Controlled
Group of Corporations which includes the Sellers and
their Subsidiaries maintains or ever has maintained
or to which any of them contributes, ever has
contributed, or ever has been required to contribute
has been completely or partially terminated or been
the subject of a Reportable Event as to which notices
would be required to be filed with the PBGC. There
have been no Prohibited Transactions with respect to
any Employee Benefit Plan. None of the Sellers has
not incurred any Liability to the PBGC (other than
PBGC premium payments) or otherwise under Title IV of
ERISA (including any withdrawal Liability) or under
the Code with respect to any such Employee Benefit
Plan which is an Employee Pension Benefit Plan.
(c) None of the Sellers, their Subsidiaries and
the other members of the Controlled Group of
Corporations that includes the Sellers and its
Subsidiaries contributes to, ever has contributed to,
or ever has been required to contribute to any
Multiemployer Plan or has any Liability (including
withdrawal Liability) under any Multiemployer Plan.
(d) None of the Sellers and their Subsidiaries
maintains or has ever maintained, contributed or been
required to contribute to any Employee Welfare
Benefit Plan providing medical, health, or life
insurance or other welfare-type benefits for current
or future retired or terminated employees, their
spouses, or their dependents (other than in
accordance with Code 4980B).
(e) None of the Sellers and their Subsidiaries
maintains or has ever maintained, contributed or been
required to contribute to any Employee Benefit Plan
that is a defined benefit plan or arrangement.
3.25. [Reserved].
3.26. Affiliated Transactions. Except as
set forth in 3.26 of the Disclosure Letter, the
Sellers and their Affiliates (other than the ENBU) do
not own any asset, tangible or intangible, which is
used in the business relating to the Assets of the
ENBU which is not being transferred to Buyer
hereunder as an Acquired Asset, other than Excluded
Assets.
3.27. [Reserved]
3.28. Distributors, Customers, Suppliers.
Section 3.28 of the Disclosure Letter sets forth a
complete and accurate list of (i) the ten largest
distributors for the ENBU products indicating the
specific product, existing contractual arrangements,
if any, with each such distributor and the volume of
products distributed, (ii) the ten largest customers
(by dollar volume) of the ENBU during the Most Recent
Fiscal Year, indicating the existing contractual
arrangements with each such customer by product and
(iii) all suppliers of significant materials or
services to the ENBU, indicating the contractual
arrangements for continued supply from such Person.
All distributorship agreements relating to the Assets
of the ENBU are terminable at the election of the
ENBU on not more than 60 days notice and none of such
agreements provide that such distributor has
exclusive rights for any geographic area or for any
Product.
3.29. No Illegal Payments, Etc. To the
Knowledge of the Sellers, none of the Sellers, nor
any of the officers, employees or agents of the ENBU,
has (a) directly or indirectly given or agreed to
give any illegal gift, contribution, payment or
similar benefit to any supplier, customer,
governmental official or employee or other person who
was, is or may be in a position to help or hinder the
Assets of the ENBU (or assist in connection with any
actual or proposed transaction) or made or agreed to
make any illegal contribution, or reimbursed any
illegal political gift or contribution made by any
other person, to any candidate for federal, state,
local or foreign public office (i) which may subject
the ENBU to any damage or penalty in any civil,
criminal or governmental litigation or proceeding or
(ii) the non-continuation of which has had or might
have, individually or in the aggregate, a material
adverse effect on the ENBU or (b) established or
maintained any unrecorded fund or asset or made any
false entries on any books or records for any
purpose.
3.30. Books and Records. The books and all
corporate (including minute books and stock record
books) and financial records of the ENBU are complete
and correct in all material respects and have been
maintained in accordance with applicable sound
business practices, laws and other requirements.
3.31. Consents. Section 3.31 of the
Disclosure Letter sets forth a true, correct and
complete list of the identities of any Person whose
consent or approval is required and the matter,
agreement or contract to which such consent relates
in connection with the transfer, assignment or
conveyance by the Sellers of any of the Acquired
Assets.
3.32. Disclosure. Neither the
representations and warranties contained in this 3
(including the Disclosure Letter) nor any certificate
furnished or to be furnished by Sellers to Buyer
contains any untrue statement of a material fact or
omit to state any material fact necessary in order to
make the statements and information contained in this
3 not misleading. There is no material fact known
to the Sellers relating to the ENBU or the Acquired
Assets which may materially adversely affect the same
which has not been disclosed in writing in this
Agreement to the Buyer. Notwithstanding the foregoing
sentence, the Sellers make no representation as to
the future financial performance of the business
relating to the Assets of the ENBU.
4. Representations and Warranties of Cabletron and
Acquisition. The Buyer represents and warrants to
each of the Sellers that the statements contained in
this 4 are correct and complete as of the date of
this Agreement and, if different than the date of
this Agreement, will be correct and complete as of
the Closing Date (as though made then and as though
the Closing Date were substituted for the date of
this Agreement throughout this 4).
4.1. Organization of Cabletron and Acquisition.
Each of Cabletron and Acquisition is a corporation
duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its
incorporation.
4.2. Authority for Agreement. Each of Cabletron
and Acquisition has full power and authority
(including full corporate power and authority) to
execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of each of
Cabletron and Acquisition, enforceable in accordance
with its terms and conditions.
4.3. Noncontravention. Neither the execution
and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby
(including the assignments and assumptions referred
to in 2 above), will (i) violate any constitution,
statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to
which Cabletron and Acquisition is subject or any
provision of their respective charters or bylaws or
(ii) conflict with, result in a breach of, constitute
a default under, result in the acceleration of,
create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license,
instrument, or other arrangement to which Cabletron
and Acquisition is a party or by which it is bound or
to which any of its assets is subject. None of
Cabletron nor Acquisition needs to give any notice
to, make any filing with, or obtain any
authorization, consent, or approval of any government
or governmental agency in order for the Parties to
consummate the transactions contemplated by this
Agreement (including the assignments and assumptions
referred to in 2 above), except for filings under
the Hart-Scott-Rodino Act, which filings have been
made.
4.4. Brokers' Fees. The Buyer has no Liability
or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which
any of the Sellers could become liable or obligated.
5. Covenants. The Parties agree as follows:
5.1. General. Subject to the terms and
conditions provided in this Agreement, each of the
Parties will use its reasonable best efforts to take
all action and to do all things necessary, proper, or
advisable in order to consummate and make effective
the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the
closing conditions set forth in 6 below).
