<PAGE>
Filed Pursuant to Rule 424(b)(3)
of the Securities Act of 1933
(Registration No. 333-18675)
THE OASYS GROUP, INC.
59 N. Santa Cruz Avenue, Suite Q
Los Gatos, California 95030
January 7, 1997
To the Shareholders of The OASys Group, Inc.:
The Board of Directors of The OASys Group, Inc. ("OASys") has unanimously
approved and is recommending that the OASys shareholders approve the acquisition
of OASys by Cabletron Systems, Inc. ("Cabletron"). In order to consider and act
upon approval of this transaction, we will hold a special meeting of
shareholders (the "OASys Special Meeting") at 10:00 a.m. on February 7, 1997, at
the offices of OASys, 59 N. Santa Cruz Avenue, Suite Q, Los Gatos,
California. You are cordially invited to attend.
At this meeting, the holders of OASys Common Stock and OASys Preferred
Stock will be asked (i) to vote on a proposal to approve and adopt the Agreement
and Plan of Merger dated as of November 26, 1996, among Cabletron, Small Cat,
Inc. ("Merger Sub") and OASys (the "Plan of Merger") and the related Agreement
of Merger (the "Merger Agreement"), and to approve the merger (the "Merger") of
Merger Sub, a wholly-owned subsidiary of Cabletron, with and into OASys pursuant
to the Plan of Merger, and the transactions contemplated thereby, by which OASys
would become a wholly-owned subsidiary of Cabletron, and (ii) to act upon such
other matters as may properly be brought before the OASys Special Meeting. In
addition, the holders of OASys Series A Preferred Stock are being asked to
consent in writing to (i) a proposal to convert immediately prior to the Merger
each share of OASys Series A Preferred Stock into one share of Common Stock of
OASys and (ii) a proposal to terminate the Shareholder Rights Agreement (the
"Shareholder Rights Agreement") dated May 16, 1996 among OASys and certain
investors (thereby terminating certain registration rights, information rights
and rights of first refusal). Upon the effectiveness of the Merger, each
outstanding share of OASys Common Stock will be converted into the right to
receive approximately 0.04237 of a share of Cabletron Common Stock, subject to
the terms of the Plan of Merger which provides, among other things, for a
reduction in the purchase price by the amount of certain expenses incurred by
OASys in connection with the Merger. The Plan of Merger also provides that
approximately 15% of the shares of Cabletron Common Stock exchanged in the
Merger will be placed in escrow for up to two years to reimburse Cabletron for
any breaches of OASys' representations and warranties in the Plan of Merger and
for a $900,000 purchase price reduction to which Cabletron will be entitled if
either Paul Doolan or Susan Marvin voluntarily terminates his or her employment
with Cabletron within two years after the Merger.
THE BOARD OF DIRECTORS OF OASYS HAS UNANIMOUSLY APPROVED THE PLAN OF
MERGER, THE MERGER AGREEMENT, THE MERGER AND THE TRANSACTIONS CONTEMPLATED
THEREBY AND RECOMMENDS THAT THE OASYS SHAREHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF THE PLAN OF MERGER, THE MERGER AGREEMENT, THE MERGER AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
THE BOARD OF DIRECTORS OF OASYS ALSO RECOMMENDS THAT HOLDERS OF OASYS
SERIES A PREFERRED STOCK CONSENT TO THE CONVERSION OF OASYS SERIES A PREFERRED
STOCK INTO COMMON STOCK, AND CONSENT TO THE TERMINATION OF THE SHAREHOLDERS
RIGHTS AGREEMENT.
It is important that you vote on this transaction and, in the case of the
holders of OASys Series A Preferred Stock, provide your consent in writing to
the two proposals discussed above. Accordingly, we ask you to please complete,
sign and date the accompanying Proxy Card, which will serve both as a proxy for
your vote at the OASys Special Meeting and, for the holders of OASys Series A
Preferred Stock, as a form for soliciting your written consent. The details of
the proposed Merger appear in the accompanying Proxy Statement/Prospectus which
is being furnished to the holders of the OASys Common Stock and the OASys Series
A Preferred Stock (collectively referred to as the "OASys Stock"). You should
consider carefully the investment considerations associated with the Merger
discussed under "Risk Factors" in the accompanying Proxy Statement/Prospectus.
Please note that one of the conditions to Cabletron's obligation to consummate
the Merger (unless such condition is waived by Cabletron) is the requirement
that the holders of at least 95% of the OASys Stock shall have voted to approve
the Merger.
The approval and adoption of the Plan of Merger and the Merger Agreement
will require the affirmative vote of the holders of a majority of the
outstanding shares of OASys Common Stock, voting as a separate class, and the
affirmative vote of the holders of a majority of the outstanding shares of OASys
Series A Preferred Stock, voting as a separate class. The approval of the
conversion of all the shares of OASys Series A Preferred Stock will require the
written consent of the holders of a majority of the OASys Series A Preferred
Stock. The approval of the proposal to terminate the Shareholder Rights
Agreement will require the written consent of the holders of a majority of the
OASys Series A Preferred Stock.
The management of OASys appreciates the support and confidence that you
have given us. We are very enthusiastic about our acquisition by Cabletron and
we believe it is in the best interest of our shareholders and employees.
Sincerely,
Richard Pospisil
President and Chief Executive Officer
Los Gatos, California
<PAGE>
THE OASYS GROUP, INC.
59 N. Santa Cruz Avenue, Suite Q
Los Gatos, California 95030
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 7, 1997
To the Shareholders of THE OASYS GROUP, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of The
OASys Group, Inc., a California corporation ("OASys"), will be held at 10:00
a.m., Pacific time, on February 7, 1997, at the offices of OASys, 59 N. Santa
Cruz Avenue, Suite Q, Los Gatos, California, to consider and act upon proposals:
1. To approve and adopt the Agreement and Plan of Merger dated as of
November 26, 1996 among Cabletron, Small Cat, Inc. ("Merger Sub") and OASys (the
"Plan of Merger") and the related Agreement of Merger (the "Merger Agreement"),
and to approve the merger (the "Merger") of Merger Sub, a wholly-owned
subsidiary of Cabletron, with and into OASys pursuant to the Plan of Merger and
the Merger Agreement, and the transactions contemplated thereby, by which OASys
would become a wholly-owned subsidiary of Cabletron.
2. To transact such other business as may properly be brought before
the Special Meeting of Shareholders.
In addition, concurrently with the solicitation of proxies for the
Special Meeting of Shareholders, holders of OASys Series A Preferred Stock are
being asked to consent in writing to the following proposals:
1. To convert immediately prior to the Merger each share of OASys
Series A Preferred Stock into one share of Common Stock of OASys.
2. To terminate immediately prior to the Merger the Shareholder Rights
Agreement dated May 16, 1996 among OASys and certain investors (thereby
terminating certain registration rights, information rights and rights of first
refusal).
Only stockholders of record at the close of business on January 6,
1997 are entitled to notice of and to vote at the meeting.
In accordance with Chapter 13 of the California Corporations Code, a copy
of which is enclosed as Annex B to the accompanying Proxy Statement/Prospectus,
holders of OASys Stock are entitled to dissenters' rights with respect to such
stock in connection with the Merger.
All stockholders are cordially invited to attend the meeting in person.
To ensure your representation at the meeting, however, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
enclosed postage-prepaid envelope. You may revoke your proxy in the manner
described in the accompanying Proxy Statement/Prospectus at any time before it
has been voted at the Special Meeting. Any stockholder attending the Special
Meeting may vote in person even if he or she has returned a proxy.
By Order of the Board of Directors,
Richard Pospisil
President and Chief Executive Officer
Los Gatos, California
January 7, 1997
<PAGE>
THE OASYS GROUP, INC.
PROXY/INFORMATION STATEMENT
-----------------------------
CABLETRON SYSTEMS, INC.
PROSPECTUS
This Proxy/Information Statement and Prospectus (''Proxy
Statement/Prospectus'') is being furnished to the holders of (i) common stock,
no par value per share (''OASys Common Stock''), and (ii) Series A Preferred
Stock, no par value per share (the ''OASys Preferred Stock'') of The OASys
Group, Inc., a California corporation (''OASys''), in connection with the
solicitation of written consents from the holders of OASys Preferred Stock and
in connection with the solicitation of proxies by the Board of Directors of
OASys for use at the Special Meeting of Stockholders of OASys to be held on
February 7, 1997 at the offices of OASys, 59 N. Santa Cruz Avenue, Suite Q, Los
Gatos, California, commencing at 10:00 a.m., Pacific time, and at any and all
adjournments or postponements thereof (the ''OASys Special Meeting''). The OASys
Common Stock and the OASys Preferred Stock are referred to together in this
Proxy Statement/Prospectus as the ''OASys Stock.''
This Proxy Statement/Prospectus also constitutes the Prospectus of Cabletron
Systems, Inc., a Delaware corporation (''Cabletron''), with respect to the
issuance of up to 235,294 shares of Cabletron common stock, $.01 par value per
share (''Cabletron Common Stock''), to be issued to the stockholders of OASys in
connection with the Merger described below, including shares issued upon
exercise prior to the consummation of the Merger of outstanding options to
acquire shares of OASys Common Stock. Stockholders of Cabletron will not be
voting to approve the Merger. Cabletron Common Stock is traded on the New York
Stock Exchange, Inc. (the ''NYSE'') under the symbol ''CS.''
This Proxy Statement/Prospectus relates to the proposed merger (the
''Merger'') of Small Cat, Inc., a California corporation and a wholly-owned
subsidiary of Cabletron (''Merger Sub''), with and into OASys, pursuant to an
Agreement and Plan of Merger dated as of November 26, 1996 (the ''Plan of
Merger'') by and amo ng Cabletron, Merger Sub and OASys and the related
Agreement of Merger (the "Merger Agreement"). Upon consummation of the Merger,
OASys will become a wholly-owned subsidiary of Cabletron. Consummation of the
Merger is subject to various conditions, including (i) the approval and adoption
of the Plan of Merger and the Merger Agreement by the holders of a majority of
the outstanding shares of OASys Common Stock at the OASys Special Meeting, (ii)
the approval and adoption of the Plan of Merger and the Merger Agreement by the
holders of a majority of the outstanding shares of OASys Preferred Stock at the
OASys Special Meeting, (iii) the conversion of the OASys Preferred Stock into
OASys Common Stock and (iv) the termination immediately prior to the Merger of
the Shareholder Rights Agreement (the "Shareholder Rights Agreement") dated May
16, 1996 among OASys and certain investors (thereby terminating certain
registration rights, information rights and rights of first refusal).
At the Effective Time (as defined below), each share of OASys Common Stock
issued and outstanding immediately prior to the Effective Time will be converted
into the right to receive that number of shares of Cabletron Common Stock equal
to a fraction (the ''Exchange Ratio''), the numerator of which is (i) $9,000,000
minus the OASys Expenses (defined below) divided by (ii) $38.25 and the
denominator of which is the sum of (i) the number of shares of OASys Common
Stock outstanding immediately prior to the Effective Time and (ii) the number of
shares of OASys Common Stock issuable upon the conversion or exercise of all
options, warrants, preferred stock and other securities of OASys convertible
into or exercisable for shares of OASys Common Stock that are outstanding
immediately prior to the Effective Time. The stockholders of OASys are obligated
to pay OASys' legal and accounting fees and expenses associated with the Merger
(the ''OASys Expenses''). Based upon the capitalization of OASys on December
11, 1996, it is currently anticipated that each share of OASys Common Stock will
convert into the right to receive 0.04237 shares of Cabletron Common Stock,
subject to adjustment for payment of the OASys Expenses. Each holder of OASys
Common Stock shall be entitled to receive (in addition to cash in lieu of
fractional shares) a number of shares of Cabletron Common Stock equal to the
product (rounded down to the nearest whole number) of (i) the number of shares
of OASys Common Stock exchanged by such stockholder and (ii) the Exchange Ratio.
As discussed below, of the total number of shares of Cabletron Common Stock
which each shareholder of OASys is entitled to receive in the Merger,
approximately 15% of such shares will be placed in escrow for up to two years.
See "The Plan of Merger--Indemnification" and "--Escrow". Each option to
purchase OASys Common Stock that is outstanding at the Effective Time (each an
''OASys Option'') will be assumed by Cabletron and will automatically be
converted into an option to purchase a number of shares of Cabletron Common
Stock (rounded down to the nearest whole number) determined by multiplying the
number of shares of OASys Common Stock subject to the OASys Option by the
Exchange Ratio, at an exercise price per share equal to the aggregate exercise
price for OASys Common Stock purchasable pursuant to the OASys Option divided by
the product of (i) the number of shares of OASys Common Stock subject to the
OASys Option and (ii) the Exchange Ratio. See ''The Merger--Conversion of
Shares'' and ''--Conversion of OASys Options.''
Approximately 35,300 shares of Cabletron Common Stock, which equal
approximately 15% of the shares of Cabletron Common Stock which the OASys
stockholders are entitled to receive in the Merger, will be withheld and
deposited into an escrow account to secure certain indemnification and other
obligations of the OASys stockholders under the Plan of Merger. See ''The Plan
of Merger--Indemnification" "--Escrow.''
All information contained in this Proxy Statement/Prospectus, or incorporated
herein by reference, with respect to Merger Sub and Cabletron has been provided
by Cabletron. All information contained in this Proxy Statement/Prospectus with
respect to OASys has been provided by OASys.
This Proxy Statement/Prospectus and the accompanying form of proxy/written
consent are first being mailed to stockholders of OASys on or about January 7,
1997.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT/ PROSPECTUS.
THE PROPOSED MERGER IS A COMPLEX TRANSACTION. OASYS STOCKHOLDERS ARE STRONGLY
URGED TO READ AND CONSIDER CAREFULLY THIS PROXY STATEMENT/PROSPECTUS IN ITS
ENTIRETY, PARTICULARLY THE MATTERS REFERRED TO UNDER ''RISK FACTORS'' STARTING
ON PAGE 8.
IN ACCORDANCE WITH THE CALIFORNIA CORPORATIONS CODE, HOLDERS OF OASYS STOCK
ARE ENTITLED TO DISSENTERS' RIGHTS IN CONNECTION WITH THE MERGER. SEE ''THE
MERGER--DISSENTERS' RIGHTS.''
- -----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- -----------------------------
The date of this Proxy Statement/Prospectus is January 7, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
AVAILABLE INFORMATION................................................ 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................... 2
TRADEMARKS........................................................... 2
SUMMARY.............................................................. 3
The Business of Cabletron........................................... 3
General............................................................ 3
Recent Developments................................................ 3
The Business of OASys............................................... 3
The Merger.......................................................... 3
Conversion of Shares; Options...................................... 3
Exchange of Certificates; Assumption of Options.................... 4
Listing............................................................ 4
Conditions to the Merger........................................... 4
Escrow Agreement................................................... 4
Termination........................................................ 4
Termination Fee.................................................... 5
OASys Special Meeting............................................... 5
Time, Place and Date............................................... 5
Record Date; Shares Entitled to Vote............................... 5
Purposes of the Meeting and the Solicitation of Written Consents... 5
Vote Required...................................................... 5
Conversion of the OASys Preferred Stock............................. 5
Termination of the Shareholder Rights Agreement..................... 6
Recommendation of OASys' Board of Directors......................... 6
Interests of Certain Persons in the Merger.......................... 6
Certain Federal Income Tax Consequences............................. 6
Anticipated Accounting Treatment.................................... 6
Comparative Rights of Stockholders.................................. 6
Risk Factors........................................................ 6
Employment Agreements............................................... 6
Dissenters' Rights.................................................. 7
RISK FACTORS......................................................... 8
Competition; Sales Margins.......................................... 8
Volatility of Stock Price........................................... 8
Fluctuations in Operating Results................................... 8
Acquisition Strategy................................................ 9
Dependence on Key Personnel and Management of Change................ 9
Technological Changes............................................... 9
Product Protection and Intellectual Property........................ 9
Dependence on Suppliers............................................. 10
SELECTED HISTORICAL FINANCIAL DATA................................... 11
Cabletron........................................................... 11
OASys............................................................... 12
COMPARATIVE PER SHARE DATA........................................... 13
MARKET PRICE PER SHARE DATA.......................................... 14
Cabletron........................................................... 14
OASys............................................................... 14
Dividend Policy..................................................... 14
Recent Closing Prices............................................... 14
OASYS SPECIAL MEETING................................................ 15
Time, Place and Date................................................ 15
Matters To Be Considered at the OASys Special Meeting............... 15
Voting at the OASys Special Meeting; Record Date.................... 15
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Proxies/Written Consents.............................................. 16
THE MERGER............................................................. 16
General............................................................... 16
Conversion of Shares.................................................. 16
Conversion of OASys Options........................................... 17
Exchange of Certificates.............................................. 17
Notification Regarding OASys Options.................................. 18
Effective Time........................................................ 18
Background of the Merger; Recommendation of OASys' Board of Directors. 18
OASys' Reasons for the Merger......................................... 19
Cabletron's Reasons for the Merger.................................... 19
Certain Considerations................................................ 20
Employment Agreements; Consulting Agreement........................... 20
Interests of Certain Persons in the Merger............................ 21
Certain Federal Income Tax Consequences............................... 21
Anticipated Accounting Treatment...................................... 23
Governmental Filings.................................................. 23
Certain Federal Securities Law Consequences; Affiliate Letters........ 23
Stock Exchange Listing................................................ 23
Dividends............................................................. 23
Dissenters' Rights.................................................... 23
CONVERSION OF THE OASYS PREFERRED STOCK................................ 24
TERMINATION OF THE SHAREHOLDER RIGHTS AGREEMENT........................ 24
THE PLAN OF MERGER..................................................... 25
Representations and Warranties........................................ 25
Conduct of Cabletron's and OASys' Business Prior to the Merger........ 25
No Solicitation....................................................... 26
Conditions to the Merger.............................................. 26
Termination........................................................... 28
Fees and Expenses; Termination Fee.................................... 28
Indemnification....................................................... 29
Escrow................................................................ 30
BUSINESS............................................................... 31
General............................................................... 31
The Market............................................................ 31
OASys Solutions....................................................... 31
OASys Products........................................................ 31
Marketing and Sales................................................... 32
Service and Support................................................... 32
Product Development................................................... 32
Manufacturing......................................................... 32
Competition........................................................... 32
Employees............................................................. 33
Facilities............................................................ 33
Glossary.............................................................. 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................... 34
General............................................................... 34
Results of Operations................................................. 34
Liquidity and Capital Resources....................................... 34
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OF OASYS............................................................... 35
DESCRIPTION OF CAPITAL STOCK OF CABLETRON.............................. 36
Common Stock.......................................................... 36
Preferred Stock....................................................... 36
COMPARISON OF STOCKHOLDER RIGHTS....................................... 36
Voting Rights......................................................... 36
Voting Requirements and Quorums for Stockholders Meetings............. 36
Stockholder Meetings.................................................. 37
Amendments to Charter................................................. 37
Bylaws................................................................ 38
Number of Directors................................................... 38
Board Classification.................................................. 38
Nomination and Election of Directors.................................. 38
Removal of Directors.................................................. 39
Newly Created Directorships and Vacancies............................. 39
Vote Required for Mergers............................................. 40
Anti-takeover Provisions.............................................. 40
Fiduciary Duties of Directors......................................... 41
Limitation on Directors' Liability.................................... 41
Imdemnification....................................................... 41
Dividends and Other Distributions..................................... 41
Shareholder Derivative Suits.......................................... 42
Appraisal Rights...................................................... 42
Inspection of Books and Records....................................... 43
LEGAL MATTERS.......................................................... 43
EXPERTS................................................................ 43
THE OASYS GROUP, INC. AUDITED FINANCIAL STATEMENTS..................... F-1
ANNEXES
A. Agreement and Plan of Merger...................................... A-1
B. Chapter 13 of the California Corporations Code.................... B-1
</TABLE>
ii
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES OFFERED BY THIS
PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION
TO OR FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION OF AN OFFER, OR PROXY SOLICITATION, IN ANY SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR THE ISSUANCE OR SALE
OF ANY SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR
INCORPORATED BY REFERENCE SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
Cabletron is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the ''Exchange Act''), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the ''Commission''). Such reports, proxy
statements and other information may be inspected and copied at the Public
Reference Facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549 and at the Commission's regional
offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material may be obtained from the Public
Reference Facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. In
addition, Cabletron is required to file electronic versions of these documents
with the Commission through the Commission's Electronic Data Gathering, Analysis
and Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The Cabletron Common Stock is listed on the NYSE, and such reports,
proxy statements and other information concerning Cabletron may be inspected at
the offices of the NYSE, 20 Broad Street, New York, New York 10005.
Cabletron has filed with the Commission a Registration Statement on Form S-
4 (the ''Registration Statement'') under the Securities Act of 1933, as amended
(the ''Securities Act''), with respect to the securities offered hereby. This
Proxy Statement/Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in schedules and exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. Statements made in this Proxy Statement/Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
Items and information omitted from this Proxy Statement/Prospectus but contained
in the Registration Statement may be inspected and copied at the Public
Reference Facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549.
1
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN DOCUMENTS
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH
DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS THEY ARE SPECIFICALLY
INCORPORATED BY REFERENCE, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING
ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED UPON
WRITTEN OR ORAL REQUEST TO: CABLETRON INVESTOR RELATIONS, CABLETRON SYSTEMS,
INC., 35 INDUSTRIAL WAY, ROCHESTER, NEW HAMPSHIRE 03867 (TELEPHONE: (603) 332-
9400). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD
BE MADE BY JANUARY 27, 1997.
The following documents which have been filed with the Commission are
incorporated by reference into this Proxy Statement/Prospectus:
1. Cabletron's Annual Report on Form 10-K for the fiscal year ended
February 29, 1996 (which incorporates by reference certain information from
Cabletron's Proxy Statement relating to the 1996 Annual Meeting of Shareholders)
(File No. 1-10228);
2. Cabletron's Quarterly Report on Form 10-Q and Quarterly Report on Form
10-Q/A for the fiscal quarter ended May 31, 1996;
3. Cabletron's Quarterly Report on Form 10-Q for the fiscal quarter ended
August 31, 1996;
4. Cabletron's Current Report on Form 8-K filed with the Commission on
October 24, 1996;
5. Cabletron's Current Report on Form 8-K/A filed with the Commission on
October 25, 1996;
6. Cabletron's Current Report on Form 8-K/A-2 filed with the Commission on
November 20, 1996; and
7. The description of Cabletron Common Stock contained in Cabletron's
Registration Statement on Form 8-A under the Exchange Act (File No. 1-10228)
filed with the Commission on April 9, 1989, including all amendments and reports
filed for the purpose of updating such description.
All documents subsequently filed by Cabletron pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering
of the Cabletron Common Stock, shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing such documents. Any
statement contained herein or in any document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Proxy Statement/Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed to constitute a part of this Proxy Statement/Prospectus, except as
so modified or superseded.
TRADEMARKS
Cabletron Systems and design, IMT, MMAC Plus, Synthesis, SmartSwitch, and DNI
are registered trademarks of Cabletron; MMAC, SPECTRUM, ES/1 ATX, FastNet, and
The Complete Networking Solution are trademarks of Cabletron. OASys has applied
for registration of the trademark TARP/500. ADMIN/500, TARP, TARP/500 and Sonet
Suite are trademarks of OASys. This Proxy Statement/Prospectus also contains the
trademarks of other companies.
2
<PAGE>
SUMMARY
Reference is made to, and this summary is qualified in its entirety by, the
more detailed information contained in, attached to or incorporated by reference
in this Proxy Statement/Prospectus and the Annexes hereto. OASys stockholders
are urged to read this Proxy Statement/Prospectus and the Annexes in their
entirety.
The Business of Cabletron
General
Cabletron develops, manufactures, markets, installs and supports a wide range
of standards-based local area network (''LAN'') and wide area network (''WAN'')
connectivity hardware and software products. Cabletron's approach to networking
is based on a strategy called Synthesis(R), a strategic framework which combines
infrastructure products and technologies, automated management tools, and
support services to allow users to migrate smoothly from traditional router-
based internetworks to switch-based virtual enterprise internetworks. An
integral part of Synthesis is the MMAC product family, which includes the
MMAC/TM/, Cabletron's wiring closet smart hub, and the MMAC Plus(R), Cabletron's
modular advanced switching intelligent hub. All of Cabletron's intelligent
network products are managed by SPECTRUM(R), Cabletron's sophisticated
enterprise-wide network management system. SPECTRUM incorporates Inductive
Modeling Technology (''IMT(R)''), a form of artificial intelligence which
provides SPECTRUM with the ability to model every element of the network,
including physical cables, network devices and applications. Cabletron also
produces and supports other network products, such as adapter cards, other
interconnection equipment, wiring cables, and file server products, and provides
a wide range of network services. Cabletron believes that its broad product line
and its ability to provide full service enable it to offer its customers ''The
Complete Networking Solution.''/TM/ Cabletron was incorporated in Delaware in
1988. Cabletron's principal executive offices are located at 35 Industrial Way,
Rochester, New Hampshire 03867 and its telephone number is (603) 332-9400.
Recent Developments
On December 10, 1996, Cabletron completed its acquisition of Netlink, Inc.
("Netlink"), a supplier of frame relay access solutions for multi-protocol,
mission-critical networks. The acquisition expands Cabletron's product
offerings in remote access technologies for linking branch offices, data centers
and telco central offices. Under the terms of the merger agreement, 4,514,638
shares of Cabletron Common Stock were exchanged for all outstanding shares of
Netlink on a fully diluted basis. The transaction will be accounted for as a
pooling of interests and is intended to be a tax-free reorganization.
The Business of OASys
OASys designs, develops, and supports a family of Telecommunications
Management Network ("TMN") system level software products and solutions. OASys'
current products enable telephone network operators to migrate from proprietary,
TL1-based network management systems to CMISE-based, open systems that follow
the International Telecommunications Union ("ITU") standard TMN architecture.
OASys is a California corporation founded in March, 1995. Its offices are
located at 59 N. Santa Cruz Avenue, Suite Q, Los Gatos, CA 95030, telephone
(408) 395-1684.
The Merger
The Plan of Merger and the Merger Agreement provide for the merger of Merger
Sub, a wholly-owned subsidiary of Cabletron, with and into OASys, with the
result that OASys would become a wholly-owned subsidiary of Cabletron. For the
Merger to be consummated it must be approved by the OASys stockholders and the
other conditions specified in the Plan of Merger must be satisfied or waived.
See ''The Merger.''
Conversion of Shares; Options
Upon the consummation of the Merger, each then outstanding share of OASys
Common Stock will automatically be converted into the right to receive that
number of shares of Cabletron Common Stock equal to the Exchange Ratio. Based
upon the capitalization of OASys on December 11, 1996, it is currently
anticipated that each share of OASys Common Stock will convert into the right to
receive approximately 0.04237 of a share of Cabletron Common Stock, subject to
adjustment for payment of the OASys Expenses. Cash will be paid in lieu of
fractional shares of Cabletron Common Stock. In the aggregate, and subject to
reduction for payment of the OASys Expenses, Cabletron will exchange
approximately 235,294 shares of Cabletron Common Stock for all the shares of
OASys Common Stock outstanding immediately prior to the Effective Time,
including shares of OASys Common Stock issued upon the conversion of the OASys
Preferred Stock and issuable upon the conversion or exercise of any option,
warrant, preferred stock or other security convertible into or exercisable for
shares of OASys Stock that are outstanding immediately prior to the Effective
Time. Based upon the capitalization of OASys and Cabletron, the stockholders of
OASys will own Cabletron Common Stock representing less than 1% of the Cabletron
Common Stock outstanding immediately after consummation of the Merger. See ''The
Merger--Conversion of Shares.''
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Upon consummation of the Merger, each then outstanding OASys Option will be
assumed by Cabletron and will automatically be converted into an option to
purchase a number of shares of Cabletron Common Stock (rounded down to the
nearest whole number) determined by multiplying the number of shares of OASys
Common Stock subject to the OASys Option by the Exchange Ratio, at an exercise
price per share equal to the aggregate exercise price for OASys Common Stock
purchasable pursuant to the OASys Option divided by the product of (i) number of
shares of OASys Common Stock subject to the OASys Option and (ii) the Exchange
Ratio. Cabletron will file a Registration Statement on Form S-8 with the
Commission with respect to the shares of Cabletron Common Stock issuable upon
exercise of the assumed OASys Options. As of January 6, 1997, the record date
for the OASys Special Meeting (the ''OASys Record Date''), 153,500 shares of
OASys Common Stock were subject to outstanding OASys Options, none of which
are, or will become, prior to the expected Effective Time, exercisable. Upon the
assumption of such OASys Options by Cabletron upon consummation of the Merger,
approximately 6,500 shares of Cabletron Common Stock will be subject to such
options. See ''The Merger--Conversion of OASys Options.''
Exchange of Certificates; Assumption of Options
As soon as practicable after the Effective Time, a letter of transmittal with
instructions will be mailed to each OASys stockholder for use in exchanging
OASys Stock certificates for Cabletron Common Stock certificates. See ''The
Merger--Exchange of Certificates.'' HOLDERS OF OASYS STOCK CERTIFICATES SHOULD
NOT SUBMIT THEIR CERTIFICATES FOR EXCHANGE UNTIL THEY HAVE RECEIVED THE LETTER
OF TRANSMITTAL AND INSTRUCTIONS REFERRED TO ABOVE.
Following the Effective Time, Cabletron will issue to each person who,
immediately prior thereto, was a holder of an outstanding OASys Option, a
document evidencing the assumption of such OASys Option by Cabletron. Such
assumption will be automatic and no action will be required on the part of the
option holder to convert such holder's OASys Option into an option to purchase
shares of Cabletron Common Stock. See ''The Merger--Notification Regarding OASys
Options.''
Listing
The shares of Cabletron Common Stock to be issued in the Merger will be
authorized for listing and trading on the NYSE.
Conditions to the Merger
The obligations of Cabletron and OASys to consummate the Merger are subject to
the satisfaction of certain conditions, including, but not limited to, obtaining
requisite OASys stockholder approval, the conversion of OASys Preferred Stock
into OASys Common Stock, certain employees of OASys having entered into
employment agreements with Cabletron, holders of at least 95% of the OASys Stock
entitled to vote on the Merger having voted to approve the Merger, the absence
of any injunction prohibiting consummation of the Merger, the continuing
accuracy of the other party's representations and warranties made in the Plan of
Merger on and as of the Effective Time, the other party's performance of its
covenants and the receipt of certain legal opinions to the effect that the
Merger qualifies as a tax-free reorganization. See ''The Merger--Certain
Federal Income Tax Consequences'' and ''The Plan of Merger--Conditions to the
Merger.''
Escrow Agreement
Pursuant to an Escrow Agreement to be entered into by Cabletron, Richard
Pospisil, as a representative of the holders of OASys Common Stock (the
''Stockholders Representative''), and Fleet National Bank (the ''Escrow Agent'')
(the ''Escrow Agreement''), approximately 35,300 shares of Cabletron Common
Stock will be deposited in escrow for two years and will be held and disposed of
in accordance with the terms of the Escrow Agreement. Such shares will be
available to reimburse Cabletron in connection with the following: (i) breaches
of representations, warranties or covenants made by OASys in the Plan of Merger,
(ii) if Paul Doolan or Susan Marvin voluntarily terminate his or her employment
with Cabletron within two years from the Effective Time, Cabletron shall be
entitled to a purchase price adjustment of $900,000 which shall be paid from the
escrow, and (iii) certain other matters. As a result of the Escrow Agreement,
stockholders of OASys will be entitled to receive, depending on the number of
dissenting shares and unexercised OASys Options at the Effective Time,
approximately 85% of the shares of Cabletron Common Stock into which their
shares of OASys Common Stock are converted pursuant to the Merger and the
remaining 15% of the shares of Cabletron Common Stock into which the shares of
OASys Common Stock are converted will be deposited in escrow for two years. See
''The Plan of Merger--Indemnification'' and ''--Escrow.''
Termination
The Plan of Merger is subject to termination by mutual written consent of
Cabletron and OASys and at the option of either Cabletron or OASys if the Merger
is not consummated before March 15, 1997. The Plan of Merger is also subject to
termination upon the occurrence of certain other events. See ''The Plan of
Merger --Termination.''
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Termination Fee
Under certain circumstances, upon termination of the Plan of Merger, OASys
will be required to pay Cabletron a fee of $300,000, plus certain expenses of
Cabletron. See ''The Plan of Merger--Termination Fee.''
OASys Special Meeting
Time, Place and Date
The OASys Special Meeting will be held on February 7, 1997 at the offices of
OASys, 59 N. Santa Cruz Avenue, Suite Q, Los Gatos, California, commencing at
10:00 a.m., Pacific time.
Record Date; Shares Entitled to Vote
Holders of record of shares of OASys Stock at the close of business on the
OASys Record Date are entitled to notice of, and to vote at, the OASys Special
Meeting. At such OASys Record Date, there were outstanding 3,940,560 shares of
OASys Common Stock and 1,423,800 shares of OASys Preferred Stock. Holders of
shares of OASys Stock are entitled to one vote for each such share held by the
holder on the proposal to approve and adopt the Plan of Merger, the Merger
Agreement, the Merger, and the transactions contemplated thereby, and for any
other matter to be acted upon or which may properly come before the OASys
Special Meeting. In addition, holders of record of shares of OASys Preferred
Stock at the close of business on the OASys Record Date are entitled to consent
in writing for each share of OASys Preferred Stock held by the holder on (1) the
proposal to convert each share of OASys Preferred Stock into one share of OASys
Common Stock and (2) the proposal to terminate the Shareholder Rights Agreement.
The presence of holders of a majority of the shares of OASys Stock in person or
by proxy is required to constitute a quorum at the OASys Special Meeting. See
''OASys Special Meeting--Voting at the OASys Special Meeting; Record Date.''
Purposes of the Meeting and the Solicitation of Written Consents
The purposes of the OASys Special Meeting are to consider and vote upon (1) a
proposal to approve and adopt the Plan of Merger and the related Merger
Agreement, pursuant to which, among other things, Merger Sub will be merged with
and into OASys and OASys will become a wholly-owned subsidiary of Cabletron, and
each outstanding share of OASys Common Stock will be converted into the right to
receive shares of Cabletron Common Stock at the Exchange Ratio and (2) such
other matters as may properly be brought before the OASys Special Meeting. In
addition, the holders of OASys Preferred Stock are being asked to consent in
writing to (1) a proposal to convert immediately prior to the Merger each
outstanding share of OASys Preferred Stock into one share of OASys Common Stock
and (2) a proposal to terminate immediately prior to the Merger the Shareholder
Rights Agreement. See ''OASys Special Meeting--Matters To Be Considered at the
OASys Special Meeting.''
Vote Required
The approval and adoption by the OASys stockholders of the Plan of Merger, the
Merger Agreement, the Merger and the transactions contemplated thereby will
require the affirmative vote of the holders of a majority of the outstanding
shares of OASys Common Stock, voting separately as a class, and the affirmative
vote of the holders of a majority of the outstanding shares of the OASys
Preferred Stock, voting separately as a class. See ''OASys Special Meeting--
Voting at the OASys Special Meeting; Record Date.''
The conversion of each outstanding share of OASys Preferred Stock into one
share of OASys Common Stock will require the written consent of the holders of a
majority of the outstanding shares of the OASys Preferred Stock, voting
separately as a class. See ''OASys Special Meeting--Voting at the OASys Special
Meeting; Record Date.''
The approval of the proposal to terminate the Shareholder Rights Agreement
will require the written consent of the holders of a majority of the outstanding
shares of the OASys Preferred Stock, voting separately as a class. See ''OASys
Special Meeting--Voting at the OASys Special Meeting; Record Date'' and
''Termination of the Shareholder Rights Agreement.''
As of the OASys Record Date, directors and executive officers of OASys and
their affiliates had the right to vote approximately 84% of the outstanding
shares of OASys Common Stock and 18% of the outstanding shares of OASys
Preferred Stock. Each of the directors and executive officers and certain of
their affiliates has executed an irrevocable proxy in favor of Cabletron
authorizing Cabletron (i) to vote all the outstanding shares of OASys Stock over
which he or she has voting control in favor of approval and adoption of the Plan
of Merger and the Merger Agreement and (ii) to sign written consents in favor of
converting the OASys Preferred Stock into OASys Common Stock. See ''The Merger--
Interests of Certain Persons in the Merger'' and ''Principal Stockholders of
OASys.''
Conversion of the OASys Preferred Stock
It is a condition to the consummation of the Merger that each share of OASys
Preferred Stock be converted into OASys Common Stock prior to the Effective
Time. Each share of OASys Preferred Stock may be converted into OASys
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Common Stock, at any time, at the election of the holder. In addition, all of
the OASys Preferred Stock will automatically convert into OASys Common Stock
upon the written consent of the holders of a majority of the outstanding shares
of OASys Preferred Stock. See ''Conversion of the OASys Preferred Stock.''
Termination of the Shareholder Rights Agreement
The Shareholder Rights Agreement grants certain registration rights,
information rights and rights of first refusal to holders of OASys Preferred
Stock. It is a condition to the consummation of the Merger that the Shareholder
Rights Agreement be terminated prior to the Effective Time. The written consent
of the holders of a majority of the outstanding shares of OASys Preferred Stock
is required to terminate the Shareholder Rights Agreement. See ''Termination of
the Shareholder Rights Agreement.''
Recommendation of OASys' Board of Directors
The Board of Directors of OASys has unanimously approved the Plan of Merger,
the Merger Agreement and the Merger, and the transactions contemplated thereby,
and recommends that holders of OASys Stock approve and adopt the Plan of Merger,
the Merger Agreement, the Merger and the transactions contemplated thereby. The
Board of Directors of OASys also recommends that holders of OASys Preferred
Stock consent in writing to the conversion of the OASys Preferred Stock into
OASys Common Stock and consent in writing to the termination of the Shareholder
Rights Agreement. See ''The Merger--Background of the Merger; Recommendation of
OASys's Board of Directors.''
Interests of Certain Persons in the Merger
In considering the recommendation of the OASys Board of Directors with respect
to the Plan of Merger, the Merger Agreement, the Merger and the transactions
contemplated thereby, the OASys stockholders should be aware that certain
directors and officers of OASys have entered into employment agreements with
Cabletron with respect to employment following the Merger and one officer has
entered into a consulting agreement with Cabletron with respect to consulting
work following the Merger. The employment arrangements and the consulting
arrangement present these directors and officers with potential conflicts of
interest. See ''The Merger--Interests of Certain Persons in the Merger,'' and
''--Employment Agreements; Consulting Agreement.''
Certain Federal Income Tax Consequences
The Merger is intended to be a tax-free reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended (the ''Code''), so that, except
for cash received in lieu of fractional shares, no gain or loss will be
recognized for federal income tax purposes by a holder of OASys Common Stock
upon receipt of Cabletron Common Stock in exchange for shares of OASys Common
Stock pursuant to the Merger. It is a condition to the Merger that Cabletron and
OASys shall have each received an opinion from their respective counsel to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code. Such opinions will be based on various
representations, qualifications and assumptions. Holders of OASys Stock are
urged to consult their own tax advisors concerning the specific tax consequences
of the Merger to them, including any foreign, state or local tax consequences of
the Merger. See ''The Merger--Certain Federal Income Tax Consequences.''
Anticipated Accounting Treatment
The Merger is expected be accounted for under the purchase method of
accounting in accordance with generally accepted accounting principles. See
''The Merger--Anticipated Accounting Treatment.''
Comparative Rights of Stockholders
The rights of stockholders of OASys are currently governed by Title I,
Division 1 of the California Corporations Code (the "CCC"), OASys' Restated
Articles of Incorporation and OASys' Bylaws. Upon consummation of the Merger,
stockholders of OASys will become stockholders of Cabletron, and their rights as
stockholders of Cabletron will be governed by the General Corporation Law of the
State of Delaware (the "DGCL"), Cabletron's Restated Certificate of
Incorporation and Cabletron's Bylaws. For a discussion of various differences
between the rights of stockholders of OASys and the rights of stockholders of
Cabletron, see ''Comparison of Stockholder Rights.''
Risk Factors
IN CONSIDERING WHETHER TO APPROVE THE PLAN OF MERGER AND THE CONSUMMATION OF
THE MERGER, OASYS STOCKHOLDERS SHOULD CAREFULLY REVIEW AND CONSIDER THE
INFORMATION CONTAINED BELOW UNDER THE CAPTION ''RISK FACTORS.''
