SECURITIES AND EXCHANGE COMMISSION
Washington , D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended November 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-10228
CABLETRON SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2797263 (State or other
jurisdiction of (I.R.S. Employer incorporation or organization)
identification no.)
35 Industrial Way, Rochester, New Hampshire 03867
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: (603) 332-9400
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES - X NO -
As of December 31, 1997 there were 158,207,514 shares of the Registrant's common
stock outstanding.
This document contains 136 pages
Exhibit index on page 11
<PAGE>
INDEX
CABLETRON SYSTEMS, INC.
Page
Facing Page 1
Index 2-3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - November 30, 1997 (unaudited)
and February 28, 1997 4
Consolidated Statements of Income - Three and nine months
ended November 30, 1997, and 1996 (unaudited) 5
Consolidated Statements of Cash Flows - Nine months ended
November 30, 1997 and 1996 (unaudited) 6
Notes to Consolidated Financial Statements - November 30, 1997 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
Item 3. Qualitative Disclosures About Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Index to the Exhibits 15
Exhibit 11.1 Statement re: Computation of Per Share Earnings 137
* Confidential Treatment request as to certain portions. The term "Confidential
Treatment" and the mark "*" as used throughout the indicated exhibit means that
material has been omitted and separately filed with the Commission.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CABLETRON SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
(unaudited)
November 30, February 28,
1997 1997
Assets
Current Assets:
Cash and cash equivalents ................... $ 206,926 $ 214,828
Short-term investments ...................... 214,680 165,396
Accounts receivable, net .................... 298,672 219,896
Inventories ................................. 280,021 197,438
Deferred income taxes ....................... 57,691 57,107
Prepaid expenses and other assets ........... 37,521 35,925
---------- ----------
Total current assets ................... 1,095,511 890,590
Long-term investments ............................ 148,554 188,081
Property, plant and equipment, net ............... 212,023 198,557
Long-term deferred income taxes .................. 30,756 29,627
---------- ----------
Total assets ..................................... $1,486,844 $1,306,855
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ............................ $ 69,003 $ 68,604
Accrued expenses ............................ 169,333 135,208
Income taxes payable ........................ 5,282 10,442
---------- ----------
Total current liabilities .............. 243,618 214,254
---------- ----------
Deferred income taxes ............................ 4,577 11,103
---------- ----------
Total liabilities ................................ 248,195 225,357
---------- ----------
Stockholders' equity:
Preferred stock, $1.00 par value
Authorized 2,000 shares; none issued ...... -- --
Common stock $0.01 par value
Authorized 240,000 shares; issued and
outstanding 158,208 and 156,305
respectively .............................. 1,582 1,563
Additional paid-in capital .................. 287,218 266,829
Retained earnings ........................... 949,194 812,885
---------- ----------
1,237,993 1,081,277
Cumulative translation adjustment ........... 656 221
---------- ----------
Total stockholders' equity ....................... 1,238,649 1,081,498
---------- ----------
Total liabilities and stockholders' equity ....... $1,486,844 $1,306,855
========== ==========
<PAGE>
<TABLE>
CABLETRON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars except per share amounts)
<CAPTION>
(unaudited)
Three Months Ended Nine Months Ended
November 30, November 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales .......................... $331,827 $361,558 $1,065,808 $1,025,997
Cost of sales ...................... 164,254 147,598 476,847 419,307
-------- -------- ---------- ----------
Gross profit .................. 167,573 213,960 588,961 606,690
-------- -------- ---------- ----------
Operating expenses:
Research and development ...... 46,552 41,139 134,583 119,444
Selling, general and
administrative ............... 95,521 73,792 261,848 209,380
Nonrecurring items ............ -- -- -- 43,024
-------- -------- ---------- ----------
Total operating expenses .. 142,073 114,931 396,431 371,848
-------- -------- ---------- ----------
Income from operations ... 25,500 99,029 192,530 234,842
Interest income, net ............... 4,648 4,932 14,269 14,254
-------- -------- ---------- ----------
Income before income taxes 30,148 103,961 206,799 249,096
Income taxes ....................... 10,250 36,219 70,490 87,307
-------- -------- ---------- ----------
Net income ......................... $ 19,898 $ 67,742 $ 136,309 $ 161,789
======== ======== ========== ==========
Net income per common share ........ $ 0.13 $ 0.44 $ 0.87 $ 1.04
======== ======== ========== ==========
Weighted average number of shares
outstanding ........................ 157,986 155,299 157,527 154,968
======== ======== ========= ==========
</TABLE>
<PAGE>
CABLETRON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
Nine Months Ended
November 30,
1997 1996
---- ----
Cash flows from operating activities:
Net income ................................. $136,309 $161,789
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization .......... 50,205 37,332
Provision for losses on accounts
receivable ............................ 1,098 7,276
Deferred income taxes .................. (8,239) (19,376)
(Gain)/loss on disposal of property .... (446) 83
Changes in assets and liabilities:
Accounts receivable ................. (82,031) (72,431)
Inventories ......................... (84,233) (18,086)
Prepaid expenses and other assets ... (1,755) (2,499)
Accounts payable and accrued expenses 39,244 38,337
Income taxes payable ................ (4,892) (1,148)
-------- --------
Net cash provided by operating activities 45,260 131,277
-------- --------
Cash flows from investing activities:
Capital expenditures ....................... (64,037) (69,419)
Purchase of available-for-sale securities .. (86,478) (169,349)
Purchase of held-to-maturity securities .... (37,228) (170,595)
Maturities of marketable securities ........ 113,943 326,729
-------- --------
Net cash used in investing activities ... (73,800) (82,634)
-------- --------
Cash flows from financing activities:
Common stock issued to employee stock
purchase plan ............................. 3,311 3,019
Net proceeds from sale of stock ............ -- 8,580
Repayment of notes from stockholders ....... -- (2,155)
Proceeds from stock option exercise ........ 17,097 13,110
Repurchase of common stock ................. -- 544
-------- --------
Net cash provided by financing activities 20,408 23,098
-------- --------
Effect of exchange rate changes on cash ....... 230 49
-------- --------
Net (decrease) increase in cash and cash
equivalents .................................. (7,902) 71,790
Cash and cash equivalents, beginning of period 214,828 106,101
-------- --------
Cash and cash equivalents, end of period ...... $206,926 $177,891
======== ========
Cash paid during the year for:
Income taxes ............................... $ 46,109 $101,318
======== ========
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Basis of presentation
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q and Article 2 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments consisting of normal recurring accruals necessary
for a fair presentation of the results of operations for the interim periods
presented have been reflected herein. The results of operations for the interim
periods are not necessarily indicative of the results to be expected for the
entire year. The accompanying financial statements should be read in conjunction
with the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended February 28, 1997.
2. Inventories
Inventories consist of:
11/30/97 2/28/97
-------- -------
Raw materials $ 93,215 $ 64,685
Work in process 26,035 57,070
Finished goods 160,771 75,683
-------- --------
Total inventories $280,021 $197,438
======== ========
3. Proposed Acquisition
On November 24, 1997, the Company executed a definitive asset purchase agreement
(the "Asset Purchase Agreement") by and among the Company, Ctron Acquisition
Co., Inc., a wholly-owned subsidiary of the Company, and Digital Equipment
Corporation ("Digital") pursuant to which the Company will acquire certain
assets of the network products business unit (the "NPB") of Digital. The NPB
develops and supplies a wide range of data networking hardware and software. The
purchase price for the acquisition is $435.5 million, before closing
adjustments, consisting of approximately $91.8 million in cash, approximately
$293.5 million in product credits and approximately $50 million in shares of the
Company's common stock. The closing of the acquisition is subject to certain
conditions, including the lack of any material adverse change in the NPB or the
Company.