5.2. Notices and Consents. Each of the Sellers
will give any notices to third parties, and will use
its reasonable best efforts to obtain any third party
consents, that are required to transfer the Acquired
Assets to Buyer, and any other consent that the Buyer
may reasonably request. Each of the Parties has
filed any Notification and Report Forms and related
material that it may be required to file with the
Federal Trade Commission and the Antitrust Division
of the United States Department of Justice under the
Hart-Scott-Rodino Act, will use its reasonable best
efforts to obtain an early termination of the
applicable waiting period, and will make any further
filings pursuant thereto that may be necessary in
connection therewith, provided that neither party
shall be obligated to divest any part of its business
or assets or to agree to forego any business
activities or opportunities, present or future, as a
result of such reasonable best efforts obligation.
5.3. Preservation of Business. Each of the
Sellers will use its reasonable best efforts to keep
the business and properties of the ENBU substantially
intact, including its present operations, physical
facilities, working conditions, and relationships
with lessors, licensors, suppliers, customers, and
employees.
5.4. Full Access. Each of the Sellers will
permit representatives of the Buyer to have full
access at all reasonable times, and in a manner so as
not to interfere with the normal business operations
of the ENBU, to all premises, properties, personnel,
books, records (including Tax records), contacts, and
documents of or pertaining to the ENBU.
5.5. Notice of Developments. Each Party will
give prompt written notice to the other Party of any
material adverse development causing a breach of any
of its own representations and warranties in 3 and
4 above. No disclosure by any Party pursuant to
this 5.5, however, shall be deemed to amend or
supplement the Disclosure Letter or to prevent or
cure any misrepresentations, breach of warranty, or
breach of covenant.
5.6. Exclusivity. Each of the Sellers will not
and will cause Seller's Subsidiaries, Affiliates,
directors, officers, employees, representatives and
agents not to directly or indirectly (i) solicit,
initiate or encourage the submission of any proposal
or offer or transaction from any Person relating to
the sale or acquisition of the assets of the ENBU,
the Assets of the ENBU or (ii) participate in any
discussions or negotiations regarding, furnish any
information with respect to, assist or participate
in, or facilitate in any other manner any effort or
attempt by any Person to do or seek any of the
foregoing. The Sellers will notify the Buyer
immediately if any Person makes any bona fide written
proposal, offer, inquiry, or contact with respect to
any of the foregoing.
5.7. Employee Matters.
5.7.1. Each of the Sellers agrees to (i)
terminate all the employees who are engaged in the
business relating to the Assets of the ENBU who
Cabletron intends to hire after the Closing (the
"Employees") immediately prior to Closing and to pay
any and all Liabilities relating to such termination,
including, without limitation any payments and
benefits due such Employees pursuant to accrued
salary and wages, pension, retirement, savings,
health, welfare and other benefits and severance
payments or similar payments of the Employees and
(ii) provide to all Employees any notice (which
notice shall be reasonably acceptable to Buyer)
required under any law or regulations in respect of
such termination including, without limitation COBRA.
5.7.2. As soon as practicable following Closing
and in all events within twenty-one days thereafter,
Sellers shall pay an amount equal to the grossed-up
value (assuming an effective average tax rate of 37%
for all participants) of the 1995 401(k) matching
contribution on a fully vested basis to those
Employees who participated in the Sellers' 401(k)
savings plan during 1995, including applicable income
taxes, FICA and similar amounts. Buyer shall
reimburse Sellers for the amount of such additional
payment. As soon as practicable following Closing
and in all events within twenty-one days thereafter,
Sellers shall pay to Employees an amount equal to the
grossed-up value (assuming an effective average tax
rate of 37% for all participants) of the unvested
amount in the accounts of all Employees under
Sellers' Plan, taking into account all contributions
for 1995. Promptly thereafter Sellers shall cause
the accounts of all Employees under Sellers' Plan,
taking into account all contributions for 1995, to be
distributed or transferred in a direct rollover. In
connection with such distribution or direct rollover,
the plan administrator of Sellers' Plan shall certify
to each distributee, including any plan or IRA
accepting a rollover or direct rollover, that after
taking into account such distribution or direct
rollover Sellers' Plan is and remains qualified under
Section 401(a) et seq. of the Code.
5.7.3. Employees (other than any Employee who
is not employed by Buyer or who is in an ineligible
classification of employees) shall be eligible to
participate in Buyer's 401(k) plan following Closing
without regard to the normal entry-date requirements
under such plan.
5.7.4. Any Employee who immediately after the
Closing becomes an active full-time employee of Buyer
shall be eligible to participate in Buyer's employee
health, life insurance and disability plans as of the
date such employee commences active employment with
the Buyer; provided, however, any and all other
terms, conditions and exclusions of such plans
(including, but not limited to, pre-existing
condition exclusions, actively-at-work requirements,
evidence of insurability requirements, and
nonconfinement/nondisability requirements) shall
fully apply.
5.7.5. Contemporaneously with the Closing,
Sellers agree to vest any unvested options held by
any Employees and to extend the period during which
such options may be exercised to one year following
Closing.
5.7.6. After Closing, SMC will promptly pay
Employees' accrued vacation through Closing.
5.8. Retention of and Access to Records after
Closing. The Sellers may retain a single set of
copies of any books and records of the ENBU which
Sellers reasonably believe will be required by them
for the purpose of: (i) performing any of Sellers'
accounting, public reporting, or other administrative
functions which are performed in the ordinary course
of Sellers' business, or (ii) complying with
discovery requests arising in all litigation
currently pending against Sellers or otherwise
conducting SMC's defense in such actions. Sellers
shall destroy such copies upon the Sellers'
determination that any such copies are no longer
reasonably required by them for either of the
purposes set forth in the preceding sentence.
Seller's use, disclosure and disposition of such
copies shall otherwise be governed in accordance with
Section 7.1 to the extent that such copies contain
Exclusive Confidential Information. For a period of
five years after the Closing Date, the Sellers and
their representatives shall have reasonable access to
any other books and records of the ENBU to the extent
that such access may reasonably be required by any of
the Sellers in connection with matters relating to or
affected by the operations of the ENBU prior to the
Closing Date. Such access shall be afforded by Buyer
upon receipt of reasonable advance notice and during
normal business hours. Each of the Sellers shall be
solely responsible for any costs or expenses incurred
by it pursuant to this 5.8. If Buyer shall desire
to dispose of any of such books and records prior to
the expiration of such five-year period, Buyer shall,
prior to such disposition, give the Sellers a
reasonable opportunity, at Sellers' expense, to
segregate and remove such books and records as any of
the Sellers may select.
5.9. Bulk Sales Compliance; Liens under Chapter
62C, Section 51 of the Massachusetts General Laws
Liens under Chapter 62C, Section 51 of the
Massachusetts General Laws;. Buyer hereby waives
compliance by the Sellers with the provisions of any
bulk transfer law which may be applicable to the
transactions contemplated by this Agreement.