Employment Agreements
It is a condition to consummation of the Merger that certain specified
employees of OASys have entered into employment agreements with Cabletron, that
such agreements be in force at the Effective Time and that such employees
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shall be employed by OASys immediately prior to the Effective Time. As of the
date of mailing of this Proxy Statement/Prospectus, each of these employees has
entered into an employment agreement with Cabletron. See ''The Merger--
Employment Agreements.''
Dissenters' Rights
Holders of OASys Stock who object to the Merger may, under certain
circumstances and by following procedures prescribed by the CCC, exercise
dissenters' rights and receive cash for their shares of OASys Stock in an amount
equal to the fair value of the OASys Stock as determined pursuant to such
procedures. The failure of a dissenting shareholder of OASys to follow the
appropriate procedures will result in the termination or waiver of such rights.
In the event that an OASys shareholder who attempts to exercise dissenters'
rights should fail to make a proper demand for payment or otherwise loses his or
her status as a dissenting shareholder, such OASys shareholder shall be entitled
to receive from Cabletron the same number of shares of Cabletron Common Stock
and cash payment in lieu of any fractional share that such OASys shareholder
would have received in the Merger if he or she had not attempted to exercise
dissenters' rights. See "The Merger--Dissenters' Rights."
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RISK FACTORS
The following risk factors should be considered by holders of OASys Stock in
evaluating whether to approve and adopt the Plan of Merger and the consummation
of the Merger and thereby become holders of Cabletron Common Stock. These
factors should be considered in conjunction with the other information contained
in this Proxy Statement/Prospectus, the Annexes hereto and the documents
incorporated by reference herein.
Competition; Sales Margins. The computer networking industry is intensely
competitive and subject to increasing consolidation. Cabletron expects
competition to increase significantly in the future from its primary competitors
(Cisco Systems, Inc., Bay Networks, Inc. and 3Com Corporation) and other
existing competitors and from potential competitors that may enter Cabletron's
existing or future markets. Cabletron's competitors consist primarily of three
types of companies: independent network vendors, large computer manufacturers,
and manufacturers of specific network devices. Increased competition could
result in price reductions, reduced margins and loss of market share, any or all
of which could materially and adversely affect Cabletron's business and
operating results and increase fluctuations in operating results. See ''Risk
Factors--Fluctuations in Operating Results.'' Cabletron's margins may also
decrease as a result of changes in product mix, increased sales through lower
margin sales channels, increased component costs and higher research and
development and sales, general and administrative expenses which may be
necessary in future periods to meet the demand of greater competition.
Competitors may develop new products with features that could adversely affect
the competitive position of Cabletron's products. There can be no assurance that
Cabletron will be successful in selecting, developing, manufacturing and
marketing new products or enhancing its existing products or that Cabletron will
be able to respond effectively to technological changes, new standards or
product announcements by competitors. Cabletron's competitors include many large
domestic and foreign companies, as well as emerging companies attempting to sell
products to specialized markets such as those addressed by Cabletron.
Cabletron's primary competitors have recently acquired several other
networking companies possessing complementary technologies, and Cabletron
expects that such acquisitions will continue in the future. The acquisition of
these technologies may allow Cabletron's primary competitors to offer new
products without the lengthy time delays typically associated with internal
product development. As a consequence, such competitors may be able to more
swiftly meet the growing demand for so-called ''end-to-end'' enterprise-wide
networking solutions. With such increased competition, Cabletron anticipates an
increase in the degree of sales variability and a decreased ability to predict
aggregate sales demand. Certain of these acquisitions may also have the effect
of limiting Cabletron's access to commercially significant technologies. The
greater resources of the competitors engaged in these acquisitions may permit
them to accelerate the development and commercialization of new competitive
products and the marketing of existing competitive products to their larger
installed bases. Cabletron expects that competition will increase substantially
as a result of these and other industry consolidations.
In the past, Cabletron has relied upon a combination of internal product
development and partnerships with other networking vendors to broaden its
product line to meet this demand for ''end-to-end'' enterprise wide solutions.
The increasing competitiveness among vendors, together with acquisitions by
Cabletron and its competitors of smaller networking companies possessing
complementary technologies, may materially limit Cabletron's ability to continue
to partner with other vendors for new or complementary products. For example,
pursuant to agreements with Cisco, Cabletron markets certain Cisco products in
conjunction with its own products. Cisco has notified Cabletron that these
agreements will not be renewed as they expire or will be terminated. The first
of these agreements expired on October 22, 1996. Cabletron has acquired or
developed products intended to replace certain of these Cisco products. There
can be no assurance that Cabletron will not experience difficulties that could
delay or interfere with Cabletron's ability to successfully introduce,
manufacture or market such replacement products or to supply Cisco products to
its customers. In the future, Cabletron expects to meet the demand for a broad
array of products primarily through internal development and acquisitions. There
can be no assurance that Cabletron will be successful in developing or acquiring
products that will meet customers needs.
Volatility of Stock Price. As is frequently the case with the stocks of high
technology companies, the market price of Cabletron's stock has been, and may
continue to be, volatile. Factors such as quarterly fluctuations in results of
operations, increased competition, the introduction of new products by Cabletron
or its competitors, expenses or other difficulties associated with assimilating
OASys, Netlink, Inc., Network Express, Inc., ZeitNet, Inc. and other companies
that may be acquired in the future by Cabletron, changes in the mix of sales
channels, the timing of significant customer orders (the average dollar amount
of customer orders has increased in recent periods), and macroeconomic
conditions generally, may have a significant impact on the market price of the
stock of Cabletron. In addition, the stock market has from time to time
experienced extreme price and volume fluctuations, which have particularly
affected the market price for many high-technology companies and which, on
occasion, have appeared to be unrelated to the operating performance of such
companies. Past financial performance should not be considered a reliable
indicator of future performance and investors should not use historical trends
to anticipate results or trends in future periods. Any shortfall in revenue or
earnings from the levels anticipated by securities analysts could have an
immediate and significant adverse effect on the market price of Cabletron's
stock in any given period.
Fluctuations in Operating Results. A variety of factors may cause period-to-
period fluctuations in the operating results of Cabletron. Such factors include,
but are not limited to, product mix, competitive pricing pressures, materials
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costs and timely availability, revenue and expenses related to new products and
new versions or upgrades of existing products, as well as delays in customer
purchases in anticipation of the introduction of new products or new versions of
existing products by Cabletron or its competitors. Further, because of the
possibility of customer changes in delivery schedules, cancellation of orders,
purchasing patterns or inventory levels, backlog as of any particular date is
not indicative of future revenue. In particular, Cabletron has been experiencing
longer sales cycles for its core products as a result of the increasing dollar
amount of customer orders and longer customer planning cycles. In addition, the
increase in the average dollar amount of customer orders has increased the
possibility that the operating results for a quarter could be materially
adversely affected if a number of large customer orders are either not received
or are delayed, due, for example, to cancellations, delays or deferrals by
customers. Cabletron plans to continue to invest in research and development,
sales and marketing and technical support staff, and its earnings could be
adversely affected if it is unable to match spending to revenue levels.
Moreover, with industry standards established and new standards emerging, more
companies have developed standards-based products and are seeking to compete on
the basis of price. If Cabletron does not respond with lower production costs,
pricing pressures could aversely affect future earnings. Accordingly, past
results may not be indicative of future results.
Acquisition Strategy. Cabletron has addressed the need to develop new
products, in part, through the acquisition of other companies. Acquisitions,
such as the Merger, involve numerous risks including difficulties in the
assimilation of the operations, technologies and products of the acquired
companies, the diversion of management's attention from other business concerns,
risks of entering markets in which Cabletron has no or limited direct prior
experience and where competitors in such markets have stronger market positions,
and the potential loss of key employees of the acquired company. Achieving the
anticipated benefits of an acquisition will depend in part upon whether the
integration of the companies' businesses is accomplished in an efficient and
effective manner, and there can be no assurance that this will occur. The
successful combination of companies in the high technology industry may be more
difficult to accomplish than in other industries. The combination of such
companies will require, among other things, integration of the companies'
respective product offerings and coordination of their sales and marketing and
research and development efforts. There can be no assurance that such
integration will be accomplished smoothly or successfully. The difficulties of
such integration may be increased by the necessity of coordinating
geographically separated organizations. The integration of certain operations
following an acquisition will require the dedication of management resources
that may temporarily distract attention from the day-to-day business of
Cabletron. The inability of management to successfully integrate the operations
of such companies could have a material adverse effect on the business and
results of operations of Cabletron. In addition, as commonly occurs with mergers
of technology companies, during the pre-merger and integration phases,
aggressive competitors may undertake formal initiatives to attract customers and
to recruit key employees through various incentives.
Dependence on Key Personnel and Management of Change. Cabletron's success
depends upon the continued contributions of Craig R. Benson, Chairman and Chief
Operating Officer, S. Robert Levine, President and Chief Executive Officer,
Christopher J. Oliver, Director of Engineering and Manufacturing, and certain
other key personnel, many of whom would be difficult to replace. If these key
personnel were to leave Cabletron, operating results could be adversely
affected. The success of Cabletron will depend on the ability of Cabletron to
attract and retain skilled employees, and on the ability of its officers and key
employees to manage change successfully.
Technological Changes. The market for networking products is subject to
rapid technological change, evolving industry standards and frequent new product
introductions, and therefore requires a high level of expenditures for research
and development. Cabletron may be required to incur significant expenditures to
develop such new integrated product offerings. There can be no assurance that
customer demand for products integrating routing, switching, hub, network
management and remote access technologies will grow at the rate expected by
Cabletron, that Cabletron will be successful in developing, manufacturing and
marketing new products or product enhancements that respond to these customer
demands or to evolving industry standards and technological change, that
Cabletron will not experience difficulties that could delay or prevent the
successful development, introduction, manufacture and marketing of these
products (especially in light of the increasing design and manufacturing
complexities associated with the integration of technologies), or that its new
product and product enhancements will adequately meet the requirements of the
marketplace and achieve market acceptance. Cabletron's business, operating
results and financial condition may be materially and adversely affected if
Cabletron encounters delays in developing or introducing new products or product
enhancements or if such product enhancements do not gain market acceptance. In
order to maintain a competitive position, Cabletron must also continue to
enhance its existing products and there is no assurance that it will be able to
do so. A portion of future revenues will come from new products and services.
Cabletron cannot determine the ultimate effect that new products will have on
its revenues, earnings or stock price.
Product Protection and Intellectual Property. Cabletron's success depends in
part on its proprietary technology. Cabletron attempts to protect its
proprietary technology through patents, copyrights, trademarks, trade secrets
and license agreements. Cabletron believes, however, that its success will
depend to a greater extent upon innovation, technological expertise and
distribution strength. There can be no assurance that the steps taken by
Cabletron in this regard will be adequate to prevent misappropriation of its
technology or that Cabletron's competitors will not independently develop
technologies that are substantially equivalent or superior to Cabletron's
technology. In addition, the laws of some foreign countries do not protect
Cabletron's proprietary rights to the same extent as do the laws of the United
States. No assurance can be given that any patents issued to Cabletron will not
be challenged, invalidated or circumvented or that the rights granted thereunder
will provide competitive advantages.
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Although Cabletron does not believe that its products infringe the proprietary
rights of any third parties, third parties have asserted infringement and other
claims against Cabletron from time to time, and there can be no assurance that
third parties will not assert such claims against Cabletron in the future or
that such claims will not be successful. Patents have been granted recently on
fundamental technologies incorporated in Cabletron's products. Since patent
applications in the United States are not publicly disclosed until the patent
issues, applications may have been filed by third parties which, if issued as
patents, could relate to Cabletron's products. In addition, participants in
Cabletron's industry also rely upon trade secret law. Cabletron could incur
substantial costs and diversion of management resources with respect to the
defense of any claims relating to proprietary rights which could have a material
adverse effect on Cabletron's business, financial condition and results of
operations. Furthermore, parties making such claims could secure a judgment
awarding substantial damages, as well as injunctive or other equitable relief
which could effectively block Cabletron's ability to license its products in the
United States or abroad. Such a judgment could have a material adverse effect on
Cabletron's business, financial condition and results of operations.
Dependence on Suppliers. Cabletron's products include certain components,
including application specific integrated circuits (''ASICs''), that are
currently available from single or limited sources, some of which require long
order lead times. In addition, certain of Cabletron's products and sub-
assemblies are manufactured by single source third parties. With the increasing
technological sophistication of new products and the associated design and
manufacturing complexities, Cabletron anticipates that it may need to rely on
additional single source or limited suppliers for components or manufacture of
products and subassemblies. Any reduction in supply, interruption or extended
delay in timely supply, variances in actual needs from forecasts for long order
lead time components, or change in costs of components could affect Cabletron's
ability to deliver its products in a timely and cost-effective manner and may
adversely impact Cabletron's operating results and supplier relationships.
10
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following Selected Historical Financial Data of Cabletron has been derived
from its consolidated historical financial statements and should be read in
conjunction with such consolidated financial statements and notes thereto
included elsewhere herein or incorporated by reference in this Proxy
Statement/Prospectus. The selected financial data of OASys as of December 31,
1995 and September 30, 1996 and for the period from March 22, 1995 (date of
inception) to December 31, 1995 and for the period of nine months ended
September 30, 1996 are derived from the financial statements of OASys that have
been audited by Coopers & Lybrand L.L.P., independent accountants, and that are
included elsewhere in this Proxy Statement/Prospectus. The selected financial
data of OASys set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto included elsewhere in the Proxy
Statement/Prospectus.
The consolidated financial statements of Cabletron give retroactive effect to
the mergers of Cabletron and ZeitNet, Inc. and of Cabletron and Network Express,
Inc., which have been accounted for as poolings of interests. No cash dividends
have been declared or paid on Cabletron Common Stock or OASys Common Stock. The
consolidated financial statements of Cabletron do not give retroactive effect to
the merger with Netlink, Inc., which has been accounted for as a pooling of
interests and was consummated on December 10, 1996, as such merger does not have
a material effect on the consolidated financial statements of Cabletron for any
of the periods presented above.
Cabletron
<TABLE>
<CAPTION>
Six Months Ended
Year Ended the Last Day of February, August 31,
----------------------------------------------------- ------------------
1996 1995 1994 1993 1992 1996 1995
---------- -------- -------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(in thousands, except per share data)
Income Statement Data:
Net sales......................... $1,093,107 $824,676 $602,486 $419,607 $290,763 659,046 510,748
Income from operations............ 209,257 238,953 176,503 124,023 86,225 137,379 143,875
Net income........................ 147,101(1) 162,595 118,321 83,201 56,287 95,633 98,658
Net income per share(2)........... $0.98 $1.11 $0.82 $0.59 $0.40 0.63 0.67
Weighted average number of shares
outstanding(2)................... 149,436 146,710 143,691 141,456 140,209 150,972 146,278
Balance Sheet Data:
Working capital................... $ 487,244 $379,896 $258,463 $234,114 $162,459 561,045 451,845
Total assets...................... 992,276 697,686 502,377 344,517 236,736 1,136,169 866,095
Total stockholders' equity........ 811,285 592,726 425,719 289,279 203,449 918,492 735,223
- --------------
</TABLE>
(1) Net income for fiscal 1996 included a charge, net of taxes, of
approximately $52.3 million, or $0.35 per share, related to the acquisition
of the Enterprise Networks Business Unit of Standard Microsystems
Corporation (''SMC'') and a charge, net of taxes, of approximately $8.4
million, related to the acquisition of Fivemere, Ltd. by Network Express,
Inc., a subsidiary of Cabletron.
(2) The net income per share and weighted average number of shares outstanding
have been adjusted to reflect the two-for-one stock split of Cabletron
Common Stock which took effect on November 26, 1996.
11
<PAGE>
OASYS
<TABLE>
<CAPTION>
Cumulative
Period from period from
March 22, 1995 March 22, 1995
Nine months (date of (date of
ended inception) to inception) to
September 30, December 31, September 30,
1996 1995 1996
---------------- --------------- ---------------
<S> <C> <C> <C>
Income Statement Data:
Net sales..................... $ 567,867 $ 453,261 $1,021,128
Loss from operations.......... 671,807 179,523 851,330
Net loss...................... 684,259 182,438 866,697
Net loss per share............ $ 0.15 $ 0.05 $ 0.19
Weighted average number of
shares outstanding........... 4,503,003 4,000,000 4,465,975
Balance Sheet Data: September 30, December 31,
1996 1995
--------------- --------------
Working capital............... $ (210,082) $ (267,240)
Total assets.................. 310,861 169,579
Total stockholders' equity
(deficit).................... (162,347) $ (174,438)
</TABLE>
12
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables set forth certain historical per share data of Cabletron
and OASys and combined per share data on an unaudited pro forma basis after
giving effect to the Merger on a purchase accounting basis assuming the issuance
of 0.04237 shares of Cabletron Common Stock in exchange for each share of OASys
Common Stock. The actual Exchange Ratio is subject to adjustment for the payment
of the OASys Expenses. These data should be read in conjunction with the
Selected Historical Financial Data and the separate historical consolidated
financial statements of Cabletron and OASys included elsewhere herein or
incorporated by reference in this Proxy Statement/Prospectus. The unaudited pro
forma combined financial data are not necessarily indicative of the operating
results that would have been achieved had the transaction been in effect as of
the beginning of the periods presented and should not be construed as
representative of future operations.
<TABLE>
<CAPTION>
Six Month Period Ended Year Ended
August 31, 1996 February 29, 1996
----------------------- -----------------
Historical Per Cabletron
Share (1):
<S> <C> <C>
Net income................ $0.63 $0.98
Book value................................................. $5.37
Nine Month Period Ended Year Ended
September 30, 1996 December 31, 1995
----------------------- ------------------
Historical Per OASys Share:
Net income (loss)......... $(.15) $(.05)
Book value (deficiency).................................... $(.04)
Six Month Period Ended Year Ended
August 31, 1996 February 29, 1996
----------------------- -----------------
Pro Forma Combined Per
Cabletron Share (1)(2):
Net income................ $0.63 $0.98
Book value................................................. $5.37
Nine Month Period Ended Year Ended
September 30, 1995 December 31, 1995
----------------------- ------------------
Equivalent Pro Forma
Combined Per
OASys Share (2)(3):
Net income................ $ .03 $ .04
Book value................................................. $ .23
</TABLE>
_______________
(1) The net income per share and book value per share have been adjusted to
reflect the two-for-one stock split of Cabletron Common Stock which took
effect on November 26, 1996.
(2) The pro forma combined per Cabletron share does not include the OASys
results for the three months ended September 30, 1996, but includes the
OASys results for the six months ended June 30, 1996 so that the combined
amounts include six months' results for both Cabletron and OASys.
(3) The equivalent pro forma combined per OASys share amounts are calculated by
multiplying the pro forma combined per Cabletron share amounts by the
Exchange Ratio of 0.04237 shares of Cabletron Common Stock for each share
of OASys Common Stock. The actual Exchange Ratio is subject to adjustment
for the payment of the OASys Expenses.
13
<PAGE>
MARKET PRICE PER SHARE DATA
Cabletron
Cabletron Common Stock is listed and traded on the New York Stock Exchange
under the symbol ''CS.'' As of September 30, 1996, Cabletron had 2,849
stockholders of record. The following table sets forth the high and low sales
prices per share of Cabletron Common Stock as reported on the NYSE for the
quarterly periods presented below, which periods correspond to Cabletron's
quarterly fiscal periods for financial reporting purposes. The share prices in
the following table have been adjusted to reflect the two-for-one stock split of
Cabletron Common Stock, which took effect on November 26, 1996.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Fiscal Year ended February 28, 1995
First Quarter............................... $26.35 $18.60
Second Quarter.............................. 22.05 17.00
Third Quarter............................... 26.19 20.58
Fourth Quarter.............................. 24.13 18.75
Fiscal Year ended February 29, 1996
First Quarter............................... $27.44 $19.44
Second Quarter.............................. 29.56 24.75
Third Quarter............................... 42.56 26.25
Fourth Quarter.............................. 41.25 33.75
Fiscal Year ending February 28, 1997
First Quarter............................... $43.25 $31.69
Second Quarter.............................. 36.06 26.50
Third Quarter............................... 41.50 27.56
Fourth Quarter (through December, 1996)..... 42.50 33.25
</TABLE>
OASys
There is not an established trading market for the OASys Stock. On the OASys
Record Date, there were 9 holders of OASys Common Stock and 19 holders of OASys
Preferred Stock.
Dividend Policy
Neither Cabletron nor OASys has ever paid a cash dividend and each of
Cabletron and OASys currently intends to retain all of its earnings for use in
its business to finance future growth and, accordingly, does not anticipate
paying cash dividends in the foreseeable future.
Recent Closing Prices
The last reported sale price per share of the Cabletron Common Stock as
reported on the NYSE on November 29, 1996, the last trading day before the
announcement of the proposed Merger, was $40.38. The last reported sale price
per share of the Cabletron Common Stock on January 6, 1997, the latest
practicable trading day before the printing of this Proxy Statement/Prospectus
was $33.75. Based upon the last reported sale price of Cabletron Stock on
January 6, 1997, and an Exchange Ratio equal to 0.04237, each share of OASys
Stock would be converted in the Merger into the right to receive Cabletron
Common Stock having a market value of $1.43. The actual Exchange Ratio is
subject to adjustment for payment of the OASys Expenses.
Because the market price of Cabletron Common Stock is subject to fluctuation,
the market value of the shares of Cabletron Common Stock that holders of OASys
Common Stock will receive in the Merger may increase or decrease prior to and
following the Merger. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS
FOR CABLETRON COMMON STOCK. NO ASSURANCE CAN BE GIVEN AS TO THE FUTURE PRICES OR
MARKETS FOR CABLETRON COMMON STOCK. See ''Risk Factors--Volatility of Stock
Price.''
14
<PAGE>
OASYS SPECIAL MEETING
Time, Place and Date
The OASys Special Meeting will be held on February 7, 1997 at the offices of
OASys, 59 N. Santa Cruz Avenue, Suite Q, Los Gatos, California, commencing at
10:00 a.m., Pacific time.
Matters To Be Considered at the OASys Special Meeting
At the OASys Special Meeting, holders of shares of OASys Stock will consider
and vote upon (1) a proposal to approve and adopt the Plan of Merger, the
related Merger Agreement, and the Merger, and the transactions contemplated
thereby, by which OASys would become a wholly-owned subsidiary of Cabletron and
(2) such other matters as may properly be brought before the OASys Special
Meeting. In addition, holders of OASys Preferred Stock are being asked to
consent in writing to (1) a proposal to convert immediately prior to the Merger
each outstanding share of OASys Preferred Stock into one share of OASys Common
Stock and (2) a proposal to terminate immediately prior to the Merger the
Shareholder Rights Agreement (relating to certain registration rights,
information rights, and rights of first refusal). The Directors of OASys have
unanimously approved the Plan of Merger, the Merger Agreement, the Merger and
the transactions contemplated thereby and recommend a vote FOR approval and
adoption of the Plan of Merger, the Merger Agreement, the Merger and the
transactions contemplated thereby by the stockholders of OASys. The Directors
of OASys also recommend that the holders of OASys Preferred Stock consent in
writing (i) to convert each outstanding share of OASys Preferred Stock into one
share of OASys Common Stock and (ii) to terminate the Shareholder Rights
Agreement.
Voting at the OASys Special Meeting; Record Date
The OASys Board of Directors has fixed January 6, 1997 as the OASys Record
Date for the determination of the OASys stockholders entitled to notice of and
to vote at the OASys Special Meeting. Accordingly, only holders of record of
shares of OASys Stock on the OASys Record Date will be entitled to notice of and
to vote at the OASys Special Meeting. As of such OASys Record Date, there were
outstanding 3,940,560 shares of OASys Common Stock held by approximately nine
holders of record and 1,423,800 shares of OASys Preferred Stock held by
approximately 19 holders of record. Each holder of record of shares of OASys
Common Stock on the OASys Record Date is entitled to cast one vote per share on
the proposal to approve and adopt the Plan of Merger, the Merger Agreement, the
Merger and the transactions contemplated thereby, and on any other proposal
properly submitted for the vote of the OASys stockholders, either in person or
by properly executed proxy, at the OASys Special Meeting. Each holder of record
of shares of OASys Preferred Stock on the OASys Record Date is entitled to cast
one vote per share on the proposal to approve and adopt the Plan of Merger, the
Merger Agreement, the Merger and the transactions contemplated thereby, and on
any other proposal properly submitted for the vote of the OASys stockholders,
either in person or by properly executed proxy, at the OASys Special Meeting.
In addition, each holder of record of shares of OASys Preferred Stock on the
OASys Record Date is entitled to grant his or her consent in writing to the
conversion of each share of OASys Preferred Stock into one share of OASys Common
Stock and to the termination of the Shareholder Rights Agreement. The presence,
in person or by properly executed proxy, of the holders of a majority of the
outstanding shares of OASys Stock entitled to vote is necessary to constitute a
quorum at the OASys Special Meeting.
The approval and adoption by OASys stockholders of the Plan of Merger, the
Merger Agreement, the Merger and the transactions contemplated thereby will
require the affirmative vote of the holders of a majority of the outstanding
shares of OASys Common Stock, voting separately as a class, and the affirmative
vote of the holders of a majority of the outstanding shares of OASys Preferred
Stock, voting separately as a class.
The conversion of OASys Preferred Stock into OASys Common Stock will require
the written consent of the holders of a majority of the outstanding shares of
OASys Preferred Stock, voting separately as a class.
The termination of the Shareholder Rights Agreement will require the written
consent of the holders of a majority of the outstanding shares of the OASys
Preferred Stock, voting separately as a class.
Abstentions will be included in determining the number of shares present and
voting at the meeting for purposes of determining the presence of a quorum, but
will not be counted as a vote cast on the matter. Therefore, abstentions will
have the same effect as votes against such proposal.
Approval of the Plan of Merger, the Merger Agreement, the Merger, and the
transactions contemplated thereby, shall constitute approval of the terms of
the Escrow Agreement and the appointment of Mr. Richard Pospisil as
representative of the OASys stockholders under the Escrow Agreement.
As of the OASys Record Date, directors and executive officers of OASys and
their affiliates have the right to vote 3,300,000 shares, or approximately 84%
of the outstanding shares of OASys Common Stock and 251,708 shares, or
approximately 18% of the outstanding shares of OASys Preferred Stock. Each of
the directors and executive officers and certain of their affiliates has
executed an irrevocable proxy in favor of Cabletron authorizing Cabletron (i) to
vote all the outstanding shares of OASys Stock over which he or she has voting
control in favor of approval and adoption of the Plan of Merger and the Merger
Agreement and
15
<PAGE>
(ii) to sign written consents in favor of converting the OASys Preferred Stock
into OASys Common Stock. As of the OASys Record Date, neither Cabletron nor any
of its subsidiaries owned any outstanding shares of OASys Stock.
Proxies/Written Consents
All shares of OASys Stock which are entitled to vote and are represented at
the OASys Special Meeting by properly executed proxies received prior to or at
the OASys Special Meeting, and not revoked, will be voted at such Special
Meeting in accordance with the instructions indicated on such proxies. If no
instructions are indicated, such proxies will be voted FOR approval and adoption
of the Plan of Merger, the Merger Agreement, the Merger and the transactions
contemplated thereby. The proxies will also serve as written consents for the
proposals to convert the OASys Preferred Stock into OASys Common Stock and to
terminate the Shareholder Rights Agreement. All shares of OASys Preferred Stock
which are entitled to approve and authorize those actions to which written
consent is being sought and whose properly executed consents are received prior
to the OASys Special Meeting will grant consent to such actions in accordance
with the instructions indicated on such consent. If no instructions are
indicated, such consents will be deemed granted in favor of converting the OASys
Preferred Stock into OASys Common Stock and in favor of terminating the
Shareholder Rights Agreement. The Board of Directors of OASys knows of no
matters to be presented at the OASys Special Meeting other than those described
in this Proxy Statement/Prospectus. If any other matters are properly presented
at the OASys Special Meeting for consideration, including, among other things,
consideration of a motion to adjourn the OASys Special Meeting to another time
and/or place (including, without limitation, for the purpose of soliciting
additional proxies), the persons named in the enclosed form of proxy and acting
thereunder will have discretion to vote on such matters in accordance with their
best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of OASys, at or before the taking of the vote at the OASys
Special Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of OASys before the taking of the vote at the
OASys Special Meeting, or (iii) attending the OASys Special Meeting and voting
in person (although attendance at the OASys Special Meeting will not in and of
itself constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent so as to be delivered to The OASys Group, Inc.,
59 N. Santa Cruz Avenue, Suite Q, Los Gatos, California, 95030, Attention:
Secretary, or hand delivered to the Secretary of OASys at or before the taking
of the vote at the OASys Special Meeting.
All expenses of this solicitation will be borne by OASys and each of Cabletron
and OASys will bear their costs of preparing this Proxy Statement/Prospectus. In
addition to solicitation by use of the mails, proxies may be solicited by
directors, officers and employees of Cabletron and OASys in person or by
telephone, telegram or other means of communication. Such directors, officers
and employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation.
Arrangements will also be made with custodians, nominees and fiduciaries for
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such custodians, nominees and fiduciaries, and OASys will reimburse
such custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith.
OASYS STOCKHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES TO THE EXCHANGE AGENT
UNTIL THEY HAVE RECEIVED TRANSMITTAL LETTERS. OASYS STOCKHOLDERS SHOULD NOT
RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
THE MERGER
General
The Plan of Merger and the Merger Agreement provide for the merger of Merger
Sub, a wholly-owned subsidiary of Cabletron, with and into OASys, with the
result that OASys would become a wholly-owned subsidiary of Cabletron. For the
Merger to be consummated it must be approved by the OASys stockholders and the
other conditions specified in the Plan of Merger must be satisfied or waived.
The discussion in this Proxy Statement/Prospectus of the Merger and the
description of the principal terms and conditions of the Plan of Merger are
subject to and qualified in their entirety by reference to the Plan of Merger, a
copy of which is attached to this Proxy Statement/Prospectus as Annex A and is
incorporated herein by reference. OASys stockholders are urged to read the Plan
of Merger in its entirety.
Conversion of Shares
Immediately prior to the Merger, it is expected that each share of OASys
Preferred Stock will be converted into one share of OASys Common Stock. Upon the
consummation of the Merger, each then outstanding share of OASys Common Stock
will automatically be converted into the right to receive the number of shares
of Cabletron Common Stock equal to the Exchange Ratio. Based upon the
capitalization of OASys on December 11, 1996, it is currently anticipated that
each share of OASys Common Stock will convert into the right to receive 0.04237
shares of Cabletron Common Stock, subject to adjustment for payment of the OASys
Expenses. No fractional shares of Cabletron Common Stock will be issued in the
Merger. Instead, each OASys stockholder who would otherwise be entitled to
receive a fraction of a share of Cabletron Common Stock will receive an amount
of cash, rounded down to the nearest whole cent, equal to the closing price of
Cabletron Common Stock on the NYSE on the date of the Effective Time, multiplied
by the fraction of a share of Cabletron Common Stock to which the stockholder
would otherwise be entitled. In the aggregate, Cabletron will exchange
approximately 235,294 shares of Cabletron Common Stock for all the shares of
OASys
16
<PAGE>
Stock outstanding immediately prior to the Effective Time, including shares of
OASys Stock issuable upon the conversion or exercise of any option, warrant,
preferred stock or other security convertible into or exercisable for shares of
OASys Stock that are outstanding immediately prior to the Effective Time. Based
upon the capitalization of OASys and Cabletron as of the date of the Plan of
Merger the stockholders of OASys will own Cabletron Common Stock representing
less than 1% of the Cabletron Common Stock outstanding immediately after
consummation of the Merger.
Conversion of OASys Options
Upon consummation of the Merger, each then outstanding OASys Option will be
assumed by Cabletron and will automatically be converted into an option to
purchase the number of shares of Cabletron Common Stock (rounded down to the
nearest whole number) determined by multiplying the number of shares of OASys
Common Stock subject to the OASys Option by the Exchange Ratio, at an exercise
price per share equal to the aggregate exercise price for OASys Common Stock
purchasable pursuant to such OASys Option divided by the product of (i) the
number of shares of OASys Common Stock purchasable pursuant to such OASys Option
and (ii) the Exchange Ratio. The other terms of the OASys Options will remain
unchanged. Cabletron will file a Registration Statement on Form S-8, with the
Commission with respect to the shares of Cabletron Common Stock issuable upon
exercise of the assumed OASys Options.
As of the OASys Record Date, 153,500 shares of OASys Common Stock were subject
to outstanding OASys Options, none of which are, or will become prior to the
expected Effective Time, exercisable. Upon the assumption of such options by
Cabletron upon consummation of the Merger, approximately 6,500 shares of
Cabletron Common Stock will be subject to such options.
Exchange of Certificates
As soon as practicable after the Effective Time, a letter of transmittal with
instructions will be mailed to each OASys stockholder for use in exchanging
OASys Stock certificates for Cabletron Common Stock certificates. Upon surrender
of an OASys Stock certificate for cancellation to the exchange agent in
connection with the Merger, Boston Equiserve or such other agent or agents as
may be appointed by Cabletron, together with such letter of transmittal, duly
executed in accordance with the instructions thereto, the holder of such
certificate will be entitled to receive in exchange therefor a certificate
representing the number of whole shares of Cabletron Common Stock equal to the
Exchange Ratio multiplied by the number of shares of OASys Common Stock subject
to the OASys Stock certificate being exchanged. Pursuant to the terms of the
Escrow Agreement, approximately 15% of the shares of Cabletron Common Stock that
each OASys stockholder is entitled to receive in the merger will automatically
be placed in escrow for approximately two years. It is a condition to
consummation of the Merger that all OASys Preferred Stock convert into OASys
Common Stock immediately prior to the Effective Time. At such time each
outstanding OASys Preferred Stock certificate shall be deemed to evidence the
ownership of the number of whole shares of OASys Common Stock into which such
share of OASys Preferred Stock shall have been converted. No OASys Common Stock
certificates will be issued as a result of such conversion. Accordingly, holders
of OASys Preferred Stock certificates will exchange such certificates as herein
provided.
Immediately after the Effective Time, each outstanding OASys Stock certificate
will be deemed for all corporate purposes, other than the payment of dividends,
to evidence the ownership of the number of whole shares of Cabletron Common
Stock into which the shares of OASys Common Stock evidenced by such OASys Stock
Certificate shall have been so converted as a result of the Merger and the right
to receive an amount in cash in lieu of the issuance of any fractional shares.
No dividends or other distributions with respect to Cabletron Common Stock with
a record date after the Effective Time will be paid to the holder of any
unsurrendered OASys Stock certificate with respect to the shares of Cabletron
Common Stock represented thereby until the holder of record of such certificate
surrenders such certificate. Subject to applicable law, following surrender of
any such certificate, there will be paid to the record holder of the
certificates representing whole shares of Cabletron Common Stock issued in
exchange therefor, without interest, at the time of such surrender, the amount
of any such dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such shares of Cabletron Common
Stock and at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time and a payment date
subsequent to such surrender.
If any certificate for shares of Cabletron Common Stock is to be issued in a
name other than that in which the OASys Stock certificate surrendered in
exchange therefor is registered, it will be a condition of the issuance thereof
that the OASys Stock certificate so surrendered be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
exchange have paid to Cabletron or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Cabletron Common Stock in any name other than that of the registered holder of
the OASys Stock certificate surrendered, or established to the satisfaction of
Cabletron or any agent designated by it that such tax has been paid or is not
payable.
17
<PAGE>
HOLDERS OF OASYS STOCK CERTIFICATES SHOULD NOT
SUBMIT THEIR CERTIFICATES FOR EXCHANGE UNTIL THEY HAVE RECEIVED
THE LETTER OF TRANSMITTAL AND INSTRUCTIONS REFERRED TO ABOVE.
Notification Regarding OASys Options
Following the Effective Time, Cabletron will issue, to each person who
immediately prior thereto was a holder of an outstanding OASys Option, a
document evidencing the assumption of such OASys Option by Cabletron. Such
assumption will be automatic and no action will be required on the part of the
option holder to convert such holder's OASys Option into an option to purchase
shares of Cabletron Common Stock.
Effective Time
Consummation of the Merger will occur upon the filing of the Merger Agreement
with the Secretary of State of California or at such later time as is specified
on such certificate (the ''Effective Time''). The filing of the Merger Agreement
will occur as soon as practicable after the satisfaction or waiver of all
conditions to the closing of the transactions contemplated by the Plan of
Merger. The Plan of Merger may be terminated by any party thereto if the Merger
shall not have been consummated on or before March 15, 1997. The Plan of Merger
is also subject to termination upon the occurrence of certain other events. See
''The Plan of Merger--Conditions to the Merger'' and ''--Termination.''
Background of the Merger; Recommendation of OASys' Board of Directors
In late April and May 1996, several telephone calls were made between
OASys and Cabletron in the normal course of OASys' marketing and sales activity
to initiate discussion of a potential vendor/customer relationship. A telephone
conference was held in late May, 1996 to discuss the OASys TL1/CMIP Gateway Tool
Kit product family. Product literature was subsequently sent by OASys to
Cabletron.
On June 10, 1996, management employees of OASys met with Cabletron in
Rochester, New Hampshire to demonstrate the OASys TL1/CMIP Gateway Tool Kit
product family. On June 19, 1996 OASys and Cabletron entered into a Non-
Disclosure Agreement.
On August 19, 1996, Frederic Gaskell, Vice President of Sales of OASys,
met with Steve Ball, Senior Software Development Manager of Cabletron, and
certain other Cabletron representatives in Rochester, New Hampshire. During the
course of this meeting, Cabletron provided a first indication of its potential
interest in an investment in OASys. On August 30, 1996, Richard Pospisil,
President and Chief Executive Officer of OASys, Mr. Gaskell, Mark Truhlar,
Director of Software Development at Cabletron, and other Cabletron
representatives had a telephone conversation regarding a potential business
relationship between the two companies.
On September 16, 1996, Messrs. Gaskell and Pospisil again met with
Messrs. Truhlar and Ball in Rochester, New Hampshire to further present OASys
products and to discuss a potential Cabletron investment in OASys.
On September 24 and 25, 1996, Cabletron conducted a detailed technical
review of the OASys product family at OASys' Los Gatos, California offices. In
the course of this review further discussions relating to a potential investment
by Cabletron in OASys were held.
On September 25, 1996, a regularly scheduled meeting of the Board of
Directors of OASys was held with all directors present at which, among other
things, a potential investment in OASys by Cabletron was discussed. On
September 30, 1996, Mr. Ball called Mr. Pospisil to indicate Cabletron's
interest in pursuing a potential acquisition of OASys. On October 2, 1996,
Cabletron again called Mr. Pospisil to confirm Cabletron's interest and to
arrange a meeting to discuss the terms of the proposed transaction.
On October 10, 1996, Robert Barber, Director of Tax and Financial
Planning at Cabletron, Peter Yao, Internal Auditor at Cabletron, and
Cabletron's legal counsel, met with management of OASys and its legal counsel
to negotiate the principal terms of the proposed acquisition. On the morning of
October 11, 1996, a meeting of the Board of Directors of OASys was held by
telephone conference with all directors participating. During the meeting, the
Board of Directors of OASys discussed the proposed acquisition of OASys by
Cabletron and authorized the Chief Executive Officer of OASys to enter into a
letter of intent with Cabletron. Subsequently, on October 11, 1996, Cabletron
and OASys entered into a letter of intent providing for the acquisition of OASys
by Cabletron.
On October 31, 1996, a regularly scheduled meeting of the Board of
Directors of OASys was held at which all directors were present. During this
meeting, the acquisition of OASys by Cabletron was discussed in detail.
On November 19, 1996, a special meeting of the Cabletron Board of
Directors was held by conference telephone call. Craig Benson, the Chairman and
Chief Operating Officer of Cabletron, reported to the Board on the negotiations
between Cabletron and OASys. Mr. Benson discussed OASys' business and how its
telecommunications management software products would complement Cabletron's
network management software products. The Board discussed information about
OASys provided to the directors in advance of the meeting and information about
OASys provided by Mr. Truhlar at the meeting. Cabletron's legal counsel
discussed the terms of the Plan of Merger which had previously been distributed
to the directors. Mr. Benson reviewed the purchase price and
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advised the Board that the Exchange Ratio was fixed, without so-called collars
and floors. He also discussed plans to ensure that certain key employees would
continue with OASys after the Merger. After further discussion and analysis,
the Board unanimously voted to proceed with the Merger and to approve the Merger
and the transactions contemplated thereby.
On November 26, 1996, a meeting of the Board of Directors of OASys was
held by telephone conference with all directors participating. At this meeting,
the Board of Directors of OASys unanimously approved the acquisition of OASys by
Cabletron as being in the best interest of OASys and unanimously recommended to
the shareholders of OASys that they approve the acquisition and the transactions
contemplated thereby.