The Company and Digital have also entered into a Reseller and Services Agreement
dated November 24, 1997 pursuant to which Digital designated the Company as its
Strategic Network Products Partner and was appointed by the Company as a
reseller of certain of the Company's products (including the products previously
sold by the NPB), the Company designated Digital as its Strategic Network
Services Partner, and the Company agreed to sell and Digital agreed to purchase,
for internal use and resale, certain minimum volumes of products during the term
of the Reseller Agreement, which extends through June 30, 2001. The minimum
volumes are subject to downward or upward adjustment in certain instances.
<PAGE>
During the term of the Reseller Agreement, the Company will operate the NPB
under the name Digital Network Products Group, a Cabletron Systems, Inc.
Company.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cabletron Systems' worldwide net sales in the third quarter of fiscal 1998 (the
three month period ended November 30, 1997) were $331.8 million, an 8 percent
decrease from net sales of $361.6 million for the third quarter of fiscal 1997.
The decrease was primarily the result of lower than expected sales in North
America, changes in the order pattern for some U.S. Federal Government Business
and lower international sales in the Latin American and Asian markets. For the
nine months ended November 30, 1997 worldwide sales slightly increased by 4
percent to $1,065.8 million in fiscal 1998 from $1,026.0 million in fiscal 1997.
Gross profit as a percentage of net sales in the third quarter of fiscal 1998
decreased to 50.5% from 59.2% for the third quarter of fiscal 1997. Gross
margins for the first nine months of fiscal 1998 were 55.3% compared with 59.1%
for the same period in fiscal 1997. The decrease reflects the impact of pricing
on margins, some impact from foreign exchange on margins and inventory changes
for the period. The Company anticipates that industry competitiveness will
remain active in the future and as such could create future pressures on margin
levels.
Research and development ("R&D") expenses in the third quarter of fiscal 1998
increased 11.8% to $46.6 million from $41.1 million in the third quarter of
fiscal 1997. In the first nine months of fiscal 1998 R&D expenses increased
$15.2 million to $134.6 million compared to $119.4 for the first nine months of
fiscal 1997. The increase reflects the Company's ongoing research and
development efforts, including the further development of the SMARTSwitch family
of products, SPECTRUM management software as well as the increase in the hiring
of additional software and hardware engineers and associated cost related to
development of new products. Research and development spending as a percentage
of net sales increased to 14.0% from 11.4% in the third quarter of fiscal 1997.
R&D expenses increased as a percentage of net sales primarily as a result of
lower than expected sales.
Selling, general and administrative ("SG&A") expenses in the third quarter of
fiscal 1998 increased 29.4% to $95.5 million from $73.8 million in the third
quarter of fiscal 1997 and increased $52.4 million to $261.8 million for the
first nine months of fiscal 1998 compared to $209.4 million for the first nine
months of fiscal 1997. The increase in SG&A expenses was due predominately to
the increase in sales and technical personnel, and the opening of additional
office locations. SG&A expenses as a percentage of net sales increased to 28.8%
from 20.4% in the third quarter of fiscal 1997. SG&A increased as a percentage
of net sales primarily as a result of lower than expected sales.
Net interest income in the third quarter of fiscal 1998 decreased slightly to
$4.6 million, as compared to $4.9 million in the same quarter of fiscal 1997.
For the first nine months in both periods, net interest income remained
consistent at $14.3 million. Interest income in both periods reflects returns on
invested cash, marketable securities and long-term investments.
<PAGE>
Income before income taxes in the third quarter of fiscal 1998 decreased 71.1%
to $30.1 million from $104.0 million in the third quarter of fiscal 1997. Income
before income taxes for the first nine months of fiscal 1998 was $206.8 million
as compared with $249.1 million for the same period in fiscal 1997. The decrease
in income before income taxes, as a percentage of net sales for the quarter, was
due primarily to lower than expected sales and higher expenses.
Net income in the third quarter of fiscal 1998 was $19.9 million compared to
$67.7 million in the third quarter of fiscal 1997 and for the first nine months
was $136.3 million for fiscal 1998 compare with $161.8 million for the same
period in fiscal 1997. The decrease was due to lower sales and higher expenses.
Liquidity and Capital Resources
Cash and cash equivalents, marketable securities and long-term investments
slightly increased to $570.2 million at November 30, 1997 from $568.3 million at
February 28, 1997.
Net accounts receivable increased $78.8 million to $298.7 million at November
30, 1997 from $219.9 million at February 28, 1997. Average days sales
outstanding were 81 days at November 30, 1997 compared to 52 days at February
28, 1997. The increase was a result of shipment of products shifting towards the
latter part of the quarter and lower than expected sales.
The Company has historically maintained higher levels of inventory than its
competitors in the networking industry in order to implement its policy of
shipping most orders requiring immediate delivery within 24 to 48 hours.
Worldwide inventories at November 30, 1997 were $280.0 million, or 155 days of
inventory, compared to $197.4 million, or 111 days of inventory at the end of
the prior fiscal year. Inventory turnover was 2.4 turns at November 30, 1997,
compared to 3.4 turns at February 28, 1997. The lower inventory turns were due
to lower sales in the quarter.
Capital expenditures for the first nine months of fiscal 1998 were $64.0 million
compared to $69.4 million for the same period of the preceding year. Capital
expenditures included approximately $34.5 million for equipment costs, of which
$22.2 million was for computer and computer related equipment, and $12.3 million
represented systems development costs.
Current liabilities at November 30, 1997 were $243.6 million compared to $214.3
million at the end of the prior fiscal year. This increase was mainly due to the
growth in operations and the timing of disbursements.
In the opinion of management, internally generated funds from operations and
existing cash, cash equivalents and short-term investments will prove adequate
to support the Company's working capital and capital expenditure requirements
for at least the next twelve months.
<PAGE>
Realignment
The Company announced on December 16, 1997 a global initiative to better align
the Company's business strategy with its focus in the enterprise and service
provider markets. The realignment is intended to better position the Company to
provide more solutions-oriented products and service; to increase its
distribution of products through third-party distributors and resellers; to
improve its position internationally, and to aggressively develop partnership
and acquisition opportunities. The Company expects to incur a pre-tax charge in
the fourth quarter of fiscal 1998 of between $25 and $30 million related to the
realignment. The realignment will include general expense reduction through the
elimination of duplicate facilities, consolidation of related operations,
reallocation of resources, including the elimination of certain existing
projects, and personnel reduction. The Company plans to complete most of these
reductions over the next few months. The expense reductions associated with the
realignment are intended to yield approximately $50 to $60 million in total
annualized savings, beginning in the fourth quarter of fiscal 1998.
The statements concerning the Company's realignment plans and the intended
expense reductions constitute forward looking information and actual results
could differ materially. Those factors which could cause the Company not to
achieve its intended expense reductions include, among others, additional costs
associated with relocations and employee severance, the need to maintain certain
essential, but underutilized, facilities, and delays in implementing planned
reductions. Difficulties in achieving the expense reductions may result in the
Company's failure to realize the full amount of the projected annualized cost
savings or may cause the Company to incur additional costs in future quarters as
it takes additional actions to achieve the projected annualized cost savings.