Further, the Parties recognize that the Massachusetts
Commissioner of Revenue may not, by Closing, have
granted a waiver of any Tax Lien that might accrue
pursuant to Chapter 62C, 51 of the Massachusetts
General Laws. Buyer hereby consents to such Lien
arising upon the sale of the Acquired Assets;
provided, however, that such consent is conditioned
upon Sellers indemnifying and holding harmless Buyer
against and in respect of any Loss (as defined in
9.2 below) resulting from the existence of any Tax
Lien on the Acquired Assets under said 51.
5.10. Transfer Taxes. Buyer and Sellers each
agree to bear fifty percent of any Massachusetts
sales and use Taxes on the transfer of the Acquired
Assets hereunder, including any such Taxes which may
be imposed in the event Sellers do not obtain a
clearance certificate from the Massachusetts
Commissioner of Revenue. Sellers have applied for a
clearance certificate and shall use their best
efforts to obtain such certificate.
5.11. Product Warranty Repair and Service.
Buyer agrees that for a period of 18 months following
Closing, Buyer shall perform the warranty work for
products sold by Sellers prior to the Closing date
pursuant to Buyer's normal repair or replacement
procedures. To the extent that Buyer's actual costs
for providing such warranty work does not exceed the
warranty reserve on the Most Recent Balance Sheet,
Buyer shall bear all costs of such warranty without
reimbursement from Sellers. However, Buyer shall be
entitled to indemnification by Sellers pursuant to
the procedures set forth in Section 9.2 below to the
extent that Buyer's cost of providing such warranty
work for products for which Sellers' standard
warranty had not yet expired exceeds the amount of
such warranty reserves. In the event that Buyer
shall determine to provide additional warranty work
beyond the applicable warranty provided by Seller,
the cost of providing such optional warranty work
shall be borne by Buyer, and Buyer shall not be
entitled to indemnification or credit in connection
with such optional warranty work. In addition, Buyer
shall not be entitled to credit or indemnification
for the incremental cost of providing new replacement
products instead of repaired products, where a
repaired product would be adequate to satisfy
Sellers' warranty obligation.
In addition, SMC shall indemnify Buyer pursuant
to the procedures set forth in 9.2 below for
liability incurred by Buyer due to Epidemic Failure.
Such liability shall be deemed to be Buyer's direct
costs due to repair, replacement and product recalls
in the event of an Epidemic Failure. An Epidemic
Failure shall be deemed to be a repetitive failure of
a product originating from a single cause which has
such severity and frequency of occurrence that the
exercise of reasonable product business practice
would require a product recall, repair or
replacement. Liability for product warranty and
repair and servicing shall be allocated among the
Parties as provided in 2.3, 2.4 and 9.
5.12. Delivery of Audited Financial
Statements. On or before January 19, 1996, SMC shall
deliver to Buyer an audited balance sheet (statement
of assets and liabilities) and a statement of
revenues and expenses for the fiscal year ended
February 28, 1995 for the Acquired Assets acquired by
Buyer, subject to the Assumed Liabilities (the
"Audited Financial Statements"). The Audited
Financial Statements shall be prepared in accordance
with GAAP applied on a consistent basis throughout
the periods covered thereby and shall be consistent
with the books and records of the ENBU. Sellers
shall deliver, together with the Audited Financial
Statements, an opinion of Sellers' independent
auditors, Arthur Andersen & Co., that the Audited
Financial Statements present fairly the financial
condition and results of operations of the business
relating to the Assets of the ENBU. Sellers shall
make available to Buyer and Buyer's auditors Sellers'
work papers and backup materials used in the
preparation of the Audited Financial Statements.
5.13. License of Trademarks. In order to
effect the transactions contemplated by this
Agreement, (i) after the Closing, Sellers agree to
and hereby do license on a nonexclusive, royalty-free
basis for the limited purpose of the sale and resale
of the Inventory the trademarks EliteView and
TigerSwitch and (ii) after the Closing, Buyer agrees
to and hereby does license on a nonexclusive, royalty-
free basis, for the limited purpose of using existing
sales collateral and packaging and similar items
retained by Seller, the ENBU trademarks purchased by
Buyer pursuant to this Agreement.
5.14. Cooperation in Connection with Pending
Litigation. Buyer agrees to cooperate in Sellers'
defense of any litigation pending against Sellers on
the date of Closing as required by law or as
otherwise reasonably necessary, including making
Employees reasonably available to the extent doing so
would not unduly interfere with Buyer's business.
Sellers agree to pay all reasonable out-of-pocket
costs incurred by Buyer in connection with such
cooperation. The foregoing shall not apply to Penril
Datacomm, Inc. v. Standard Microsystems
Corporation, et. al., Case No. 106878, which is the
subject of a separate letter between the Parties.
5.15. General Skill and Knowledge. Each of
the Parties agree that employees of Sellers who are
either retained by Sellers or terminated by Sellers
and hired by Buyer may use the general skill and
knowledge they have developed in the future business
of Sellers or Buyer, as the case may be.
5.16. Relationship with Nu-Link. SMC and
Buyer agree that neither of them shall enter into any
agreement with Nu-Link, Inc. that prohibits Nu-Link,
Inc. from entering into an agreement with the other.
5.17. License under Multimedia Patent. In
order to effect the transactions contemplated by this
Agreement, after the Closing, Buyer agrees to and
hereby does grant to Sellers the rights with respect
to the Multimedia Patent set forth in Section 2.2(d).
5.18. Trillium Software. Sellers agree to
use their reasonable best efforts to cause Trillium
to grant to Buyer a license for the Trillium software
being transferred to the Buyer satisfactory to Buyer
granting the Buyer rights equivalent to the rights
held by the Sellers in such software.
6. Conditions to Obligation to Close.
6.1. Conditions to Obligation of the Buyer. The
obligation of the Buyer to consummate the
transactions to be performed by it in connection with
the Closing is subject to satisfaction of the
following conditions:
(a) Representations and Warranties. The
representations and warranties set forth in 3 above
shall be true and correct in all material respects
when made and on and as of the Closing Date;
(b) Performance by the Sellers. Each of the
Sellers shall have performed and complied with all of
its covenants, agreements and obligations hereunder
in all material respects through the Closing;
(c) Consents. The Sellers shall have procured
all of the governmental approvals, consents or
authorizations and third party consents specified in
3.31 and 5.2 above;
(d) Absence of Litigation. No action, suit, or
proceeding not set forth in the Disclosure Letter
shall be pending or threatened before any court or
quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction
wherein an unfavorable injunction, judgment, order,
decree, ruling, or charge would (i) prevent
consummation of any of the transactions contemplated
by this Agreement, (ii) cause any of the transactions
contemplated by this Agreement to be rescinded
following consummation, (iii) materially and
adversely affect the right of the Buyer to own the
Acquired Assets, to operate the former Assets of the
ENBU (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
(e) Absence of Material Adverse Change. There
shall not have occurred any material adverse change
in the condition, financial or otherwise, business,
properties, assets or prospects of the business
relating to the Assets of the ENBU.