The Plan of Merger was executed by Cabletron and OASys on November 27,
1996, effective as of November 26, 1996.
The terms of the Plan of Merger are the result of arm's-length
negotiations between representatives of OASys and Cabletron.
OASys' Reasons for the Merger
In approving the Plan of Merger, the Merger Agreement, the Merger and the
transactions contemplated thereby, the OASys Board of Directors considered a
number of factors, including:
(i) The business, results of operations, properties and financial
condition of OASys and the competitive nature of the industry in which it
operates, based, in part, upon presentations by management of OASys, including
management's view of the business and financial prospects for OASys if it were
to remain independent, taking into account OASys' continued losses from
operations, its current position in the Telecommunications Network Management
software market and its size and resources as compared to its competitors.
(ii) Information available to them concerning Cabletron, its business,
size, market characteristics of Cabletron Common Stock and other matters based,
in part, on information provided by management of OASys as a result of meetings
with Cabletron's management.
(iii) The relatively limited breadth of OASys' product offerings at a
time when the market, and many of OASys' competitors, are moving toward a model
of offering fully integrated Telecommunications Network Management software
solutions.
(iv) The opportunity to access Cabletron's sales channels for the
distribution of OASys' products.
(v) The terms of the Plan of Merger, including the proposed structure of
the Merger as a tax-free reorganization under the Code, and the fact that the
Exchange Ratio was established at a ratio of shares of Cabletron Common Stock
for each share of OASys Common Stock based on the average trading price of
Cabletron Common Stock.
(vi) The terms of the Plan of Merger, including the termination fee
provisions, were unlikely to unduly discourage third parties from making a
proposal to acquire OASys subsequent to signing the Plan of Merger.
(vii) The Merger Consideration (as defined in the Plan of Merger)
represented a premium of approximately 300% over the price paid in May 1996 for
the OASys Preferred Stock.
(viii) The exchange of OASys Common Stock for Cabletron Common Stock will
give current holders publicly listed shares that trade on the New York Stock
Exchange in place of the illiquid OASys Common Stock.
(ix) The termination provisions of the Plan of Merger, which were a
condition to Cabletron's proposal, provided that Cabletron could be entitled to
a fee of $300,000 (plus expenses) upon termination of the Plan of Merger under
certain circumstances, including the withdrawal of the Board of Directors'
recommendation with respect to the Merger.
(x) The financial resources of Cabletron, which are significantly
greater than those of OASys.
The Board did not assign relative weights to the factors or determine that any
factor was of particular importance. Rather, the Board of Directors viewed its
position and recommendations as being based upon the totality of the information
presented to and considered by them.
Cabletron's Reasons for the Merger
The Cabletron Board of Directors arrived at its unanimous decision to approve
the Plan of Merger after consideration of a number of significant factors. Among
those factors were:
- OASys' focus on telecommunications network management is highly
complementary to Cabletron's technology for data network management.
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- The combination of OASys' network management software and Cabletron's
network management software will allow Cabletron to provide end-to-end
management of heterogeneous telephony and network elements.
- Cabletron's expectation that the market for telecommunications
network management will be one of the more rapidly growing segments of the
network management software market for the next several years.
- The ability to leverage the research and development capabilities of
OASys by combining its research and development efforts and personnel with those
of Cabletron to improve and increase product development.
In addition, the Cabletron Board of Directors considered, among other
matters, (i) information concerning Cabletron's and OASys' respective
businesses, prospects, financial performance and condition, operations,
technology, management and competitive position; (ii) the consideration to be
received by OASys stockholders in the Merger and the relationship between the
market value of Cabletron Common Stock to be issued in exchange for each share
of OASys Common Stock and Cabletron's per share reported earnings, earnings
before interest and taxes and certain other measures; (iii) a comparison of
selected recent acquisition and merger transactions involving high-technology
companies; (iv) the belief that the terms of the Plan of Merger, including the
parties' respective representations, warranties and covenants, and the
conditions to their respective obligations, are reasonable; (v) the ability of
Cabletron to devote management time and energy to the integration and
assimilation of OASys' business and organization should the Merger be
consummated; and (vi) the fact that the Merger is expected to be a tax-free
reorganization under Section 368(a) of the Code.
The Cabletron Board of Directors also considered negative factors relating
to the Merger, including (i) the risks that the benefits sought in the Merger
would not be fully achieved, (ii) the risk that the Merger would not be
consummated, (iii) the effect of the public announcement of the Merger on OASys'
sales, operating results, and business relationships, (iv) OASys' current trend
of operating losses, and (v) other risks described above under ''Risk Factors.''
The Cabletron Board of Directors believed that these risks were outweighed by
the potential benefits to be gained by the Merger.
In view of the wide variety of factors considered by the Cabletron Board of
Directors, the Cabletron Board of Directors did not find it practicable to
quantify or otherwise assign relative weights to the specific factors considered
in approving the Plan of Merger and Merger. However, after taking into account
all of the factors set forth above, the Cabletron Board of Directors determined
that the Plan of Merger and Merger were in the best interests of Cabletron and
its stockholders and that Cabletron should proceed with the Plan of Merger and
the Merger.
Certain Considerations
In considering whether to approve the Plan of Merger and the transactions
contemplated thereby, stockholders of OASys should be aware that the stock price
of Cabletron Common Stock at the Effective Time may vary significantly from the
price as of the date of execution of the Plan of Merger, the date hereof or the
date on which stockholders of OASys vote on the Merger due to changes in the
business, operations and prospects of Cabletron, general market and economic
conditions, and other factors. Because the market price of Cabletron Common
Stock is subject to fluctuation, the market value of the shares of Cabletron
Common Stock that holders of OASys Common Stock will receive in the Merger may
increase or decrease prior to and following the Merger. STOCKHOLDERS ARE URGED
TO OBTAIN CURRENT MARKET QUOTATIONS FOR CABLETRON COMMON STOCK. NO ASSURANCE CAN
BE GIVEN AS TO THE FUTURE PRICES OR MARKETS FOR CABLETRON COMMON STOCK. See
''Risk Factors--Volatility of Stock Price.''
Employment Agreements; Consulting Agreement
It is a condition to consummation of the Merger that certain specified
employees of OASys (the ''OASys Employees'') have entered into employment
agreements with Cabletron, that such agreements be in force at the Effective
Time and that such employees be employed by OASys immediately prior to the
Effective Time. All of the OASys Employees have entered into employment
agreements with Cabletron that take effect at the Effective Time.
The terms of employment agreements between Cabletron and Paul Doolan, an
officer and director of OASys, and Susan Marvin, an officer of OASys (the
''Employment Agreements''), are substantially identical with the exception of
the compensation arrangements which are described below.
Each Employment Agreement begins at the Effective Time, has a term of three
years, and provides that the employee will perform such duties and
responsibilities as the Board of Directors of Cabletron may designate. The
employee is obligated to work for Cabletron on a full-time basis and not to
engage in any other business activity except as may be approved by Cabletron.
The employee is eligible to participate in Cabletron's employee benefit plans
from time to time in effect for Cabletron employees generally. The employee is
entitled to the base salary, bonus compensation and stock options described
below. The employee is obligated to assign all intellectual property developed
or conceived by the employee during the employment term to Cabletron and is
restricted by confidentiality provisions. Pursuant to the Employment Agreement,
the employee also agrees, during the term of employment with Cabletron, not to
engage in any business activity which is competitive with Cabletron. In
addition, the Employment Agreement obligates the employee not to solicit
employees or customers of Cabletron while he or she is employed by Cabletron and
for a period of one (1) year thereafter. Under the Employment Agreement, in the
event Cabletron terminates the employee without cause, or in the event the
employee terminates his or her employment as a result of a material diminution
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in the nature or scope of the employee's responsibilities or duties, the
employee is entitled to receive any bonus which would have become payable during
the term had employee's employment with Cabletron continued and to have
Cabletron release a repurchase option in favor of Cabletron on certain shares of
OASys Common Stock owned by the employee which would convert into shares of
Cabletron Common Stock upon consummation of the Merger. Under the terms of her
Employment Agreement, Ms. Marvin's base salary is $86,400 and she is eligible to
receive up to an additional approximately $355,000 as bonus compensation during
the term of the agreement. OASys currently owes Ms. Marvin $12,205 in back pay.
If this amount is not paid by OASys prior to the Effective Time, such amount
will be payable by Cabletron within 30 days following the Effective Time. Under
the terms of his Employment Agreement, Mr. Doolan's base salary is $96,000 and
he is eligible to receive up to an additional approximately $580,000 as bonus
compensation during the term of the agreement. OASys currently owes Mr. Doolan
$7,935 in back pay. If this amount is not paid by OASys prior to the Effective
Time, such amount will be payable by Cabletron within 30 days following the
Effective Time.
Frederic Gaskell, an officer of OASys, has also entered into an employment
agreement with Cabletron. The terms of Mr. Gaskell's employment agreement are
very similar to the employment agreements for Mr. Doolan and Ms. Marvin except
that the term of Mr. Gaskell's employment agreement is six months. Mr. Gaskell's
base salary is $66,000 per year, and he is eligible to receive up to
approximately $35,000 as bonus compensation at the end of the term of his
agreement. OASys currently owes Mr. Gaskell $65,798 in back pay and commissions.
If this amount is not paid by OASys prior to the Effective Time, such amount
will be payable by Cabletron within 30 days following the Effective Time.
Richard Pospisil, a director and President of OASys, has entered into a
Consulting Agreement with Cabletron which begins at the Effective Time. Under
the terms of the Consulting Agreement, Mr. Pospisil will be available to consult
with Cabletron for at least four days per month during the six month period
commencing January 1, 1997. Mr. Pospisil is party to a Restricted Stock
Purchase Agreement dated October 15, 1996 between OASys and Mr. Pospisil which
grants certain repurchase rights to OASys (and following the Merger, Cabletron)
with respect to 150,000 shares of OASys Common Stock owned by Mr. Pospisil.
Upon termination or expiration of Mr. Pospisil's consulting relationship with
Cabletron, the restrictions on all such shares will lapse, and Mr. Pospisil will
be entitled to such shares free and clear of any restriction or repurchase
right. Under the terms of Mr. Pospisil's employment agreement with OASys, Mr.
Pospisil deferred $72,000 in salary from July 1996 through December 1996. The
deferred salary amount is payable to Mr. Pospisil in January 1997. If the
deferred salary amount has not been paid prior to the Effective Time, Cabletron
will be obligated to pay the deferred salary following the Effective Time.
Interests of Certain Persons in the Merger
In considering the recommendation of the OASys Board of Directors with
respect to the Merger, stockholders of OASys should be aware that certain
officers and directors of OASys have interests in the Merger, including those
referred to below, that present them with potential conflicts of interests. In
particular, certain officers of OASys have entered into employment agreements
with Cabletron that take effect at the Effective Time and one officer has
entered into a consulting arrangement with Cabletron that takes effect at the
Effective Time. In addition, Mr. Pospisil and Jack Carsten, directors of
OASys, each received options to purchase 75,000 shares of OASys Common Stock.
The Board of Directors of OASys has voted to accelerate the vesting of such
options in full at the Effective Time. The OASys Board of Directors was aware of
the potential conflicts associated with these matters and considered them along
with the other matters described in ''The Merger--Background of the Merger;
Recommendation of OASys' Board of Directors,'' ''--OASys' Reasons for the
Merger'' and ''--Employment Agreements; Consulting Agreement.''
Pursuant to the Plan of Merger, Cabletron has agreed that all rights to
indemnification or exculpation now existing in favor of the employees, agents,
directors or officers of OASys as provided in its charter or bylaws shall
continue in full force and effect for a period of not less than six years from
the Effective Time.
As of the OASys Record Date, directors and executive officers of OASys and
their affiliates had the right to vote approximately 84% of the outstanding
shares of OASys Common Stock and approximately 18% of the outstanding shares of
OASys Preferred Stock. Each of the directors and executive officers and certain
of their affiliates has executed an irrevocable proxy in favor of Cabletron
authorizing Cabletron (i) to vote all the outstanding shares of OASys Stock over
which he or she has voting control in favor of approval and adoption of the Plan
of Merger and the Merger Agreement and (ii) to sign written consents in favor of
converting the OASys Preferred Stock into OASys Common Stock.
Certain Federal Income Tax Consequences
The following is a description of the material federal income tax
consequences of the Merger. This is not a complete description of all the tax
consequences of the Merger and does not address the tax consequences that may be
relevant to particular categories of shareholders subject to special treatment
under certain federal income tax laws, such as dealers in securities, banks,
insurance companies, foreign individuals and entities, tax-exempt organizations
and shareholders who acquired OASys Common Stock pursuant to an employee stock
option or otherwise as compensation. Each OASys shareholder's individual
circumstances may affect the tax consequences of the Merger to him or her. No
information is provided herein with respect to the tax consequences of the
Merger under foreign, state or local laws or the tax consequences of
transactions effected prior to, concurrently with, or after the Merger (whether
or not such transactions are undertaken in connection with the Merger).
Moreover, the description set forth below is based on existing law and currently
applicable United States Treasury regulations promulgated under the Code,
judicial authority, and current published administrative positions of the
Internal Revenue Service contained in revenue rulings and revenue proceedings,
all of which are subject to change either prospectively or retroactively. Any
such changes could adversely affect the accuracy of the statements and
conclusions set forth herein.
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It is intended that the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code.
Subject to the limitations and qualifications referred to herein, if the Merger
qualifies as a reorganization, the following federal income tax consequences
will result:
(i) No gain or loss will be recognized by holders of OASys Common Stock
(including OASys Common Stock issued upon conversion of the OASys Preferred
Stock) upon their receipt in the Merger of Cabletron Common Stock (except to the
extent of cash received by OASys shareholders in lieu of fractional share
interests in Cabletron Common Stock) exchanged therefor.
(ii) The aggregate tax basis of the Cabletron Common Stock received by
OASys shareholders in the Merger (including any fractional share that is treated
as issued and sold pursuant to paragraph (iv) below and including any shares of
Cabletron Common Stock initially held in escrow) will be the same as the
aggregate tax basis of the OASys Common Stock surrendered in exchange therefor.
(iii) The holding period of the shares of Cabletron Common Stock received
in the Merger by OASys shareholders will include the period during which the
shares of OASys Common Stock surrendered in exchange therefor were held,
provided that such shares of OASys Common Stock were held as capital assets at
the Effective Time.
(iv) Cash received by a holder of OASys Common Stock in lieu of a
fractional share interest in Cabletron Common Stock will be treated as if it was
received upon the sale by such OASys shareholder of a fractional share of
Cabletron Common Stock issued in the Merger. An OASys shareholder receiving such
cash will recognize gain or loss for federal income tax purposes upon such
payment, equal to the difference (if any) between the amount of cash received
and such shareholder's basis in the fractional share. Such gain or loss will be
capital gain or loss, provided that such share of OASys Common Stock was held as
a capital asset at the Effective Time and will be long-term capital gain or loss
if such share of OASys Common Stock has been held for more than one year.
Even if the Merger qualifies as a reorganization, a recipient of shares of
Cabletron Common Stock could recognize gain for federal income tax purposes to
the extent that such shares were considered by the Internal Revenue Service to
be received in exchange for consideration other than OASys Common Stock. All or
a portion of such gain may be taxable as ordinary income. Gain could also have
to be recognized to the extent that an OASys shareholder was treated by the
Internal Revenue Service as receiving (directly or indirectly) consideration
other than Cabletron Common Stock in exchange for his or her OASys Common Stock.
The tax consequences to a shareholder who exercises dissenters' rights with
respect to a share of OASys Stock and receives payment for such share in cash
will generally not depend on the Merger's qualifying as a reorganization. Such
shareholder will generally recognize gain or loss for federal income tax
purposes, measured by the difference between the holder's basis in such share
and the amount of cash received, provided that the payment is neither
essentially equivalent to a dividend within the meaning of Section 302 of the
Code nor has the effect of a distribution of a dividend within the meaning of
Section 356(a)(2) of the Code, in which case such gain or loss will be capital
gain or loss provided that the share of OASys Common Stock was held as a capital
asset at the Effective Time.
No advance ruling will be requested or received from the Internal Revenue
Service as to the federal income tax consequences of the Merger. It is a
condition to the consummation of the Merger that Cabletron and OASys shall each
have received an opinion of their respective counsel to the effect that the
Merger will qualify as a reorganization within the meaning of Section 368(a) of
the Code. OASys shareholders should be aware that the tax opinions do not bind
the Internal Revenue Service and the Internal Revenue Service is therefore not
precluded from successfully asserting a contrary opinion. In addition, the tax
opinions are subject to certain assumptions and qualifications, including but
not limited to an assumption that certain representations made by Cabletron,
OASys, Merger Sub, and certain OASys shareholders, including representations in
certain certificates to be delivered to counsel by the respective management of
Cabletron, OASys, Merger Sub and certain OASys shareholders are true and
accurate. Of particular importance are certain assumptions and representations
relating to the Code's ''continuity of interest'' requirement for reorganization
treatment.
To satisfy the ''continuity of interest'' requirement, OASys shareholders
must not, pursuant to a plan or intent existing at or prior to the Merger, sell,
exchange or otherwise dispose of so much of either (i) their OASys Common Stock
in anticipation of the Merger or (ii) the Cabletron Common Stock to be received
in the Merger (collectively, ''Agreement Dispositions''), such that OASys
shareholders, as a group, would no longer have a significant equity interest in
the OASys business being conducted by Cabletron after the Merger. Agreement
Dispositions include any sale or transfer (including dispositions pursuant to
the exercise of dissenters' rights) and may include any other transaction that
has the effect of reducing the shareholder's risk with respect to such shares.
Certain shareholders of OASys will be making representations at the Effective
Time regarding the absence of any present plan or intent to engage in Agreement
Dispositions. If such representations prove to be inaccurate, the Merger may
fail to meet the ''continuity of interest'' requirement. Although it is
uncertain as to what constitutes sufficient continuity of interest, the
published advance ruling guidelines of the Internal Revenue Service provide that
the requirement will be satisfied if the OASys shareholders do not dispose of,
in Agreement Dispositions, a number of shares of Cabletron Common Stock having a
value, as of the date of the Merger, of 50 percent or more of the value of all
of the formerly outstanding OASys Common Stock as of the same date. On December
20, 1996, the Internal Revenue Service filed with the Federal Register proposed
regulations that would eliminate any durational requirement in the continuity of
interest test, i.e., that target company shareholders retain any stock issued in
a reorganization transaction. However, this proposed regulation would not apply
to the Merger, since it is proposed to apply only to transactions occurring
after the regulations are finalized or pursuant to a written binding commitment
entered into after the regulations are finalized.
A successful Internal Revenue Service challenge to the status of the Merger
as a reorganization under Section 368(a) of the Code (as a result of a lack of
continuity of interest or otherwise) would result in OASys shareholders
recognizing taxable gain
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or loss with respect to each share of OASys Common Stock surrendered equal to
the difference between the shareholder's basis in such share and the fair market
value, as of the Effective Time, of the Cabletron Common Stock received in
exchange therefor. In such event, a shareholder's aggregate basis in the
Cabletron Common Stock so received would equal its fair market value and the
holding period for such stock would begin the day after the Merger.
EACH HOLDER OF SHARES OF OASYS STOCK IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR AS TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO HIM OR HER,
AND ALSO AS TO ANY STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES.
Anticipated Accounting Treatment
The Merger is expected to be accounted for under the purchase method of
accounting in accordance with generally accepted accounting principles. Under
the purchase method, the acquiring company determines the fair value of assets
acquired and liabilities assumed and any premium paid over fair value is
reflected on the buyer's balance sheet as an intangible asset.
Governmental Filings
Cabletron and OASys do not believe that any governmental filings in the
United States are required with respect to the Merger, other than the filing of
the Merger Agreement required to be filed with the Secretary of State of the
State of California in accordance with the CCC and the filing of the
registration statement of which this Proxy Statement/Prospectus is a part.
Certain Federal Securities Law Consequences; Affiliate Letters
The Cabletron Common Stock to be issued in the Merger has been registered
under the Securities Act, thereby allowing those shares to be traded without
restriction, except for those shares held by stockholders of OASys or Cabletron
who are deemed to control or be under common control with OASys or Cabletron,
respectively (''Affiliates''). Affiliates of OASys may not sell their shares of
Cabletron Common Stock acquired in the Merger except pursuant to (i) an
effective registration statement under the Securities Act covering such shares,
(ii) the resale provisions of Rule 145 promulgated under the Securities Act or
(iii) another applicable exemption from the registration requirements of the
Securities Act. Affiliates of Cabletron may not sell any shares of Cabletron
Common Stock except pursuant to an effective registration statement under the
Securities Act covering such shares or an applicable exemption from the
registration requirements of the Securities Act.
Stock Exchange Listing
The shares of Cabletron Common Stock to be issued in the Merger will be
authorized for listing and trading on the NYSE.
Dividends
OASys is not permitted under the terms of the Plan of Merger to declare, set
aside or pay any dividend in cash, stock, property or otherwise in respect of
its capital stock during the period from the date of the Plan of Merger until
the earlier of the termination of the Plan of Merger or the Effective Time.
Dissenters' Rights
THE FOLLOWING SUMMARY OF APPRAISAL RIGHTS UNDER CALIFORNIA LAW IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO CHAPTER 13 OF THE CALIFORNIA CORPORATIONS CODE, THE
COMPLETE TEXT OF WHICH IS ATTACHED HERETO AS ANNEX B. FAILURE TO FOLLOW STRICTLY
THE PROCEDURES SET FORTH IN CHAPTER 13 OF THE CALIFORNIA CORPORATIONS CODE MAY
RESULT IN THE LOSS, TERMINATION OR WAIVER OF DISSENTERS' RIGHTS. AN OASYS
SHAREHOLDER WHO VOTES FOR APPROVAL OF THE PLAN OF MERGER WILL NOT HAVE A RIGHT
TO DISSENT FROM THE PLAN OF MERGER.
Pursuant to Chapter 13 of the CCC, each holder of OASys stock as of the OASys
Record Date is entitled to demand and receive payment of the fair value of all
or any portion of such holder's shares of OASys Stock owned by such holder if
the Merger is consummated. The fair value of such shares is determined as of
November 29, 1996, the last trading day before the first announcement of the
terms of the Merger. Any OASys shareholder who elects to perfect such holder's
dissenters' rights and demands payment of the fair value of such holder's shares
of OASys Stock must strictly comply with Chapter 13 of the CCC. The following
summary does not purport to be complete and is qualified in its entirety by
reference to Chapter 13 of the CCC, the text of which is attached hereto as
ANNEX B and is incorporated herein by reference. Any holder of shares of OASys
Stock considering demanding dissenters' rights is advised to consult legal
counsel. Dissenting rights will not be available unless and until the Merger is
consummated.
Within 10 days after the date of approval of the Merger, OASys will mail, to
each OASys shareholder who did not vote in favor of the Merger, a notice (the
"Notice") of the approval of the Merger by the OASys shareholders, accompanied
by a copy of Sections 1300-1304 of the CCC. The Notice shall also state the
price determined by OASys to be the fair market value of the dissenting shares
and a brief description of the procedure to be followed by a shareholder who
elects to dissent.
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Any dissenting OASys shareholder who desires that OASys purchase his or her
shares of OASys Stock must make written demand upon OASys for the purchase of
such shares. The demand must be made no later than 30 days after the Notice was
mailed to the shareholder. The OASys shareholder's demand must state the number
and class of shares held of record by the OASys shareholder which the
shareholder demands that OASys purchase, as well as a statement by the OASys
shareholder as to what such holder thinks the fair market value of such share
was as of the day prior to the announcement of the Merger. The statement of fair
market value constitutes an offer by the OASys shareholder to sell the shares at
such price. Failing to return the executed proxy does not constitute such
written demand.
Within the same 30-day period following the mailing of the Notice, the
dissenting shareholder must submit to OASys for endorsement certificates for any
shares which the OASys shareholder demands OASys purchase. If OASys and the
OASys shareholder agree upon the price of the dissenting shares, the dissenting
OASys shareholder is entitled to the agreed price with interest at the legal
rate on judgments from the date of such agreement. Payment must be made within
30 days of the later of the date of the agreement between the OASys shareholder
and OASys or the date the contractual conditions to the Merger are satisfied.
If OASys and the shareholder cannot agree as to the fair market value or as to
the fact that such shares are dissenting shares, such OASys shareholder may file
within six months of the date of mailing of the Notice a complaint with the
California Superior Court for the County of Santa Clara demanding judicial
determination of such matters. OASys will then be required to make any payments
in accordance with such judicial determination. If the complaint is not filed
within the specified six-month period, the OASys shareholder's rights as a
dissenter are lost.
Dissenting shares lose their status as such if (i) OASys abandons the Merger;
(ii) the shares are transferred or are surrendered for conversion into shares of
another class; (iii) the OASys shareholder and OASys do not agree as to the fair
market value of such shares and a complaint is not filed within six months of
the date the Notice was mailed; or (iv) the dissenting OASys shareholder
withdraws, with the consent of OASys, his or her demand for purchase of the
dissenting shares.
At the Effective Date, the shares of OASys held by an OASys shareholder
exercising his or her dissenters' rights will be canceled, and such shareholder
will be entitled to no further rights except the right to receive payment of the
fair value of such holder's shares of OASys Stock. However, if the OASys
shareholder fails to perfect or withdraws or loses such holder's rights as a
dissenter with respect to such holder's shares of OASys Stock, such holder's
shares of OASys Stock will be exchanged for Cabletron Common Stock as provided
in the Plan of Merger.
CONVERSION OF THE OASYS PREFERRED STOCK
It is a condition to the consummation of the Merger that all OASys Preferred
Stock be converted into OASys Common Stock prior to the Effective Time. The
OASys Preferred Stock may be converted into OASys Common Stock, at any time, at
the election of the holder. In addition, all of the OASys Preferred Stock, upon
the written consent of the holders of a majority of the shares of the OASys
Preferred Stock, will convert into shares of OASys Common Stock.
The OASys Preferred Stock converts into a number of shares of OASys Common
Stock determined by the conversion ratio set forth in the Restated Articles of
Incorporation of OASys. The conversion ratio for the OASys Preferred Stock was
initially set at 1:1 subject to adjustment due to stock splits,
recapitalizations, reorganizations and certain dilutive stock issuances. As of
the date of this Proxy Statement/Prospectus the conversion ratio for the OASys
Preferred Stock is 1:1. Accordingly, holders of OASys Preferred Stock will
receive one share of OASys Common Stock for each share of OASys Preferred Stock
converted. OASys is prohibited by the terms of the Plan of Merger from taking
any action from the date hereof until the Effective Time which would cause the
above conversion ratio to be adjusted.
The OASys Preferred Stock has certain preferences relative to the OASys Common
Stock with respect to the distribution of assets upon the liquidation or winding
up of OASys, as well as certain protective voting provisions. The rights,
preferences and other characteristics of the OASys Preferred Stock are more
fully set forth elsewhere in this Proxy Statement/Prospectus. See ''Comparison
of Stockholder Rights'' and "The OASys Group, Inc. Audited Financial Statements
- -- Note 6."
TERMINATION OF THE SHAREHOLDER RIGHTS AGREEMENT
It is a condition to the consummation of the Merger that the Shareholder
Rights Agreement be terminated prior to the Effective Time. The agreement is
between OASys and the holders of OASys Preferred Stock. The agreement grants
the holders of OASys Preferred Stock certain registration rights, information
rights and rights of first refusal. The vote of the holders of a majority of
the OASys Preferred Stock is required to terminate the Shareholder Rights
Agreement.
The registration rights under the Shareholder Rights Agreement entitle the
holders of OASys Preferred Stock to have the shares of OASys Preferred Stock
included in any registration statement under the Securities Act of OASys
securities undertaken by OASys on its own behalf or otherwise. In addition, at
the election of holders of OASys Preferred Stock holding in the aggregate 40% or
more of the issued and outstanding shares of issued OASys Preferred Stock, OASys
must use its best efforts to register the shares of such holders for sale under
the Securities Act. OASys is required to honor only one such demand
registration. Finally, should OASys become eligible to register shares on Form
S-3, it must notify the holders of OASys Preferred Stock and provide them the
opportunity to request registration of their shares on Form S-3. OASys will then
be required to use its best efforts to cause any requested registration to
become effective as expeditiously as possible, provided the shares to be
registered have an
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aggregate market value of at least $500,000 and the holders requesting
registration hold at least 20% of the issued and outstanding shares of OASys
Preferred Stock.
The information rights under the Shareholder Rights Agreement entitle each
holder of OASys Preferred Stock to receive OASys's annual audited financial
statements. In addition, the information rights entitle holders of at least
50,000 shares of OASys Preferred Stock to receive OASys's annual operating
budget and quarterly unaudited financial statements and to inspect the books and
records of OASys.
The rights of first refusal under the Shareholder Rights Agreement require
each holder of OASys Preferred Stock that desires to sell any amount of his or
her shares of OASys Preferred Stock to a third-party to offer such shares to
OASys on the same terms as offered to the third-party for OASys to purchase, and
if OASys declines or does not purchase the entire amount, to offer such shares
to the other holders of OASys Preferred Stock. In addition, the rights of first
refusal entitle the holders of OASys Preferred Stock to purchase, pro rata,
certain issuances of securities by OASys on the same terms as such securities
were offered to a third-party.
THE PLAN OF MERGER
The description of the Plan of Merger set forth below does not purport to be
complete and is qualified in its entirety by reference to the Plan of Merger, a
copy of which is attached to this Proxy Statement/Prospectus as Annex A and
incorporated herein by reference. Statements in this Proxy Statement/Prospectus
with respect to the terms of the Merger are qualified in their entirety by
reference to the Plan of Merger. OASys shareholders are urged to read the full
text of the Plan of Merger.
Representations and Warranties
The Plan of Merger contains various representations and warranties of the
parties, including representations by OASys relating to (i) its organization and
qualification to do business, (ii) the full force and effect of its articles of
incorporation and by-laws, (iii) its capitalization, (iv) its authority
relative to the Plan of Merger, (v) the conflicts, required filings and consents
arising from or necessitated by the Merger, (vi) the compliance and permits
necessitated by the Merger, (vii) its financial statements, (viii) the absence
of certain changes or events, (ix) the absence of undisclosed liabilities, (x)
the absence of litigation, (xi) its employee benefit plans and employment
agreements, (xii) its labor matters, (xiii) the accuracy of information supplied
in this Proxy Statement/Prospectus and the registration statement on Form S-4
(the "Registration Statement"), of which it is a part, relating to OASys, (xiv)
the absence of restrictions on its business activities, (xv) its title to
property, (xvi) the payment of its taxes, (xvii) its environmental matters,
(xviii) its intellectual property, (xix) any interested party transactions, (xx)
its insurance, (xxi) its accounts receivable and inventories, (xxii) its
equipment, (xxiii) brokerage, finder's or other fees or commissions, (xxiv) the
absence of change in control payments, (xxv) its expenses incurred as a result
of the Merger, and (xxvi) the full disclosure by OASys. The Plan of Merger also
contains representations and warranties of Cabletron and Merger Sub as to (i)
their organization and qualification to do business, (ii) the full force and
effect of their respective articles of incorporation and by-laws, (iii) their
capitalization, (iv) their authority relative to the Plan of Merger, (v) the
conflicts, required filings and consents arising from or necessitated by the
Merger, (vi) their SEC filings and financial statements, (vii) the accuracy of
information supplied in this Proxy Statement/Prospectus and the Registration
Statement of which it is a part relating to Cabletron or Merger Sub, and (viii)
Cabletron's ownership of Merger Sub and the prior activities of Merger Sub. The
representations and warranties made by Cabletron and Merger Sub will not survive
consummation of the Merger. However, the representations and warranties of
OASys will survive for a period of two years from the closing date of the
Merger.
Conduct of Cabletron's and OASys' Business Prior to the Merger
Under the terms of the Plan of Merger, OASys has agreed that, during the
period from the date of the Plan of Merger and continuing until the earlier of
the termination of the Plan of Merger or the Effective Time, unless Cabletron
otherwise agrees in writing, OASys will conduct its business and will cause the
business of its subsidiaries to be conducted only in, and OASys and its
subsidiaries shall not take any action except in, the ordinary course of
business and in a manner consistent with past practice other than actions taken
by OASys or its subsidiaries in contemplation of the Merger; and OASys shall use
all reasonable commercial efforts to preserve substantially intact the business
organization of OASys and its subsidiaries, to keep available the services of
the present officers, employees and consultants of OASys and its subsidiaries
and to preserve the present relationships of OASys and its subsidiaries with
customers, suppliers and other persons with which OASys or any of its
subsidiaries has significant business relations.
OASys further agreed that neither it nor any of its subsidiaries will, during
the period from the date of the Plan of Merger and continuing until the earlier
of the termination of the Plan of Merger or the Effective Time, directly or
indirectly do, or propose to do, any of the following without the prior written
consent of Cabletron: (a) amend or otherwise change the Charter or Bylaws of
OASys or any of its subsidiaries; (b) issue, sell, pledge, dispose of or
encumber, or authorize the issuance, sale, pledge, disposition or encumbrance
of, any shares of capital stock of any class, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of
capital stock, or any other ownership interest (including, without limitation,
any phantom interest) in OASys, any of its subsidiaries or affiliates (except
for the issuance of shares of OASys Common Stock issuable pursuant to OASys
Options which were granted under the OASys 1996 Stock Option Plan (the "OASys
Stock Option Plan") and were outstanding on the date of the Plan of Merger or in
connection with the automatic conversion of all outstanding shares of the OASys
Preferred Stock and the shares of OASys Preferred Stock issuable upon the
exercise of the OASys Series A Preferred Stock Purchase Warrants dated as of May
16, 1996 (the "Warrants") into OASys Common Stock (the "Conversion") or other
conversion
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of the OASys Preferred Stock or shares of OASys Preferred Stock issued upon the
exercise of the Warrants into shares of OASys Common Stock; (c) sell, pledge,
dispose of or encumber any assets of OASys or any of its subsidiaries (except
for (i) sales of assets in the ordinary course of business and in a manner
consistent with past practice, (ii) dispositions of obsolete or worthless
assets, and (iii) sales of immaterial assets not in excess of $10,000 in the
aggregate); (d) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof) in
respect of any of its capital stock, except that a wholly owned subsidiary of
OASys may declare and pay a dividend to its parent, (ii) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock (except for the issuance of shares of OASys
Common Stock issuable pursuant to (A) OASys Options which were granted under the
OASys Stock Option Plan and were outstanding on the date of the Plan of Merger
or (B) the Conversion or other conversion of the OASys Preferred Stock into
shares of OASys Common Stock and the issuance of shares of OASys Preferred Stock
issuable upon the exercise of the Warrants), or (iii) amend the terms or change
the period of exercisability of, purchase, repurchase, redeem or otherwise
acquire, or permit any subsidiary to purchase, repurchase, redeem or otherwise
acquire, any of its securities or any securities of its subsidiaries, including,
without limitation, shares of OASys Common Stock or any option, warrant or
right, directly or indirectly, to acquire shares of OASys Common Stock, or
propose to do any of the foregoing (except for the purchase of 444,440 shares of
OASys Common Stock from a former employee of OASys; (e) (i) acquire (by merger,
consolidation, or acquisition of stock or assets) any corporation, partnership
or other business organization or division thereof; (ii) incur any indebtedness
for borrowed money calling for aggregate payments in excess of $20,000 or issue
any debt securities or assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any person or, except
in the ordinary course of business consistent with past practice, make any loans
or advances; (iii) enter into or amend any material contract or agreement; (iv)
authorize any capital expenditures or purchase of fixed assets which are, in the
aggregate, in excess of $20,000 for OASys and its subsidiaries taken as a whole,
or (v) enter into or amend any contract, agreement, commitment or arrangement to
effect any of the matters prohibited by this clause (e); (f) increase the
compensation payable or to become payable to its officers or employees, or grant
any severance or termination pay to, or enter into any employment or severance
agreement with any director, officer or other employee of OASys or any of its
subsidiaries, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any current or former directors, officers or
employees, except, in each case, as may be required by law, provided OASys may
increase wages
in the ordinary course of business consistent with OASys's past practice but not
more than 5% for any individual employee; (g) take any action to change
accounting policies or procedures (including, without limitation, procedures
with respect to revenue recognition, payments of accounts payable and collection
of accounts receivable); (h) make any material tax election inconsistent with
past practice or settle or compromise any material federal, state, local or
foreign tax liability or agree to an extension of a statute of limitations; (i)
pay, discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities reflected or reserved against in
the audited consolidated balance sheets of OASys and its subsidiaries as of
December 31, 1995 and September 30, 1996, together with the related consolidated
statements of income for the periods then ended, all certified by Coopers &
Lybrand L.L.P., OASys' independent public accountants (the "Financial
Statements"), or incurred in the ordinary course of business and consistent with
past practice; or (j) take, or agree in writing or otherwise to take, any of the
actions described in (a) through (i) above, or any action which would make any
of the representations or warranties of OASys contained in the Plan of Merger
untrue or incorrect or prevent OASys from performing or cause OASys not to
perform its covenants thereunder.
No Solicitation
The Plan of Merger provides, subject to certain exceptions, that: (a) OASys
cannot, directly or indirectly, through any officer, director, employee,
representative or agent of OASys or any of its subsidiaries, (i) solicit,
initiate or encourage the initiation of any inquiries or proposals regarding any
merger, sale of substantial assets, sale of shares of capital stock (including
without limitation by way of a tender offer) or similar transactions involving
OASys or any subsidiaries of OASys other than the Merger (each of the foregoing
inquiries or proposals referred to herein as an "Acquisition Proposal"), (ii)
engage in negotiations or discussions concerning, or provide any nonpublic
information to any person relating to, any Acquisition Proposal or (iii) agree
to, approve or recommend any Acquisition Proposal; (b) OASys shall immediately
notify Cabletron after receipt of any Acquisition Proposal, or any modification
of or amendment to any Acquisition Proposal, or any request for nonpublic
information relating to OASys or any of its subsidiaries in connection with an
Acquisition Proposal or for access to the properties, books or records of OASys
or any subsidiary by any person or entity that informs the Board of Directors of
OASys or such subsidiary that it is considering making, or has made, an
Acquisition Proposal. Such notice to Cabletron shall be made orally and in
writing; (c) OASys was obligated to immediately cease and cause to be terminated
any existing discussions or negotiations with any persons (other than Cabletron
and Merger Sub) conducted prior to the execution of the Plan of Merger with
respect to any of the foregoing. OASys agrees not to release any third party
from the confidentiality provisions of any confidentiality agreement to which
OASys is a party; and (d) OASys shall ensure that the officers, directors and
employees of OASys and its subsidiaries and any investment banker or other
advisor or representative retained by OASys are aware of the restrictions
described in this section.
Conditions to the Merger
Each party's respective obligation to effect the Merger is subject to, among
other things, the satisfaction prior to the Effective Time of the following
conditions: (a) immediately prior to the Effective Time, either (i) the
Commission having declared the Registration Statement of which this Proxy
Statement/Prospectus is a part, effective, with no stop order suspending the
effectiveness of the Registration Statement having been issued by the Commission
and no proceedings for that purpose and no similar proceeding in respect of the
Proxy Statement/Prospectus having been initiated or threatened by the Commission
or (ii) a
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fairness hearing having been held before the California Department of
Corporations (the "Department"), and the Department having issued a permit for
the issuance of the Cabletron Common Stock issuable pursuant to the terms of the
Plan of Merger; (b) the Plan of Merger, the Merger Agreement, the Merger and the
Conversion having received the Requisite Approvals (as defined below) and the
holders of the OASys Preferred Stock having converted such shares into shares of
OASys Common Stock; (c) the absence of any temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger, any pending proceeding brought by any administrative
agency or commission or other governmental authority or instrumentality,
domestic or foreign, seeking any of the foregoing or any action taken, statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal; (d) the absence of
any instituted, pending or threatened action or proceeding (or any investigation
or other inquiry that might result in such an action or proceeding) by any
governmental authority or administrative agency before any governmental
authority, administrative agency or court of competent jurisdiction, or any
judgment, decree or order of any governmental authority, administrative agency
or court of competent jurisdiction, in either case, seeking to prohibit or limit
Cabletron from exercising all material rights and privileges pertaining to its
ownership of the Surviving Corporation (defined in the Plan of Merger and
hereinafter as OASys after Merger Sub is merged with and into OASys, the
separate corporate existence of Merger Sub ceases, and OASys continues as the
surviving corporation) or the ownership or operation by Cabletron or any of its
subsidiaries of all or a material portion of the business or assets of Cabletron
or any of its subsidiaries, or seeking to compel Cabletron or any of its
subsidiaries to dispose of or hold separate all or any material portion of the
business or assets of Cabletron or any of its subsidiaries (including the
Surviving Corporation and its subsidiaries), as a result of the Merger or the
transactions contemplated by the Plan of Merger; and (e) the execution and
delivery of the Merger Agreement by the parties thereto and the execution and
delivery by the requisite officers of the constituent corporations to the Merger
of certain officers' certificates contemplated under Section 1103 of the CCC.
