<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 19, 1998
REGISTRATION NO. 333-60179
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 1
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CABLETRON SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
<TABLE>
<CAPTION>
DELAWARE 3577 04-2797263
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION OR
ORGANIZATION)
<S> <C>
</TABLE>
35 INDUSTRIAL WAY, ROCHESTER, NH 03867,
(603) 332-9400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DAVID J. KIRKPATRICK
DIRECTOR OF FINANCE AND CHIEF FINANCIAL OFFICER
35 INDUSTRIAL WAY, ROCHESTER, NH 03867, (603) 332-9400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
DOUGLASS N. ELLIS, JR., ESQ. VICTOR A. HEBERT, ESQ.
ROPES & GRAY HELLER EHRMAN WHITE & MCAULIFFE
ONE INTERNATIONAL PLACE 601 SOUTH FIGUEROA STREET, 40TH FLOOR
BOSTON, MASSACHUSETTS 02110 LOS ANGELES, CALIFORNIA 90017-5758
---------------
Approximate date of commencement of proposed sale of the securities to the
public: At the effective time of the merger of a wholly owned subsidiary of
the Registrant with and into NetVantage, Inc., which shall occur as soon as
practicable after the effective date of this Registration Statement and the
satisfaction or waiver of all conditions to closing of such merger as
described in the enclosed Proxy Statement/Prospectus.
---------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If the form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[NETVANTAGE, INC. LOGO]
201 CONTINENTAL BOULEVARD, SUITE 201
EL SEGUNDO, CALIFORNIA 90245
August 20, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
NetVantage, Inc., a Delaware corporation ("NetVantage"), to be held at the
Doubletree Club Hotel, located at 1985 East Grand Avenue, El Segundo,
California 90245 on Friday, September 25, 1998 at 10:00 a.m., local time.
At the Special Meeting, stockholders will vote on a proposal to approve an
Agreement and Plan of Merger which provides for NetVantage's acquisition by
Cabletron Systems, Inc. In this transaction, 8/13 (approximately .6154) of a
share of Cabletron Common Stock will be exchanged for each Class A and
Class B share, and each ten Class E shares, of NetVantage.
NETVANTAGE'S BOARD OF DIRECTORS HAS UNANIMOUSLY DECIDED THAT THE CABLETRON
ACQUISITION IS IN YOUR BEST INTERESTS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" IT AT THE SPECIAL MEETING.
As I said in our press release announcing the proposed transaction on June
22, 1998:
"The Board of Directors of NetVantage is pleased to be able to offer
our stockholders the opportunity to exchange their NetVantage shares
for a meaningful equity ownership in Cabletron. Our stockholders have
loyally stayed the course and it is gratifying that they will have the
opportunity to share in NetVantage's own potential while also
benefiting from Cabletron's strengths. The entire workforce of
NetVantage can be justifiably proud of the confidence that Cabletron is
showing in our new line of products."
Enclosed is our Proxy Statement relating to the Special Meeting, which also
constitutes Cabletron's Prospectus covering the shares offered to you in
exchange for your NetVantage Shares. The Proxy Statement/Prospectus includes
your Board's recommendation in favor of the Cabletron acquisition and our
reasons for it, as well as the background of the transaction, the conditions
to closing and other important information regarding the proposed transaction
(including a description of an original equipment manufacturer agreement and a
manufacturing rights agreement with Cabletron). The Proxy Statement/Prospectus
also includes the opinion of our financial advisor, BancAmerica Robertson
Stephens, that, as of June 22, 1998 (the date the merger agreement with
Cabletron was approved by NetVantage's Board and signed), subject to the
assumptions and qualifications described in the opinion, the exchange ratio of
8/13 of a Cabletron share for each Class A and Class B share, and each ten
Class E shares, of NetVantage was fair to the holders of each of Class A,
Class B and Class E Common Stock of NetVantage, as well as to NetVantage's
stockholders, in each case, from a financial point of view. Please read the
entire Proxy Statement/Prospectus (including the BancAmerica Robertson
Stephens opinion) carefully.
APPROVAL OF THE CABLETRON ACQUISITION REQUIRES THE FAVORABLE VOTE OF A
MAJORITY OF THE VOTING POWER OF NETVANTAGE'S OUTSTANDING SHARES (THE THREE
CLASSES OF NETVANTAGE COMMON STOCK WILL VOTE TOGETHER, WITH EACH CLASS A SHARE
HAVING ONE VOTE AND EACH CLASS B AND CLASS E SHARE HAVING FIVE VOTES). YOUR
VOTE IS IMPORTANT REGARDLESS OF HOW MAY SHARES YOU OWN. IN ORDER TO ENSURE
THAT YOUR SHARES WILL BE REPRESENTED AT THE SPECIAL MEETING, WHETHER OR NOT
YOU ARE ABLE TO ATTEND IN PERSON, WE STRONGLY URGE YOU TO COMPLETE THE
ENCLOSED PROXY CARD PROMPTLY AND RETURN IT IN THE ENVELOPE PROVIDED.
<PAGE>
Please do not send us any of your stock certificates at this time. Following
the closing of the Cabletron transaction, you will receive information about
the procedure for surrendering your NetVantage stock certificates in exchange
for Cabletron stock certificates.
Sincerely,
/s/ Stephen R. Rizzone
Stephen R. Rizzone
Chairman of the Board, President and
Chief Executive Officer
IF YOU HAVE ANY QUESTIONS
OR NEED ASSISTANCE
COMPLETING YOUR PROXY CARD
PLEASE CALL:
[LOGO OF MACKENZIE PARTNERS, INC.]
156 FIFTH AVENUE
NEW YORK, NEW YORK 10010
(212) 929-5500 (CALL COLLECT)
OR
CALL TOLL FREE (800) 322-2885
2
<PAGE>
NETVANTAGE, INC.
201 CONTINENTAL BOULEVARD, SUITE 201
EL SEGUNDO, CALIFORNIA 90245
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 25, 1998
----------------
To the Stockholders of NetVantage, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (as the same
may be postponed or adjourned from time to time, the "Special Meeting") of
NetVantage, Inc. (the "Company") will be held on Friday, September 25, 1998,
at 10:00 a.m., local time, at the Doubletree Club Hotel, located at 1985 East
Grand Avenue, El Segundo, California 90245, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger, dated as of June 22, 1998 (the "Merger Agreement"), by
and among the Company, Cabletron Systems, Inc. ("Cabletron") and a wholly
owned subsidiary of Cabletron, and the transactions contemplated thereby,
including (i) the merger (the "Merger") of such wholly owned subsidiary
with and into the Company, which will survive the Merger and become a
wholly owned subsidiary of Cabletron, and (ii) the conversion at the
effective time of the Merger of each share of Class A Common Stock, $.001
par value per share, of the Company, together with the rights attached
thereto (the "Class A Shares"), each share of Class B Common Stock, $.001
par value per share, of the Company (the "Class B Shares"), and each ten
shares of Class E Common Stock, par value $.001 per share, of the Company
(the "Class E Shares") (the Class A Shares, Class B Shares and Class E
Shares being collectively referred to as "Company Common Stock") issued and
outstanding immediately prior to the Merger (other than shares of Company
Common Stock held in the treasury of the Company, held by Cabletron or any
direct or indirect wholly owned subsidiary of the Company or Cabletron, or
with respect to which appraisal rights are properly exercised) into the
right to receive 8/13 (approximately .6154) of a share of common stock,
$.01 par value per share, of Cabletron ("Cabletron Common Stock"), and cash
in lieu of fractional shares, all as more fully described in the
accompanying Proxy Statement/Prospectus.
2. To transact such other business as may properly come before the
Special Meeting.
Only holders of record of Company Common Stock as of the August 13, 1998
record date for the Special Meeting are entitled to notice of and to vote at
the Special Meeting. A list of such Company stockholders will be open to
examination by any Company stockholder at the Special Meeting and for a period
of ten days prior to the date of the Special Meeting during ordinary business
hours at the corporate offices of the Company, 201 Continental Boulevard,
Suite 201, El Segundo, California.
The approval and adoption of the Merger Agreement and the transactions
contemplated thereby, including the Merger, require the affirmative vote of a
majority of the voting power of the Company Common Stock outstanding on the
record date for the Special Meeting. The three classes of Company Common Stock
will vote together, with each Class A Share having one vote, each Class B
Share having five votes and each Class E Share having five votes.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S
STOCKHOLDERS VOTE "FOR" THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER.
IT IS VERY IMPORTANT THAT ALL SHARES OF COMPANY COMMON STOCK ARE REPRESENTED
AT THE SPECIAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY
IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Thomas Iwanski
Thomas Iwanski
Secretary, Vice President-Finance
and Chief Financial Officer
August 20, 1998
<PAGE>
NETVANTAGE, INC.
PROXY STATEMENT
----------------
CABLETRON SYSTEMS, INC.
PROSPECTUS
This Proxy Statement and Prospectus ("Proxy Statement/Prospectus") is being
furnished to the holders of (i) shares (the "Class A Shares") of Class A
Common Stock, $.001 par value (the "Class A Common Stock"), (ii) shares (the
"Class B Shares") of Class B Common Stock, $.001 par value (the "Class B
Common Stock"), and (iii) shares (the "Class E Shares") of Class E Common
Stock, $.001 par value (the "Class E Common Stock") (the Class A Common Stock,
Class B Common Stock and Class E Common Stock being collectively referred to
as the "Company Common Stock") of NetVantage, Inc., a Delaware corporation
(the "Company"), in connection with the solicitation of proxies by the Board
of Directors of the Company (the "Company Board") for use at the Special
Meeting of Stockholders of the Company to be held on Friday, September 25,
1998 at the Doubletree Club Hotel, located at 1985 East Grand Avenue, El
Segundo, California 90245, commencing at 10:00 a.m., local time, and any and
all adjournments or postponements thereof (the "Special Meeting"). At the
Special Meeting, holders of Company Common Stock (the "Company Stockholders")
are being asked to consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of June 22, 1998 (the "Merger
Agreement"), by and among the Company, Cabletron Systems, Inc., a Delaware
corporation ("Cabletron") and Tempest Acquisition, Inc., a Delaware
corporation and wholly owned subsidiary of Cabletron ("Merger Sub"), and the
transactions contemplated thereby, including the merger (the "Merger") of
Merger Sub with and into the Company, which will survive the Merger and become
a wholly owned subsidiary of Cabletron, and the issuance of shares of common
stock, $.01 par value per share, of Cabletron ("Cabletron Common Stock"), and
cash in lieu of fractional shares, all as more fully described in this Proxy
Statement/Prospectus.
This Proxy Statement/Prospectus also constitutes the Prospectus of Cabletron
with respect to the issuance of up to 8,200,000 shares of Cabletron Common
Stock to the Company Stockholders (including persons who become Company
Stockholders prior to the consummation of the Merger upon exercise of
outstanding options and warrants to acquire Company Common Stock) in
connection with the Merger. Stockholders of Cabletron will not be voting or
consenting in writing 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 and the accompanying form of proxy are first
being mailed to the Company Stockholders on or about August 20, 1998.
THE PROPOSED MERGER IS A COMPLEX TRANSACTION. COMPANY 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 10.
----------------
THE SECURITIES OFFERED HEREBY 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 AUGUST 20, 1998.
<PAGE>
All information contained or incorporated by reference in this Proxy
Statement/Prospectus with respect to Merger Sub and Cabletron has been
provided by Cabletron. All information contained or incorporated by reference
in this Proxy Statement/Prospectus with respect to the Company has been
provided by the Company.
IN ACCORDANCE WITH SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW (THE
"DGCL"), HOLDERS OF CLASS B SHARES AND CLASS E SHARES ARE ENTITLED TO
APPRAISAL RIGHTS. SEE "THE MERGER--APPRAISAL RIGHTS."
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. 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.
THIS PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. CABLETRON'S ACTUAL RESULTS MAY DIFFER
SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS IN
THIS PROXY STATEMENT/PROSPECTUS AND IN FORWARD-LOOKING STATEMENTS MADE FROM
TIME TO TIME BY CABLETRON ON THE BASIS OF MANAGEMENT'S THEN-CURRENT
EXPECTATIONS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED OR REFERRED TO UNDER "RISK FACTORS" STARTING ON
PAGE 10.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION...................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 2
TRADEMARKS................................................................. 2
SUMMARY.................................................................... 3
RISK FACTORS............................................................... 10
Competition; Margin...................................................... 10
Fluctuations in Operating Results........................................ 11
Realignment.............................................................. 12
Acquisition Strategy..................................................... 12
Retention and Integration of Key Employees............................... 13
Volatility of Stock Price................................................ 13
Technological Changes.................................................... 14
Product Protection and Intellectual Property............................. 14
Dependence on Suppliers.................................................. 15
Legal Proceedings........................................................ 15
Risks Associated with Exchange Ratio..................................... 15
Year 2000 Compliance..................................................... 16
</TABLE>
<TABLE>
<S> <C>
SELECTED FINANCIAL DATA.................................................... 17
COMPARATIVE PER SHARE DATA................................................. 18
Dividend Policy.......................................................... 18
Recent Closing Prices.................................................... 18
THE SPECIAL MEETING........................................................ 20
Time, Place and Date..................................................... 20
Matters To Be Considered at the Special Meeting.......................... 20
Voting at the Special Meeting; Record Date............................... 20
Proxies.................................................................. 21
THE MERGER................................................................. 22
General.................................................................. 22
Conversion of Company Common Stock....................................... 22
Conversion of Company Options and Warrants............................... 22
Exchange of Certificates................................................. 23
Effective Time........................................................... 24
Background of the Merger................................................. 24
The Company's Reasons for the Merger; Recommendation of the Company
Board................................................................... 27
Cabletron's Reasons for the Merger....................................... 30
Opinion of the Company's Financial Advisor............................... 31
Interests of Certain Persons in the Merger............................... 34
Certain Federal Income Tax Consequences.................................. 36
Anticipated Accounting Treatment......................................... 38
Governmental Filings..................................................... 38
Certain Federal Securities Law Consequences; Affiliate Letters........... 38
Stock Exchange Listing................................................... 38
Dividends................................................................ 38
Appraisal Rights......................................................... 39
THE MERGER AGREEMENT....................................................... 42
Representations and Warranties........................................... 42
Conduct of Cabletron's and the Company's Business Prior to the Merger.... 42
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
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No Solicitation........................................................ 43
Conditions to the Merger............................................... 44
Termination............................................................ 46
Termination Fee........................................................ 47
Indemnification and Insurance.......................................... 48
THE RELATED AGREEMENTS................................................... 49
The OEM Agreement...................................................... 49
The Manufacturing Rights Agreement..................................... 49
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE
COMPANY................................................................. 51
DESCRIPTION OF CAPITAL STOCK OF CABLETRON................................ 53
Common Stock........................................................... 53
Preferred Stock........................................................ 53
COMPARISON OF STOCKHOLDER RIGHTS......................................... 53
Special Characteristics of Class B Shares and Class E Shares........... 53
Voting Rights.......................................................... 54
Voting Requirements and Quorums for Stockholder Meetings............... 54
Stockholder Meetings................................................... 54
Stockholder Action by Written Consent.................................. 55
Amendments to Certificate of Incorporation............................. 55
Bylaws................................................................. 55
Number and Qualification of Directors.................................. 55
Board Classification................................................... 55
Nomination and Election of Directors................................... 56
Removal of Directors................................................... 57
Newly Created Directorships and Vacancies.............................. 57
Vote Required for Certain Corporate Transactions....................... 58
Anti-takeover Provisions............................................... 58
Limitation on Directors' Liability..................................... 59
Indemnification........................................................ 60
Dividends and Other Distributions...................................... 60
LEGAL MATTERS............................................................ 61
EXPERTS.................................................................. 61
OTHER MEETINGS........................................................... 61
ANNEXES
A. Agreement and Plan of Merger.......................................... A-1
B. Opinion of BancAmerica Robertson Stephens............................. B-1
C. Section 262 of the DGCL............................................... C-1
</TABLE>
ii
<PAGE>
AVAILABLE INFORMATION
Cabletron and the Company are each subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
in accordance therewith file 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 located at: Seven World Trade Center, Suite
1300, New York, New York 10048; and 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 and the
Company are 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. 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. The
Class A Common Stock is traded on the Nasdaq National Market and reports,
proxy statements and other information concerning the Company may be inspected
at the offices of the National Association of Securities Dealers, Inc., Market
Listing Section, 1735 K Street, N.W., Washington D.C. 20006.
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 THE APPROPRIATE PARTY AT THE
FOLLOWING ADDRESSES: CABLETRON INVESTOR RELATIONS, CABLETRON SYSTEMS, INC., 35
INDUSTRIAL WAY, ROCHESTER, NEW HAMPSHIRE 03867 (TELEPHONE: (603) 332-9400) AND
INVESTOR RELATIONS, NETVANTAGE, INC., 201 CONTINENTAL BOULEVARD, SUITE 201, EL
SEGUNDO, CALIFORNIA 90245 (TELEPHONE: (310) 726-4130, EXT. 214). IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
SEPTEMBER 18, 1998.
The following documents which have been filed with the Commission are
incorporated by reference into this Proxy Statement/Prospectus:
1. Cabletron's Quarterly Report on Form 10-Q for the fiscal quarter ended
May 31, 1998 (File No. 1-10228);
2. Cabletron's Current Report on Form 8-K dated February 9, 1998 and the
amendment to that report on Form 8-K/A dated March 4, 1998;
3. Cabletron's Annual Report on Form 10-K for the fiscal year ended
February 29, 1998 (which incorporates by reference certain information from
Cabletron's Proxy Statement relating to the 1998 Annual Meeting of
Stockholders) (File No. 1-10228);
4. Cabletron's definitive Annual Meeting Proxy Statement filed with the
Commission on June 5, 1998 (File No. 1-10228);
5. 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;
6. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1998 (File No. 0-25992);
7. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1998 (File No. 0-25992);
8. The Company's Current Report on Form 8-K filed February 17, 1998 (File
No. 0-25992); and
9. The Company's Annual Report on Form 10-K and Amendment No. 1 to Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1997 (File No.
0-25992).
All documents subsequently filed by Cabletron and the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the date of
the Special Meeting, 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, SPECTRUM, Synthesis,
SmartSwitch, and DNI are registered trademarks of Cabletron; MMAC, SmartSTACK,
ES/1 ATX, FastNet, and The Complete Networking Solution are trademarks of
Cabletron. NETVANTAGE is a registered trademark of the Company. Other
trademarks used in this Proxy Statement/Prospectus are the property of their
respective owners.
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. Company
Stockholders are urged to read this Proxy Statement/Prospectus and the Annexes
in their entirety.
RISK FACTORS
In considering whether to approve the Merger Agreement and the transactions
contemplated thereby, including the Merger, Company Stockholders should
carefully review and consider the information contained below under the caption
"Risk Factors."
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 including intelligent switches and
hubs, remote access devices, and sophisticated management software. Cabletron
delivers products to address the full range of networking technologies,
including Ethernet, Fast Ethernet, Gigabit Ethernet, token ring, fiber
distributed data interface (FDDI), asynchronous transfer mode (ATM), integrated
services digital network (ISDN) and frame relay. Cabletron's core products
include the SmartSwitch hardware product family and Spectrum network management
software. The SmartSwitch product family includes the SmartSwitch 9000 product
line, Cabletron's enterprise-level backbone switching chassis and modules; the
SmartSwitch 6000 product line, Cabletron's wiring closet-level solution, the
SmartSwitch 2200, a standalone, workgroup-level switch, the SmartSTACK, a
desktop Ethernet switch, and the SmartSwitch Router, a switch router obtained
in Cabletron's recent acquisition of Yago Systems, Inc. Cabletron's hardware
products also include the MMAC, a wiring closet smart hub, and other Ethernet,
ISDN, and frame relay products. All of Cabletron's intelligent networking
products are managed by SPECTRUM(R), Cabletron's sophisticated enterprise-wide
network management system. 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 networking
services. Cabletron believes that its broad product line and its ability to
provide full service capabilities 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 June 11, 1998, Cabletron announced it had signed a definitive agreement to
acquire Ariel Corporation's Communications Systems Group ("CSG"), a
manufacturer of high density open systems access platforms and developer of
flexible ATM-based carrier-class digital subscriber line aggregation platforms
for service provider central office environments. This acquisition enhances
Cabletron's ability to offer service providers digital subscriber-line
technology, bringing critical remote access elements to Cabletron's portfolio,
including a high-density digital subscriber line central office concentrator
from CSG. Under the terms of the definitive agreement, Cabletron will acquire
CSG for $33.5 million in cash.
On June 11, 1998, Cabletron announced it had signed a definitive agreement to
acquire FlowPoint Corp. ("FlowPoint"). FlowPoint designs, manufactures and
markets customer premise digital subscriber line and ISDN network access
products. This acquisition enhances the remote access elements of Cabletron's
portfolio and allows Cabletron, for customer premise installations, to provide
consumers, telecommuters, small businesses and branch offices with dependable,
high-speed Internet access. Under the terms of the definitive agreement,
Cabletron will acquire FlowPoint for approximately $25 million in cash or
stock, at Cabletron's election, to purchase the approximately 65 percent of
FlowPoint it does not already own.
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THE BUSINESS OF THE COMPANY
General
The Company is a leading provider of Ethernet workgroup switching products to
the original equipment manufacturer ("OEM") market place. Ethernet workgroup
switches are designed to increase the information handling capacity of new and
installed Local Area Networks ("LANs"). Other applications of use for the
Company's switching products include connecting LANs to each other to extend
the network's scope and power and to provide installed networks with the
ability to connect to networking devices incorporating new technologies such as
Asynchronous Transfer Mode, Gigabit Ethernet and Layer 3 switching. The
Company's switching products require no special skills to install, and require
no changes to existing user network equipment, wiring, hub equipment, software
protocols or applications.
The Company was originally incorporated in California in March 1991. In
December 1994, the Company changed its state of incorporation to Delaware. Its
offices are located at 201 Continental Boulevard, Suite 201, El Segundo,
California 90245 and its telephone number is: (310) 726-4130.
Recent Developments
On May 22, 1998, the Company publicly announced that it had begun initial
customer shipments of its new NV9224 fast Ethernet workgroup switch. On June
22, 1998, the Company publicly announced that it entered into the Merger
Agreement, the OEM Agreement and the Manufacturing Rights Agreement. Since that
date, the Company received from Cabletron the $5 million payment due under the
Manufacturing Rights Agreement and orders for its NV9224 switch under the OEM
Agreement aggregating approximately 8,000 units (which are scheduled for
delivery in the Company's third quarter of 1998). See "The Related Agreements."
On July 7, 1998, the Company also entered into a non-binding interim agreement
with the Compaq Computer Corporation ("Compaq"), relating to the possible
establishment of an OEM arrangement with Compaq.
THE MERGER
The Merger Agreement provides for the merger of Merger Sub, a wholly owned
subsidiary of Cabletron, with and into the Company, with the result that the
Company, as the surviving corporation in the Merger (the "Surviving
Corporation"), will become a wholly owned subsidiary of Cabletron. For the
Merger to be consummated it must be approved by Company Stockholders and the
other conditions specified in the Merger Agreement must be satisfied or waived.
See "The Merger."
Conversion of Company Common Stock; Stock Options; Warrants
At the Effective Time (as defined below) of the Merger, each Class A Share
(together with the rights attached thereto), each Class B Share and each ten
Class E Shares issued and outstanding immediately prior to the Effective Time
(other than shares of Company Common Stock held in the treasury of the Company,
held by Cabletron or any direct or indirect wholly owned subsidiary of the
Company or Cabletron, or with respect to which appraisal rights are properly
exercised) will be automatically converted into the right to receive 8/13
(approximately .6154) of a share (the "Exchange Ratio") of Cabletron Common
Stock and cash in lieu of fractional shares (the "Merger Consideration"). The
shares of Cabletron Common Stock issued in the Merger in exchange for the Class
E Shares will not be escrowed, be subject to any of the contingencies that
currently govern the Class E Shares or be subject to the redemption provisions
that currently apply to the Class E Shares. See "The Merger--Conversion of
Company Common Stock."
At the Effective Time, each outstanding option to purchase Company Common
Stock (a "Company Stock Option") granted under the Company's Equity Incentive
Plan, 1996 Incentive Stock Plan, 1994 Incentive and
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Nonstatutory Stock Option Plan, and 1992 Incentive and Nonstatutory Stock
Option Plan (collectively, the "Company Stock Option Plans"), whether vested or
unvested, shall be, together with the Company Stock Option Plans, assumed by
Cabletron and deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such Company Stock Option prior to the
Effective Time, the number (rounded down to the nearest whole number) of
Cabletron Common Stock as the holder of such Company 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 Company Stock 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 Company Stock Option divided by (y) the
number of shares of Cabletron Common Stock deemed purchasable pursuant to such
Company Stock Option.
At the Effective Time, Cabletron will not assume the warrants granted to
Silicon Valley Bank, the Company's former lender (the "SVB Warrants"), and such
nonassumption shall have the consequences described in Section 1.7.3 of each of
the SVB Warrants. At the Effective Time, Cabletron will assume the warrants
granted to Stephen R. Rizzone, the Company's Chairman of the Board, Chief
Executive Officer and President (the "SR Warrants"), that are exercisable, such
that each exercisable SR Warrant shall be deemed to constitute a warrant to
acquire, on the same terms and conditions as are applicable under such SR
Warrant prior to the Effective Time, the number of shares of Cabletron Common
Stock (rounded down to the nearest whole number) that Mr. Rizzone would have
been entitled to receive pursuant to the Merger had he exercised such warrant
in full immediately prior to the Effective Time at a price per share equal to
(x) the aggregate exercise price for Company Common Stock purchasable pursuant
to such warrant divided by (y) the number of shares of Cabletron Common Stock
deemed purchasable pursuant to such warrant. At the Effective Time, the non-
exercisable SR Warrant for 15,000 Class A Shares shall be deemed assumed by
Cabletron and deemed to constitute a warrant to acquire, on the same terms and
conditions as were applicable under such SR Warrant prior to the Effective
Time, a number of shares of Cabletron Common Stock (rounded down to the nearest
whole number) equal to 1,500 multiplied by the Exchange Ratio, at a price per
share equal to (x) the aggregate exercise price for Company Common Stock
otherwise purchasable pursuant to such SR Warrant divided by (y) ten multiplied
by the number of shares of Cabletron Common Stock deemed purchasable pursuant
to such warrant. Cabletron has no obligation to assume and will not assume at
the Effective Time the Unit Purchase Options (the "Unit Purchase Options")
granted to D.H. Blair Investment Banking Corp., the underwriter in the
Company's initial public offering, and the underwriter's affiliates. Should any
of the Unit Purchase Options be exercised prior to the Effective Time, any
resulting warrant for shares of Company Common Stock shall be deemed assumed by
Cabletron and deemed to constitute a warrant to acquire, on the same terms and
conditions as are applicable under such warrant prior to the Effective Time,
the number of shares of Cabletron Common Stock (rounded down to the nearest
whole number) that the holder of such warrant would have been entitled to
receive pursuant to the Merger had such holder exercised such warrant in full
immediately prior to the Effective Time, at a price per share equal to (x) the
aggregate exercise price for Company Common Stock purchasable pursuant to such
warrant divided by (y) the number of shares of Cabletron Common Stock deemed
purchasable pursuant to such warrant. Approval and adoption of the Merger
Agreement and the transactions contemplated thereby, including the Merger, by
Company Stockholders at the Special Meeting will be deemed to constitute their
approval of the assumption of the Company Stock Options and the SR Warrants as
provided for in the Merger Agreement. See "The Merger--Conversion of Company
Options and Warrants."
Effective Time
As promptly as practicable after the satisfaction or waiver of the conditions
specified in the Merger Agreement, Cabletron and the Company shall cause the
Merger to be consummated by filing a certificate of merger as contemplated by
the DGCL, together with any required related certificates, with the Secretary
of State of the State of Delaware, in such form as required by, and executed in
accordance with the relevant provisions of, the DGCL (the time of such filing
being the "Effective Time").
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Exchange of Certificates; Assumption of Company Stock Options
As soon as reasonably practicable after the Effective Time, a letter of
transmittal with instructions will be mailed to each Company Stockholder for
use in exchanging Company Common Stock certificates for the applicable Merger
Consideration. See "The Merger--Exchange of Certificates." HOLDERS OF COMPANY
COMMON STOCK CERTIFICATES SHOULD NOT SUBMIT THEIR CERTIFICATES FOR EXCHANGE
UNTIL THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL AND INSTRUCTIONS REFERRED TO
ABOVE.
As soon as practicable after the Effective Time, Cabletron will deliver to
each holder of an outstanding Company Stock Option an appropriate notice
setting forth such holder's rights pursuant thereto, and such Company Stock
Option shall continue in effect on the same terms and conditions. Such
assumption will be automatic and no action will be required on the part of the
option holder to convert such holder's Company Stock Option into an option to
purchase shares of Cabletron Common Stock. See "The Merger--Conversion of
Company Options and Warrants."
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 the Company to consummate the Merger are
subject to the satisfaction of certain conditions, including, but not limited
to, obtaining requisite Company Stockholder approval, the absence of any
injunction prohibiting consummation of the Merger, the continuing accuracy of
the other party's representations and warranties made in the Merger Agreement
on and as of the Effective Time, and the other party's compliance or
performance of its covenants and agreements required by the Merger Agreement.
See "The Merger Agreement--Conditions to the Merger."
Termination; Termination Fee
The Merger Agreement is subject to termination by mutual written consent of
Cabletron and the Company and at the option of either Cabletron or the Company
if the Merger is not consummated by October 15, 1998. The Merger Agreement is
also subject to termination upon the occurrence of certain other events. Under
certain circumstances specified in the Merger Agreement, Cabletron will be
entitled to a termination fee of $3.8 million from the Company in the event of
a termination of the Merger Agreement. See "The Merger Agreement--Termination"
and "--Termination Fee."
THE SPECIAL MEETING
Time, Place and Date
The Special Meeting will be held on Friday, September 25, 1998 at the
Doubletree Club Hotel, located at 1985 East Grand Avenue, El Segundo,
California 90245, commencing at 10:00 a.m., local time.
Purposes of the Special Meeting
The purposes of the Special Meeting are to (i) consider and vote upon a
proposal to approve and adopt the Merger Agreement and the transactions
contemplated thereby, pursuant to which, among other things, Merger Sub will be
merged with and into the Company and the Company will become a wholly-owned
subsidiary of Cabletron, and each outstanding share of Company Common Stock
(other than shares of Company Common
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Stock held in the treasury of the Company, held by Cabletron or any direct or
indirect wholly owned subsidiary of the Company or Cabletron, or with respect
to which appraisal rights are properly exercised) will be converted into the
right to receive the applicable Merger Consideration, and (ii) transact such
other business as may properly come before the Special Meeting. See "The
Special Meeting--Matters To Be Considered at the Special Meeting."
Record Date; Shares Entitled to Vote
Holders of record of shares of Company Common Stock at the close of business
on August 13, 1998 (the "Record Date") are entitled to notice of, and to vote
at, the Special Meeting. As of the close of business on the Record Date, there
were outstanding 10,167,950 Class A Shares, 233,963 Class B Shares and 540,995
Class E Shares. Holders of Class A Shares are entitled to one vote, holders of
Class B Shares are entitled to five votes and holders of Class E Shares are
entitled to five votes, for each such share held by the holder on the proposal
to approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Merger, and for any other matter to be acted upon or
which may properly come before the Special Meeting. The presence, in person or
by proxy, of holders of a majority of the voting power of the shares of Company
Common Stock entitled to vote is required to constitute a quorum at the Special
Meeting. See "The Special Meeting--Voting at the Special Meeting; Record Date."
Vote Required
The approval and adoption by the Company Stockholders of the Merger Agreement
and the transactions contemplated thereby, including the Merger, will require
the affirmative vote of the holders of a majority of the voting power
represented by the shares of Company Common Stock outstanding on the Record
Date. See "The Special Meeting--Voting at the Special Meeting; Record Date."
As of the Record Date, directors and executive officers of the Company and
their affiliates had the right to vote approximately 31,319 Class A Shares,
57,200 Class B Shares and 57,200 Class E Shares. Each of the directors and
executive officers has advised the Company that he or she presently intends to
vote or direct the vote of all the outstanding shares of Company Common Stock
over which he or she has voting control in favor of approval and adoption of
the Merger Agreement and the transactions contemplated thereby, including the
Merger. See "The Merger--Interests of Certain Persons in the Merger."
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
BancAmerica Robertson Stephens ("Robertson Stephens") has rendered a written
opinion to the Company Board that, as of June 22, 1998, the Exchange Ratio was
fair to the holders of each of Class A Common Stock, Class B Common Stock and
Class E Common Stock, as well as to the holders of Company Common Stock, in
each case, from a financial point of view. A copy of Robertson Stephens'
written opinion dated June 22, 1998 (the "Robertson Stephens Opinion"), setting
forth the assumptions made, matters considered and review undertaken, is
attached to this Proxy Statement/Prospectus as Appendix B. The full text of the
Robertson Stephens Opinion is incorporated herein by reference and the
foregoing description thereof is qualified in its entirety by such reference.
Company Stockholders are urged to read the Robertson Stephens Opinion carefully
and in its entirety. See also "The Merger--Opinion of the Company's Financial
Advisor."
RECOMMENDATION OF THE COMPANY BOARD
The Company Board has unanimously approved the Merger Agreement and the
transactions contemplated thereby, including the Merger, and recommends that
Company Stockholders vote to approve and adopt the Merger Agreement and the
transactions contemplated thereby, including the Merger. See "The Merger--
Background of the Merger" and "--The Company's Reasons for the Merger;
Recommendation of the Company Board."
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Company Board with respect to the
Merger Agreement and the transactions contemplated thereby, including the
Merger, Company Stockholders should be aware that certain directors and
executive officers of the Company have certain interests in the Merger that
present these directors and executive officers with potential conflicts of
interest. See "The Merger--Interests of Certain Persons in the Merger."
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 Company Stockholder upon
receipt of Cabletron Common Stock in exchange for shares of Company Common
Stock pursuant to the Merger. It is a condition to the Merger that Cabletron
and the Company 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. Company Stockholders
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 transaction effected by the Merger is expected to be accounted for under
the purchase method of accounting in accordance with generally accepted
accounting principles. In connection with the Merger, Cabletron anticipates
recording substantial charges for in process research and development and
integration costs. See "The Merger--Anticipated Accounting Treatment."
COMPARATIVE RIGHTS OF STOCKHOLDERS
The rights of Company Stockholders are currently governed by the DGCL, the
Company's Restated Certificate of Incorporation and the Company's Amended and
Restated Bylaws. Upon consummation of the Merger, Company Stockholders will
become stockholders of Cabletron, and their rights as stockholders of Cabletron
generally will be governed by the DGCL, Cabletron's Restated Certificate of
Incorporation and Cabletron's Bylaws. See "Comparison of Stockholder Rights"
for a discussion of various differences between the rights of Company
Stockholders and the rights of stockholders of Cabletron.
THE RELATED AGREEMENTS
On June 22, 1998, concurrently with execution of the Merger Agreement and to
facilitate such execution, the Company and Cabletron entered into an OEM
Agreement (the "OEM Agreement") and a Manufacturing Rights Agreement (the
"Manufacturing Rights Agreement") (the OEM Agreement and Manufacturing Rights
Agreement being collectively referred to as the "Related Agreements"). Under
the OEM Agreement, Cabletron may purchase certain products manufactured by the
Company for resale under Cabletron and other OEM brand names. Under the
Manufacturing Rights Agreement, Cabletron was granted a non-exclusive,
worldwide license to manufacture certain products of the Company and then
resell them under Cabletron and other designated OEM brand names in exchange
for an initial non-refundable payment of $5 million plus certain specified
royalties for products manufactured and sold in excess of certain specified
levels. The Related Agreements are effective immediately and are not subject to
the approval of Company Stockholders. If the Merger Agreement is terminated,
the OEM Agreement will also terminate but the Manufacturing Rights Agreement
will continue in effect. See "The Related Agreements."