(f) Absence of Disasters. The business
relating to the Assets of the ENBU shall not have
been materially adversely affected in any way as a
result of fire, explosion, disaster, accident, labor
dispute, flood, act of war, civil disturbance, or act
of God.
(g) Anti-trust Matters. All applicable
waiting periods (and any extensions thereof) under
the Hart-Scott-Rodino Act shall have expired or
otherwise been terminated;
(h) Employment and Noncompetition Agreements.
The Employment Agreement dated as of December 22,
1995 by and between Acquisition and Ashraf M. Dahod
shall not be in default and be in full force and
effect;
(i) Notices. The Sellers shall have sent
termination notices to employees as contemplated by
5.7;
(j) Tax Clearance Certificates. The Sellers
shall have made application for and be using best
efforts to obtain as soon as possible a certificate
of the Massachusetts Commissioner of Revenue waiving
any Taxes under Chapter 62C, 44 of the Massachusetts
General Laws and a waiver of any Tax lien on the
Acquired Assets that might accrue pursuant to Chapter
62C, 51 of the Massachusetts General Laws.
(k) Certificates. The Sellers shall have
delivered to the Buyer a certificate to the effect
that each of the conditions specified above in
6.1(a), (b), (c), (d), (e), (f), (i) and (j) are
satisfied in all respects;
(l) F.I.R.P.T.A. Certificate. The Sellers
shall have delivered to the Buyer the certificate
contemplated by 3.14(d).
(m) Termination. The Sellers shall have
terminated, effective as of or prior to the date of
the Closing, the contracts and agreements set forth
in Schedule 6.1(m).
(n) Opinion. The Buyer shall have received
from the Sellers a corporate opinion, in form and
substance as set forth in Exhibit E attached hereto,
addressed to the Buyer, and dated as of the Closing
Date; Buyer shall have received an opinion of patent
counsel for Sellers as to the Sellers application for
U.S. Letters Patent known as Multimedia Bandwidth
Accelerator, Serial No. 08/428,403 in form and
substance reasonably satisfactory to Buyer;
(o) Escrow Agreement. The Sellers shall have
executed and delivered the Escrow Agreement, in form
and substance the same or substantially the same as
the Escrow Agreement set forth as Exhibit A;
(p) Product Agreement. The Sellers shall have
executed and delivered the Product Agreement, in form
and substance the same or substantially similar to
the Product Agreement set forth as Exhibit G;
(q) Assignment of Patent Application. The
Sellers shall have executed and delivered the
Assignment of Patent Application, in form and
substance the same or substantially similar to the
Assignment of Patent Application set forth as Exhibit
H; and
(r) Payment of Sellers to Buyer. Sellers shall
pay Buyer by wire transfer $1,900,000.
The Closing shall not be deemed a waiver of any
breach by the Sellers of the Agreement or any of the
Sellers' representations and warranties.
6.2. Conditions to Obligations of the Sellers.
The obligation of the Sellers to consummate the
transactions to be performed by them in connection
with the Closing is subject to satisfaction of the
following conditions:
(a) Representations and Warranties. The
representations and warranties set forth in 4 above
shall be true and correct in all material respects at
and as of the Closing Date;
(b) Performance by Buyer. The Buyer shall have
performed and complied with all of its covenants
hereunder in all material respects through the
Closing;
(c) Absence of Litigation. No action, suit,
or proceeding shall be pending or threatened before
any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction
wherein an unfavorable injunction, judgment, order,
decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated
by this Agreement or (B) cause any of the
transactions contemplated by this Agreement to be
rescinded following consummation (and no such
injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(d) Certificates. The Buyer shall have
delivered to the Sellers a certificate to the effect
that each of the conditions specified above in
6.2(a)-(c) is satisfied in all respects;
(e) Anti-trust Matters. All applicable waiting
periods (and any extensions thereof) under the Hart-
Scott-Rodino Act shall have expired or otherwise been
terminated;
(f) Opinion. The Sellers shall have received
from counsel to the Buyer an opinion in form and
substance as set forth in Exhibit F attached hereto,
addressed to the Sellers, and dated as of the Closing
Date.
The Closing shall not be deemed a waiver of any
breach by the Buyer of the Agreement or any of the
Buyer's representations and warranties.
7. Confidentiality.
7.1. Confidential Information Related
Exclusively to the Business Relating to the Assets of
the ENBU. Each of the Sellers will treat and hold as
confidential all of the Confidential Information
related exclusively to the Acquired Assets (other
than the Acquired Assets identified in Sections
2.1(f)(ii) and 2.1(h)(ii)) and all other Confidential
Information related exclusively to the business
relating to the Assets of the ENBU (the "Exclusive
Confidential Information"), refrain from using any of
the Exclusive Confidential Information except in
connection with this Agreement, and will use
reasonable best efforts to deliver promptly to the
Buyer or destroy, at the request and option of the
Buyer, all tangible embodiments (and, except as set
forth in Section 5.8, all copies) of the Exclusive
Confidential Information which are in his or its
possession. In the event that any of the Sellers is
requested or required (by oral question or request
for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand,
or similar process) to disclose any Exclusive
Confidential Information, such Seller will notify the
Buyer promptly of the request or requirement so that
the Buyer may seek an appropriate protective order or
waive compliance with the provisions of this 7.1.
If, in the absence of a protective order or the
receipt of a waiver hereunder, any of the Sellers is,
on the advice of counsel, compelled by any government
agency or court to disclose any Exclusive
Confidential Information, then such Seller may
disclose the Exclusive Confidential Information;
provided, however, that the disclosing Seller shall
use his or its best efforts to obtain, at the request
of the Buyer, an order or other assurance that
confidential treatment will be accorded to such
portion of the Exclusive Confidential Information
required to be disclosed as the Buyer shall
designate.