The obligations of Cabletron and Merger Sub to effect the Merger are also
subject to the following conditions: (a) the accuracy, in all respects, of the
representations and warranties of OASys as of the Effective Time with the same
force and effect as if made at and as of such time and the receipt of a
certificate to such effect signed by the President of OASys; (b) the performance
and compliance by OASys with all agreements and covenants required by the Plan
of Merger to be performed or complied with by OASys at or prior to the Effective
Time and the receipt of a certificate to such effect signed on behalf of OASys
by the President and the Chief Financial Officer of OASys; (c) OASys having
obtained all necessary consents, waivers, approvals, authorizations or orders,
and having made all required filings, for the due authorization, execution and
delivery of the Plan of Merger and the consummation by OASys of the transactions
contemplated by the Plan of Merger; (d) the receipt by Cabletron of an opinion
from Wilson, Sonsini, Goodrich & Rosati, P.C., counsel to OASys, regarding the
validity of certain actions taken by OASys with respect to the merger; (e) the
receipt by Cabletron of an opinion from Ropes & Gray, in form and substance
reasonably satisfactory to Cabletron, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368 of the Code; (f)
the receipt by Cabletron and the continuing full force and effect of an
"Affiliate Agreement" by each person who is identified as an "affiliate" of
OASys; (g) the termination of all existing registration rights, preemptive
rights and rights of first refusal with respect to the purchase of the capital
stock of OASys of holders of OASys securities and the receipt of a certificate
to such effect signed on behalf of OASys by the President and the Chief
Financial Officer of OASys; (h) the execution and delivery to Cabletron of the
Escrow Agreement (described below) by each of the Escrow Agent, OASys and the
Stockholders Representative; (i) certain specified persons shall have entered
into employment agreements with Cabletron, such agreements shall be in full
force and effect as of the Effective Time, such persons shall be in the employ
of OASys immediately prior to the Effective Time and no such person shall have
indicated his or her intention to terminate his or her employment with the
Surviving Corporation following the Effective Time; (j) the Warrants (i) shall
have been exercised in full, all shares issuable pursuant thereto shall have
been issued in accordance with the terms of the Warrants, and the shares of
OASys Preferred Stock issued pursuant thereto shall have been converted into
shares of OASys Common Stock or (ii) the Warrants shall have been terminated and
be of no further force or effect; (k) OASys shall have exercised its rights, and
consummated the repurchase of 444,440 shares of OASys Common Stock from a former
employee; (l) each of Paul Doolan, Frederic Gaskell and Susan Marvin (each a
"Founding Stockholder") shall have executed a letter agreement, confirming that
the Restricted Stock Purchase Agreement between OASys and such individual shall
be enforceable by the Surviving Corporation following the Effective Time to the
same extent such agreement was enforceable by OASys prior to the Effective Time;
(m) each of Paul Doolan and Susan Marvin shall have entered into a three year
noncompetition agreement, and each of Richard Pospisil and Frederic Gaskell
shall have entered into a one year noncompetition agreement; (n) in addition to
obtaining the stockholders approvals required for the Plan of Merger, the Merger
Agreement, the Merger and the Conversion (the "Requisite Approvals"),
stockholders of OASys holding not less than 95% of the OASys Common Stock that
will be outstanding immediately prior the Effective Time (assuming that all
shares of OASys Preferred Stock have been converted into OASys Common Stock)
shall have either (i) voted for and approved each of the Plan of Merger, the
Merger Agreement and the Merger or (ii) approved each of the Plan of Merger, the
Merger Agreement and the Merger by written consent; (o) there shall not have
occurred any change, effect or circumstance that is likely to be materially
adverse to the business, assets, prospects, financial condition or results of
operations of OASys and its subsidiaries or is reasonably likely to delay or
prevent the consummation of the transactions contemplated by the Plan of Merger
(a "Material Adverse Effect"); (p) OASys shall have delivered to Cabletron the
Financial Statements and the Financial Statements shall not differ in any
material respect from the draft Financial Statements previously delivered to
Cabletron; (q) DSET Corporation shall have executed a written consent, in a form
reasonably satisfactory to Cabletron, approving the assignment of certain
agreements
between OASys and DSET Corporation to the Surviving Corporation; and (r) all
security interests, liens and collateral assignments of or in any property of
OASys in favor of The OASys Group LLC shall have been terminated and released.
The obligation of OASys to effect the Merger is also subject to the following
conditions: (a) the accuracy, in all respects, of the representations and
warranties of Cabletron and Merger Sub as of the Effective Time with the same
force and effect as if made at and as of such time and the receipt of a
certificate to such effect signed by the Chief Financial Officer of Cabletron;
(b)
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the performance and compliance by Cabletron and Merger Sub in all material
respects with all agreements and covenants required by the Plan of Merger to be
performed or complied with by them on or prior to the Effective Time, and OASys
shall have received a certificate to such effect signed by the Chairman and the
Chief Financial Officer of Cabletron; (c) Cabletron and Merger Sub having
obtained all necessary consents, waivers, approvals, authorizations or orders,
and having made all required filings, for the authorization, execution and
delivery of the Plan of Merger and the consummation by them of the transactions
contemplated by the Plan of Merger; (d) the receipt by OASys of the written
opinion from Wilson, Sonsini, Goodrich & Rosati, P.C. in form and substance
reasonably satisfactory to OASys, to the effect that the Merger will constitute
a reorganization within the meaning of Section 368 of the Code; (e) the receipt
by OASys of the written opinion of (i) Ropes & Gray, counsel to Cabletron,
regarding the validity of certain actions taken by Cabletron with respect to the
Merger and (ii) a member of the California bar, special counsel to Merger Sub,
regarding the validity of certain actions taken by Merger Sub with respect to
the Merger; and (f) that Cabletron has caused the Cabletron shares to be issued
in the Merger to be approved for quotation, upon official notice of issuance, on
the NYSE.
Termination
The Plan of Merger may be terminated at any time prior to the Effective Time,
notwithstanding approval thereof by the stockholders of OASys: (a) by mutual
written consent duly authorized by the Boards of Directors of Cabletron and
OASys; (b) by either Cabletron or OASys if the Merger shall not have been
consummated by March 15, 1997 (provided that the right to terminate the Plan of
Merger under this clause (b) shall not be available to any party whose failure
to fulfill any obligation under the Plan of Merger has been the cause of or
resulted in the failure of the Merger to occur on or before such date); (c) by
either Cabletron or OASys if a court of competent jurisdiction or governmental,
regulatory or administrative agency or commission shall have issued a
nonappealable final order, decree or ruling or taken any other action having the
effect of permanently restraining, enjoining or otherwise prohibiting the Merger
(provided that the right to terminate the Plan of Merger under this clause (c)
shall not be available to any party who has not complied with its obligations
under the Plan of Merger with respect to taking further actions or ensuring the
proper tax treatment of the Merger and such noncompliance materially contributed
to the issuance of any such order, decree or ruling or the taking of such
action); (d) by Cabletron or OASys, if the Requisite Approvals and the
conversion of the shares of the OASys Preferred Stock into shares of OASys
Common Stock shall not have been obtained by March 15, 1997; (e) by Cabletron,
if: (i) the Board of Directors of OASys shall withdraw, modify or change its
approval or recommendation of the Plan of Merger, the Merger Agreement, the
Merger or the Conversion in a manner adverse to Cabletron or shall have resolved
to do so; (ii) the Board of Directors of OASys shall have recommended to the
stockholders of OASys an Alternative Transaction (as defined below); or (iii) a
tender offer or exchange offer for 25% or more of the outstanding shares of
OASys Common Stock is commenced (other than by Cabletron or an affiliate of
Cabletron) and the Board of Directors of OASys recommends that the stockholders
of OASys tender their shares in such tender or exchange offer; (f) by Cabletron
or OASys, (i) if any representation or warranty of OASys or Cabletron,
respectively, set forth in the Plan of Merger shall be untrue when made, or (ii)
upon a breach of any covenant or agreement on the part of OASys or Cabletron,
respectively, set forth in the Plan of Merger, such that the conditions to the
requisite obligations of Cabletron and Merger Sub or OASys, as the case may be,
would not be satisfied (either (i) or (ii) above being a "Terminating Breach"),
provided, that, if such Terminating Breach is curable prior to March 15, 1997 by
OASys or Cabletron, as the case may be, through the exercise of its reasonable
best efforts and for so long as OASys or Cabletron, as the case may be,
continues to exercise such reasonable best efforts, neither Cabletron nor OASys,
respectively, may terminate the Plan of Merger under this clause; (g) by
Cabletron, if any representation or warranty of OASys shall have become untrue
such that the requisite condition would not be satisfied, or by OASys, if any
representation or warranty of Cabletron shall have become untrue such that the
requisite condition would not be satisfied, in either case other than by reason
of a Terminating Breach; or (h) by Cabletron or OASys, if OASys enters into a
definitive agreement relating to an Alternative Transaction.
As used herein, "Alternative Transaction" means any of (i) a transaction
pursuant to which any person (or group of persons) other than Cabletron or its
affiliates (a "Third Party") acquires or would acquire more than 25% of the
outstanding equity securities of OASys, whether from OASys or pursuant to a
tender offer or exchange offer or otherwise, (ii) a merger or other business
combination involving OASys pursuant to which any Third Party acquires more than
25% of the outstanding equity securities of OASys or the entity surviving such
merger or business combination, or (iii) any other transaction pursuant to which
any Third Party acquires or would acquire control of assets (including for this
purpose the outstanding equity securities of subsidiaries of OASys, and the
entity surviving any merger or business combination including any of them) of
OASys or any of its subsidiaries having a fair market value (as determined by
the Board of Directors of OASys in good faith) equal to more than 25% of the
fair market value of all the assets of OASys and its subsidiaries, taken as a
whole, immediately prior to such transaction.
In the event of the termination of the Plan of Merger pursuant to the
preceding paragraphs, the Plan of Merger shall forthwith become void and there
shall be no liability on the part of any party thereto or any of its affiliates,
directors, officers or stockholders except (i) for certain confidentiality
provisions of the Plan of Merger which shall survive any termination of the Plan
of Merger and (ii) nothing in the Plan of Merger shall relieve any party from
liability for any breach of the Plan of Merger.
Fees and Expenses; Termination Fee
All fees and expenses incurred in connection with the Plan of Merger and the
transactions contemplated by it will generally be paid by the party incurring
such expenses, whether or not the Merger is consummated, except that: (a) in the
event the Merger is consummated, the stockholders of OASys shall pay all legal,
accounting, financial advisory, investment banking and other fees incurred by
OASys or any of its subsidiaries (or for which OASys or any of its subsidiaries
may be or become liable) in connection with the Plan of Merger and the
consummation of the Merger (the "OASys Expenses"). Immediately prior to the
Effective Time,
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<PAGE>
OASys shall provide to Cabletron a good faith estimate of the total OASys
Expenses and such amount shall be used in calculating the Exchange Ratio
pursuant to the terms of the Plan of Merger. Thereafter, the payment of such
amount of the OASys Expenses shall be the responsibility of the Surviving
Corporation. If following the Effective Time it is determined that there are
additional unpaid OASys Expenses and the Stockholders Representative authorizes
Cabletron to receive Escrow Shares having a value (as calculated in accordance
with the Escrow Agreement) equal to such additional OASys Expenses, then upon
receipt of such Escrow Shares, the Surviving Corporation shall pay such OASys
Expenses and (b) OASys shall pay Cabletron a fee of $300,000 (the "Fee"), plus
actual, documented and reasonable out-of-pocket expenses of Cabletron (the
"Cabletron Expenses") relating to the transactions contemplated by the Plan of
Merger (including, but not limited to, fees and expenses of Cabletron's counsel,
accountants and financial advisers), within one business day of and upon the
first to occur of the following events: (1) the termination of the Plan of
Merger by Cabletron or OASys as a result of the failure to receive the
requisite vote for approval and adoption of the Plan of Merger by the
stockholders of OASys by March 15, 1997 or the failure of the holders of the
shares of the OASys Preferred Stock to convert such shares into shares of OASys
Common Stock by such date; provided, however, that Cabletron shall be entitled
only to be paid the Cabletron Expenses under this section unless OASys
consummates or enters into an agreement regarding an Alternative Transaction
within one year of the date of termination of the Plan of Merger by Cabletron;
(2) the termination of the Plan of Merger by Cabletron because: (i) the Board of
Directors of OASys has withdrawn, changed or modified its recommendation of the
Plan of Merger, the Merger Agreement, the Merger or the Conversion in a manner
adverse to Cabletron, or has resolved to do so; (ii) the Board of Directors of
OASys has recommended to the stockholders of OASys an Alternative Transaction;
or (iii) a tender offer or exchange offer for 25% or more of the outstanding
shares of OASys Common Stock is commenced (other than by Cabletron or an
affiliate of Cabletron) and the Board of Directors of OASys recommends that the
stockholders of OASys tender their shares in such tender or exchange offer; (3)
the termination of the Plan of Merger by Cabletron on account of a Terminating
Breach by OASys; or (4) the termination of the Plan of Merger by Cabletron or
OASys because OASys entered into a definitive agreement relating to an
Alternative Transaction.
Indemnification
Pursuant to the Plan of Merger, the Surviving Corporation agrees that all
rights to indemnification or exculpation now existing in favor of the employees,
agents, directors or officers of OASys (the "OASys Indemnified Parties") as
provided in its charter or By-Laws shall continue in full force and effect for a
period of not less than six years from the Effective Time, except, that, in the
event any claim or claims are asserted or made within such six-year period, all
rights to indemnification in respect of any such claim or claims shall continue
until disposition of any and all such claims. Any determination required to be
made with respect to whether an OASys Indemnified Party's conduct complies with
the standards set forth in the charter or By-Laws of OASys or otherwise shall be
made by independent counsel selected by the OASys Indemnified Party reasonably
satisfactory to the Surviving Corporation (whose fees and expenses shall be paid
by the Surviving Corporation).
The representations and warranties of OASys made in the Plan of Merger and in
the documents and certificates delivered in connection therewith will survive
the Merger for a period of two years from the Effective Time and will remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any other party thereto, any person controlling any such party
or any of their officers or directors, whether prior to or after the execution
of the Plan of Merger. No claim for indemnification for breach of a
representation or warranty by OASys may be commenced after the second
anniversary of the Effective Time, provided, however, that claims made within
the applicable time period shall survive to the extent of such claim until such
claim is finally determined and, if applicable, paid.
By approving the Plan of Merger, the stockholders of OASys agree to indemnify,
defend, protect, and hold harmless each of Cabletron, Merger Sub, the Surviving
Corporation and each of their respective subsidiaries and affiliates (each in
its capacity as an indemnified party, an "Indemnitee") at all times from and
after the date of the Plan of Merger from and against all claims, damages,
actions, suits, proceedings, demands, assessments, adjustments, costs and
expenses (including specifically, but without limitation, reasonable attorneys'
fees and expenses of investigation) (collectively "Damages") incurred by such
Indemnitee as a result of or incident to (i) any breach of any representation or
warranty of OASys set forth therein or in any certificate or other document
delivered in connection therewith (as such representation or warranty would read
if all qualifications as to materiality and Material Adverse Effect were deleted
from it) with respect to which a claim for indemnification is brought by an
Indemnitee within the applicable survival period described above, (ii) any
breach or nonfulfillment by OASys, or any noncompliance by OASys with, any
covenant, agreement, or obligation contained therein or in any certificate or
other document delivered in connection therewith except to the extent waived by
Cabletron, (iii) any claim by a holder or former holder of OASys capital stock
or options, warrants or other securities convertible into or exercisable for
shares of OASys capital stock (the "Convertible Securities") or any other person
or entity, seeking to assert, or based upon: (A) ownership or rights of
ownership to any shares of capital stock of OASys; (B) any rights of a
stockholder of OASys (other than the right to receive the Merger Consideration
pursuant to the Plan of Merger or appraisal rights under the applicable
provisions of the CCC), including any option, preemptive rights, or rights to
notice or to vote; (C) any rights under the charter or bylaws of OASys; or (D)
any claim that his, her or its shares or Convertible Securities were wrongfully
repurchased, canceled, terminated or otherwise limited by OASys, regardless of
whether an action, suit or proceeding can or has been made against OASys or (iv)
any OASys Expenses.
In the event that on or prior to the date that is two years from the date of
the Effective Time, either of Paul Doolan or Susan Marvin shall have voluntarily
terminated their employment with the Surviving Corporation or Cabletron (or one
of their affiliates) without "good reason", or if Cabletron shall terminate the
employment of either such individual for "cause", Cabletron shall be entitled to
an adjustment to the consideration paid to the stockholders of OASys pursuant to
the Plan of Merger equal to $900,000. In such event, Cabletron shall be
entitled to receive Escrow Shares having a value equal to $900,000. For
avoidance
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<PAGE>
of doubt, the termination of Ms. Marvin or Mr. Doolan as a result of their death
or disability shall not constitute voluntary termination by them of their
employment for purposes of this paragraph.
Promptly after an Indemnitee has received notice of or has knowledge of any
claim by a person not a party to the Plan of Merger (a "Third Person") or the
commencement of any action or proceeding by a Third Person, the Indemnitee
shall, as a condition precedent to a claim with respect thereto being made
against the escrow, give the Stockholders Representative written notice of such
claim or the commencement of such action or proceeding; provided, however, that
the failure to give such notice will not affect the Indemnitee's right to
indemnification pursuant to the Plan of Merger with respect to such claim,
action or proceeding, except to the extent that the Stockholders Representative
has, or the stockholders have, been actually prejudiced as a result of such
failure. If the Stockholders Representative notifies the Indemnitee within 30
days from the receipt of the foregoing notice that he wishes to defend against
the claim by the Third Person and if the estimated amount of the claim, together
with all other claims made against the Escrow Funds (as defined in the Escrow
Agreement) that have not been settled, is less than the remaining balance of the
Escrow Funds, then the Stockholders Representative shall have the right to
assume and control the defense of the claim by appropriate proceedings with
counsel reasonably acceptable to the Indemnitee, and the Stockholders
Representative shall be entitled to reimbursement out of the Escrow Funds for
such defense. The Indemnitee may participate in the defense, at its sole
expense, of any such claim for which the Stockholders Representative shall have
assumed the defense pursuant to the preceding sentence, provided that counsel
for the Stockholders Representative shall act as lead counsel in all matters
pertaining to the defense or settlement of such claims, suit or proceedings;
provided, however, that the Indemnitee shall control the defense of any claim or
proceeding that in the Indemnitee's reasonable judgment could have a material
and adverse effect on the Indemnitee's business apart from the payment of money
damages. The Indemnitee shall be entitled to indemnification for the reasonable
fees and expenses of its counsel for any period during which the Stockholders
Representative has not assumed the defense of any claim. Whether or not the
Stockholders Representative shall have assumed the defense of any claim, neither
the Indemnitee nor the Stockholders Representative shall make any settlement
with respect to any such claim, suit or proceeding without the prior consent of
the other, which consent shall not be unreasonably withheld or delayed. It is
understood and agreed that in situations where failure to settle a claim
expeditiously could have an adverse effect on the party wishing to settle, the
failure of the party controlling the defense to act upon a request for consent
to such settlement within five business days of receipt of notice thereof shall
be deemed to constitute consent to such settlement for purposes of these
indemnification provisions, but shall not be dispositive of the amount of
Damages as between the stockholders of OASys and the Indemnitee.
All claims for indemnification shall be paid solely from the escrow funds. To
the extent that Cabletron, Merger Sub, or the Surviving Corporation or another
Indemnitee makes a claim against the escrow funds pursuant to the Escrow
Agreement, and such claim is paid in shares of Cabletron Common Stock, then for
purposes of such payment, the shares of Cabletron Common Stock shall be valued
at $38.25.
The stockholders of OASys shall not be required to indemnify any Indemnitee
except to the extent that Damages suffered by such Indemnitee, together with
Damages suffered with respect to all other claims for indemnification pursuant
to the Plan of Merger, exceeds $50,000. The foregoing sentence shall not in any
way limit Cabletron's right to recover amounts in respect of the OASys Expenses
from the Escrow Account. The maximum aggregate liability of OASys's
Stockholders to provide indemnification for Damages and in respect of any
adjustment pursuant to the provisions relating to the resignation of founding
stockholders shall be $1,350,000. No stockholder of OASys shall have any
personal obligation to indemnify any Indemnitee or in respect of any adjustment
pursuant to the provisions relating to the resignation of founding stockholders
Escrow
In order to secure the indemnification obligations of the indemnifying persons
under the Plan of Merger, approximately 35,300 shares Cabletron Common Stock
(which equals approximately 15% of the Cabletron Common Stock to be issued in
the Merger, depending on the number of dissenting shares and unexercised OASys
Options) (the "Escrow Shares") will be held in escrow. Immediately prior to the
Effective Time, Cabletron, the Stockholders Representative (on behalf of OASys
Stockholders) and the Escrow Agent will enter into the Escrow Agreement. Each
stockholder will have voting rights with respect to the Escrow Shares with
respect to such stockholder so long as such Escrow Shares are held in escrow,
and Cabletron will take all reasonable steps necessary to allow the exercise of
such rights. While the Escrow Shares remain in the Escrow Agent's possession
pursuant to the Escrow Agreement, the stockholders will retain and will be able
to exercise all other incidents of ownership of said Escrow Shares which are not
inconsistent with the terms and conditions of the Escrow Agreement. The Escrow
Agreement will remain in effect for a period of two (2) years.
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<PAGE>
BUSINESS
General
OASys designs, develops and supports a family of Telecommunications Management
Network ("TMN") system level software products and solutions. OASys' current
products enable telephone network operators to migrate from proprietary, TL1-
based network management systems to CMISE-based, open systems that follow the
International Telecommunications Union ("ITU") standard TMN architecture.
OASys is a California corporation founded in March, 1995. Its offices are
located at 59 N. Santa Cruz Avenue, Suite Q, Los Gatos, CA 95030, telephone
408/395-1684.
The Market
The market for OASys' products is driven by the need of the telephone service
providers to move toward open standards based management systems. In the past,
each telecommunications equipment manufacturer delivered a management solution
for its own equipment built upon the proprietary TL1 management protocol variant
unique to its own equipment. As a result, a manufacturer's network management
system typically could manage only its own equipment, and not that of other
manufacturers.
Telephone service providers use equipment from multiple manufacturers due to
the range of equipment required to meet the diverse needs of the telephone
service providers' networks, and to avoid dependency on a single source of
supply for critical network components. As a result, each telephone service
provider relies on multiple management systems, resulting in inefficiencies and
increased costs. For example, individuals operating these networks must be
familiar with multiple management systems, which involves additional training,
are limited in the functions they can perform if not trained on all systems, and
must manually assimilate and correlate information from multiple management
systems to fully understand overall network status and operation.
These inefficiencies are causing network service providers to seek open
standards management systems based on the ITU standard TMN architecture which
uses the CMIP network management protocol, rather than TL1. By adopting such
standards and protocols, a single management system can manage a network
utilizing equipment from multiple vendors. The installed base of TL1 equipment
("legacy equipment") is a multi-billion dollar investment that the service
providers cannot simply abandon, therefore any migration path to TMN and CMIP
must address the management of legacy equipment. OASys' products provide
migration paths from legacy proprietary TL1 network element based systems to
open systems based on CMIP.
OASys Solutions
OASys offers a family of software products that facilitates migration from
proprietary TL1 network elements to open CMIP systems. In this way, network
service providers can migrate to TMN management systems, and realize the
benefits of TMN, while protecting their huge investment in legacy equipment.
OASys Products
OASys currently offers the following products:
TL1/CMIP Gateway Toolkit. The TL1/CMIP Gateway (Q-Adapter in TMN parlance) is
- ------------------------
the critical component in implementing an effective migration strategy from
proprietary TL1 network management to open systems TMN. The TL1/CMIP Gateway
Toolkit is comprised of several components.
- Gateway Engine -performs the actual CMIP/TL1 translations.
--------------
- TL1 Dictionaries -contain the specific TL1 dialect unique to each TL1
----------------
network element.
- TL1 Dictionary Developer's Tool ("Webster") -A development tool for
-------------------------------------------
creating TL1 Dictionaries.
- TL1 Network Element Emulator ("T-NEE") -A test tool to aid in the
--------------------------------------
development, testing, and training of TL1 and TMN network systems.
Intelligent Alarm Filtering Engine. A TL1 parsing engine and alarm filter
- ----------------------------------
which, based on user-specified criteria, limits superfluous TL1 alarms and
messages generated by network equipment from being sent to the network
management system. As such, the Intelligent Alarm Filter reduces the likelihood
of a network management system being flooded with extraneous information which
is unimportant to overall network operation.
TARP Target ID Address Resolution Protocol, a standard defined by Bellcore for
- ----
resolving TL1 and OSI network addresses.
TARP/500 A standard adopted by the SONET Interoperability Forum for resolving
- --------
TL1 and OSI network addresses using TARP and ISO/OSI x.500.
ADMIN/500 An operator utility program that complements TARP/500.
- ---------
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All products are offered in portable source code form for portation by the
user to their environment of choice. OASys also offers these same products in
binary code form for several popular platforms. For a development fee, OASys
will provide custom solutions based on these standard OASys products.
Marketing and Sales
The ultimate users of OASys products are telephone service providers. Over
time, it is expected that the market will expand to include other service
providers such as wireless and cable companies as these companies realize that
they need more robust network management systems.
OASys delivers products to the telephone service providers through both direct
and indirect channels. Indirect channels include telecommunications equipment
manufacturers (e.g. Nippon Electric Company, Applied Innovation), computer
platform vendors (e.g. Hewlett-Packard, Sun Microsystems, Inc.), and network
management vendors (e.g. Alcatel Network Systems, Objective System Integrators).
Most of the indirect channel partners of OASys have entered into an OEM
licensing agreement with OASys to distribute products on a royalty bearing
basis. Other indirect channel partners simply reference OASys and its products.
While the role of Q-Adapters is clearly defined within the TMN architecture,
their actual functions and deployment options are not well understood by many
potential customers. Therefore, OASys' sales process involves a large amount of
education and consultation. This activity allows OASys to build strong, lasting
relationships with its customers which provides a competitive advantage, but
also results in long sales cycles.
Service and Support
All customer service and support is provided by OASys from its Los Gatos,
California offices. These services includes product installation support,
assistance with operations and usage, plus product diagnostic and repair
services.
Product Development
OASys directs its development efforts towards technologies intended to
have application in current products and which will also become core
technologies for future products. For example, the Intelligent Alarm Filter
Engine will be a key component of a root cause alarm analysis product, intended
to aid in the identification of network problems and failures in more complex
network configurations. Another example is the Auto-Discovery Engine, a
component of the TL1/CMIP Gateway, which OASys believes has the potential for
being the basis for a network capacity inventory control system. However, there
can be no assurance that OASys will be able to identify, develop, market, and
support new products or enhancements to its existing products successfully or on
a timely basis, that any new products will gain market acceptance, or that OASys
will be able to respond effectively to product announcements by competitors,
technological changes, or emerging industry standards.
Manufacturing
OASys ships its software products on magnetic tape cartridges, diskettes,
or CD-ROM media as mutually agreed with each customer. OASys has sufficient in-
house capacity to meet present customer requirements.
Competition
The market for TMN software products and solutions is quite competitive
with a number of companies offering TMN products and solutions. These companies
are larger and have greater resources than OASys. Additionally, some of these
companies offer a broader range of products than does OASys. As a result, such
competitors may appear more attractive to customers as a result of broader
product offerings or larger size and resources.
Currently, OASys believes its major competitors to be Digital Equipment
Corporation, Vertel, Telops and ISR Global. Digital Equipment Corporation,
Maynard, Massachusetts, is a major computer systems supplier offering a TMN
management system, TeMIP, which includes a toolkit for developing Q-Adaptors.
Vertel, Woodland Hills, California, is a subsidiary of Retix, a computer
communications equipment supplier. Vertel offers a range of software products
relating to TMN and is a re-seller of Telops' technology. Telops, Los Angeles,
California, is a privately held company focused on Q-Adaptor solutions. ISR
Global, Orlando, Florida, is a privately held company offering a range of TMN
products.
OASys believes that key factors for success in the TL1 Q-Adapter market
include a demonstrable product that is able to perform the complete range of
TL1/CMIP translation, and productivity tools to easily and quickly handle the
unique TL1 dialects of equipment of different manufacturers. Although OASys
believes that the OASys TL1/CMIP Gateway Toolkit is the most complete and most
mature solution of its kind in the market today, OASys faces intense competition
from existing competitors, and may face additional competition from other
companies which choose to enter the TMN market.
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Employees
As of November 1, 1996 OASys had 10 employees, seven of which serve in
engineering, one in sales, and two in administration and operations. The
continued success of OASys will depend in part on its ability to attract and
retain qualified personnel, some of which possess a unique combination of
skills. OASys believes that it has a good relationship with its employees.
Facilities
OASys leases an approximately 2,200 square foot facility in Los Gatos,
California, under leases which expire April 30, 1997.
Glossary
The following terms relate to standards and protocols applicable to the
telecommunications industry.
CMISE Common Management Information Service Element
CMIP Common Management Information Protocol
TL1 Transaction Language One, a Bellcore defined telecommunication
management protocol
OSI Open Systems Interconnection protocol
Q-Adaptor A component of the TMN architecture which addresses the
management of non-CMIP network elements
TMN Telecommunications Management Network
TL1/CMIP Gateway OASys implementation of a TMN Q-Adaptor providing bi-
directional mapping between CMIP commands and responses and
TL1 commands and responses
SONET Synchronous Optical Network
ISO International Standards Organization
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements and related Notes thereto contained elsewhere in this
Proxy Statement/Prospectus.
GENERAL
Since its inception in March 1995, OASys has been engaged in the design,
development and sale of open standards software products for the
telecommunications industry. OASys has a limited history of operations that, to
date, has consisted primarily of developing products, recruiting personnel,
developing strategic relationships and raising capital.
In March 1995, OASys acquired substantially all of the assets and assumed
certain liabilities from the OASys Group, L.L.C. ("OASys LLC") for an aggregate
purchase price of $135,000, of which $30,000 was paid in cash and the balance in
a note in the principal amount of $105,000. As of September 30, 1996, $33,145
in principal and accrued interest remained payable to OASys LLC. The note is
secured by certain assets of OASys.
RESULTS OF OPERATIONS
OASys has limited history of operations and has experienced significant
operating losses since inception. As of September 30, 1996, OASys had an
accumulated deficit of $917,547. Revenues from inception to September 30, 1996
total $1,021,128, of which $709,199 represent sales of products.
During the period from March 22, 1995 (date of inception) through
December 31, 1995, and the nine month period ended September 30, 1996, OASys was
a development stage company. Revenues for the period ended December 31, 1995
consisted of $141,332 of product sales and $311,929 of other revenue primarily
derived from research and development services. Revenues for the period ended
September 30, 1996 consisted of product sales in the amount of $567,867. Cost
of revenues was $210,000 and $442,000 for the periods ended December 31, 1995
and September 30, 1996, respectively, consisting primarily of development
expenses.
Research and development expenses increased to $248,707 for the period
ended September 30, 1996, from $152,804 for the period ended December 31, 1995.
This increase resulted from the hiring of additional research and development
personnel following the completion of OASys' May 1996 private equity financing.
Sales and administrative expenses increased to $548,967 for the period
ended September 30, 1996, from $269,980 for the period ended December 31, 1995.
This increase resulted from increased sales and marketing activities and
increased personnel expenses.
Net interest expense increased to $12,452 for the period ended September
30, 1996, from $2,915 for the period ended December 31, 1995, due primarily to
increased borrowing costs and new capital lease obligations.
LIQUIDITY AND CAPITAL RESOURCES
From inception through September 30, 1996, OASys has financed its
operations through the private placement of equity securities totaling
approximately $720,000 and revenues derived from the sale of products and from
providing research and development services. Cash and cash equivalents totaled
$23,983 and $89,727 at December 31, 1995 and September 30, 1996, respectively.
Net cash provided by operating activities equaled $21,825 for the period ended
December 31, 1995, while net cash used in operating activities equaled $542,563
for the period ended September 30, 1996, primarily as a result of OASys
increased net loss due to increased cost of revenues, research and development
and selling and administrative expenses.
OASys' principal source of liquidity at September 30, 1996 consisted of
cash and cash equivalents of $89,727 and accounts receivable of $137,000. At
September 30, 1996, OASys had no long term debt. OASys has never had, and
currently does not have commitments for, credit facilities, such as revolving
credit agreements or lines of credit, that could provide additional working
capital.
In the absence of the acquisition of OASys by Cabletron, OASys would have
to raise additional capital to support its operations until its revenues were
sufficient to support its operations. There is no assurance that OASys would be
able to successfully raise additional capital, that such capital would be
available on favorable terms, or at all. Similarly, there can be no assurance
that OASys would be able to achieve and maintain sufficient revenues to support
its operations.
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<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF OASYS
The following table sets forth certain information with respect to the
beneficial ownership of OASys Common Stock as of December 11, 1996, assuming the
conversion of all OASys Preferred Stock into OASys Common Stock, by (i) each
person known by OASys to beneficially own more than 5% of the outstanding shares
of OASys Common Stock, (ii) each director of OASys, (iii) all executive officers
of OASys, and (iv) all directors and executive officers of OASys as a group.
Unless otherwise indicated, the address of the shareholder is c/o The OASys
Group, Inc., 59 N. Santa Cruz Avenue, Suite Q, Los Gatos, CA 95030.
<TABLE>
<CAPTION>
Percentage of
- ---------------------------------------- Amount and Nature Common Stock
of Ownership/1/ Outstanding
Name of Beneficial Owner -------------------- ---------------
- ----------------------------------------
<S> <C> <C>
Paul D. Doolan 1,000,000 19%
- ----------------------------------------
Frederic H. Gaskell, Jr. 1,000,000 19%
Susan J. Marvin 1,000,000 19%
Bruce W. Irvine 555,560 10%
Jack C. Carsten/2/ 276,708 5%
Richard E. Pospisil/3/ 275,000 5%
All Directors and Executive Officers as 3,551,708 66%
a group (5 persons)
</TABLE>
__________________
(1) Unless otherwise indicated, the persons named in the table have sole voting
and sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable.
(2) Includes 201,708 shares owned by the Carsten 1978 Trust, as amended, as to
which Jack C. Carsten has sole voting and investment power.
(3) Includes 275,000 shares owned by the R.E. Pospisil Separate Property Trust,
as to which Richard E. Pospisil has sole voting and investment power.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK OF CABLETRON
The following description does not purport to be complete and is subject
in all respects to the applicable provisions of Cabletron's Restated Certificate
of Incorporation, as amended, and Bylaws, copies of which are filed as exhibits
to the registration statement, of which this Proxy Statement/Prospectus is a
part.
The authorized capital stock of Cabletron consists of 240,000,000 shares
of Cabletron Common Stock, $.01 par value, and 2,000,000 shares of preferred
stock, $1.00 par value.
Common Stock
Subject to the powers, preferences and rights of any preferred stock, the
holders of Cabletron Common Stock are entitled to all powers and voting and
other rights pertaining to the stock of Cabletron and each share of Common Stock
is entitled to one vote. There is no cumulative voting. Holders of Cabletron
Common Stock have no preemptive or other subscription rights, and there are no
conversion, redemption or sinking fund provisions applicable thereto. The Board
of Directors of Cabletron is authorized to issue from time to time all of the
authorized and unissued shares of Cabletron Common Stock.
Preferred Stock
The Cabletron Board of Directors is authorized to issue preferred stock
from time to time in one or more series, each of such series to have such voting
powers, full or limited, or no voting powers, and such designations, preferences
and special rights as shall be determined by the Board of Directors of Cabletron
in a resolution or resolutions providing for the issue of such preferred stock.
COMPARISON OF STOCKHOLDER RIGHTS
The following is a summary of the material differences between the rights
of holders of OASys Stock and the rights of holders of Cabletron Common Stock.
Because OASys is organized under the CCC and Cabletron is organized under the
Delaware General Corporation Law ("DGCL"), these differences arise from
differing state laws and provisions in the Restated Articles of Incorporation,
as amended, (the "OASys Articles"), and Bylaws, as amended, (the "OASys Bylaws")
of OASys and the Restated Certificate of Incorporation, as amended, (the
"Cabletron Certificate") and Bylaws, as amended, (the "Cabletron Bylaws") of
Cabletron.
Voting Rights
Holders of OASys Common Stock are entitled to one vote per share, in
person or by proxy, at all meetings of the shareholders and on all propositions
before such meetings. The OASys Common Stock is substantially identical to the
Cabletron Common Stock in this respect. In contrast to the Cabletron Common
Stock, the OASys Common Stock has cumulative voting rights in the election of
directors.
Each holder of each class of OASys Preferred Stock is entitled to vote on
all matters and is entitled to the number of votes equal to the number of shares
of OASys Common Stock into which such shares of OASys Preferred Stock could be
converted pursuant to the conversion provisions in the OASys Articles relating
to OASys Preferred Stock. The conversion rate for the OASys Preferred Stock to
OASys Common Stock is 1 to 1.
Except as otherwise required by law, or by the OASys Articles, the
holders of the OASys Preferred Stock and the OASys Common Stock vote together as
a single class on all matters, excluding the vote to elect directors. For so
long as at least 500,000 shares of OASys Preferred Stock remain outstanding, the
holders of shares of OASys Preferred Stock, voting as a class, shall be entitled
to elect two (2) directors, the holder of shares of OASys Common Stock, voting
as a class, shall be entitled to elect two (2) directors and the remaining
directors shall be elected by the holders of the OASys Common Stock and OASys
Preferred Stock, voting as a single class.
Certain actions may not be taken without approval by vote or written
consent of the holders of not less than a majority of the then outstanding
shares of OASys Preferred Stock, voting together as a class, including: (i) any
amendment or repeal of any provision of, or addition of any provision to, the
OASys Articles if such action would materially and adversely directly alter,
amend or modify the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, any OASys Preferred Stock, (ii) any
authorization or issuance of shares of any class of stock having any preference
or priority as to dividends or assets on a pari passu basis or superior to any
such preference or priority of the OASys Preferred Stock, (iii) any increase in
the authorized number of OASys Preferred Stock, (iv) any merger or consolidation
with any other corporation or sale, lease, or conveyance of all or substantially
all of the assets of OASys unless the shareholders of OASys receive in such
consolidation, merger, or sale of assets more than fifty percent (50%) of the
voting equity securities of the successor or surviving corporation; and (v) any
liquidation, dissolution, recapitalization or reorganization of OASys.
Voting Requirements and Quorums for Stockholder Meetings
Under the DGCL, a majority of the issued and outstanding stock entitled
to vote, present in person or by proxy, at any meeting of stockholders shall
constitute a quorum for the transaction of business at such meeting, unless the
certificate of
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incorporation or bylaws specifies a different percentage, but in no event may a
quorum consist of less than one-third of the shares entitled to vote at the
meeting. Cabletron's quorum requirements do not differ from the requirements of
the DGCL in their certificate or bylaws.
The OASys Articles require the presence, in person or by proxy, of the
holders of a majority of the shares entitled to vote thereat to constitute a
quorum for the transaction of business at all meetings of shareholders. The
shareholders present at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum.
Under the DGCL, the affirmative vote of the majority of shares present in
person or represented by proxy at a duly held meeting at which a quorum is
present and entitled to vote on the subject matter is deemed to be the act of
the stockholders, unless the DGCL, the certificate of incorporation or the
bylaws specify a different voting requirement. The Cabletron Bylaws provide that
a majority of the votes properly cast upon any question other than an election
to an office will decide the question, except when a larger vote is required by
law, by the certificate of incorporation or by the bylaws. A plurality of the
votes properly cast for election to any office will elect to such office.
The OASys Bylaws provide that if a quorum is present, the affirmative
vote of the majority of the shares represented and voting at a duly held meeting
shall be the act of the shareholders, unless the vote of a greater number or a
vote by classes is required by the CCC or by the articles of incorporation. A
majority of the votes properly cast upon any question other than election to an
office will decide the question. At a shareholders' meeting at which directors
are to be elected, a shareholder shall be entitled to cumulate votes and the
candidates receiving the highest number of affirmative votes, up to the number
of directors to be elected, shall be elected.