The Company's realignment will require the dedication of management and other
resources, which may result in a temporary disruption of the Company's business
activities. Any such disruption could have a material adverse effect on the
Company'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.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement 130
(SFAS 130), "Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. Under this concept, all revenues,
expenses, gains and losses recognized during the period are included in income,
regardless of whether they are considered to be results of operations of the
period. SFAS 130, which becomes effective for the Company in its fiscal year
ending February 28, 1999, is not expected to have a material impact on the
consolidated financial statements of the Company.
In June 1997, the Financial Accounting Standards Board issued Statement 131
(SFAS 131), "Disclosures about Segments of an Enterprise and Related
Information," which establishes standards for the way that public business
enterprises report selected information about operating segments in annual
financial statements and requires that those enterprises report selected
<PAGE>
information about operating segments in interim financial reports to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. This Statement,
which becomes effective for the Company in its fiscal year ending February 28,
1999, is currently not expected to have a material impact on the Company's
consolidated financial statements and disclosures footnote.
ITEM 3. QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company faces exposure to adverse movements in foreign currency exchange
rates. These exposures may change over time as business practices evolve and
could have a material adverse impact on the Company's financial results. The
Company uses derivative financial instruments, principally forward exchange
contracts and options, in its management of foreign currency exposure. These
contracts primarily require the Company to exchange or sell certain foreign
currencies either with or for US dollars at contractual rates. The Company's
foreign currency hedging activities are used to minimize adverse foreign
exchange movements on the eventual dollar net cash inflows of its foreign
denominated net assets. The success of the Company's foreign currency hedging
activities depends upon forecasts of transaction activity denominated in various
currencies. To the extent that these forecasts are over- or understated during
periods of currency volatility, the Company could experience unanticipated
currency gains or losses. The Company does not hold or issue derivative
financial instruments for speculative or trading purposes.
Realized and unrealized foreign exchange gains and losses are recognized in
operating income and offset foreign exchange gains and losses on the underlying
exposures. Premiums paid on forward exchange contracts are amortized over the
life of the contract. Premiums paid on options are expensed immediately. The
Company's derivative financial instruments are marked to market at the balance
sheet date and the carrying amount approximates the fair value of the
instruments. The Company maintains investment portfolio holdings of various
issuers, types, and maturities. These securities are generally classified as
available for sale, and consequently, are recorded on the balance sheet at fair
value with unrealized gains or losses reported as a separate component of
stockholders' equity.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Since October 24, 1997, the following six shareholder class action lawsuits have
been filed against the Company and certain officers and directors of the Company
in the United States District Court for the District of New Hampshire: Charles
Mesko, et al. V. Cabletron Systems, Inc., et al. (District of New Hampshire
10/24/07); Karen Borick, et al. V. Cabletron Systems, Inc., et al. (District of
New Hampshire 11/24/97); Richard Durr, et al. V. Cabletron Systems, Inc., et al.
(District of New Hampshire 12/11/97); Albert Shapiro, et al. V. Cabletron
Systems, Inc., et al. (District of New Hampshire 12/9/97); James Pettus, et al.
v. Cabletron Systems, Inc., et al. (District of New Hampshire 12/16/97); and
Kenneth M. Williams, et al. v. Cabletron Systems, Inc., et al. (District of New
Hampshire 12/18/97). The Company expects that these lawsuits, which are similar
in material respects, will be consolidated and will proceed as one class action
against the Company and certain officers and directors. The complaints allege
that the Company and several of its officers and directors disseminated
materially false and misleading information about the Company'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 the Company's common stock
during this period. The complaints do not specify the amount of damages sought
on behalf of the class.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
[a] There were no reports on Form 8-K filed during the quarter ended November
30, 1997.
[b]
Exhibit 2.1 Asset Purchase Agreement dated as of November 24, 1997 (the "Asset
Purchase Agreement") by and among Cabletron Systems, Inc., a Delaware
corporation ("Cabletron"), Ctron Acquisition, Inc., a Delaware corporation and a
wholly-owned subsidiary of Cabletron, and Digital Equipment Corporation, a
Massachusetts corporation ("Digital"). The Exhibits and Disclosure Schedules to
the Asset Purchase Agreement are not included with the Asset Purchase Agreement.
A list briefly identifying the contents of such omitted Exhibits and Disclosure
Schedules is included herein. Cabletron agrees to furnish supplementally to the
Commission, upon request, a copy of such Exhibits and Disclosure Schedules.*
(page 15 of this report)
Exhibit 10.1 Reseller and Services Agreement dated as of November 24, 1997
between Cabletron and Digital (the "Reseller Agreement"). The Exhibits and
Disclosure Schedules to the Reseller Agreement are not included with the
Reseller Agreement. A list briefly identifying the contents of such omitted
Exhibits and Disclosure is included herein. Cabletron agrees to furnish
supplementally to the Commission, upon request, a copy of such Exhibits and
Disclosures Schedules.* (page 86 of this report)
Exhibit 11 - Statement re: Computation of Per Share Earnings (page 137 of
this report)
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CABLETRON SYSTEMS, INC.
(Registrant)
January 14, 1998 /s/ Donald B. Reed
Date Donald B. Reed
President and
Chief Executive Officer
January 14, 1998 /s/ David J. Kirkpatrick
Date David J. Kirkpatrick
Director of Finance and Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. Exhibit No.
2.1 Asset Purchase Agreement dated as of November 24, 1997 (the
"Asset Purchase Agreement") by and among Cabletron Systems,
Inc., a Delaware corporation ("Cabletron"), Ctron Acquisition,
Inc., a Delaware corporation and a wholly-owned subsidiary of
Cabletron, and Digital Equipment Corporation, a
Massachusetts corporation ("Digital"). The Exhibits and
Disclosure Schedules to the Asset Purchase Agreement are not
included with the Asset Purchase Agreement. A list briefly
identifying the contents of such omitted Exhibits and Disclosure
Schedules is included herein. Cabletron agrees to furnish
supplementally to the Commission, upon request, a copy of such
Exhibits and Disclosure Schedules.* 16
10.1 Reseller and Services Agreement dated as of November 24, 1997
between Cabletron and Digital (the "Reseller Agreement"). The
Exhibits and Disclosure Schedules to the Reseller Agreement are
not included with the Reseller Agreement. A list briefly
identifying the contents of such omitted Exhibits and Disclosure
is included herein. Cabletron agrees to furnish supplementally to
the Commission, upon request, a copy of such Exhibits and
Disclosures Schedules.* 86
11.1 Statement re: Computation of Per Share Earnings 137
* Confidential Treatment request as to certain portions. The term "Confidential
Treatment" and the mark "*" as used throughout the indicated exhibit means that
material has been omitted and separately filed with the Commission.
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
AMONG
CABLETRON SYSTEMS, INC.,
CTRON ACQUISITION, INC.
AND
DIGITAL EQUIPMENT CORPORATION(1)
NOVEMBER 24, 1997
(1) Confidential Treatment has been requested as to certain portions of this
agreement. The term "Confidential Treatment" and the mark (*) is used throughout
this agreement in order to indicate that material has been omitted and
separatley filed with the Securities and Exchange Commission.