7.2. Shared Confidential Information. Each of
the Parties will treat and hold as confidential all
of the Confidential Information other than the
Exclusive Confidential Information (the "Shared
Confidential Information") and will use such Shared
Confidential Information only for purposes consistent
with this Agreement. In the event that any of the
Parties is requested or required (by oral question or
request for information or documents in any legal
proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose
any Shared Confidential Information, such Party will
notify the other Parties promptly of the request or
requirement so that the such other Parties may seek
an appropriate protective order or waive compliance
with the provisions of this 7.2. If, in the
absence of a protective order or the receipt of a
waiver hereunder, any of the Parties is, on the
advice of counsel, compelled by any government agency
or court to disclose any Shared Confidential
Information, then such Party may disclose such Shared
Confidential Information; provided, however, that the
disclosing Party shall use his or its best efforts to
obtain, at the request of another Party, an order or
other assurance that confidential treatment will be
accorded to such portion of the Shared Confidential
Information required to be disclosed as the other
Party shall designate.
8. Noncompetition.
8.1. Noncompetition. The Sellers agree, for
themselves and their subsidiaries and any entity
which they control, that, in consideration of the
purchase by the Buyer hereunder, they shall not, on
or prior to the date which is three (3) years after
the Closing Date (the "Restricted Period"), directly
or indirectly, run, own, manage, operate, control,
invest (other than for minority investments) or
participate in any business, venture or activity
which engages in the business of backbone enterprise
level switching solutions, including ES/1 class
switches, in direct sale to end users and in Fortune
1000 class organizations markets; provided, however,
that the Sellers continue to have the right during
the Restricted Period and thereafter, to engage in
the Sellers' current LAN businesses (other than
backbone enterprise level switching solutions,
including ES/1 class switches) and in workgroup
switching and fast Ethernet switching, in the sale of
either: (i) products for the low- to mid-range LAN
markets or (ii) products which are appropriate for
two-step distribution. Any products that Sellers are
permitted to sell pursuant to the foregoing provision
may be sold by Sellers in any market, through any
channel or directly to customers, and to any customer
desired by Sellers. The foregoing provision shall not
bind or otherwise apply to any Person which merges or
consolidates with SMC with the result that SMC is not
the surviving entity or purchases all or
substantially all of the assets of SMC, the Desktop
Networks Business Unit or the business related to the
Retained Products set forth on Schedule 1.1 and upon
such transaction, the covenant set forth in this 8.1
shall terminate as to such transferred businesses.
8.2. Each of the Parties agree that for a period
of two (2) years from and after the Closing Date it
will not, without the consent of the other Party,
directly or indirectly solicit or initiate contact
with any of the employees of the other Party with a
view of inducing or encouraging such employees to
leave the employ of the other Party for the purpose
of being hired by the soliciting Party or an employer
affiliated with it. Mass media advertising of open
positions, job fairs and other recruiting programs
not directed at specific individuals shall not in and
of themselves be deemed solicitation or initiation of
contact for purposes of this paragraph.
9. Indemnification.
9.1. Survival of Representations and Warranties.
All of the representations and warranties of the
Sellers (except for those contained in 3.6 and
3.14) contained herein or in any document
certificate or other instrument required to be
delivered hereunder shall survive the Closing and
continue in full force and effect until 18 months
after Closing, after which such representations and
warranties shall terminate. All of the
representations and warranties of the Buyer contained
in 4 shall survive the Closing and shall continue
in full force and effect until 18 months after
Closing. The representations and warranties of the
Sellers contained in 3.6 and 3.14 shall survive the
Closing and shall continue in full force and effect
without limit as to time (subject to any applicable
statutes of limitations).
9.2. Indemnity by Sellers. SMC hereby agrees to
indemnify, defend and hold harmless Buyer and its
directors, officers and Affiliates against and in
respect of all Liabilities, obligations, judgments,
Liens, injunctions, charges, orders, decrees,
rulings, damages, dues, assessments, Taxes, losses,
fines, penalties, expenses, fees, costs, amounts paid
in settlement (including reasonable attorneys' and
expert witness fees and disbursements in connection
with investigating, defending or settling any action
or threatened action), in each case net of (i) income
tax benefits to the Buyer to the extent realized by
the Buyer in the Tax year in which the Loss occurred
and (ii) insurance proceeds if and when actually
received by the Buyer, provided, however, that Buyer
shall retain the right in its sole discretion to
determine whether to pursue such claims by, through
or against an insurer or to bring such claims
directly or indirectly against the Sellers pursuant
to this 9.2, arising out of any claim, damages,
complaint, demand, cause of action, audit,
investigation, hearing, action, suit or other
proceeding asserted or initiated or otherwise
existing in respect of any matter (collectively,
the "Losses") that results from:
(a) the inaccuracy of any representation or
warranty made by Sellers herein which Buyer has not
received express written notice of prior to Closing,
or resulting from any misrepresentation, breach of
warranty as if all materiality provisions were not
contained therein or nonfulfillment of any agreement
or covenant of Sellers contained herein (including
the Disclosure Letter and Exhibits hereto, excluding
the Product Agreement) or in any agreement or
instrument required to be entered into in connection
herewith or from any misrepresentation in or omission
from any schedule, document, certificate or other
instrument required to be furnished by Sellers
hereunder; provided, however, that SMC shall be
liable under this 9.2(a) in respect of Losses only
to the extent that the aggregate of such Losses
exceeds $500,000 in which case the Sellers will be
liable for the amount of such Losses in excess of
$500,000 up to an aggregate amount equal to
$7,700,000;
(b) any Liability of the Sellers or the ENBU
which is not an Assumed Liability (including any
Liability which is not an assumed Liability of the
Sellers or the ENBU that becomes a Liability of the
Buyer under any bulk transfer law of any
jurisdiction, under any common law doctrine of de
facto merger or successor liability, or otherwise by
operation of law); and
(c) any Liability in respect of any Taxes
relating to the Assets of the ENBU attributable to
periods beginning before and ending on the Closing
Date.
In the event that SMC may be obliged to indemnify
Buyer under both subsection (a) and subsection (b) or
subsection (c) of this 9.2, its obligations under
subsection (b) or subsection (c), as the case may be,
shall be controlling and the limitations provided in
9.1 and 9.2(a) hereof relating to its obligations
in respect of Losses resulting from the inaccuracy of
any representation and warranty, or any
misrepresentation, breach of warranty or non-
fulfillment of an agreement or covenant as described
in 9.2(a), shall not apply. Buyer shall provide
Sellers written notice for any claim made in respect
of the indemnification provided in this 9.2,
whether or not arising out of a claim by a third
party.
9.3. Environmental Indemnification.
Notwithstanding any other provision of this Agreement
to the contrary, this 9.3 shall control and limit
Sellers obligation to indemnify Buyer for
Environmental Liabilities and Costs and Safety
Liabilities and Costs. Sellers agree to indemnify
and hold harmless Buyer against any Losses relating
to Environmental Liabilities and Costs and Safety
Liabilities and Costs to the extent arising out of
any condition existing at or prior to Closing which
constitutes a violation of or gives rise to a duty to
remediate under Environmental Laws or Safety Laws
which occurred on property which is owned or leased
by Sellers or on property which is not owned or
leased by Sellers relating to the business relating
to the Assets of the ENBU, without limit in point of
time, knowledge or amount.