Stockholder Meetings
Under the DGCL, special meetings of stockholders may be the called by the
board of directors and by such person or persons as so authorized by the charter
or the bylaws. The Cabletron Bylaws provide that special meetings of
stockholders may be called at any time by the chairman of the board, if any, the
president or the board of directors. A special meeting may also be called by
the secretary upon application of a majority of the directors.
Under the CCC, special meetings of stockholders may be called by the
board of directors, the chairman of the board, the president, the holders of
shares entitled to cast not less than ten percent (10%) of the votes at such
meeting or such additional persons as may be provided in the articles or bylaws.
The OASys Bylaws do not provide for any such additional person to call special
meetings of shareholders.
Amendments to Charter
To amend a certificate of incorporation, the DGCL requires the
affirmative recommendation of the board of directors and the approval of a
majority of all outstanding shares entitled to vote therefor, unless a greater
of level of approval is required by the certificate of incorporation.
Furthermore, under the DGCL, the holders of the outstanding shares of a class
are entitled to vote as a class upon any proposed amendment to the certificate
of incorporation if the amendment would increase or decrease the number of
authorized shares of such class, increase or decrease the par value of the
shares of such class, or alter or change the powers, preferences or special
rights of the shares of such class so as to adversely affect the holders
thereof.
The Cabletron Certificate provides that certain of its articles can only
be amended by the affirmative vote of 85% of the total number of votes of the
then outstanding shares of capital stock of Cabletron entitled to vote generally
in the election of directors, voting together as a single class excluding shares
beneficially owned by a Related Person (as defined in the Cabletron
Certificate).
The CCC provides that, unless otherwise specified in the articles of
incorporation, an amendment to the articles of incorporation requires the
approval of the board of directors and the affirmative vote of a majority of the
outstanding shares entitled to vote thereon, either before or after the board
approval. The OASys Articles do not require a greater level of approval for an
amendment thereto. In addition under the CCC, the holders of the outstanding
shares of a class are entitled to vote as a class if a proposed amendment to the
articles of incorporation would: (a) increase or decrease the aggregate number
of authorized shares of such class; (b) effect an exchange, reclassification or
cancellation or all or part of the shares of such class, other than a stock
split; (c) effect an exchange, or create a right of exchange, of all or part of
the shares of another class into the shares of such class; (d) change the
rights, preferences, privileges or restrictions of the shares of such class; (e)
create a new class of shares having rights, preferences or privileges prior to
the shares of such class, or increase the rights, preferences or privileges or
the number of authorized shares having rights, preference or privileges prior to
the shares of such class; (f) in the case of preferred shares, divide the shares
of any class into series having different rights, preferences, privileges or
restrictions or authorize the board of directors to do so; or (g) cancel or
otherwise affect dividends on the shares of such class which have accrued but
have not been paid.
The OASys Bylaws provide that holders of OASys Preferred Stock are
entitled to vote as a class upon any amendment or repeal of any provision of, or
addition of any provision to the OASys Articles if such action would materially
and adversely
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directly alter, amend, or modify the preferences, rights, privileges or powers
of, or the restrictions provided for the benefit of, any OASys Preferred Stock.
Bylaws
Under the DGCL, the authority to adopt, amend or repeal the bylaws of a
corporation is held exclusively by the stockholders entitled to vote unless such
authority is conferred upon the board of directors in the corporation's
certificate of incorporation. The Cabletron Certificate grants to its board of
directors the power to make, alter or amend the Cabletron Bylaws by vote of a
majority of the directors. Stockholders of Cabletron also have the power to
adopt, amend or repeal the bylaws by a two-thirds vote.
Under the CCC, a corporation's bylaws may be adopted, amended or repealed
either by the board of directors or the shareholders of the corporation. The
OASys Bylaws provide that new bylaws or the current bylaws may be amended or
repealed by the vote or written consent of holders of a majority of the
outstanding shares entitled to vote; provided, however, that if the articles of
incorporation set forth the number of authorized directors of the corporation,
then the authorized number of directors may be changed only by amendment of the
articles of incorporation. Subject to the rights of the shareholders as
provided for in the bylaws, bylaws, other than a bylaw or amendment of a bylaw
changing the authorized number of directors (except to fix the authorized number
of directors pursuant to a bylaw providing for a variable number of directors),
may be adopted, amended, or repealed by the board of directors.
Number of Directors
Under the DGCL, the minimum number of directors is one. The DGCL permits
the board of directors to change the authorized number or the range of directors
by amendment to the bylaws, unless the directors are not authorized in the
certificate of incorporation to amend the bylaws or the number of directors is
fixed in the certificate of incorporation, in which case a change in the number
of directors may be made only upon approval of such change by the stockholders.
The Cabletron Certificate does not set a number of directors.
The OASys Bylaws stipulate that the number of directors shall be not less
than four (4) nor more than seven (7). The exact number of directors shall be
four (4) until changed by a bylaw amending this provision, duly adopted by the
board of directors or by the shareholders. The indefinite number of directors
may be changed, or a definite number may be fixed without provision for an
indefinite number, by a duly adopted amendment to the articles of incorporation
or by an amendment to the bylaws duly adopted by the vote or written consent of
holders of a majority of the outstanding shares entitled to vote; provided,
however, than an amendment reducing the fixed number or the minimum of directors
to a number less than five (5) cannot be adopted if the votes cast against its
adoption at a meeting, or the shares not consenting in the case of an action by
written consent, are equal to more than sixteen and two-thirds percent (16 2/3%)
of the outstanding shares entitled to vote thereon. No amendment may change the
stated maximum number of authorized directors to a number greater than two (2)
times the stated minimum number of directors minus one (1).
Board Classification
The DGCL provides that the directors of any corporation may be divided
into one, two or three classes. The Cabletron Bylaws provide that Cabletron's
directors shall be divided into three equal classes with each class comprised of
one third of the directors being elected to serve until the third succeeding
annual meeting. Although the CCC permits certain qualifying corporations to
provide for a classified board in their articles or bylaws, neither the OASys
Articles nor the OASys Bylaws provide for a classified board.
Nomination and Election of Directors
The DGCL provides that directors shall be elected at an annual meeting of
stockholders held on a date and at a time designated by or in the manner
provided in the bylaws. Elections of directors must be by written ballot,
unless otherwise provided in the certificate of incorporation. The Cabletron
Certificate provides that elections of directors need not be by written ballot,
unless otherwise provided in the bylaws. The Cabletron Bylaws state that no
ballot shall be required for any election unless requested by a shareholder
present or represented at the meeting and entitled to vote in the election.
Under the DGCL, directors shall be elected by a plurality of the votes of
the shares present in person or represented by proxy at the meeting and entitled
to vote on the election of directors. The Cabletron Bylaws provide that
directors are elected by a plurality of the votes properly cast by stockholders
voting in person or by proxy at the annual meeting of stockholders. Subject to
the rights of the holders of any preferred stock, nominations for the election
of directors may be made by the board of directors or by any stockholder
entitled to vote for the election of directors.
Any Cabletron stockholder entitled to vote for the election of directors
at a meeting may nominate persons for election as directors by giving timely
written notice thereof to the secretary accompanied by a petition signed by at
least 100 record holders of capital stock of the corporation which shows the
class and number of shares held by each person and which represent in the
aggregate 1% of the outstanding shares entitled to vote in the election of
directors. To be timely, notice must be given to the principal executive
offices of Cabletron not less than 60 days nor more than 90 days prior to the
meeting. In the event that less than 70 days notice or prior public disclosure
of the date of the meeting is given or made to the stockholders, to be timely,
notice
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by the stockholder must be received at the principal executive offices not later
than the close of business on the tenth day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
To be in proper written form, a stockholder's notice shall set forth in writing
(i) as to each person nominated by the stockholder to serve as director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Exchange Act, including, without
limitation, such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected and (ii) as to the
stockholder giving the notice (x) the name and address of such stockholder and
(y) the class and number of shares of the corporation which are beneficially
owned by such stockholder. If any person is nominated by the board of directors
for election as a director, that person shall furnish to the secretary the same
information regarding the nominee as is required of those stockholders
submitting notices of nomination.
The OASys Bylaws stipulate that directors shall be elected at each annual
meeting of shareholders to hold office until the next annual meeting. Generally
a shareholders' vote may be by voice vote or by ballot; provided, however, that
any election for directors must be by ballot if demanded by any shareholder at
the meeting and before any voting has begun. When electing directors, a
shareholder is entitled to cumulate votes if the candidates' names have been
placed in nomination prior to commencement of the voting and the shareholder has
given notice prior to commencement of the voting of the shareholder's intention
to cumulate votes. If any shareholder has given such notice, then every
shareholder entitled to vote may cumulate votes for candidates in nomination
either (i) by giving one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of votes to which that
shareholder's share are normally entitled or (ii) by distributing the
shareholder's votes on the same principle among any or all of the candidates, as
the shareholder thinks fit. The candidates receiving the highest number of
affirmative votes, up to the number of directors to be elected, shall be
elected; votes against any candidate and votes withheld shall have no legal
effect.
Neither the OASys Articles nor the OASys Bylaws contains provisions
regarding the nomination of directors.
Removal of Directors
The DGCL provides that any director or the entire board of directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors, except (i) unless the
certificate of incorporation otherwise provides, in the case of a corporation
with a classified board, shareholders may effect removal only for cause; or (ii)
in the case of a corporation having cumulative voting, if less than the entire
board is to be removed, no director may be removed without cause if the votes
cast against his removal would be sufficient to elect him if then cumulatively
voted at an election of the entire board of directors, or, if there be classes
of directors, at an election of the class of directors of which he is a part.
The Cabletron Bylaws provide for removal of directors at any time, but
only for cause and only by the affirmative vote of 85% of the total number of
votes of the then outstanding shares of capital stock of Cabletron entitled to
vote generally in the election of directors, voting together as a single class
excluding shares beneficially owned by a Related Person.
Under the CCC, any director or the entire board of directors may be
removed, with or without cause, with the approval of a majority of the
outstanding shares entitled to vote; however, no individual director may be
removed (unless the entire board is removed) if the number of votes cast against
such removal would be sufficient to elect the director under cumulative voting.
Under the OASys Articles, a director may be removed from the board of
directors, with or without cause, by the vote or written consent of the holders
of the outstanding class with voting power entitled to elect such director. Any
vacancy in the board of director occurring because of removal shall be filled by
the vote or written consent of the majority of the class that elected such
director.
Newly Created Directorships and Vacancies
Under the DGCL, newly created directorships resulting from an increase in
the number of directors may be filled by a majority vote of the directors then
in office, even if the number of directors then in office is less than a quorum.
The DGCL also provides that, unless the certificate of incorporation or bylaws
otherwise provide, vacancies occurring by reason of the removal of directors
with or without cause may be filled by a majority vote of the directors then in
office. In addition, under the DGCL, if, at the time of filling any vacancy or
newly created directorship, the directors then in office constitute less than a
majority of the entire board of directors, the Delaware Court of Chancery may,
upon application of any stockholder or stockholders holding at least ten percent
of the total number of shares outstanding at the time and entitled to vote,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in office, such election to be conducted in accordance with the procedures under
the DGCL for holding stockholder meetings.
The Cabletron Bylaws provide that vacancies may be filled only by a
majority vote of the directors in office, although less than a quorum, and newly
created directorships may be filled by the board of directors, or if not so
filled, by the stockholders at the next annual meeting or at any special meeting
the called for such purpose.
Under the OASys Bylaws, vacancies in the board of directors may be filled
by a majority of the remaining directors, even if less than a quorum, or by a
sole remaining director; however, a vacancy created by the removal of a director
by the vote or written consent of the shareholders or by court order may be
filled only by the affirmative vote of a majority of shares represented and
voting at a duly held meeting at which a quorum is present, or by unanimous
written consent of all shares entitled to vote
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thereon. Each director so elected shall hold office until the next annual
meeting of the shareholders and until a successor has been elected and
qualified.
Furthermore, the OASys Bylaws allow the shareholders to elect a director
or directors at any time to fill any vacancy or vacancies not filled by the
directors, but any such election other than to fill a vacancy created by
removal, if by written consent, shall require the consent of the holders of a
majority of the outstanding shares entitled to vote thereon.
Vote Required for Mergers
The DGCL generally requires the affirmative vote of a majority of a
corporation's outstanding shares entitled to vote, unless the certificate of
incorporation requires a greater proportion, to authorize a merger,
consolidation, share exchange, dissolution or disposition of all or
substantially all of its assets, except that, (a) unless required by its
charter, no authorizing stockholder vote is required of a corporation surviving
a merger if (i) such corporation's charter is not amended by the merger; (ii)
each share of stock of such corporation will be an identical share of the
surviving corporation after the merger; and (iii) the number of shares to be
issued in the merger does not exceed twenty percent (20%) of such corporation's
outstanding common stock immediately prior to the effective date of the merger
and (b) unless a dissolution is adopted by a majority of the board of directors,
a dissolution must be approved by all stockholders entitled to vote thereon.
The Cabletron Certificate provides that certain transactions, including
mergers, consolidations, issuances of securities, certain asset dispositions,
liquidations or dissolutions between Cabletron and a Related Person must be
approved by the affirmative vote of 85% of the outstanding shares of stock
entitled to vote generally for the election of directors unless (i) the board of
directors of Cabletron has approved a binding agreement with such Related Person
with respect to such transaction or has approved the transaction which resulted
in such party becoming a Related Person, in either case prior to the time such
party became a Related Person and provided that a majority of the members of the
board of directors voting for the approval of such transaction were continuing
directors; or (ii) the Related Person is a majority-owned subsidiary of
Cabletron.
The CCC requires that the principal terms of a merger be approved by the
affirmative vote of a majority of the outstanding shares of each class entitled
to vote thereon, except that, unless required by its articles of incorporation,
no authorizing shareholder vote is required of a corporation surviving a merger
if the shareholders of such corporation shall own, immediately after the merger,
more than five-sixths (5/6) of the voting power of the surviving corporation.
The CCC further requires the affirmative vote of a majority of the outstanding
shares entitled to vote thereon if (a) the surviving corporation's articles of
incorporation will be amended and would otherwise require shareholder approval
or (b) shareholders of such corporation will receive shares of the surviving
corporation having different rights, preferences, privileges or restrictions
(including shares in a foreign corporation) than the shares surrendered.
So long as any shares of OASys Preferred Stock shall be outstanding, the
OASys Articles stipulate that the corporation shall not, without first obtaining
the affirmative vote or written consent of the holders of not less than a
majority of the then outstanding shares of OASys Preferred Stock voting together
as a class, merge or consolidate with any other corporation or sell, lease or
convey all or substantially all of the assets of OASys unless the shareholders
receive in such consolidation, merger or sale of assets more than fifty percent
(50%) of the voting equity securities of the successor or surviving corporation.
Anti-takeover Provisions
The DGCL prohibits certain transactions between a Delaware corporation
and an "interested stockholder," which is defined as a person that is directly
or indirectly a beneficial owner of 15% or more of the voting power of the
outstanding voting stock of a Delaware corporation and such persons, affiliates
and associates. This provision prohibits certain business combinations (defined
broadly to include mergers, consolidations, sales or other dispositions of
assets having an aggregate value in excess of 10% of the consolidated assets of
the corporation, and certain other transactions) between an interested
stockholder and a corporation for a period of three years after the date the
interested stockholder acquired its stock. However, the prohibition does not
apply if: (i) the business combination is approved by the corporation's board of
directors prior to the date the interested stockholder acquired its shares; (ii)
the interested stockholder acquired at least 85% of the voting stock of the
corporation (excluding shares held by directors of the corporation who are also
officers and shares held under certain employee stock plans) in the transaction
in which it became an interested stockholder; or (iii) the business combination
is approved by a majority of the board of directors and the affirmative vote of
two-thirds of the votes entitled to be cast by disinterested stockholders at an
annual or special meeting. The law applies automatically to a Delaware
corporation unless otherwise provided in its certificate of incorporation or
bylaws or if it has less than 2,000 stockholders of record and does not have
voting stock listed on a national securities exchange or listed for quotation
with a registered national securities association. Neither the Cabletron
Certificate nor the Cabletron Bylaws exempts Cabletron from the DGCL provision
regarding transactions with interested stockholders.
Under the CCC, there is no comparable provision. However, the CCC does
provide that, except where the fairness of the terms and conditions of the
transaction has been approved by the California Commissioner of Corporations and
except in a "short-form" merger (the merger of a parent corporation with a
subsidiary in which the parent owns a least 90% of the outstanding shares of
each class of the subsidiary's stock), if the surviving corporation or its
parent corporation owns, directly or indirectly, shares of the target
corporation representing more than 50% of the voting power of the target
corporation prior to the merger, the nonredeemable common stock of a target
corporation may be converted only into nonredeemable common stock of the
surviving corporation or its parent corporation, unless all of the shareholders
of the class consent. The effect of this provision is to prohibit
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a cash-out merger of minority shareholders, except where the majority
shareholders already own 90% or more of the voting power of the target
corporation and could, therefore, effect a short-form merger to accomplish such
a cash-out of minority shareholders.
Fiduciary Duties of Directors
Directors of corporations incorporated or organized under the DGCL and
the CCC have fiduciary obligations to the corporation and its shareholders.
Pursuant to these fiduciary obligations, the directors must act in accordance
with the so-called duties of "care" and "loyalty." Under the DGCL, the duty of
care requires that the directors act in an informed and deliberative manner and
to inform themselves, prior to making a business decision, of all material
information reasonably available to them. The duty of loyalty may be summarized
as the duty to act in good faith, not out of self-interest and in a manner that
directors reasonably believe to be in the best interest of the corporation.
Under the CCC, the duty of loyalty requires directors to perform their duties in
good faith in a manner that the directors reasonably believe to be in the best
interest of the corporation and its stockholders. The duty of care requires
that the directors act with such care, including reasonable inquiry, as an
ordinarily prudent person in a like position would exercise under similar
circumstances.
Limitation on Directors' Liability
The Cabletron Certificate provide that no director shall be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent that exculpation from liabilities is
not permitted under the DGCL. The DGCL prohibits exculpation for: (i) any
breach of the director's duty of loyalty to the corporation or its stockholders;
(ii) acts or omissions not in good faith or which involve intentional misconduct
or knowing violation of law; (iii) unlawful payments of dividends or unlawful
stock repurchases or redemptions; or (iv) any transactions from which the
director derived an improper personal benefit.
The OASys Articles stipulate that the liability of the directors for
monetary damages shall be eliminated to the fullest extent permissible under the
CCC. The CCC does not permit the elimination of monetary liability where such
liability is based on: (a) intentional misconduct or knowing and culpable
violation of law; (b) acts or omissions that a director believes to be contrary
to the best interests of the corporation or its shareholders, or that involve
the absence of good faith on the part of the director; (c) receipt of an
improper personal benefit; (d) acts or omissions that show reckless disregard
for the director's duty to the corporation or its shareholders, where the
director in the ordinary course of performing a director's duties should be
aware of a risk of serious injury to the corporation or its shareholders; (e)
acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the corporation and its
shareholders; (f) interested transactions between the corporation and a director
in which a director has a material financial interest; and (g) liability for
improper distributions, loans or guarantees.
Indemnification
The DGCL provides that a corporation may indemnify a director, officer,
employee or agent of the corporation and certain other persons serving at the
request of the corporation in related capacities against amounts paid and
expenses incurred in connection with an action or proceeding to which he is or
is threatened to be made a party by reason of such position, if such person
shall have acted in good faith and in a manner he reasonably believed to be in
the best interests of the corporation, and, in any criminal proceeding, if such
person had no reasonable cause to believe his conduct was unlawful. However, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances. These provisions of the DGCL are generally
referred to as "statutory indemnification" provisions. Corporations are
permitted to adopt charter provisions or bylaws which provide for additional
indemnification of directors and officers. These non-exclusive provisions are
generally referred to as "non-statutory indemnification" provisions. Non-
statutory indemnification provisions are generally adopted to expand the
circumstances and liberalize the conditions under which indemnification will
occur. The Cabletron Certificate provides that officers and directors shall be
indemnified to the full extent permitted by the DGCL.
The OASys Articles provide that officers and directors shall be
indemnified to the fullest extent possible under the CCC. The CCC permits
indemnification of expenses incurred in derivative or third-party actions,
except that with respect to derivative actions (a) no indemnification may be
made when a person is adjudged liable to the corporation in the performance of
that person's duty to the corporation and its shareholders unless a court
determines such person is entitled to indemnify for expenses, and then such
indemnification may be made only to the extent that such court shall determine,
and (b) no indemnification may be made without court approval in respect of
amounts paid or expenses incurred in settling or otherwise disposing of a
threatened or pending action or amounts incurred in defending a pending action
that is settled or otherwise disposed of without court approval.
The CCC requires indemnification when the individual has successfully
defended the action on the merits (as opposed to Delaware law, which requires
indemnification relating to a successful defense on the merits or otherwise).
Dividends and Other Distributions
Under the DGCL, a corporation may generally pay dividends out of surplus or,
if there is no surplus, out of its net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year, unless the capital of the
corporation has been diminished by depreciation in the value of its property,
losses or otherwise, to an amount less than the aggregate amount of the capital
represented by the issued outstanding stock of all classes having a preference
upon the distribution of assets.
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Neither the Cabletron Certificate nor the Cabletron Bylaws place any
restrictions on the payment of dividends or provide for any preferences upon
liquidation.
Under the CCC, a corporation may not make any distribution (including
dividends, whether in cash or other property, and repurchase of its shares,
other than repurchase of its shares issued under employee stock plans
contemplated by Section 408 of the CCC) unless either (i) the corporation's
retained earnings immediately prior to the proposed distribution equal or exceed
the amount of the proposed distribution or (ii) immediately after giving effect
to such distribution, the corporation's assets (exclusive of goodwill,
capitalized research and development expenses and deferred charges) would be at
least equal to 1 1/4 times its liabilities (not including deferred taxes,
deferred income and other deferred credits), and the corporation's current
assets would be at least equal to its current liabilities (or 1 1/4 times its
current liabilities if the average pre-tax and pre-interest expense earnings for
the preceding two fiscal years were less than the average interest expense for
such years). Such tests are applied to California corporations on a
consolidated basis.
Under the OASys Articles, the holder of OASys Preferred Stock shall be
entitled to receive, when and if declared, $0.04 per share per annum out of
funds legally available therefore prior and in preference to payment of any
dividend with respect to the OASys Common Stock (other than dividends payable
solely in OASys Common Stock). Such dividends shall not be cumulative and no
right to such dividends shall accrue to holders of OASys Preferred Stock unless
declared by the board of directors.
The OASys Articles also provide that no dividends or other distributions shall
be made with respect to the OASys Common Stock during any fiscal year unless at
the same time dividends with respect to OASys Preferred Stock for that fiscal
year have been declared and paid or set apart; provided, however, that if OASys
has complied with provisions regarding dividends with respect to OASys Preferred
Stock and the board of directors shall declare and set aside for payment any
other further amount of cash or property as a distribution, such distribution
shall be made with equal priority to the OASys Common Stock and the OASys
Preferred Stock, with each share of OASys Preferred Stock being treated for such
purpose as if it had been converted into OASys Common Stock at the then
effective conversion rate. The conversion rate for the OASys Preferred Stock to
OASys Common Stock is 1 to 1. For such purpose, all shares of OASys Preferred
Stock held by each holder of OASys Preferred Stock shall be aggregated, and any
resulting fractional share of OASys Common Stock shall be disregarded.
A merger or consolidation of OASys with or into any other corporation or
corporations, or the merger of any other corporation or corporations into OASys,
in which consolidation or merger the shareholders of OASys receive distribution
in cash or securities of another corporation as a result, or a sale of all or
substantially all of the assets of OASys, shall be treated as a liquidation,
dissolution, or winding up of OASys, unless the shareholders of OASys receive in
such consolidation, merger, or sale of assets more than fifty percent (50%) of
the voting equity securities of the successor or surviving corporation. When
this occurs, the OASys Articles require distributions to the shareholders be
made in the following manner. The holders of OASys Preferred Stock shall be
entitled to receive, before any amount shall be paid to holders of Common Stock,
the amount of $0.50 per share for each share of OASys Preferred Stock then held
by them, adjusted for any combinations, consolidations, or stock distributions
or dividends with respect to such shares and, in addition, an amount equal to
all declared but unpaid dividends on the shares of OASys Preferred Stock then
held by them, if any. If the assets and funds legally available for distribution
to the holders of the OASys Preferred Stock shall be insufficient to permit
payment to such holders of the preferential amounts to which each holder of
OASys Preferred Stock is entitled, then the entire assets and funds of OASys
legally available for distribution to such holders shall be distributed among
the holders of the OASys Preferred Stock pro rata. If the assets and funds
legally available for distribution to the holders of OASys Preferred Stock shall
be sufficient to permit the payment in full to such holders of the preferential
amounts to which each holder of OASys Preferred Stock is entitled as aforesaid,
then the entire remaining assets and funds of OASys legally available for
distribution, if any, shall be distributed ratably among the holders of the
OASys Common Stock.
OASys may not redeem any of the OASys Preferred Stock before the fifth
anniversary of the original issuance date, nor without a written request from 66
2/3% of the holders of OASys Preferred Stock then outstanding. OASys shall
redeem on each redemption date one-third (1/3) of the shares of OASys Preferred
Stock held by holders who have indicated their intention to be so redeemed.
Such redemption shall be effected in three (3) equal installments such that all
of the shares of OASys Preferred Stock to be so redeemed shall be redeemed on
the second anniversary of the redemption date.
Shareholder Derivative Suits
The CCC provides that a shareholder bringing a derivative action on behalf of
a corporation need not have been a shareholder at the time of the transaction in
question, provided that certain tests are met. The CCC also provides that the
corporation or the defendant in a derivative suit may make a motion to the court
for an order requiring the plaintiff shareholder to furnish a security bond.
Under the DGCL, a stockholder may bring a derivative action on behalf of the
corporation only if the stockholder was a stockholder of the corporation at the
time of the transaction in question or if his or her stock thereafter devolved
upon him or her by operation of law. A stockholder must also first make demand
on the corporation that it bring suit and have such demand be refused, unless it
is shown that such demand would have been futile. The DGCL does not have a
bonding requirement.
Appraisal Rights
42
<PAGE>
Under both the CCC and the DGCL, a shareholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal rights pursuant to which such
shareholder may receive cash in the amount of the fair market value of his or
her shares in lieu of the consideration he or she would otherwise receive in the
transaction. Under the DGCL, such fair market value is determined exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, and such appraisal rights are not available (a) with
respect to the sale, lease or exchange or all or substantially all of the assets
of a corporation, (b) with respect to a merger of consolidation by a corporation
the shares of which are either listed on a national securities exchange or are
held of record by more than 2,000 holders if such stockholders receive only
shares of the surviving corporation or shares of any other corporation that are
either listed on a national securities exchange or held of record by more that
2,000 holders, plus cash in lieu of fractional shares of such corporations, or
(c) to stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the merger
under certain provisions of the DGCL.
The limitations on the availability of appraisal rights under the CCC are
different from those under the DGCL. Shareholders of a California corporation
whose shares are listed on a national securities exchange or on a list of over-
the-counter margin stocks issued by the Board of Governors of the Federal
Reserve System generally do not have such appraisal rights unless the holders of
at least five percent (5%) of the class of outstanding shares claim the right of
the corporation or any law restricts the transfer of such shares. Appraisal
rights are also unavailable if the shareholders of a corporation or the
corporation itself, or both, immediately prior to the reorganization will own
immediately after the reorganization equity securities constituting more than
five-sixths of the voting power of the surviving or acquiring corporation or its
parent entity. The CCC generally affords appraisal rights in sale of asset
reorganizations.
Inspection of Books and Records
Both the CCC and the DGCL allow any shareholder to inspect the
shareholder list and other books and records of the corporation for a purpose
reasonably related to such person's interests as a shareholder. The CCC
provides, in addition, for an absolute right to inspect and copy the
corporation's shareholder list by persons holding an aggregate of five percent
(5%) or more of a corporation's voting shares, or shareholders holding an
aggregate of one percent (1%) or more of such shares who have filed a Schedule
14B under the revised proxy rules. The DGCL contains no provision comparable to
the absolute right of inspection provided by the CCC to certain shareholders.
The foregoing discussion of the material differences between the rights
of holders of OASys Common Stock and OASys Preferred Stock and the rights of
holders of Cabletron Common Stock is only a summary of certain provisions and
does not purport to be a complete description of such differences, and is
qualified in its entirety by reference to the DGCL, the CCC, the common law
thereunder and the full text of the OASys Articles and Bylaws and the Cabletron
Certificate and Bylaws.
LEGAL MATTERS
Certain legal matters with respect to the validity of the securities
offered hereby will be passed upon for Cabletron by Ropes & Gray, Boston,
Massachusetts. Certain legal matters in connection with the Merger will be
passed upon for OASys by Wilson, Sonsini, Goodrich & Rosati, P.C., Palo Alto,
California.
EXPERTS
The consolidated financial statements (which give retroactive effect to
the mergers of Cabletron and ZeitNet Inc. and of Cabletron and Network Express,
Inc., which have been accounted for as poolings of interest) and the related
consolidated financial statement schedule of Cabletron and its subsidiaries as
of February 29, 1996 and February 28, 1995, and for each of the years in the
three-year period ended February 29, 1996, have been incorporated by reference
herein and in the Registration Statement, of which this Proxy
Statement/Prospectus is a part, in reliance upon the reports of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The balance sheets of OASys, as of September 30, 1996 and December 31,
1995, and the related statements of operations, shareholders' deficit and cash
flow for the nine-months ended September 30, 1996, for the period from March 22,
1995 (date of inception) to December 31, 1995 and for the cumulative period from
March 22, 1995 to September 30, 1996, have been included herein in reliance on
the report of Coopers & Lybrand L.L.P., independent auditors, which report
includes an explanatory paragraph regarding uncertainty as to the ability of
OASys to continue as a going concern, and which is given upon the authority of
that firm as experts in accounting and auditing.
43
<PAGE>
THE OASYS GROUP, INC.
AUDITED FINANCIAL STATEMENTS
Nine months ended September 30, 1995, period from March 22, 1995 (date of
inception) to December 31, 1995 and cumulative period from March 22, 1995 to
September 30, 1996
<TABLE>
<CAPTION>
Contents
<S> <C>
Report of Independent Accountants............ F-2
Audited Financial Statements
Balance Sheets............................... F-3
Statements of Operations..................... F-4
Statements of Shareholders' Deficit.......... F-5
Statements of Cash Flows..................... F-6
Notes to Financial Statements....F-7 through F-15
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
The OASys Group, Inc.
Los Gatos, California
We have audited the accompanying balance sheets of The OASys Group, Inc. (a
company in the development stage), as of September 30, 1996 and December 31,
1995, and the related statements of operations, shareholders' deficit and cash
flows for the nine months ended September 30, 1996, for the period from March
22, 1995 (date of inception) to December 31, 1995 and for the cumulative period
from March 22, 1995 to September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The OASys Group, Inc. (a
company in the development stage) as of September 30, 1996 and December 31,
1995, and the results of its operations and its cash flows for the nine months
ended September 30, 1996, for the period from March 22, 1995 (date of inception)
to December 31, 1995 and for the cumulative period from March 22, 1995 to
September 30, 1996, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred significant losses from
operations that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Coopers & Lybrand L.L.P.
San Jose, California
November 20, 1996
F-2
<PAGE>
THE OASYS GROUP, INC.
(a company in the development stage)
BALANCE SHEETS
<TABLE>
<CAPTION>
- ------
September December
30, 31,
ASSETS 1996 1995
--------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 89,727 $ 23,983
Accounts receivable 137,000 31,100
Prepaid expenses and
other current assets 17,482 5,000
-------- --------
Total current assets 244,209 60,083
Property and equipment, net 53,644 43,701
Goodwill and other
intangible assets less
accumulated
amortization of $100,574
and $52,787 as of
September 30,
1996 and December 31,
1995, respectively 13,008 65,795
-------- --------
Total assets $310,861 $169,579
======== ========
LIABILITIES
Current liabilities:
Notes payable - related
party $ 70,000 $139,000
Accounts payable 96,376 74,706
Deferred revenue 28,279 16,146
Accrued payroll and
related expenses 197,323 84,822
Other accrued liabilities 48,336 5,000
Current portion of
capital lease obligations 13,977 7,649
-------- --------
Total current
liabilities 454,291 327,323
Capital lease obligations,
less current portion 18,917 16,694
-------- --------
Total liabilities 473,208 344,017
-------- --------
Commitments (Note 5).
SHAREHOLDERS'
DEFICIENCY
Redeemable Series A
convertible preferred
stock, no par value:
Authorized: 2,000,000
shares;
Issued and outstanding:
1,423,800 shares in 1996 747,150 -
(equals liquidation value)
Common stock, no par value:
Authorized: 10,000,000
shares;
Issued and outstanding:
4,025,000 shares in 1996
and
4,000,000 shares in 1995 8,050 8,000
Deficit accumulated during
the development stage (917,547) (182,438)
-------- --------
Total shareholders'
deficiency (162,347) (174,438)
-------- --------
Total liabilities and
shareholders'
deficiency $310,861 $169,579
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
THE OASYS GROUP, INC.
(a company in the development stage)
STATEMENTS OF OPERATIONS
- --------
<TABLE>
<CAPTION>
Cumulative
Period from Period from
March 22, March 22,
Nine Months 1995 (date of 1995 (date of
Ended inception) to inception) to
September 30, December 31, September 30,
1996 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Product sales $567,867 $141,332 $ 709,199
Other revenue - 311,929 311,929
-------- -------- ----------
Total revenues 567,867 453,261 1,021,128
Cost of revenues 442,000 210,000 652,000
-------- -------- ----------
125,867 243,261 369,128
-------- -------- ----------
Cost and expenses:
Research and development 248,707 152,804 401,511
Selling and administrative 548,967 269,980 818,947
-------- -------- ----------
Total costs and expenses 797,674 422,784 1,220,458
-------- -------- ----------
Loss from operations 671,807 179,523 851,330
Interest expense, net 12,452 2,915 15,367
-------- -------- ----------
Net loss $684,259 $182,438 $ 866,697
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
THE OASYS GROUP, INC.
(a company in the development stage)
STATEMENTS OF SHAREHOLDERS' DEFICIT
for the period from March 22, 1995
(date of inception) to September 30, 1996
- -------
<TABLE>
<CAPTION>
Deficit
Convertible Redeemable Accumulated
Series A Preferred Stock Common Stock During the
------------------------ -------------------- Development
Shares Value Shares Value Stage Total
----------- ----------- ---------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to founders for cash and notes
at $0.002 per share in March 1995 4,000,000 $8,000 $ 8,000
Net loss $(182,438) (182,438)
---------- ------- ----------- ----------
Balances, December 31, 1995 4,000,000 8,000 (182,438) (174,438)
Issuance of common stock for cash at $0.002 per share in
January 1996 75,000 150 150
Issuance of Series A preferred stock for cash and
conversion of bridge loans at $0.50 per share in May
and September 1996, net of issuance cost of $15,600 1,423,800 $696,300 696,300
Repurchase of common stock at $0.002 per share in
September, 1996 (50,000) (100) (100)
Accretion to redemption value of redeemable convertible
preferred stock 50,850 (50,850) -
Net loss (684,259) (684,259)
--------- -------- --------- ------- ----------- ----------
Balances, September 30, 1996 1,423,800 $747,150 4,025,000 $8,050 $(917,547) (162,347)
========= ======== ========= ======= =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
THE OASYS GROUP, INC.
(a company in the development stage)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
Period from Period from
March 22, March 22,
Nine Months 1995 (date of 1995 (date of
Ended inception) to inception) to
September 30, December 31, September 30,
1996 1995 1996
-------------- --------------- --------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $(684,259) $(182,438) $(866,697)
Adjustments to reconcile
net loss to net
cash used in operating
activities:
Depreciation and
amortization 70,438 59,689 130,127
Change in assets and
liabilities:
Accounts receivable (105,900) (31,100) (137,000)
Prepaid expenses and
other assets (12,482) (5,000) (17,482)
Accounts payable 21,670 74,706 96,376
Deferred revenue 12,133 16,146 28,279
Accrued payroll and
related expenses 112,501 84,822 197,323
Other accrued
liabilities 43,336 5,000 48,336
-------- -------- -------------
Net cash (used in)
provided by
operating
activities (542,563) 21,825 (520,738)
-------- -------- -------------
Cash flows from investing
activities:
Purchase of The OASys
Group, LLC. (30,000) (30,000)
Acquisition of property and
equipment (9,667) (8,655) (18,322)
-------- -------- -------------
Net cash used in
investing
activities (9,667) (38,655) (48,322)
-------- -------- -------------
Cash flows from financing
activities:
Proceeds from issuance of
Series A redeemable
convertible preferred
stock, net of issuance
costs 696,300 696,300
Proceeds from issuance of
common stock 50 8,000 8,050
Proceeds from notes payable 44,000 44,000
Repayment of notes payable (69,000) (10,000) (79,000)
Payments under capital
lease obligations (9,376) (1,187) (10,563)
-------- -------- -------------
Net cash provided
by financing
activities 617,974 40,813 658,787
-------- -------- -------------
Net increase in cash 65,744 23,983 89,727
Cash, at beginning of period 23,983 - -
-------- -------- -------------
Cash, at end of period $ 89,727 $ 23,983 $ 89,727
======== ======== =============
Supplemental disclosures of
cash flow information:
Interest paid $ 5,627 $ 2,915 $ 8,542
Noncash investing and
financing activities:
Property and equipment
acquired under capital
leases $ 17,567 $ 25,530 $ 43,097
Accretion to redemption
value of redeemable
convertible
preferred stock $ 50,850 $ 50,850
Conversion of bridge loans
and accrued interest to
Series A redeemable,
convertible preferred
stock $101,900 $101,900
Issuance of common stock
for notes receivable $ 4,000 $ 4,000
On March 27, 1995, the
Company acquired the assets
of OASys Group, LLC.
Fair value of assets
acquired $135,000
Cash paid 30,000
--------
Note payable incurred $105,000
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
THE OASYS GROUP, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
---------
1. Formation and Business of the Company:
-------------------------------------
The OASys Group, Inc. (the Company), a California corporation, was founded
on March 22, 1995 to create open standards based software solutions to the
highly critical software problems currently facing the telecommunications
industry. To date, the Company has been engaged in recruiting personnel,
developing products, creating strategic relationships and raising capital.
On March 27, 1995, the Company acquired the assets of OASys Group, LLC. for
$30,000 in cash and a note payable of $105,000.
The acquisition was accounted for as a purchase and the total purchase
price of $135,000 has been allocated to the net assets acquired based on
their estimated fair values as of March 27, 1995. The purchased technology
is related to the Company's current products and is being amortized on a
straight line basis over 18 months.
The fair value of the assets acquired were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchased technology $100,000
Goodwill 18,582
Property and equipment 16,418
--------
$135,000
========
</TABLE>
2. Summary of Significant Accounting Policies:
------------------------------------------
Basis of Presentation:
The Company's financial statements have been prepared on a basis of
accounting which contemplates realization of assets and satisfaction of
liabilities in the normal course of business. The company has incurred
losses and negative cash flows from operations since inception and
currently has an accumulated deficit of $917,547, which raises substantial
doubt about the ability of the Company to continue as a going concern. The
Company's continued existence is dependent on its ability to obtain
sufficient funding and to achieve profitable operations. Management
expects to obtain additional working capital financing and to generate cash
from the sale of its products. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets amounts or the amounts and classification of liabilities that might
be necessary should the Company be unable to continue in existence.
Cash and Cash Equivalents:
The Company considers all highly liquid investments purchased with original
maturities of ninety days or less to be cash equivalents.
F-7
<PAGE>
2. Summary of Significant Accounting Policies, continued:
------------------------------------------------------
Property and Equipment:
Property and equipment are stated at cost and are depreciated on a straight
line basis over their estimated useful lives of three to five years.
Property and equipment acquired under capital leases are amortized over
their estimated useful lives of three years.
Goodwill:
Goodwill is amortized using the straight-line method over the period of
expected benefit which is estimated to be five years.
Revenue Recognition:
The Company's product revenues are derived from product sales to
distributors and end-users.