APPRAISAL RIGHTS
Under the DGCL, holders of Class A Shares are not entitled to any dissenters'
right of appraisal with respect to the Merger because the Class A Shares are
designated as a national market system security on an interdealer
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quotation system by the National Association of Securities Dealers, Inc. and
the shares of Cabletron Common Stock to be issued in the Merger will be listed
on a national securities exchange. Under the DGCL, holders of Class B Shares
and Class E Shares who object to the Merger may, under certain circumstances
and by following procedures prescribed by the DGCL, exercise appraisal rights
and receive cash for their Class B Shares or Class E Shares in an amount equal
to the fair value of such stock as determined pursuant to such procedures. The
failure of a dissenting Company Stockholder to follow the appropriate
procedures will result in the loss of such appraisal rights. In the event that
a Company Stockholder who attempts to exercise appraisal rights should fail to
make a proper demand for payment or otherwise lose his or her status as a
dissenting stockholder, such Company Stockholder shall be entitled to receive
from Cabletron the applicable Merger Consideration that such Company
Stockholder would have received in the Merger if he or she had not attempted to
exercise appraisal rights. See "The Merger--Appraisal Rights."
ANTITRUST MATTERS; GOVERNMENT FILINGS
Pursuant to the requirements of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), Cabletron and the Company each filed a
Notification and Report Form for review under the HSR Act with the Federal
Trade Commission (the "FTC") and the Antitrust Division of the Department of
Justice (the "Antitrust Division") on July 17, 1998. Cabletron and the Company
received notice of early termination of the waiting period under the HSR Act
with respect to such filings on August 6, 1998. Notwithstanding the early
termination of the HSR Act waiting period, the FTC or the Antitrust Division
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking divestiture of substantial
assets of Cabletron and the Company. There can be no assurance that a challenge
to the Merger on antitrust grounds will not be made or, if such a challenge is
made, of the result. Cabletron and the Company do not believe that any
additional governmental filings in the United States are required with respect
to the Merger, other than the filing of the Certificate of Merger required to
be filed in accordance with the DGCL.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING CABLETRON
AND ITS BUSINESS. COMPANY STOCKHOLDERS SHOULD CAREFULLY CONSIDER THESE RISK
FACTORS PRIOR TO VOTING ON THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE MERGER. THIS PROXY STATEMENT/PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
CABLETRON'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED
IN THE FORWARD-LOOKING STATEMENTS IN THIS PROXY STATEMENT/PROSPECTUS AND IN
FORWARD-LOOKING STATEMENTS MADE FROM TIME TO TIME BY CABLETRON ON THE BASIS OF
MANAGEMENT'S THEN-CURRENT EXPECTATIONS. FACTORS THAT MIGHT CAUSE SUCH A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED OR REFERRED TO
BELOW.
COMPETITION; MARGIN
The data networking industry is intensely competitive and subject to
increasing consolidation. Competition in the data networking industry has
increased in recent periods, and Cabletron expects competition to continue to
increase significantly in the future from its current competitors, as well as
from potential competitors that may enter Cabletron's existing or future
markets. 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 in the data networking industry are Cisco Systems, Inc., Bay
Networks, Inc. and 3Com Corporation. Several large telecommunications
equipment companies, including Lucent Technologies, Inc., Nokia Corp. and
Northern Telecom Ltd., have begun to compete in the data networking industry
and have recently made investments in or acquired several smaller data
networking companies. Companies in the data networking industry compete upon
the basis of price, technology, and brand recognition. 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, financial condition, and operating results and increase fluctuations
in operating results. Competitors may introduce new or enhanced products that
offer greater performance or functionality than 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.
Any failure to do so may have a material adverse effect on Cabletron's
business, financial condition and results of operations. As the data
networking industry has grown and matured, customers purchasing decisions have
been increasingly influenced by brand recognition. If Cabletron is unable to
develop competitive brand recognition, Cabletron's business may be adversely
affected.
Cabletron's current and potential competitors have pursued and are
continuing to pursue a strategy of acquiring data networking companies
possessing advanced networking technologies. The acquisition of these
companies allows Cabletron's competitors to offer new products without the
lengthy time delays associated with internal product development. As a
consequence, competitors are able to more quickly meet the demand for advanced
networking capabilities, as well as for so-called "end-to-end" networking
solutions. These acquisitions also permit potential competitors, such as
telecommunications companies, who lack data networking products and
technologies, to more quickly enter data networking markets. 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. There is significant competition among Cabletron and its competitors
for the acquisition of data networking companies possessing advanced
technologies. As a consequence of this competition, as well as other factors,
the prices paid to acquire such companies are typically extremely high
relative to the assets and sales of such companies. The greater resources of
Cabletron's current and potential competitors will enable them to compete more
effectively for the acquisition of such companies. In addition to acquiring
other companies, Cabletron's competitors frequently invest in early-stage data
networking companies in order to secure access to advanced technologies
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under development by such companies, to enhance the ability to subsequently
acquire such companies and to deter other competitors from obtaining such
access or performing such acquisitions. Cabletron expects that competition
will increase substantially as a result of the continuing 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 the demand for "end-to-end" enterprise-wide solutions.
Acquisitions of or investments in other data networking companies by
Cabletron's competitors may limit Cabletron's access to commercially
significant technologies, and thus its ability to offer products that meet its
customers needs. Compaq's acquisition of Digital Equipment Corporation
("Digital") demonstrates the difficulties of partnering with other companies.
Cabletron acquired the Network Products Business unit ("NPB") of Digital in
part to gain access to the Digital brand name, Digital's worldwide sales
force, and Digital's worldwide service and support organization. Compaq, as
part of its integration of Digital, may eliminate the Digital brand name and
may materially change the structure of Digital's sales force and service and
support organizations. Further, Compaq sells its own brand of computer
networking products and this may reduce its need to rely on Cabletron to
supply it with computer networking products. These factors make it more
difficult for Cabletron to achieve the anticipated benefits of its acquisition
of the NPB and its partnership with Digital. See "--Acquisition Strategy."
In addition to the effects of competition, Cabletron's margins may also
decrease as a result of a shift in product mix toward lower margin products,
increased sales through lower margin reseller sales channels, increased
component costs and increased expenses, including increased research and
development and sales, general and administrative costs, which may be
necessary in future periods to meet the demands of greater competition. For
example, as a result of its acquisition of the NPB, Cabletron expects a higher
percentage of its sales to be made through resellers, which may have the
effect of reducing Cabletron's margin on those sales, as well as, to a lesser
extent, Cabletron's overall margins. Margins in any given period may be
adversely affected by additional factors. See "--Fluctuations in Operating
Results."
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:
(i) the rate of growth of the markets for Cabletron's products,
(ii) competitive pressures, including pricing, brand and technological
competition, (iii) availability of components, including unique integrated
circuits, (iv) adverse effects of delays in the establishment of industry
standards, including delays or reductions in customer orders, delays in new
product introductions and increased expenses associated with standards
compliance, (v) delays by Cabletron in the introduction of new or enhanced
products, (vi) changes in product mix, (vii) delays or reductions in customer
purchases in anticipation of the introduction of new products by Cabletron or
its competitors and (viii) instability of the international markets in which
Cabletron sells its products. For example, Cabletron has been experiencing
decreased sales for its older line of so-called "shared media" products. The
period-to-period rate of decrease has been greater in certain periods than in
others and has been difficult to predict. Backlog as of any particular date is
not indicative of future revenue due, in part, to the possibility of order
cancellations, customer requested delivery delays, shifting purchasing
patterns and inventory level variability. 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. Also, in the recent past, Cabletron has experienced backend loading of
its quarterly sales, making the predictability of the quarterly results highly
speculative. These factors, together with increased competition, have led to
an increase in sales variability and a decrease in Cabletron's ability to
predict aggregate sales demand for any given period. These factors have
increased the possibility that the operating results for a quarter could be
materially adversely affected by the failure to obtain or delays in obtaining
a limited number of large customer orders, 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 in
anticipation of future revenue growth. If growth in Cabletron's revenues in
any quarter fails to match Cabletron's expense levels, its earnings and
margins would be materially adversely affected. There can be no assurance that
net sales will not decrease in future quarters. Any decrease in net sales
could have a material adverse affect on Cabletron's
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business, financial condition and results of operations. As expenses are
relatively fixed in the near term, Cabletron may not be able to adjust expense
levels to match any shortfall in revenues. As the industry becomes more
competitive and standards-based, Cabletron is facing greater price competition
from its competitors. If Cabletron does not respond with lower production
costs, pricing pressures could adversely affect future earnings. Accordingly,
past results may not be indicative of future results. There can be no
assurance that the announcement or introduction of new products by Cabletron
or its competitors, or a change in industry standards, will not cause
customers to defer or cancel purchases of Cabletron's existing products, which
could have a material adverse effect on Cabletron's business, financial
condition or results of operations. The market for Cabletron's products is
evolving. The rate of growth of the market and the resulting demand for
Cabletron's recently introduced products is subject to a high level of
uncertainty. If the market fails to grow or grows more slowly than
anticipated, Cabletron's business, financial condition or results of
operations would be materially adversely affected.
REALIGNMENT
Cabletron incurred a pre-tax charge in the fourth quarter of fiscal 1998 of
$35.0 million ($21.5 million, after-tax) related to a realignment of its
business operations. The realignment includes general expense reductions
through the elimination of duplicate facilities, consolidation of related
operations, reallocation of resources, including the elimination of certain
existing projects, and personnel reduction. Cabletron may encounter
difficulties in achieving the expense reductions intended as a result of the
realignment due to, among other factors, additional costs associated with, for
example, relocations and employee severance, the need to maintain certain
essential, but underutilized, facilities, and delays in implementing planned
reductions. Any such difficulties in achieving expense reductions may result
in a failure to realize the full amount of the annualized cost savings which
is intended to be achieved through the realignment. Any such additional costs
may result in charges related to Cabletron's realignment in future quarters.
In addition to the realignment, Cabletron has defined and is currently
implementing a new management structure. The new management structure includes
the creation of certain new senior officer positions and the realignment of
certain management structures. The implementation of the new management
structures, the realignment referred to above and Cabletron's recent
acquisitions have required the dedication of Cabletron's existing management
resources. There can be no assurance that such disruption will not continue in
future quarters. Any such disruption could have a material adverse effect on
Cabletron's business, operating results or financial condition. Over time, the
loss of the personnel, facilities and other resources eliminated through the
expense reductions may adversely impact Cabletron's ability to generate
expected revenue levels.
ACQUISITION STRATEGY
Cabletron has addressed the need to develop new products, in part, through
the acquisition of other companies and businesses. Acquisitions, such as the
acquisition of the NPB from Digital and the proposed acquisitions of
FlowPoint, the Company and CSG, involve numerous risks including difficulties
in assimilating 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 competitors have established
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 exacerbated by the necessity of
coordinating geographically separated organizations. The efforts required to
successfully integrate acquired companies 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 acquired companies could have a material adverse effect on the
business
12
<PAGE>
and results of operations of Cabletron. The acquisition of early stage
companies, such as FlowPoint, poses risks in addition to those identified
above. Such companies often have limited operating histories, limited or no
prior sales, and may not yet have achieved profitability. In addition, the
technologies possessed by such companies are often unproven. The development
and marketing of products based upon such technologies may require the
investment of substantial time and resources and, despite such investment, may
not result in commercially saleable products or may not yield revenues
sufficient to justify Cabletron's investment. Further, aggressive competitors
often undertake initiatives to attract customers and to recruit key employees
of acquired companies through various incentives. In addition to FlowPoint,
the Company and CSG, Cabletron has stated that it will continue to explore
other possible acquisitions in the future. Multiple acquisitions during a
period increases the risks identified above, including in particular the
difficulty of integrating the acquired businesses and the distraction of
management from the day-to-day business activities of Cabletron.
Cabletron has recently acquired several product lines previously marketed by
Digital's NPB pursuant to Cabletron's acquisition of the NPB. Cabletron's
sales of the NPB products are subject to numerous risks. Cabletron's success
will be dependent upon its continued development of products that are
compatible with and meet the needs of the NPB's installed base of end-user
customers, many of whom have made a substantial investment in existing
Digital's NPB network infrastructure. Substantially all of the NPB's revenues
have historically been derived from sales by Digital's worldwide sales force
and certain major third party resellers. Under Digital, the NPB had no direct
sales force to end users (Digital's direct sales force resides in an
independent business unit), and Cabletron did not acquire any portion of
Digital's sales force. Under the Reseller and Services Agreement dated as of
November 24, 1997 between Cabletron and Digital, Digital has agreed to resell
certain Cabletron products, including the NPB products, and has contractually
committed to purchase certain minimum volumes of Cabletron products for resale
and internal use. Based on historical revenues of Cabletron, it is expected
that Digital will account for substantially in excess of ten percent (10%) of
Cabletron's revenues for fiscal 1999. Any failure by Digital to purchase the
committed product volumes would have a material adverse impact on Cabletron's
business, results of operations and financial condition. In addition, a
substantial portion of the NPB's revenues have historically been derived from
sales through third party resellers. Cabletron has traditionally derived a
smaller portion of its revenues from sales through resellers and, as a
consequence, has less experience managing reseller relationships. There can be
no assurance that the NPB's resellers will continue to purchase the NPB
products from Cabletron or, if they do, that the volume of such purchases will
not decline significantly. The products to be sold by Cabletron through
Digital's sales force and the NPB's resellers, including the NPB products and
certain Cabletron products, may be sold under the Digital brand name and, in
many cases, will be specifically adapted for use in existing Digital hardware
platforms. Cabletron has limited experience managing the marketing and
distribution of a line of products under a brand name or for hardware
platforms other than its own. There exists no alternative market for such
products. A higher than expected rate of return from resellers, the Company's
failure to adequately manage the marketing and distribution of such products,
or the loss of material resellers or a material decline in sales volume
through the NPB resellers, could have a material adverse effect on Cabletron's
business, results of operations or financial condition.
RETENTION AND INTEGRATION OF KEY EMPLOYEES
The success of the Merger is dependent on the retention and integration of
the key management, engineering and other technical employees of the Company.
Competition for qualified personnel in the networking industry is very
intense, and competitors often use aggressive tactics to recruit key employees
during the period leading up to a merger and during the integration phase
following a merger. While it is anticipated that Cabletron will implement
retention arrangements for the key employees of the Company, there can be no
assurance that such key employees will remain with the Company following the
Merger. The loss of services of any of such key employees of the Company could
materially and adversely affect Cabletron's business, financial condition and
results of operation.
VOLATILITY OF STOCK PRICE
In considering whether to approve the Merger Agreement and the transactions
contemplated thereby, including the Merger, Company Stockholders should be
aware that the stock price of Cabletron Common Stock
13
<PAGE>
at and following the Effective Time may vary significantly from the price as
of the date of the execution of the Merger Agreement or the date hereof. 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 companies or
businesses that have been or may in the future be acquired 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.
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 make 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. In addition, the demand for traditional "shared media" hubs such as
Cabletron's basic MMAC product have been experiencing declines over the last
few years, and there can be no assurance that such decline will not
accelerate. 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.
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, and there can be no assurance
that such claims will not be successful or that third parties will not assert
such claims against Cabletron in the future.
14
<PAGE>
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. The
NPB products will initially be manufactured by Digital and a third-party
contract manufacturer, SCI Technologies, Inc. The failure of either party to
continue to manufacture the NPB products or to deliver the NPB products in
time for Cabletron to meet its delivery requirements could have a material
adverse effect on Cabletron's business, financial condition and results of
operations.
LEGAL PROCEEDINGS
Since October 24, 1997, nine stockholder class action lawsuits have been
filed against Cabletron and certain officers and directors of Cabletron in the
United States District Court for the District of New Hampshire. The complaints
allege that Cabletron and several of its officers and directors disseminated
materially false and misleading information about Cabletron's operations and
acted in violation of Section 10(b) and Rule 10b-5 of the Exchange Act during
the period between March 3, 1997 and December 2, 1997. The complaints further
allege that certain officers and directors profited from the dissemination of
such misleading information by selling shares of Cabletron Common Stock during
this period. The complaints do not specify the amount of damages sought on
behalf of the class. On March 3, 1998, the United States District Court for
the District of New Hampshire granted the motion to consolidate the nine class
action complaints against Cabletron and its officers and directors into one
class action. The legal costs incurred by Cabletron in defending itself and
its officers and directors against this litigation, whether or not it
prevails, could be substantial, and in the event that the plaintiffs prevail,
Cabletron could be required to pay substantial damages. This litigation may be
protracted and may result in a diversion of management and other resources of
Cabletron. The payment of substantial legal costs or damages, or the diversion
of management and other resources, could have a material adverse effect on
Cabletron's business, financial condition or results of operations.
RISKS ASSOCIATED WITH EXCHANGE RATIO
As a result of the Merger, each outstanding Class A Share and Class B Share
and each ten outstanding Class E Shares will be converted into the right to
receive 8/13 (approximately .6154) of a share of Cabletron Common Stock on the
basis of the Exchange Ratio. The Exchange Ratio is fixed and will not increase
or decrease due to fluctuations in the market price of Cabletron Common Stock.
The specific dollar value of the consideration to be received by Company
Stockholders in the Merger will depend on the market price of the Cabletron
Common Stock at the Effective Time. In the event that the market price of
Cabletron Common Stock decreases
15
<PAGE>
or increases prior to the Effective Time, the market value at the Effective
Time of the Cabletron Common Stock to be received by Company Stockholders in
the Merger would correspondingly decrease or increase. Cabletron Common Stock
historically has been subject to substantial price volatility. No assurance
can be given as to the market prices of Cabletron Common Stock at any time
before the Effective Time or as to the market price of Cabletron Common Stock
at any time thereafter. See "--Volatility of Stock Price."
YEAR 2000 COMPLIANCE
Historically, certain computer programs have been written using two digits
rather than four digits to define year. This could result in computers
recognizing a date using "00" as the year 1900 rather than the year 2000,
resulting in potential major system failures or miscalculations. To address
the above-mentioned Year 2000 issues and concerns, Cabletron has established a
"Year 2000 Task Force" to lead and coordinate all of its global Year 2000
activities. This task force is accountable to provide the necessary
leadership, tools and knowledge required by all operating units to become Year
2000 compliant. The task force is currently testing all hardware, firmware and
software developed and sold by the Company for Year 2000 Compliance in
accordance with Cabletron's Year 2000 Policy Statement. In addition, the Year
2000 Task Force is conducting a global assessment of Cabletron's essential
computer systems and is making reasonable efforts to ensure that Cabletron's
information technology infrastructure will not be adversely affected by the
turn of the century. Currently, Cabletron has no reasonable estimate of the
amount of out-of-pocket costs which may be incurred to address Year 2000
issues for its products and internal infrastructure. At this time, Cabletron
cannot reasonably estimate the potential impact on its financial position and
operations if key suppliers, customers and other constituents do not become
Year 2000 compliant on a timely basis.
16
<PAGE>
SELECTED FINANCIAL DATA
The following Selected 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 incorporated by
reference in this Proxy Statement/Prospectus. The following Selected Financial
Data of the Company has been derived from its historical financial statements
and should be read in conjunction with the financial statements and notes
thereto incorporated by reference in this Proxy Statement/Prospectus. See
"Incorporation of Certain Documents by Reference."
CABLETRON
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED THE LAST DAY OF FEBRUARY, MAY 31,
--------------------------------------------------- ----------------------
1998 1997 1996 1995 1994 1998 1997
---------- ---------- ---------- -------- -------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $1,377,330 $1,406,552 $1,100,349 $833,218 $602,486 $ 365,747 $ 362,688
Income (loss) from
operations............. (239,081) 320,278 206,935 237,016 176,503 (158,316) 84,596
Net income (loss)....... (127,062) 222,125 144,485 156,574 118,321 (152,300) 58,824
Net income (loss) per
share--basic........... $ (0.81) $ 1.43 $ 0.95 $ 1.08 $ 0.82 $ (0.93) $ (0.38)
Weighted average number
of shares outstanding--
basic.................. 157,686 155,207 151,525 145,125 143,692 163,394 156,857
Net Income (loss) per
share--diluted......... $ (0.81) $ 1.40 $ 0.93 $ 1.07 $ 0.81 $ (0.93) $ 0.37
Weighted average number
of shares outstanding--
diluted................ 157,686 158,933 155,171 147,017 146,567 163,394 159,503
<CAPTION>
LAST DAY OF FEBRUARY, MAY 31,
--------------------------------------------------- ----------------------
1998 1997 1996 1995 1994 1998 1997
---------- ---------- ---------- -------- -------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 561,400 $ 675,102 $ 485,152 $381,758 $258,463 $ 561,844 $ 725,910
Total assets............ 1,606,327 1,306,855 996,908 702,200 502,377 1,567,617 1,425,229
Total stockholders'
equity................. 989,020 1,081,498 809,886 593,942 425,719 1,002,182 1,151,800
</TABLE>
- --------
Included in the three-month period ended May 31, 1998 were special charges
of $158.3 million (net of tax) ($150.0 million for in-process research and
development and $8.3 million for integration costs) in connection with the
Yago acquisition.
Included in fiscal 1998 results are special charges related to the
acquisition of Digital's Network Products Group and the implementation of a
strategic realignment plan consisting of $235.2 million and $21.3 million,
respectively (net of tax). Included in fiscal 1997 and fiscal 1996 results are
$39.2 million and $60.8 million (net of tax) of special charges items related
to all acquisitions for each fiscal year, respectively.
THE COMPANY
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------- ----------------
1997 1996 1995 1994 1993 1998 1997
--------- ------- ------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $ 15,840 $26,563 $ 1,313 $ 120 $ 112 $ 6,894 $ 9,013
Loss from operations.... (18,973) (9,694) (5,858) (1,791) (1,542) (6,428) (5,824)
Net loss................ $ (18,015) $(9,897) $(6,503) $(1,843) $(1,570) $ (6,100) $ (5,435)
Net loss per share--
basic and diluted...... $ (1.75) $ (2.23) $ (3.75) $ (0.59) $ (0.53)
Weighted average number
of shares outstanding--
basic and diluted...... 10,272 4,433 1,737 10,392 10,178
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------------------------- ------------------
1997 1996 1995 1994 1993 1998 1997
--------- ------- ------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 23,206 $15,604 $ 964 $ (582) $ (533) $ 16,555 $ 35,191
Total assets............ 29,349 21,964 1,940 850 234 25,291 42,960
Total stockholders'
equity (deficit)....... 25,429 17,710 1,302 (156) (1,177) 19,441 37,867
</TABLE>
- --------
Included in 1996 results was a compensation charge for the release of
certain escrowed shares of $4.2 million.
17
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of
Cabletron and the Company 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 8/13 (approximately .6154) of a share of Cabletron
Common Stock in exchange for each Class A Share, each Class B Share and each
ten Class E Shares. The approximately additional 8,200,000 shares of Cabletron
Common Stock that may be issued to the Company Stockholders upon the Merger
are not reflected in the unaudited pro forma combined per share data. This
data should be read in conjunction with the Selected Financial Data and the
separate financial statements of Cabletron and the Company 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>
THREE MONTH PERIOD ENDED YEAR ENDED
MAY 31, 1998 FEBRUARY 28, 1998
------------------------ -----------------
<S> <C> <C>
HISTORICAL PER CABLETRON SHARE:
Net loss...................... $(0.93) $(0.81)
Book value.................... $ 5.78 $ 6.02
<CAPTION>
SIX MONTH PERIOD ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
------------------------ -----------------
<S> <C> <C>
HISTORICAL PER COMPANY SHARE(1):
Net loss...................... $(0.59) $(1.75)
Book value.................... $ 1.87 $ 2.45
<CAPTION>
THREE MONTH PERIOD ENDED YEAR ENDED
MAY 31, 1998 FEBRUARY 28, 1997
------------------------ -----------------
<S> <C> <C>
PRO FORMA COMBINED PER CABLETRON
SHARE(2):
Net loss...................... $(0.94) $(0.88)
Book value.................... $ 5.68 $ 5.94
<CAPTION>
THREE MONTH PERIOD ENDED YEAR ENDED
MARCH 31, 1998 DECEMBER 31, 1997
------------------------ -----------------
<S> <C> <C>
EQUIVALENT PRO FORMA COMBINED
PER COMPANY SHARE(2)(3):
Net loss...................... $(0.58) $(0.54)
Book value.................... $ 3.49 $ 3.65
</TABLE>
- --------
(1) The Company shares used in the calculations include only Class A Shares
and Class B Shares.
(2) The Company shares used in the calculations include Class A Shares, Class
B Shares, and one-tenth of Class E Shares.
(3) The equivalent Pro Forma Combined Per Company Share amounts are calculated
by multiplying the Pro Forma Combined Per Cabletron Share amounts by the
Exchange Ratio for each Class A Share, Class B Share, and each ten Class E
Shares, and, for the interim period, represent the most recent interim
period for which both companies have available data.
DIVIDEND POLICY
Neither Cabletron nor the Company has ever paid a cash dividend and each of
Cabletron and the Company 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 high and low sale prices per share of Cabletron Common Stock as reported
on the NYSE on June 19, 1998, the last trading day before the announcement of
the proposed Merger, were $14 and $12 7/8, respectively. The last reported
sale price per share of the Cabletron Common Stock on August 14, 1998, the
latest practicable trading day before the printing of this Proxy
Statement/Prospectus, was $9 9/16.
18
<PAGE>
The high and low sales prices per share of the Class A Shares as reported on
the Nasdaq National Market on June 19, 1998, the last trading day before the
announcement of the proposed Merger, were $3 15/16 and $5 1/16, respectively.
The last reported sale price per share of the Class A Shares on August 14,
1998, the last practicable trading day before the printing of this Proxy
Statement/Prospectus, was $5 1/2.
Because the market price of Cabletron Common Stock is subject to
fluctuation, the market value of the shares of Cabletron Common Stock that
Company Stockholders will receive in the Merger may increase or decrease prior
to and following the Merger. COMPANY 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" and "--Risks Associated with Fixed Exchange Ratio."
19
<PAGE>
THE SPECIAL MEETING
TIME, PLACE AND DATE
The Special Meeting will be held on Friday, September 25, 1998 at the
Doubletree Club Hotel, located at 1985 East Grand Avenue, El Segundo,
California 90245, commencing at 10:00 a.m., local time.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, Company Stockholders will (i) consider and vote upon
a proposal to approve and adopt the Merger Agreement and the transactions
contemplated thereby, pursuant to which, among other things, Merger Sub will
be merged with and into the Company and the Company will become a wholly-owned
subsidiary of Cabletron, and each outstanding share of Company Common Stock
(other than shares of Company Common Stock held in the treasury of the
Company, held by Cabletron or any direct or indirect wholly owned subsidiary
of the Company or Cabletron, or with respect to which appraisal rights are
properly exercised) will be converted into the right to receive the applicable
Merger Consideration, and (ii) transact such other business as may properly
come before the Special Meeting. The Company Board has unanimously approved
the Merger Agreement and the transactions contemplated thereby, including the
Merger, and recommends that Company Stockholders vote FOR approval and
adoption of the Merger Agreement and the transactions contemplated thereby,
including the Merger.
VOTING AT THE SPECIAL MEETING; RECORD DATE
The Company Board has fixed August 13, 1998, as the record date (the "Record
Date") for the determination of the Company Stockholders entitled to notice of
and to vote at the Special Meeting. Accordingly, only holders of record of
shares of Company Common Stock at the close of business on the Record Date
will be entitled to notice of and to vote at the Special Meeting. As of the
close of business on the Record Date, there were outstanding 10,167,950 Class
A Shares held by approximately 84 holders of record, 233,963 Class B Shares
held by approximately 33 holders of record, and 540,995 Class E Shares held by
approximately 80 holders of record. Each such holder of record of Class A
Shares is entitled to cast one vote per share, each such holder of record of
Class B Shares is entitled to cast five votes per share and each such holder
of record of Class E Shares is entitled to cast five votes per share, on the
proposal to approve and adopt the Merger Agreement and the transactions
contemplated thereby, including the Merger, and on any other proposal properly
submitted for the vote of Company Stockholders at the Special Meeting. The
presence, in person or by proxy, of the holders of a majority of the voting
power of the shares of Company Common Stock entitled to vote is necessary to
constitute a quorum at the Special Meeting.
The approval and adoption by the Company Stockholders of the Merger
Agreement and the transactions contemplated thereby, including the Merger,
will require the affirmative vote of the holders of a majority of the voting
power represented by the shares of Company Common Stock outstanding on the
Record Date.
Abstentions and broker non-votes (i.e., votes on shares held by brokers or
nominees who do not have the discretionary power to vote on a particular
matter and have not received voting instructions from the beneficial owners of
such shares) will be included in determining the number of shares of Company
Common Stock present and voting at the Special Meeting for purposes of
determining the presence of a quorum. For purposes of voting on the proposal
to approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Merger, abstentions and broker non-votes will have the
same effect as votes against such proposal.
As of the Record Date, directors and executive officers of the Company and
their affiliates had the right to vote approximately 31,319 Class A Shares,
57,200 Class B Shares and 57,200 Class E Shares. Each of the directors and
executive officers has advised the Company that he or she presently intends to
vote or direct the vote of all the outstanding shares of Company Stock over
which he or she has voting control in favor of approval
20
<PAGE>
and adoption of the Merger Agreement and the transactions contemplated
thereby, including the Merger. As of the Record Date, neither Cabletron nor
any of its subsidiaries owned any outstanding shares of Company Common Stock.
See also "The Merger--Interests of Certain Persons in the Merger."
PROXIES
All shares of Company Common Stock which are entitled to vote and are
represented at the Special Meeting by properly executed proxies received prior
to or at the Special Meeting, and are not revoked, will be voted at the
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 Merger Agreement and the transactions contemplated thereby,
including the Merger. The Company Board knows of no matters to be presented at
the Special Meeting other than those described in this Proxy
Statement/Prospectus. If any other matters are properly presented at the
Special Meeting for consideration, including, among other things,
consideration of a motion to adjourn the 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 the Company, at or before the taking of the vote at the
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 the Company before the taking of the vote at
the Special Meeting, or (iii) attending the Special Meeting and voting in
person (although attendance at the 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 Thomas Iwanski, the
Secretary of the Company, at or before the taking of the vote at the Special
Meeting.
All expenses of this solicitation will be borne by the Company, and each of
Cabletron and the Company will bear its 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 the Company 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. The Company has also retained MacKenzie Partners, Inc. to assist
in the solicitation of proxies, for which services such firm will be paid a
fee estimated to be $7,500 plus reimbursement of expenses. 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 the Company will reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith.
COMPANY STOCKHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES TO THE COMPANY OR
THE EXCHANGE AGENT (AS DEFINED BELOW) UNTIL THEY HAVE RECEIVED A LETTER OF
TRANSMITTAL FROM THE EXCHANGE AGENT. COMPANY STOCKHOLDERS SHOULD NOT RETURN
STOCK CERTIFICATES WITH THE ENCLOSED FORM OF PROXY.
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THE MERGER
GENERAL
The Merger Agreement provides for the merger of Merger Sub, a wholly owned
subsidiary of Cabletron, with and into the Company, with the result that the
Company will be the Surviving Corporation and will become a wholly owned
subsidiary of Cabletron, and each outstanding share of Company Common Stock
(other than shares of Company Common Stock held in the treasury of the
Company, held by Cabletron or any direct or indirect wholly owned subsidiary
of the Company or Cabletron, or with respect to which appraisal rights are
properly exercised) will be converted into the right to receive the applicable
Merger Consideration. For the Merger to be consummated it must be approved by
the Company Stockholders and the other conditions specified in the Merger
Agreement 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 Merger Agreement are subject to and qualified in their
entirety by reference to the Merger Agreement, a copy of which is attached to
this Proxy Statement/Prospectus as Annex A and is incorporated herein by
reference. Company Stockholders are urged to read the Merger Agreement in its
entirety.
CONVERSION OF COMPANY COMMON STOCK
At the Effective Time of the Merger, each Class A Share (together with the
rights attached thereto), each Class B Share and each ten Class E Shares
issued and outstanding immediately prior to the Effective Time (other than
shares of Company Common Stock held in the treasury of the Company, held by
Cabletron or any direct or indirect wholly owned subsidiary of the Company or
Cabletron, or with respect to which appraisal rights are properly exercised)
will be automatically converted into the right to receive 8/13 (approximately
.6154) of a share (the "Exchange Ratio") of Cabletron Common Stock and cash in
lieu of fractional shares (the "Merger Consideration"). The shares of
Cabletron Common Stock issued in the Merger in exchange for the Class E Shares
will not be escrowed, be subject to any of the contingencies that currently
govern the Class E Shares or be subject to the redemption provisions that
currently apply to the Class E Shares.
CONVERSION OF COMPANY OPTIONS AND WARRANTS
At the Effective Time, each Company Stock Option granted under the Company
Stock Option Plans, whether vested or unvested, shall be, together with the
Company Stock Option Plans, deemed assumed by Cabletron and deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Company Stock Option prior to the Effective Time, the
number (rounded down to the nearest whole number) of Cabletron Common Stock as
the holder of such Company 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 Company Stock 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 Company Stock Option divided by (y) the number of
shares of Cabletron Common Stock deemed purchasable pursuant to such Company
Stock Option. As soon as practicable after the Effective Time, Cabletron will
deliver to each holder of an outstanding Company Stock Option an appropriate
notice setting forth such holder's rights pursuant thereto, and such Company
Stock Option shall continue in effect on the same terms and conditions. Such
assumption will be automatic and no action will be required on the part of the
option holder to convert such holder's Company Stock Option into an option to
purchase shares of Cabletron Common Stock. In the Merger Agreement, Cabletron
has agreed to register under the Securities Act the shares of Cabletron Common
Stock issuable upon exercise of the Company Stock Options being assumed by
Cabletron in the Merger.
In connection with the extension of a line of credit (that expired in 1997),
the Company issued to Silicon Valley Bank two warrants, each to purchase
30,000 Class A Shares (subject to adjustment in accordance with the terms of
such warrants) (collectively, the "SVB Warrants"), at exercise prices of
$9.875 and $11.44 per share, respectively. At the Effective Time, Cabletron
will not assume the SVB Warrants, and such nonassumption shall have the
consequences described in Section 1.7.3 of each of the SVB Warrants.
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In addition to Company Stock Options granted to him under the Company Stock
Option Plans, the Company has granted to Stephen R. Rizzone, the Company's
Chairman of the Board, Chief Executive Officer and President, (i) two
warrants, each to purchase 15,000 Class A Shares, at an exercise price of
$5.8125 per share, in connection with his employment with the Company, of
which one warrant is currently exercisable and the other warrant is
exercisable when the outstanding Class E Shares are converted to Class B
Shares pursuant to the Company's Restated Certificate of Incorporation, and
(ii) two warrants, both of which are currently exercisable, to purchase an
aggregate of 22,875 Class A Shares, at an exercise price of $3.8125 per share,
in lieu of interest on a short-term loan made by Mr. Rizzone to the Company
(collectively, the "SR Warrants"). At the Effective Time, Cabletron will
assume the SR Warrants that are exercisable, such that each exercisable SR
Warrant shall be deemed to constitute a warrant to acquire, on the same terms
and conditions as are applicable under such SR Warrant prior to the Effective
Time, the number of shares of Cabletron Common Stock (rounded down to the
nearest whole number) that Mr. Rizzone would have been entitled to receive
pursuant to the Merger had he exercised such warrant in full immediately prior
to the Effective Time at a price per share equal to (x) the aggregate exercise
price for Company Common Stock purchasable pursuant to such warrant divided by
(y) the number of shares of Cabletron Common Stock deemed purchasable pursuant
to such warrant. The non-exercisable SR Warrant for 15,000 Class A Shares
shall be deemed assumed by Cabletron and deemed to constitute a warrant to
acquire, on the same terms and conditions as were applicable under such
SR Warrant prior to the Effective Time, a number of shares of Cabletron Common
Stock (rounded down to the nearest whole number) equal to 1,500 multiplied by
the Exchange Ratio, at a price per share equal to (x) the aggregate exercise
price for Company Common Stock otherwise purchasable pursuant to such SR
Warrant divided by (y) ten multiplied by the number of shares of Cabletron
Common Stock deemed purchasable pursuant to such warrant.