9.4. Indemnity by Buyer. Buyer hereby agrees to
indemnify, defend and hold harmless Sellers and their
respective directors, officers and Affiliates against
and in respect of all Liabilities, obligations,
judgments, liens, injunctions, charges, orders,
decrees, rulings, damages, dues, assessments, Taxes,
losses, fines, penalties, damages, expenses, fees,
costs, amounts paid in settlement (including
reasonable attorneys' and expert witness fees and
disbursements in connection with investigating,
defending or settling any action or threatened
action) arising out of any claim, complaint, demand,
cause of action, audit, investigation, hearing,
action, suit or other proceeding asserted or
initiated in respect of any matter that results from
the inaccuracy of any representation or warranty made
by Buyer herein, or resulting from any
misrepresentation, breach of warranty or
nonfulfillment of any agreement or covenant of Buyer,
including Buyer's agreement to assume certain
Liabilities of the ENBU pursuant to 2.2 of this
Agreement, contained herein or in any agreement or
instrument required to be entered into in connection
herewith or from any misrepresentation in or omission
from any schedule, document, certificate or other
instrument required to be furnished by Buyer
hereunder.
9.5. Matters Involving Third Parties.
(a) If any third party shall notify any Party
(the "Indemnified Party") with respect to any matter
(a "Third Party Claim") which may give rise to a
claim for indemnification against any other Party
(the "Indemnifying Party") under this 9, then the
Indemnified Party shall promptly notify each
Indemnifying Party thereof in writing; provided,
however, that no delay on the part of the Indemnified
Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any obligation
hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(b) Any Indemnifying Party will have the right
to defend the Indemnified Party against the Third
Party Claim with counsel of its choice reasonably
satisfactory to the Indemnified Party so long as (A)
the Indemnifying Party notifies the Indemnified Party
in writing within 15 days after the Indemnified Party
has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified
Party from and against the entirety of any Losses the
Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by
the Third Party Claim, (B) the Indemnifying Party
provides the Indemnified Party with evidence
reasonably acceptable to the Indemnified Party that
the Indemnifying Party will have the financial
resources to defend against the Third Party Claim and
fulfill its indemnification obligations hereunder,
(C) the Third Party Claim involves only money damages
and does not seek an injunction or other equitable
relief, and (D) settlement of, or an adverse judgment
with respect to, the Third Party Claim is not, in the
good faith judgment of the Indemnified Party, likely
to result in a material restriction upon the business
practices of the Indemnified Party in respect of the
Assets of the ENBU, and (E) the Indemnifying Party
conducts the defense of the Third Party Claim
actively and diligently.
(c) So long as the Indemnifying Party is
conducting the defense of the Third Party Claim in
accordance with 9.2(b) above, (A) the Indemnified
Party may retain separate co-counsel at its sole cost
and expense and participate in the defense of the
Third Party Claim, (B) the Indemnified Party will not
consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnifying
Party (which consent shall not unreasonably be
withheld), and (C) the Indemnifying Party will not
consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim
unless written agreement is obtained releasing the
Indemnified Party from all liability thereunder. The
Indemnified Party shall cooperate in all reasonable
respects with the Indemnifying Party and such
attorneys in the investigation, trial and defense of
such lawsuit or action and any appeal arising
therefrom.
(d) In the event any of the conditions in
9.2(b) above is or becomes unsatisfied, however,
(A) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into
any settlement with respect to, the Third Party Claim
in any manner it may deem appropriate (and the
Indemnified Party need not consult with, or obtain
any consent from, any Indemnifying Party in
connection therewith), (B) the Indemnifying Parties
will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the
Third Party Claim (including attorneys' fees and
expenses), and (C) the Indemnifying Parties will
remain responsible for any Losses the Indemnified
Party may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the Third
Party Claim to the fullest extent provided in this
9.
9.6. Other Indemnification Provisions. Each of
the Sellers hereby agrees that it will not make any
claim for indemnification against any of the Buyer
and its Subsidiaries solely by reason of the fact
that he or it was a director, officer, employee, or
agent of the Sellers, the ENBU or was serving at the
request of any such entity as a partner, trustee,
director, officer, employee, or agent of another
entity (whether such claim is for judgments, damages,
penalties, fines, costs, amounts paid in settlement,
losses, expenses, or otherwise and whether such claim
is pursuant to any statute, charter document, bylaw,
agreement, or otherwise) with respect to any action,
suit, proceeding, complaint, claim, or demand brought
by the Buyer against such Sellers (whether such
action, suit, proceeding, complaint, claim, or demand
is pursuant to this Agreement, applicable law, or
otherwise) unless the underlying claim is an Assumed
Liability.
10. Termination.
10.1. Termination of Agreement. Certain of
the Parties may terminate this Agreement as provided
below.
(a) the Parties may terminate this Agreement by
mutual written consent at any time prior to the
Closing;
(b) the Buyer may terminate this Agreement by
giving written notice to SMC at any time prior to the
Closing (A) in the event any of the Sellers has
breached any representation, warranty, or covenant
contained in this Agreement in any material respect,
the Buyer has notified such Seller of the breach, and
the breach has continued without cure for a period of
30 days after the notice of breach or (B) if the
Closing shall not have occurred on or before the
earliest to occur of 45 days after the expiration or
other termination of all applicable waiting periods
under the Hart-Scott-Rodino-Act and February 29,
1996, by reason of the failure of any condition
precedent under 6.1 hereof (unless the failure
results primarily from the Buyer itself breaching any
representation, warranty, or covenant contained in
this Agreement); and
(c) SMC may terminate this Agreement by giving
written notice to the Buyer at any time prior to the
Closing (A) in the event the Buyer has breached any
representation, warranty, or covenant contained in
this Agreement in any material respect, SMC has
notified the Buyer of the breach, and the breach has
continued without cure for a period of 30 days after
the notice of breach or (B) if the Closing shall not
have occurred on or before the earliest to occur of
45 days after the expiration or other termination of
all applicable waiting periods under the Hart-Scott-
Rodino-Act and February 29, 1996, by reason of the
failure of any condition precedent under 6.2 hereof
(unless the failure results primarily from the
Company itself breaching any representation,
warranty, or covenant contained in this Agreement).
10.2. Effect of Termination. If any Party
terminates this Agreement pursuant to 10.1 above,
all rights and obligations of the Parties hereunder
shall terminate without any Liability of any Party to
any other Party (except for any Liability of any
Party then in breach).