Product revenue from software is recognized upon invoicing, when the
license agreement is signed, collection is probable and any remaining
obligations are insignificant after delivery of the product and completion
of installation and testing. Provisions for estimated product returns,
warranty costs and insignificant vendor obligations are recorded at the
time revenue is recognized.
Maintenance and support revenue from customer maintenance fees for ongoing
customer support are recognized ratably over the period of the contract.
Payments for maintenance fees are generally made in advance. Revenue from
other sources is recognized in accordance with the specific terms of the
related arrangement.
Research and Development Agreements:
During 1995, the Company entered into an agreement with a third party to
fund a portion of the Company's research and development efforts. Payments
received from the third party were, $281,929, $30,000 and $311,929 for the
nine months ended September 30, 1996, for the period from March 22, 1995
(date of inception) to December 31, 1995, and for the cumulative period
from March 22, 1995 (date of inception) to September 30, 1996,
respectively, which have been included in other revenue.
Research and Development:
Research and development costs are charged to operations as incurred.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Income Taxes:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes." This
statement prescribes the use of the liability method whereby deferred tax
asset and liability account balances are calculated at the balance sheet
date using current tax laws and rates in effect.
F-8
<PAGE>
2. Summary of Significant Accounting Policies, continued:
-------------------------------------------
Concentration of Credit Risk:
Financial instruments which potentially expose the Company to a
concentration of credit risk principally consist of cash and cash
equivalents and accounts receivable. The Company places its temporary cash
investments with one high credit quality financial institution. Management
believes that the financial institution which hold the Company's
investments is financially sound and, accordingly, minimal credit risk
exists with respect to these investments. With respect to the Company's
accounts receivable, the Company sells its products and licenses its
technology primarily to distributors and end-users in North America. The
Company performs periodic credit evaluations of its customers and does not
generally require collateral.
Fair Value of Financial Instruments:
Carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents, accounts receivable, accounts payable
and other accrued liabilities approximate fair value due to their short
maturities.
Recent Accounting Pronouncements:
During March 1995, the Financial Accounting Standards Board issued
Statement No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which requires the
Company to review for impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying amount of an asset
might not be recoverable. In certain situations, an impairment loss would
be recognized. SFAS 121 will become effective for the Company's year ending
December 31, 1996. The Company has studied the implications of SFAS 121
and, based on its initial evaluation, does not expect it to have a material
impact on the Company's financial condition or results of operations.
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS No. 123), "Accounting for Stock-Based
Compensation," which establishes a fair value based method of accounting
for stock-based compensation plans and requires additional disclosures for
those companies who elect not to adopt the new method of accounting. The
disclosure provisions of SFAS No. 123 are effective for fiscal years
beginning after December 15, 1995. Management has not determined if it will
adopt the fair value based method of accounting for stock based
compensation arrangements nor the potential impact of SFAS 123 on the
Company's financial statements.
F-9
<PAGE>
3. Property and Equipment:
-----------------------
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1996
------------------- ------------------
<S> <C> <C>
Computer equipment $ 67,508 $48,998
Computer software 6,509
Furniture and fixtures 4,180 1,605
-------- -------
78,197 50,603
Less accumulated depreciation and
amortization (24,553) (6,902)
-------- -------
$ 53,644 $43,701
======== =======
</TABLE>
Depreciation charged to operations amounted to $17,651, $6,902 and $24,553
for the nine months ended September 30, 1996, for the period from March 22,
1995 (date of inception) to December 31, 1995 and for the cumulative period
from March 22, 1995 to September 30, 1996, respectively.
4. Notes Payable:
--------------
Notes payable consist of the following:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1996
------------------ -----------------
<S> <C> <C>
Note payable to officer, interest at $40,000 $ 40,000
8.5% per annum, payable on demand
Note payable to OASys 30,000 95,000
Group, LLC, collateralized by certain
assets of the Company, payable in
monthly installments of $10,000 or more
and cumulative interest of $3,145
Note payable to related party, interest 4,000
at 8.5% per annum, repaid in August 1996 ------- --------
$70,000 $139,000
======= ========
</TABLE>
F-10
<PAGE>
5. Commitments:
-----------
Operating Lease:
The management of the Company leases the office facility located in Los
Gatos, California. The leases are noncancelable and, in May 1996, were
extended through April 1997. The lease agreements contain renewal options
for an additional year. In addition to monthly rent paid by the Company,
the leases are subject to additional payments for utilities and other costs
above the base amount.
At September 30, 1996, future annual minimum lease payments under the
noncancelable operating lease are as follows:
Year Ending December 31,
------------------------
1996 $10,311
1997 13,748
-------
$24,059
=======
Facility rent expense for the nine months ended September 30, 1996, for the
period from March 22, 1995 (date of inception) to December 31, 1995 and for
the cumulative period from March 22, 1995 to September 30, 1996 was
$26,553, $16,266 and $42,819, respectively.
Capital Leases:
During 1996 and 1995, the Company acquired certain computer equipment and
computer software under noncancelable capital leases. At September 30, 1996
and December 31, 1995, equipment acquired under capital leases amounted to
$43,097 and $25,530, respectively.
Such amounts are included in property and equipment and have accumulated
amortization totaling approximately $11,704 and $1,418 at September 30,
1996 and December 31, 1995, respectively.
At September 30, 1996, future minimum lease payments under noncancelable
capital leases are as follows:
Year Ending December 31
-----------------------
1996 $ 4,310
1997 17,237
1998 15,535
1999 692
---------
37,774
Less amount
representing interest (4,880)
---------
32,894
Less current portion (13,977)
$ 18,917
=========
Employment Contract:
The Company has entered into an employment agreement expiring June 30, 1997
with one officer. The aggregate commitment for future salaries at September
30, 1996 was approximately $84,000.
F-11
<PAGE>
6. Shareholders' Deficit:
---------------------
Authorized Capital Stock and Common Stock:
The Company's authorized capital stock consists of 10,000,000 shares of
common stock and 2,000,000 shares of Series A redeemable convertible
preferred stock.
At December 31, 1995, the Company has reserved sufficient shares of the
Company's common stock for issuance upon the conversion of the redeemable
convertible preferred stock, upon the exercise of the outstanding warrant,
and upon the exercise of outstanding stock options.
Common Stock:
The Company issued 4,000,000 shares of its common stock to founders and
employees in March 1995 under a stock purchase agreement. Under the
agreement, the Company has the right to repurchase unvested shares at the
original issuance price upon termination of employment with the Company.
The number of shares subject to the Company's right of repurchase declines
ratably each month over a three-year period. At September 30, 1996,
2,000,000 shares of the Company's outstanding common stock are subject to
repurchase under the agreement.
Redeemable Convertible Preferred Stock:
Dividends:
---------
The preferred shareholders are entitled to receive, out of any funds
legally available, dividends at the rate of $0.04 per share, per annum,
payable in preference and priority to any payment of any dividend on common
stock when and as declared by the Board of Directors. After payment of such
dividends, any additional dividends declared will be distributed among all
holders of Series A redeemable convertible preferred stock and all holders
of common stock in proportion to the number of shares of common stock that
would be held by each such holder if all shares of Series A redeemable
convertible preferred stock were converted into common stock at the then
effective conversion price applicable to such shares (as defined). The
right to such dividends on the Series A redeemable convertible preferred
stock shall not be cumulative, and no right shall accrue to holders of
Series A redeemable convertible preferred stock by reason of the fact that
dividends on such shares are not declared or paid in any prior year.
In the event that the Company has declared but unpaid dividends outstanding
immediately prior to, and in the event of, a conversion of Series A
redeemable convertible preferred stock, the Company will, at the option of
the Company, pay in cash to each holder of such redeemable convertible
preferred stock subject to conversion the full amount of any such dividends
or allow such dividends to be converted into common stock.
Liquidation:
-----------
In the event of liquidation (as defined) of the Company, the holders of the
Company's redeemable convertible preferred stock are entitled to receive,
prior and in preference to any distribution of any assets and funds of the
Company to the holders of common stock, an amount per share equal to the
sum of $0.50.
F-12
<PAGE>
6. Shareholders' Deficit: (cont'd)
---------------------
for each outstanding share of Series A redeemable convertible preferred
stock and an amount equal to declared but unpaid dividends on such share.
If upon the occurrence of a liquidation, the assets and funds to be
distributed among the holders of the redeemable convertible preferred stock
are insufficient to permit the payment to such holders of the full
preferential amounts, then the assets and funds of this Company legally
available for redistribution will be distributed ratably among the holders
of the redeemable convertible preferred stock.
Upon the completion of the distribution, if assets and funds remain in the
Company, the holders of the common stock of the Company shall receive all
of the remaining assets and funds of the Company pro rata based on the
number of shares of common stock by each such holder.
Conversion:
----------
Each share of redeemable convertible preferred stock is convertible at the
option of the holder, into shares of common stock as is determined by
dividing the original purchase price (as defined) by the conversion price
(as defined) for such series, in effect at the time of conversion. Each
share of redeemable convertible preferred stock will automatically be
converted into shares of common stock at the then effective conversion
price for such share in the event of the closing of a firm commitment
underwritten public offering to offer and sell the common stock of the
Company to the public at a price per share to the public of at least $2.00
(as adjusted) and an aggregate offering price to the public of not less
than $5,000,000.
Redemption:
----------
The Company will, at any time after May 2001, upon receipt of written
notice from the holders of 66 2/3% of the then outstanding Series A
redeemable convertible preferred stock, redeem in whole or in part the
Series A redeemable convertible preferred stock by paying in cash a sum per
share equal to the greater of $1.00 plus any declared but unpaid dividends
upon any date fixed by the Company for redemption of such share, or the
fair market value of the Series A redeemable convertible preferred stock.
In the event the Company receives a qualifying request, the Company shall
redeem on each redemption date (as defined) one-third of the shares of
Series A preferred held by holders who have indicated their intention to be
so redeemed. Such redemption shall be effected in three equal annual
installments such that all of the shares of Series A preferred to be so
redeemed shall be redeemed on the second anniversary of the redemption
date.
Voting:
------
The holders of redeemable convertible preferred stock have one vote for
each full share of common stock into which its respective shares of
redeemable convertible preferred stock would be convertible on the record
date for the vote. For so long as at least 500,000 shares of Series A
redeemable convertible preferred stock remain outstanding, the holders of
shares of Series A redeemable convertible preferred stock, voting as a
class, are entitled to elect two directors. For so long as the holders of
the Series A redeemable convertible preferred stock remain entitled to
elect two directors, the holders of common stock, voting as a class, are
entitled to elect two directors. The remaining directors if any, shall be
elected by the holders of the redeemable convertible preferred stock and
the holders of common stock.
F-13
<PAGE>
6. Shareholders' Deficit: (cont'd)
---------------------
Warrants:
In January 1996 and March 1996, the Company received bridge loan financings
of $25,000 and $75,000, respectively, from investors pursuant to which the
Company issued convertible promissory notes and warrants to purchase shares
of the Company's Series A redeemable convertible preferred stock. In May
1996, all principal and accrued interest have been converted into 203,800
shares of the Series A redeemable convertible preferred stock.
On May 16, 1996, the Company issued warrants, in connection with the bridge
loan financing, to purchase up to 50,950 (subject to adjustments as defined
in the agreement) shares of the Company's Series A redeemable convertible
preferred stock at $0.50 per share. The warrants are exercisable at any time
and expire on May 16, 2000 or earlier upon a merger, sale of assets or
initial public offering of the Company's securities. The Company has
reserved 50,950 shares of the Series A redeemable convertible preferred
stock in the event of exercise.
7. Stock Option Plan:
-----------------
In September 1996, the Company authorized the 1996 Stock Option Plan under
which the Board of Directors may issue incentive and nonqualified stock
options to employees, officers, consultants and advisors of the Company. The
Board of Directors has the authority to determine to whom options will be
granted, the number of shares, the term and the exercise price. Options
granted under the Plan generally vest over a four year period to become
exercisable 25% on the first anniversary of the vesting commencement date,
and an additional 1/48 of the shares subject to the option vest each month
thereafter. However, an additional 150,000 options vest monthly over a two
year period or vest immediately upon an acquisition or a merger (as defined)
and an additional 150,000 options vest monthly over a one year period. The
right of exercise generally expires ten years from the date of the grant.
The 1996 stock option Plan allows participants to acquire shares of common
stock by the exercise of stock options prior to vesting. Shares so acquired
are subject to repurchase by the Company upon termination of employment with
the Company. The Company's right of repurchase expires over the vesting
period.
Activity under the Plan is as follows:
<TABLE>
<CAPTION>
Outstanding
Options
Shares -------------------------------------
Available Number Exercise Aggregate
for Grant of Shares Price Price
---------- ------------- -------- ----------
<S> <C> <C> <C> <C>
Options reserved at Plan
inception 1,959,000
Options granted (390,000) 390,000 $0.02 $ 7,800
---------- ------------- -------- ----------
Balances, September 30,
1996 1,569,000 390,000 $0.02 $ 7,800
========= =============== ======== ==========
</TABLE>
At September 30, 1996, 62,500 options were vested.
F-14
<PAGE>
<TABLE>
<S> <C>
8. Income Taxes:
-------------
</TABLE>
The Company's net deferred tax asset is comprised as follows:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------- ------------------
<S> <C> <C>
Net operating loss carryforwards $ 338,600 $ 55,400
Research and development tax credits 6,600 6,600
Depreciation 39,200 15,800
Reserves and accruals 9,500 5,900
--------- --------
393,900 83,700
Valuation allowance (393,900) (83,700)
--------- --------
Net deferred tax asset $ 0 $ 0
================== =================
</TABLE>
As of September 30, 1996 and December 31, 1995, the Company had net
operating loss carryforwards available to reduce its future taxable income
of approximately $841,500 and $135,500, respectively for federal and state
income tax purposes. The net operating loss carryforwards expire between
2003 and 2011 for both federal and state purposes.
For federal and state tax purposes, the Company's net operating loss
carryforwards are subject to certain limitations on annual utilization in
the event of changes in ownership, as defined by federal and state law.
9. Significant Customers:
---------------------
For the nine month period ended September 30, 1996 and for the period from
March 22, 1995 (date of inception) to December 31, 1995, one customer
accounted for 84% and 66% of revenues, respectively. For the period from
March 22, 1995 to September 30, 1996, two customers accounted for 47% and
29% of revenues.
10. Subsequent Events:
-----------------
In October, 1996, the Company signed a letter of intent with Cabletron
Systems, Inc. ("Cabletron") providing for the acquisition of the Company.
Cabletron is prepared to pay an aggregate purchase price of $9 million for
all outstanding shares of the Company's stock on a fully diluted basis
(including outstanding options and warrants).
In October 1996, the Company issued 60,000 shares of its common stock at
$0.02 per share to two consultants for services rendered.
In October 1996, 300,000 shares of common stock had been acquired by early
exercise of stock options.
In October 1996, pursuant to the Company's 1996 Stock Option Plan, 63,500
options were granted with an option price per share of $0.02.
F-15
<PAGE>
ANNEX A
================================================================================
CONFORMED COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
Cabletron Systems, Inc
and
Small Cat, Inc.
and
The OASys Group, Inc.
Dated as of November 26, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
THE MERGER................................................................... 1
SECTION 1.1 The Merger................................................... 1
SECTION 1.2 Effective Time............................................... 3
SECTION 1.3 Effect of the Merger......................................... 3
SECTION 1.4 Articles of Incorporation, By-Laws........................... 4
SECTION 1.5 Directors and Officers....................................... 4
SECTION 1.6 Effect on Capital Stock...................................... 4
SECTION 1.7 Exchange of Certificates..................................... 6
SECTION 1.8 Stock Transfer Books......................................... 8
SECTION 1.9 No Further Ownership Rights in Company Common Stock.......... 8
SECTION 1.10 Lost, Stolen or Destroyed Certificates...................... 8
SECTION 1.11 Tax Consequences............................................ 8
SECTION 1.12 Taking of Necessary Action; Further Action.................. 9
SECTION 1.13 Material Adverse Effect..................................... 9
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................ 9
SECTION 2.1 Organization and Qualification; Subsidiaries................. 9
SECTION 2.2 Articles of Incorporation and By-Laws........................ 10
SECTION 2.3 Capitalization............................................... 10
SECTION 2.4 Authority Relative to this Agreement......................... 11
SECTION 2.5 No Conflict; Required Filings and Consents................... 12
SECTION 2.6 Compliance, Permits.......................................... 13
SECTION 2.7 Financial Statements......................................... 13
SECTION 2.8 Absence of Certain Changes or Events......................... 14
SECTION 2.9 No Undisclosed Liabilities................................... 14
SECTION 2.10 Absence of Litigation....................................... 14
SECTION 2.11 Employee Benefit Plans, Employment Agreements............... 15
SECTION 2.12 Labor Matters............................................... 16
SECTION 2.13 Registration Statement, Proxy Statement/Prospectus.......... 16
SECTION 2.14 Restrictions on Business Activities......................... 17
SECTION 2.15 Title to Property........................................... 17
SECTION 2.16 Taxes....................................................... 18
SECTION 2.17 Environmental Matters....................................... 19
SECTION 2.18 Intellectual Property....................................... 20
SECTION 2.19 Interested Party Transactions............................... 22
SECTION 2.20 Insurance................................................... 22
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 2.21 Accounts Receivable; Inventories............................ 22
SECTION 2.22 Equipment................................................... 22
SECTION 2.23 Brokers..................................................... 23
SECTION 2.24 Change in Control Payments.................................. 23
SECTION 2.25 Expenses.................................................... 23
SECTION 2.26 Full Disclosure............................................. 23
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB...................... 23
SECTION 3.1 Organization and Qualification; Subsidiaries................. 24
SECTION 3.2 Charter and By-Laws.......................................... 24
SECTION 3.3 Capitalization............................................... 24
SECTION 3.4 Authority Relative to this Agreement......................... 24
SECTION 3.5 No Conflict, Required Filings and Consents................... 25
SECTION 3.6 SEC Filings; Financial Statements............................ 25
SECTION 3.7 Registration Statement; Proxy Statement/Prospectus........... 26
SECTION 3.8 Ownership of Merger Sub; No Prior Activities................. 27
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER....................................... 27
SECTION 4.1 Conduct of Business by the Company Pending the Merger........ 27
SECTION 4.2 No Solicitation.............................................. 29
ARTICLE V
ADDITIONAL AGREEMENTS........................................................ 30
SECTION 5.1 Proxy Statement/Prospectus; Registration Statement; Permit
Application.................................................. 30
SECTION 5.2 Proxy Statement/Prospectus................................... 30
SECTION 5.3 Stockholder Meeting.......................................... 31
SECTION 5.4 Access to Information; Confidentiality....................... 31
SECTION 5.5 Consents; Approvals.......................................... 31
SECTION 5.6 Agreements with Respect to Affiliates........................ 31
SECTION 5.7 Notification of Certain Matters.............................. 32
SECTION 5.8 Further Action/Tax Treatment................................. 32
SECTION 5.9 Public Announcements......................................... 32
SECTION 5.10 Conveyance Taxes............................................ 32
SECTION 5.11 Accountants' Letters........................................ 33
SECTION 5.12 Listing of Parent Shares.................................... 33
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE VI
CONDITIONS TO THE MERGER..................................................... 33
SECTION 6.1 Conditions to Obligation of Each Party to Effect the Merger.. 33
SECTION 6.2 Additional Conditions to Obligations of Parent and Merger
Sub.......................................................... 34
SECTION 6.3 Additional Conditions to Obligation of the Company........... 36
ARTICLE VII
TERMINATION................................................................. 37
SECTION 7.1 Termination.................................................. 37
SECTION 7.2 Effect of Termination........................................ 39
SECTION 7.3 Fees and Expenses............................................ 39
ARTICLE VIII
GENERAL PROVISIONS.......................................................... 41
SECTION 8.1 Indemnification.............................................. 41
SECTION 8.2 Notices...................................................... 43
SECTION 8.3 Certain Definitions.......................................... 45
SECTION 8.4 Amendment.................................................... 45
SECTION 8.5 Waiver....................................................... 46
SECTION 8.6 Headings..................................................... 46
SECTION 8.7 Severability................................................. 46
SECTION 8.8 Entire Agreement............................................. 46
SECTION 8.9 Assignment; Guarantee of Merger Sub Obligations.............. 46
SECTION 8.10 Parties in Interest......................................... 46
SECTION 8.11 Failure or Indulgence Not Waiver; Remedies Cumulative....... 47
SECTION 8.12 Governing Law............................................... 47
SECTION 8.13 Counterparts................................................ 47
</TABLE>
-iii-
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 26, 1996 (this
"AGREEMENT"), among Cabletron Systems, Inc., a Delaware corporation ("PARENT"),
Small Cat, Inc., a California corporation and a wholly owned subsidiary of
Parent ("MERGER SUB"), and The OASys Group, Inc., a California corporation (the
"COMPANY").
WITNESSETH:
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have
each determined that it is advisable and in the best interests of their
respective stockholders for Parent to enter into a business combination with the
Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors of
Parent and Merger Sub have each approved the merger of Merger Sub with and into
the Company (the "MERGER") in accordance with the applicable provisions of the
California Corporation Code (the "CCC") upon the terms and subject to the
conditions set forth herein;
WHEREAS, Parent, Merger Sub and the Company intend, by approving
resolutions authorizing this Agreement, to adopt this Agreement as a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "CODE"), and the regulations promulgated thereunder;
and
WHEREAS, pursuant to the Merger, each outstanding share (a "SHARE") of the
Company's common stock, without par value (the "COMPANY COMMON STOCK"), shall be
converted into the right to receive the Merger Consideration (as defined in
Section 1.7(b)), upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger.
(a) Effective Time. At the Effective Time (as defined in Section 1.2),
and subject to and upon the terms and conditions of this Agreement and the CCC,
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease, and the Company shall continue as the
surviving corporation. The Company as the
A-1
<PAGE>
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation."
(b) Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1 and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the consummation of the Merger (the "Closing") will take place as
promptly as practicable (and in any event within two business days) after
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of Ropes & Gray, One International Place, Boston, Massachusetts, unless another
date, time or place is agreed to in writing by the parties hereto.
(c) At the Effective Time, Parent shall deliver to Fleet National Bank, or
any successor escrow agent appointed pursuant to the Escrow Agreement (as
hereinafter defined) (the "ESCROW AGENT") the number of the Parent Shares issued
to the stockholders pursuant to Section 1.6(a) equal to (i) $1,350,000 divided
by (ii) the Parent Stock Price (as defined below), rounded down to the nearest
whole share, such shares to be held and applied in accordance with the Escrow
Agreement (the "ESCROW SHARES").
(d) The stockholders, by virtue of their approval of the Agreement, will
be deemed to have irrevocably constituted and appointed, effective as of the
Effective Time, Mr. Richard Pospisil (together with his permitted successors,
the "Stockholder Representative"), as their true and lawful agent and attorney-
in-fact to enter into any agreement in connection with the transactions
contemplated by this Agreement and any transactions contemplated by the Escrow
Agreement, to exercise all or any of the powers, authority and discretion
conferred on him under any such agreement, to waive any terms and conditions of
any such agreement (other than the Merger Consideration), to give and receive
notices on their behalf and to be their exclusive representative with respect to
any matter, suit, claim, action or proceeding arising with respect to any
transaction contemplated by any such agreement, including, without limitation,
the defense, settlement or compromise of any claim, action or proceeding for
which the Parent or the Merger Sub may be entitled to indemnification and the
Stockholder Representative agrees to act as, and to undertake the duties and
responsibilities of, such agent and attorney-in-fact. This power of attorney is
coupled with an interest and is irrevocable. The Stockholder Representative
shall not be liable for any action taken or not taken by him in connection with
his obligations under this Agreement (i) with the consent of Stockholders who,
as of the date of this Agreement, owned a majority in number of the outstanding
shares of Company Common Stock (treating the Company's Series A Preferred Stock,
without par value (the "Series A Preferred Stock"), on an as-converted basis) or
(ii) in the absence of his own gross negligence or wilful misconduct. If the
Stockholder Representative shall be unable or unwilling to serve in such
capacity, his successor shall be named by those persons holding a majority of
the shares of Company Common Stock outstanding (treating the Series A Preferred
Stock on an as-converted basis) at the Effective Time who shall serve and
exercise the powers of Stockholder Representative hereunder.
A-2
<PAGE>
(e) At the Closing, the Company shall deliver to Parent a certificate, in
form and substance satisfactory to Parent and signed by its Chief Executive
Officer and Chief Financial Officer (the "COMPANY CLOSING CERTIFICATE"),
certifying (i) that all outstanding shares of Series A Preferred Stock
(including shares of Series A Preferred Stock issuable upon the exercise of the
Warrants (as defined below)) have been converted into shares of Company Common
Stock, (ii) the number of outstanding shares of Company Common Stock, as of the
date of the Closing, (iii) the number of shares of Company Common Stock issuable
upon the conversion or exercise of all options, warrants, and other securities
of the Company convertible into or exercisable for shares of Company Common
Stock that are outstanding on the Closing Date, and (iv) the Company Expenses
(as defined in Section 7.3). The aggregate number of shares of Parent Common
Stock to be issued in the Merger in exchange for each share of Company Common
Stock shall be the result of dividing (i) the result of $9,000,000, less the
Company Expenses (as defined in Section 7.3), divided by the Parent Stock Price,
rounded down to the nearest whole share by (ii) the number of shares of Company
Common Stock outstanding on the date of the Closing, plus the number of shares
of Company Common Stock issuable upon the conversion or exercise of all options,
warrants, preferred stock and other securities of the Company convertible into
or exercisable for shares of Company Common Stock that are outstanding on the
Closing Date, in each case as reflected on the Company Closing Certificate (such
result, expressed as a ratio of the number of shares of Parent Common Stock to
be issued in the Merger for each then outstanding share of Company Common Stock,
is hereinafter referred to as the "EXCHANGE RATIO"). The "PARENT STOCK PRICE"
shall be $38.25, which price has been adjusted to reflect the two-for-one stock
split of Parent Common Stock (effected by a 100% stock dividend) declared on
October 28, 1996 and effective November 26, 1996, (the "PARENT STOCK SPLIT").
SECTION 1.2 Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI, the parties
hereto shall cause the Merger to be consummated by filing a duly executed and
delivered Merger Agreement in the form attached hereto as Exhibit 1.2 as
contemplated by the CCC (the "MERGER AGREEMENT"), with the Secretary of State of
the State of California, in such form as required by, and executed in accordance
with the relevant provisions of, the CCC (the time of such filing being the
"EFFECTIVE TIME").
SECTION 1.3 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Merger Agreement and the
applicable provisions of the CCC. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.4 Articles of Incorporation, By-Laws.
A-3
<PAGE>
(a) Articles of Incorporation. Unless otherwise determined by Parent
prior to the Effective Time, at the Effective Time the Articles of Incorporation
of the Surviving Corporation, as in effect immediately prior to the Effective
Time, shall be amended and restated to read as did the Articles of Incorporation
of the Merger Sub immediately prior to the Effective Time, except that the name
of the Surviving Corporation will remain unchanged.
(b) By-Laws. Unless otherwise determined by Parent prior to the Effective
Time, the By-Laws of the Surviving Corporation, as in effect immediately prior
to the Effective Time, shall be amended and restated to read as did the By-Laws
of the Merger Sub immediately prior to the Effective Time, except that the name
of the Surviving Corporation shall remain unchanged.
SECTION 1.5 Directors and Officers. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and By-Laws of the Surviving Corporation, and the officers of
Merger Sub immediately prior to the Effective Time shall be the initial officers
of the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
SECTION 1.6 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the Parent, Merger Sub, the
Company or the holders of any of the following securities:
(a) Conversion of Securities. Each Share issued and outstanding
immediately prior to the Effective Time (excluding any Shares to be canceled
pursuant to Section 1.6(b) and Company Dissenting Shares (as defined in Section
1.6(c)) shall be converted, subject to Section 1.6(g), into the right to receive
validly issued, fully paid and nonassessable shares ("PARENT SHARES") of the
Common Stock, $.01 par value, of Parent ("PARENT COMMON STOCK") equal to the
Exchange Ratio.
(b) Cancellation. Each Share held in the treasury of the Company and each
Share owned by Parent, Merger Sub or any direct or indirect wholly owned
subsidiary of the Company or Parent immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, cease to be outstanding, be canceled and retired without payment of any
consideration therefor and cease to exist.
(c) Shares of Dissenting Holders. (a) Notwithstanding anything to the
contrary contained in this Agreement, any holder of Company Common Stock with
respect to which dissenters' rights, if any, are granted by reason of the merger
under the CCC and who does not vote in favor of the Merger and who otherwise
complies with Chapter 13 of the CCC ("Company Dissenting Shares") shall not be
entitled to receive shares of Parent Common Stock pursuant to Section 1.6(a)
hereof, unless such holder fails to perfect, effectively withdraws or loses his,
her or its right to dissent from the Merger under the CCC. Such
A-4
<PAGE>
holder shall be entitled to receive only the payment provided for by Chapter 13
of the CCC. If any such holder so fails to perfect, effectively withdraws or
loses his or her dissenters' rights under the CCC, his or her Company Dissenting
Shares shall thereupon be deemed to have been converted, as of the Effective
Time, into the right to receive shares of Parent Common Stock pursuant to
Section 1.6(a).
(d) Any payments relating to the Company Dissenting Shares shall be made
solely by the Surviving Corporation and no funds or other property have been or
will be provided by Merger Sub or any of Parent's other direct or indirect
subsidiaries for such payment.
(e) Stock Options.
(i) At the Effective Time, each outstanding option to purchase
Company Common Stock (a "STOCK OPTION") granted under the Company's 1996
Stock Option Plan ("COMPANY STOCK OPTION PLAN"), whether vested or
unvested, shall be deemed assumed by Parent and deemed to constitute an
option to acquire, on the same terms and conditions as were applicable
under the Company Stock Option Plan prior to the Effective Time, the number
(rounded down to the nearest whole number) of Parent Shares as the holder
of such Stock Option would have been entitled to receive pursuant to the
Merger had such holder exercised such option in full immediately prior to
the Effective Time (not taking into account whether or not such option was
in fact exercisable), at a price per share equal to (x) the aggregate
exercise price for Company Common Stock otherwise purchasable pursuant to
such Stock Option divided by (y) the result obtained by multiplying the
number of shares of Company Common Stock otherwise purchasable pursuant to
such Stock Option by the Exchange Ratio.
(ii) As soon as practicable after the Effective Time, Parent shall
deliver to each holder of an outstanding Stock Option an appropriate notice
setting forth such holder's rights pursuant thereto, and such Stock Option
shall continue in effect on the same terms and conditions.
(iii) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of Parent Shares for delivery pursuant to the
terms set forth in this Section 1.6(c).
(iv) Subject to any applicable limitations under the Securities Act of
1933, as amended, and the rules and regulations thereunder (the "SECURITIES
ACT"), Parent shall file a Registration Statement on Form S-8 (or any
successor form), effective as of the Effective Time, with respect to the
shares of Parent Common Stock issuable upon exercise of the Stock Options,
and the Parent shall use all reasonable efforts to maintain the
effectiveness of such registration statement (and maintain the current
status of the prospectus or prospectuses relating thereto) for so long as
such options shall remain outstanding.
A-5
<PAGE>
(f) Capital Stock of Merger Sub. Each share of common stock, $.01 par
value, of Merger Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one validly issued, fully paid
and nonassessable share of common stock, $.01 par value, of the Surviving
Corporation.
(g) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted
to reflect fully the effect of any stock split, reverse split, reclassification,
stock dividend (including any dividend or distribution of securities convertible
into Parent Common Stock), reorganization, recapitalization or other like change
with respect to Parent Common Stock occurring after the date hereof and prior to
the Effective Time. The parties acknowledge that the Exchange Ratio has been
adjusted to reflect the Parent Stock split.
(h) Fractional Shares. No certificates or scrip representing less than
one Parent Share shall be issued upon the surrender for exchange of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding Shares (the "CERTIFICATES"). In lieu of any such
fractional share, each holder of Shares who would otherwise have been entitled
to a fraction of a Parent Share upon surrender of Certificates for exchange
shall be paid upon such surrender cash (without interest) determined by
multiplying (i) the per share closing price on the New York Stock Exchange of
Parent Common Stock on the date of the Effective Time by (ii) the fractional
interest of Parent Common Stock to which such holder would otherwise be
entitled. As soon as practical after determining the amount of cash, if any, to
be paid to former holders of Company Common Stock with respect to any fractional
shares of Parent Common Stock, the Exchange Agent shall promptly pay such
amounts to such holders in accordance with Article I. Parent will make
available to the Exchange Agent the cash necessary for this purpose.
SECTION 1.7 Exchange of Certificates.
(a) Exchange Agent. Parent shall supply, or shall cause to be supplied,
to or for the account of Boston Equiserve, or such other bank or trust company
as shall be designated by Parent (the "EXCHANGE AGENT"), in trust for the
benefit of the holders of Company Common Stock, for exchange in accordance with
this Section 1.7, through the Exchange Agent, certificates evidencing the Parent
Shares issuable pursuant to Section 1.6 in exchange for outstanding Shares. All
of the Parent Shares issued in the Merger shall be issued as of and be deemed to
be outstanding as of the Effective Time. Parent shall cause all such Parent
Shares to be issued in connection with the Merger to be duly authorized, validly
issued, fully paid and nonassessable.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Parent will instruct the Exchange Agent to mail to each holder
of record of Certificates (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the
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Exchange Agent and shall be in such form and have such other provisions as
Parent may reasonably specify that are not inconsistent with the terms of this
Agreement), and (ii) instructions to effect the surrender of the Certificates in
exchange for the certificates evidencing Parent Shares. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with such letter of
transmittal, duly executed, and such other customary documents as may be
required pursuant to such instructions, the holder of such Certificate shall be
entitled to receive in exchange therefor (A) certificates evidencing that number
of whole Parent Shares which such holder has the right to receive in accordance
with the Exchange Ratio in respect of the Shares formerly evidenced by such
Certificate, (B) any dividends or other distributions to which such holder is
entitled pursuant to Section 1.7(c), and (C) cash in respect of fractional
shares as provided in Section 1.6(g) (the Parent Shares, dividends,
distributions and cash being, collectively, the "MERGER CONSIDERATION"), and the
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of Shares which is not registered in the transfer records
of the Company as of the Effective Time, the Merger Consideration may be issued
and paid in accordance with this Article I to a transferee if the Certificate
evidencing such Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer pursuant to this Section
1.7(b) and by evidence that any applicable stock transfer taxes have been paid.
Until so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented Shares of Company Common Stock will be deemed from and after
the Effective Time, for all corporate purposes, other than the payment of
dividends and subject to Section 1.6(f), to evidence the ownership of the number
of full Parent Shares into which such shares of Company Common Stock shall have
been so converted.
(c) Distributions With Respect to Unexchanged Parent Shares. No dividends
or other distributions declared or made after the Effective Time with respect to
Parent Shares with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the Parent Shares they
are entitled to receive until the holder of such Certificate shall surrender
such Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole Parent Shares issued in exchange therefor, without interest,
at the time of such surrender, the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such whole Parent Shares.
(d) Transfers of Ownership. If any certificate for Parent Shares is to be
issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it will be a condition to the issuance thereof
that the Certificate so surrendered will be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange will have
paid to Parent or any agent designated by it any transfer or other taxes
required by reason of the issuance of a certificate for Parent Shares in any
name other than that of the registered holder of the certificate surrendered, or
have established to the satisfaction of Parent or any agent designated by it
that such tax has been paid or is not payable.
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(e) No Liability. Neither Parent, Merger Sub nor the Company shall be
liable to any holder of Company Common Stock for any Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law following the passage of time specified therein.
(f) Withholding Rights. Parent or the Exchange Agent shall be entitled to
deduct and withhold from the Merger Consideration otherwise payable pursuant to
this Agreement to any holder of Company Common Stock such amounts as Parent or
the Exchange Agent is required to deduct and withhold with respect to the making
of such payment under the Code, or any provision of state, local or foreign tax
law. To the extent that amounts are so withheld by Parent or the Exchange
Agent, such withheld amounts shall be treated for all purposes of this Agreement
as having been paid to the holder of the Shares in respect of which such
deduction and withholding was made by Parent or the Exchange Agent.
SECTION 1.8 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers of Company Common Stock thereafter on the records of
the Company.
SECTION 1.9 No Further Ownership Rights in Company Common Stock. The
Merger Consideration delivered upon the surrender for exchange of Shares in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Shares, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
Shares which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article I.
SECTION 1.10 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such Parent Shares as
may be required pursuant to Section 1.6 as well as the other Merger
Consideration as provided in this Article; provided, however, that Parent may,
in its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed Certificates to deliver an agreement
of indemnification in form satisfactory to Parent, or a bond in such sum as
Parent may reasonably direct as indemnity against any claim that may be made
against Parent or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed.
SECTION 1.11 Tax Consequences. It is intended by the parties hereto that
the Merger shall constitute a reorganization within the meaning of Section 368
of the Code. The parties hereto hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
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SECTION 1.12 Taking of Necessary Action; Further Action. Each of Parent,
Merger Sub and the Company will take all such reasonable and lawful action as
may be necessary or appropriate in order to effectuate the Merger in accordance
with this Agreement as promptly as possible. If, at any time after the
Effective Time, any such further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub immediately prior to the Effective Time are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action.
SECTION 1.13 Material Adverse Effect. When used in connection with the
Company or any of its subsidiaries, or Parent or any of its subsidiaries, as the
case may be, the term "Material Adverse Effect" means any change, effect or
circumstance that, individually or when taken together with all other such
changes, effects or circumstances that have occurred prior to the date of
determination of the occurrence of the Material Adverse Effect, (a) is or is
reasonably likely to be materially adverse to the business, assets (including
intangible assets), prospects, financial condition or results of operations of
the Company and its subsidiaries or Parent and its subsidiaries, as the case may
be, in each case taken as a whole, or (b) is or is reasonably likely to delay or
prevent the consummation of the transactions contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub that,
except as set forth in the written disclosure schedule delivered on or prior to
the date hereof by the Company to Parent that is arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
II (the "COMPANY DISCLOSURE SCHEDULE") (disclosure in any paragraph of the
Disclosure Schedule shall qualify only the corresponding paragraph in this
Article II), the statements contained in this Article II are true and correct as
of the date of this Agreement and, unless a date is specified in such
representation or warranty, will be true and correct as of the date of Closing
(as though made on and as of the date of Closing):
SECTION 2.1 Organization and Qualification; Subsidiaries. The Company and
each of its subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation and has
the requisite corporate power and authority necessary to own, lease and operate
the properties it purports to own, operate or lease and to carry on its business
as it is now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power and authority could not
reasonably be expected to have a Material Adverse Effect. The Company and each
of its subsidiaries is duly qualified or licensed as a foreign corporation to do
business, and is in good
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standing, in each jurisdiction where the character of its properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing that could not reasonably be expected
to have a Material Adverse Effect. A true and complete list of all of the
Company's subsidiaries, together with the jurisdiction of incorporation of each
subsidiary, the authorized capitalization of each subsidiary, and the percentage
of each subsidiary's outstanding capital stock owned by the Company or another
subsidiary, is set forth in Section 2.1 of the Company Disclosure Schedule.
Except as set forth in Section 2.1 of the Company Disclosure Schedule, the
Company does not directly or indirectly own any equity or similar interest in,
or any interest convertible into or exchangeable or exercisable for, any equity
or similar interest in, any corporation, partnership, joint venture or other
business association or entity.
SECTION 2.2 Articles of Incorporation and By-Laws. The Company has
heretofore furnished to Parent a complete and correct copy of its Articles of
Incorporation and By-Laws as amended to date, and has furnished or made
available to Parent the Articles of Incorporation and By-Laws (or equivalent
organizational documents) of each of its subsidiaries (the "SUBSIDIARY
DOCUMENTS"). Such Articles of Incorporation, By-Laws and Subsidiary Documents
are in full force and effect. Neither the Company nor any of subsidiaries is in
violation of any of the provisions of its Articles of Incorporation or By-Laws
or Subsidiary Documents.