<PAGE>
Exhibits
A - Initial Statement of Assets
B - Form of Reseller Agreement
C - Assignment and Assumption Agreement
D - Bill of Sale
E - Statements of Operations
F - List of NPB Employees
G - Assignment of Patents and Patent Applications
H - Assignment of Trademarks, Trademark Applications and Goodwill
Schedules
Schedule 1.1 (a) - Accounting Convention
Schedule 1.1 (b) - Agreed-Upon Procedures
Schedule 1.2 - Assigned Licenses
Schedule 1.3 - Assigned Patents
Schedule 1.4 - Assigned Trademarks
Schedule 1.5 - Products
Schedule 1.6 - Retained Patents
Schedule 1.7 - Licensing Programs
Schedule 2.1(a) - Encumbrances on Acquired Assets
Schedule 2.1(h) - Contracts
Schedule 2.1(i) - Permits
<PAGE>
Schedule 2.1(x) - International Assets
Disclosure Schedule -- Exceptions to Representations and Warranties
Schedule 4.8 - Exceptions to Representation 4.8
Schedule 5.10(a) - Disability Schedule
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is entered into on
November 24, 1997, by and among Cabletron Systems, Inc., a Delaware corporation,
Ctron Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of
Cabletron and Digital Equipment Corporation, a Massachusetts corporation. The
Buyer and the Seller are collectively referred to herein as the "Parties."
Whereas, Seller desires to sell certain assets of its network products
business to Buyer;
Whereas, Buyer desires to purchase certain assets of Seller's network
products business;
Whereas, as a condition to entering into the purchase and sale, the
parties have agreed to enter into a Reseller Agreement, pursuant to which Seller
will be appointed as a reseller of Buyer's products, including the products of
the network products business, and Seller has agreed to purchase certain minimum
amounts of such products;
Whereas, the parties wish to describe their respective rights and
obligations.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. Definitions.
"Accounting Convention" means the accounting convention attached
hereto as Schedule 1.1(a).
"Acquisition" has the meaning set forth in the preamble above.
"Acquired Assets" has the meaning set forth in ss. 2.1.
"Acton Facilities" mean the parcels of real property designated as 50
and 100 Nagog Park, Acton, Massachusetts, and all improvements, fixtures and
fittings thereon, easements, rights-of-way, and other appurtenant rights
thereto.
"Agreed-Upon Procedures" means the agreed-upon procedures attached
hereto as Schedule 1.1(b).
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
<PAGE>
"Agreement" has the meaning set forth in the preamble above.
"Asset Value" means the net value of the assets on the applicable
Statement of Assets established in accordance with the Accounting Convention.
"Assigned Copyrights" mean the copyright interests, registered or
unregistered, used primarily in the NPB or the Products or the Products Under
Development, or used solely in any other Acquired Assets.
"Assigned Intellectual Property" means the entire right, title and
interest in and to (i) the Assigned Patents, the Assigned Copyrights, the
Assigned Trademarks, and all applications for any of the foregoing, and the
Assigned Licenses, and (ii) trade secrets, know-how and other proprietary
information that is used primarily in the NPB or the Products or the Products
Under Development, excluding in all cases the Retained Patents, the Digital
Marks, and the Retained Software.
"Assigned Licenses" mean the license agreements set forth in Schedule
1.2 and licenses licensed specifically for a Product or a Product Under
Development and used primarily in the NPB.
"Assigned Patents" mean the Patents listed under the heading "Assigned
Patents" set forth in Schedule 1.3 and all foreign counterparts thereto, subject
to all encumbrances set forth in Schedule 2.1(a).
"Assigned Trademarks" mean the Trademarks set forth in Schedule 1.4.
"Assumed Liabilities" has the meaning set forth in ss. 2.3.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could reasonably form the
basis for any specified consequence.
"Buyer" means Cabletron Systems, Inc., Ctron Acquisition, Inc. and
Cabletron Systems, Inc.'s Subsidiaries, as and to the extent that the context
requires.
"Buyer 401(k) Plan" means the Cabletron Systems, Inc. 401(k) Plan.
"Cabletron" means Cabletron Systems, Inc.
"Cabletron Common Stock" means the common stock, $0.01 par value per
share, of Cabletron.
<PAGE>
"Cabletron Marks" means the trademark "Cabletron" and the other
trademarks, logos and designs used by Buyer from time-to-time to signify Buyer's
products and services.
"Cabletron Shares" has the meaning set forth in ss. 2.5(b).
"Cabletron Stock Price" means the average, rounded to the nearest
one-thousandth of a dollar ($0.001), of the midpoints of the high and low sales
prices of Cabletron Common Stock as reported on the New York Stock Exchange
Composite Tape (as reported by the eastern edition of The Wall Street Journal
or, if not reported thereby, as reported by another authoritative source as
mutually agreed by the Buyer and the Seller) for the 10 consecutive trading days
during the period ending on and including the date hereof.
"Cause" has the meaning set forth in ss.5.10.
"Closing" has the meaning set forth in ss. 2.7.
"Closing Date" has the meaning set forth in ss. 2.7.
"Closing Date Statement of Assets" has the meaning set forth in ss.
2.6(a)(i).
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Confidential Information" means any and all information concerning the
businesses and affairs of the Buyer (including, following the Closing,
information of the Seller related to the NPB) or Seller, as the case may be,
other than that information which is independently developed in the future,
already generally or readily obtainable by the public or is publicly known or
becomes publicly known through no breach of ss. 7 by the Seller or Buyer, as the
case may be.
"Contracts" has the meaning set forth in ss. 2.1(h).
"Data Networking Product" means a data networking or telecommunication
hardware product (and the software incorporated therein) specifically designed
for transporting data between two or more computing devices, such as hubs,
routers, switches, bridges, structured wiring, adapters, remote access devices
(e.g., access concentrators) and terminal servers, and logical extensions
thereof.
"Demand Plan" means Seller's twelve month product plan previously
delivered to Buyer based on the consolidated input of Seller's sales
organizations as of the ninth week of Seller's first quarter of fiscal year
1998.
<PAGE>
"Digital Brand" has the meaning set forth in the Reseller Agreement.
"Digital Marks" has the meaning set forth in the Reseller Agreement.
"Disclosure Schedule" has the meaning set forth in ss. 3.
"Employee Plan" has the meaning set forth in ss. 3.24(a).
"Environment" means soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins and wetlands), groundwater, water body sediments, drinking water supply,
stream sediments, ambient air (including indoor air), plant and animal life and
any other environmental medium or natural resource.
"Environmental Laws" mean the Comprehensive Environmental Response,
Compensation and Liability Act, the Resource Conservation and Recovery Act, the
Clean Air Act, the Clean Water Act, and M.G.L. Chapter 21E, each as amended or
hereinafter in effect and any other federal, state, local or foreign law,
regulation or legal requirement, as now or hereinafter in effect, relating to:
(a) the Release, containment, removal, remediation, response, cleanup or
abatement of any sort of any Hazardous Materials; (b) the manufacture,
generation, formulation, processing, labeling, distribution, introduction into
commerce, use, treatment, handling, storage, recycling, disposal or
transportation of any Hazardous Materials; (c) exposure of persons, including
employees, to any Hazardous Materials; (d) the pollution, protection or clean up
of the Environment; or (e) noise.
"Environmental Permit" means any Permit or authorization from any
governmental authority required under, issued pursuant to, or authorized by any
Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" has the meaning set forth in ss. 2.2.
"First Year" has the meaning set forth in ss. 2.5 below.
"First Year Product Credits" has the meaning set forth in ss. 2.5
below.
"FMLA" has the meaning set forth in ss. 5.10.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
<PAGE>
"Hazardous Materials" means all substances defined as Hazardous
Substances, Hazardous Materials, Oils, Pollutants or Contaminants in the
National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. ss.
200.5, or defined as such by, or regulated as such under, any Environmental Law.
"Hired Employees" has the meaning set forth in ss. 5.10.
"Indemnified Party" has the meaning set forth in ss. 9.5(a).