In connection with the Company's initial public offering, the Company issued
to D.H. Blair Investment Banking Corp. (the underwriter in such initial public
offering), and certain of the underwriter's affiliates, unit purchase options
to purchase 150,000 units (the "Unit Purchase Options"), with an exercise
price of $6.75 per unit. Currently, each such unit consists of one Class A
Share, one Class A Warrant (which is exercisable at an exercise price of
$6.5205 per warrant, for 1.05 Class A Shares and one Class B Warrant) and one
Class B Warrant (which is exercisable at an exercise price of $7.78 per
warrant, for 1.05 Class A Shares). Cabletron has no obligation to assume and
will not assume the Unit Purchase Options at the Effective Time. Should any of
the Unit Purchase Options be exercised prior to the Effective Time, any
resulting warrant for shares of Company Common Stock shall be deemed assumed
by Cabletron and deemed to constitute a warrant to acquire, on the same terms
and conditions as are applicable under such warrant prior to the Effective
Time, the number of shares of Cabletron Common Stock (rounded down to the
nearest whole number) that the holder of such warrant would have been entitled
to receive pursuant to the Merger had such holder exercised such warrant in
full immediately prior to the Effective Time, at a price per share equal to
(x) the aggregate exercise price for Company Common Stock purchasable pursuant
to such warrant divided by (y) the number of shares of Cabletron Common Stock
deemed purchasable pursuant to such warrant.
Approval and adoption of the Merger Agreement and the transactions
contemplated thereby, including the Merger, by Company Stockholders at the
Special Meeting will be deemed to constitute their approval of the assumption
of the Company Stock Options and the SR Warrants as provided for in the Merger
Agreement.
EXCHANGE OF CERTIFICATES
As soon as reasonably practicable after the Effective Time, a letter of
transmittal with instructions will be mailed to each Company Stockholder for
use in exchanging Company Common Stock certificates for Cabletron Common Stock
certificates. Upon surrender of a Company Common Stock certificate for
cancellation to Boston Equiserve, the exchange agent in connection with the
Merger, or such other agent or agents as may be appointed by Cabletron with
the prior approval (not to be unreasonably withheld) of the Company (the
"Exchange Agent"), 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 that such holder has the
right to receive in accordance with computation of the requisite amount of
stock payable as Merger Consideration, as set forth above.
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No fractional shares of Cabletron Common Stock will be issued in the Merger.
All fractional shares of Cabletron Common Stock that a holder of shares of
Company Common Stock would otherwise be entitled to receive as a result of the
Merger shall be aggregated and if a fractional share results from such
aggregation, such holder shall be entitled to receive, in lieu thereof, an
amount of cash determined by multiplying (i) the per share closing price of
Cabletron Common Stock on the NYSE on the trading day immediately preceding
the Effective Time by (ii) the fraction of a share of Cabletron Common Stock
to which such holder would otherwise have been entitled. 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 Company
Common 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
Company Common Stock 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 payable 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 Company Common Stock certificate surrendered
in exchange therefor is registered, it will be a condition of the issuance
thereof that the Company Common 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 Company Common 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.
All Company Common Stock certificates so surrendered shall forthwith be
canceled.
HOLDERS OF COMPANY STOCK CERTIFICATES SHOULD NOT SUBMIT THEIR CERTIFICATES
FOR EXCHANGE UNTIL THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL AND
INSTRUCTIONS REFERRED TO ABOVE.
EFFECTIVE TIME
As promptly as practicable after the satisfaction or waiver of the
conditions specified in the Merger Agreement, Cabletron and the Company shall
cause the Merger to be consummated by filing a certificate of merger as
contemplated by the DGCL, together with any required related certificates,
with the Secretary of State of the State of Delaware, in such form as required
by, and executed in accordance with the relevant provisions of, the DGCL (the
time of such filing being the "Effective Time"). The Merger Agreement may be
terminated by the Company or Cabletron if the Merger is not consummated by
October 15, 1998. The Merger Agreement is also subject to termination upon the
occurrence of certain other events. See "The Merger Agreement--Conditions to
the Merger" and "--Termination."
BACKGROUND OF THE MERGER
During the first half of 1997, the Company Board decided that it was
potentially an opportune time for the Company to explore a possible merger
with a larger company in order to provide the Company with greater
opportunities for the distribution of its products and more substantial
capital resources to support its product development, manufacturing and
marketing activities, particularly in light of its planned development of its
next generation of faster Ethernet workgroup switching products. On June 4,
1997, the Board selected Robertson Stephens as the Company's financial advisor
to assist in exploring possible merger opportunities, Robertson Stephens was
thereafter retained under an engagement agreement signed by the Company on
June 6, 1997 (see--"Opinion of the Company's Financial Advisor").
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After the Company and Robertson Stephens had assessed the Company's business
and prospects, the Company concluded that it would be premature to explore
merger opportunities until the Company's new products were closer to being
ready for shipment to customers, which was then anticipated to occur in the
first quarter of 1998, and orders for such products had begun to be received.
Accordingly, during the second half of 1997, the Company concentrated on its
internal operations and implementation of its business plan with particular
emphasis on the development of its new products.
As part of its plan to develop customers for its new products, the Company
began to have discussions with various potential OEMs. During the second half
of 1997, the Company had discussions with Cabletron concerning the
establishment of an arrangement whereby Cabletron, as an OEM, would purchase
certain of the Company's new products, when they were commercially available,
for resale by Cabletron to its distribution channel partners and/or end
customers. During the early stages of these discussions, the Company (through
Robertson Stephens) broached the possibility of an acquisition by Cabletron
and Cabletron indicated that it was not interested in acquiring the Company at
that time and was focused on developing its own new Ethernet workgroup
switching products.
In mid-December 1997, Cabletron's senior management conveyed to the Company
(through Robertson Stephens) its potential interest in a fully-integrated
relationship between the two companies through an acquisition of the Company
by Cabletron. The Company (through Robertson Stephens) entered into a
confidentiality agreement dated December 19, 1997 with Cabletron. During the
first two months of 1998, certain limited discussions took place concerning a
possible acquisition of the Company by Cabletron. At the same time, Robertson
Stephens, on behalf of the Company, contacted certain other companies that
either (i) had previously expressed an interest in entering into an OEM
arrangement and/or forming a strategic relationship with the Company or (ii)
constituted the most likely potential merger partners for the Company based on
their respective current product portfolios and their known interest in the
workgroup switching arena. A subset of these companies (including Cabletron)
entered into confidentiality agreements with the Company and held preliminary
discussions with Robertson Stephens and the Company. During this time the
Company also continued active discussions with potential OEM customers,
including Cabletron.
At a meeting of the Company Board on February 5, 1998, Robertson Stephens
presented the results of its preliminary discussions with companies (other
than Cabletron) regarding a possible acquisition of the Company and the
Company Board decided, based on the respective levels of interest and the
valuation ranges indicated, that none of these discussions was likely to yield
a transaction equal or superior to a possible Cabletron transaction and that
the Company's management should concentrate its efforts on maximizing the
prospects of its new products and potential OEM arrangements while continuing
to explore Cabletron's interest in acquiring the Company.
On February 10, 1998, the Company announced an anticipated loss of
approximately $18 million for 1997. In its announcement, the Company noted
that the net loss of $10.3 million for the fourth quarter of 1997 reflected
valuation adjustments totaling $5 million related to the Company's then
current and older product lines in connection with the transition to its new
products that potential customers were evaluating. On February 13, 1998, the
Company announced that the Company Board had that day adopted a stockholder
rights plan to assist its stockholders in realizing fair value and equal
treatment in the event of any attempted takeover of the Company and to protect
the Company and its stockholders against coercive takeover tactics. The
Company also announced certain bylaw amendments requiring advance notice of
stockholder proposals at annual and special meetings and governing the setting
of record dates for determining eligibility to participate in stockholder
action by written consent without a meeting.
In late February and early March 1998, discussions took place between
representatives of the Company and Cabletron, and their respective financial
advisors, regarding potential valuation and structuring of a possible
acquisition of the Company by Cabletron.
On March 10, 1998, Cabletron delivered to the Company a letter stating that,
based on Cabletron's preliminary due diligence, and subject to the Company's
agreement to negotiate with Cabletron on an exclusive basis through April 10,
Cabletron was prepared to offer between $100.8 million and $145.6 million for
all of the
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equity of the Company (including all options and warrants) payable in either
cash, Cabletron shares or a combination thereof subject to mutual agreement
(the "March Letter"). Cabletron's offer was not binding and was subject to a
number of conditions, including (i) the negotiation of substantial material
additional terms, (ii) product, employee, business and legal due diligence and
(iii) satisfactory negotiation and execution of definitive agreements. The
Cabletron proposal included a binding 30-day exclusivity period (to which the
Company agreed by signing the March Letter) during which, except as required
by law in the exercise of the fiduciary duties of the Company Board, the
Company would not solicit offers for the Company from other parties or engage
in certain related kinds of activity to initiate or facilitate other
proposals.
Thereafter, the Company and Cabletron engaged in intensive negotiations
relating to a possible acquisition of the Company on the basis contemplated by
the March Letter and, concurrent with those negotiations, Cabletron
intensified its due diligence testing of the Company's new products and the
December 19, 1997 confidentiality agreement was supplemented to facilitate the
provision of additional proprietary information by the Company to Cabletron.
On April 9, 1998, a special meeting of the Cabletron Board of Directors was
held and Craig R. Benson, President and Chief Executive Officer of Cabletron,
reported to the Board on the status of the negotiations between Cabletron and
the Company. Mr. Benson discussed the business of the Company and how its
products and engineering capabilities would complement those of Cabletron. The
Board discussed financial information about the Company which had previously
been distributed to the directors. After further discussion and analysis, the
Board authorized representatives of Cabletron to finalize the negotiations
with the Company.
After extensive negotiations, the parties were unable to reach agreement on
several key issues. Principally, the parties disagreed on when the Company's
new product that Cabletron regarded as key to its interest in a potential
acquisition of the Company would be available for shipment in volume and the
risks associated with
completing the product. This disagreement prevented the parties from reaching
an agreement on the valuation of the Company. Following several successive
extensions, the exclusivity period established by the March Letter expired on
May 1. Limited negotiations continued on a non-exclusive basis for another few
days and were then discontinued. The Company Board met on three occasions
during the course of these negotiations to evaluate the situation.
For the next several weeks, the parties had intermittent contact, regarding
possible alternative bases upon which an acquisition of the Company by
Cabletron might be structured, as well as other potential business
relationships not involving an acquisition of the Company, but this contact
was inconclusive. Robertson Stephens also contacted certain other companies
that might potentially acquire the Company (including some that had been
contacted in early 1998) to ascertain whether they had any interest. Some of
these companies entered into confidentiality agreements with the Company but
ultimately did not engage in serious negotiations.
On May 12, 1998, the Company reported a net loss of $6.5 million for the
first quarter of 1998. Included in this loss were adjustments related to
inventory valuation and losses on firm purchase order commitments totaling
approximately $3.1 million, primarily related to reductions in the market
value of the Company's older NV7500 and NV8500 product lines. The Company,
noting that a component problem with a third party supplier had contributed to
the delay in releasing the NV9200 product line, stated that first quarter 1998
revenues had been restricted by this delay.
On May 15, 1998, a special meeting of the Cabletron Board of Directors was
held in which Mr. Benson reported to the Board on the status of the
negotiations. He explained that Cabletron had performed extensive testing of
the Company's new products and that Cabletron and the Company disagreed on
when these products would be available for shipment in volume. Principally as
a result of this disagreement, Mr. Benson explained, the parties could not
agree on valuation and therefore discussions had been terminated.
On May 22, 1998, the Company publicly announced that it had begun initial
customer shipments of the new NV9224 fast Ethernet workgroup switch. On June
8, 1998, the Company publicly announced that it had received preliminary
results from an independent testing organization indicating that the NV9224
switch outperformed similar switches from four major competitors.
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On June 9, 1998, the Company received from Cabletron a letter in which
Cabletron indicated that, assuming an all-in purchase price of approximately
$100 million in Cabletron stock, Cabletron was prepared to offer a price per
share of $8.00 subject to updated due diligence and updated disclosure from
the Company (the "Cabletron June Proposal"). Cabletron stipulated that if
negotiations were to have any chance of success, they had to be concluded
swiftly and that it did not intend to suspend the implementation of its
alternative plans for developing or acquiring fast Ethernet workgroup
switching product technology. The Cabletron June Proposal reflected several
issues on which agreement had preliminarily been reached during the earlier
negotiations in March and April, as well as several material issues which had
remained unresolved when those negotiations had been discontinued. In
addition, it included certain new material requirements including an agreement
that would enable Cabletron to begin manufacturing certain of the Company's
new products immediately in return for a non-refundable $5 million payment and
additional royalties for products manufactured in excess of specified levels.
Immediately upon receipt of the Cabletron June Proposal, intensive
negotiations resumed between the parties and the Company Board met on two
occasions during the course of these negotiations to evaluate the situation.
At one of these meetings, on June 15, 1998, the Company Board received, in
addition to a presentation from senior management and the Company's financial
and legal advisors with respect to the status of the negotiations, a
presentation from Robertson Stephens regarding such firm's financial analysis
of the Exchange Ratio and advice from such firm that it was willing to render
the fairness opinion referred to below.
On June 10, 1998, a special meeting of the Cabletron Board of Directors was
held in which a quorum of directors was present. Mr. Benson reported to the
Board on the status of the negotiations between Cabletron and the Company. Mr.
Benson updated the directors on the current state of development of the
Company's new products. In addition, Mr. Robert Barber, Vice President --
Finance at Cabletron, discussed the terms of the Related Agreements. The terms
of the Merger Agreement which had previously been distributed to the directors
were also discussed. Mr. Benson reviewed the Merger Consideration and advised
the Board that the Exchange Ratio was fixed, without so-called collars and
floors. He explained how changes in the price of Cabletron Common Stock would
affect the total price of the Merger. After further discussion and analysis,
the members of the Board present at the meeting unanimously voted to proceed
with the Merger and to approve the Merger Agreement and the transactions
contemplated thereby, including the Merger.
On June 22, 1998, the Company Board approved the definitive versions of the
Merger Agreement and the Related Agreements, and received Robertson Stephens'
opinion that, as of such date, the Exchange Ratio was fair to the holders of
each of Class A Common Stock, Class B Common Stock and Class E Common Stock,
as well as to the holders of Company Common Stock, in each case, from a
financial point of view (see "--Reasons for the Merger; Recommendation of the
Company Board" and "--Opinion of the Company's Financial Advisor"). On the
same day, the Merger Agreement and the Related Agreements were executed and
publicly announced.
THE COMPANY'S REASONS FOR THE MERGER; RECOMMENDATION OF THE COMPANY BOARD
On June 22, 1998, the Company Board unanimously determined that it was
advisable and in the best interests of Company Stockholders for the Company to
enter into a business combination with Cabletron upon the terms and subject to
the conditions of the Merger Agreement and the transactions contemplated
thereby, including the Merger, and the Related Agreements. The Company Board
unanimously approved the execution of the Merger Agreement and the Related
Agreements and unanimously decided to recommend that Company Stockholders
approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Merger. In making this decision, the Company Board
considered the factors listed below:
1. The Company Board concluded that the per share Merger consideration
offered full value to the Company Stockholders for their shares of Company
Common Stock, taking into account the following factors:
(i) The opinion of Robertson Stephens that, as of June 22, 1998, the
Exchange Ratio was fair to the holders of each of Class A Common Stock,
Class B Common Stock and Class E Common Stock, as well as
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to the holders of Company Common Stock, in each case, from a financial
point of view (see "Opinion of Company's Financial Advisor"). A copy of
Robertson Stephens' written opinion dated June 22, 1998, setting forth the
assumptions made, matters considered and review undertaken, is attached to
this Proxy Statement Prospectus as Annex B. The full text of such opinion
is incorporated herein by reference and the foregoing description thereof
is qualified in its entirety by such reference. Company Stockholders are
urged to read such opinion carefully and in its entirety;
(ii) The Company Board's evaluation of the methodology employed by
Robertson Stephens as a basis for its fairness opinion and the financial
data presented in connection with Robertson Stephens' analysis (see "--
Opinion of the Company's Financial Advisor"). On the basis of this
evaluation, the Company Board concluded that the Exchange Ratio was
consistent with the per share prices negotiated in recent comparable
acquisitions in the Company's industry and to any reasonable estimate of
the near-term value of the Company if it were to remain independent;
(iii) Information presented to the Company Board relating to the recent
financial condition and results of operations of the Company (see "Selected
Financial Data--The Company") and management's evaluation of the Company's
prospects, including the Company's progress in completing, obtaining orders
for, and shipping, the Company's new products, as well as the Company
Board's general familiarity with the Company's business, operations,
financial condition and earnings on both a historical and a prospective
basis;
(iv) The relationship of the Exchange Ratio to the historical market
prices for Class A Common Stock, including the fact that the Exchange Ratio
represented (based on the closing prices of Class A Common Stock and
Cabletron Common Stock, respectively, on the relevant dates) a premium of
approximately 69% over the closing price of Class A Common Stock on June
19, 1998. The Company Board also considered that the Exchange Ratio
represented premiums of 19.5%, 3.6%, 15.0%, 34.8% and 53.7%, respectively,
versus the historical implied exchange ratios between the Class A Common
Stock and the Cabletron Common Stock over the ten trading days, three
months, six months, nine months and twelve months, respectively, in each
case, ending as of June 12, 1998 (see paragraph 4 below);
(v) The facts that (i) the Merger is conditioned upon the receipt of
opinions of counsel that it will be treated for federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code and
(ii) assuming such treatment, no gain or loss will be recognized by Company
stockholders upon their exchange of Company Common Stock for Cabletron
Common Stock (except with respect to any cash received in lieu of
fractional shares);
(vi) The vigorous nature of the negotiations that had resulted in
Cabletron making the Cabletron June Proposal, the fact that Cabletron had
conducted extensive due diligence on the Company prior to making the
Cabletron June Proposal and the general history of the negotiations between
the parties, including the breakdown of earlier negotiations relating to a
possible higher price in view of the parties' widely-differing views of the
prospects regarding the testing and shipping of the Company's new products
(see "--Background of the Merger"); and
(vii) The considerations referred to in paragraphs 2, 3 and 4 below.
2. The Company Board noted that, despite the approaches that had been made
by Robertson Stephens, in early 1998, and again in May 1998, to the most
likely alternative acquirors to Cabletron, the Company had not received a
concrete acquisition proposal or overture from any company other than
Cabletron. The Company Board concluded that there was no immediate prospect of
the Company being acquired by any other company and that the only current
alternatives for the Company were, therefore, an acquisition by Cabletron on
the terms that had been vigorously negotiated over several months or the
Company's continued pursuit of its business plan as an independent company and
the possible resumption of the evaluation of a possible acquisition of the
Company by a larger company at a later time. In addition, the Company Board
took into account the fact that although the Merger Agreement would preclude
the Company from soliciting alternative offers, the Company Board would be
permitted to entertain unsolicited bona fide acquisition proposals if it
determined in good faith (consistent with the advice of the Company's outside
counsel) that it was required to do so in order to discharge
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properly its fiduciary duties under applicable law and that it would be
permitted to terminate the Merger Agreement to accept a proposal it deemed
(with the assistance of Robertson Stephens) to be superior upon payment of the
termination fee provided for in the Merger Agreement (see "The Merger
Agreement--Termination" and "--Termination Fee").
3. The Company Board concluded that an acquisition of the Company by
Cabletron on the terms of the Merger Agreement and the Related Agreements was
a more attractive alternative for Company Stockholders than the Company's
continued independence because it offered Company Stockholders the opportunity
to participate in the Company's potential while limiting the risks that could
impair that potential. In reaching this conclusion, the Company Board
considered, in addition to the matters referred to in paragraphs 1 and 2
above, the following:
(i) In light of the Company's history and the business in which it was
engaged, there was a substantial degree of uncertainty regarding the
Company's future prospects. The Company had not operated at a profit since
its inception and had not enjoyed the success from earlier generations of
its products that had been hoped for. Moreover, the Company was operating
in an intensely competitive industry where companies with substantially
greater financial resources posed a continuous threat of breakthrough
developments. There could be no assurance as to whether, when, or the
extent to which, the Company would become profitable and, even if the new
products were successful, the Company's ability to continue to achieve the
technological innovation necessary to stay competitive could be adversely
affected by uncertainty as to the timing and amount of its revenue stream
from its new products.
(ii) Cabletron had, since the inception of OEM discussions with the
Company in 1997 (see "--Background of the Merger"), evidenced a strong
interest in the Company's new products as a significant part of its
strategic business plan. This interest was, in the Company Board's view,
reinforced by Cabletron's desire to begin buying certain of the Company's
new products pursuant to the OEM Agreement and manufacturing certain of
those new products immediately pursuant to the Manufacturing Rights
Agreement.
(iii) Cabletron is one of the major participants in the industry and has
the financial resources necessary to fully exploit the technological
potential of, and marketing opportunities presented by, the Company's new
products. In addition, Cabletron has made recent acquisitions of companies
that have bolstered its product lines and enhanced its distribution
channels.
Having regard to these matters, the Company Board concluded that the Merger
Agreement presented for Company Stockholders a desirable opportunity to
exchange their Company Common Stock for a meaningful equity ownership in
Cabletron, giving them the opportunity to share in the Company's own potential
while also benefiting from Cabletron's strengths.
4. The Company Board took note of the fact that the Merger Agreement
provided for a fixed exchange ratio of 8/13 of a share of Cabletron Common
Stock for each Class A Share and Class B Share, and each ten Class E Shares,
without any so-called "collar" provision, floating exchange ratio or
termination provision designed to assure a minimum value to Company
Stockholders at the instant of the Effective Time. The Company Board
recognized that a fixed exchange ratio posed some risk to Company Stockholders
in the event of a decline in the value of Cabletron Common Stock. However, the
Company Board concluded that, from a long-term perspective as distinguished
from the market price of the Company Common Stock on any given day, the
Exchange Ratio represented an attractive price for the Company, in part,
because it preserved for Company Stockholders the "upside" opportunity to
benefit from any future increase in the market price of Cabletron Common
Stock, whether due to the combination of the two companies or otherwise. After
discussing with senior management of the Company and Robertson Stephens the
computer networking industry generally and analyst perceptions of Cabletron
specifically, the Company Board determined that the benefits of a fixed
exchange ratio at least equaled and possibly outweighed the risks.
5. The Company Board considered generally the material terms of the Merger
Agreement and concluded that such terms were appropriate for a transaction of
the nature of the Merger. The Company Board recognized
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that the conditions to Cabletron's obligations to consummate the Merger
included conditions beyond the ability of the Company to control (see "The
Merger Amendment--Conditions to the Merger") and concluded that the risk of
non-consummation of the Merger was outweighed by the potential advantages of
the Merger to Company Stockholders. The Company Board also took into
consideration the willingness of Stephen R. Rizzone, the Company's Chairman,
President and Chief Executive Officer, to relinquish certain substantial
benefits to which he would otherwise be entitled under his employment
agreement with the Company in order to facilitate Cabletron's acquisition of
the Company at Cabletron's valuation range (the Company Board noted that
Mr. Rizzone would be entering into a consulting and non-compete arrangement
with Cabletron, and receiving a grant of options on Cabletron Common Stock,
following the Effective Time); (see "--Interests of Certain Persons in the
Merger").
6. The Company Board considered the terms of the Related Agreements (see
"The Related Agreements") and concluded that it was appropriate to accede to
Cabletron's insistence on the Related Agreements as a condition to the
execution of the Merger Agreement. The Company Board recognized that
Cabletron's interest in acquiring the Company was predicated on Cabletron
being able to immediately stimulate and satisfy customer interest in the
Company's new products rather than risking a loss of momentum due to the fact
that the Merger might take several months to consummate. The Company Board
also noted that the OEM Agreement was essentially a short-term arrangement
that would terminate if the Merger Agrement terminated and was designed as an
interim means for Cabletron to begin obtaining the new products before it had
developed its own capacity to make them under the Manufacturing Rights
Agreement. Although the Manufacturing Rights Agreement would survive the
termination of the Merger Agreement and, therefore, Cabletron would be
entitled thereunder to manufacture certain of those new products indefinitely
(upon payment of the applicable royalties for manufacturing products in excess
of specified levels) even if the Company were to remain independent, the
Company Board concluded that the Manufacturing Rights Agreement would not
unduly impede the Company's ability, should the Merger Agreement terminate, to
sell those new products to competitors of Cabletron or enter into other
competitive arrangements. The Company Board also considered that the
$5 million non-refundable payment Cabletron would be making upon execution of
the Manufacturing Rights Agreement would be of substantial immediate benefit
to the Company as a means of providing non-dilutive capital to the Company's
operations.
The foregoing discussion of the factors considered by the Company Board is
not intended to be exhaustive but summarizes all material factors considered.
The Company Board did not assign any relative or specific weights to the
foregoing factors nor did it specifically characterize any factor as positive
or negative (except as described above), and individual directors may have
given differing weights to differing factors and may have viewed certain
factors more positively or negatively than others. Throughout its
deliberations, the Company Board received the advice of Heller Ehrman White &
McAuliffe, its legal advisor, and Robertson Stephens, its financial advisor.
THE COMPANY BOARD UNANIMOUSLY RECOMMENDS THAT COMPANY STOCKHOLDERS VOTE TO
APPROVE AND ADOPT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE MERGER.
CABLETRON'S REASONS FOR THE MERGER
The Cabletron Board of Directors arrived at its unanimous decision to
approve the Merger Agreement after consideration of a number of significant
factors. Among those factors were:
(i) The Company's focus on ethernet workgroup switches is highly
complementary to Cabletron's LAN/WAN technology.
(ii) Cabletron's expectation that the market for ethernet workgroup
switches will be one of the more rapidly growing segments of the computer
networking market for the next several years.
(iii) Cabletron has been attempting to increase sales to third party
distributors. Cabletron expects that the Company's ethernet workgroup
switches, due to their cost and functionality, will receive strong demand
from third party distributors.
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(iv) The ability to leverage the research and development capabilities of
the Company 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 the Company's respective
businesses, prospects, financial performance and condition, operations,
technology, management and competitive position; (ii) the consideration to be
received by Company Stockholders in the Merger and the relationship between
the market value of Cabletron Common Stock to be issued in exchange for the
Company 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 Merger Agreement, 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 the Company's 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 risk that the benefits sought in the Merger
would not be fully achieved, (ii) the risk that the Merger would not be
consummated, and (iii) 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 weight to the specific factors
considered in approving the Merger Agreement and the transactions contemplated
thereby, including the Merger. However, after taking into account all the
factors set forth above, the Cabletron Board of Directors determined that the
Merger Agreement and the transactions contemplated thereby, including the
Merger, were in the best interests of Cabletron and its stockholders and that
Cabletron should proceed with the Merger Agreement and the transactions
contemplated thereby, including the Merger.
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
The Company retained Robertson Stephens to act as its financial advisor in
connection with the Merger and to render an opinion as to the fairness, from a
financial point of view, to the Company Stockholders of the Exchange Ratio.
The full text of the Robertson Stephens Opinion is attached to this Prospectus
as Annex B and is incorporated herein by reference, and the summary of the
Robertson Stephens Opinion set forth below is qualified in its entirety by
reference to the full text of the Robertson Stephens Opinion. Robertson
Stephens has consented to the inclusion in this Proxy Statement/Prospectus of
the following summary of the Robertson Stephens Opinion. Company Stockholders
are urged to read the Robertson Stephens Opinion carefully and in its entirety
for a description of the procedures followed, the factors considered, the
assumptions made and the scope of review undertaken, as well as limitations on
the review undertaken, by Robertson Stephens in rendering the Robertson
Stephens Opinion.
At the June 22, 1998 special meeting of the Company Board, Robertson
Stephens delivered its oral opinion, which substantially was confirmed in
writing in the Robertson Stephens Opinion, that, as of such date and based on
the matters described therein, the Exchange Ratio was fair to the holders of
each of Class A Common Stock, Class B Common Stock and Class E Common Stock,
as well as to the holders of Company Common Stock, in each case, from a
financial point of view. The Robertson Stephens Opinion neither addressed nor
considered the relative economic allocations of the Exchange Ratio to and
between such distinct classes of stock. Robertson Stephens did not recommend
to the Company Board that any specific purchase price should constitute the
Exchange Ratio. No limitations were imposed by the Company Board on Robertson
Stephens with respect to the investigations made or procedures followed by it
in furnishing the Robertson Stephens Opinion. The Robertson Stephens Opinion
addresses only the fairness of the Exchange Ratio to the Company Stockholders,
from a financial point of view, and does not constitute a recommendation to
any Company Stockholders as to how such
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Company Stockholder should vote at the Special Meeting. Robertson Stephens
expressed no opinion as to the tax consequences of the Merger, and the
Robertson Stephens Opinion did not take into account the particular tax status
or position of any Company Stockholder. In furnishing the Robertson Stephens
Opinion, Robertson Stephens was not engaged as an agent or fiduciary of
Company Stockholders or any other third party.
In connection with the preparation of the Robertson Stephens Opinion,
Robertson Stephens, among other things: (i) reviewed certain financial
information relating to the Company furnished to it by the management of the
Company, including financial and operating forecasts prepared by the
management of the Company and other information and data which were provided
to Robertson Stephens or otherwise discussed with it by the management of the
Company; (ii) reviewed certain publicly available information regarding each
of the Company and Cabletron; (iii) held discussions with the management of
each of the Company and Cabletron concerning the business, past and current
business operations, financial conditions and future prospects of the Company
and Cabletron, respectively; (iv) reviewed the Merger Agreement and certain
related documents; (v) reviewed the reported prices and trading activity for
Class A Common Stock and reviewed the valuations of publicly traded companies
which Robertson Stephens deemed comparable to the Company; (vi) compared the
financial terms of the Merger with the financial terms, to the extent publicly
available, of other transactions which it deemed relevant; (vii) prepared
discounted cash flow analyses of the Company; (viii) examined the pro forma
earnings impact of the Merger; (ix) participated in discussions and
negotiations among representatives of the Company and Cabletron; (x) compared
the financial performance of Cabletron and the prices and trading activity of
the Cabletron Common Stock with that of other publicly traded companies which
Robertson Stephens deemed comparable to Cabletron; and (xi) made such other
studies and inquiries, and reviewed other such data, as it deemed relevant.
Robertson Stephens noted that based on the $13.94 closing stock price of the
Cabletron Common Stock on June 19, 1998, assuming 12.183 million fully diluted
shares of Company Common Stock at the Exchange Ratio, the Merger resulted in
an aggregate Company equity value of approximately $105 million.
The following paragraphs summarize the material analyses performed by
Robertson Stephens in arriving at the Robertson Stephens Opinion and reviewed
with the Company Board, but do not purport to be a complete description of the
analyses performed by Robertson Stephens.
Comparable Company Analysis
Using publicly available information, with respect to the Company and the
comparable companies, including research analyst estimates, in conjunction
with management estimates for the Company, Robertson Stephens analyzed, among
other things, the market values plus net debt (the "Total Capitalization") and
trading multiples of the Company and selected publicly traded companies in the
computer networking industry, including, Madge Network, 3Com Corp. and Olicom
A/S (collectively, the "Comparable Companies"). Multiples compared by
Robertson Stephens included Total Capitalization to net revenues for calendar
1997 and to estimated net revenues for calendar 1998 and 1999 and Total
Capitalization to earnings before interest and taxes ("EBIT") for calendar
1997 and to estimated EBIT for calender 1998 and 1999. All multiples were
based on closing stock prices as of June 12, 1998. Applying a range of
multiples for the Comparable Companies for calendar 1997 and estimated
calendar years 1998 and 1999 revenues of 0.8x to 1.8x, 0.6x to 1.6x, and 0.5x
and 1.5x, respectively, to corresponding financial data for the Company
resulted in an equity value reference range for the Company of approximately
$13.6 million to $139.8 million. Applying a range of multiples for the
Comparable Companies for calendar year 1997 and estimated calendar years 1998
and 1999 operating income of 10.0x to 14.0x, 13.0x to 17.0x, and 6.0x and
10.0x, respectively, to corresponding financial data for the Company resulted
in an equity value reference range for the Company that was not meaningful due
to the negative operating income data for the Company. Applying a range of
multiples for the calendar year 1997 and estimated calendar years 1998 and
1999 price/earning multiples for the Comparable Companies of 18.0x to 23.0x,
18.0x to 26.0x, and 10.0x to 18.0x, respectively, to corresponding financial
data for the Company resulted in an equity value reference range for the
Company that was not meaningful due to the negative earnings data for the
Company. The equity value reference range implied by the above multiples of
the Company's revenues were
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compared to the equity value implied by the Exchange Ratio of approximately
$105 million based on the closing stock price of Cabletron Common Stock on
June 19, 1998.
Precedent Acquisition Analysis
Using publicly available information, Robertson Stephens analyzed the
consideration offered plus net debt assumed (the "Aggregate Consideration")
and implied transaction value multiples paid or proposed to be paid in
selected merger or acquisition transaction in the LAN Network Hardware
industry, the terms of which are publicly available (the "Comparable
Transactions"). Robertson Stephens compared, among other things, the Aggregate
Consideration in such transactions as a multiple of the latest 12 months
revenues and net income. Applying a range of multiples for the Comparable
Transactions of the latest 12 months revenues of 0.5x to 5.0x to corresponding
financial data for the Company resulted in an equity value reference range for
the Company of approximately $7.1 million to $90.5 million, as compared to the
equity value implied by the Exchange Ratio of approximately $105 million based
on the closing stock price of the Company Common Stock on June 19, 1998. All
multiples for the Comparable Transactions were based on public information
available at the time of the announcement of such transactions, without taking
into account differing market and other conditions during the period in which
the Comparable Transactions occurred.
No company, transaction or business used in the Comparable Company Analysis
or the Precedent Transaction Analysis as a comparison is identical to the
Company, Cabletron or the Merger. Accordingly, analysis of the results of the
foregoing is not entirely mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors that could affect the acquisition, public
trading and other values of the Comparable Companies, the Comparable
Transactions or the business segment, company or transactions to which they
are being compared.
Discounted Cash Flow Analysis
Robertson Stephens performed certain discounted cash flow analyses to
estimate the present value of the standalone, unlevered (before interest
expense) after-tax cash flows of the Company from publicly available forecasts
published by research analysts and those prepared by management of the
Company. Robertson Stephens first discounted the projected, unlevered after-
tax cash flows through December 31, 2002, using a range of discount rates from
19% to 23%. Robertson Stephens then added to the present value of the cash
flows the terminal value of the Company in the fiscal year ending December 31,
2002, discounted back at the same discount rate. The terminal value was
computed by multiplying the Company's projected EBIT in the fiscal year ending
December 31, 2002 by terminal multiples ranging from 10.0x to 13.0x. The
discounted cash flow valuation indicated implied equity valuations from $44.3
million to $71.0 million.