11. Miscellaneous.
11.1. Press Releases and Public
Announcements. No Party shall issue any press
release or make any public announcement relating to
the subject matter of this Agreement prior to the
Closing without the prior written approval of the
other Party; provided, however, that any Party may
make any public disclosure it believes in good faith
is required by applicable law or any listing or
trading agreement concerning its publicly-traded
securities (in which case the disclosing Party will
advise the other Party prior to making the
disclosure).
11.2. No Third Party Beneficiaries. This
Agreement shall not confer any rights or remedies
upon any Person other than the Parties and their
respective successors and permitted assigns.
11.3. Entire Agreement. This Agreement
(including the documents referred to herein and
attached hereto) constitutes the entire agreement
between the Parties and supersedes any prior
understandings, agreements, or representations by or
between the Parties, written or oral, to the extent
they related in any way to the subject matter hereof,
including but not limited to the Confidentiality
Agreement between Cabletron and SMC dated October 20,
1995.
11.4. Succession and Assignment. This
Agreement shall be binding upon and inure to the
benefit of the Parties named herein and their
respective successors and permitted assigns. No Party
may assign either this Agreement or any of its
rights, interests, or obligations hereunder without
the prior written approval of the other Party;
provided, however, that the Buyer may (i) assign any
or all of its rights and interests hereunder to one
or more of its Affiliates and (ii) designate one or
more of its Affiliates to perform its obligations
hereunder and that the Sellers may assign any or all
of their rights and interests, but not its
obligations, hereunder to a wholly-owned subsidiary
of SMC.
11.5. Counterparts. This Agreement may be
executed in one or more counterparts, each of which
shall be deemed an original but all of which together
will constitute one and the same instrument.
11.6. Headings. The section headings
contained in this Agreement are inserted for
convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
11.7. Notices. All notices, requests,
demands, claims, and other communications hereunder
will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be
deemed duly given (i) upon confirmation of facsimile,
(ii) when sent by overnight delivery and (iii) when
mailed by registered or certified mail return receipt
requested and postage prepaid at the following
address:
If to the Sellers:
Standard Microsystems Corporation
80 Arkay Drive
Hauppauge, New York 11788
Tel: 516-434-2803
Fax: 516-273-5550
Attention: Paul Richman
Copy to:
Tor Braham
Wilson, Sonsini, Goodrich & Rosati, Professional
Corporation
650 Page Mill Road
Palo Alto, CA 94304
Tel: 415-493-9300
Fax: 415-493-6811
If to the Buyer:
Cabletron Systems, Inc.
P.O. Box 6257
Rochester, New Hampshire
Tel: 603-332-9400
Fax: 603-332-4616
Attention: David J. Kirkpatrick
Copy to:
Lauren I. Norton
Ropes & Gray
One International Place
Boston, Massachusetts
Tel: 617-951-7000
Fax: 617-951-7050
Any Party may send any notice, request, demand,
claim, or other communication hereunder to the
intended recipient at the address set forth above
using any other means (including personal delivery,
expedited courier, messenger service, telecopy,
telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other
communication shall be deemed to have been duly given
unless and until it actually is received by the
intended recipient. Any Party may change the address
to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by
giving the other Party notice in the manner herein
set forth.
11.8. Governing Law. This Agreement shall
be governed by and construed in accordance with the
domestic laws of the State of Delaware without giving
effect to any choice or conflict of law provision or
rule (whether of the State of Delaware or any other
jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of
Delaware.
11.9. Amendments and Waivers. No amendment of
any provision of this Agreement shall be valid unless
the same shall be in writing and signed by the Buyer
and the Sellers. No waiver by any Party of any
default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such
occurrence.
11.10. Severability. Any term or provision of
this Agreement that is invalid or unenforceable in
any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms
and provisions hereof or the validity or
enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
11.11. Expenses. Each of the Buyer and the
Sellers will bear his or its own costs and expenses
(including legal fees and expenses) and the Sellers
will bear all of the costs and expenses (including
legal fees and expenses) of the ENBU incurred in
connection with this Agreement and the transactions
contemplated hereby. Sellers will bear all fees of
Robertson Stephens & Company, L. P., and any
associated costs and expenses.
11.12. Construction. The Parties have
participated jointly in the negotiation and drafting
of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by
the Parties and no presumption or burden of proof
shall arise favoring or disfavoring any Party by
virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state,
local, or foreign statute or law shall be deemed also
to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise.
The word "including" shall mean including without
limitation. For purposes of the Disclosure Letter,
each disclosure: (i) applies only to the particular
section referenced unless a disclosure is
specifically cross-referenced in a separate section
or otherwise clearly and unambiguously applies to
another section; and (ii) shall be deemed to
adequately disclose an exception to a representation
or warranty only where such disclosure expressly
identifies the exception. Without limiting the
generality of the foregoing, the mere identification
(or inclusion of a copy) of a document or other item
shall not be deemed adequate to disclose an exception
to a representation or warranty made herein (unless
the representation or warranty has to do with the
existence of the document or other item itself)
unless a review of such item would provide a
reasonable disclosure of such exception. The Parties
intend that each representation, warranty, and
covenant contained herein shall have independent
significance. If any Party has breached any
representation, warranty, or covenant contained
herein in any respect, the fact that there exists
another representation, warranty, or covenant
relating to the same subject matter (regardless of
the relative levels of specificity) which the Party
has not breached shall not detract from or mitigate
the fact that the Party is in breach of the first
representation, warranty, or covenant.
11.13. Incorporation of Exhibits and Schedules.
The Exhibits and Schedules identified in this
Agreement are incorporated herein by reference and
made a part hereof.
11.14. Specific Performance. Each of the
Parties acknowledges and agrees that the other Party
would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in
accordance with their specific terms or otherwise are
breached. Accordingly, each of the Parties agrees
that the other Party shall be entitled to an
injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce
specifically this Agreement and the terms and
provisions hereof in any action instituted in any
court of the United States or any state thereof
having jurisdiction over the Parties and the matter
in addition to any other remedy to which it may be
entitled, at law or in equity.
11.15. Resolution of Disputes.
11.15.1. If a dispute arises between the
parties relating to this Agreement, it shall be
resolved solely in accordance with the following
procedures. Either Party may call a meeting by
written notice to be attended by individuals with
decision-making authority regarding the dispute.
Within ten days of the initial request, the Parties
will meet and attempt to resolve the dispute. If the
Parties are unable to resolve the dispute at such
meeting, either Party may, within five days of such
meeting, call a meeting by written notice to be
attended by the Chief Executive Officer of SMC and
the Chief Operating Officer of Cabletron. Within ten
days of the initial request, the Chief Executive
Officer of SMC and the Chief Operating Officer of
Cabletron will meet and attempt to resolve the
dispute.