"Initial Employment Period" has the meaning set forth in ss. 5.10.
"Indemnifying Party" has the meaning set forth in ss. 9.5(a).
"Initial Statement of Assets" means the Statement of Assets as of June
28, 1997 attached hereto as Exhibit A.
"Knowledge" of an organization means actual knowledge of the Persons
within such organization having principal responsibility for the relevant
matters after reasonable investigation.
"Laws" means all laws, rules, regulations, codes, injunctions,
judgments, orders, decrees, rulings, interpretations, constitution, ordinance,
common law, or treaty, of any federal, state, local municipal and foreign,
international, or multinational government or administration and related
agencies.
"Leave Expiration Date" has the meaning set forth in ss. 5.10.
"Liability" means any liability or obligation (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated, whether incurred, and
whether due or to become due).
"Licensing Programs" mean the licenses on Schedule 1.7.
"Lien" means any mortgage, pledge, lien, security interest, claim,
equitable interest, encumbrance, restriction on transfer, conditional sale or
other title retention device or arrangement (including, without limitation, a
capital lease), or contractual restriction on the creation of any of the
foregoing, whether relating to any property or right or the income or profits
therefrom; provided, however, that the term "Lien" shall not include (i)
statutory liens for Taxes to the extent that the payment thereof is not in
arrears or otherwise due, (ii) encumbrances in the nature of zoning
restrictions, easements, rights or restrictions of record on the uses of real
property if the same do not materially detract from the value of the property
encumbered thereby or materially impair the use of such property in the business
<PAGE>
of the NPB as currently conducted, (iii) deposits or pledges made in connection
with, or to secure payment of, worker's compensation, unemployment insurance,
old age pension programs mandated under applicable laws or other social security
regulations, (iv) rights of MCI and Bell Atlantic with respect to the Acton
Facilities, and (iv) mechanics', carriers', workmen's, repairmen's and similar
liens, that do not materially interfere with the ability to conduct business or
use the property as presently used.
"Load" means, with respect to the NPB, its backlog, quarter-to-date
revenues and orders booked and scheduled to ship in the relevant quarter. Load
is used by Seller in the Ordinary Course of Business as a leading indicator for
revenue.
"Local Transfer Impediment" has the meaning set forth in ss. 2.1.
"Losses" has the meaning set forth in ss. 9.2.
"Material Adverse Effect" means a material adverse effect in the
business, assets, financial condition and results of operations of the NPB or
the Acquired Assets, as the case may be, taken as a whole; provided, however,
none of the following items in and of themselves individually shall constitute a
Material Adverse Effect: (i) the differential between the current Load and the
historical Load requirements necessary to achieve Seller's planned second fiscal
quarter revenue, all as reflected in the Load report dated November 18, 1997
previously provided to Buyer, (ii) that a sufficient number of NPB Employees
have failed to become Hired Employees, such that Buyer is entitled to a [*] to
the Purchase Price, or (iii) any decrease in assets resulting in an Asset Value
determined with respect to the Closing Date Statement of Assets of less than $75
million.
"Multiemployer Plan" has the meaning set forth in ss. 3.26(c).
"NPB" means the business, operations and assets of the Seller with
respect to the design, having manufactured, sale, marketing, distribution,
maintenance and support (but not service) of the Products and the design of
Products Under Development.
"NPB Employees" has the meaning set forth in ss. 5.10.
"Offerees" has the meaning set forth in ss. 5.10.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Overseas Employees" means NPB Employees whose principal work location
is outside of the United States.
* Confidential Treatment
<PAGE>
"Patent" means: (i) any United States or foreign patent, patent
application, patent disclosure or other patent right; (ii) any division,
continuation, continuation-in-part or similar extension of an application that
is a Patent; and (iii) any patent or other patent right that issues or is based
upon an application that is a Patent.
"Party" and "Parties" have the meanings set forth in the preamble
above.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Plan Eligibility Date" has the meaning provided in Section 5.10(b).
"Product Credits" means credits to be used by Seller on a first in,
first out basis and net of credits against the full value of the invoice for the
purchase of products on the Product Road Map from Buyer in a specified dollar
amount during a specified period of time pursuant to the Reseller Agreement.
"Product Road Map" has the meaning set forth in the Reseller Agreement.
"Products" mean the products listed in Schedule 1.5 "Products."
"Products Under Development" mean products developed or products under
development (but not including the Products) by Seller employees (including
contract employees) during the period when such employees were employed by
Seller's Network Products Business Unit and were engaged in the business of the
design, having manufactured, sale, marketing, distribution, maintenance, or
support of Data Networking Products.
"Purchase Price" has the meaning set forth in ss. 2.5.
"Purchase Price Adjustment" shall mean the aggregate adjustments to the
Purchase Price which occur pursuant to ss. 2.6.
"Registration Statement" has the meaning set forth in ss. 4.6.
"Related Entity" means any corporation, trust, partnership or other
entity that would be considered as a single employer with Seller under Section
4001(b)(1) of ERISA or Section 414(b), (c), (m) or (o) of the Code.
"Release" means any actual spilling, leaking, pumping, pouring,
emitting, dispersing, emptying, discharging, injecting, escaping, leaching,
dumping, or disposing of any Hazardous Materials into the Environment.
<PAGE>
"Remaining Accrued Vacation Dollars" has the meaning set forth in
ss. 2.6.
"Remediation Standard" means a numerical standard that defines the
concentrations of Hazardous Materials that may be permitted to remain in the
Environment after an investigation, remediation or containment of a release of
Hazardous Materials.
"Reports" has the meaning set forth in ss. 3.28.
"Reseller Agreement" means the Reseller Agreement entered into by the
Parties in the form of Exhibit B attached hereto.
"Restoration Pension Plan" means the Digital Equipment Corporation Cash
Account Pension Restoration Plan.
"Retained NPB Employees" has the meaning set forth in ss. 5.10.
"Retained Patents" means the Patents listed under the heading "Retained
Patents" in Schedule 1.6.
"Retained Software" means all right, title and interest in (i) any
software, including fragments or modules thereof, that is used by Seller
primarily outside the NPB, and (ii) general purpose standalone software
components (e.g., not data networking) that are used by Seller both within and
outside the NPB (e.g., compilers, run-time systems and libraries).
"SAVE Plan" means the Digital Equipment Corporation Savings and
Investment Plan.
"Second Year" has the meaning set forth in ss. 2.5.
"Second Year Product Credits" has the meaning set forth in ss. 2.5.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Seller" means Digital Equipment Corporation and its Subsidiaries, as
and to the extent the context requires.
"Seller Pension Plan" means the Digital Equipment Corporation Cash
Account Pension Plan.
"Statement of Assets" means a statement of assets sold prepared in
accordance with the Accounting Convention.
<PAGE>
"Subsidiary" means with respect to any Person, (i) any corporation at
least a majority of whose outstanding voting stock is owned, directly or
indirectly, by such Person or by one or more of its Subsidiaries, or by such
Person and one or more of its Subsidiaries; (ii) any general partnership, joint
venture or similar entity, at least a majority of whose outstanding partnership
or similar interests shall at the time be owned by such Person, or by one or
more of its Subsidiaries, or by such Person and one or more of its Subsidiaries;
and (iii) any limited partnership of which such Person or any of its
Subsidiaries is a general partner. For the purposes of this definition, "voting
stock" means shares, interests, participations or other equivalents in the
equity interest (however designated) in such Person having ordinary voting power
for the election of a majority of the directors (or the equivalent) of such
Person other than shares, interests, participations or other equivalents having
such power only by reason of the occurrence of a contingency.