Pro Forma Analysis
Robertson Stephens analyzed the pro forma EPS of the combined company based
on the Exchange Ratio and financial projections for the Company provided by
the management of the Company and for Cabletron based on publicly available
consensus research analyst estimates. Such analysis indicated that, in the
absence of synergies, the Merger would be dilutive for Cabletron for the
calendar years 1998 and 1999. However, if synergies, based on Cabletron's
intent to move to a direct supplier model and its utilization of the
distribution capabilities acquired in the Digital Equipment Corp. acquisition,
were realized, Cabletron might be able to make the Merger accretive for the
calendar year 1999.
The preparation of fairness opinions involves various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analyses and the application of those methods to the particular
circumstances; therefore, such opinions are not readily susceptible to summary
description. In arriving at the Robertson Stephens Opinion, Robertson Stephens
did not attribute any particular weight to any analysis or factor considered
by it, but rather made qualitative judgments as to the significance and
relevance of each analysis and factor. Accordingly, Robertson Stephens
believes its analyses must be considered as a whole and that considering
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any portion of such analyses and current factors could create a misleading or
incomplete view of the process underlying its opinion. In its analyses,
Robertson Stephens made numerous assumptions with respect to industry
performance, general business and other conditions and matters, many of which
are beyond the control of the
Company or Cabletron. Any estimates contained in these analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold.
In connection with the Robertson Stephens Opinion, Robertson Stephens did
not independently verify any of the foregoing information and has relied on
all such information being complete and accurate in all material respects,
whether such information was furnished to Robertson Stephens orally or
otherwise discussed with Robertson Stephens by management of the Company,
including information relating to the Company's financial condition and
capital resources. Robertson Stephens relied upon the assurances of management
of the Company that it is not aware of any facts that would make such
information inaccurate or misleading. Furthermore, Robertson Stephens did not
make or obtain, or assume responsibility for obtaining or making, any
independent appraisal of the properties, assets or liabilities (contingent or
otherwise) of the Company. With respect to the financial and operating
forecasts (and the assumptions and bases therefor) of the Company that
Robertson Stephens reviewed, Robertson Stephens assumed that such forecasts
had been reasonably prepared in good faith by the management of the Company on
the basis of reasonable assumptions, and reflected the best available
estimates and judgments of the management of the Company of the future
financial condition and performance of the Company, and it further assumed
that such projections and forecasts would be realized in the amounts and in
the time periods estimated by the management of the Company.
Robertson Stephens assumed that the Merger would be consummated upon the terms
set forth in the Merger Agreement without material alteration thereof.
Robertson Stephens was retained based on its experience as a financial
advisor in connection with mergers and acquisitions and in securities
valuations generally, as well as its investment banking relationship and
familiarity with the Company. Robertson Stephens has provided certain
investment banking services to the Company from time to time, including the
analysis in connection with the previous adoption of a shareholder rights
plan, and may continue to do so. Robertson Stephens has also provided certain
investment banking services to Cabletron from time to time, and may continue
to do so. In the ordinary course of business, Robertson Stephens may actively
trade the securities of Cabletron for its own account and the account of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
The Company engaged Robertson Stephens pursuant to a letter agreement signed
by the Company on June 6, 1997. The agreement provides that, for its services,
Robertson Stephens is entitled to receive a fee equal to $750,000 plus 1.0% of
the aggregate fair market value at closing of the consideration paid, and debt
assumed, by Cabletron in the Merger, in excess of $10 million. The fee becomes
due and payable upon consummation of the Merger. The Company has also agreed
to indemnify Robertson Stephens for certain liabilities relating to or arising
out of services provided by Robertson Stephens as financial advisor to the
Company, including certain liabilities under the federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Company Board with respect to the
Merger, Company Stockholders should be aware that certain executive officers
and directors of the Company have interests in the Merger, including those
referred to below, that present them with potential conflicts of interests.
The Company Board was aware of the potential conflicts associated with these
matters and considered them along with the other matters described in "--
Background of the Merger" and "--the Company's Reasons for the Merger;
Recommendation of the Company Board."
On June 22, 1998, concurrently with the execution of the Merger Agreement
and to facilitate such execution, Stephen R. Rizzone, the Company's Chairman
of the Board, Chief Executive Officer and President, entered into an amended
and restated employment agreement with the Company, to become effective
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immediately prior to the Effective Time. Under this amended and restated
employment agreement, which will automatically terminate if the Merger
Agreement terminates prior to the Effective Time, Mr. Rizzone will relinquish
certain substantial benefits to which he would otherwise be entitled under his
amended and restated employment agreement dated as of January 1, 1998 upon the
consummation of the Merger. At the same time, Mr. Rizzone tendered his
resignation from all offices held with the Company, which resignation will
become automatically effective upon, and is conditioned upon the occurrence
of, the Merger, and will automatically cease to have any force and effect in
the event of the termination of the Merger Agreement.
On June 22, 1998, concurrently with the execution of the Merger Agreement
and to facilitate such execution, Mr. Rizzone also entered into a Consulting
Agreement with Cabletron. The Consulting Agreement is for a minimum period of
twelve months, commencing upon the later to occur of the Effective Time and
Mr. Rizzone's resignation as President and Chief Executive Office of the
Company (the "Initial Term"). In consideration of agreeing to provide services
related to the Company, the completion of existing product development or
Cabletron's other business interests as are assigned to him by Cabletron, and
in consideration of making himself available for this arrangement and not
accepting any conflicting engagement, Mr. Rizzone will receive $15,000 per
month during the term of the Consulting Agreement. In addition, Mr. Rizzone
has also agreed, under the Consulting Agreement, that (a) during the Initial
Term and for the two-year period following the expiration of the Initial Term
(the "Non-Competition Period") he will not, without the written approval of
the Cabletron Board of Directors, directly or indirectly, compete with the
Company's business, defined as any business focused primarily on developing
and selling Layer 2 Ethernet workgroup switches; and (b) during the Non-
Competition Period he will not (i) hire or solicit for hiring any employee of
Cabletron, its subsidiaries and other affiliates (the "Cabletron Group"), (ii)
solicit or encourage any customer of the Cabletron Group or independent
contractor providing services to the Cabletron Group to terminate or diminish
its relationship with them or (iii) seek to persuade any customer or
prospective customer of the Cabletron Group to conduct with anyone else any
business or activity that such other customer or prospective customer conducts
or could conduct with the Cabletron Group, provided that the foregoing shall
not prevent Mr. Rizzone from hiring any former employee of the Company who has
been terminated by Cabletron following the Merger. In consideration of these
restrictions and obligations, Mr. Rizzone will receive (i) an initial payment
of $250,000 upon commencement of the Consulting Agreement, (ii) a payment of
$250,000 one month after commencement, and (iii) $15,850 per month during the
Noncompetition Period. In addition, upon commencement of the Consulting
Agreement, Cabletron will issue to Mr. Rizzone 200,000 non-qualified stock
options to acquire Cabletron Common Stock, exercisable at the market price of
Cabletron Common Stock at the time of grant. These options will vest at a rate
of 50% per year over two years and vest 100% upon termination or expiration of
the Consulting Agreement.
On June 22, 1998, concurrently with the execution of the Merger Agreement,
Mr. Rizzone entered into an agreement with the Company and Cabletron relating
to that portion (in the principal amount of $328,333, plus accrued interest
from January 1, 1998, at the specified interest rate of 6.23%) of a loan
evidenced by a secured promissory note in the principal amount of $750,000
made by the Company to Mr. Rizzone in April 1997 (the other principal portion
of this loan, by its current terms, will automatically be extinguished at the
Effective Time). Under this agreement, at the Effective Time, Cabletron will
pay to the Company an amount equal to such portion of Mr. Rizzone's existing
loan and accrued interest thereon from January 1, 1998, the Company will
cancel such portion and release its liens on stock options and other property
of Mr. Rizzone being held as collateral for such portion, and Mr. Rizzone will
execute a new unsecured promissory note in favor of Cabletron in an amount
equal to the amount paid by Cabletron to the Company under this agreement.
This new promissory note, together with interest thereon at the rate of 6.23%
per annum, will be payable in full two months from the Effective Time.
Under the Company's Management Incentive Compensation Plan as amended (which
amendment was consented to by Cabletron and Merger Sub) (the "Management
Incentive Compensation Plan"), all of the executive officers of the Company
(other than Mr. Rizzone) are included as Tier 1 participants thereunder, and
certain other senior management of the Company (including Mashid Rizzone, the
Company's Director of Domestic Sales and the spouse of Mr. Rizzone) are
included as Tier 2 participants thereunder, and such participants are entitled
to receive certain payments as a result of the Merger. Under the Management
Incentive Compensation Plan, each Tier 1 participant is entitled to receive an
incentive bonus award equal to 200% of that
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individual's salary and bonus, and each Tier 2 participant is entitled to
receive an incentive bonus award equal to 100% of that individual's salary and
bonus, payable one-half at the Effective Time (provided the individual is an
employee in good standing at that time) and one-half on the earlier of the
first anniversary of the Effective Time or the termination of the
participant's employment for any reason other than cause (provided that a
voluntary resignation by the participant will forfeit the remaining payment).
In connection with the Management Incentive Compensation Plan, each
participant also entered into a change of control agreement with the Company,
which provides for an additional lump sum severance payment equal to the
individual's annual base salary (excluding bonus and other incentive
compensation) in the case of a Tier 1 participant, and one-half of the
individual's annual base salary (excluding bonus and other incentive
compensation) in the case of a Tier 2 participant, if the individual's
employment is terminated without cause (as defined in the agreement) within
one year of a change of control of the Company, including the Merger.
Information concerning the Company Stock Options granted to the Company's
directors and named executive officers is contained in the Company's Amendment
No. 1 to Annual Report on Form 10-K/A, which is incorporated herein by
reference (see "Incorporation of Certain Documents by Reference"). For
information with respect to the provisions of the Merger Agreement relating to
Company Stock Options and the SR Warrants, see "--Conversion of Company
Options and Warrants."
On various dates on or prior to February 13, 1998, the Company granted
options to purchase an aggregate of 25,000 Class A Shares to each of Carlos
Tomaszewski, Richard Tinsley and John Marman, the Company's outside directors,
and options to purchase an aggregate of 12,500 Class A Shares to Victor
Hebert, the Company's Assistant Secretary and a shareholder in the Company's
counsel, Heller Ehrman White & McAuliffe. These options vest on the earlier of
one year from the date of grant or upon a change in control, including the
Merger, and have per share exercise prices ranging from $6.65625 to $7.875. On
June 22, 1998, the Company Board approved an amendment to these outstanding
options to increase the time in which such options may be exercised after
termination from three months to one year following the Effective Time if the
Merger is consummated. Cabletron and Merger Sub have consented to this
amendment.
Under the Merger Agreement, Cabletron has also made certain covenants with
respect to the indemnification of the Company's directors, officers, employees
and agents. Such covenants will continue for the benefit of such directors,
officers, employees and agents after the Effective Time. See "The Merger
Agreement--Indemnification and Insurance."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States federal
income tax consequences of the exchange of shares of Company Common Stock for
Cabletron Common Stock pursuant to the Merger and does not address the tax
consequences of any related transactions. This discussion is based on
currently existing provisions of the Code, currently applicable Treasury
Regulations thereunder, published administrative rulings, and court decisions,
all of which are subject to change. Any such change, which may or may not be
retroactive, could alter the tax consequences as described herein.
The Company Stockholders should be aware that this discussion does not deal
with all United States federal income tax considerations that may be relevant
to particular Company Stockholders in light of their particular circumstances,
such as dealers in securities, banks, insurance companies, tax-exempt
organizations or foreign persons, stockholders subject to the alternative
minimum tax provisions of the Code or stockholders who hold their shares as
part of a hedging, straddle, conversion or other risk reduction or
constructive sale transaction. This discussion does not deal with all United
States federal income tax considerations that may be relevant to a Company
Stockholder who acquired shares in connection with employee stock options or
stock purchase plans or in other compensatory transactions. In addition, the
following discussion does not address the tax consequences of the Merger under
foreign, state or local tax laws or the tax consequences of any other
transactions effected concurrently with, prior to or after the Merger (whether
or not such transactions are in connection with the Merger). THE COMPANY
STOCKHOLDERS ARE URGED TO CONSULT THEIR
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OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES OF THE MERGER TO THEM,
INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
THE MERGER TO THEM IN THEIR PARTICULAR CIRCUMSTANCES.
Cabletron has received an opinion from its counsel, Ropes & Gray, and the
Company has received an opinion from its counsel, Heller Ehrman White &
McAuliffe, that the merger will constitute a reorganization within the meaning
of Section 368(a) of the Code. Such tax opinions are subject to certain
assumptions and qualifications and are based on the truth and accuracy of
certain representations of Cabletron, Merger Sub, and the Company, including
representations in certain certificates delivered to counsel by the respective
managements of Cabletron, Merger Sub, and the Company. In particular, counsel
has assumed, based on certain representations, that the fair market value of
the Cabletron Common Stock received by each Company stockholder will be
approximately equal to the fair market value of the Company Common Stock
surrendered in exchange therefor and will not be received for any other
consideration. Subject to the limitations and qualifications referred to
herein, the following federal income tax consequences should result:
(a) No gain or loss will be recognized by the holders of Company Common
Stock upon the receipt of Cabletron Common Stock solely in exchange for
such Company Common Stock in the Merger (except with respect to gain or
loss attributable to cash received by such stockholders in lieu of
fractional shares of Cabletron Common Stock).
(b) The aggregate tax basis of the Cabletron Common Stock received by the
Company Stockholders in the Merger will be the the same as the aggregate
tax basis of the Company Common Stock surrendered in exchange therefor,
less any portion of such tax basis allocable to cash received by Company
Stockholders in lieu of fractional shares of Cabletron Common Stock.
(c) The holding period of the Cabletron Common Stock received by each
Company Stockholder in the Merger will include the period for which the
Company Common Stock surrendered in exchange therefor was held or
considered to be held for tax purposes, provided that the Company Common
Stock so surrendered is held as a capital asset at the Effective Time of
the Merger.
(d) Cash payments received by holders of Company Common Stock in lieu of
fractional shares of Cabletron Common Stock will be treated as if such
fractional shares had been issued in the Merger and then redeemed by
Cabletron. A Company Stockholder receiving such cash will generally
recognize gain or loss upon such payment, measured by the difference (if
any) between the amount of cash received and the portion of the basis of
the share of Company Common Stock allocable to such fractional share. The
gain or loss should be capital gain or loss provided that such share of
Company Common Stock was held as a capital asset at the Effective Time of
the Merger.
(e) Company Stockholders who perfect their appraisal rights under law and
receive payment for such stock in cash and who do not own any shares of
Cabletron Common Stock (either actually or constructively within the
meaning of Section 318 of the Code) following the receipt of such cash will
generally recognize capital gain or loss (if such stock was held as a
capital asset at the Effective Time of the Merger) measured by the
difference between the amount of cash received and the stockholder's basis
in such stock.
(f) None of Cabletron, Merger Sub or the Company will recognize gain
solely as a result of the Merger.
Neither Cabletron nor the Company has requested a ruling from the Internal
Revenue Service (the "IRS") with regard to any of the federal income tax
consequences of the Merger. The obligations of Cabletron and the Company to
consummate the Merger are conditioned on the receipt by Cabletron of an
opinion from its counsel, Ropes & Gray, and the receipt by the Company of an
opinion from its counsel, Heller Ehrman White & McAuliffe, that the Merger
constitutes a reorganization within the meaning of Section 368(a) of the Code
(collectively, the "Tax Opinions"). The Tax Opinions are subject to certain
assumptions and qualifications and are based on the truth and accuracy of
certain representations of Cabletron, Merger Sub, and the Company, including
representations in certain certificates delivered to counsel by the respective
management of Cabletron, Merger Sub, and the Company. If such opinions are not
received, the Merger will not be consummated unless
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the conditions requiring their receipt are waived. Cabletron and the Company
currently anticipate that such opinions will be received and that neither
Cabletron nor the Company will waive its condition requiring the receipt
thereof. Such opinions will not be binding upon the IRS, and no assurance can
be given that the IRS will not take a contrary position.
Each Company Stockholder will be required to retain records and file with
such holder's United States federal income tax return a statement setting
forth certain facts relating to the Merger.
ANTICIPATED ACCOUNTING TREATMENT
The transaction effected by 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; any
premium paid over fair value is reflected on the buyer's balance sheet as an
intangible asset. In connection with the Merger, Cabletron anticipates
recording substantial charges for in process research and development and
integration costs.
GOVERNMENTAL FILINGS
Pursuant to the requirements of the HSR Act, Cabletron and the Company each
filed a Notification and Report Form for review under the HSR Act with the
Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division") on July 17, 1998. Cabletron
and the Company received notice of early termination of the waiting period
under the HSR Act with respect to such filings on August 6, 1998.
Notwithstanding the early termination of the HSR Act waiting period, the FTC
or the Antitrust Division could take such action under the antitrust laws as
it deems necessary or desirable in the public interest, including seeking
divestiture of substantial assets of Cabletron and the Company. There can be
no assurance that a challenge to the Merger on antitrust grounds will not be
made or, if such a challenge is made, of the result. Cabletron and the Company
do not believe that any additional governmental filings in the United States
are required with respect to the Merger, other than the filing of the
Certificate of Merger required to be filed in accordance with the DGCL.
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 Company Stockholders who are
deemed to control or be under common control with the Company on the date on
which the Merger Agreement is voted on by the Company Stockholders ("Company
Affiliates"). Company Affiliates 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.
In the Merger Agreement, Cabletron has agreed to register under the Securities
Act the shares of Cabletron Common Stock issuable upon exercise of the Company
Stock Options being assumed by Cabletron in the Merger. See "--Conversion of
Company Options and Warrants."
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
The Company is not permitted under the terms of the Merger Agreement 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 Merger
Agreement until the earlier of the termination of the Merger Agreement or the
Effective Time. Further, neither Cabletron nor the Company has ever paid a
cash dividend and Cabletron 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.
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APPRAISAL RIGHTS
The following summary of appraisal rights available to holders of Class B
Shares and Class E Shares (but not Class A Shares) under Delaware law does not
purport to be complete and is qualified in its entirety by reference to
Section 262 of the DGCL ("Section 262"), the complete text of which is
attached hereto as Annex C. Failure to follow strictly the procedures set
forth in Section 262 may result in the loss of appraisal rights. A Company
Stockholder who votes for approval of the Merger will not have a right to
dissent from the Merger.
If the Merger is consummated, dissenting holders of Class B Shares or Class
E Shares who follow the procedures specified in Section 262 of the DGCL are
entitled to have their Class B Shares or Class E Shares appraised by the
Delaware Court of Chancery (the "Court") and to receive the "fair value" of
such shares ("Dissenting Shares") in cash as determined by the Court in lieu
of the consideration that such stockholder would otherwise be entitled to
receive pursuant to the Merger Agreement. Holders of Class A Shares are not
entitled to any dissenters' right of appraisal with respect to the Merger
because the Class A Shares are designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc. and the shares of Cabletron Common Stock to be issued in the
Merger will be listed on a national securities exchange.
The following is a brief summary of Section 262, which sets forth the
procedures for dissenting from the Merger and demanding statutory appraisal
rights, if such rights are available. This Proxy Statement/Prospectus
constitutes notice to holders of Class B Shares and Class E Shares concerning
the availability of appraisal rights under Section 262. Under Section 262, a
stockholder of record wishing to assert appraisal rights must hold the shares
of stock on the date of making a demand for appraisal rights with respect to
such shares and must continuously hold such shares through the Effective Time.
HOLDERS OF CLASS B SHARES OR CLASS E SHARES WHO DESIRE TO EXERCISE THEIR
APPRAISAL RIGHTS MUST SATISFY ALL OF THE CONDITIONS OF SECTION 262. A WRITTEN
DEMAND FOR APPRAISAL OF SHARES MUST BE FILED WITH THE COMPANY BEFORE THE
TAKING OF THE VOTE ON THE MERGER. THIS WRITTEN DEMAND FOR APPRAISAL OF SHARES
MUST BE IN ADDITION TO AND SEPARATE FROM ANY PROXY VOTE ABSTAINING FROM OR
VOTING AGAINST THE MERGER. ANY SUCH ABSTENTION OR VOTE AGAINST THE MERGER WILL
NOT CONSTITUTE A DEMAND FOR APPRAISAL WITHIN THE MEANING OF SECTION 262.
HOLDERS OF CLASS B SHARES OR CLASS E SHARES ELECTING TO EXERCISE THEIR
APPRAISAL RIGHTS UNDER SECTION 262 MUST NOT VOTE FOR APPROVAL OF THE MERGER.
IF SUCH A HOLDER RETURNS A SIGNED PROXY BUT DOES NOT SPECIFY A VOTE AGAINST
APPROVAL OF THE MERGER OR A DIRECTION TO ABSTAIN, THE PROXY WILL BE VOTED FOR
APPROVAL OF THE MERGER, WHICH WILL HAVE THE EFFECT OF WAIVING THAT
STOCKHOLDER'S APPRAISAL RIGHTS.
A demand for appraisal must be executed by or for the stockholder of record,
fully and correctly, as such stockholder's name appears on the certificates
representing Class B Shares or Class E Shares. If the shares are owned of
record in a fiduciary capacity, such as by a trustee, guardian or custodian,
such demand must be executed by or for the fiduciary. If the shares are owned
of record by or for more than one person, as in a joint tenancy or tenancy in
common, such demand must be executed by or for all joint owners. An authorized
agent, including an agent for two or more joint owners, may execute the demand
for appraisal for a stockholder of record; however, the agent must identify
the record owner and expressly disclose that, in exercising the demand, he is
acting as agent for the record owner. A person having a beneficial interest in
Class B Shares or Class E Shares held of record in the name of another person,
such as a broker or nominee, must act promptly to cause the record holder to
follow the steps summarized below and in a timely manner to perfect whatever
appraisal rights the beneficial owners may have.
A record owner, such as a broker, who holds shares as a nominee for others,
may exercise appraisal rights with respect to the shares held for all or less
than all beneficial owners of shares as to which the holder is the record
owner. In such case the written demand must set forth the number of shares
covered by such demand. Where the number of shares is not expressly stated,
the demand will be presumed to cover all shares outstanding in the name of
such record owner.
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A holder of Class B Shares or Class E Shares who elects to exercise
appraisal rights will be required to mail or deliver his or her written demand
to: NetVantage, Inc., 201 Continental Boulevard, Suite 201, El Segundo,
California 90245, Attention: Thomas Iwanski, Secretary. The written demand for
appraisal should specify the stockholder's name and mailing address, the
number of shares owned, and that the stockholder is thereby demanding
appraisal of his or her shares. Within ten days after the Effective Time, the
Company must provide notice of the Effective Time to all of its stockholders
who have complied with Section 262 and have not voted for approval of the
Merger.
Within 120 days after the Effective Time, any stockholder who has satisfied
the requirements of Section 262 will be entitled, upon written request, to
receive from the Company a statement setting forth the aggregate number of
shares not voted in favor of the Merger and with respect to which demands for
appraisal have been received and the aggregate number of holders of such
shares. Such statement must be mailed within ten days after the written
request therefor has been received by the Company.
Within 120 days after the Effective Time (but not thereafter), either the
Company or any stockholder who has complied with the required conditions of
Section 262 may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of the Dissenting Shares.
Upon the filing of any petition by a stockholder in accordance with Section
262, service of a copy must be made upon the Company, which must, within 20
days after service, file in the office of the Register of Chancery in which
the petition was filed, a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the Company. If a petition is filed by the Company, the petition must be
accompanied by the verified list. The Register of Chancery, if so ordered by
the Court, will give notice of the time and place fixed for the hearing of
such petition by registered or certified mail to the Company and to the
stockholders shown on the list at the addresses therein stated, and notice
will also be given by publishing a notice at least one week before the day of
the hearing in a newspaper of general circulation published in the City of
Wilmington, Delaware, or such publication as the Court deems advisable. The
forms of notices by mail and by publication must be approved by the Court, and
the costs thereof shall be borne by the Company.
If a petition for an appraisal is timely filed, at a hearing on such
petition, the Court will determine which Company Stockholders are entitled to
appraisal rights. The Court may require Company Stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their stock certificates to the Register of Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any Company
Stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such Company Stockholder. After determining the Company
Stockholders entitled to an appraisal, the Court will appraise the shares
owned by such stockholders, determining the fair value of such shares,
exclusive any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest to be paid, if any, upon
the amount determined to be the fair value. In determining fair value, the
Court is to take into account all relevant factors. In Weinberger v. UOP,
Inc., the Delaware Supreme Court stated that "proof of value by any techniques
or methods which are generally considered acceptable in the financial
community and otherwise admissible in court," should be considered and that
"[f]air price obviously requires consideration of all relevant factors
involving the value of a company." The Delaware Supreme Court stated that in
making this determination of fair value the court must consider "market value,
asset value, dividends, earnings prospects, the nature of the enterprise and
any other facts which were known or which could be ascertained as of the date
of merger and which throw any light on future prospects of the merged
corporation....." The Delaware Supreme Court construed Section 262 to mean that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered." However, the Delaware Supreme Court noted
that Section 262 provides that fair value is to be determined "exclusive of
any element of value arising from the accomplishment or expectation of the
merger." In addition, the Delaware Supreme Court has determined that the
statutory appraisal remedy, depending upon the factual circumstances, may or
may not be a stockholder's exclusive remedy in connection with a merger.
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Holders of Class B Shares and Class E Shares considering seeking appraisal
should bear in mind that the fair value of their shares determined under
Section 262 could be more than, the same as, or less than the applicable
consideration they are entitled to receive pursuant to the Merger Agreement if
they do not seek appraisal of their shares. Holders of Class E Shares should
also consider, among other things, the fact that, in determining the fair
value of their shares under Section 262, the Court will include in its
consideration the contingencies that govern the potential release of such
shares from escrow and their conversion into Class B Shares, and the Company's
right to redeem such shares at $0.01 per share after March 31, 1999, if such
contingencies are not met prior to that date (see "Comparison of Stockholder
Rights -- Special Characteristics of Class B Shares and Class E Shares"). The
cost of the appraisal proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. However, costs
do not include attorneys' fees and expert witness fees. Upon application of a
stockholder seeking appraisal rights, the Court may order that all or a
portion of the expenses incurred by such stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorneys'
fees and the fees and expenses of experts, be charged pro rata against the
value of all shares entitled to appraisal. In the absence of such a
determination or assessment, each party bears its own expenses.
Any holder of Class B Shares or Class E Shares who has duly demanded an
appraisal in compliance with Section 262 will not, after the Effective Time,
be entitled to vote the shares subject to such demand for any purpose or be
entitled to the payment of dividends or other distributions on those shares
(except dividends or other distributions payable to stockholders of record at
a date prior to the Effective Time).
At any time within 60 days after the Effective Time, any stockholder shall
have the right to withdraw his or her demand for appraisal and to accept the
terms offered in the Merger Agreement. After this period, a stockholder may
withdraw his or her demand for appraisal only with the written consent of the
Company. If no petition for appraisal is filed with the Court within 120 days
after the Effective Time, stockholders' rights to appraisal (if available)
shall cease and all stockholders shall be entitled to receive the applicable
Merger Consideration. Inasmuch as the Company has no obligation to file such a
petition, and has no present intention to do so, any stockholder who desires
such a petition to be filed is advised to file it on a timely basis. However,
no petition timely filed in the Court demanding appraisal shall be dismissed
as to any stockholder without the approval of the Court, and such approval may
be conditioned upon such terms as the Court deems just.
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THE MERGER AGREEMENT
The description of certain provisions of the Merger Agreement set forth
below does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, 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 Merger Agreement.
Company Stockholders are urged to read the full text of the Merger Agreement.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties, including representations by the Company relating to (i) its
organization and qualification to do business, (ii) compliance with its
certificate of incorporation and by-laws, (iii) its capitalization, (iv) its
authority relative to the Merger Agreement, (v) the filings and consents
required by it in connection with the Merger, (vi) compliance with applicable
law, (vii) its SEC filings and financial statements, (viii) the absence of
certain changes or events, (ix) the absence of any 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 with respect to it in this Proxy Statement/Prospectus and the
Registration Statement, (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) its
interested party transactions, (xx) its insurance, (xxi) its accounts
receivable and inventory, (xxii) its employees, (xxiii) the Robertson Stephens
Opinion, (xxiv) its relationship with any brokers in connection with the
Merger, (xxv) any change in control payments, (xxvi) the completeness of its
disclosure to Cabletron and (xxvii) the inapplicability of its Shareholder
Rights Plan dated February 13, 1998 (the "Rights Plan") to the Merger. The
Merger Agreement also contains representations and warranties of Cabletron and
Merger Sub as to (i) their organization and qualification to do business and
their subsidiaries, (ii) compliance with their certificates of incorporation
and by-laws, (iii) their capitalization, (iv) their authority relative to the
Merger Agreement, (v) the filings and consents required by them in connection
with the Merger, (vi) compliance with applicable law, (vii) their SEC filings
and financial statements, (viii) the absence of certain changes or events,
(ix) the absence of any undisclosed liabilities, (x) the absence of
litigation, (xi) their employee benefit plans and employment agreements, (xii)
their labor matters, (xiii) the accuracy of information supplied with respect
to them in this Proxy Statement/Prospectus and the Registration Statement,
(xiv) the absence of restrictions on their business activities, (xv) their
title to property, (xvi) their intellectual property, (xvii) their interested
party transactions, (xviii) their insurance, (xix) their relationship with any
brokers in connection with the Merger, (xx) Cabletron's ownership of Merger
Sub, and (xxi) the completeness of their disclosure to the Company. The
representations and warranties made by the Company, Cabletron and Merger Sub
will not survive the consummation of the Merger.
CONDUCT OF CABLETRON'S AND THE COMPANY'S BUSINESS PRIOR TO THE MERGER
In the Merger Agreement, the Company has agreed that, during the period from
the date of the Merger Agreement and continuing until the earlier of the
termination of the Merger Agreement or the Effective Time, unless Cabletron
otherwise agrees in writing, (i) it will conduct its business only in, and
will 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
as contemplated by the Merger Agreement; and (ii) it will use all reasonable
commercial efforts to preserve substantially intact the business organization
of the Company, to keep available the services of the present officers,
employees and consultants of the Company, and to preserve the present
relationships of the Company with customers, suppliers and other persons with
which the Company has significant business relations.
The Company further has agreed in the Merger Agreement that it will not,
during the period from the date of the Merger Agreement and continuing until
the earlier of the termination of the Merger Agreement 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 its
Certificate of Incorporation or Bylaws, as amended and restated to date; (b)
issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale,
pledge, disposition or
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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 or any of its affiliates
(except for the issuance of shares of Company Common Stock issuable pursuant
to Company Stock Options, the Unit Purchase Options, the SR Warrants and the
SVB Warrants); (c) sell, pledge, dispose of or encumber any assets of the
Company (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
$150,000 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, (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, or (iii) amend the terms or
change the period of exercisability of, purchase, repurchase, redeem or
otherwise acquire any of its securities, 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; (e) (i) acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business organization
or division thereof (including the creation of any subsidiary); (ii) incur any
indebtedness for borrowed money 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 excluding any original equipment
manufacturing agreement that (x) allows the Company to limit shipments to
products having a price of less than $500,000 per year and (y) is terminable
for convenience by the Company on no more than ninety days notice; (iv)
authorize any capital expenditures or purchase of fixed assets which are, in
the aggregate, in excess of $250,000 per month for the Company 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 the Company, 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; (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
contained in the Company's SEC Reports filed prior to the date of the Merger
Agreement or incurred in the ordinary course of business and consistent with
past practice; (j) have operating expenses in excess of $600,000 from the date
of the execution of the Merger Agreement through June 30, 1998, and $1,200,000
per month thereafter, subject to an aggregate maximum of $6,600,000 between
the date of the execution of the Merger Agreement and the Effective Time,
excluding (i) costs related to the transactions contemplated by the Merger
Agreement, (ii) incentive and bonus compensation as previously disclosed to
Cabletron, (iii) depreciation, (iv) amortization, and (v) bad debt reserves,
provided that Cabletron acknowledges that valid business reasons may exist for
doing so and agrees that its consent will not be unreasonably withheld; or (k)
take, or agree in writing or otherwise to take, any of the actions described
in (a) through (j) above, or any action which would make any of the
representations or warranties of the Company contained in the Merger Agreement
untrue or incorrect or prevent the Company from performing or cause the
Company not to perform its covenants thereunder.
NO SOLICITATION
The Merger Agreement provides, subject to certain exceptions, that: (a) the
Company shall not, directly or indirectly, through any officer, director,
employee, representative or agent of the Company, (i) solicit, initiate or
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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 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; provided that nothing contained in this
clause (a) shall prevent the Company Board from considering, negotiating,
approving and recommending to the Company Stockholders a bona fide Acquisition
Proposal not solicited in violation of the Merger Agreement, provided the
Company Board determines in good faith (consistent with the advice of the
Company's outside legal counsel) that it is required to do so in order to
discharge properly its fiduciary duties under applicable law; (b) the Company
shall promptly notify Cabletron as soon as practicable, and in no event later
than 48 hours, 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 in connection with an Acquisition Proposal
or for access to the properties, books or records of the Company by any person
or entity that informs the Company Board that it is considering making, or has
made, an Acquisition Proposal, which notice to Cabletron shall be made orally
and in writing, and shall indicate whether the Company is providing or intends
to provide the person making the Acquisition Proposal with access to
information concerning the Company as provided in clause (c); (c) if the
Company Board receives a request for material nonpublic information from a
person who makes a bona fide Acquisition Proposal, and the Company Board
determines in good faith and consistent with the advice of the Company's
outside legal counsel that it is required to cause the Company to act as
provided in this clause (c) in order to discharge properly the directors'
fiduciary duties under applicable law, then, provided the person making the
Acquisition Proposal has executed a confidentiality agreement substantially
similar to the one then in effect between the Company and Cabletron, the
Company may provide such person with access to information regarding the
Company; (d) the Company shall immediately cease and cause to be terminated
any existing discussions or negotiations with any persons (other than
Cabletron and Merger Sub) conducted theretofore with respect to any of the
foregoing and shall not to release any third party from the confidentiality
provisions of any confidentiality agreement to which the Company is a party;
and (e) the Company shall ensure that the officers, directors and employees of
the Company and any investment banker or other advisor or representative
retained by the Company are aware of the restrictions described in this
paragraph. Under the Merger Agreement, nothing contained in this paragraph
shall prohibit the Company or the Company Board from (i) taking and disclosing
to its stockholders a position with respect to a tender offer by a third party
pursuant to Rule 14d-9 and Rule 14e-2 promulgated under the Exchange Act, or
(ii) making such disclosure to Company Stockholders which, in the opinion of
the Company Board, after consultation with the Company's outside legal
counsel, is required under applicable law.
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) 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 Joint Proxy Statement/Prospectus having been
initiated or threatened by the Commission; (b) the approval and adoption of
the Merger Agreement by the requisite vote of the Company Stockholders; (c)
the expiration or termination of the waiting period applicable to the
consummation of the Merger under the HSR Act; (d) 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 by any
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing, or any
action taken or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger, which makes the consummation of
the Merger illegal; (e) the absence of any instituted, pending or threatened
action or proceeding (or any investigation or other inquiry that could 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, any judgment, decree or order of any
44
<PAGE>
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 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 Merger Agreement; and (f) the approval for
listing of shares of Cabletron Common Stock to be issued in the Merger, upon
official notice of issuance, on the NYSE.