SECTION 2.3 Capitalization. The authorized capital stock of the Company
consists of (i) 10,000,000 shares of Company Common Stock and (ii) 2,000,000
shares of Series A Preferred Stock. As of the date hereof, (a) 4,385,000 shares
of Company Common Stock and 1,423,800 shares of Series A Preferred Stock,
respectively, were issued and outstanding, all of which are validly issued,
fully paid and nonassessable, and no shares were held in treasury, (b) no shares
of Company Common Stock were held by subsidiaries of the Company, (c) 153,500
shares of Company Common Stock were reserved for future issuance pursuant to
outstanding stock options granted under the Company Stock Option Plan and
1,474,750 shares of Company Common Stock were reserved for issuance pursuant to
the conversion of the shares of Series A Preferred Stock outstanding on the date
hereof and the shares of Series A Preferred Stock issuable upon the exercise of
the Warrants (as defined below), and (d) 50,950 shares of Series A Preferred
Stock were reserved for issuance pursuant to the Series A Preferred Stock
Purchase Warrants dated as of May 16, 1996 (the "Warrants"). Upon the
conversion of the shares of Series A Preferred Stock outstanding on the date
hereof and the shares of Series A Preferred Stock issuable upon the exercise of
the Warrants (as defined below), there will be outstanding up to an additional
1,474,750 shares of Company Common Stock. Except as set forth in Section 2.3 of
the Company Disclosure Schedule, no change in such capitalization has occurred
between October 31, 1996 and the date hereof. Except as set forth in Section
2.3 or Section 2.11 of the Company Disclosure Schedule, there are no options,
warrants or other rights, agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock of the Company or any
of its subsidiaries or
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obligating the Company or any of its subsidiaries to issue or sell any shares of
capital stock of, or other equity interests in, the Company or any of its
subsidiaries. All shares of the capital stock of the Company subject to issuance
as aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall be duly authorized,
validly issued, fully paid and nonassessable. Except as disclosed in Section 2.3
of the Company Disclosure Schedule, there are no obligations, contingent or
otherwise, of the Company or any of its subsidiaries to repurchase, redeem or
otherwise acquire any shares of Company Common Stock or the capital stock of any
subsidiary or to provide funds to or make any investment (in the form of a loan,
capital contribution, guaranty or otherwise) in any such subsidiary or any other
entity. Except as set forth in Sections 2.1 and 2.3 of the Company Disclosure
Schedule, all of the outstanding shares of capital stock of each of the
Company's subsidiaries is duly authorized, validly issued, fully paid and
nonassessable, and all such shares are owned by the Company or another
subsidiary of the Company free and clear of all security interests, liens,
claims, pledges, agreements, limitations in the Company's voting rights, charges
or other encumbrances of any nature whatsoever (collectively, "LIENS").
SECTION 2.4 Authority Relative to this Agreement. (a) The Company has
all necessary corporate power and authority to execute and deliver this
Agreement and the Merger Agreement and to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the Merger Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate action, and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or the Merger Agreement or to
consummate the transactions so contemplated (other than the REQUISITE APPROVALS
as hereinafter defined). The Board of Directors of the Company has determined
that it is advisable and in the best interest of the Company's stockholders for
the Company to enter into a business combination with Parent upon the terms and
subject to the conditions of this Agreement, and has unanimously recommended
that the Company's stockholders approve and adopt this Agreement, the Merger
Agreement, the Merger and the Conversion (as hereinafter defined). This
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by Parent and Merger Sub,
as applicable, constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms.
(b) The affirmative vote of the (i) holders of a majority of the
outstanding shares of Company Common Stock and the Series A Preferred Stock (on
an as converted basis), voting as a class, and (ii) holders of a majority of the
outstanding shares of the Series A Preferred Stock voting as a separate class
(collectively, the "Merger Approval") is necessary to approve this Agreement,
the Merger Agreement and the Merger. The affirmative votes of the holders of a
majority of the outstanding shares of the Series A Preferred Stock are the only
votes required to automatically convert all outstanding shares of the Series A
Preferred Stock and the shares of Series A Preferred Stock issuable upon the
exercise of the Warrants into the
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Company Common Stock (the "Conversion Approval", and together with the Merger
Approval, the "Requisite Approvals").
SECTION 2.5 No Conflict; Required Filings and Consents.
(a) Section 2.5(a) of the Company Disclosure Schedule includes a list of
(i) all loan agreements, notes, indentures, mortgages, pledges, conditional sale
or title retention agreements, security agreements, equipment obligations,
guaranties, standby letters of credit, equipment leases or lease purchase
agreements to which the Company or any of its subsidiaries is a party or by
which any of them is bound; and (ii) all contracts, agreements, commitments or
other understandings or arrangements to which the Company or any of its
subsidiaries is a party or by which any of them or any of their respective
properties or assets are bound or affected, but excluding contracts, agreements,
equipment leases, equipment obligations, commitments or other understandings or
arrangements entered into in the ordinary course of business and involving, in
each case, payments or receipts by the Company or any of its subsidiaries of
less than $5,000 in any single instance but not more than $20,000 in the
aggregate.
(b) Except as disclosed in Section 2.5(b) of the Company Disclosure
Schedule, (i) neither the Company nor any of its subsidiaries has breached, is
in default under, or has received written notice of any breach of or default
under, any of the agreements, contracts or other instruments referred to in
clauses (i) or (ii) of Section 2.5(a), (ii) to the best knowledge of the
Company, no other party to any of the agreements, contracts or other instrument
referred to in clauses (i) or (ii) of Section 2.5 (a) has breached or is in
default of any of its obligations thereunder, and (3) each of the agreements,
contracts and other instruments referred to in clauses (i) or (ii) of Section
2.5(a) is in full force and effect, except in any such case for breaches,
defaults or failures to be in full force and effect that have not had and could
not reasonably be expected to have a Material Adverse Effect.
(c) Except as set forth in Section 2.5(c) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company and the consummation of the
transactions contemplated hereby will not, (i) conflict with or violate the
Articles of Incorporation or By-Laws of the Company, (ii) conflict with or
violate any federal, foreign, state or provincial law, rule, regulation, order,
judgment or decree (collectively, "LAWS") applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties is bound
or affected, or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default under),
or impair the Company's or any of its subsidiaries' rights or alter the rights
or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien on any of the properties or assets of the Company or any of
its subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any of its subsidiaries is a party or by
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which the Company or any of its subsidiaries or its or any of their respective
properties is bound or affected, except in any such case for any such conflicts,
violations, breaches, defaults or other occurrences that could not reasonably be
expected to have a Material Adverse Effect.
(d) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any federal, foreign, state or provincial governmental or regulatory
authority except (i) for applicable requirements, if any, of the Securities Act,
the Exchange Act, state securities laws ("BLUE SKY LAWS"), any required foreign
anti-trust or similar filings and the filing and recordation of appropriate
merger or other documents as required by the CCC, and (ii) where the failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay consummation of the Merger,
or otherwise prevent or delay the Company from performing its obligations under
this Agreement, or would not otherwise have a Material Adverse Effect.
SECTION 2.6 Compliance, Permits.
(a) Except as disclosed in Section 2.6(a) of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries is in conflict with,
or in default or violation of, (i) any Law applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties is bound
or affected or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or its or any of their respective properties is bound or
affected, except for any such conflicts, defaults or violations which could not
reasonably be expected to have a Material Adverse Effect.
(b) Except as disclosed in Section 2.6(b) of the Company Disclosure
Schedule, the Company and its subsidiaries hold all permits, licenses,
easements, variances, exemptions, consents, certificates, orders and approvals
from governmental authorities which are material to the operation of the
business of the Company and its subsidiaries taken as a whole as it is now being
conducted (collectively, the "COMPANY PERMITS"). The Company and its
subsidiaries are in compliance with the terms of the Company Permits, except
where the failure to so comply could not reasonably be expected to have a
Material Adverse Effect.
SECTION 2.7 Financial Statements.
(a) Attached to the Company Disclosure are the draft audited consolidated
balance sheets of the Company and its Subsidiaries as of December 31, 1995 and
September 30, 1996, together with the related consolidated statements of income
and cash flows for the twelve (12) month and nine-month periods, respectively,
then ended, (the "Draft Financial Statements"). Within ten (10) business days of
the date of this Agreement, the Company will deliver to
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Parent audited consolidated balance sheets of the Company and its Subsidiaries
as of December 31, 1995 and September 30, 1996, together with the related
consolidated statements of income for the twelve and nine month periods,
respectively, then ended, all certified by Coopers & Lybrand LLC, the Company's
independent public accountants (the "Financial Statements").
(b) Each of the Financial Statements (including, in each case, any related
notes thereto) was prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes thereto), and each fairly presents the
consolidated financial position of the Company and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and cash
flows and stockholder equity for the periods indicated.
SECTION 2.8 Absence of Certain Changes or Events. Except as set forth in
Section 2.8 of the Company Disclosure Schedule, since September 30, 1996, the
Company has conducted its business in the ordinary course and there has not
occurred: (a) any material adverse change in the business, operating results,
assets, properties or condition (financial or otherwise) of the Company; (b) any
amendments or changes in the Articles of Incorporation or By-laws of the
Company; (c) any damage to, destruction or loss of any asset of the Company
(whether or not covered by insurance) that could reasonably be expected to have
a Material Adverse Effect; (d) any material change by the Company in its
accounting methods, principles or practices; (e) any material revaluation by the
Company of any of its assets, including, without limitation, writing down the
value of inventory or writing off notes or accounts receivable other than in the
ordinary course of business; (f) any other action or event that would have
required the consent of Parent pursuant to Section 4.1 had such action or event
occurred after the date of this Agreement; or (g) any sale of the property or
assets of the Company or any of its subsidiaries, except in the ordinary course
of business.
SECTION 2.9 No Undisclosed Liabilities. Except as is disclosed in Section
2.9 of the Company Disclosure Schedule, neither the Company nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise),
except liabilities (a) in the aggregate adequately provided for on the face of
the Company's audited balance sheet (or adequately described in any related
notes thereto) for the fiscal period ended September 30, 1996 (the "1996 COMPANY
BALANCE SHEET"), (b) incurred since September 30, 1996 in the ordinary course of
business consistent with past practice, or (c) incurred in connection with this
Agreement.
SECTION 2.10 Absence of Litigation. Except as set forth in Section 2.10 of
the Company Disclosure Schedule, there are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries, or any properties or
rights of the Company or any of its subsidiaries, before any federal, foreign,
state or provincial court, arbitrator or administrative, governmental or
regulatory authority or body, nor, to the knowledge of the Company, is there any
basis therefor.
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SECTION 2.11 Employee Benefit Plans, Employment Agreements.
(a) Section 2.11 (a) of the Company Disclosure Schedule lists all employee
pension plans (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), all employee welfare plans (as
defined in Section 3(1) of ERISA), and all other bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance
and other similar fringe or employee benefit plans, programs or arrangements,
and any current or former employment, executive compensation, consulting or
severance agreements, written or otherwise, for the benefit of, or relating to,
any present or former employee (including any beneficiary of any such employee)
of, or any present or former consultant (including any beneficiary of any such
consultant) to the Company, any trade or business (whether or not incorporated)
which is a member of a controlled group including the Company or which is under
common control with the Company (an "ERISA AFFILIATE") within the meaning of
Section 414 of the Code, or any subsidiary of the Company, (all such plans,
practices and programs are referred to as the "Company Employee Plans"). There
have been made available to Parent copies of (i) the most recent annual report
on Form 5500 series, with accompanying schedules and attachments, filed with
respect to each Company Employee Plan required to make such a filing, and (ii)
the most recent Internal Revenue Service determination letter with respect to
each Company Employee Plan intended to be qualified under Section 401(a) of the
Code.
(b) (i) Except in each case as set forth in Section 2.11(b) of the Company
Disclosure Schedule, none of the Company Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person, and neither the
Company nor any ERISA Affiliate has ever maintained, contributed to, or been
required to contribute to, any plan that is or was a "multiemployer plan" as
such term is defined in Section 3(37) of ERISA, a pension plan subject to Title
IV of ERISA or a plan subject to Part 3 of Title I of ERISA; (ii) there has been
no "prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any Company Employee Plan, which could
result in any material liability of the Company or any of its subsidiaries;
(iii) all Company Employee Plans are in compliance in all material respects with
the requirements prescribed by any and all Laws (including ERISA and the Code),
currently in effect with respect thereto (including all applicable requirements
for notification to participants or the Department of Labor, Internal Revenue
Service (the "IRS") or Secretary of the Treasury), and the Company and each of
its subsidiaries have performed all material obligations required to be
performed by them under, are not in any material respect in default under or
violation of, and have no knowledge of any default or violation by any other
party to, any of the Company Employee Plans; (iv) each Company Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code is the subject of a favorable
determination letter from the IRS, and nothing has occurred which may reasonably
be expected to impair such determination; and (v) there are no lawsuits or other
claims (other than claims for benefits in the ordinary course) pending or, to
the best knowledge of the Company, threatened with respect to any Company
Employee Plan.
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(c) Section 2.11(c) of the Company Disclosure Schedule sets forth a true
and complete list of each current or former employee, officer or director of the
Company or any of its subsidiaries who holds (i) any option to purchase Company
Common Stock as of the date hereof, together with the number of shares of
Company Common Stock subject to such option, the option price of such option (to
the extent determined as of the date hereof), whether such option is intended to
qualify as an incentive stock option within the meaning of Section 422(b) of the
Code (an "ISO"), and the expiration date of such option; (ii) any other right,
directly or indirectly, to acquire Company Common Stock, together with the
number of shares of Company Common Stock subject to such right. Section 2.11(c)
of the Company Disclosure Schedule also sets forth the total number of such
ISOs, such nonqualified options and such other rights.
(d) Section 2.11(d) of the Company Disclosure Schedule sets forth a true
and complete list of: (i) all employment agreements with officers of the
Company or any of its subsidiaries; (ii) all agreements with consultants who are
individuals obligating the Company or any of its subsidiaries to make annual
cash payments in an amount exceeding $30,000 (iii) all employees of, or
consultants to, the Company or any of its subsidiaries who have executed a non-
competition agreement with the Company or any of its subsidiaries; (iv) all
severance agreements, programs and policies of the Company or any of its
subsidiaries with or relating to its employees, in each case with outstanding
commitments exceeding $30,000, excluding programs and policies required to be
maintained by law; and (v) all plans, programs, agreements and other
arrangements of the Company or any of its subsidiaries with or relating to its
employees which contain change in control provisions.
SECTION 2.12 Labor Matters. Except as set forth in Section 2.12 of the
Company Disclosure Schedule: (i) there are no controversies pending or, to the
knowledge of the Company or any of its subsidiaries, threatened, between the
Company or any of its subsidiaries and any of their respective employees; (ii)
neither the Company nor any of its subsidiaries is a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by the Company or its subsidiaries, nor does the Company or any of its
subsidiaries know of any activities or proceedings of any labor union to
organize any such employees; and (iii) neither the Company nor any of its
subsidiaries has any knowledge of any strikes, slowdowns, work stoppages,
lockouts, or threats thereof, by or with respect to any employees of the Company
or any of its subsidiaries.
SECTION 2.13 Registration Statement, Proxy Statement/Prospectus. Subject to
the accuracy of the representations of Parent in Section 3.7, the information
supplied by the Company for inclusion in the Registration Statement (as defined
in Section 3.7) shall not at the time the Registration Statement is declared
effective by the SEC contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. The information supplied by the
Company for inclusion in the proxy statement/prospectus to be sent to the
shareholders of the
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Company in connection with the meeting of the shareholders of the Company to
consider the Merger (the "STOCKHOLDER MEETING") (such proxy statement/prospectus
as amended or supplemented is referred to herein as the "PROXY
STATEMENT/PROSPECTUS"), will not, on the date the Proxy Statement/Prospectus (or
any amendment thereof or supplement thereto) is first mailed to shareholders, at
the time of the Stockholder Meeting, or at the Effective Time, contain any
statement which, at such time and in light of the circumstances under which it
shall be made, is false or misleading with respect to any material fact, or
shall omit to state any material fact necessary in order to make the statements
made therein not false or misleading. If at any time prior to the Effective Time
any event relating to the Company or any of its respective affiliates, officers
or directors should be discovered by the Company which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, the Company shall promptly inform Parent and Merger Sub.
The Proxy Statement/Prospectus, including all Financial Statements of the
Company required to be included therein, shall comply in all material respects
as to form with the requirements of the Securities Act, the Exchange Act and the
rules and regulations thereunder. Notwithstanding the foregoing, the Company
makes no representation or warranty with respect to any information supplied by
Parent or Merger Sub which is contained in any of the foregoing documents.
SECTION 2.14 Restrictions on Business Activities. Except for this
Agreement or as set forth in Section 2.14 of the Company Disclosure Schedule, to
the best of the Company's knowledge, there is no agreement, judgement,
injunction, order or decree binding upon the Company or any of its subsidiaries
which has or could reasonably be expected to have the effect of prohibiting or
impairing any business practice of the Company or any of its subsidiaries, any
acquisition of property by the Company or any of its subsidiaries or the conduct
of business by the Company or any of its subsidiaries as currently conducted or
as proposed to be conducted by the Company, except for any prohibition or
impairment as could not reasonably be expected to have a Material Adverse
Effect.
SECTION 2.15 Title to Property. Except as set forth in Section 2.15 of the
Company Disclosure Schedule, the Company and each of its subsidiaries have good
and defensible title to all of their properties and assets, free and clear of
all liens, charges and encumbrances, except liens for taxes not yet due and
payable and such liens or other imperfections of title, if any, as do not
materially detract from the value of or interfere with the present use of the
property affected thereby or which could not reasonably be expected to have a
Material Adverse Effect; and, to the knowledge of the Company, all leases
pursuant to which the Company or any of its subsidiaries lease from others
material amounts of real or personal property, are in good standing, valid and
effective in accordance with their respective terms, and there is not, to the
knowledge of the Company, under any of such leases, any existing material
default or event of default (or event which with notice or lapse of time, or
both, would constitute a material default), except where the lack of such good
standing, validity and effectiveness or the existence of such default or event
of default could not reasonably be expected to have a Material Adverse Effect.
The Company does not own any real property.
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SECTION 2.16 Taxes.
(a) For purposes of this Agreement, "Tax" or "Taxes" shall mean taxes,
fees, levies, duties, tariffs, imposts, and governmental impositions or charges
of any kind in the nature of (or similar to) taxes, payable to any federal,
state, local or foreign taxing authority, including (without limitation) (i)
income, franchise, profits, gross receipts, ad valorem, net worth, value added,
sales, use, service, real or personal property, special assessments, capital
stock, license, payroll, withholding, employment, social security (or similar),
workers' compensation, unemployment compensation, disability, utility,
severance, production, excise, stamp, occupation, premiums, windfall profits,
environmental (including taxes under Code Section 59A), customs duties,
registration, alternative and add-on minimum, estimated, transfer and gains
taxes, or other tax of any kind whatsoever and (ii) in all cases, including
interest, penalties, additional taxes and additions to tax imposed with respect
thereto whether disputed or not; and "Tax Returns" shall mean returns, reports,
declarations, forms and information returns or statements relating to Taxes
including any schedule or attachment thereto required to be filed with the IRS
or any other federal, foreign, state, local or provincial taxing authority,
domestic or foreign, including, without limitation, consolidated, combined and
unitary tax returns.
(b) Other than as disclosed in Section 2.16(b) of the Company Disclosure
Schedule, (i) the Company and its subsidiaries have filed all Tax Returns
required to be filed by them and all such Tax Returns were correct and complete
in all material respects, (ii) the Company and its subsidiaries have paid and
discharged all Taxes due in connection with or with respect to the periods or
transactions covered by such Tax Returns and have paid all other Taxes as are
due, except such as are being contested in good faith by appropriate proceedings
(to the extent that any such proceedings are required) and with respect to which
the Company is maintaining adequate reserves, (iii) no Tax Return referred to in
clause (i) has been the subject of examination by the Internal Revenue Service
("IRS") or the appropriate state, local or foreign taxing authority of which
written notice was received; (vii) no deficiencies have been asserted or
assessments made as a result of any examinations of the Tax Returns referred to
in clause (i) by the IRS or the appropriate state, local or foreign taxing
authority; (iv) no action, suit, proceeding, audit, claim, deficiency or
assessment has been claimed or raised or is pending with respect to any Taxes of
the Company or any of its subsidiaries; (v) the Company and its subsidiaries
have withheld from their employees, customers, and other payees (and timely paid
to the appropriate governmental authority) all amounts required by the Tax
withholding provisions of applicable federal, state, local, and foreign laws
(including, without limitation, income, social security, and employment Tax
withholding for all types of compensation, and withholding on payments to non-
United States persons) for all periods; (vi) there has not been filed a consent
under Code section 341(f) concerning collapsible corporations with respect to
the Company or any of its subsidiaries; (vii) none of the Company or its
subsidiaries has made any payment, is obligated to make any payment, or is a
party to any agreement that could obligate it to make any payments that will not
be deductible under
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Code section 280G or be subject to the excise tax of Code section 4999; (viii)
no claim has ever been made by any authority in a jurisdiction where any of the
Company or its subsidiaries does not file Tax Returns that it is or may be
subject to tax by that jurisdiction; and (iii) there are no other Taxes that
would be due if asserted by a taxing authority, except with respect to which the
Company is maintaining reserves to the extent currently required. There are no
tax liens on or security interests in any assets of the Company or any
subsidiary thereof; and neither the Company nor any of its subsidiaries has
granted any waiver of any statute of limitations with respect to, or any
extension of a period for the assessment of, any Tax. The accruals and reserves
for Taxes (including deferred taxes) reflected in the 1996 Company Balance Sheet
are in all material respects adequate to cover all Taxes required to be accrued
through the date thereof (including interest and penalties, if any, thereon and
Taxes being contested) in accordance with generally accepted accounting
principles.
(c) Neither the Company nor any of its subsidiaries is, or has been, a
United States real property holding corporation (as defined in Section 897(c)(2)
of the Code) during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code. To the best knowledge of the Company, neither the Company nor any
of its subsidiaries owns any property of a character, the indirect transfer of
which, pursuant to this Agreement, would give rise to any material documentary,
stamp or other transfer tax.
SECTION 2.17 Environmental Matters. Except as set forth in Section 2.17 of
the Company Disclosure Schedule, and except in all cases as, in the aggregate,
have not had and could not reasonably be expected to have a Material Adverse
Effect, the Company and each of its subsidiaries: (i) have obtained all Company
Permits and other approvals which are required to be obtained under all
applicable federal, state, foreign or local laws or any regulation, code, plan,
order, decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder relating to pollution or protection of the environment,
including laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants, or hazardous or toxic materials or wastes
into ambient air, surface water, ground water, or land or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials or wastes by the Company or its subsidiaries or their respective
agents ("ENVIRONMENTAL LAWS"); (ii) are in compliance with all terms and
conditions of such required Approvals, and also are in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in applicable Environmental
Laws; (iii) as of the date hereof, are not aware of nor have received notice of
any past or present violations of Environmental Laws or any event, condition,
circumstance, activity, practice, incident, action or plan which is reasonably
likely to interfere with or prevent continued compliance with or which would
give rise to any common law or statutory liability, or otherwise form the basis
of any claim, action, suit or proceeding, against the Company or any of its
subsidiaries based on or resulting from the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge or release into the environment, of any pollutant,
contaminant or hazardous or toxic material or waste;
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and (iv) have taken all actions necessary under applicable Environmental Laws to
register any products or materials required to be registered by the Company or
its subsidiaries (or any of their respective agents) thereunder.
SECTION 2.18 Intellectual Property.
(a) The Company, directly or indirectly, owns, or is licensed or otherwise
possesses legally enforceable rights to use, all inventions, patents,
trademarks, trade names, service marks, copyrights, and any applications
therefor, maskworks, network protocols, schematics, technology, trade secrets,
research and development, know-how, technical data, computer software programs
or applications (in both source code and object code form), and tangible or
intangible proprietary information or material (excluding Commercial Software as
defined in paragraph (e) below) that are material to the business of the Company
and its subsidiaries as currently conducted or as proposed to be conducted by
the Company or its subsidiaries (the "COMPANY INTELLECTUAL PROPERTY RIGHTS").
All of the employees, consultants and independent contractors of the Company or
any predecessor of the Company (including any entity from which the Company
purchased assets other than in the ordinary course of business) that have
participated in the development of the Company Intellectual Property, or any
portion thereof, in any way have entered into agreements with the Company (or
with a predecessor of the Company, but which agreements have been validly
assigned to, and are enforceable by, the Company) assigning all right, title and
interest in the Company Intellectual Property to the Company.
(b) Section 2.18(b) of the Company Disclosure Schedule sets forth a
complete list of all patents, trademarks, registered copyrights, trade names and
service marks, and any applications therefor, included in the Company
Intellectual Property Rights, and specifies, where applicable, the jurisdictions
in which each such Company Intellectual Property Right has been issued or
registered or in which an application for such issuance and registration has
been filed, including the respective registration or application numbers and the
names of all registered owners.
(c) Section 2.18(c) of the Company Disclosure Schedule sets forth a
complete list of all material licenses, sublicenses and other agreements as to
which the Company or any of its subsidiaries is a party and pursuant to which
the Company, any of its subsidiaries or any other person is authorized to use
any Company Intellectual Property Right (excluding object code end-user licenses
granted to end-users in the ordinary course of business that permit use of
software products without a right to modify, distribute or sublicense the same
("END-USER LICENSES")) or other trade secret material to the Company or any of
its subsidiaries, and includes the identity of all parties thereto. None of the
Company or any of its subsidiaries is in violation of any license, sublicense or
agreement described on such list except such violations as do not materially
impair the Company's or such subsidiary's rights under such license, sublicense
or agreement. The execution and delivery of this Agreement by the Company, and
the consummation of the transactions contemplated hereby, will neither cause
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the Company or any of its subsidiaries to be in violation or default under any
such license, sublicense or agreement, nor entitle any other party to any such
license, sublicense or agreement to terminate or modify such license, sublicense
or agreement, except as set forth on Section 2.18(c) of the Company Disclosure
Schedule.
(d) Either the Company or one of its subsidiaries is the sole and
exclusive owner or licensee of, with all right, title and interest in and to
(free and clear of any liens or encumbrances) the Company Intellectual Property
Rights, and has sole and exclusive rights (and is not contractually obligated to
pay any compensation to any third party in respect thereof) to the use thereof
or the material covered thereby in connection with the services or products in
respect of which the Company Intellectual Property Rights are being used. Except
as disclosed in Section 2.18(d) of the Company Disclosure Schedule, none of the
Company and its subsidiaries has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any intellectual property
rights of third parties, and none of the Company and its subsidiaries and the
directors and officers (and employees with responsibility for Company
Intellectual Property Rights matters) of the Company has ever received any
charge, complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that the
Company must license or refrain from using any intellectual property rights of
any third party). To the knowledge of any of the Company and its subsidiaries
and the directors and officers (and employees with responsibility for Company
Intellectual Property Rights matters) of the Company and the subsidiaries, no
third party has interfered with, infringed upon, misappropriated, or otherwise
come into conflict with any Company Intellectual Property Rights. All
registered trademarks, service marks and copyrights held by the Company are
valid and subsisting. No Company Intellectual Property Right or product of the
Company or any of its subsidiaries is subject to any outstanding decree, order,
judgment, or stipulation restricting in any manner the licensing thereof by the
Company or any of its subsidiaries. Neither the Company nor any of its
subsidiaries has entered into any agreement under which the Company or its
subsidiaries is restricted from selling, licensing or otherwise distributing any
of its products to any class of customers, in any geographic area, during any
period of time or in any segment of the market. The Company and its subsidiaries
have a policy requiring each employee to execute a confidentiality agreement
substantially in the form previously delivered to Parent.
(e) "Commercial Software" means packaged commercially available software
programs generally available to the public through retail dealers in computer
software which have been licensed to the Company or any of its subsidiaries (or,
in the case of Section 3.18, to Parent) pursuant to end-user licenses and which
are used in the Company's or its subsidiaries' business (or in Parent's business
in the case of Section 3.18) but are in no way a component of or incorporated in
or specifically required to develop or support any of the Company's or its
subsidiaries' (or of Parent's in the case of Section 3.18) products and related
trademarks, technology and know-how.
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SECTION 2.19 Interested Party Transactions. Except as set forth in Section
2.19 of the Company Disclosure Schedule, since December 31, 1995, no event has
occurred that would be required to be reported as a Certain Relationship or
Related Transaction, pursuant to Item 404 of Regulation S-K promulgated by the
SEC assuming the monetary threshold for reporting such relationships and
transactions under such Item was $20,000.
SECTION 2.20 Insurance. Section 2.20 of the Company Disclosure Schedule
sets forth an accurate and complete list and summary description (including
nature of coverage, limits, and deductibles) of all policies of insurance
maintained, owned or held by the Company on the date hereof.
SECTION 2.21 Accounts Receivable; Inventories.
(a) The accounts receivable of the Company and its subsidiaries as
reflected in the most recent Financial Statements, to the extent uncollected on
the date hereof and the accounts receivable reflected on the books of the
Company and its subsidiaries are valid and existing and represent monies due,
are current and, to the knowledge of the Company, collectible in accordance with
their terms at their recorded amounts, subject only to the reserve for
receivables not collectible in the ordinary course of business as reflected on
the face of the September 30, 1996 Balance Sheet as adjusted for time through
the Closing Date in accordance with past practice and custom, and (subject to
the aforesaid reserves) are subject to no refunds or other adjustments and to no
defenses, rights of setoff, assignments, restrictions, encumbrances or
conditions enforceable by third parties on or affecting any thereof.
(b) The inventory of the Company as reflected in the most recent Financial
Statements consists of raw materials and supplies, manufactured and purchased
parts, goods in process, and finished goods, all of which is merchantable and
fit or suitable and usable for the production or completion of merchantable
products for sale in the ordinary course of business, and none of which is slow-
moving, obsolete, below standard quality, damaged, or defective, subject only to
the reserve for inventory write down set forth on the face of the September 30,
1996 Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with GAAP and the past
custom and practice of the Company and its subsidiaries. Each item of such
inventory reflected in the September 30, 1996 Balance Sheet and books and
records of the Company is reflected on the basis of a complete physical count.
Since September 30, 1996, no inventory has been sold or disposed of except
through sales in the ordinary course of business.
SECTION 2.22 Equipment. All of the tangible personal property of the
Company other than inventory (the "Equipment") is in good working order,
operating condition and state of repair, ordinary wear and tear excepted.
Schedule 2.22 lists each lease or other contractual obligation (including all
amendments) under which any Equipment having a cost or aggregate capital lease
obligations in excess of $10,000 is held or used (the "Leases") (indicating for
each Lease (i) a description of the property leased thereunder, including
location, (ii) the term
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thereof and a description of any available renewal periods, (iii) the rental and
other material payment terms, (iv) the owner of the property subject to such
Lease and (v) whether any consents are required under such Lease in connection
with the transactions contemplated by this Agreement). The Company has delivered
to Parent true and complete copies of each Lease and any and all other material
contractual obligations relating to any of the Leases, in each case as in effect
on the date hereof and as it will be in effect at the Closing, including,
without limitation, all amendments.
SECTION 2.23 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company or its subsidiaries or affiliates.
SECTION 2.24 Change in Control Payments. Except as set forth on Section
2.11(d) or Section 2.24 of the Company Disclosure Schedule, neither the Company
nor any of its subsidiaries have any plans, programs or agreements to which they
are parties, or to which they are subject, pursuant to which payments may be
required or acceleration of benefits may be required upon a change of control of
the Company.
SECTION 2.25 Expenses. Section 2.25 of the Company Disclosure Schedule
attached hereto sets forth a description of the estimated expenses of the
Company and its subsidiaries which the Company expects to incur, or has
incurred, in connection with the transactions contemplated by this Agreement.
SECTION 2.26 Full Disclosure. No representation or warranty made by the
Company contained in this Agreement and no statement contained in any
certificate or schedule furnished or to be furnished by the Company or its
subsidiaries to Parent or Merger Sub in, or pursuant to the provisions of, this
Agreement, including without limitation the Company Disclosure Schedule,
contains or shall contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary, in the light of the
circumstances under which it was made, in order to make statements herein or
therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent and warrant
to the Company that, except as set forth in the written disclosure schedule
delivered on or prior to the date hereof by Parent to the Company that is
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article III (the "PARENT DISCLOSURE SCHEDULE"):
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SECTION 3.1 Organization and Qualification; Subsidiaries. Each of Parent
and its subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
the requisite corporate power and authority necessary to own, lease and operate
the properties it purports to own, operate or lease and to carry on its business
as it is now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power, authority could not
reasonably be expected to have a Material Adverse Effect. Each of Parent and
each of its subsidiaries is duly qualified or licensed as a foreign corporation
to do business, and is in good standing, in each jurisdiction where the
character of its properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that could not
reasonably be expected to have a Material Adverse Effect.
SECTION 3.2 Charter and By-Laws. Parent has heretofore furnished to the
Company a complete and correct copy of its Articles of Incorporation and By-
Laws, as amended to date. Such Articles of Incorporation and By-Laws are in full
force and effect. Neither Parent nor Merger Sub is in violation of any of the
provisions of its Articles of Incorporation or By-Laws.
SECTION 3.3 Capitalization. As of October 31, 1996, the authorized
capital stock of Parent consisted of (i) 240,000,000 shares of Parent Common
Stock of which 75,756,523 shares were issued and outstanding, all of which are
validly issued, fully paid and non-assessable, none of which were held in
treasury, 5,693,319 shares were reserved for future issuance under Parent's
equity incentive plan, directors option plan and employee stock purchase plan
and (ii) 2,000,000 shares of preferred stock, $1.00 par value per share, none of
which was issued and outstanding and none of which was held in treasury. No
material change in such capitalization has occurred between October 31, 1996 and
the date hereof, except for the Parent Stock Split. The authorized capital
stock of Merger Sub consists of 1,000 shares of common stock, $.01 par value, of
which 100 shares are issued and outstanding.
SECTION 3.4 Authority Relative to this Agreement. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement and the Merger Agreement and to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Merger
Agreement by Parent and Merger Sub and the consummation by Parent and Merger Sub
of the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of Parent and Merger
Sub, and no other corporate proceedings on the part of Parent or Merger Sub are
necessary to authorize this Agreement, or the Merger Agreement, or to consummate
the transactions contemplated hereby or thereby. This Agreement has been duly
and validly executed and delivered by Parent and Merger Sub and, assuming the
due authorization, execution and
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delivery by the Company, constitutes a legal, valid and binding obligation of
Parent and Merger Sub enforceable against each of them in accordance with its
terms.
SECTION 3.5 No Conflict, Required Filings and Consents.
(a) Except as set forth in Section 3.5(c) of the Parent Disclosure
Schedule, the execution and delivery of this Agreement by Parent and Merger Sub
do not, and the performance of this Agreement by Parent and Merger Sub will not,
(i) conflict with or violate the Articles of Incorporation or By-Laws of Parent
or Merger Sub, (ii) conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Parent or any of its subsidiaries or by which
its or their respective properties are bound or affected, or (iii) result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or impair Parent's or any of its
subsidiaries' rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of Parent or any of its subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Parent or any of its
subsidiaries is a party or by which Parent or any of its subsidiaries or its or
any of their respective properties are bound or affected, except in any such
case for any such conflicts, violations, breaches, defaults or other occurrences
that could not reasonably be expected to have a Material Adverse Effect.
(b) The execution and delivery of this Agreement by Parent and Merger Sub
does not, and the performance of this Agreement by Parent and Merger Sub will
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any governmental or regulatory authority, domestic or
foreign, except (i) for applicable requirements, if any, of the Securities Act,
the Exchange Act, the Blue Sky Laws, any foreign antitrust or similar filings
and the filing and recordation of appropriate merger or other documents as
required by the CCC, and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not prevent or delay consummation of the Merger, or otherwise prevent
Parent or Merger Sub from performing their respective obligations under this
Agreement, and would not have a Material Adverse Effect.
SECTION 3.6 SEC Filings; Financial Statements.
(a) Parent has filed all forms, reports and documents required to be filed
with the SEC including (i) its Annual Reports on Form 10-K for the fiscal years
ended February 29, 1996 and February 28, 1995, (ii) its Quarterly Report on Form
10-Q for the quarter ended May 31, 1996, as amended, (iii) its Quarterly Report
on Form 10-Q for the quarter ended August 31, 1996, (iv) its current Report on
Form 8-K/A-2 filed November 20, 1996, (v) all proxy statements relating to
Parent's meetings of stockholders (whether annual or special), (vi) all other
reports or registration statements (other than Reports on Form 10-Q) filed by
Parent with
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the SEC since January 1, 1996, and (vii) all amendments and supplements to all
such reports and registration statements filed by Parent with the SEC
(collectively, the "PARENT SEC REPORTS"). The Parent SEC Reports (i) were
prepared in all material respects in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be, and (ii) did not at the
time they were filed (or if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. None of Parent's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Parent SEC Reports has been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved (except as may be indicated
in the notes thereto) and each fairly presents in all material respects the
consolidated financial position of Parent and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount.
SECTION 3.7 Registration Statement; Proxy Statement/Prospectus. Subject
to the accuracy of the representations of the Company in Section 2.13, the
registration statement (the "REGISTRATION STATEMENT") pursuant to which the
Parent Common Stock to be issued in the Merger will be registered with the SEC
shall not, at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements included therein not misleading. The information
supplied by Parent for inclusion in the Proxy Statement/Prospectus will not, on
the date the Proxy Statement/Prospectus (or any amendment or supplement thereto)
is first mailed to Shareholders of the Company, at the time of the Shareholders
Meeting and at the Effective Time, contain any statement which, at such time and
in light of the circumstances under which it shall be made, is false or
misleading with respect to any material fact, or will omit to state any material
fact necessary in order to make the statements therein not false or misleading.
If at any time prior to the Effective Time any event relating to Parent, Merger
Sub or any of their respective affiliates, officers or directors should be
discovered by Parent or Merger Sub which should be set forth in an amendment to
the Registration Statement or a supplement to the Proxy Statement/Prospectus,
Parent or Merger Sub will promptly inform the Company. Notwithstanding the
foregoing, Parent and Merger Sub make no representation or warranty with respect
to any information supplied by the Company which is contained in any of the
foregoing documents. The Registration Statement and Proxy Statement/Prospectus
shall comply in all material respects as to form with the requirements of the
Securities Act, the Exchange Act and the rules and regulations thereunder.
Notwithstanding the foregoing, Parent
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makes no representation or warranty with respect to any information supplied by
the Company which is contained in, or furnished in connection with the
preparation of, the Registration.
SECTION 3.8 Ownership of Merger Sub; No Prior Activities. As of the date
hereof and the Effective Time, except for obligations or liabilities incurred in
connection with its incorporation or organization and the transactions
contemplated by this Agreement and except for this Agreement and any other
agreements or arrangements contemplated by this Agreement, Merger Sub has not
and will not have incurred, directly or indirectly, through any subsidiary or
affiliate, any obligations or liabilities or engaged in any business activities
of any type or kind whatsoever or entered into any agreements or arrangements
with any person.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.1 Conduct of Business by the Company Pending the Merger. The
Company covenants and agrees that, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, unless Parent, shall otherwise agree in writing, the
Company shall conduct its business and shall cause the businesses of its
subsidiaries to be conducted only in, and the Company and its subsidiaries shall
not take any action except in, the ordinary course of business and in a manner
consistent with past practice other than actions taken by the Company or its
subsidiaries in contemplation of the Merger; and the Company shall use all
reasonable commercial efforts to preserve substantially intact the business
organization of the Company and its subsidiaries, to keep available the services
of the present officers, employees and consultants of the Company and its
subsidiaries and to preserve the present relationships of the Company and its
subsidiaries with customers, suppliers and other persons with which the Company
or any of its subsidiaries has significant business relations. By way of
amplification and not limitation, except as contemplated by this Agreement,
neither the Company nor any of its subsidiaries shall, during the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, directly or indirectly do, or propose
to do, any of the following without the prior written consent of Parent:
(a) amend or otherwise change the Charter or By-Laws of the Company or any
of its subsidiaries;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of capital
stock of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest (including, without limitation, any phantom interest) in the
Company, any of its subsidiaries or affiliates (except for the issuance of
shares of Company Common Stock issuable pursuant to Stock Options which were
granted under the Company Stock Option Plan and are outstanding on the date
hereof, or in connection with the
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Conversion or other conversion of the Series A Preferred Stock into shares of
Company Common Stock, or shares of Series A Preferred Stock issued upon the
exercise of the Warrants).