"Tax" or "Taxes" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
ss. 59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar, including FICA), unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added, alternative
or add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto and including any amendment thereof.
"Third Party Claim" has the meaning set forth in ss. 9.5(a).
"Trademarks" means any trademarks, service marks, trade dress, and
logos, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith.
"Welfare Plan" has the meaning set forth in ss. 3.26(a) below.
2. Acquisition of Assets by Buyer
2.1. Purchase and Sale of Assets. The Seller agrees to sell and
transfer to the Buyer, and the Buyer agrees to purchase from the Seller at the
Closing, subject to and upon the terms and conditions contained herein, free
and clear of any material Lien, except those encumbrances listed on
Schedule 2.1(a), all right, title, and interest in and to the following
properties and assets (the "Acquired Assets"):
<PAGE>
(a) all assets reflected on the Initial Statement of Assets
other than those disposed of since June 28, 1997 and those acquired in
the Ordinary Course of Business since June 28, 1997 which appear on the
Closing Date Statement of Assets.
(b) all the inventory of the NPB, including raw materials,
work-in-process, and finished goods, as reflected on the Closing Date
Statement of Assets;
(c) all tangible personal property used primarily in the
NPB (including, without limitation, all machinery, equipment, test
equipment, supplies, manufactured and purchased parts, tools, jigs and
dies, computer software stored on a tangible medium, workstations and
personal computers, electronic, electrical and mechanical equipment and
other computer hardware used primarily in the NPB) owned by Seller
whether in the Seller's possession or in the possession of another
party such as a manufacturer or vendor of the Seller, including
fully-depreciated or fully-expensed tangible property used primarily in
the NPB; not including, however, furniture, file cabinets, and similar
office equipment and office supplies located in the Littleton facility
that are not transferred to the Acton Facilities but including
furniture, file cabinets, and similar office equipment and office
supplies located in Acton intended to compensate for the non-transfer
of Littleton equipment;
(d) the securities of Ipsilon Networks, Inc. owned by the
Seller;
(e) prepaid expenses and deposits;
(f) the Acton Facilities and the furniture and equipment
located therein or comparable substitutes;
(g) the Assigned Intellectual Property, remedies against
infringement thereof and rights to protection of interests therein;
(h) all rights under any contracts, indentures, mortgages,
instruments, Liens, guaranties, or other agreements of Seller, in each
case to the extent they relate to the NPB or the Acquired Assets, and
including, without limitation, those agreements set forth in Schedule
2.1(h) (the "Contracts"), provided, however, that no rights are granted
pursuant to this clause (h) with respect to intellectual property;
(i) all rights under all permits, authorizations, orders,
registrations, certificates, variances, approvals, consents and
franchises or any pending applications all to the extent related to the
NPB or the Acquired Assets, including without limitation all
governmental permits, licenses, authorizations, approvals and consents
described in Schedule 2.1(i) ("Permits");
<PAGE>
(j) all technical data, designs, drawings, specifications,
documentation and manuals (or portions thereof) to the extent that they
are related to the NPB;
(k) the Licensing Programs, remedies against infringement
thereof and rights to protection of interests therein;
(l) all customer, distributor, supplier and mailing lists,
pricing and cost information, and business and marketing plans of
Seller (or portions thereof), all to the extent related to the NPB;
(m) all manufacturing MAC addresses used exclusively in
the operation of the NPB;
(n) all business records and financial management reports,
books, files, plans, appraisals, environmental audits and reports,
documents, correspondence, lists, plats, architectural plans, drawings,
notebooks, specifications, creative materials, advertising and
promotional materials, marketing materials, studies, reports, equipment
repair, maintenance or service records whether written or
electronically stored or otherwise recorded, in each case, that is used
exclusively in the NPB;
(o) all rights and interests of Seller as plan sponsor in
and with respect to the assets associated with the accounts of Hired
Employees under the SAVE Plan transferred to the Buyer 401(k) Plan as
contemplated in ss. 5.10;
(p) the goodwill associated with the NPB and the Acquired
Assets.
On the Closing Date, Seller shall transfer to Buyer all of the Acquired Assets
located outside of the United States, including those listed by country on
Schedule 2.1(x). If it is not possible to do so without adversely affecting the
ability of Seller to transfer, and Buyer to hire, the NPB Employees employed
outside of the United States, or if the Parties mutually agree that it is not
desirable to transfer to Buyer Acquired Assets located in a country other than
the United States on the Closing Date because of any law or regulation, the need
for the approval of any governmental entity, or the need for the review or
approval by any union, works council or similar body ("Local Transfer
Impediment"), Seller and Buyer shall take all actions reasonably necessary to
eliminate the Local Transfer Impediment and Seller shall take all actions
reasonably necessary to transfer the Acquired Assets and Buyer shall take all
actions reasonably necessary to hire the affected non-U.S. NPB Employees as soon
as possible. To this end, the parties agree to prepare and execute, to the
extent necessary, one or more international implementation agreements as soon as
possible after the date hereof to facilitate the transfer of non-U.S. assets and
employees.
<PAGE>
2.2. Excluded Assets. There shall be excluded from the Acquired Assets
to be sold, assigned, transferred, conveyed and delivered to Buyer hereunder,
and to the extent in existence on the Closing Date, there shall be retained by
the Seller, assets, properties and rights including, but not limited to,
(collectively, the "Excluded Assets"):
(a) the Digital Marks;
(b) the Retained Patents;
(c) the Retained Software;
(d) cash, cash equivalents, accounts receivables and
short-term investments; and
(e) any of the rights of the Seller under this Agreement
(or under any other agreement between the Seller on the one hand and
the Buyer on the other hand.
2.3. Assumption of Liabilities. On the terms and subject to the conditions
set forth herein, from and after
the Closing, the Buyer will assume and satisfy or perform when due only the
following Liabilities (the "Assumed Liabilities"):
(a) all liabilities under the Contracts or Permits arising
after the Closing Date (including commitments by the Seller to purchase
goods in the Ordinary Course of Business which are unfulfilled as of
the Closing Date), except to the extent arising from any breach or
default occurring prior to the Closing Date;
(b) all liabilities under the Licensing Programs and under
the licenses granted pursuant to ss. 8.2 arising after the Closing
Date, except to the extent arising from any breach or default occurring
prior to the Closing Date;
(c) all other liabilities and obligations set forth in
Schedule 2.3(c) under an express statement (that the Buyer has
initialed) to the effect that the definition of Assumed Liabilities
will include the Liabilities and obligations so disclosed;
(d) all liabilities related to the Acquired Assets to the
extent arising from or related to any facts or circumstances occurring
after the Closing Date, including, without limitation, all Taxes with
respect to real property allocable to any period after the Closing
Date; and
(e) all liabilities related to the Hired Employees
arising from or related to any facts or circumstances occurring
after the Closing Date, except as otherwise expressly provided herein.
<PAGE>
2.4. Liabilities Not Assumed. Except as expressly set forth in this
Agreement or any other written agreements between the Parties executed
contemporaneously herewith, the Buyer will not assume or perform any
Liabilities not specifically contemplated by ss. 2.3 hereof.
2.5. Purchase Price. The Buyer agrees to assume the Assumed Liabilities
at the Closing and pay to the Seller aggregate consideration consisting of the
following (the "Purchase Price"), subject to adjustment pursuant to ss. 2.6:
(a) Cash. At the Closing, $91,800,000 in cash (subject to
adjustment pursuant to ss.2.6) payable by wire transfer to the Seller
in accordance with written instructions of the Seller given to the
Buyer at least two business days prior to the Closing.