The obligations of Cabletron and Merger Sub to effect the Merger are also
subject to the satisfaction of each of the following conditions: (a) the truth
and correctness, in all respects, of the representations and warranties of the
Company contained in the Merger Agreement, except for (i) changes contemplated
by the Merger Agreement, (ii) those representations and warranties which
address matters only as of a particular date (which shall have been true and
correct as of such date, subject to clause (iii)), and (iii) where the failure
to be true and correct would not reasonably be expected to have a Material
Adverse Effect (as defined in the Merger Agreement), with the same force and
effect as if made at and as of the Effective Time, and Cabletron and Merger
Sub shall have received a certificate to such effect signed by the President
and the Chief Financial Officer of the Company; (b) the performance and
compliance by the Company in all material respects with all agreements and
covenants required by the Merger Agreement to be performed or complied with by
the Company at or prior to the Effective Time, and the receipt by Cabletron
and Merger Sub of a certificate to such effect signed on behalf of the Company
by the President and Chief Financial Officer of the Company; (c) the Company
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 Merger Agreement and the consummation by the
Company of the transactions contemplated by the Merger Agreement, except where
the failure to receive such consents, etc. would not reasonably be expected to
(i) have a Material Adverse Effect on the Company or Cabletron, or (ii)
materially delay or prevent the consummation of the Merger; (d) the receipt by
Cabletron of a written 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; (e)
the receipt by Cabletron of an "Affiliate Agreement" in the form specified by
the Merger Agreement from each person who is identified by the Company as a
Company Affiliate, and such Affiliate Agreements being in full force and
effect; (f) the receipt by Cabletron of all permits and other authorizations
necessary under state securities laws to issue shares of Cabletron Common
Stock pursuant to the Merger; (g) a minimum of two-thirds of those Company
employees designated each as "Tier 1 Employees" and "Tier 2 Employees,"
respectively, by the Merger Agreement (rounding down in the case of any
fraction) (i) being in the employ of the Company immediately prior to the
Effective Time, (ii) having agreed to work for Cabletron immediately following
the Effective Time upon mutually agreeable terms and conditions (and have not
indicated any intention not to continue such employment) and (iii) having
entered into Cabletron's non-disclosure/confidentiality/assignment of
inventions agreement in substantially in the form specified by Cabletron; and
(h) the Rights Plan being inapplicable to the Merger, the Merger Agreement and
the other transactions contemplated by the Merger Agreement.
The obligation of the Company to effect the Merger is also subject to the
following conditions: (a) the truth and correctness, on and as of the
Effective Time, in all respects, of the representations and warranties of
Cabletron and Merger Sub contained in the Merger Agreement, except for (i)
changes contemplated by the Merger Agreement, (ii) those representations and
warranties which address matters only as of a particular date (which shall
have been true and correct as of such date, subject to clause (iii)), and
(iii) where the failure to be true and correct would not reasonably be
expected to have a Material Adverse Effect, with the same force and effect as
if made on and as of the Effective Time, and the receipt by the Company of a
certificate to such effect signed by the President and the Chief Financial
Officer of Cabletron; (b) the performance and compliance by Cabletron and
Merger Sub in all material respects with all agreements and covenants required
by the Merger Agreement to be performed or complied with by them on or prior
to the Effective Time, and the receipt by the Company of 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,
45
<PAGE>
and having made all required filings, for the authorization, execution and
delivery of the Merger Agreement and the consummation by them of the
transactions contemplated by the Merger Agreement, except where the failure to
receive such consents, etc. would not reasonably be expected to (i) have a
Material Adverse Effect on the Company or Cabletron, or (ii) materially delay
or prevent the consummation of the Merger; (d) the receipt by the Company of a
written opinion from Heller Ehrman White & McAuliffe, in form and in 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 (see
"The Merger--Certain Federal Income Tax Consequences"); and (e) that the
Robertson Stephens Opinion shall not have been withdrawn, amended, or
modified, provided that this shall not be a condition to the obligations of
the Company if the Company shall have induced such withdrawal, amendment, or
modification.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, notwithstanding approval thereof by the Company Stockholders or
Cabletron: (a) by mutual written consent duly authorized by the Company Board
and the Board of Directors of Cabletron; or (b) by either Cabletron or the
Company if the Merger shall not have been consummated by October 15, 1998
(provided that the right to terminate the Merger Agreement under this clause
(b) shall not be available to any party whose failure to fulfill any
obligation under the Merger 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
Cabletron 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 the Merger Agreement under this
clause (c) shall not be available to any party who has not complied with its
obligations under the Merger Agreement with respect to taking further action
to insure consummation of the Merger and to make effective as promptly as
practicable the transactions contemplated by the Merger Agreement, and such
noncompliance materially contributed to the issuance of any such order, decree
or ruling or the taking of such action); or (d) by Cabletron or the Company,
if the Merger shall have been submitted to a vote of the Company Stockholders
and the requisite vote of the stockholders approving the Merger shall not have
been obtained; or (e) by Cabletron, if: (i) the Company Board shall withdraw,
modify or change its approval or recommendation of the Merger Agreement or the
Merger in a manner adverse to Cabletron or shall have resolved to do so; (ii)
the Company Board shall have recommended to the Company Stockholders 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 Cabletron or an affiliate of Cabletron) and
the Company Board recommends that the Company Stockholders tender their shares
in such tender or exchange offer; or (f) by Cabletron or the Company, (i) if
any representation or warranty of the Company or Cabletron, respectively, set
forth in the Merger Agreement shall be untrue when made, or (ii) upon a breach
of any covenant or agreement on the part of the Company or Cabletron,
respectively, set forth in the Merger Agreement, such that the conditions set
forth to the requisite obligations of Cabletron and Merger Sub or the Company,
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 October 15, 1998 by the Company or Cabletron, as the case may be,
through the exercise of its reasonable best efforts and for so long as the
Company or Cabletron, as the case may be, continues to exercise such
reasonable best efforts, neither Cabletron nor the Company, respectively, may
terminate the Merger Agreement under this clause (f); or (g) by Cabletron, if
any representation or warranty of the Company shall have become untrue such
that the requisite condition would not be satisfied, or by the Company, 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, if any person (or "group"
of persons, as defined in Section 13(d) of the Exchange Act) other than
Cabletron or its affiliates is or becomes the beneficial owner of 25% or more
of the outstanding shares of Company Common Stock; or (i) by the Company, if,
in response to a Superior Proposal (as defined below), the Company Board
determines in good faith (consistent with the advice of the Company's
outside legal counsel) that (1) it must withdraw, amend or modify in a manner
adverse to Cabletron its recommendation to Company Stockholders for approval
of the Merger Agreement and (2) failing to take such action would cause it to
fail to discharge properly its fiduciary duties under applicable law;
provided, however, that the Company may not terminate pursuant to this clause
(i) unless and until: (A) four calendar days have elapsed following delivery
46
<PAGE>
to Cabletron of a written notice of such determination by the Company Board
and during such four-day period the Company (x) informs Cabletron of the terms
and conditions of the Superior Proposal and the identity of the person making
the Superior Proposal and (y) otherwise fully cooperates with Cabletron
(subject, in the case of this subclause (y), to the condition that the Company
Board shall not be required to take any action that it believes, after
consultation with and consistent with the Company's outside legal counsel,
would violate its fiduciary duties to the Company or Company Stockholders
under applicable law) with the intent of enabling Cabletron to agree to a
modification of the terms and conditions of the Merger Agreement so that the
transactions contemplated hereby may be effected; (B) at the end of such four-
day period the Company Board determines in good faith that such Superior
Proposal continues to constitute a Superior Proposal, having regard to any
proposal made by Cabletron within the preceding four days; (C) simultaneously
with such termination the Company pays to Cabletron the amount specified in
the relevant provision of the Merger Agreement; and (D) simultaneously with
such termination the Company enters into a definitive acquisition, merger or
similar agreement to effect the Superior Proposal.
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 shares of Company Common Stock, 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 of the Company having a fair market value (as
determined by the Company Board in good faith) equal to more than 25% of the
fair market value of all the assets of the Company, taken as a whole,
immediately prior to such transaction.
As used herein, "Superior Proposal" means a written and unsolicited
Acquisition Proposal that (i) the Company Board determines in good faith (A)
is reasonably capable of being completed and (B) is economically more
favorable to Company Stockholders than the Merger, having received prior to
such determination the advice of a financial advisor of nationally recognized
reputation that such Acquisition Proposal would be economically more favorable
to Company Stockholders than the Merger in that it results in greater
aggregate per share consideration than would the Merger, and (ii) that is not
subject to financing.
In the event of the termination of the Merger Agreement, the Merger
Agreement 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) certain fees, including the termination fee of $3.8
million described below (the "Fee"), and certain other obligations including,
specifically, obligations regarding the effectiveness of representations,
warranties and agreements, and knowledge, and (ii) nothing in the Merger
Agreement shall relieve any party from liability for any breach of the Merger
Agreement; provided, however, that if Cabletron is paid the Fee the amount of
the Fee shall be deducted from any money damages otherwise received by
Cabletron from the Company.
TERMINATION FEE
Under the Merger Agreement, all fees and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby are
generally required to be paid by the party incurring such expenses, whether or
not the Merger is consummated, except that: (a) Cabletron and the Company have
agreed to share equally all fees and expenses, other than accountants' and
attorneys' fees, incurred in connection with the printing and filing of this
Proxy Statement/Prospectus (including any preliminary materials related
thereto) and the Registration Statement (including financial statements and
exhibits) and any amendments or supplements thereto; and (b) the Company shall
pay Cabletron the Fee within one day of the first to occur of the following
events: (1) the termination of the Merger Agreement by Cabletron or the
Company pursuant to the failure to obtain the Company Stockholders' approval
upon submission of the Merger to the requisite vote of the Company
Stockholders, and the execution by the Company of an agreement with respect to
an Alternative Transaction within four months after such termination; or (2)
the termination of the Merger Agreement by Cabletron pursuant
47
<PAGE>
to any of the following: (i) the Company Board having withdrawn, modified or
changed its approval or recommendation of the Merger Agreement or the Merger
in a manner adverse to Cabletron or having resolved to do so; (ii) the Company
Board having recommended to Company Stockholders an Alternative Transaction;
or (iii) a tender offer or exchange offer for 25% or more of the outstanding
shares of Company Common Stock being commenced (other than by Cabletron or an
affiliate of Cabletron) and the Company Board recommending that the Company
Stockholders tender their shares in such tender or exchange offer; or (3) the
termination of the Merger Agreement by Cabletron on account of a Terminating
Breach by the Company and the execution by the Company of an agreement with
respect to an Alternative Transaction within four months after such
termination; or (4) the termination of the Merger Agreement by Cabletron
because a person (or group) other than Cabletron or its affiliates became the
beneficial owner of 25% or more of the outstanding shares of the Company; or
(5) the termination of the Merger Agreement by the Company, subject to the
relevant notice provisions and limitations, because of a good faith
determination by the Company Board, in response to a Superior Proposal, that
(i) the Board must withdraw, amend or modify in a manner adverse to Cabletron
its recommendation to the Company Stockholders, and (ii) that failure to take
such action would cause the Board to fail to discharge properly its fiduciary
duties under applicable law. See "--Termination."
INDEMNIFICATION AND INSURANCE
Pursuant to the Merger Agreement: (a) the By-Laws of the Surviving
Corporation shall honor, and Cabletron shall cause the Surviving Corporation
to honor, the provisions with respect to indemnification set forth in the By-
Laws of the Company immediately prior to the Effective Time, which provisions
shall not be amended, repealed or otherwise modified for a period of six years
from the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who at the Effective Time were directors, officers,
employees or agents of the Company, unless such modification is required by
law; (b) without limiting the scope of clause (a), the Company shall, to the
fullest extent permitted under applicable law or under the Company's
Certificate of Incorporation or By-Laws or any applicable indemnification
agreement and regardless of whether the Merger becomes effective, indemnify,
defend and hold harmless, and, after the Effective Time, Cabletron shall and
shall cause the Surviving Corporation to, to the fullest extent permitted
under applicable law or under the Surviving Corporation's Certificate of
Incorporation or By-Laws or any applicable indemnification agreement,
indemnify, defend and hold harmless, each present and former director, officer
or employee of the Company (collectively, the "Indemnified Parties") against
any costs or expenses (including attorneys' fees), judgments, fines, losses,
claims, damages, liabilities and amounts paid in settlement in connection with
any claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, (x) arising out of or pertaining to the
transactions contemplated by this Agreement or (y) otherwise with respect to
any acts or omissions occurring at or prior to the Effective Time; provided,
however, that in connection with criminal acts the indemnification provided by
this Section shall only apply provided the Indemnified Party had no reasonable
cause to believe that his/her conduct was criminal; (c) Cabletron shall, and
shall cause the Surviving Corporation to, honor and fulfill in all respects
the obligations of the Company pursuant to indemnification agreements with the
Company's directors and officers existing at or before the Effective Time; and
(d) for a period of six years after the Effective Time, Cabletron shall, or
shall cause the Surviving Corporation to, maintain in effect, if available,
directors' and officers' liability insurance covering those persons who are
currently covered by the Company's directors' and officers' liability
insurance policy on terms comparable to those now applicable to directors and
officers of the Company; provided, however, that in no event shall Cabletron
or the Surviving Corporation be required to expend in excess of 125% of the
annual premium currently paid by the Company for such coverage; and provided
further, that if the premium for such coverage exceeds such amount, Cabletron
or the Surviving Corporation shall purchase a policy with the greatest
coverage available for such 125% of the annual premium. Under the Merger
Agreement, these provisions shall survive the consummation of the Merger, are
intended to benefit the Company, the Surviving Corporation and the Indemnified
Parties, shall be binding on all successors and assigns of Cabletron and the
Surviving Corporation and shall be enforceable by the Indemnified Parties.
48
<PAGE>
THE RELATED AGREEMENTS
THE OEM AGREEMENT
On June 22, 1998, concurrently with the execution of the Merger Agreement
and to facilitate such execution, the Company and Cabletron entered into the
OEM Agreement under which Cabletron and its subsidiaries and affiliates may
purchase at the prices specified therein certain Company products, including
its new NV9200 and NV8200 series products, for resale under Cabletron and
other OEM designated brand names. For any products purchased prior to the
Effective Time or termination of the Merger Agreement, Cabletron is only
required to pay 80% of the specified price. The remaining 20% is required to
be paid within five business days of any termination of the Merger Agreement.
The Company is required, among other things, to purchase materials to
manufacture products based upon Cabletron's three-month purchase orders, to
use best efforts consistent with its general operating plan to meet certain
cost/price reductions for specified products, to correct and maintain all
software used by the products purchased and provide Cabletron with sales and
technical support for a period of one year, and to use its commercial
reasonable efforts to achieve certain agreed upon expected shipping volumes.
The Company has also made certain specified product warranties to Cabletron
and its customers, and agreed to idemnify Cabletron and its customers against
third party intellectual property infringement claims relating to its
products. During the first week of each calendar quarter, Cabletron is
required to provide the Company with a forecast of its expected demand for
products over the next 12 months. The initial term of the OEM Agreement is one
year, subject to renewal or early termination. If the Company agrees to be
acquired by certain specified companies, Cabletron has the option to terminate
the OEM Agreement at that time. In addition, the OEM Agreement will
automatically terminate if the Merger Agreement terminates for any reason.
Cabletron must accept shipment of and pay for any products ordered prior to
any expiration or termination of the OEM Agreement. The OEM Agreement is
effective immediately and is not subject to the approval of Company
Stockholders.
THE MANUFACTURING RIGHTS AGREEMENT
On June 22, 1998, concurrently with the execution of the Merger Agreement
and to facilitate such execution, the Company and Cabletron also entered into
the Manufacturing Rights Agreement, under which the Company granted Cabletron
the worldwide, non-exclusive right to manufacture certain specified products
in exchange for a $5 million non-refundable payment. Subject to certain stated
conditions (including royalties on certain products to be determined by future
good faith negotiation between the parties), specified royalties are also
payable to Company in the event that Cabletron ships for revenue more than
25,000 units containing the manufactured products. Cabletron has no right to
sublicense or generally assign its rights under the Manufacturing Rights
Agreement.
The Manufacturing Rights Agreement also permits Cabletron to purchase from
the Company (or the Company's contract manufacturer) at the price paid by the
Company (plus specified handling costs) sufficient quantities of certain key
product components to meet Cabletron's requirements, as set forth in forecasts
to be supplied by Cabletron. In the event that the Company does not have
sufficient inventory to meet such requirements and the Company's other
commitments to third parties, the Company is required to allocate at least 50%
of its inventory to Cabletron until the Company is again meeting Cabletron's
requirements. To the extent that Cabletron is able to purchase such components
at a lower price than is available to the Company, Cabletron is required to
allow the Company to purchase such components from or through Cabletron at the
price paid by Cabletron (plus specified handling costs). Cabletron has further
agreed to sell to the Company the products produced by Cabletron at a price
equal to Cabletron's fully-burdened cost plus an agreed upon percentage (and
handling costs) on such customary terms as the parties shall negotiate in good
faith (subject to the limitation that the Company may not supply such products
to certain specified competitors of Cabletron).
Under the Manufacturing Rights Agreement, the Company has also agreed to
provide Cabletron access to its engineers and other appropriate employees and
to provide a reasonable amount of training to Cabletron's engineers and other
appropriate employees. The Company made no product warranties to Cabletron in
the Manufacturing Rights Agreement and all implied warranties were expressly
disclaimed. However, the Company
49
<PAGE>
has agreed to indemnify Cabletron and its customers against third party
intellectual property infringement claims relating to its products. The
Company and Cabletron have each agreed to keep all proprietary information of
the other party confidential, subject to certain specified exclusions, and
agreed not to solicit the other's employees, customers or suppliers during the
term of the Manufacturing Rights Agreement and for one year thereafter.
The Manufacturing Rights Agreement is terminable for cause (as defined
therein); however, in the event that the Company seeks to terminate the
Manufacturing Rights Agreement as a result of a alleged default of Cabletron,
and Cabletron in good faith disputes the existence of such default and
continues to pay the consideration due under the Manufacturing Rights
Agreement, then the Manufacturing Rights Agreement will continue pending the
final resolution of such dispute. The Manufacturing Rights Agreement is
effective immediately, is not subject to termination in the event that the
Merger Agreement terminates and is not subject to approval of the Company
Stockholders.
50
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF THE COMPANY
The following table sets forth certain information regarding ownership of
shares of the Company Common Stock as of August 13, 1998 for (i) each director
of the Company, (ii) each individual named in the "Summary Compensation Table"
included in the Company's Amendment No. 1 to Annual Report on Form 10-K/A for
the year ended December 31, 1997 (see "Incorporation of Certain Documents by
Reference"), (iii) each person known to the Company to be the beneficial owner
of more than 5% of the outstanding shares of Class A Common Stock, and (iv)
all directors and executive officers as a group. Except as otherwise
indicated, each stockholder has sole voting and investment power with respect
to the shares beneficially owned, subject to community property rights where
applicable.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF PERCENTAGE OF VOTING
NAME OF BENEFICIAL OWNER SHARES OF CLASS POWER
------------------------ --------- ---------- ----------
<S> <C> <C> <C>
Stephen R. Rizzone......................... 725,256 (1) 6.22% 8.99%
201 Continental Boulevard, Suite 201
El Segundo, California 90245
George M. Pontiakos........................ 73,750 (2) * *
Dana R. Nelson............................. 53,125 (3) * *
Daniel K. Sullivan......................... 9,461 (4) * *
Hava V. Zernik............................. 18,000 (5) * *
Carlos A. Tomaszewski...................... 160,458 (6) 1.46% 4.40%
John E. Marman............................. 21,000 (7) * *
Richard N. Tinsley......................... 21,000 (8) * *
All directors and executive officers as a
group
(10 persons)(1)(2)(3)(4)(5)(6)(7)(8)(9)... 1,126,050 9.44% 14.31%
Seiji Uehara............................... 854,993(10) 7.81% 6.09%
Telecom Device K.K.--4F Miyanaga Bldg.
1-5-12 Motoakasaka Minato-Ku, Tokyo 107
Japan
</TABLE>
- --------
*Holds less than 1%
(1) Represents 1,300 outstanding shares of Class A Common Stock, and 558,725
shares of Class A Common Stock, 110,154 shares of Class B Common Stock
and 55,077 shares of Class E Common Stock which such person or his spouse
has the right to purchase within 60 days of August 13, 1998, pursuant to
the exercise of outstanding options and warrants.
(2) Represents 73,750 shares of Class A Common Stock which such person has
the right to purchase within 60 days of August 13, 1998, pursuant to the
exercise of outstanding options.
(3) Represents 53,125 shares of Class A Common Stock which such person has
the right to purchase within 60 days of August 13, 1998, pursuant to the
exercise of outstanding options.
(4) Represents 461 outstanding shares of Class A Common Stock, and 9,000
shares of Class A Common Stock which such person has the right to
purchase within 60 days of August 13, 1998, pursuant to the exercise of
outstanding options.
(5) Represents 18,000 shares of Class A Common Stock which such person has
the right to purchase within 60 days of August 13, 1998, pursuant to the
exercise of outstanding options.
(6) Represents 26,058 outstanding shares of Class A Common Stock, 57,200
outstanding shares of Class B Common Stock and 57,200 outstanding shares
of Class E Common Stock, most of which are held by Microprocessor
Associates, which is 90% owned by Mr. Tomaszewski, and 20,000 shares of
Class A Common Stock which such person has the right to purchase within
60 days of August 13, 1998, pursuant to the exercise of outstanding
options.
(7) Represents 1,000 outstanding shares of Class A Common Stock and 20,000
shares of Class A Common Stock which such person has the right to
purchase within 60 days of August 13, 1998, pursuant to the exercise of
outstanding options.
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(8) Represents 1,000 outstanding shares of Class A Common Stock and 20,000
shares of Class A Common Stock which such person has the right to
purchase within 60 days of August 13, 1998, pursuant to the exercise of
outstanding options.
(9) Includes 1,500 outstanding shares of Class A Common Stock, and 42,500
shares of Class A Common Stock which executive officers who are listed in
this table have the right to purchase within 60 days of August 13, 1998,
pursuant to the exercise of outstanding options.
(10) All information with respect to Mr. Uehara is based solely on an
Amendment No. 1 to Schedule 13D dated January 30, 1998, filed by him with
the Commission.
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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. No shares of Cabletron Preferred Stock have been
issued.
COMPARISON OF STOCKHOLDER RIGHTS
The following is a summary of the material differences between the rights of
holders of Company Common Stock and the rights of holders of Cabletron Common
Stock. Because each of the Company and Cabletron is organized under the DGCL,
these differences arise from various differences in the classes of common
stock outstanding and in the provisions of the Restated Certificate of
Incorporation (the "Company Certificate"), and Amended and Restated Bylaws
(the "Company Bylaws"), of the Company and the Restated Certificate of
Incorporation (the "Cabletron Certificate"), and Bylaws, as amended (the
"Cabletron Bylaws"), of Cabletron. The following summary is qualified in its
entirety by reference to the DGCL, the Company Certificate and Bylaws, and the
Cabletron Certificate and Bylaws.
SPECIAL CHARACTERISTICS OF CLASS B SHARES AND CLASS E SHARES
The Class B Shares and Class E Shares are substantially similar to the Class
A Shares and shares of Cabletron Common Stock issuable in the Merger, except
that (i) each Class B Share and Class E Share has five votes per share (as
described in "-- Voting Rights"); (ii) the Class B Shares and Class E Shares
are not freely transferable, and the outstanding Class E Shares are currently
in escrow; (iii) the Class E Shares have no rights to dividends or other
distributions (as described in "-- Dividends and Other Distributions"); (iv)
each Class B Share may be converted into a Class A Share, at the option of the
holder and in certain other events described below; and (v) each Class E Share
may be converted into a Class B Share only in the event that the remaining
target to conversion (described below) is met and, if such target is not
theretofor met, may be redeemed by the Company at any time after March 31,
1999, for $0.01 per share.
Under the Company Certificate, each Class B Share will be converted into a
Class A Share at the election of the holder, or upon sale or transfer to a
non-holder of Class B Shares, or upon the death of the holder (unless and to
the extent that the Class B Share is then purchased by another holder of Class
B Shares within certain specified time limits). Under the Company Certificate,
each outstanding Class E Share will be automatically converted into a Class B
Share if the Company's net income before provision for income taxes and
exclusive of
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certain extraordinary earnings or charges (as defined in the Company
Certificate) is at least $8.9 million for the year ended December 31, 1998
(the other targets to the conversion of the outstanding Class E Shares were
not met by the applicable testing dates). Class E Shares may also not be sold
or transferred, without the prior written consent of the Company, other than
to another holder of Class E Shares, by intervivos transfer to a grantor trust
(as defined in and subject to certain restrictions contained in the Company
Certificate) or by operation of law in the event of the holder's death
(subject to certain restrictions contained in the Company Certificate).
VOTING RIGHTS
Holders of Class A Shares are entitled to one vote per share, in person or
by proxy, at all meetings of the stockholders and on all proposals brought
before such meetings. Holders of Class B Shares or Class E Shares are entitled
to five votes per share, in person or by proxy, at all meetings of the
stockholders and on all proposals brought before such meetings. Except as
otherwise required by law or by the Company Certificate, the holders of Class
A Shares, Class B Shares, and Class E Shares vote together as a single class
on all matters. The Company Common Stock does not have cumulative voting
rights in the election of directors. The Class A Shares are substantially
identical to the Cabletron Common Stock in these respects. All shares of
Cabletron Common Stock (including those issuable in the Merger in exchange for
Class B Shares and Class E Shares) have one vote per share. Voting rights for
Company Preferred Stock are fixable by resolution of the Company Board upon
issuance of one or more classes of Company Preferred Stock. Voting rights for
Cabletron Preferred Stock are fixable by resolution of the Board of Directors
of Cabletron upon issuance of one or more classes of Cabletron Preferred
Stock.
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 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. Neither the Company nor Cabletron has quorum
requirements which differ from the requirements of the DGCL in their
certificates or bylaws.
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 Company Bylaws provide that
a majority of the stock having voting power present in person or represented
by proxy and voting will decide any question brought before such meeting
(which stock voting affirmatively also constitutes at least a majority of the
required quorum), unless the question is one upon which, by express provision
of the applicable statute or of the Company Certificate, the vote of a greater
amount of stock is required. The Company Bylaws further provide that only
stockholders of record on the close of business on the record date, such
record date determined by the Board of Directors and as required by the
Bylaws, are entitled to exercise the voting rights of their shares of stock.
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.
STOCKHOLDER MEETINGS
Under the DGCL, special meetings of stockholders may be called by the board
of directors and by such person or persons as so authorized by the certificate
of incorporation or the bylaws. The Company Bylaws provide that, subject to
the notice requirements of the Bylaws, special meetings of stockholders may be
called at any time by a majority of the Board of Directors, the Chairman of
the Board, or by the President. 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, and that special
meeting may also be called by the secretary upon application of a majority of
the directors.
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STOCKHOLDER ACTION BY WRITTEN CONSENT
Under the DGCL, unless the certificate of incorporation provides otherwise,
any action required to be taken or which may be taken at a meeting of
stockholders may be taken without a vote, without a meeting and without prior
notice, with the written consent of not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Neither the
Company Certificate nor the Cabletron Certificate provides otherwise.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
To amend a certificate of incorporation, the DGCL requires the affirmative
recommendation of the board of directors, the approval of a majority of all
outstanding shares entitled to vote therefor and the approval of the
outstanding stock of any class entitled to vote thereon as a class.
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 Company Certificate does not provide otherwise. The Cabletron
Certificate provides that certain of its provisions 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). See "--Removal of Directors."
BYLAWS
Under the DGCL, the authority to adopt, amend or repeal the bylaws of a
Delaware 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 Company Certificate grants to
its board of directors the powers to adopt, amend or repeal the Bylaws. The
Company Bylaws also provide that the bylaws may be altered, amended or
repealed or new bylaws may be adopted by the affirmative vote of a majority of
the outstanding shares of stock entitled to vote, or by the board of
directors, when such power is conferred upon the board of directors by the
Company Certificate (which power is conferred on the Company Board). The
Cabletron Certificate grants to its board of directors the powers 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.
NUMBER AND QUALIFICATION 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. Neither the Company Certificate nor the Cabletron Certificate
sets a number of directors. The Company Bylaws provide that the board of
directors shall consist of at least one director, or such other number of
directors as may be determined from time to time by resolution of the board of
directors. The Cabletron Bylaws provide that, except as fixed by the
certificate of incorporation, the number of directors shall be determined from
time to time by vote of a majority of the board of directors, provided that
the minimum number of directors is three. Neither the Company Certificate nor
the Company Bylaws sets forth specific qualification requirements for
directors. Likewise, neither the Cabletron Certificate nor the Cabletron
Bylaws sets forth specific qualification requirements for directors.
BOARD CLASSIFICATION
The DGCL provides that the directors of any corporation may be divided into
one, two or three classes. Neither the Company Certificate nor the Company
Bylaws provides for a classified board. The Cabletron
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Certificate and 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.
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. Both the
Company Certificate and the Cabletron Certificate provide that elections of
directors need not be by written ballot, unless otherwise provided in the
bylaws. The Company Bylaws do not provide otherwise. 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, unless the certificate of incorporation or bylaws provide
otherwise, 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 Company Bylaws provide that
directors shall be elected by the holders of a majority of shares entitled to
vote, represented in person or by proxy, and voting at each annual meeting of
the stockholders (which shares voting affirmatively also constitute at least a
majority of the required quorum). 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.
The Company Certificate contains no provisions regarding the nomination of
directors. The Company Bylaws provide that any Company Stockholder who is
entitled to vote in the election of directors, and who was a stockholder of
record at the time of the giving of notice as provided below, may nominate
persons for election as directors. The Company Bylaws require that nominations
made by stockholders to the Board of Directors must be preceded by timely
notice thereof in writing to the Secretary of the corporation. To be timely,
such notice must be made not less than 75 days prior to the first anniversary
of the preceding year's annual meeting of stockholders; provided, however,
that if the date of the annual meeting is advanced more than 30 days prior to
or delayed by more than 75 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not later than the close of
business on the later of the 75th day prior to such annual meeting or the 10th
day following the day on which public announcement of the date of such meeting
is first made. Notwithstanding anything in the above sentence to the contrary,
in the event that the number of directors to be elected to the Company Board
is increased and there is no public announcement naming all of the nominees
for director or specifying the size of the increased Company Board made by the
corporation at least 75 days prior to the first anniversary of the preceding
year's annual meeting, then a stockholder's notice of nominees for director
shall be considered timely if delivered to the Secretary of the corporation
not later than the close of business on the 10th day following the day on
which such public announcement is first made by the corporation. 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 as is required to be disclosed in
solicitations of proxies for the election of such nominees as directors
pursuant to Regulation 14A under the Exchange Act including, without
limitation, such person's written consent to being named in the proxy
statement and to serving as a director if elected; and (ii), as to the
stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination is made (1) the name and address of such stockholder, as
they appear on the corporation's books, and of such beneficial owner, (2) the
class and number of shares of the corporation that are owned beneficially and
of record by such stockholder and such beneficial owner, and (3) whether
either such stockholder or beneficial owner intends to solicit or participate
in the solicitation of proxies in favor of such nominee or nominees.
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
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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 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.
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. Neither the Company Certificate nor the Company Bylaws
provide otherwise.
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," as defined in the
Cabletron Certificate. Related Person is defined broadly in the Cabletron
Certificate to include any entity or person, that together with its affiliates
and associates beneficially owns, or owned within the prior three years, 5
percent or more of the aggregate shares of the voting stock of any class of
the corporation, and any affiliate or associate of any such Related Person.
Related Person shall not include (i) the corporation or any majority-owned
subsidiary of the corporation; (ii) any Person that together with its
affiliates and associates beneficially owned in the aggregate 5 percent or
more of the outstanding shares of voting stock of any class of the corporation
at the time of its initial public offering, any affiliate or associate of such
Person or any Person that acquired said shares from any such Person by gift,
inheritance or other exchange in which no consideration was exchanged; and
(iii) any Person whose ownership of shares in excess of the 5 percent
limitation is the result of action taken solely by the corporation. Such
Person shall be a Related Person if thereafter he acquires additional shares
of voting stock of the corporation, except as a result of further corporate
action not caused by such Person.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Under the DGCL, unless the certificate of incorporation or bylaws provide
otherwise, 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 for such directors, summarily order an election to be held to
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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 Company Bylaws provide that vacancies may be filled by a majority of the
directors then in office, though less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected. 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 called for such purpose.
VOTE REQUIRED FOR CERTAIN CORPORATE TRANSACTIONS
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, dissolution or sale, lease or exchange 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 certificate of incorporation 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.
Neither the Company Certificate nor (except as described below) the
Cabletron Certificate requires a greater proportion of stockholders to approve
a merger, consolidation, dissolution or sale, lease or exchange of all or
substantially all of its assets than is required by the DGCL.
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. Related Person is defined broadly in the Cabletron
Certificate to include any entity or person, that together with its affiliates
and associates beneficially owns, or owned within the prior three years, 5
percent or more of the aggregate shares of the voting stock of any class of
the corporation, and any affiliate or associate of any such Related Person.
Related Person shall not include (i) the corporation or any majority-owned
subsidiary of the corporation; (ii) any Person that together with its
affiliates and associates beneficially owned in the aggregate 5 percent or
more of the outstanding shares of voting stock of any class of the corporation
at the time of its initial public offering, any affiliate or associate of such
Person or any Person that acquired said shares from any such Person by gift,
inheritance or other exchange in which no consideration was exchanged; and
(iii) any Person whose ownership of shares in excess of the 5 percent
limitation is the result of action taken solely by the corporation. Such
Person shall be a Related Person if thereafter he acquires additional shares
of voting stock of the corporation, except as a result of further corporate
action not caused by such Person.
ANTI-TAKEOVER PROVISIONS
The DGCL prohibits certain transactions between a Delaware corporation and
an "interested stockholder," which is defined in general 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 person's
affiliates and associates. This provision prohibits certain business
combinations (defined broadly to include mergers,
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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 or transaction which resulted in the stockholder
becoming an interested stockholder 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 Company Certificate nor the Company Bylaws
exempts the Company from the DGCL provisions regarding transactions with
interested stockholders. Likewise, neither the Cabletron Certificate nor the
Cabletron Bylaws exempts Cabletron from the DGCL provision regarding
transactions with interested stockholders.
The Company has adopted a Stockholder Rights Plan (the "Rights Plan"). Under
the Rights Plan, a dividend of one Share Purchase Right (a "Right") was
declared for each share of Class A Common Stock outstanding at the close of
business on March 6, 1998. In the event that a person or group acquires
securities representing 15% or more of the aggregate voting power of Company
Common Stock without advance approval by the Company Board, each Right will
entitle the holder, other than the acquirer, to buy Class A Common Stock with
a market value of twice the exercise price (initially $35.00, subject to
adjustment) for the Right's then current exercise price. In addition, if the
Rights are triggered by such a non-approved acquisition and the Company is
thereafter acquired in a merger or other transaction in which the Company
Stockholders are not treated equally, stockholders with unexercised Rights
will be entitled to purchase common stock of the acquirer with a value of
twice the exercise price of the Rights. The Company Board may redeem the
Rights for a nominal amount at any time prior to an event that causes the
Rights to become exercisable. The Rights trade automatically with the
underlying Class A Common Stock (unless and until a distribution event occurs
under the Rights Plan) and expire on February 13, 2008 if not redeemed
earlier. In connection with its approval of the Merger Agreement, the Company
Board took action, pursuant to the terms of the Rights Plan, to exempt
therefrom the execution, delivery and performance of the Merger Agreement and
the consummation of the transactions contemplated thereby, including the
Merger.