11.15.2. If the Chief Executive Officer of SMC
and the Chief Operating Officer of Cabletron are
unable to resolve the dispute at their meeting,
either Party may, within five days of such meeting,
submit the dispute to expedited mediation under the
Commercial Mediation Rules of the American
Arbitration Association ("AAA"). The mediator shall
not have authority to impose a settlement upon the
parties to the dispute, but will attempt to assist
them in reaching a satisfactory resolution of the
dispute. The mediator shall end such mediation
whenever, in his or her judgment, further efforts at
mediation would not contribute to resolution of the
dispute. If the dispute is not resolved through
mediation in ten days from submission of the dispute
to the mediator, either Party may terminate
mediation.
11.15.3. Upon termination of mediation, the
Parties may avail themselves of any remedies that are
available under this Agreement and applicable law,
including litigation.
11.15.4. In addition to the procedures set
forth in subsections 11.15.1 through 11.15.3, in the
event of a dispute arising from conduct by one Party
that is likely to cause irreparable harm to another
Party, such other Party may, at its option, bring an
action in state or federal court solely for the
purpose of obtaining an injunction maintaining the
status quo ante during the pendency of the other
procedures specified in subsections 11.15.1 through
11.15.3.
IN WITNESS WHEREOF, the Parties hereto have executed
this Agreement on the date first above written.
CABLETRON SYSTEMS, INC.
By: /s/ David Kirkpatrick
Name: David Kirkpatrick
Title: Director of Finance and Chief Financial Officer
CABLETRON SYSTEMS ACQUISITION, INC.
By: /s/Craig R. Benson
Name: Craig R. Benson
Title: Treasurer
STANDARD MICROSYSTEMS CORPORATION
By: /s/ Paul Richman
Name: Paul Richman
Title: Chairman and Chief Executive Officer
SMC ENTERPRISE NETWORKS, INC.
By: /s/ Paul Richman
Name: Paul Richman
Title: President
EXHIBIT C
Preliminary Asset Allocation
Final allocation will be completed pending settlement
of contingencies and agreement on tax allocation.
Net Receivables 1,900,000
Inventories 6,885,000
Fixed Assets 4,224,000
Other Assets:
Evaluation Inventory 1,000,000
Tooling, Non-recurring Engineering 82,000
Field Service Parts 77,000
Service Contracts 14,000
Deferred Service Revenue 250,000
In-Process Research and Development 54,468,000
Total Allocation 68,900,000
Cabletron Systems
(603) 337-1402
e-mail:[email protected]
CABLETRON FINALIZES AGREEMENT TO ACQUIRE SMC SWITCHING GROUP
ROCHESTER, NH -- January 15, 1996 -- Cabletron Systems (NYSE:CS)
announced today it has completed its acquisition of the
Enterprise Networks Switching Group of Standard Microsystems
Corporation (SMC), a leading supplier of high performance LAN
(Local Area Network) technologies.
Cabletron is acquiring the assets and technology of SMC's
Enterprise Networks Switching Group located in Andover, MA, for
$75.9 million in cash and the assumption of certain specified
liabilities.
The acquisition augments Cabletron's extensive high-end
SmartSwitch family allowing the company to deliver a
comprehensive line of Fast Ethernet products for enterprise-wide
switching applications.
The acquisition significantly expands Cabletron's presence in the
Fast Ethernet market, providing scaleable Fast Ethernet switching
solutions for small, medium and large networks.
"We are very pleased with the smooth integration of the former
SMC Enterprise Switching Group into Cabletron," said S. Robert
Levine, Cabletron's president and chief executive officer.
"Combining Cabletron's leading-edge LAN switching and management
technologies with SMC's Fast Ethernet products gives our
customers the widest range of switching solutions available
today," Levine said.
Cabletron Systems is the largest company in the world dedicated
exclusively to computer networking products and services. With
corporate headquarters in Rochester, NH, the company has 90
offices around the world and employs 5,500 people. Based on its
Synthesis product framework Cabletron develops, manufactures,
markets and services both shared and internetworking products, as
well as the industry's most advanced network and systems
management software.
Cabletron directly services customer sites around the globe and
provides 7 X 24 support coverage, including free telephone
support during normal business hours. A component of the S&P 500
index, Cabletron's common stock is traded over the New York Stock
Exchange under the symbol CS. Over the last four quarters the
company has reported record revenue of approximately $1 billion
and earnings of $202 million.
01/15 Standard Microsystems Completes Sale Of Enterprise Networks
Business Unit To Cabletron Systems
HAUPPAUGE, N.Y.--(BUSINESS WIRE)--Jan. 15, 1996--Standard
Microsystems Corp. (SMC(R)) (NASDAQ:SMSC) announced today that it
has completed the sale of its Enterprise Networks Business Unit
(ENBU) to Cabletron Systems, Inc. for approximately $75 million
in cash.
During SMC's third quarter, ended Nov. 30, 1995, the ENBU
represented about 5% of the company's total revenues and approximately
9% of the revenues of its System Products Division.
The restructured System Products Division now consists of the
Desktop Networks Business Unit (DNBU) and the Workgroup Networks Business
Unit (WNBU). The DNBU will continue to develop and market
advanced network interface cards. The WNBU will concentrate on
the development and marketing of workgroup hubs and new workgroup
switches. The sale of the ENBU will also enable the company's
System Products Division to focus its sales and marketing efforts
on its value-added resellers and channel partners where, for
several years, it has been a leading worldwide supplier.
As previously announced, SMC Plans to use certain proceeds from
this sale to increase the levels of production from its Component
Products Division's semiconductor wafer foundry suppliers and to
expand the product line and strengthen the sales and marketing
channels of the System Products Division.
Standard Microsystems Corp., with headquarters in Hauppauge, is a
leading worldwide supplier of personal computer (PC) local area
network (LAN) system products and semiconductor very-large-scale
integrated (VLSI) circuits. SMC's Component Products Division
supplies VLSI circuits for PC and embedded control systems.
These include input/output (I/O) devices for disk drive control,
communications interface and other PC motherboard functions,
Ethernet and Fast Ethernet controllers for LAN applications and
ARCNET controllers for embedded networking.
SMC's System Products Division provides a broad range of
networking solutions for scaling, managing and connecting LANs. Its
products include network interface cards, hubs, and LAN switches
for interconnecting LANs. SMC has an installed base of over 10
million nodes. SMC uses internally developed integrated circuits
to achieve lower costs and to enhance product performance.
CONTACT: Standard Microsystems Corporation, Hauppauge
John Tweedy,
Director/Corporate Communications
516/434-4630 (phone)
516/273-5550 (fax)