(b) Cabletron Stock. At the Closing, Buyer shall deliver to
the Seller certificates representing the number of whole shares of
Cabletron Common Stock equal to $50,000,000 divided by the Cabletron
Stock Price (the "Cabletron Shares").
(c) Product Credits. The following Product Credits:
(i) First Year Product Credits. Subject to
adjustment pursuant to ss. 2.6, $168,500,000 in First Year
Product Credits.
"First Year Product Credits" means Product
Credits which may be used by Seller to purchase from
Buyer, at prices set forth in the Reseller Agreement,
products that are ordered under the Reseller
Agreement during the period beginning on the Closing
Date and ending on the first anniversary of the
Closing Date (the "First Year") requesting delivery
at any time until thirty days after the end of the
First Year. Any First Year Product Credits not
expended in accordance with the preceding sentence
shall automatically expire and be of no further force
or effect immediately following the end of the First
Year; provided, however, Seller shall be permitted to
carryover to the Second Year unused First Year
Product Credits equal to the amount, if any, that
Seller's minimum purchase commitment (as described in
the Reseller Agreement) is reduced in the First Year
as contemplated by the Reseller Agreement.
(ii) Second Year Product Credits. Subject to
adjustment pursuant to ss. 2.6, $125,000,000 in Second Year
Product Credits.
<PAGE>
"Second Year Product Credits" means Product
Credits which may be used by Seller to purchase from
Buyer, at prices set forth in the Reseller Agreement,
products that are ordered under the Reseller
Agreement during the period beginning on the first
anniversary of the Closing Date and ending on the
second anniversary of the Closing Date (the "Second
Year") requesting delivery at any time until thirty
days after the end of the Second Year. Any Second
Year Product Credits not expended in accordance with
the preceding sentence shall automatically expire and
be of no further force or effect immediately
following the end of the Second Year; provided,
however, Seller shall be permitted to use in the
twelve month period immediately following the Second
Year unused Second Year Product Credits equal to the
amount, if any, that Seller's minimum purchase
commitment (as described in the Reseller Agreement)
is reduced in the Second Year as contemplated
pursuant to the Reseller Agreement.
2.6. Ajustments to Purchase Price. The acceptance by the Buyer and Seller
of any adjustments to the Purchase Price pursuant to this ss. 2.6 shall be the
exclusive remedy of either Party in connection with an increase or decrease in
the Asset Value of the assets set forth on the Initial Statement of Assets,
notwithstanding any provisions of ss.9.
(a) Post-Closing Adjustment to Purchase Price
(i) Preparation of Closing Date Statement of
Assets
(A) Within 60 days after the Closing
Date, the Seller will cause Coopers & Lybrand to
perform the Agreed-Upon Procedures and assist in the
preparation of a Statement of Assets (the "Closing
Date Statement of Assets") for the NPB as of the
Closing. The Closing Date Statement of Assets shall
be prepared based upon the Accounting Convention. The
Closing Date Statement of Assets will not reflect any
Liabilities. In addition, the Seller will permit the
Buyer (or its accountants) to participate in the
substantially complete physical count of inventory
and other tangible personal property and property,
plant and equipment. Buyer and Seller will share
equally the fees and expenses of Coopers & Lybrand to
assist in the preparation of the Closing Date
Statement of Assets and the performance of the
Agreed-Upon Procedures.
(B) If the Buyer has any objections
to the Closing Date Statement of Assets, it will
deliver a written statement setting forth such
objections to the Seller within 45 days after
<PAGE>
receiving the Closing Date Statement of Assets. The
Buyer and the Seller will use reasonable efforts to
resolve any such objections themselves. If the
Parties do not obtain a final resolution within 30
days after the Seller has received the statement of
objections, however, the Parties shall appoint
Deloitte & Touche, certified public accountants, to
resolve any remaining objections. If Deloitte &
Touche is unavailable, the Parties will select a
nationally-recognized accounting firm by lot (after
excluding their respective regular outside accounting
firms). The determination of any accounting firm so
selected will be set forth in writing and will be
conclusive and binding upon the Parties. The Seller
will revise the Closing Date Statement of Assets as
appropriate to reflect the resolution of any
objections thereto pursuant to this ss. 2.6(a)(i)(B).
The Closing Date Statement of Assets shall be deemed
final if Buyer fails to object within 45 days after
receipt or after any revisions are completed pursuant
to this ss. 2.6(a)(i)(B).
(C) In the event the Parties submit
any unresolved objections to an accounting firm for
resolution as provided in ss. 2.6(a)(i)(B) above, the
Buyer and the Seller will share equally the fees and
expenses of the accounting firm.
(D) As part of Buyer's review of the
Closing Date Statement of Assets or during the
resolution of any dispute, including by the
nationally-recognized accounting firm appointed to
resolve disputes of the Parties pursuant to ss.
2.6(a)(i)(B), Buyer and its accountants and other
representatives will be entitled to review the
methodology and back-up materials used in preparing
the Closing Date Statement of Assets in the presence
of appropriate financial staff of Seller at
reasonable times and upon reasonable notice.
(ii) Adjustment to Purchase Price. The Purchase
Price will be adjusted (in First Year Product Credits) as
follows:
(A) If the Asset Value as determined
in the Closing Date Statement of Assets, net of any
resolved disputes, exceeds the Asset Value as
determined in the Initial Statement of Assets by
$1,000,000 or more, the First Year Product Credits
will be increased by the amount by which the Asset
Value exceeds the Asset Value as determined with
respect to the Initial Statement of Assets.
(B) If the Asset Value as determined
in the Closing Date Statement of Assets, net of any
resolved disputes, is less than the Asset Value as
<PAGE>
determined with respect to the Initial Statement of
Assets by $1,000,000 or more, the First Year Product
Credits will be decreased by the amount by which the
Asset Value is less than the Asset Value as
determined with respect to the Initial Statement of
Assets.
(b) Vacation Adjustment. The Purchase Price shall be
adjusted for accrued vacation benefits as follows:
(i) "Remaining Accrued Vacation Dollars" shall
mean the sum for all Hired Employees, of an amount for each
Hired Employee equal to (i) the total number of accrued
vacation hours not paid out to such employee pursuant to
ss.5.10(b)(v), multiplied by (ii) the hourly wage rate for
such employee.
Within 25 business days following the Closing Date, Seller
shall prepare and deliver to the Buyer a statement showing the
Remaining Accrued Vacation Dollars prepared in accordance with
Seller's standard accounting policies prepared on a consistent
basis with prior vacation accrual calculations. Within 20 days
following the delivery of such statement by Seller to Buyer,
Buyer may object to the calculation of the Remaining Accrued
Vacation Dollars in writing. If Buyer so objects to the
Remaining Accrued Vacation Dollars, the Parties shall attempt
to resolve such dispute by negotiation. If the parties are
unable to resolve such dispute within twenty days of any
objection by Buyer, the parties shall appoint Deloitte &
Touche, certified public accountants, to resolve any remaining
objections. If Deloitte & Touche is unavailable, the Parties
will select a nationally-recognized accounting firm by lot
(after excluding their respective regular outside accounting
firms). The determination of any accounting firm so selected
will be set forth in writing and will be conclusive and
binding upon the Parties.