Cabletron has no such rights plan. However, under Delaware Law, Cabletron
has the power (subject to the appropriate exercise of the fiduciary duty of
its Board of Directors) to adopt such a rights plan in the future without the
approval of its stockholders.
LIMITATION ON DIRECTORS' LIABILITY
The DGCL permits the certificate of incorporation to include provisions
exculpating directors from personal liability, except that it prohibits
exculpation (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders; (ii) for acts or omissions not in good faith
or which involve intentional misconduct or knowing violation of law; (iii) for
unlawful payments of dividends or unlawful stock repurchases or redemptions
under Section 174 of the DGCL; or (iv) for any transactions from which the
director derived an improper personal benefit. The Company Certificate
provides that no director shall be liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL, or (iv) for any transaction from which
the director derived any improper personal benefit. The Cabletron Certificate
provides 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.
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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 certain 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 or not opposed to 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, officers, employees and agents. 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 Company Bylaws provide that the corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in the right of
the corporation) by reason of the fact that he or she is or was a director or
officer of the corporation, or that such director or officer is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, join venture trust or other enterprise
(collectively "Representative"), against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement (if such settlement is
approved in advance by an independent Board of Directors, which approval shall
not be unreasonably withheld) actually and reasonably incurred in connection
with such action, suit or proceeding if he or she acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe such conduct was unlawful. The Company Bylaws
also provide that the corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he or she is or was a
Representative against expenses (including attorney's fees) actually and
reasonably incurred in connection with the defense or settlement of such
action or suit if he or she acted in good faith and in manner reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Delaware Court of Chancery
or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.
The Company Bylaws further provide that the corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
Representative of the corporation against any liability asserted against and
incurred by him or her in any such capacity, or arising out of such status,
whether or not the corporation would have the power to indemnify him or her
against such liability based on the indemnity provisions described above.
The Cabletron Certificate provides that officers and directors shall be
indemnified to the full extent permitted by the DGCL.
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,
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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. The Company Certificate provides that no dividends,
distributions or share of liquidation proceeds may be declared or paid on
Class E Shares. There are no similar restrictions on the Class A Shares or the
Class B Shares. Neither the Cabletron Certificate nor the Cabletron Bylaws
place any restrictions on the payment of dividends or currently provide for
any preferences upon liquidation.
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.
EXPERTS
The consolidated financial statements and the related consolidated financial
statement schedule of Cabletron and its subsidiaries as of February 28, 1998
and February 28, 1997, and for each of the years in the three-year period
ended February 28, 1998, 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 financial statements and schedule of the Company as of December 31, 1997
and for the year then ended, have been incorporated by reference herein and in
the Registration Statement of which this Proxy Statement/Prospectus is a part,
in reliance upon the report 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.
A representative of KPMG Peat Marwick LLP will be at the Special Meeting to
answer questions from Company Stockholders and will be given an opportunity to
make a statement, if so desired.
The financial statements of the Company as of December 31, 1996 and for the
two years then ended, incorporated by reference in this Proxy
Statement/Prospectus and in the Registration Statement of which this Proxy
Statement/Prospectus is a part, have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The Statement of Assets Sold as of June 28, 1997 and the Statement of
Revenue and Direct Operating Expenses (the "Statements") for the year ended
June 28, 1997 of the Network Products Business of Digital Equipment
Corporation, (the "Business") incorporated by reference in this Proxy
Statement/Prospectus, have been incorporated by reference herein in reliance
on the report which includes an explanatory paragraph of
PricewaterhouseCoopers LLP, independent certified public accountants, given on
the authority of that firm as experts in auditing and accounting. The
explanatory paragraph states that the Statements were prepared to present the
assets sold by the Business to Cabletron Systems, Inc. and the revenue and
direct operating expenses of the Business and are not intended to be a
complete presentation of the Business' financial position or results of
operations.
OTHER MEETINGS
Given the pendency of the Merger, the Company did not hold a 1998 Annual
Meeting of Stockholders at the time it would have otherwise been held. The
Company will hold an Annual Meeting of Stockholders only if the Merger
Agreement is terminated. In the event that the Company holds an Annual Meeting
of Stockholders, any proposals from Company Stockholders intended to be
presented thereat and included in the Company's proxy statement relating
thereto must, in addition to meeting the eligibility and other requirements of
the Commission's rules governing shareholder proposals and the advance notice
provisions of the Company Bylaws, be received by the Company at its principal
executive offices within a reasonable time before the Company solicits proxies
in connection therewith.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NETVANTAGE, INC.
AND
CABLETRON SYSTEMS, INC.
AND
TEMPEST ACQUISITION, INC.
DATED AS OF JUNE 22, 1998
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ARTICLE I--THE MERGER...................................................... 1
SECTION 1.1 The Merger................................................. 1
SECTION 1.2 Effective Time............................................. 2
SECTION 1.3 Effect of the Merger....................................... 2
SECTION 1.4 Certificate of Incorporation, By-Laws...................... 2
SECTION 1.5 Directors and Officers..................................... 2
SECTION 1.6 Effect on Capital Stock.................................... 2
SECTION 1.7 Exchange of Certificates................................... 4
SECTION 1.8 Stock Transfer Books....................................... 5
SECTION 1.9 No Further Ownership Rights in Company Common Stock........ 5
SECTION 1.10 Lost, Stolen or Destroyed Certificates.................... 5
SECTION 1.11 Tax and Accounting Consequences........................... 5
SECTION 1.12 Taking of Necessary Action; Further Action................ 6
SECTION 1.13 Material Adverse Effect................................... 6
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................. 7
SECTION 2.1 Organization and Qualification............................. 7
SECTION 2.2 Certificate of Incorporation and By-Laws................... 7
SECTION 2.3 Capitalization............................................. 7
SECTION 2.4 Authority Relative to this Agreement....................... 8
SECTION 2.5 No Conflict; Required Filings and Consents................. 8
SECTION 2.6 Compliance, Permits........................................ 9
SECTION 2.7 SEC Filings; Financial Statements.......................... 9
SECTION 2.8 Absence of Certain Changes or Events....................... 10
SECTION 2.9 No Undisclosed Liabilities................................. 10
SECTION 2.10 Absence of Litigation..................................... 10
SECTION 2.11 Employee Benefit Plans, Employment Agreements............. 10
SECTION 2.12 Labor Matters............................................. 11
SECTION 2.13 Registration Statement, Joint Proxy Statement/Prospectus.. 12
SECTION 2.14 Restrictions on Business Activities....................... 12
SECTION 2.15 Title to Property......................................... 12
SECTION 2.16 Taxes..................................................... 12
SECTION 2.17 Environmental Matters..................................... 13
SECTION 2.18 Intellectual Property..................................... 14
SECTION 2.19 Interested Party Transactions............................. 15
SECTION 2.20 Insurance................................................. 15
SECTION 2.21 Accounts Receivable; Inventory............................ 15
SECTION 2.22 Employees ................................................ 15
SECTION 2.23 Opinion of Financial Advisor.............................. 16
SECTION 2.24 Brokers................................................... 16
SECTION 2.25 Change in Control Payments................................ 16
SECTION 2.26 Full Disclosure........................................... 16
SECTION 2.27 Rights Agreement.......................................... 16
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB....... 16
SECTION 3.1 Organization and Qualification; Subsidiaries............... 16
SECTION 3.2 Charter and By-Laws........................................ 17
SECTION 3.3 Capitalization............................................. 17
SECTION 3.4 Authority Relative to this Agreement....................... 17
SECTION 3.5 No Conflict, Required Filings and Consents................. 17
SECTION 3.6 Compliance; Permits........................................ 18
SECTION 3.7 SEC Filings; Financial Statements.......................... 18
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SECTION 3.8 Absence of Certain Changes or Events...................... 19
SECTION 3.9 No Undisclosed Liabilities................................ 19
SECTION 3.10 Absence of Litigation.................................... 19
SECTION 3.11 Employee Benefit Plans; Employment Agreements............ 19
SECTION 3.12 Labor Matters............................................ 20
SECTION 3.13 Registration Statement; Joint Proxy
Statement/Prospectus................................................. 20
SECTION 3.14 Restrictions on Business Activities...................... 21
SECTION 3.15 Title to Property........................................ 21
SECTION 3.16 Intellectual Property.................................... 21
SECTION 3.17 Interested Party Transactions............................ 21
SECTION 3.18 Insurance................................................ 21
SECTION 3.19 Brokers.................................................. 21
SECTION 3.20 Ownership of Merger Sub; No Prior Activities............. 21
SECTION 3.21 Full Disclosure.......................................... 22
ARTICLE IV--CONDUCT OF BUSINESS PENDING THE MERGER........................ 22
SECTION 4.1 Conduct of Business by the Company Pending the Merger..... 22
SECTION 4.2 No Solicitation........................................... 23
SECTION 4.3 Conduct of Business by Parent Pending the Merger.......... 24
ARTICLE V--ADDITIONAL AGREEMENTS.......................................... 25
SECTION 5.1 HSR Act................................................... 25
SECTION 5.2 Joint Proxy Statement/Prospectus; Registration Statement.. 25
SECTION 5.3 Stockholders Meeting...................................... 25
SECTION 5.4 Access to Information; Confidentiality.................... 25
SECTION 5.5 Consents; Approvals....................................... 25
SECTION 5.6 Agreements with Respect to Affiliates..................... 26
SECTION 5.7 Indemnification and Insurance............................. 26
SECTION 5.8 Notification of Certain Matters........................... 26
SECTION 5.9 Further Action............................................ 27
SECTION 5.10 Public Announcements..................................... 27
SECTION 5.11 Conveyance Taxes......................................... 27
SECTION 5.12 Accountants' Letters..................................... 27
SECTION 5.13 Rights Agreement......................................... 27
SECTION 5.14 NASDAQ Listing........................................... 27
SECTION 5.15 Listing of Parent Shares................................. 27
SECTION 5.16 Benefit Plans............................................ 27
SECTION 5.17 Company Securities....................................... 28
ARTICLE VI--CONDITIONS TO THE MERGER...................................... 28
SECTION 6.1 Conditions to Obligation of Each Party to Effect the
Merger............................................................... 28
SECTION 6.2 Additional Conditions to Obligations of Parent and Merger
Sub.................................................................. 29
SECTION 6.3 Additional Conditions to Obligation of the Company........ 29
ARTICLE VII--TERMINATION.................................................. 30
SECTION 7.1 Termination............................................... 30
SECTION 7.2 Effect of Termination..................................... 32
SECTION 7.3 Fees and Expenses......................................... 32
ARTICLE VIII--GENERAL PROVISIONS.......................................... 32
SECTION 8.1 Effectiveness of Representations, Warranties and
Agreements; Knowledge, Etc. ......................................... 32
SECTION 8.2 Notices................................................... 33
SECTION 8.3 Certain Definitions....................................... 33
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SECTION 8.4 Amendment.................................................. 34
SECTION 8.5 Waiver..................................................... 34
SECTION 8.6 Headings................................................... 34
SECTION 8.7 Severability............................................... 34
SECTION 8.8 Entire Agreement........................................... 34
SECTION 8.9 Assignment; Guarantee of Merger Sub........................ 35
SECTION 8.10 Parties in Interest....................................... 35
SECTION 8.11 Failure or Indulgence Not Waiver; Remedies Cumulative..... 35
SECTION 8.12 Governing Law............................................. 35
SECTION 8.13 Counterparts.............................................. 35
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 22, 1998 (this "AGREEMENT"),
among Cabletron Systems, Inc., a Delaware corporation ("PARENT"), Tempest
Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of
Parent ("MERGER SUB"), and NetVantage, Inc., a Delaware 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 Delaware General Corporation Law (the "DGCL") and the Board of
Directors of the Company has approved the Merger in accordance with the
applicable provisions of the DGCL, and 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;
WHEREAS, for accounting purposes, it is intended that the Merger be
accounted for as a "purchase"; and
WHEREAS, pursuant to the Merger, each outstanding share (a "SHARE") of the
Company's Class A common stock, $0.001 par value, together with the rights
("RIGHTS") attached to the Class A common stock issued pursuant to the Rights
Agreement dated as of February 13, 1998 between the Company and Continental
Stock Transfer & Trust Company, as Rights Agent (the "RIGHTS AGREEMENT") (the
"CLASS A COMMON STOCK"), Class B common stock, $0.001 par value (the "CLASS B
COMMON STOCK") and Class E common stock, $0.001 par value (the "CLASS E COMMON
STOCK" and together with the Class A Common Stock and Class B Common Stock,
the "COMPANY COMMON STOCK") shall be converted into the right to receive the
Merger Consideration (as defined in Section 1.6(a)), 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 DGCL,
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 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, the consummation of the Merger 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.
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SECTION I.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 certificate of
merger as contemplated by the DGCL (the "CERTIFICATE OF MERGER"), together
with any required related certificates, with the Secretary of State of the
State of Delaware, in such form as required by, and executed in accordance
with the relevant provisions of, the DGCL (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 Certificate of Merger and
the applicable provisions of the DGCL. 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 Certificate of Incorporation, By-Laws.
(a) Certificate of Incorporation. Unless otherwise determined by Parent
prior to the Effective Time, at the Effective Time the Certificate of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended in accordance with the DGCL and such Certificate of
Incorporation.
(b) By-Laws. Unless otherwise determined by Parent prior to the Effective
Time, the By-Laws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended in accordance with the DGCL, the Certificate of
Incorporation of the Surviving Corporation and such By-Laws. Nothing in this
Section 1.4(b) shall impair the provisions of Section 5.7.
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 Certificate 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 of Class A Common Stock and Class B
Common Stock and each ten shares of Class E Common Stock issued and
outstanding immediately prior to the Effective Time, (excluding any Shares to
be canceled pursuant to Section 1.6(b)) shall be converted, subject to Section
1.6(c) and Section 1.6(h), into the right to receive 8/13 (the "EXCHANGE
RATIO") of a share of the Common Stock, $.01 par value, of Parent ("PARENT
COMMON STOCK") (the shares of Parent Common Stock to be issued pursuant to
this Section 1.6(a) are hereinafter referred to as the "PARENT SHARES" and the
right of each holder of Company Shares to receive such Parent Shares and cash
in respect of fractional Shares as provided in Section 1.6(h) being referred
to as the "MERGER CONSIDERATION").
(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. 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 DGCL and who does not vote in favor of the Merger and who otherwise
complies with Section 262 of the DGCL ("COMPANY DISSENTING SHARES") shall not
be entitled to receive Parent Shares pursuant to Section 1.6(a) and cash in
lieu of fractional Shares pursuant to Section 1.6(h) hereof, and shall only be
entitled to receive for such Company Common Stock the payment provided for by
Section 262 of the DGCL, unless such holder fails to perfect, effectively
withdraws or loses his right to dissent from the Merger under the DGCL. If any
such holder so fails to perfect, effectively withdraws or loses his or her
dissenters' rights under
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the DGCL, his or her Company Dissenting Shares shall thereupon be deemed to
have been converted, as of the Effective Time, into the right to receive the
number of Parent Shares determined in accordance with Section 1.6(a) and, if
applicable, cash in lieu of fractional shares as provided in Section 1.6(h).
(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; Warrants.
(i)At the Effective Time, each outstanding option to purchase Company
Common Stock (a "STOCK OPTION") granted under the Company's 1997 Equity
Incentive Plan, 1996 Incentive Stock Plan, 1994 Incentive and Nonstatutory
Stock Option Plan, and 1992 Incentive and Nonstatutory Stock Option Plan
(collectively, the "COMPANY STOCK OPTION PLANS"), whether vested or
unvested, shall be, together with the Company Stock Option Plans, deemed
assumed by Parent and deemed to constitute an option to acquire, on the
same terms and conditions as were applicable under such Stock Option 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
number of Parent Shares deemed purchasable pursuant to such Stock Option.
(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(e).
(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 either (A) 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, or (B) file any necessary amendments to the Company's previously-
filed Registration Statements on Form S-8 in order that the Parent will be
deemed a "successor registrant" thereunder, and, in either event 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.
(v)Parent will not assume the SVB Warrants (as defined in Section 2.3).
Such nonassumption shall have the consequences described in Section 1.7.3
of each of the SVB Warrants. Parent will assume the exercisable SR Warrants
(as defined in Section 2.3) such that each exercisable SR Warrant shall be
deemed to constitute a warrant to acquire, on the same terms and conditions
as are applicable under such SR Warrant prior to the Effective Time, the
number of Parent Shares (rounded down to the nearest whole number) that the
holder would have been entitled to receive pursuant to the Merger had he
exercised such warrant in full immediately prior to the Effective Time, at
a price per share equal to (x) the aggregate exercise price for Company
Common Stock purchasable pursuant to such warrant divided by (y) the number
of Parent Shares deemed purchasable pursuant to such warrant. The non-
exercisable SR Warrant dated April 22, 1997 for 15,000 shares of Class A
Common Stock, shall be deemed assumed by Parent and deemed to constitute a
warrant to acquire, on the same terms and conditions as were applicable
under such SR Warrant prior to the Effective Time, a number of Parent
Shares (rounded down to the nearest whole number) equal to 1,500 multiplied
by the Exchange Ratio, at a price per share equal to (x) the aggregate
exercise price for Company Common Stock otherwise purchasable pursuant to
such SR Warrant divided by (y) ten multiplied by the number of Parent
Shares deemed purchasable pursuant to such warrant.
(vi)Parent has no obligation to assume and will not assume the Unit
Purchase Options granted to D.H. Blair and its affiliates. Should any of
the Unit Purchase Options be exercised prior to the Effective Time,
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any resulting warrant for shares of Company Common Stock shall be deemed
assumed by Parent and deemed to constitute a warrant to acquire, on the
same terms and conditions as are applicable under such warrant prior to the
Effective Time, the number of Parent Shares (rounded down to the nearest
whole number) that the holder of such warrant would have been entitled to
receive pursuant to the Merger had such holder exercised such warrant in
full immediately prior to the Effective Time, at a price per share equal to
(x) the aggregate exercise price for Company Common Stock purchasable
pursuant to such warrant divided by (y) the number of Parent Shares deemed
purchasable pursuant to such warrant. "UNIT PURCHASE OPTIONS" means the
outstanding Unit Purchase Options granted to D.H. Blair and its affiliates
in connection with the Company's initial public offering to purchase a
unit, comprising (i) one share of Class A Common Stock, (ii) one Class A
Warrant, and (iii) one Class B Warrant, and which collectively grant the
holders of the Unit Purchase Options the right to purchase an aggregate of
up to 622,500 shares of Class A Common Stock.
(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 equitably
adjusted to reflect fully the effect of any reclassification, stock split,
reverse split, 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.
(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"). All fractional shares of Parent
Common Stock that a holder of shares of Company Common Stock would otherwise
be entitled to receive as a result of the Merger shall be aggregated and if a
fractional share results from such aggregation, such holder shall be entitled
to receive, in lieu thereof, an amount in cash determined by multiplying the
closing sale price of the Parent Common Stock on the New York Stock Exchange
("NYSE") on the trading day immediately preceding the Effective Time by the
fraction of a share of Parent Common Stock to which such holder would
otherwise have been entitled.
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 with the prior approval (not to be unreasonably
withheld) of the Company (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 and any cash in lieu of fractional
shares payable pursuant to Section 1.6, in exchange for outstanding Shares.
(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
Exchange Agent and shall be in such form and have such other provisions as
Parent may reasonably specify), and (ii) instructions to effect the surrender
of the Certificates in exchange for the certificates evidencing Parent Shares
and cash in lieu of fractional 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(f), 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 and any dividends or
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other distributions to which the holder is entitled pursuant to Section 1.7(c)
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, subject to Sections 1.6(f) and 1.7(c), to evidence the
right to receive such Merger Consideration, as applicable. Parent Shares
issued in the Merger shall be issued as of and deemed to be outstanding as of
the Effective Time. Parent shall cause all such Parent Shares to be duly
authorized, validly issued, fully paid and non-assessable, and not subject to
any preemptive rights.
(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, (i) 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 and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date after
the Effective Time and a payment date after such surrender.
(d) 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.
(e) 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 Merger
Consideration as may be required pursuant to Section 1.6; provided, however,
that Parent may, in its discretion and as a condition precedent thereof,
require the owner of such lost, stolen or destroyed Certificates to deliver a
bond in such sum as it 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 and Accounting Consequences For federal income tax
purposes, it is intended by the parties hereto that the transaction effected
through 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
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Regulations. For accounting purposes, it is intended by the parties hereto
that the Merger shall be accounted for as a "purchase."
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 unless, in the case of
the Company, it receives a bona fide Acquisition Proposal (as hereinafter
defined) and in the good faith determination of the Company's Board of
Directors (consistent with the advice of the Company's outside legal counsel),
refraining from taking such action is required in the discharge of its
fiduciary duties under applicable law. 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 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 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 materially delay or prevent the
consummation of the transactions contemplated hereby; provided, however, that
the following shall not in and of itself constitute a Material Adverse Effect:
(i) any adverse change, event or effect that is directly attributable to
conditions affecting the United States economy generally or the computer
networking industry generally, unless such conditions adversely affect the
Company or Parent, as the case may be, in a materially disproportionate
manner; and, (ii) in the case of the Company, any adverse change, event or
effect resulting from the delay or deferral of orders from the Company's
current or prospective customers where such delay or deferral (x) is directly
attributable to the Merger, this Agreement, the Manufacturing Rights Agreement
entered into as of the date hereof, the OEM Agreement entered into as of the
date hereof, the performance of any of these Agreements or to the announcement
or pendency of the Merger and (y) occurs despite the Company's reasonable
commercial efforts as required in Section 4.1. The parties agree that the
Company's "Wolfpack" product is material to the business of the Company as it
is proposed to be conducted.
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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"):
SECTION 2.1 Organization and Qualification. The Company 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 and is in possession of all franchises, grants, authorizations,
licenses, permits, easements, consents, certificates, approvals and orders
("APPROVALS") 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 and Approvals would not reasonably
be expected to have a Material Adverse Effect. Except as set forth in Section
2.1 of the Company Disclosure Schedule, the Company 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 would not reasonably be expected to have a
Material Adverse Effect. The Company has no subsidiaries. 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, with respect to which interest the Company has invested
or is required to invest $100,000 or more, excluding securities in any
publicly traded company held for investment by the Company and comprising less
than five percent of the outstanding stock of such company.
SECTION 2.2 Certificate of Incorporation and By-Laws. The Company has
heretofore furnished to Parent a complete and correct copy of its Certificate
of Incorporation and By-Laws as amended and restated to date. Such Certificate
of Incorporation and By-Laws, as amended and restated, are in full force and
effect. The Company is not in material violation of any of the provisions of
its Certificate of Incorporation or By-Laws.
SECTION 2.3 Capitalization. The authorized capital stock of the Company
consists of (1) 17,000,000 shares of Class A Common Stock (and associated
Rights), (ii) 1,800,000 shares of Class B Common Stock, (iii) 1,200,000 shares
of Class E Common Stock and (iv) 5,000,000 shares of preferred stock, $0.01
par value per share, none of which is issued and outstanding and none of which
is held in treasury. As of May 13, 1998, (i) 10,162,603 shares of Class A
Common Stock, 241,310 shares of Class B Common Stock and 540,995 shares of
Class E Common Stock were issued and outstanding, all of which are validly
issued, fully paid and nonassessable, and no shares were held in treasury,
(ii) 2,125,000 shares of Class A Common Stock, 200,000 shares of Class B
Common Stock and 66,667 shares of Class E Common Stock were reserved for
future issuance pursuant to outstanding stock options granted under the
Company Stock Option Plans (iii) up to 622,500 shares of Class A Common Stock
were reserved for future issuance pursuant to outstanding Unit Purchase
Options, (iv) up to 60,000 shares of Class A Common Stock were reserved for
future issuance under warrants granted to Silicon Valley Bank (the "SVB
WARRANTS"), and (v) up to 52,875 shares of Class A Common Stock were reserved
for future issuance under the warrants granted to the Company's President (the
"SR WARRANTS"). Except as set forth in Section 2.3 of the Company Disclosure
Schedule, no material change in such capitalization has occurred between March
31, 1998 and the date hereof. Except as set forth in this Section 2.3 or in
Sections 2.3 or 2.11 of the Company Disclosure Schedule, there are no options,
warrants or other rights, agreements, arrangements or commitments of any
character to which the Company is a party relating to the issued or unissued
capital stock of the Company or obligating the Company to issue or sell any
shares of capital stock of, or other equity interests in, the Company. All
shares of Company Common Stock 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
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Disclosure Schedule, there are no obligations, contingent or otherwise, of the
Company to repurchase, redeem or otherwise acquire any shares of Company
Common Stock or to provide funds to or make any investment (in the form of a
loan, capital contribution, guaranty or otherwise) in any other entity.
SECTION 2.4 Authority Relative to this Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby 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 to consummate the transactions so
contemplated (other than the adoption of this Agreement and the Merger by the
holders of at least a majority of the outstanding voting power of Company
Common Stock entitled to vote in accordance with the DGCL and the Company's
Certificate of Incorporation and By-Laws). 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 and the Merger. 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.
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, 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 is a party or by which it is bound; (ii) all contracts,
agreements, commitments or other understandings or arrangements to which the
Company is a party or by which it or any of its respective properties or
assets are bound or affected, but excluding contracts, agreements, 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 of
less than $100,000 in any single instance but not more than $300,000 in the
aggregate; and (iii) all agreements which, as of the date hereof, are required
to be filed as "material contracts" with the Securities Exchange Commission
("SEC") pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, and the SEC's rules and regulations thereunder (the "EXCHANGE
ACT").
(b) Except as disclosed in Section 2.5(b) of the Company Disclosure
Schedule, (i) the Company has not breached, is not in default under, and has
not received written notice of any breach of or default under, any of the
agreements, contracts or other instruments referred to in clauses (i), (ii) or
(iii) of Section 2.5(a), (ii) to the knowledge of the Company, no other party
to any of the agreements, contracts or other instruments referred to in
clauses (i), (ii) or (iii) of Section 2.5(a) has breached or is in default of
any of its obligations thereunder, and (iii) each of the agreements, contracts
and other instruments referred to in clauses (i), (ii) or (iii) of Section
2.5(a) is in full force and effect, except in any such case under clauses (i),
(ii) or (iii) of this Section 2.5(b) for breaches, defaults or failures that
have not had and would 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 Certificate 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
by which its properties are 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 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 any security interests, liens, claims, pledges, agreements,
limitations on the Company's voting rights, charges or other encumbrances of
any nature whatsoever (collectively,
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"LIENS") on any of the properties or assets of the Company pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company is a party or
by which the Company or any of its properties is bound or affected, except in
any such case under clauses (i), (ii) or (iii) of this Section 2.5(c) for any
such conflicts, violations, breaches, defaults or other occurrences that would
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"), the pre-merger
notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR ACT"), any required foreign antitrust or similar
filings and the filing and recordation of appropriate merger or other
documents as required by the DGCL, and (ii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or materially delay consummation of the
Merger, or otherwise prevent or materially delay the Company from performing
its obligations under this Agreement, or would not otherwise have a Material
Adverse Effect. Neither the Certificate of Incorporation or Bylaws provide the
shareholders with, nor has the board of directors of the Company provided,
pursuant to resolution or otherwise, the shareholders with, a right to dissent
from the Merger in accordance with the provisions of Section 262(c) of the
DGCL.
SECTION 2.6 Compliance, Permits.
(a) Except as disclosed in Section 2.6(a) of the Company Disclosure
Schedule, the Company is not in conflict with, or in default or violation of,
(i) any Law applicable to the Company or by which any of its 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 is a party or by which the Company or any of its
properties is bound or affected, except for any such conflicts, defaults or
violations which would 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 holds 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
taken as a whole as it is now being conducted (collectively, the "COMPANY
PERMITS"). The Company is in compliance with the terms of the Company Permits,
except where the failure to so comply would not reasonably be expected to have
a Material Adverse Effect.
SECTION 2.7 SEC Filings; Financial Statements.
(a) The Company has filed all forms, reports and documents required to be
filed with the SEC and has made available to Parent (i) its Annual Reports on
Form 10-K for the fiscal years ended December 31, 1997 and 1996 and its Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995, (ii) its
Quarterly Reports on Form 10-Q for the periods ended September 30, 1996, March
31, 1997, June 30, 1997, September 30, 1997, and March 31, 1998 and (iii) its
Registration Statement on Form SB-2, No. 33-89266 as declared effective by the
SEC on May 3, 1995, (iv) all proxy statements relating to the Company's
meetings of stockholders (whether annual or special) since January 1, 1996,
(v) all other reports or registration statements filed by the Company with the
SEC, and (vi) all amendments and supplements to all such reports and
registration statements filed by the Company with the SEC (collectively, the
"COMPANY SEC REPORTS"). Except as disclosed in Section 2.7 of the Company
Disclosure Schedule, the Company 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.
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(b) Each of the financial statements (including, in each case, any related
notes thereto) contained in the Company SEC Reports (or if amended or
superseded by a filing, such later filing) 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 in all material respects the financial
position of the Company as at the respective dates thereof and the results of
its operations and cash flows and stockholder equity 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 2.8 Absence of Certain Changes or Events. Except as set forth in
Section 2.8 of the Company Disclosure Schedule or the Company SEC Reports,
since January 1, 1998, the Company has conducted its business in the ordinary
course and there has not occurred: (a) any Material Adverse Effect; (b) any
amendments or changes in the Certificate 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 would 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 a material
amount of property or assets of the Company, 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, the Company has no liabilities
(absolute, accrued, contingent or otherwise), except liabilities (a) in the
aggregate adequately provided for in the Company's audited balance sheet
(including any related notes thereto) for the fiscal year ended December 31,
1997 contained in the Company's Annual Report on Form 10-K (the "1997 COMPANY
BALANCE SHEET"), (b) incurred since December 31, 1997 in the ordinary course
of business consistent with past practice, (c) incurred in connection with
this Agreement, or (d) which would not reasonably be expected to have a
Material Adverse Effect.
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 properties or rights of the Company,
before any federal, foreign, state or provincial court, arbitrator or
administrative, governmental or regulatory authority or body that would
reasonably be expected to have a Material Adverse Effect.
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 material bonus, stock option,
stock purchase, incentive, deferred compensation, supplemental retirement,
severance and other similar fringe or employee benefit plans, programs or
arrangements, and any material employment, executive compensation, consulting
or severance agreements, written or otherwise, for the benefit of, or relating
to, any employee of or 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, as well as
each plan with respect to which the Company or an ERISA Affiliate could incur
liability under Section 4069 (if such plan has been or were terminated) or
Section 4212(c) of ERISA (all such plans, practices and programs are referred
to as the "COMPANY EMPLOYEE PLANS"). There have been made available to Parent
copies of (i) each such written Company Employee Plan (other than those
referred to in Section 4(b)(4) of ERISA), (ii) 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
(iii) the most recent actuarial valuation for each Company Employee Plan
subject to Title IV of ERISA. For purposes of this Section 2.11 (a), the term
"material," used with respect to any Company
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Employee Plan, shall mean that the Company or an ERISA Affiliate has incurred
or may incur obligations in an annual amount exceeding $150,000 with respect
to such Company Employee Plan.
(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 none of
the Company Employee Plans is a "multiemployer plan" as such term is defined
in Section 3(37) 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; (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, Pension Benefit Guaranty Corporation (the "PBGC"),
Internal Revenue Service (the "IRS") or Secretary of the Treasury), and the
Company has performed all material obligations required to be performed by it
under, is not in any material respect in default under or violation of, and
has 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; (v) all contributions required to be made to any
Company Employee Plan pursuant to Section 412 of the Code, or the terms of the
Company Employee Plan or any collective bargaining agreement, have been made
on or before their due dates; (vi) with respect to each Company Employee Plan,
no "reportable event" within the meaning of Section 4043 of ERISA (excluding
any such event for which the 30 day notice requirement has been waived under
the regulations to Section 4043 of ERISA) nor any event described in Section
4062, 4063 or 4041 of ERISA has occurred; and (vii) neither the Company nor
any ERISA Affiliate has incurred, nor reasonably expects to incur, any
liability under Title IV of ERISA (other than liability for premium payments
to the PBGC arising in the ordinary course).
(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 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;
(ii) all agreements with consultants who are individuals obligating the
Company to make annual cash payments in an amount exceeding $150,000; (iii)
all employees of, or consultants to, the Company who have executed a non-
competition agreement with the Company; (iv) all severance agreements,
programs and policies of the Company with or relating to its employees, in
each case with outstanding commitments exceeding $150,000, excluding programs
and policies required to be maintained by law; and (v) all plans, programs,
agreements and other arrangements of the Company 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, threatened, between the Company and its employees,
which controversies have or would reasonably be expected to have a Material
Adverse Effect; (ii) the Company is not a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by the
Company, nor does the Company know of any activities or proceedings of any
labor union to organize any such employees; and (iii) the Company has no
knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats
thereof, by or with respect to any employees of the Company which would
reasonably be expected to have a Material Adverse Effect.
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SECTION 2.13 Registration Statement, Joint Proxy
Statement/Prospectus. Subject to the accuracy of the representations of Parent
in Section 3.13, the information supplied by the Company for inclusion in the
Registration Statement (as defined in Section 3.13) 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, in the
light of the circumstances under which they were made, not misleading. The
information supplied by the Company for inclusion in the joint proxy
statement/prospectus to be sent to the stockholders of the Company in
connection with the meeting of the stockholders of the Company to consider the
Merger (the "STOCKHOLDERS MEETING") (such joint proxy statement/prospectus as
amended or supplemented is referred to herein as the "JOINT PROXY
STATEMENT/PROSPECTUS"), will not, on the date the Joint Proxy
Statement/Prospectus (or any amendment thereof or supplement thereto) is first
mailed to stockholders, at the time of the Stockholders Meetings, 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 omit to state any material fact necessary in
order to make the statements made therein not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Stockholders
Meetings which has become 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, under the applicable requirements of the Securities Act or the
Exchange Act, be set forth in an amendment to the Registration Statement or a
supplement to the Joint Proxy Statement/Prospectus, the Company shall promptly
inform Parent and Merger Sub. The Joint 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, 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
Company's knowledge, there is no agreement, judgement, injunction, order or
decree binding upon the Company which has or would reasonably be expected to
have the effect of prohibiting or impairing any business practice of the
Company, any acquisition of property by the Company or the conduct of business
by the Company as currently conducted or as proposed to be conducted by the
Company, except for any prohibition or impairment as would 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 has good and defensible title to all
of its 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 would not reasonably be expected to have a Material Adverse Effect; and,
to the knowledge of the Company, all leases pursuant to which the Company
leases 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 would not reasonably be expected to have a
Material Adverse Effect.
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, whether disputed or not, 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, environmental (including taxes under Code
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section 59A), utility, severance, production, excise, stamp, occupation,
premiums, windfall profits, transfer and gains taxes, and (ii) interest,
penalties, additional taxes and additions to tax imposed with respect thereto;
and "TAX RETURNS" shall mean returns, reports, declarations, forms, and
information statements with respect to Taxes required to be filed with the IRS
or any other federal, foreign, state or provincial taxing authority, domestic
or foreign, including, without limitation, consolidated, combined and unitary
tax returns, including any amendments thereto.