(c) sell, pledge, dispose of or encumber any assets of the Company or any
of its subsidiaries (except for (i) sales of assets in the ordinary course of
business and in a manner consistent with past practice, (ii) dispositions of
obsolete or worthless assets, and (iii) sales of immaterial assets not in excess
of $10,000 in the aggregate);
(d) (i) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, except that a wholly owned subsidiary of the Company
may declare and pay a dividend to its parent, (ii) split, combine or reclassify
any of its capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock (except for the issuance of shares of Company Common Stock
issuable pursuant to (A) Stock Options which were granted under the Company
Stock Option Plan and are outstanding on the date hereof, (B) the Conversion or
other conversion of the Series A Preferred Stock into shares of Company Common
Stock and the issuance of shares of Series A Preferred Stock issuable upon the
exercise of the Warrants), or (iii) amend the terms or change the period of
exercisability of, purchase, repurchase, redeem or otherwise acquire, or permit
any subsidiary to purchase, repurchase, redeem or otherwise acquire, any of its
securities or any securities of its subsidiaries, including, without limitation,
shares of Company Common Stock or any option, warrant or right, directly or
indirectly, to acquire shares of Company Common Stock, or propose to do any of
the foregoing (except for the purchase by the Company of 444,440 shares of
Company Common Stock pursuant to the Restricted Stock Purchase Agreement dated
March 23, 1995 and the Separation Agreement and Release dated August 26, 1996,
each between the Company and Bruce Irvine (collectively the "Irvine Repurchase
Agreements");
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof; (ii) incur any indebtedness for borrowed money calling for aggregate
payments in excess of $20,000 or issue any debt securities or assume, guarantee
or endorse or otherwise as an accommodation become responsible for, the
obligations of any person or, except in the ordinary course of business
consistent with past practice, make any loans or advances; (iii) enter into or
amend any material contract or agreement; (iv) authorize any capital
expenditures or purchase of fixed assets which are, in the aggregate, in excess
of $20,000 for the Company and its subsidiaries taken as a whole; or (v) enter
into or amend any contract, agreement, commitment or arrangement to effect any
of the matters prohibited by this Section 4.1(e);
(f) increase the compensation payable or to become payable to its officers
or employees, or grant any severance or termination pay to, or enter into any
employment or severance agreement with any director, officer or other employee
of the Company or any of its
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subsidiaries, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any current or former directors, officers or
employees, except, in each case, as may be required by law provided the Company
may increase wages in the ordinary course of business consistent with the
Company's past practice but not more than 5% for any individual employee;
(g) take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue recognition,
payments of accounts payable and collection of accounts receivable);
(h) make any material tax election inconsistent with past practice or
settle or compromise any material federal, state, local or foreign tax liability
or agree to an extension of a statute of limitations;
(i) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities reflected or reserved against in
the Financial Statements or incurred in the ordinary course of business and
consistent with past practice; or
(j) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1 (a) through (i) above, or any action which would make
any of the representations or warranties of the Company contained in this
Agreement untrue or incorrect or prevent the Company from performing or cause
the Company not to perform its covenants hereunder.
SECTION 4.2 No Solicitation.
(a) The Company shall not, directly or indirectly, through any officer,
director, employee, representative or agent of the Company or any of its
subsidiaries, (i) solicit, initiate or encourage the initiation of any inquiries
or proposals regarding any merger, sale of substantial assets, sale of shares of
capital stock (including without limitation by way of a tender offer) or similar
transactions involving the Company or any subsidiaries of the Company other than
the Merger (any of the foregoing inquiries or proposals being referred to herein
as an "ACQUISITION PROPOSAL"), (ii) engage in negotiations or discussions
concerning, or provide any nonpublic information to any person relating to, any
Acquisition Proposal or (iii) agree to, approve or recommend any Acquisition
Proposal.
(b) The Company shall immediately notify Parent after receipt of any
Acquisition Proposal, or any modification of or amendment to any Acquisition
Proposal, or any request for nonpublic information relating to the Company or
any of its subsidiaries in connection with an Acquisition Proposal or for access
to the properties, books or records of the Company or
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any subsidiary by any person or entity that informs the Board of Directors of
the Company or such subsidiary that it is considering making, or has made, an
Acquisition Proposal. Such notice to Parent shall be made orally and in writing.
(c) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any persons (other than Parent and
Merger Sub) conducted heretofore with respect to any of the foregoing. The
Company agrees not to release any third party from the confidentiality
provisions of any confidentiality agreement to which the Company is a party.
(d) The Company shall ensure that the officers, directors and employees of
the Company and its subsidiaries and any investment banker or other advisor or
representative retained by the Company are aware of the restrictions described
in this Section 4.2.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Proxy Statement/Prospectus; Registration Statement; Permit
Application. As promptly as practicable after the execution of this Agreement,
the Company and Parent shall, at the option of Parent either (i) prepare and
file with the SEC a registration statement which shall constitute the Proxy
Statement/Prospectus and the Registration Statement of the Parent with respect
to the Parent Common Stock to be issued in connection with the Merger and shall
use all reasonable efforts to cause the Registration Statement to become
effective as soon as practicable, and to mail the Proxy Statement/Prospectus to
Company shareholders, as soon thereafter as practicable, or (ii) file an
application for a permit with respect to the Parent Common Stock to be issued in
connection with the Merger pursuant to Section 25121 of the CCC to be issued
following a fairness hearing to be held pursuant to the authority granted by
Section 25142 of the CCC and shall use all reasonable efforts to cause such
permit to issue as soon as practicable and to mail the Proxy
Statement/Prospectus to the Company shareholders, as soon thereafter as
practicable. The Proxy Statement/Prospectus shall include the recommendation of
the Board of Directors of the Company in favor of the Merger.
SECTION 5.2 Proxy Statement/Prospectus. The Company shall furnish Parent
with all information concerning the Company and the holders of its capital stock
and shall take such further action as Parent may reasonably request in
connection with the Proxy Statement/Prospectus and the issuance of the Parent
Common Stock. If at any time prior to the Effective Time any event or
circumstance relating to the Company, Parent or any of their respective
subsidiaries, affiliates, officers or directors should be discovered by such
party which should be set forth in an amendment or a supplement to the Proxy
Statement/Prospectus, such party shall promptly inform the other thereof and
take appropriate action in respect thereof.
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SECTION 5.3 Stockholder Meeting. The Company shall call and hold the
Stockholder Meeting as promptly as practicable and in accordance with applicable
laws for the purpose of obtaining the approval of the Merger, this Agreement,
the Merger Agreement, the Conversion, and the transactions contemplated hereby.
The Company shall use all its best efforts to solicit from (i) all of its
stockholders and the holders of the Preferred Series A Stock proxies in favor of
adoption of the Merger, this Agreement and approval of the transactions
contemplated hereby and (ii) holders of its Series A Preferred Stock proxies in
favor of the Conversion; and shall take all other action necessary or advisable
to secure the vote or consent of stockholders to obtain such approvals.
SECTION 5.4 Access to Information; Confidentiality. Upon reasonable
notice and subject to restrictions contained in confidentiality agreements to
which such party is subject (from which such party shall use reasonable efforts
to be released), the Company and Parent shall each (and shall cause each of
their subsidiaries to) afford to the officers, employees, accountants, counsel
and other representatives of the other, reasonable access, during the period to
the Effective Time, to all its properties, books, contracts, commitments and
records and, during such period, the Company and Parent each shall (and shall
cause each of their subsidiaries to) furnish promptly to the other all
information concerning its business, properties and personnel as such other
party may reasonably request, and each shall make available to the other the
appropriate individuals (including attorneys, accountants and other
professionals) for discussion of the other's business, properties and personnel
as either Parent or the Company may reasonably request. Each party shall keep
such information confidential in accordance with the terms of the
confidentiality letter (the "Confidentiality Letter") dated June 19, 1996
between Parent and the Company, as amended by letter agreement dated October 10,
1996.
SECTION 5.5 Consents; Approvals. The Company and Parent shall each use
their reasonable best efforts to obtain all consents, waivers, approvals,
authorizations or orders (including, without limitation, all United States and
foreign governmental and regulatory rulings and approvals), and the Company and
Parent shall make all filings (including, without limitation, all filings with
United States and foreign governmental or regulatory agencies) required in
connection with the authorization, execution and delivery of this Agreement by
the Company and Parent and the consummation by them of the transactions
contemplated hereby, in each case as promptly as practicable. The Company and
Parent shall furnish promptly all information required to be included in the
Proxy Statement/Prospectus, or for any application or other filing to be made
pursuant to the rules and regulations of any United States or foreign
governmental body in connection with the transactions contemplated by this
Agreement.
SECTION 5.6 Agreements with Respect to Affiliates. Schedule 5.6 contains
a true and complete list identifying all persons who are, or will be, at the
time of the Company Stockholders Meeting, "affiliates" of the Company for
purposes of Rule 145 under the Securities Act ("RULE 145"). The Company shall
cause each person who is identified as an
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"affiliate" to deliver to Parent, prior to the Effective Time, a written
agreement (an "AFFILIATE AGREEMENT") in connection with restrictions on
affiliates under Rule 145, in substantially the form of Exhibit 5.6.
SECTION 5.7 Notification of Certain Matters. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence or nonoccurrence of any event the occurrence or nonoccurrence
of which would be likely to cause any representation or warranty contained in
this Agreement to become materially untrue or inaccurate, or (ii) any failure of
the Company, Parent or Merger Sub, as the case may be, materially to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder; provided, however, that the delivery of any notice pursuant to
this Section shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice; and provided further that failure
to give such notice shall not be treated as a breach of covenant for the
purposes of Sections 6.2(a) or 6.3(a) unless the failure to give such notice
results in material prejudice to the other party.
SECTION 5.8 Further Action/Tax Treatment. Upon the terms and subject to
the conditions hereof each of the parties hereto shall use all reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all other things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement, to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, and otherwise
to satisfy or cause to be satisfied all conditions precedent to its obligations
under this Agreement. The foregoing covenant shall not include any obligation
by Parent to agree to divest, abandon, license or take similar action with
respect to any assets (tangible or intangible) of Parent or the Company. Each
of Parent, Merger Sub and the Company shall use its best efforts to cause the
Merger to qualify, and will not (both before and after consummation of the
Merger) take any actions which to its knowledge could reasonably be expected to
prevent the Merger from qualifying, as a reorganization under the provisions of
Section 368 of the Code.
SECTION 5.9 Public Announcements. Parent and the Company shall consult
with each other before issuing any press release with respect to the Merger or
this Agreement and shall not issue any such press release or make any such
public statement without the prior consent of the other party, which shall not
be unreasonably withheld; provided, however, that Parent may, without the prior
consent of the Company, issue such press release or make such public statement
as may upon the advice of counsel be required by law or the rules and
regulations of the New York Stock Exchange if it has used all reasonable efforts
to consult with the other party prior thereto.
SECTION 5.10 Conveyance Taxes. Parent and the Company shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications, or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees, and any
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similar taxes which become payable in connection with the transactions
contemplated hereby that are required or permitted to be filed at or before the
Effective Time.
SECTION 5.11 Accountants' Letters. The Company and Parent shall cause
Coopers & Lybrand LLC, in the case of the Company, or KPMG Peat Marwick L.L.P,
in the case of Parent, to deliver to the other party, a letter, dated on or
before the date the Proxy Statement/Prospectus is mailed to the Company's
stockholders in connection with the Stockholders Meeting, covering such matters
as are requested by Parent or the Company, as the case may be, and as are
customarily addressed in accountant's "comfort" letters.
SECTION 5.12 Listing of Parent Shares. Parent shall cause the Parent
Shares to be issued in the Merger to be approved for quotation, upon official
notice of issuance, on the New York Stock Exchange.
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.1 Conditions to Obligation of Each Party to Effect the Merger.
The respective obligations of each party to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Effectiveness of Registration Statement/Fairness Hearing. As of the
Closing, either (i) the Registration Statement shall have been declared
effective by the SEC under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the SEC
and no proceedings for that purpose and no similar proceeding in respect of the
Proxy Statement/Prospectus shall have been initiated or threatened by the SEC or
(ii) a fairness hearing shall have been held before the California Department of
Corporations (the "Department"), and the Department shall have issued a permit
for the issuance of the Parent Common Stock issuable pursuant to the terms of
this Agreement.
(b) Requisite Approvals; Conversion of Series A Preferred Stock. This
Agreement, the Merger Agreement, the Merger and the Conversion shall have
received the Requisite Approvals and the holders of the Series A Preferred Stock
shall have converted such shares into shares of the Company's Common Stock.
(c) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor shall any proceeding brought
by any administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending;
and there shall not be any action taken, or any statute, rule,
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regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal; and
(d) Governmental Actions. There shall not have been instituted, pending
or threatened any action or proceeding (or any investigation or other inquiry
that might result in such an action or proceeding) by any governmental authority
or administrative agency before any governmental authority, administrative
agency or court of competent jurisdiction, nor shall there be in effect any
judgment, decree or order of any governmental authority, administrative agency
or court of competent jurisdiction, in either case, seeking to prohibit or limit
Parent from exercising all material rights and privileges pertaining to its
ownership of the Surviving Corporation or the ownership or operation by Parent
or any of its subsidiaries of all or a material portion of the business or
assets of Parent or any of its subsidiaries, or seeking to compel Parent or any
of its subsidiaries to dispose of or hold separate all or any material portion
of the business or assets of Parent or any of its subsidiaries (including the
Surviving Corporation and its subsidiaries), as a result of the Merger or the
transactions contemplated by this Agreement.
(e) Merger Agreement; Officers' Certificates. The Merger Agreement shall
have been executed and delivered by the parties thereto. The Officers'
Certificates contemplated under Section 1103 of the CCC shall have been executed
and delivered by the requisite officers of the constituent corporations to the
Merger.
SECTION 6.2 Additional Conditions to Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to effect the Merger are also subject
to the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company contained in this Agreement shall be true and correct in all
respects at and as of the Effective Time with the same force and effect as if
made at and as of such time, and Parent shall have received a certificate to
such effect signed by the President of the Company;
(b) Agreements and Covenants. The Company shall have performed or
complied with all agreements and covenants required by this Agreement to be
performed or complied with by it at or prior to the Effective Time and Parent
and Merger Sub shall have received a certificate to such effect signed on behalf
of the Company by the President and the Chief Financial Officer of the Company;
(c) Consents Obtained. All consents, waivers, approvals, authorizations
or orders required to be obtained, and all filings required to be made, by the
Company for the due authorization, execution and delivery of this Agreement and
the consummation by it of the transactions contemplated hereby shall have been
obtained and made by the Company;
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(d) Opinion of Counsel to the Company. Parent shall have received an
opinion of Wilson, Sonsini, Goodrich & Rosati, counsel to the Company in form
and substance as set forth on Exhibit 6.2(d) attached hereto;
(e) Tax Opinion. Parent shall have received an opinion of Ropes & Gray,
in form and substance reasonably satisfactory to Parent, to the effect that the
Merger will constitute a reorganization within the meaning of Section 368 of the
Code. In rendering such opinion, counsel may rely upon such reasonable
representations and certificates of Parent, Merger Sub, the Company and certain
shareholders of the Company as the parties may agree, and the parties to this
Agreement agree to make, and to use reasonable efforts to cause such
shareholders of the Company to make, such representations and deliver such
certificates;
(f) Affiliate Agreements. Parent shall have received from each person who
is identified in Schedule 5.6 as an "affiliate" of the Company, an Affiliate
Agreement, and such Affiliate Agreement shall be in full force and effect;
(g) Registration and Other Rights. All existing registration rights,
preemptive rights and rights of first refusal with respect to the purchase of
the capital stock of the Company of holders of Company securities shall have
been terminated and Parent and Merger Sub shall have received a certificate to
such effect signed on behalf of the Company by the President and the Chief
Financial Officer of the Company;
(h) Escrow Agreement. Each of Escrow Agent, the Company and the
Stockholder Representative shall have executed and delivered to Parent an Escrow
Agreement substantially in the form of Exhibit 6.2(h);
(i) Employment Agreements. Each of the persons listed on Schedule
6.2(i)(1) shall have entered into employment agreements with Parent in
substantially the form attached as Exhibit 6.2(i)(2), and each of the persons
listed on Schedule 6.2(j)(3) shall have entered into employment agreements with
Parent in substantially the form attached as Exhibit 6.2(i)(4). Such agreements
shall be in full force and effect as of the Effective Time and such persons
shall be in the employ of the Company immediately prior to the Effective Time
and no such person shall have indicated his or her intention to terminate his
or her employment with the Surviving Corporation following the Effective Time;
(j) Exercise of Warrants. The Warrants (i) shall have been exercised in
full, all shares issuable pursuant thereto shall have been issued in accordance
with the terms of the Warrants, and the shares of Series A Preferred Stock
issued pursuant thereto shall have been converted into shares of Company Common
Stock or (ii) the Warrants shall have been terminated and be of no further force
or effect.
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(k) Stock Repurchase. The Company shall have exercised its rights, and
consummated the repurchase of 444,440 of Company Common Stock pursuant to the
terms of the Irvine Repurchase Agreements; and
(l) Stock Repurchase Agreements. Each of Paul Doolan, Frederick Gaskell
and Susan Marvin (each a "Founding Stockholder") shall have executed a letter
agreement in the form of Exhibit 6.2(n), confirming that the Restricted Stock
Purchase Agreement between the Company and such individual shall be enforceable
by the Surviving Corporation following the Effective Time to the same extent
such agreement was enforceable by the Company prior to the Effective Time.
(m) Noncompetition Agreements. Each of the Founding Stockholders and
Richard Pospisil shall have entered into a noncompetition agreement in the form
of Exhibit 6.2(o), provided that the obligations of Gaskell and Pospisil
pursuant to such agreements shall be for only one year from the Effective Time.
(n) Stockholder Consent. In addition to obtaining the Requisite
Approvals, Stockholders of the Company holding not less than 95% of the Company
Common Stock that will be outstanding immediately prior the Effective Time
(assuming that all shares of Series A Preferred Stock have been converted into
Company Common Stock) shall have either (i) voted for and approved each of this
Agreement, the Merger Agreement and the Merger or (ii) approved each of this
Agreement, the Merger Agreement and the Merger by written consent.
(o) Adverse Effect. There shall not have occurred a Material Adverse
Effect with respect to the Company.
(p) Audited Financial Statements. The Company shall have delivered to
Parent the Financial Statements and the Financial Statements shall not differ in
any material respect from the Draft Financial Statements.
(q) Consent to Assignment of DSET Agreements. DSET Corporation shall have
executed a written consent, in a form reasonably satisfactory to Parent,
approving the assignment of the DSET Agreements (as defined in the Company
Disclosure Schedule) to the Surviving Corporation.
(r) Release of Liens. All security interests, liens and collateral
assignments of or in any property of the Company in favor of The OASys Group LLC
shall have been terminated and released.
SECTION 6.3 Additional Conditions to Obligation of the Company. The
obligation of the Company to effect the Merger is also subject to the following
conditions:
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(a) Representations and Warranties. The representations and warranties of
Parent and Merger Sub contained in this Agreement shall be true and correct in
all respects on and as of the Effective Time, with the same force and effect as
if made at and as of such time, and the Company shall have received a
certificate to such effect signed by the Chief Financial Officer of Parent;
(b) Agreements and Covenants. Parent and Merger Sub shall have performed
or complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by them on or prior to the
Effective, and the Company shall have received a certificate to such effect
signed by the Chairman and the Chief Financial Officer of Parent;
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required to be
made, by Parent and Merger Sub for the authorization, execution and delivery of
this Agreement and the consummation by them of the transactions contemplated
hereby shall have been obtained and made by Parent and Merger Sub;
(d) Tax Opinions. The Company shall have received a written opinion of
Wilson, Sonsini, Goodrich & Rosati, in form and substance reasonably
satisfactory to the Company, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368 of the Code. In rendering such
opinion, counsel may rely upon such reasonable representations and certificates
of Parent, Merger Sub, the Company and certain shareholders of the Company as
the parties may agree, and the parties to this Agreement agree to make, and to
use reasonable efforts to cause such shareholders of the Company to make, such
representations and deliver such certificates;
(e) Opinion of Counsel to Parent. The Company shall have received an
opinion (i) of Ropes & Gray, counsel to Parent, in form and substance as set
forth on Exhibit 6.3(e)(i) attached hereto and (ii) of a member of the
California bar, special counsel to Merger Sub, in form and substance as set
forth on Exhibit 6.3 (e)(ii); and
(f) Listing of Parent Shares. Parent shall cause the Parent Shares to be
issued in the Merger to be approved for quotation, upon official notice of
issuance, on the New York Stock Exchange.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval thereof by the
Stockholders of the Company:
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(a) by mutual written consent duly authorized by the Boards of Directors
of Parent and the Company; or
(b) by either Parent or the Company if the Merger shall not have been
consummated by March 15, 1997 (provided that the right to terminate this
Agreement under this Section 7.1(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date); or
(c) by either Parent or the Company if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission shall have
issued a nonappealable final order, decree or ruling or taken any other action
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger (provided that the right to terminate this Agreement under this
Section 7.1(c) shall not be available to any party who has not complied with its
obligations under Section 5.8 and such noncompliance materially contributed to
the issuance of any such order, decree or ruling or the taking of such action);
or
(d) by Parent or the Company, if the Requisite Approvals and the
conversion of the shares of the Series A Preferred Stock into shares of the
Company's Common Stock shall not have been obtained by March 15, 1997; or
(e) by Parent, if: (i) the Board of Directors of the Company shall
withdraw, modify or change its approval or recommendation of this Agreement, the
Merger Agreement, the Merger or the Conversion Proposal in a manner adverse to
Parent or shall have resolved to do so; (ii) the Board of Directors of the
Company shall have recommended to the stockholders of the Company an Alternative
Transaction (as defined below); or (iii) a tender offer or exchange offer for
25% or more of the outstanding shares of Company Common Stock is commenced
(other than by Parent or an affiliate of Parent) and the Board of Directors of
the Company recommends that the stockholders of the Company tender their shares
in such tender or exchange offer; or
(f) by Parent, (i) if any representation or warranty of the Company set
forth in this Agreement shall be untrue when made, or (ii) upon a breach of any
covenant or agreement on the part of the Company set forth in this Agreement,
such that the conditions set forth in Section 6.2(a) or 6.2(b) would not be
satisfied (each a "TERMINATING BREACH"), provided, that, if such Terminating
Breach is curable prior to March 15, 1997 by the Company through the exercise of
its reasonable best efforts and for so long as the Company continues to exercise
such reasonable best efforts, Parent may not terminate this Agreement under this
Section 7.1(f); or
(g) by the Company, (i) if any representation or warranty of Parent set
forth in this Agreement shall be untrue when made, or (ii) upon a breach of any
covenant or agreement on
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the part of Parent set forth in this Agreement, such that the conditions set
forth in Section 6.3(a) or 6.3(b) would not be satisfied (each a "COMPANY
TERMINATING BREACH"), provided that, if such Company Terminating Breach is
curable prior to March 15, 1997 by Parent through the exercise of its reasonable
best efforts and for so long as Parent continues to exercise such reasonable
best efforts, the Company may not terminate this Agreement under this Section
7.1(g); or
(h) by Parent, if any representation or warranty of the Company shall have
become untrue such that the condition set forth in Section 6.2(a) would not be
satisfied, or by the Company, if any representation or warranty of Parent shall
have become untrue such that the condition set forth in Section 6.3(a) would not
be satisfied, in either case other than by reason of a Terminating Breach; or
(i) by Parent or the Company, if the Company enters into a definitive
agreement relating to an Alternative Transaction.
As used herein, "Alternative Transaction" means any of (i) a transaction
pursuant to which any person (or group of persons) other than Parent or its
affiliates (a "THIRD PARTY") acquires or would acquire more than 25% of the
outstanding Shares, whether from the Company or pursuant to a tender offer or
exchange offer or otherwise, (ii) a merger or other business combination
involving the Company pursuant to which any Third Party acquires more than 25%
of the outstanding equity securities of the Company or the entity surviving such
merger or business combination, or (iii) any other transaction pursuant to which
any Third Party acquires or would acquire control of assets (including for this
purpose the outstanding equity securities of subsidiaries of the Company, and
the entity surviving any merger or business combination including any of them)
of the Company or any of its subsidiaries having a fair market value (as
determined by the Board of Directors of the Company in good faith) equal to more
than 25% of the fair market value of all the assets of the Company and its
subsidiaries, taken as a whole, immediately prior to such transaction.
SECTION 7.2 Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 7.1, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto or any of
its affiliates, directors, officers or stockholders except (i) for the
confidentiality provisions of Section 5.4, Sections 5.9, 7.3, 8.5, 8.9, and 8.13
which shall survive any termination of this Agreement, and (ii) nothing herein
shall relieve any party from liability for any breach hereof.
SECTION 7.3 Fees and Expenses.
(a) Except as set forth in this Section 7.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, whether or not the
Merger is consummated; provided, however, that in the event the Merger is
consummated, the stockholders of the Company shall pay all legal,
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accounting, financial advisory, investment banking and other fees incurred by
the Company or any Subsidiary (or for which the Company or any Subsidiary may be
or become liable) in connection with this Agreement and the consummation of the
Merger (the "COMPANY EXPENSES"). At the Closing, the Company shall provide to
Parent a good faith estimate of the total Company Expenses and such amount shall
be used in calculating the Exchange Ratio pursuant to Section 1.1(e).
Thereafter, the payment of such amount of the Company Expenses shall be the
responsibility of the Surviving Corporation. If following the Effective Time it
is determined that there are additional unpaid Company Expenses and the
Stockholders Representative authorizes Parent to receive Escrow Shares having a
value (as calculated in accordance with the Escrow Agreement) equal to such
additional Parent Expenses, then upon receipt of such Escrow Shares, the
Surviving Corporation shall pay such Company Expenses.
(b) The Company shall pay Parent a fee of $300,000 (the "FEE"), plus
actual, documented and reasonable out-of-pocket expenses of Parent (the "PARENT
EXPENSES") relating to the transactions contemplated by this Agreement
(including, but not limited to, fees and expenses of Parent's counsel,
accountants and financial advisers), upon the first to occur of the following
events:
(i) the termination of this Agreement by Parent or the Company pursuant to
Section 7.1(d) as a result of the failure to receive the requisite vote for
approval and adoption of the Merger Agreement by the Stockholders of the
Company by March 15, 1997 or the failure of the holders of the shares of the
Series A Preferred Stock to convert such shares into shares of the Company's
Common Stock by such date, provided, however, that Parent shall be entitled
-------- -------
only to be paid the Parent Expenses under this Section 7.3(b)(i) unless the
Company consummates or enters into an agreement regarding an Alternative
Transaction within one year of the date of termination of this Agreement by
Parent;
(ii the termination of this Agreement by Parent pursuant to Section
7.1(e); or
(ii the termination of this Agreement by Parent pursuant to Section 7.1(f)
on account of a Terminating Breach by the Company; or
(iv the termination of this Agreement by the Parent or the Company
pursuant to Section 7.1(j).
(c) The Fee and related expenses payable pursuant to Section 7.3(b) shall
be paid within one business day after the first to occur of any of the events
triggering the Company's obligation to make such payments pursuant to Section
7.3(b)(i) - (iv).
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ARTICLE VII
GENERAL PROVISIONS
SECTION 8.1 Indemnification.
(a) Charters and By-Laws. The Surviving Corporation agrees that all
--------------------
rights to indemnification or exculpation now existing in favor of the employees,
agents, directors or officers of the Company (the "Company Indemnified Parties")
as provided in its charter or By-Laws shall continue in full force and effect
for a period of not less than six years from the Closing Date; provided,
--------
however, that, in the event any claim or claims are asserted or made within such
- -------
six-year period, all rights to indemnification in respect of any such claim or
claims shall continue until disposition of any and all such claims. Any
determination required to be made with respect to whether a Company Indemnified
Party's conduct complies with the standards set forth in the charter or By-Laws
of the Company or otherwise shall be made by independent counsel selected by the
Company Indemnified Party reasonably satisfactory to the Surviving Corporation
(whose fees and expenses shall be paid by the Surviving Corporation).
(b) Survival of Representations and Warranties.
------------------------------------------
(i) The representations and warranties of the Company made in this
Agreement and in the documents and certificates delivered in connection
herewith, shall survive the Merger for a period of two years from the
Closing Date and shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any other party
hereto, any person controlling any such party or any of their officers or
directors, whether prior to or after the execution of this Agreement.
(ii No claim for indemnification under this Section 8.1 for breach of
a representation or warranty may be commenced after the second anniversary
of the Closing Date, provided, however, that claims made within the
applicable time period shall survive to the extent of such claim until such
claim is finally determined and, if applicable, paid.
(c) Indemnification of the Parent and Merger Sub. By their approval of
--------------------------------------------
this Agreement and their acceptance of the Merger Consideration, the
Stockholders agree to indemnify, defend, protect, and hold harmless each of
Parent, Merger Sub, the Surviving Corporation and each of their respective
subsidiaries and affiliates (each in its capacity as an indemnified party, an
"Indemnitee") at all times from and after the date of this Agreement from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) (collectively
"Damages") incurred by such Indemnitee as a result of or incident to (i) any
breach of any representation or warranty of the Company set forth herein or in
any certificate or other document delivered in connection
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herewith (as such representation or warranty would read if all qualifications as
to materiality and Material Adverse Effect were deleted from it) with respect to
which a claim for indemnification is brought by an Indemnitee within the
applicable survival period described in Section 8.1(b), (ii) any breach or
nonfulfillment by the Company, or any noncompliance by the Company with, any
covenant, agreement, or obligation contained herein or in any certificate or
other document delivered in connection herewith except to the extent waived by
Parent, (iii) any claim by a holder or former holder of the Company's capital
stock or options, warrants or other securities convertible into or exercisable
for shares of the Company's capital stock (the "Convertible Securities") or any
other person or entity, seeking to assert, or based upon: (A) ownership or
rights of ownership to any shares of capital stock of the Company; (B) any
rights of a stockholder of the Company (other than the right to receive the
Merger Consideration pursuant to this Agreement or appraisal rights under the
applicable provisions of the CCC), including any option, preemptive rights, or
rights to notice or to vote; (C) any rights under the charter or bylaws of the
Company; or (D) any claim this his, her or its shares or Convertible Securities
were wrongfully repurchased, cancelled, terminated or otherwise limited by the
Company, regardless of whether an action, suit or preceding can or has been made
against the Company or (iv) any Company Expenses.
(d) Escrow Adjustment for Resignation of Founding Stockholders. In the
----------------------------------------------------------
event that on or prior to the date that is two years from the date of the
Closing, either of Paul Doolan or Susan Marvin shall have voluntarily terminated
their employment with the Surviving Corporation or Parent (or one of their
Affiliates) without Good Reason (as defined in the Employment Agreement between
Parent and Paul Doolan entered into in connection herewith (the "Employment
Agreement")), or if Parent shall terminate the employment of either such
individual for Cause (as defined in the Employment Agreement) Parent shall be
entitled to an adjustment to the consideration paid to the stockholders of the
Company pursuant hereto equal to $900,000. In such event, Parent shall be
entitled to receive Escrow Shares having a value (calculated in accordance with
the Escrow Agreement) equal to $900,000. For avoidance of doubt, the
termination of Ms. Marvin or Mr. Doolan as a result of their death or disability
shall not constitute voluntary termination by them of their employment for
purposes of this Section 8.1(d).
(e) Third Person Claims. Promptly after an Indemnitee has received notice
-------------------
of or has knowledge of any claim by a person not a party to this Agreement
("Third Person") or the commencement of any action or proceeding by a Third
Person, the Indemnitee shall, as a condition precedent to a claim with respect
thereto being made against the Escrow Agreement, give the Stockholders'
Representative written notice of such claim or the commencement of such action
or proceeding; provided, however, that the failure to give such notice will not
-------- -------
effect the Indemnities' right to indemnification hereunder with respect to such
claim, action or proceeding, except to the extent that the Stockholders'
Representative has, or the Stockholders have, been actually prejudiced as a
result of such failure. If the Stockholder Representative notifies the
Indemnitee within 30 days from the receipt of the foregoing notice that he
wishes to defend against the claim by the Third Person and if the estimated
amount of the claim,
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together with all other claims made against the Escrow Funds that have not been
settled, is less than the remaining balance of the Escrow Funds, then the
Stockholder Representative shall have the right to assume and control the
defense of the claim by appropriate proceedings with counsel reasonably
acceptable to Indemnitee, and the Stockholder Representative shall be entitled
to reimbursement out of the Escrow Funds for such defense. The Indemnitee may
participate in the defense, at its sole expense of any such claim for which the
Stockholder Representative shall have assumed the defense pursuant to the
preceding sentence, provided that counsel for the Stockholder Representative
shall act as lead counsel in all matters pertaining to the defense or settlement
of such claims, suit or proceedings; provided, however, that Indemnitee shall
-------- -------
control the defense of any claim or proceeding that in Indemnitee's reasonable
judgment could have a material and adverse effect on Indemnitee's business apart
from the payment of money damages. The Indemnitee shall be entitled to
indemnification for the reasonable fees and expenses of its counsel for any
period during which the Stockholder Representative has not assumed the defense
of any claim. Whether or not the Stockholder Representative shall have assumed
the defense of any claim, neither the Indemnitee nor the Stockholder
Representative shall make any settlement with respect to any such claim, suit or
proceeding without the prior consent of the other, which consent shall not be
unreasonably withheld or delayed. It is understood and agreed that in situations
where failure to settle a claim expeditiously could have an adverse effect on
the party wishing to settle, the failure of the party controlling the defense to
act upon a request for consent to such settlement within five business days of
receipt of notice thereof shall be deemed to constitute consent to such
settlement for purposes of this Section 8.1, but shall not be dispositive of the
amount of Damages as between the stockholders of the Company and the Indemnitee.
(f) Method of Payment. All claims for indemnification shall be paid
-----------------
solely from the Escrow Account. To the extent that Parent, Merger Sub, or, the
Surviving Corporation or another Indemnitee makes a claim against the Escrow
Account pursuant to the Escrow Agreement, and such claim is paid in shares of
Parent Common Stock, then for purposes of such payment, the shares of Parent
Common Stock shall be valued at the Parent Stock Price.
(g) Limitations. The stockholders of the Company shall not be required to
-----------
indemnify any Indemnitee except to the extent that Damages suffered by such
Indemnitee, together with Damages suffered with respect to all other claims for
indemnification pursuant to this Agreement, exceeds $50,000. The foregoing
sentence shall not in any way limit Parent's right to recover amounts in respect
of the Company Expenses from the Escrow Account. The maximum aggregate
liability of the Company's Stockholders to provide indemnification for Damages
and in respect of any adjustment pursuant to Section 8.1(d) shall be $1,350,000.
No stockholder of the Company shall have any personal obligation to indemnify
any Indemnitee or in respect of any adjustment pursuant to Section 8.1(d).
SECTION 8.2 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made if and when delivered personally or by overnight courier to the parties
at the following addresses or sent by
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electronic transmission, with confirmation received, to the telecopy numbers
specified below (or at such other address or telecopy number for a party as
shall be specified by like notice):
(a) If to Parent or Merger Sub:
Cabletron Systems, Inc.
35 Industrial Way
Rochester, NH 03866-5005
Telecopier No.: (603) 332-4616
Telephone No.: (603) 332-9400
Attention: Chief Financial Officer
With a copy to:
David A. Fine, Esq.
Ropes & Gray
One International Place
Boston, MA 02110
Telecopier No.: (617) 951-7050
Telephone No.: (617) 951-7000
(b) If to the Company:
The OASys Group, Inc.
59 N. Santa Cruz Ave., Suite Q
Los Gatos, CA 95030
Attention: President
Telecopier No.: (408) 354-9634
Telephone No.: (408) 395-1684
With a copy to:
Blair W. Stewart, Jr., Esq.
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94303-1050
Telecopier No.: (415) 493-6811
Telephone No.: (415) 493-9300
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SECTION 8.3 Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliates" means a person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person; including, without limitation, any partnership
or joint venture in which the first mentioned person (either alone, or through
or together with any other subsidiary) has, directly or indirectly, an interest
of 5% or more;
(b) "beneficial owner" with respect to any shares of Company Common Stock
means a person who shall be deemed to be the beneficial owner of such shares (i)
which such person or any of its affiliates or associates (as such term is
defined in Rule 12b-2 of the Exchange Act) beneficially owns, directly or
indirectly, (ii) which such person or any of its affiliates or associates has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (B) the right to
vote pursuant to any agreement, arrangement or understanding, or (iii) which are
beneficially owned, directly or indirectly, by any other persons with whom such
person or any of its affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
shares;
(c) "business day" means any day other than a Saturday or Sunday or any
day on which banks in The Commonwealth of Massachusetts are required or
authorized to be closed;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(e) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in Section
13(d)(3) of the Exchange Act); and
(f) "subsidiary" or "subsidiaries" of the Company, Parent or any other
person means any corporation, partnership, joint venture or other legal entity
of which the Company, the Surviving Corporation, Parent or such other person, as
the case may be (either alone or through or together with any other subsidiary),
owns, directly or indirectly, more than 50% of the stock or other equity
interests the holders of which are generally entitled to vote for the election
of the board of directors or other governing body of such corporation or other
legal entity.
SECTION 8.4 Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the
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Effective Time; provided, however, that, after approval of the Merger by the
stockholders of the Company, no amendment may be made which by law requires
further approval by such stockholders without such further approval. This
Agreement may not be amended except by an instrument in writing signed by the
parties hereto.
SECTION 8.5 Waiver. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party or parties to be
bound thereby.
SECTION 8.6 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
SECTION 8.8 Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings (other than the
Confidentiality Letter), both written and oral, among the parties, or any of
them, with respect to the subject matter hereof.
SECTION 8.9 Assignment; Guarantee of Merger Sub Obligations. This
Agreement shall not be assigned by operation of law or otherwise, except that
Parent and Merger Sub may assign all or any of their rights hereunder to any
affiliate thereof provided that no such assignment shall relieve the assigning
party of its obligations hereunder. Parent guarantees the full and punctual
performance by Merger Sub of all the obligations hereunder of Merger Sub or any
such assignees.
SECTION 8.10 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, including, without limitation, by way of
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subrogation, other than Section 8.1(a) (which is intended to be for the benefit
of the Indemnified Parties and may be enforced by such Indemnified Parties).
SECTION 8.11 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude any other or
further exercise thereof or of any other right. All rights and remedies
existing under this Agreement are cumulative to, and not exclusive of, any
rights or remedies otherwise available.
SECTION 8.12 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of California
applicable to contracts executed and fully performed within the State of
California.
SECTION 8.13 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
[This space intentionally left blank.]
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
CABLETRON SYSTEMS, INC.
By: /s/ David Kirkpatrick
------------------------------
Name: David Kirkpatrick
Title: Chief Financial Officer
SMALL CAT, INC.
By: /s/ Robert Barber
------------------------------
Name: Robert Barber
Title: Vice President
THE OASYS GROUP, INC.
By: /s/ Richard E. Pospisil
------------------------------
Name: Richard E. Pospisil
Title: President
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ANNEX B
CALIFORNIA CORPORATIONS CODE
CHAPTER 13
DISSENTERS' RIGHTS
(S)1300. RIGHT TO REQUIRE PURCHASE--"DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions(a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which
come within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-
form merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or (B)
listed on the list of OTC margin stocks issued by the Board of Governors of the
Federal Reserve System, and the notice of meeting of shareholders to act upon
there organization summarizes this section and Sections 1301, 1302, 1303 and
1304; provided, however, that this provision does not apply to any shares with
respect to which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided, further, that this
provision does not apply to any class of shares described in subparagraph (A) or
(B) if demands for payment are filed with respect to 5 percent or more of the
outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the record
holder of dissenting shares and includes a transferee of record.
1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its
B-1
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outstanding shares (Section 152) within 10 days after the date of such approval,
accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this section, a
statement of the price determined by the corporation to represent the fair
market value of the dissenting shares, and a brief description of the procedure
to be followed if the shareholder desires to exercise the shareholder's right
under such sections. The statement of price constitutes an offer by the
corporation to purchase at the price stated any dissenting shares as defined in
subdivision (b) of Section 1300, unless they lose their status as dissenting
shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
1303. AGREED PRICE--TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
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(a) If the corporation denies that the shares are dissenting shares,
or the corporation and the shareholder fail to agree upon the fair market value
of the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152) or
notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues.
If the status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting shares
is in issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
1305. APPRAISERS' REPORT--PAYMENT--COSTS.
(a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the time
fixed by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be
rendered against the corporation for payment of an amount equal to the fair
market value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has intervened,
is entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to
any holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
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1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the
dissenting shares after the date of approval of the reorganization by the
outstanding shares (Section 152) and prior to payment for the shares by the
corporation shall be credited against the total amount to be paid by the
corporation therefor.
1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the
holders thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for conversion
into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
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(a) No shareholder of a corporation who has a right under this chapter
to demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or short-
form merger, or to have the reorganization or short-form merger set aside or
rescinded, except in an action to test whether the number of shares required to
authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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