(b) Other than as disclosed in Section 2.16(b) of the Company Disclosure
Schedule, (i) the Company has timely filed all United States federal income
Tax Returns and other material Tax Returns required to be filed by it and all
such Tax Returns are true, correct and complete in all material respects; (ii)
the Company has paid and discharged all Taxes due and has withheld and paid to
the appropriate authorities all Taxes required to be withheld with respect to
employees, except such as are being contested in good faith by appropriate
proceedings (to the extent that any such proceedings are required) which are
disclosed in Section 2.16(b) of the Company Disclosure Schedule, and with
respect to which the Company is maintaining adequate reserves; (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 unless the failure to do so would not reasonably be
expected to have a Material Adverse Effect; (iv) there are no Tax Liens on any
assets of the Company; (v) the Company has not granted any waiver of any
statute of limitations with respect to, or any extension of a period for the
assessment of, any Tax; (vi) the Company has not received any written notice
of any Tax deficiency outstanding, proposed or assessed against the Company,
or of any audit or other examination, proposed or currently in progress of any
Tax Return of the Company; (vii) no written claim has ever been made by an
authority in a jurisdiction where the Company does not file Tax Returns that
the Company is or may be subject to Tax by that jurisdiction; (viii) the
Company is not a party to or bound by any tax indemnity, tax sharing or tax
allocation agreements; (ix) the Company has not filed any consent agreement
under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the
Code apply to any disposition of a subsection (f) asset (as defined in Section
341(f)(4) of the Code) owned by the Company; and (x) the Company has never
been a member of an affiliated group of corporations within the meaning of
Section 1504 of the Code and the Company is not liable for the Taxes of any
person under Treasury Regulation 1.1502-6 (or any similar provision of state,
local or foreign law), as a transferee or successor, by contract or otherwise.
The accruals and reserves for Taxes (including deferred taxes) reflected in
the 1997 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. Schedule 2.16(b) of the Company
Disclosure Schedule lists the amount of any net operating loss carryforwards
and net capital loss carryforwards of the Company.
(c) The Company does not own 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 would not reasonably be expected to have a Material Adverse
Effect, the Company: (i) has obtained all 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 agents ("ENVIRONMENTAL LAWS"); (ii) is in compliance with all
terms and conditions of such required Approvals, and also is 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, is not aware of nor has
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
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otherwise form the basis of any claim, action, suit or proceeding, against the
Company 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; and (iv) has taken all actions necessary
under applicable Environmental Laws to register any products or materials
required to be registered by the Company (or any of its respective agents)
thereunder.
SECTION 2.18 Intellectual Property. Except as set forth in Section 2.18 of
the Disclosure Schedule:
(a) The Company, directly or indirectly, owns, or is licensed or otherwise
possesses legally enforceable rights to use, all patents, trademarks, trade
names, service marks, copyrights, and any applications therefor, maskworks,
net lists, schematics, technology, know-how, 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 as currently conducted or as proposed to be conducted by the Company
(the "COMPANY INTELLECTUAL PROPERTY RIGHTS").
(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 is a party and pursuant to which the Company 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, and includes the identity of all parties thereto, a description
of the nature and subject matter thereof, the applicable royalty and the term
thereof. The Company is not in violation of any license, sublicense or
agreement described on such list except such violations as do not materially
impair the Company'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 the Company 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.
(d) The Company 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 or are proposed
to be used, except for any adverse interests which do not materially impair
the Company's rights thereunder or materially impact the Company's ability to
produce the products. No claims have been asserted or, to the knowledge of the
Company, are threatened by any person nor are there any valid grounds, to the
knowledge of the Company, for any bona fide claims (i) to the effect that the
manufacture, sale, licensing or use of any of the products of the Company as
now manufactured, sold or licensed or used or proposed for manufacture, use,
sale or licensing by the Company infringes on any copyright, patent, trade
mark, service mark or trade secret, (ii) against the use by the Company of any
trademarks, service marks, trade names, trade secrets, copyrights, patents,
technology, know-how or computer software programs and applications used in
the business of the Company as currently conducted or as proposed to be
conducted, or (iii) challenging the ownership by the Company, validity or
effectiveness of any of the Company Intellectual Property Rights. All
registered trademarks, service marks and copyrights held by the Company are
valid and subsisting. To the knowledge of the Company, there is no
unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property Rights by any third party, including any
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employee or former employee of the Company. No Company Intellectual Property
Right or product of the Company is subject to any outstanding decree, order,
judgment, or stipulation restricting in any manner the licensing thereof by
the Company. The Company has not entered into any agreement under which the
Company 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 has a policy
requiring each employee and consultant to execute a confidentiality agreement
substantially in the form previously delivered to Parent and each current
employee and consultant has executed such an agreement.
(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, in the case of Section
3.17, to Parent) pursuant to end-user licenses and which are used in the
Company's business (or in Parent's business in the case of Section 3.17) but
are in no way a component of or incorporated in or specifically required to
develop or support any of the Company's (or of Parent's in the case of Section
3.17) products and related trademarks, technology and know-how.
SECTION 2.19 Interested Party Transactions. Except as set forth in the
Company SEC Reports or Section 2.21 of the Company Disclosure Schedule, since
December 31, 1997, 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.
SECTION 2.20 Insurance. All material fire and casualty, general liability,
business interruption, product liability, professional liability and sprinkler
and water damage insurance policies maintained by the Company are in character
and amount at least equivalent to that carried by persons engaged in similar
businesses and subject to the same or similar perils or hazards, except as
would not reasonably be expected to have a Material Adverse Effect, and all
such policies are with reputable insurance carriers, provide adequate coverage
for all normal risks incident to the business of the Company and its
respective properties and assets.
SECTION 2.21 Accounts Receivable; Inventory.
(a) Except as set forth in Section 2.21 of the Company Disclosure Schedule,
the accounts receivable of the Company as reflected in the most recent
financial statements contained in the Company SEC Reports, to the extent
uncollected on the date hereof and the accounts receivable reflected on the
books of the Company are valid and existing and represent monies due, and the
Company has made reserves reasonably considered adequate for receivables not
collectible in the ordinary course of business, 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, except for such
refunds, adjustments, defenses, rights of setoff, assignments, restrictions,
encumbrances or conditions as would not reasonably be expected to have a
Material Adverse Effect.
(b) Except as set forth in Section 2.21 of the Company Disclosure Schedule,
the inventory of the Company 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 writedown set
forth on the face of the 1997 Company Balance Sheet and as adjusted for the
passage of time through the Effective Date in accordance with GAAP and the
past custom and practice of the Company. The inventory, taken as a whole,
reflected in the 1997 Company Balance Sheet and books and records of the
Company is reflected on the basis of a complete physical count and is valued
at the lower of cost (on a first-in, first-out basis) or market in accordance
with GAAP, consistently applied. Since December 31, 1997, no inventory has
been sold or disposed of except through sales in the ordinary course of
business.
SECTION 2.22 Employees. To the Company's knowledge, no executive, Key
Employee (as defined in Section 6.2(i)), or group of current employees intends
or has threatened to terminate employment with the Company or intends or has
threatened not to: (i) accept an offer of employment from Parent or (ii)
continue as an employee of Parent following the Effective Time.
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SECTION 2.23 Opinion of Financial Advisor. The Company has been advised by
its financial advisor, BancAmerica Robertson Stephens ("ROBERTSON STEPHENS"),
that in its opinion, as of the date hereof, the Merger Consideration set forth
herein is fair to the holders of each class of Company Common Stock.
SECTION 2.24 Brokers. Except as set forth in Section 2.24 of the Company
Disclosure Schedule, no broker, finder or investment banker (other than
Robertson Stephens, the fees and expenses of whom will be paid by the Company)
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. The Company has heretofore furnished to Parent a complete and
correct copy of all agreements between the Company and Robertson Stephens,
pursuant to which Robertson Stephens would be entitled to any payment relating
to the transactions contemplated hereunder.
SECTION 2.25 Change in Control Payments. Except as set forth on Section
2.11(d) or Section 2.25 of the Company Disclosure Schedule, the Company does
not have any plans, programs or agreements to which it is a party, or to which
it is subject, pursuant to which payments may be required or acceleration of
benefits may be required upon a change of control of the Company.
SECTION 2.26 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 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.
SECTION 2.27 Rights Agreement. The Rights Agreement and the Rights are
inapplicable to the execution, delivery and performance of this Agreement,
including the Merger and the other transactions contemplated hereby. Pursuant
to this end, the Company has taken all necessary action to (i) amend the
Rights Agreement to render the Rights inapplicable to the Merger and the other
transactions contemplated by this Agreement and (ii) ensure that (x) neither
Parent nor any of its affiliates is an Acquiring Person (as defined in the
Rights Agreement) and (y) a Shares Acquisition Date, a Distribution Date or a
Triggering Event (as such terms are defined in the Rights Agreement) does not
occur by reason of the announcement or consummation of the Merger or any of
the other transactions contemplated by this Agreement.
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"):
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 and is in possession of all Approvals
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 and Approvals would 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 would not reasonably be
expected to have a Material Adverse Effect.
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SECTION 3.2 Charter and By-Laws. Parent has heretofore furnished to the
Company a complete and correct copy of its Certificate of Incorporation and
By-Laws, amended to date. Such Certificate 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 Certificate of Incorporation or By-Laws.
SECTION 3.3 Capitalization. As of February 28, 1998, the authorized capital
stock of Parent consisted of (i) 240,000,000 shares of Parent Common Stock of
which 158,266,994 shares were issued and outstanding, all of which are validly
issued, fully paid and non-assessable, no shares were held in treasury, and
4,892,744 shares were reserved for future issuance under Parent's equity
incentive plan, directors option plan and employee stock purchase plan, (ii)
options to purchase an aggregate of 1,301,001 shares of Parent Common Stock
and (iii) 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 February 28, 1998
and the date hereof. Except as set forth in this Section or in Section 3.3 of
the Parent Disclosure Schedule, as of the date hereof there are no options,
warrants or other rights, agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock of Parent or any of
its subsidiaries or obligating Parent or any of its subsidiaries to issue or
sell any shares of capital stock of, or other equity interests in, Parent or
any of its subsidiaries. Except as set forth in Section 3.3 or Section 3.11 of
the Parent Disclosure Schedule as of the date hereof, there are no
obligations, contingent or otherwise, of Parent or any of its subsidiaries to
repurchase, redeem or otherwise acquire any shares of Parent 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 or otherwise) in any
such subsidiary. Except as set forth in Section 3.1 or 3.3 of the Parent
Disclosure Schedule, all of the outstanding shares of capital stock of each of
Parent's subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and all such shares are owned by Parent or another subsidiary of
Parent free and clear of all security interests, liens, claims, pledges,
agreements, limitations in Parent's voting rights, charges or other
encumbrances of any nature whatsoever.
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 to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Parent and Merger Sub and the consummation by Parent and Merger Sub of the
transactions contemplated hereby 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 to consummate the transactions contemplated
thereby. This Agreement has been duly and validly executed and delivered by
Parent and Merger Sub and, assuming the due authorization, execution and
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 disclosed in Section 3.5(a) of the Parent Disclosure Schedule
(i) neither Parent nor any of its subsidiaries has breached, or is in default
under or has received written notice of any breach of or default under, any
loan agreements, 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 Parent or any of its subsidiaries is a party or by which any of them is
bound, each in an amount equal to or exceeding $1,000,000, but excluding any
such agreement between Parent and its wholly-owned subsidiaries or between two
or more wholly-owned subsidiaries of Parent or any agreements which, as of the
date hereof, are required to be filed with the SEC pursuant to the
requirements of the Exchange Act as "material contracts" (collectively, the
"MATERIAL AGREEMENTS"), (ii) neither the Parent nor any of its subsidiaries
has breached or is in default under or has received written notice of any
breach of or default under, any of its obligations under the Material
Agreements, and (iii) each of the Material Agreements is in full force and
effect, except in any such case under clause (i), (ii) or (iii) of this
Section 3.5(a) for breaches, defaults or failures to be in full force and
effect that would not reasonably be expected to have a Material Adverse
Effect.
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(b) Except as set forth in Section 3.5(b) 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 Certificate of Incorporation or By-Laws of Parent
or Merger Sub, (ii) conflict with or violate any Law 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 would
not reasonably be expected to have a Material Adverse Effect.
(c) 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, the pre-merger notification
requirements of the HSR Act or any foreign antitrust or similar filings, and
the filing and recordation of appropriate merger or other documents as
required by the DGCL, 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 Compliance; Permits.
(a) Except as disclosed in Section 3.6 of the Parent Disclosure Schedule,
neither Parent nor any of its subsidiaries is in conflict with, or in default
or violation of, (i) any Law applicable to Parent 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 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 is bound or affected, except for any
such conflicts, defaults or violations which would not reasonably be expected
to have a Material Adverse Effect.
(b) Except as disclosed in Section 3.6 of the Parent Disclosure Schedule,
Parent 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 Parent
and its subsidiaries taken as a whole as it is now being conducted
(collectively, the "PARENT PERMITS"). Parent and its subsidiaries are in
compliance with the terms of the Parent Permits, except where the failure to
so comply would not reasonably be expected to have a Material Adverse Effect.
SECTION 3.7 SEC Filings; Financial Statements.
(a) Parent has filed all forms, reports and documents required to be filed
with the SEC and has heretofore delivered to the Company, in the form filed
with the SEC, (i) its Annual Reports on Form 10-K for the fiscal years ended
February 28, 1998 and February 28, 1997, (ii) reports on Form 10-Q for the
quarterly periods ended November 30, 1997, August 31, 1997 and May 31, 1997,
(iii) all proxy statements relating to Parent's meetings of stockholders
(whether annual or special) since January 1, 1997, (iv) all other reports or
registration statements filed by Parent with SEC since January 1, 1997, and
(v) 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
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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 3.8 Absence of Certain Changes or Events. Except as set forth in
Section 3.8 of the Parent Disclosure Schedule or in the Parent SEC Reports,
since November 30, 1997, Parent has conducted its business in the ordinary
course and there has not occurred: (i) any Material Adverse Effect; (ii) any
amendments or changes in the Certificate of Incorporation or By-Laws of
Parent; (iii) any damage to, destruction or loss of any assets of the Parent
(whether or not covered by insurance) that would reasonably be expected to
have a Material Adverse Effect; (iv) any material change by Parent in its
accounting methods, principles or practices; (v) any material revaluation by
Parent 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; (vi) any other action or event that would
have required the consent of the Company pursuant to Section 4.3 had such
action or event occurred after the date of this Agreement; or (vii) any sale
of a material amount of assets of Parent or any of its subsidiaries except in
the ordinary course of business.
SECTION 3.9 No Undisclosed Liabilities. Except as is disclosed in Section
3.9 of the Parent Disclosure Schedule or in the Parent SEC Reports, neither
Parent nor any of its subsidiaries has any liabilities (absolute, accrued,
contingent or otherwise), except liabilities (i) adequately provided for in
Parent's balance sheet (including any related notes thereto) as of February
28, 1997 included in the Parent's 1997 Annual Report on Form 10-K (the "PARENT
BALANCE SHEET"), (ii) incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected on the
Parent Balance Sheet, (iii) incurred since February 28, 1997 in the ordinary
course of business and consistent with past practice, (iv) incurred in
connection with this Agreement, or (v) which would not reasonably be expected
to have a Material Adverse Effect.
SECTION 3.10 Absence of Litigation. Except as set forth in Section 3.10 of
the Parent Disclosure Schedule, there are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the Parent,
threatened against the Parent or any of its subsidiaries, or any properties or
rights of the Parent or any of its subsidiaries, before any court, arbitrator
or administrative, governmental or regulatory authority or body, domestic or
foreign, that would reasonably be expected to have a Material Adverse Effect.
SECTION 3.11 Employee Benefit Plans; Employment Agreements. Except as set
forth in Section 3.11 of the Parent Disclosure Schedule, none of the employee
pension plans (as defined in Section 3(2) of ERISA), employee welfare plans,
(as defined in Section 3(1) of ERISA) and other bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance
and other similar fringe or employee benefit plans, programs or arrangements,
or any employment, executive compensation or severance agreements, written or
otherwise, for the benefit of, or relating to, any employee of or consultant
to Parent, any trade or business (whether or not incorporated) which is a
member of a controlled group including Parent or which is under common control
with Parent (a "PARENT ERISA AFFILIATE") within the meaning of Section 414 of
the Code, or any subsidiary of Parent, as well as each plan with respect to
which Parent or a Parent ERISA Affiliate could incur liability under Section
4069 (if such plan has been or were terminated) or Section 4212(c) of ERISA
(all such plans, practices, and programs are referred to herein as the "PARENT
EMPLOYEE PLANS") promises or provides retiree welfare benefits to any person,
and none of the Parent Employee Plans is a "multiemployer plan" as such term
is defined in Section 3(37) 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 Parent Employee
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Plan, which could result in any material liability of Parent or any of its
subsidiaries; (iii) all Parent Employee Plans are in compliance in all
material respects with the requirements prescribed by any and all statutes
(including ERISA and the Code), orders, or governmental rules and regulations
currently in effect with respect thereto (including all applicable
requirements for notification to participants or the Department of Labor, IRS,
PBGC or Secretary of the Treasury), and Parent 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 Parent Employee Plans; (iv) each Parent 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; (v) all contributions required to be made to any
Parent Employee Plan pursuant to Section 412 of the Code, or the terms of the
Parent Employee Plan or any collective bargaining agreement, have been made on
or before their due dates; (vi) with respect to each Parent Employee Plan, no
"reportable event" within the meaning of Section 4043 of ERISA (excluding any
such event for which the 30 day notice requirement has been waived under the
regulations to Section 4043 of ERISA) nor any event described in Section 4062,
4063 or 4041 of ERISA has occurred; and (vii) neither Parent nor any Parent
ERISA Affiliate has incurred, nor reasonably expects to incur, any liability
under Title IV of ERISA (other than liability for premium payments to the PBGC
arising in the ordinary course).
SECTION 3.12 Labor Matters. Except as set forth in Section 3.12 of the
Parent Disclosure Schedule: (i) there are no controversies pending or, to the
knowledge of Parent or any of its subsidiaries, threatened, between Parent or
any of its subsidiaries and any of their respective employees, which
controversies have or could reasonably be expected to have a Material Adverse
Effect; (ii) neither Parent nor any of its subsidiaries is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by Parent or its subsidiaries, nor does Parent or any of its
subsidiaries know of any activities or proceedings of any labor union to
organize any such employees; and (iii) neither Parent 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 Parent or
any of its subsidiaries which would reasonably be expected to have a Material
Adverse Effect.
SECTION 3.13 Registration Statement; Joint 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, in light of the circumstances under which they were made, not
misleading. The information supplied by Parent for inclusion in the Joint
Proxy Statement/Prospectus will not, on the date the Joint Proxy
Statement/Prospectus is first mailed to stockholders of the Company, at the
time of the Stockholders 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; or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the Stockholders Meeting which has become 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, under the
applicable requirements of the Securities Act or the Exchange Act be set forth
in an amendment to the Registration Statement or a supplement to the Joint
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 Joint 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 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 Statement.
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SECTION 3.14 Restrictions on Business Activities. Except for this Agreement
or as set forth in Section 3.14 of the Parent Disclosure Schedule, to Parent's
knowledge, there is no agreement, judgment, injunction, order or decree
binding upon Parent or any of its subsidiaries which has or would reasonably
be expected to have the effect of prohibiting or materially impairing any
business practice of Parent or any of its subsidiaries, any acquisition of
property by Parent or any of its subsidiaries or the conduct of business by
Parent or any of its subsidiaries as currently conducted or as proposed to be
conducted by Parent, except for any prohibition or impairment as would not
reasonably be expected to have a Material Adverse Effect.
SECTION 3.15 Title to Property. Except as disclosed in Section 3.15 of the
Parent Disclosure Schedule, Parent 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 Parent's knowledge, all leases pursuant to
which Parent 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
Parent, 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 would not reasonably be expected to have a Material Adverse Effect.
SECTION 3.16 Intellectual Property. Except as disclosed in Section 3.16 of
the Parent Disclosure Schedule, the Parent and its subsidiaries own, are
licensed to use or otherwise possess, or can acquire on reasonable terms,
legally enforceable rights to use the patents, patent rights, inventions,
licenses, copyrights, know-how (including trade secrets and other
unpatented/unpatentable proprietary or confidential information, systems or
procedures), trademarks, servicemarks and tradenames presently employed by
them in connection with the business of the Parent as presently conducted, and
neither the Parent nor any of its subsidiaries has knowledge of any
infringement of or conflict with asserted rights of others with respect to any
of the foregoing, which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Material Adverse Effect.
SECTION 3.17 Interested Party Transactions. Except as set forth in the
Parent SEC Reports or Section 3.17 of the Parent Disclosure Schedule, since
the date of Parent's proxy statement dated June 5, 1998 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.
SECTION 3.18 Insurance. All material fire and casualty, general liability,
business interruption, product liability, professional liability and sprinkler
and water damage insurance policies maintained by Parent or any of its
subsidiaries are with reputable insurance carriers, provide full and adequate
coverage for all normal risks incident to the business of Parent and its
subsidiaries and their respective properties and assets and are in character
and amount at least equivalent to that carried by entities engaged in similar
businesses and subject to the same or similar perils or hazards, except as
would not reasonably be expected to have a Material Adverse Effect.
SECTION 3.19 Brokers. No broker, finder or investment banker (other than
Chase Securities, Inc., the fees and expenses of which will be paid by Parent)
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 Parent or Merger Sub.
SECTION 3.20 Ownership of Merger Sub; No Prior Activities.
(a) Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement.
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(b) 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.
SECTION 3.21 Full Disclosure. No representation or warranty made by Parent
contained in this Agreement and no statement contained in any certificate or
schedule furnished or to be furnished by Parent to the Company in, or pursuant
to the provisions of, this Agreement, including without limitation the Parent
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 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 only in, and 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 as
contemplated by this Agreement; and the Company shall use all reasonable
commercial efforts to preserve substantially intact the business organization
of the Company, to keep available the services of the present officers,
employees and consultants of the Company and to preserve the present
relationships of the Company with customers, suppliers and other persons with
which the Company has significant business relations. By way of amplification
and not limitation, except as contemplated by this Agreement, the Company
shall not, 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 Certificate of Incorporation or By-Laws of
the Company as amended and restated to date;
(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
or any of its affiliates (except for the issuance of shares of Company Common
Stock issuable pursuant to Stock Options which are outstanding on the date
hereof, the Unit Purchase Options, the SR Warrants and the SVB Warrants).
(c) sell, pledge, dispose of or encumber any assets of the Company (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 $150,000 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, (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, or
(iii) amend the terms or change the period of exercisability of, purchase,
repurchase, redeem or otherwise acquire any of its securities, 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;
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(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof (including the creation of any subsidiary); (ii) incur any
indebtedness for borrowed money 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 excluding any original equipment
manufacturing agreement that (x) allows the Company to limit shipments to
Products having a price of less than $500,000 per year and (y) is terminable
for convenience by the Company on no more than ninety days notice; (iv)
authorize any capital expenditures or purchase of fixed assets which are, in
the aggregate, in excess of $250,000 per month for the Company 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 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;
(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 contained in the Company SEC Reports filed prior
to the date of this Agreement or incurred in the ordinary course of business
and consistent with past practice;
(j) have operating expenses in excess of $600,000 from the date of the
execution of this Agreement through June 30, 1998, $1,200,000 per month
thereafter, subject to an aggregate maximum of $6,600,000 between the date of
the execution of this Agreement and the Effective Time, excluding (i) costs
related to the transactions contemplated by this Agreement, (ii) incentive and
bonus compensation as previously disclosed to Parent, (iii) depreciation, (iv)
amortization, and (v) bad debt reserves, provided that Parent acknowledges
that valid business reasons may exist for doing so and agrees that its consent
will not be unreasonably withheld; or
(k) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1 (a) through (j) 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, (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 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. Nothing
contained in this Section 4.2(a) shall prevent the Board of Directors of the
Company from considering, negotiating, approving and recommending to the
stockholders of the Company a bona fide Acquisition Proposal not solicited in
violation of this Agreement,
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provided the Board of Directors of the Company determines in good faith
(consistent with the advice of the Company's outside legal counsel) that it is
required to do so in order to discharge properly its fiduciary duties under
applicable law.
(b) The Company shall promptly notify Parent as soon as practicable, and in
no event later than 48 hours, 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 in connection with an
Acquisition Proposal or for access to the properties, books or records of the
Company by any person or entity that informs the Board of Directors of the
Company that it is considering making, or has made, an Acquisition Proposal.
Such notice to Parent shall be made orally and in writing, and shall indicate
whether the Company is providing or intends to provide the person making the
Acquisition Proposal with access to information concerning the Company as
provided in Section 4.2(c).
(c) If the Board of Directors of the Company receives a request for material
nonpublic information from a person who makes a bona fide Acquisition
Proposal, and the Board of Directors determines in good faith and consistent
with the advice of the Company's outside legal counsel that it is required to
cause the Company to act as provided in this Section 4.2(c) in order to
discharge properly the directors' fiduciary duties under applicable law, then,
provided the person making the Acquisition Proposal has executed a
confidentiality agreement substantially similar to the one then in effect
between the Company and Parent, the Company may provide such person with
access to information regarding the Company.
(d) 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.
(e) The Company shall ensure that the officers, directors and employees of
the Company and any investment banker or other advisor or representative
retained by the Company are aware of the restrictions described in this
Section 4.2.
(f) Nothing contained in this Section 4.2 shall prohibit the Company or its
Board of Directors from (i) taking and disclosing to its stockholders a
position with respect to a tender offer by a third party pursuant to Rule 14d-
9 and Rule 14e-2 promulgated under the Exchange Act, or (ii) making such
disclosure to the Company's stockholders which, in the opinion of the
Company's Board of Directors, after consultation with the Company's outside
legal counsel, is required under applicable law.
SECTION 4.3 Conduct of Business by Parent Pending the Merger. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, Parent covenants and
agrees that, unless the Company shall otherwise agree in writing, Parent shall
conduct its business, and cause the businesses of its subsidiaries to be
conducted, in the ordinary course, other than actions taken by Parent or its
subsidiaries in contemplation of the Merger, and shall not directly or
indirectly do, or propose to do, any of the following without the prior
written consent of the Company:
(a) amend or otherwise change Parent's Certificate of Incorporation or By-
Laws;
(b) 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 Parent may
declare and pay a dividend to its parent; or
(c) take or agree in writing or otherwise to take any action which would
make any of the representations or warranties of Parent contained in this
Agreement untrue or incorrect or prevent Parent from performing or cause
Parent not to perform its covenants hereunder.
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ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 HSR Act. As promptly as practicable after the date of the
execution of this Agreement, the Company and Parent shall file notifications
under and in accordance with the HSR Act and any applicable antitrust or
similar acts in connection with the Merger and the transactions contemplated
hereby and to respond as promptly as practicable to any inquiries received
from the Federal Trade Commission (the "FTC"), the Antitrust Division of the
Department of Justice (the "ANTITRUST DIVISION"), and any applicable foreign
agencies or authorities for additional information or documentation and to
respond as promptly as practicable to all inquiries and requests received from
any State Attorney General or other governmental authority in connection with
antitrust matters.
SECTION 5.2 Joint Proxy Statement/Prospectus; Registration Statement. As
promptly as practicable after the execution of this Agreement, the Company and
Parent shall prepare and file with the SEC preliminary proxy materials (which
shall be refiled in final form as the Joint 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 Joint Proxy Statement/Prospectus to Company
shareholders, as soon thereafter as practicable. The Joint Proxy
Statement/Prospectus shall include the recommendation of the Boards of
Directors of the Company and Parent in favor of the Merger, subject to the
last sentence of Section 5.3.
SECTION 5.3 Stockholders Meeting. The Company shall call and hold the
Stockholders Meeting as promptly as practicable and in accordance with
applicable laws for the purpose of voting upon the approval of the Merger and
as soon as practicable after the date on which the Registration Statement
becomes effective. Unless otherwise required under the applicable fiduciary
duties of the directors of the Company, as determined by such directors in
good faith after consultation with and consistent with the advice of the
Company's outside legal counsel, the Company shall use all reasonable efforts
to solicit from its stockholders proxies in favor of adoption of this
Agreement and approval of the transactions contemplated hereby and shall take
all other action reasonably 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 Parent
shall cause its 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 respective confidentiality
letters, each dated December 18, 1998 (the "CONFIDENTIALITY LETTERS") between
Parent and the Company, and the supplemental letter agreement between Parent
and Company dated March 23, 1998.
SECTION 5.5 Consents; Approvals. The Company and Parent shall each use their
reasonable commercial 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
Joint Proxy Statement/Prospectus and the Registration Statement, or for any
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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. The Company shall deliver
to Parent, prior to the date the Registration Statement becomes effective
under the Securities Act, a letter (the "Affiliate Letter") identifying all
persons who are 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 use its best efforts to cause each person who is identified
as an "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 Indemnification and Insurance.
(a) The By-Laws of the Surviving Corporation shall honor, and Parent shall
cause the Surviving Corporation to honor, the provisions with respect to
indemnification set forth in the By-Laws of the Company immediately prior to
the Effective Time, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who at
the Effective Time were directors, officers, employees or agents of the
Company, unless such modification is required by law.
(b) Without limiting the scope of Section 5.7(a), the Company shall, to the
fullest extent permitted under applicable law or under the Company's
Certificate of Incorporation or By-Laws or any applicable indemnification
agreement and regardless of whether the Merger becomes effective, indemnify,
defend and hold harmless, and, after the Effective Time, Parent shall and
shall cause the Surviving Corporation to, to the fullest extent permitted
under applicable law or under the Surviving Corporation's Certificate of
Incorporation or By-Laws or any applicable indemnification agreement,
indemnify, defend and hold harmless, each present and former director, officer
or employee of the Company (collectively, the "INDEMNIFIED PARTIES") against
any costs or expenses (including attorneys' fees), judgments, fines, losses,
claims, damages, liabilities and amounts paid in settlement in connection with
any claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, (x) arising out of or pertaining to the
transactions contemplated by this Agreement or (y) otherwise with respect to
any acts or omissions occurring at or prior to the Effective Time; provided,
however, that in connection with criminal acts the indemnification provided by
this Section 5.7 shall only apply provided the Indemnified Party had no
reasonable cause to believe that his/her conduct was criminal.
(c) Parent shall and shall cause the Surviving Corporation to honor and
fulfill in all respects the obligations of the Company pursuant to
indemnification agreements with the Company's directors and officers existing
at or before the Effective Time.
(d) For a period of six years after the Effective Time, Parent shall or
shall cause the Surviving Corporation to maintain in effect, if available,
directors' and officers' liability insurance covering those persons who are
currently covered by the Company's directors' and officers' liability
insurance policy (a copy of which has been made available to Parent) on terms
comparable to those now applicable to directors and officers of the Company;
provided, however, that in no event shall Parent or the Surviving Corporation
be required to expend in excess of 125% of the annual premium currently paid
by the Company for such coverage; and provided further, that if the premium
for such coverage exceeds such amount, Parent or the Surviving Corporation
shall purchase a policy with the greatest coverage available for such 125% of
the annual premium.
(e) This Section shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, the Surviving Corporation
and the Indemnified Parties, shall be binding on all successors and assigns of
Parent and the Surviving Corporation and shall be enforceable by the
Indemnified Parties.
SECTION 5.8 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,
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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(b) or 6.3(b) unless the failure to give such notice results in
material prejudice to the other party.
SECTION 5.9 Further Action. 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.
SECTION 5.10 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 a party may, without the prior
consent of the other party, 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 or the Nasdaq Stock Market
National Market ("NASDAQ"), in which case it shall use all reasonable efforts
to consult with the other party prior thereto.
SECTION 5.11 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 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 5.12 Accountants' Letters. Upon reasonable notice from the other
party hereto, the Company or Parent, as the case may be, shall use its
reasonable efforts to cause KPMG Peat Marwick L.L.P., as its accounting firm,
to deliver to the other party hereto, a letter, dated within 2 business days
of the Effective Date of the Registration Statement 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 5.13 Rights Agreement. The Company shall take all action necessary
to cause the Rights issued pursuant to the terms of the Rights Agreement to
expire immediately prior to the Effective Time.
SECTION 5.14 NASDAQ Listing. The Company shall use its reasonable commercial
efforts to continue the quotation of the Company Common Stock on the Nasdaq
National Market during the term of this Agreement.
SECTION 5.15 Listing of Parent Shares. Parent shall use its best efforts to
cause the Parent Shares to be issued in the Merger to be approved for listing,
upon official notice of issuance, on the New York Stock Exchange.
SECTION 5.16 Benefit Plans. The eligibility of the each employee of the
Company (and his or her spouse and dependents) to participate in the welfare
plans (as defined in ERISA section 3(1)) of Parent or the Surviving
Corporation after the Effective Time shall be determined without regard to any
preexisting condition, waiting period, actively-at-work, or similar exclusion
or condition except for any such condition or exclusion to which the employee
is subject under the applicable welfare plan of the Company as of the
Effective Time. Employees of the Company shall receive credit under the
welfare plans of the Parent or the Surviving Corporation in which they
participate after the Effective Time toward coinsurance and deductibles for
any payments made by them during the calendar year in which the Effective Time
occurs under the applicable
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welfare plans of the Company. In addition, employees of the Surviving
Corporation shall receive credit, for purposes of its retirement, welfare,
vacation and similar plans or policies, for service with the Company prior to
the Effective Time.
SECTION 5.17 Company Securities. The Company shall use its reasonable
commercial efforts to (i) consistent with applicable fiduciary duties of the
directors of the Company, (1) persuade the holders of the SR Warrants to
exercise such securities prior to the Effective Time or exchange such
securities in the Merger for the applicable Merger Consideration and (2)
persuade the holders of Class E Common Stock to vote in favor of the Merger
and exchange their shares of Class E Common Stock in the Merger for the
applicable Merger Consideration; and (ii) cause all existing registration
rights of holders of Company securities to have been canceled effective upon
the consummation of the Merger or persuade the holders of registration rights
to exchange the securities to which such registration rights apply in the
Merger for the applicable Merger Consideration.
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 the Registration Statement. The Registration Statement
shall have been declared effective by the SEC under the Securities Act. No
stop order suspending the effectiveness of the Registration Statement shall
have been issued by the SEC and no proceedings for that purpose and no similar
proceeding in respect of the Joint Proxy Statement/Prospectus shall have been
initiated or threatened by the SEC;
(b) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the stockholders of the Company;
(c) HSR Act. The waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated;
(d) 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, regulation or order enacted, entered, enforced or deemed applicable to
the Merger, which makes the consummation of the Merger illegal; and
(e) Governmental Actions. There shall not have been instituted, pending or
threatened any action or proceeding (or any investigation or other inquiry
that could 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.
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(f) Listing of Parent Shares. The Parent Shares to be issued in the Merger
shall have been approved for listing, upon official notice of issuance, on the
New York Stock Exchange.
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 as if made at and as of such time,
except for (i) changes contemplated by this Agreement, (ii) those
representations and warranties which address matters only as of a particular
date (which shall have been true and correct as of such date, subject to
clause (iii)), and (iii) where the failure to be true and correct would not
reasonably be expected to have a Material Adverse Effect, with the same force
and effect as if made at and as of the Effective Time, and Parent and Merger
Sub shall have received a certificate to such effect signed by the President
and the Chief Financial Officer of the Company;
(b) Agreements and Covenants. The Company 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 it at or prior to the Effective
Time, and Parent and Merger Sub shall have received a certificate to such
effect signed 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, except where the failure to receive
such consents, etc. would not reasonably be expected to (i) have a Material
Adverse Effect on the Company or Parent, or (ii) materially delay or prevent
the consummation of the Merger;
(d) Tax Opinion. Parent shall have received a written opinion from 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;
(e) Affiliate Agreements. Parent shall have received from each person who is
identified in the Affiliate Letter as an "affiliate" of the Company, an
Affiliate Agreement, and such Affiliate Agreement shall be in full force and
effect;
(f) Blue Sky Laws. Parent shall have received all permits and other
authorizations necessary under the Blue Sky Laws to issue shares of Parent
Common Stock pursuant to the Merger;
(g) Employment Condition. The employees listed on Exhibit 6.2(g)(1) have
been designated as "KEY EMPLOYEES". A portion of the Key Employees have been
classified as "TIER 1 EMPLOYEES" and a portion have been classified as "TIER 2
EMPLOYEES". A minimum of two-thirds of each of the Tier 1 Employees and the
Tier 2 Employees (rounding down in the case of any fraction) shall (i) be in
the employ of the Company immediately prior to the Effective Time, (ii) have
agreed to work for Parent immediately following the Effective Time upon
mutually agreeable terms and conditions (and have not indicated any intention
not to continue such employment) and (iii) have entered into Parent's non-
disclosure/ confidentiality/ assignment of inventions agreement substantially
in the form of Exhibit 6.2(g)(2).
(h) Rights Agreement. The Rights issued pursuant to the terms of the Rights
Agreement shall be inapplicable to the Merger, this Agreement and the other
transactions contemplated hereby.
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, except for (i) changes
contemplated by this Agreement, (ii) those representations and warranties
which address matters only as of a particular date (which shall have been true
and correct as of such date, subject to clause (iii)), and (iii) where the
failure to be true and correct would not reasonably be expected to have a
Material Adverse Effect, with the same force and effect as if made on and as
of the Effective Time, and the Company shall have received a certificate to
such effect signed by the President and 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 Time, 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, except where the failure to receive such consents, etc. would not
reasonably be expected to have (i) a Material Adverse Effect on the Company or
Parent or (ii) materially delay or prevent the consummation of the Merger;
(d) Tax Opinion. The Company shall have received a written opinion of Heller
Ehrman White & McAuliffe, 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;
(e) Fairness Opinion. The fairness opinion referred to in Section 2.23 shall
not have been withdrawn, amended or modified, provided that this shall not be
a condition to the obligations of the Company if the Company shall have
induced such withdrawal, amendment or modification.
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 or Parent:
(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 October 15, 1998 (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 5.9 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 Merger shall have been submitted to a
vote of the stockholders of the Company and the requisite vote of the
stockholders approving the Merger shall not have been obtained; 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 or the
Merger 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
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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 or the Company, (i) if any representation or warranty of the
Company or Parent, respectively, 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 or Parent, respectively, set forth in this Agreement, such that
the conditions set forth in Section 6.2(a) or 6.2(b), or Section 6.3(a) or
6.3(b), 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 October 15, 1998 by the Company or Parent, as the case may
be, through the exercise of its reasonable best efforts and for so long as the
Company or Parent, as the case may be, continues to exercise such reasonable
best efforts, neither Parent nor the Company, respectively, may terminate this
Agreement under this Section 7.1(f); or
(g) 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
(h) by Parent, if any person (or "group", as defined in Section 13(d)(3) of
the Exchange Act) other than Parent or its affiliates is or becomes the
beneficial owner of 25% or more of the outstanding Shares; or
(i) by the Company, if, in response to a Superior Proposal (as defined
below), the Company's Board of Directors determines in good faith (consistent
with the advice of the Company's outside legal counsel) that (i) it must
withdraw, amend or modify in a manner adverse to Parent its recommendation to
the Company's stockholders for approval of this Agreement and (ii) failing to
take such action would cause it to fail to discharge properly its fiduciary
duties under applicable law; provided, however, that the Company may not
terminate pursuant to this Section 7.1(i) unless and until: (i) four calendar
days have elapsed following delivery to Parent of a written notice of such
determination by the Company's Board of Directors and during such four-day
period the Company (x) informs Parent of the terms and conditions of the
Superior Proposal and the identity of the person making the Superior Proposal
and (y) otherwise fully cooperates with Parent (subject, in the case of this
clause (y), to the condition that the Company's Board of Directors shall not
be required to take any action that it believes, after consultation with and
consistent with the Company's outside legal counsel, would violate its
fiduciary duties to the Company or the Company's stockholders under applicable
law) with the intent of enabling Parent to agree to a modification of the
terms and conditions of this Agreement so that the transactions contemplated
hereby may be effected; (ii) at the end of such four-day period the Company's
Board of Directors determines in good faith that such Superior Proposal
continues to constitute a Superior Proposal, having regard to any proposal
made by Parent within the preceding four days; (iii) simultaneously with such
termination the Company pays to Parent the amount specified in Section 7.3(b);
and (iv) simultaneously with such termination the Company enters into a
definitive acquisition, merger or similar agreement to the effect the Superior
Proposal.
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 of the
Company 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, taken as a whole, immediately prior to such
transaction.
As used herein, "SUPERIOR PROPOSAL" means a written and unsolicited
Acquisition Proposal that (i) the Company's Board of Directors determines in
good faith (A) is reasonably capable of being completed and (B) is
economically more favorable to the Company's stockholders than the Merger,
having received prior to such
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determination the advice of a financial advisor of nationally recognized
reputation that such Acquisition Proposal would be economically more favorable
to the Company's stockholders than the Merger in that it results in greater
aggregate per share consideration than would the Merger, and (ii) that is not
subject to financing.
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) as set forth in
Section 7.3 and Section 8.1 hereof, and (ii) nothing herein shall relieve any
party from liability for any breach hereof; provided, however, that if Parent
is paid the Fee (as defined below) the amount of the Fee shall be deducted
from any money damages otherwise received by Parent from the Company.
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 Parent and the Company shall share
equally all fees and expenses, other than accountants' and attorneys' fees,
incurred in connection with the printing and filing of the Joint Proxy
Statement/Prospectus (including any preliminary materials related thereto) and
the Registration Statement (including financial statements and exhibits) and
any amendments or supplements thereto.
(b) The Company shall pay Parent a fee of $3,800,000 (the "FEE") 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) and the execution by the Company of an agreement with
respect to an Alternative Transaction within four months after such
termination; or
(ii) the termination of this Agreement by Parent pursuant to Section
7.1(e); or
(iii) the termination of this Agreement by Parent pursuant to Section
7.1(f) on account of a Terminating Breach by the Company and the execution
by the Company of an agreement with respect to an Alternative Transaction
within four months after such termination; or
(iv) the termination of this Agreement by Parent pursuant to Section
7.1(h);or
(v) the termination of this Agreement by the Company pursuant to
Section 7.1(i).
(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 described in Section 7.3(b)(i), (ii), (iii) or (iv).
ARTICLE 8
GENERAL PROVISIONS
SECTION 8.1 Effectiveness of Representations, Warranties and Agreements;
Knowledge, Etc.
(a) Except as otherwise provided in this Section 8.1, the representations,
warranties and agreements of each party hereto 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. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this
Agreement pursuant to Section 7.1, as the case may be, except that the
agreements set forth in this Section 8.1 shall survive independently and
Article I and Sections 5.7, 5.16 and 8.9 shall survive the Effective Time
indefinitely and those set forth in Section 7.3 shall survive such termination
indefinitely. The Confidentiality Letters shall survive termination of this
Agreement as provided therein.
(b) Any disclosure made with reference to one or more sections of the
Company Disclosure Schedule or the Parent Disclosure Schedule shall be deemed
disclosed only with respect to such section.
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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 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.
One Cabletron Way
Rochester, NH 03867
Telecopier No.: (603) 332-4004
Telephone No.: (603) 337-4270
Attention: David J. Kirkpatrick
With a copy to:
Douglass N. Ellis, Jr., Esq.
Ropes & Gray
One International Place
Boston, MA 02110
Telecopier No.: (617) 951-7050
Telephone No.: (617) 951-7374
(4)If to the Company:
NetVantage, Inc.
201 Continental Boulevard, Suite 20
El Segundo, CA 90245-4527
Telecopier No.: (310) 726-4131
Telephone No.: (310) 726-4130
Attention: President
With a copy to:
Victor A. Hebert, Esq.
Heller Ehrman White & McAuliffe
601 South Figueroa Street
40th Floor
Los Angeles, CA 90017-5758
Telecopier No.: (213) 614-1868
Telephone No.: (213) 689-0200
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
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(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
(other than a revocable proxy or consent), 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 day on which banks in The
Commonwealth of Massachusetts or the State of California are required or
authorized to be closed;
(c) "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 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 Letters), both written and oral, among the parties, or any of
them, with respect to the subject matter hereof.
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SECTION 8.9 Assignment; Guarantee of Merger Sub Obligations. This Agreement
shall not be assigned by operation of law or otherwise. Parent guarantees the
full and punctual performance by Merger Sub and Surviving Corporation of (i)
all the obligations hereunder of Merger Sub and Surviving Corporation or any
such assignees, and (ii) after the Effective Time, all the contractual
obligations of the Company previously disclosed to Parent at or prior to the
Effective Time to its current and former directors, officers and employees.
This Section shall survive the consummation of the Merger at the Effective
Time, is intended to benefit the Company and such directors, officers and
employees, shall be binding upon all successors and assigns of Parent and the
Surviving Corporation and shall be enforceable by such directors, officers and
employees.
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
subrogation, other than Section 5.7 (which is intended to be for the benefit
of the Indemnified Parties and may be enforced by any of such Indemnified
Parties, and Section 8.9 (which is intended to be for the benefit of the
Company's current and former directors, officers and employees).
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 Delaware
applicable to contracts executed and fully performed within the State of
Delaware.
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.]
A-35
<PAGE>
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.
/s/ David J. Kirkpatrick
By: _________________________________
Name: David J. Kirkpatrick
Title: Corporate Executive Vice
President and Chief Financial
Officer
TEMPEST ACQUISITION, INC.
/s/ David J. Kirkpatrick
By: _________________________________
Name: David J. Kirkpatrick
Title: Vice President
NETVANTAGE, INC.
/s/ Stephen R. Rizzone
By: _________________________________
Name: Stephen R. Rizzone
Title: President and CEO
A-36
<PAGE>
ANNEX B
[LETTERHEAD OF BANCAMERICA ROBERTSON STEPHENS]
June 22, 1998
PRIVATE AND CONFIDENTIAL
Board of Directors
NetVantage, Inc.
201 Continental Boulevard, Suite 201
El Segundo, CA 90245
Members of the Board:
You have asked our opinion with respect to the fairness to the Holders of
Class A Common Stock, Class B Common Stock and Class E Common Stock, as well
as to the Holders of the Target Common Stock, taken as whole (in each case, as
such terms are defined below), from a financial point of view and as of the
date hereof, of the proposed Exchange Ratio (the "Exchange Ratio") to be
received by the Holders of Target Common Stock in connection with the
Agreement and Plan of Merger (the "Agreement"), by and among Cabletron Systems
Inc. ("Acquiror"), Tempest Acquisition, Inc., a wholly-owned subsidiary of
Acquiror ("Merger Sub"), and NetVantage, Inc. ("Target"), dated as of June 22,
1998.
As more fully described in the Agreement, pursuant to the terms and subject
to the conditions set forth therein, (i) Merger Sub will be merged with and
into Target (the "Merger") and (ii) each outstanding share of Class A common
stock, par value $0.001 per share, of Target (together with the rights
attached thereto, the "Class A Common Stock"), each outstanding share of Class
B common stock, par value $0.001 per share, of Target (the "Class B Common
Stock") and each ten shares of Class E common stock, par value $0.001 per
share, of Target (the Class E Common Stock", and together with Class A Common
Stock and the Class B Common Stock, the "Target Common Stock"), other than
shares held in treasury or by the Acquiror, Merger Sub or their respective
affiliates, will be converted into the right to receive 8/13 of a share of
common stock, par value $0.01 per share, of Acquiror (the "Acquiror Common
Stock"). The "Holders" of Class A Common Stock, Class B Common Stock and Class
E Common Stock and/or of the Target Common Stock, as applicable, includes all
holders of a class of common stock of the Target or of the Target Common Stock
except for Acquiror, Merger Sub and their respective affiliates. The Agreement
states that the parties thereto intend, and you have instructed us to assume,
that the Merger will (i) qualify as a tax-free reorganization and/or exchange,
pursuant to the Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder and (ii) be accounted for as a purchase transaction in
accordance with U.S. generally accepted accounting principles.
For purposes of this opinion, we have: (i) reviewed certain financial
information relating to Target furnished to us by the management of Target,
including financial and operating forecasts prepared by the management of
Target and other information and data which were provided to us or otherwise
discussed with us by the management of Target; (ii) reviewed certain publicly
available information regarding each of the Target and the Acquiror; (iii)
held discussions with the management of each of Target and Acquiror concerning
the business,
LOGO
<PAGE>
past and current business operations, financial condition and future prospects
of Target and Acquiror, respectively; (iv) reviewed the Agreement and certain
related documents; (v) reviewed the reported prices and trading activity for
Class A Common Stock and reviewed the valuations of publicly traded companies
which we deemed comparable to Target; (vi) compared the financial terms of the
Merger with the financial terms, to the extent publicly available, of other
transactions which we deemed relevant; (vii) prepared discounted cash flow
analyses of Target; (viii) examined the pro forma earnings impact of the
Merger; (ix) participated in discussions and negotiations among
representatives of Target and Acquiror; (x) compared the financial performance
of the Acquiror and the prices and trading activity of the Acquiror Common
Stock with that of other publicly traded companies which we deemed comparable
to Acquiror, and (xi) made such other studies and inquiries, and reviewed such
other data and information, as we deemed relevant.
In connection with our opinion, we have not independently verified any of
the foregoing information and have relied on all such information as provided
to us being complete and accurate in all material respects, whether such
information was furnished to us orally or otherwise discussed with us by
management of Target, including information relating to the Target's financial
condition and capital resources. We have relied upon the assurances of
management of Target that it is not aware of any facts that would make such
information inaccurate or misleading. Furthermore, we did not make or obtain,
or assume responsibility for obtaining or making, any independent appraisal of
the properties, assets or liabilities (contingent or otherwise) of Target.
With respect to the financial and operating forecasts (and the assumptions and
bases therefor) of Target that we have reviewed, we have assumed that such
forecasts have been reasonably prepared in good faith by the management of
Target on the basis of reasonable assumptions, and reflect the best currently
available estimates and judgments of the management of Target of the future
financial condition and performance of Target, and we have further assumed
that such projections and forecasts will be realized in the amounts and in the
time periods currently estimated by the management of Target. We have assumed
that the Merger will be consummated upon the terms set forth in the Agreement
without material alteration thereof. We have relied as to all legal matters
relevant to our rendering our opinion on the advice of counsel.
This opinion is necessarily based upon financial, market, economic, and
other conditions that exist and can be evaluated as of the date of this letter
and on the information noted above available to us as of the date hereof. It
should be understood that subsequent developments may affect this opinion and
that we disclaim any undertaking or obligation to advise any person of any
change in any fact or matter affecting this opinion which may come or be
brought to our attention after the date of this opinion.
BARS is acting as financial advisor to Target in connection with the Merger
and will receive a fee from Target for our services which is contingent upon
the consummation of the Merger. In addition, Target has agreed to indemnify us
for certain liabilities arising out of our engagement. BARS has provided
certain investment banking services to Target from time to time, including the
analysis in connection with the previous adoption of a shareholder rights
plan, and may continue to do so, and has received, and may receive, fees for
the rendering of such services. BARS has also provided certain investment
banking services to Acquiror from time to time, and may continue to do so, and
has received, and may receive, fees for the rendering of such services. In the
ordinary course of business, we may actively trade the securities of Acquiror
for our own account or for the accounts of customers and, accordingly, may at
any time hold a long or short position in such securities.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Target in its evaluation of the
proposed Merger, and this opinion is not intended to be and does not
constitute a recommendation to any stockholder of Target as to how such
stockholder should vote on the proposed Merger. This opinion addresses the
fairness, from a financial point of view, of the Exchange Ratio to the holders
of Class A Common Stock, Class B Common Stock and Class E Common Stock, in
each case, as a separate class of stock and, as well, to the Holders of Target
Common Stock as a whole; provided, however, this opinion neither addresses nor
considers the relative economic allocations of the Merger Consideration to and
between such distinct classes of stock. This opinion may not be published or
otherwise used or referred to, nor shall any public reference to BARS be made,
without our prior written consent; provided, however, that the inclusion of
this opinion letter in its entirety in the Registration Statement on Form S-4
(the "Registration
B-2
<PAGE>
Statement") to be filed with the Securities and Exchange Commission, in which
the Joint Proxy Statement/Prospectus to be distributed to the Holders of
Target Common Stock in connection with their consideration of the Merger will
be included, is hereby expressly authorized. This opinion may only be so
included in the Registration Statement in the event and to the extent that
this opinion is reproduced therein in its entirety and any description of, or
reference to, this opinion therein is in a form and substance acceptable to us
and our legal counsel.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair to the Holders of each of Class A
Common Stock, Class B Common Stock and Class E Common Stock, as well as to the
Holders of Target Common Stock, in each case, from a financial point of view.
Very truly yours,
BANCAMERICA ROBERTSON STEPHENS
/s/ BancAmerica Robertson
Stephens
_____________________________________
Authorized Signatory
B-3
<PAGE>
ANNEX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATE LAW
APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to (S) 228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the work "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264
of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to (S)(S)
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
C-2
<PAGE>
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated
C-3
<PAGE>
stock forthwith, and the case of holders of shares represented by certificates
upon the surrender to the corporation of the certificates representing such
stock. The Court's decree may be enforced as other decrees in the Court of
Chancery may be enforced, whether such surviving or resulting corporation be a
corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(1) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
C-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal or investigative (other than an
action by or in the right of the corporation) by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe such person's conduct
was unlawful. Section 145 further provides that a corporation similarly may
indemnify any such person serving in any such capacity who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor, against expenses actually and reasonably incurred in connection
with the defense or settlement of such action or suit if such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interest of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or such
other court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 102(b)(7) of the Delaware General Corporation Law, as amended,
permits a corporation to include in its certificate of incorporation a
provision eliminating or limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the Delaware General Corporation Law
(relating to unlawful payment of dividends and unlawful stock purchase and
redemption) or (iv) for any transaction from which the director derived an
improper personal benefit.
The Registrant's Restated Certificate of Incorporation provides that the
Registrant's Directors shall not be liable to the Registrant 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 Delaware General Corporation Law as in effect at the time such liability
is determined. The Restated Certificate of Incorporation further provides that
the Registrant shall indemnify its directors and officers to the full extent
permitted by the law of the State of Delaware.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following Exhibits are filed with, or incorporated by reference in,
this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger by and among the Registrant, Tempest
Acquisition, Inc. and NetVantage, Inc. (the "Company") dated as of
June 22, 1998 (the "Merger Agreement") (attached as Annex A to the
Proxy Statement/Prospectus contained in this Registrant Statement).
3.1 Restated Certificate of Incorporation of Cabletron Systems, Inc., a
Delaware corporation (Incorporated by Reference to Exhibit 3.1 of the
Registrant's Registration Statement on Form S-1, No. 33-28055).
3.2 Certificate of Correction of the Registrant's Restated Certificate of
Incorporation (Incorporated by Reference to Exhibit 3.1.2 of the
Registrant's Registration Statement on Form S-1, No. 33-42534).
3.3 Certificate of Amendment of the Restated Certificate of Incorporation
of Cabletron Systems, Inc. (Incorporated by Reference to Exhibit 4.3
of the Registrant's Registration Statement on Form S-3, No. 33-54466).
3.4 Amended Bylaws of Cabletron Systems, Inc. (Incorporated by Reference
to Exhibit 3.2 of the Registrant's Registration Statement on Form S-1,
No. 33-42534).
4.1 Specimen Stock Certificate of Cabletron Common Stock (Incorporated by
Reference to Exhibit 4.1 of Cabletron's Registration Statement on Form
S-1, No. 33-28055).
5.1 Opinion of Ropes & Gray.*
8.1 Opinion of Ropes & Gray as to certain federal income tax consequences
of the Merger.
8.2 Opinion of Heller Ehrman White & McAuliffe as to certain federal
income tax consequences of the Merger.
10.1 Reseller and Services Agreement dated as of November 24, 1997 between
the Registrant and Digital (the "Reseller Agreement") (Incorporated by
Reference to Exhibit 10.1 of the Registrant's Form 10-Q of January 14,
1998).
10.2 Employment Agreement between the Registrant and Donald B. Reed dated
as of August 6, 1997 (Incorporated by Reference to Exhibit 10.1 of the
Registrant's Form 10-Q of October 15, 1997).
10.3 Amendment No. One to Reseller Agreement dated as of February 7, 1998
by and between the Registrant and Digital (Incorporated by Reference
to Exhibit 10.2 of the Registrant's Form 8-K/A of March 4, 1998).
10.4 Letter Agreement between Registrant and Donald B. Reed dated as of
March 30, 1998 (Incorporated by Reference to Exhibit 10.18 of the
Registrant's Form 10-K of May 29, 1998).
10.5 Employment Agreement between the Company and John d'Auguste
(Incorporated by Reference to Exhibit 10.1 of the Registrant's Form
10-Q of July 15, 1998).
23.1 Consent of Ropes & Gray (Exhibits 5.1* and 8.1).
23.2 Consent of Heller Ehrman White & McAuliffe (Exhibit 8.2).
23.3 Consent of KPMG Peat Marwick LLP.*
23.4 Consent of KPMG Peat Marwick LLP.*
23.5 Consent of PricewaterhouseCoopers LLP.*
23.6 Consent of PricewaterhouseCoopers LLP.*
24 Power of Attorney*
99.1 Form of Proxy.
</TABLE>
- --------
* Previously filed.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes:
(i) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a)To include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(b)To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(c)To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the registration statement;
(ii) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(iii) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(2) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) The undersigned Registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this Registration Statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the Registrant
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by
the other items of the applicable form.
(4) The undersigned Registrant undertakes that every prospectus (i) that is
filed pursuant to the immediately preceding paragraph, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Securities Act and is used
in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the Registration Statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
(5) That insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(6) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
(7) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Rochester, State of New
Hampshire.
CABLETRON SYSTEMS, INC.
/s/ David J. Kirkpatrick
By:__________________________________
DAVID J. KIRKPATRICK
Executive Vice-President of Finance
and Chief Financial Officer
Dated: August 18, 1998
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 1 to the Registration Statement has been signed below
on August 18, 1998 by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S> <C>
* Chairman, President, Chief
____________________________________ Executive Officer, Treasurer
CRAIG R. BENSON and Director (principal
executive officer)
/s/ David J. Kirkpatrick Executive Vice-President of
____________________________________ Finance and Chief David J.
DAVID J. KIRKPATRICK Kirkpatrick Financial Officer
(principal financial and
accounting officer)
* Secretary and Director
____________________________________
MICHAEL D. MYEROW
* Director
____________________________________
PAUL R. DUNCAN
* Director
____________________________________
DONALD F. MCGUINNESS
/s/ David J. Kirkpatrick Director
*By:________________________________
DAVID J. KIRKPATRICK
Attorney-in-fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger by and among the Registrant, Tempest
Acquisition, Inc. and NetVantage, Inc. (the "Company") dated as of
June 22, 1998 (the "Merger Agreement") (attached as Annex A to the
Proxy Statement/Prospectus contained in this Registrant Statement).
3.1 Restated Certificate of Incorporation of Cabletron Systems, Inc., a
Delaware corporation (Incorporated by Reference to Exhibit 3.1 of the
Registrant's Registration Statement on Form S-1, No. 33-28055).
3.2 Certificate of Correction of the Registrant's Restated Certificate of
Incorporation (Incorporated by Reference to Exhibit 3.1.2 of the
Registrant's Registration Statement on Form S-1, No. 33-42534).
3.3 Certificate of Amendment of the Restated Certificate of Incorporation
of Cabletron Systems, Inc. (Incorporated by Reference to Exhibit 4.3
of the Registrant's Registration Statement on Form S-3, No. 33-54466).
3.4 Amended Bylaws of Cabletron Systems, Inc. (Incorporated by Reference
to Exhibit 3.2 of the Registrant's Registration Statement on Form S-1,
No. 33-42534).
4.1 Specimen Stock Certificate of Cabletron Common Stock (Incorporated by
Reference to Exhibit 4.1 of Cabletron's Registration Statement on Form
S-1, No. 33-28055).
5.1 Opinion of Ropes & Gray.*
8.1 Opinion of Ropes & Gray as to certain federal income tax consequences
of the Merger.
8.2 Opinion of Heller Ehrman White & McAuliffe as to certain federal
income tax consequences of the Merger.
10.1 Reseller and Services Agreement dated as of November 24, 1997 between
the Registrant and Digital (the "Reseller Agreement") (Incorporated by
Reference to Exhibit 10.1 of the Registrant's Form 10-Q of January 14,
1998).
10.2 Employment Agreement between the Registrant and Donald B. Reed dated
as of August 6, 1997 (Incorporated by Reference to Exhibit 10.1 of the
Registrant's Form 10-Q of October 15, 1997).
10.3 Amendment No. One to Reseller Agreement dated as of February 7, 1998
by and between the Registrant and Digital (Incorporated by Reference
to Exhibit 10.2 of the Registrant's Form 8-K/A of March 4, 1998).
10.4 Letter Agreement between Registrant and Donald B. Reed dated as of
March 30, 1998 (Incorporated by Reference to Exhibit 10.18 of the
Registrant's Form 10-K of May 29, 1998).
10.5 Employment Agreement between the Company and John d'Auguste
(Incorporated by Reference to Exhibit 10.1 of the Registrant's Form
10-Q of July 15, 1998).
23.1 Consent of Ropes & Gray (Exhibits 5.1* and 8.1).
23.2 Consent of Heller Ehrman White & McAuliffe (Exhibit 8.2).
23.3 Consent of KPMG Peat Marwick LLP.*
23.4 Consent of KPMG Peat Marwick LLP.*
23.5 Consent of PricewaterhouseCoopers LLP.*
23.6 Consent of PricewaterhouseCoopers LLP.*
24 Power of Attorney*
99.1 Form of Proxy.
</TABLE>
- --------
*Previously filed.
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF ROPES & GRAY]
August 17, 1998
Cabletron Systems, Inc.
35 Industrial Way
Rochester, NH 03867
Ladies and Gentlemen:
We have acted as counsel to Cabletron Systems, Inc. ("Cabletron"), a
Delaware corporation, in connection with the planned transaction (the "Merger")
contemplated by the Agreement and Plan of Merger, dated as of June 22, 1998, by
and among Cabletron, Tempest Acquisition, Inc., a Delaware corporation and a
wholly-owned subsidiary of Cabletron ("Merger Sub"), and NetVantage, Inc., a
Delaware corporation ("NetVantage") (the "Merger Agreement"), pursuant to which
Merger Sub will merge with and into NetVantage. All capitalized terms used but
not defined herein have the meanings ascribed to them in the Merger Agreement.
For purposes of the opinion set forth below, we have reviewed and relied
upon (i) the Merger Agreement, (ii) the Joint Proxy Statement and Prospectus
filed by Cabletron and NetVantage with the Securities and Exchange Commission on
July 30, 1998, (iii) the tax representation letters delivered by Cabletron,
Merger Sub and NetVantage to us in connection with this opinion, and (iv) such
other documents, records and instruments as we have deemed necessary or
appropriate as a basis for our opinion. We have assumed without investigation or
verification that all statements contained in the foregoing documents are true,
correct, and complete as of the date hereof and will remain true, correct and
complete as of the Effective Time; that no actions inconsistent with such
statements have occurred or will occur; that all such statements made "to the
best of the knowledge of" any persons or parties, or similarly qualified, are
true, correct and complete as if made without such qualification; and, as to all
matters in which a person or entity making a representation has represented that
such person or entity either is not a party to, does not have, or is not aware
of, any plan or intention, understanding or agreement, we have assumed that
there is in fact no such plan, intention, understanding or agreement.
<PAGE>
Cabletron Systems, Inc. -2- August 17, 1998
We also have assumed that (i) the Merger will be consummated in accordance
with the Merger Agreement (including satisfaction of all covenants and
conditions to the obligations of the parties without amendment or waiver
thereof); (ii) all representations and warranties contained in the Merger
Agreement are true, correct, and complete in all respects; (iii) the Merger will
be effective as a merger under the applicable laws of Delaware; and (iv) each of
Cabletron, NetVantage and Merger Sub will comply with all reporting obligations
with respect to the Merger required under the Internal Revenue Code (the "Code")
and the Treasury regulations promulgated thereunder.
Any inaccuracy in, or breach of, any of the aforementioned statements,
representations and assumptions and any change in applicable law after the date
hereof could adversely affect our opinion. No ruling has been sought from the
Internal Revenue Service by Cabletron, NetVantage or Merger Sub as to the
federal income tax consequences of any aspect of the Merger, and the Internal
Revenue Service is not bound by our opinion herein.
Based upon and subject to the foregoing as well as to the qualifications
and limitations set forth below, it is our opinion that the Merger will be
treated for United States federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code.
No opinion is expressed as to any matter not specifically addressed above,
including the tax consequences of any of the transactions under any foreign,
state, or local tax law or the tax consequences of any other transactions
contemplated or entered into by Cabletron, NetVantage or Merger Sub in
connection with the transactions described above. Our opinion is based on
current federal income tax law and we do not undertake to advise you as to any
changes in federal income tax law after the date hereof that may affect our
opinion.
This opinion is solely for your benefit, shall not inure to the benefit of
any other person, including without limitation any successor or assign of
Cabletron, whether by operation of law or otherwise, and is not to be used,
circulated, quoted or otherwise referred to for any purpose without our express
written permission.
We hereby consent to the filing with the Securities and Exchange Commission
of this opinion as an exhibit to the Registration Statement on Form S-4 filed by
Cabletron in connection with the Merger.
Very truly yours,
Ropes & Gray
<PAGE>
EXHIBIT 8.2
[LETTERHEAD OF HELLER EHRMAN WHITE & MCAULIFFE]
August 17, 1998
NetVantage, Inc.
201 Continental Boulevard
Suite 201
El Segundo, CA 90245
Ladies and Gentlemen:
We have acted as counsel to NetVantage, a Delaware corporation
("NetVantage"), in connection with the planned transaction (the "Merger")
contemplated by the Agreement and Plan of Merger, dated as of June 22, 1998, by
and among Cabletron Systems, Inc., a Delaware corporation ("Cabletron"), Tempest
Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of
Cabletron ("Merger Sub"), and NetVantage (the "Merger Agreement"), pursuant to
which Merger Sub will merge with and into NetVantage. All capitalized terms used
but not defined herein have the meanings ascribed to them in the Merger
Agreement.
For purposes of the opinion set forth below, we have reviewed and relied
upon (i) the Merger Agreement, (ii) the Joint Proxy Statement and Prospectus
filed by Cabletron and NetVantage with the Securities and Exchange Commission on
July 30, 1998, (iii) the tax representation letters delivered by Cabletron,
Merger Sub and NetVantage to us in connection with this opinion, and (iv)such
other documents, records and instruments as we have deemed necessary or
appropriate as a basis for our opinion. We have assumed without investigation
or verification that all statements contained in the foregoing documents are
true, correct, and complete as of the date hereof and will remain true, correct
and complete as of the Effective Time; that no actions inconsistent with such
statements have occurred or will occur; that all such statements made "to the
best of the knowledge of" any persons or parties, or similarly qualified, are
true, correct and complete as if made without such qualification; and, as to all
matters in which a person or entity making a representation has represented that
such person or entity either is not a party to, does not have, or is not aware
of, any plan or intention, understanding or agreement, we have assumed that
there is in fact no such plan, intention, understanding or agreement.
<PAGE>
NetVantage, Inc.
August 17, 1998
Page 2
We also have assumed that (i) the Merger will be consummated in accordance
with the Merger Agreement (including satisfaction of all covenants and
conditions to the obligations of the parties without amendment or waiver
thereof); (ii) all representations and warranties contained in the Merger
Agreement are true, correct, and complete in all respects; (iii) the Merger will
be effective as a merger under the applicable laws of Delaware; and (iv) each of
Cabletron, NetVantage and Merger Sub will comply with all reporting obligations
with respect to the Merger required under the Internal Revenue Code (the "Code")
and the Treasury regulations promulgated thereunder.
Any inaccuracy in, or breach of, any of the aforementioned statements,
representations and assumptions and any change in applicable law after the date
hereof could adversely affect our opinion. No ruling has been sought from the
Internal Revenue Service by Cabletron, NetVantage or Merger Sub as to the
federal income tax consequences of any aspect of the Merger, and the Internal
Revenue Service is not bound by our opinion herein.
Based upon and subject to the foregoing as well as to the qualifications and
limitations set forth below, it is our opinion that the Merger will be treated
for United States federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code.
No opinion is expressed as to any matter not specifically addressed above,
including the tax consequences of any of the transactions under any foreign,
state, or local tax law or the tax consequences of any other transactions
contemplated or entered into by Cabletron, NetVantage or Merger Sub in
connection with the transactions described above. Our opinion is based on
current federal income tax law, and we do not undertake to advise you as to any
changes in federal income tax law after the date hereof that may affect our
opinion.
This opinion is solely for your benefit, shall not inure to the benefit of
any other person, including without limitation any successor or assign of
NetVantage, whether by operation of law or otherwise, and is not to be used,
circulated, quoted or otherwise referred to for any purpose without our express
written permission.
<PAGE>
NetVantage, Inc.
August 17, 1998
Page 3
We hereby consent to the filing with the Securities and Exchange
Commission of this opinion as an exhibit to the Registration Statement on Form
S-4 filed by Cabletron in connection with the Merger.
Very truly yours,
Heller Ehrman White & McAuliffe
<PAGE>
PROXY PROXY
NETVANTAGE, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder of shares of Common Stock of NetVantage, Inc., a
Delaware corporation (the "Company"), hereby acknowledges receipt of a copy of
the Notice of Special Meeting of Stockholders of the Company and the
accompanying Proxy Statement/Prospectus dated August 20, 1998 (the "Proxy
Statement/Prospectus") and hereby appoints and authorizes Stephen R. Rizzone
and Thomas Iwanski, and each of them, proxies of the undersigned, each with
full power to act without the other, and with full power of substitution, to
represent the undersigned and to vote as designated below the undersigned's
shares of Common Stock at the Special Meeting of Stockholders of the Company to
be held at the Doubletree Club Hotel, located at 1985 East Grand Avenue, El
Segundo, California 90245, at 10:00 a.m., local time, on Friday, September 25,
1998, and at any and all postponements or adjournments thereof (the "Special
Meeting").
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BELOW.
IF NO DIRECTIONS ARE GIVEN, THIS PROXY WILL BE VOTED "FOR" THE FOLLOWING
PROPOSAL.
THE BOARD OF DIRECTORS RECOMMEND A VOTE "FOR" THE FOLLOWING PROPOSAL.
PROPOSAL: To approve and adopt an Agreement and Plan of Merger and the
transactions contemplated thereby, including the Merger, as more completely
described in the Proxy Statement/Prospectus:
FOR [_] AGAINST [_] ABSTAIN [_]
(continued and to be signed on reverse side)
<PAGE>
OTHER BUSINESS: In their discretion, the proxy holders are hereby authorized
to vote on such other business as may properly come before the Special Meeting,
including, among other things, a motion to adjourn the Special Meeting to
another time and/or place for, among other things, the purpose of soliciting
additional proxies.
PLEASE MARK ABOVE, THEN DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED
ENVELOPE.
Please sign exactly
as your name appears
hereon. When signing
as attorney,
administrator,
trustee or guardian,
set forth your full
title. When shares
are held in more than
one name, all parties
should sign. If a
corporation, sign in
full corporate name
by authorized
officer. If a
partnership, sign in
partnership name by
authorized person.
Dated: ........ , 1998
......................
(Signature)
......................
(Signature)