If Buyer does not object to the calculation of Remaining
Accrued Vacation Dollars within the time period set forth
above or upon the final resolution of any dispute concerning
the Remaining Accrued Vacation Dollars (i) Seller shall pay to
Buyer the amount, if any, by which the Remaining Accrued
Vacation Dollars exceeds $1,500,000, or (ii) Buyer shall pay
to Seller the amount, if any, by which $1,500,000 exceeds the
Remaining Accrued Vacation Dollars, in each case as soon as
possible, but in any event within 10 business days.
2.7. The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing"), such Closing to be deemed to have occurred at
12:01 a.m. on the Closing Date, shall take place at the offices of Ropes & Gray
in Boston, Massachusetts, commencing at 10:00 a.m. eastern time on the business
day after all conditions in Sections 6.1 and 6.2 are satisfied (provided that
<PAGE>
such date is reasonably acceptable to both Parties) or such other date as the
Parties may mutually determine (the "Closing Date").
2.8. Deliveries at the Closing. At the Closing, the Seller will deliver
to the Buyer properly executed and acknowledged, if appropriate (i) the various
certificates, instruments, and documents referred to in ss. 6.1 below; (ii) a
quitclaim deed relating to the Acton Facilities, (iii) assignments of the
Assigned Patents, Assigned Trademarks, Contracts and Permits, (iv) such other
instruments of sale, transfer, conveyance, and assignment as the Buyer and its
counsel may reasonably request in respect of the Acquired Assets, (v) the
Reseller Agreement, and (vii) the Bill of Sale in the form attached hereto as
Exhibit D. The Buyer will execute, acknowledge (if appropriate), and deliver the
Assignment and Assumption Agreement in the form attached hereto as Exhibit E and
will deliver the consideration specified in ss. 2.5(a) and 2.5(b) above.
Simultaneously with such delivery, the Buyer and Seller will use all
reasonable efforts and take all reasonable action as may be necessary to put
Buyer in possession and operating control of the Acquired Assets.
At any time and from time to time after the Closing, at the request of
Buyer and without further consideration, except as stated below, the Seller will
execute and deliver such other instruments of sale, transfer, conveyance,
assignment and confirmation and take such action as Buyer may reasonably
determine is necessary to transfer, convey and assign to Buyer, and to confirm
Buyer's title to or interest in the Acquired Assets, to put Buyer in actual
possession and operating control thereof and to assist Buyer in exercising all
rights with respect thereto.
2.9. Preliminary Allocation of Purchase Price The Parties agree that the
preliminary allocation of the Purchase Price for the Acquired Assets shall be as
determined by the allocation formula to be agreed by the parties; as may be
adjusted to reflect any Purchase Price Adjustments. The Seller and Buyer agree
that the allocation may be amended or modified by mutual agreement to establish
a final allocation prior to the filing of the applicable Tax Returns of Buyer
and Seller. The Seller and Buyer shall use such final allocation in all Tax
Returns.
3. Representations and Waranties of the Sellers. The Seller represents and
warrants to the Buyer that the statements contained in this ss. 3 are correct
and complete as of the date of this Agreement and, unless a date is specified in
such representation and warranty, will be correct and complete as of the Closing
Date as though made then, except as set forth in the disclosure schedule
accompanying this Agreement (the "Disclosure Schedule"). The Disclosure Schedule
will be arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this ss. 3. Disclosure in one paragraph is not deemed
disclosure for any other paragraph.
<PAGE>
3.1. The Seller is a corporation duly organized, validly existing,
and in good standing under the laws of the state of its incorporation.
3.2. [Intentionally Omitted]
3.3. Authorization of Transaction. The Seller has the corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. All corporate actions or proceedings to be taken by or on the part of
the Seller to authorize and permit the execution and delivery by Seller of this
Agreement and the instruments required to be executed and delivered by Seller
pursuant hereto, the performance by Seller of its obligations hereunder, and the
consummation by Seller of the transactions contemplated herein, have been duly
and properly taken. This Agreement has been duly executed and delivered by the
Seller and constitutes the legal, valid and binding obligation of the Seller,
enforceable in accordance with its terms and conditions.
3.4. Noncontravention. Except as set forth in ss. 3.4 of the Disclosure
Schedule, neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby (including the assignments
and assumptions referred to in ss. 2 above), will (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order or decree of any
government, governmental agency, or court to which the Seller is subject or any
provision of the charter or by-laws of the Seller or (ii) conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which the Seller is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Lien upon
any of its assets), except in the case of (i) and (ii), for violations,
conflicts, breaches or defaults that would not have a Material Adverse Effect.
Except as set forth in ss. 3.4 of the Disclosure Schedule, the Seller does not
need to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for the
Parties to consummate the transactions contemplated by this Agreement (including
the assignments and assumptions referred to in ss. 2 above) except for the
required filings under the Hart-Scott-Rodino and foreign pre-merger notification
requirements.
3.5. Brokers' Fees. The Seller has no liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could become
liable or obligated.
3.6. Title of Assets. Except for Real Property and Intellectual Property
which are subject to ss.ss. 3.15 and 3.16 and except as set forth in ss.3.6 of
the Disclosure Schedule, the Seller owns or has a valid leasehold interest in
the Acquired Assets, free and clear of all Liens, except for Liens that would
not have a Material Adverse Effect.
<PAGE>
3.7. All Assets Necessary to Conduct Business. The Acquired Assets and the
licenses granted in Section 8.2 comprise all of the assets, properties and
rights of every type and description, real, personal, tangible and intangible
necessary to the conduct of the NPB.
3.8. Financial Statements. The Initial Statement of Assets, attached hereto
as Exhibit D, was prepared in accordance with the Accounting Convention. Exhibit
E are unaudited summary statements of operations for the NPB for the fiscal
years ended July 1, 1995, June 29, 1996 and June 28, 1997 (together with the
Initial Statement of Assets, the "Financial Information"). The Initial Statement
of Assets was prepared in good faith and in accordance with the Accounting
Convention. The summary statements of operations were prepared in good faith and
derived from Seller's management reporting systems as maintained by Seller in
the ordinary course of business. No representation is made that the Financial
Information has been prepared in a manner consistent with GAAP or that the
Financial Information is indicative of the financial condition and the results
of operations that would have been achieved had the NPB been operated as a
stand-alone, non-affiliated entity.
3.9. Absence of Changes. Since the date of the Initial Statement of Assets
and except as disclosed in ss. 3.9 of the Disclosure Schedule, the Seller has
operated and conducted the business of the NPB only in the Ordinary Course of
Business and, with respect to, by and on behalf of the NPB, there has not been:
(a) any sale, lease, transfer, or assignment of assets,
tangible or intangible, other than sales of inventory in the Ordinary
Course of Business and other than in an amount not in excess of
$250,000;
(b) any acceleration, termination, modification, or
cancellation of any Contract listed in Schedule 2.1(h) involving
payments of more than $250,000;
(c) as of the date hereof the responsible managers of
the NPB have not received any notice that any major resellers or
distributors do not intend to continue with Buyer a business
relationship on terms at least as favorable as the relationship such
resellers or distributors, as the case may be, currently have with the
Seller with respect to NPB; and
(d) any damage, destruction, or loss (whether or not
covered by insurance) to the Acquired Assets in excess of $250,000.
3.10. Absence of Undisclosed Liabilities. The Seller has no Liability that
will be assumed by Buyer except as expressly set forth herein and in the
schedules and attachments hereto or in other written agreements between the
Parties.
<PAGE>
3.11. Legal and Other Compliance. Except for Intellectual Property and
Environmental matters, which are addressed in ss.ss.3.16 and 3.25:
(a) the Seller is in compliance with all applicable Laws
the violation of which, either singularly or in the aggregate, would
have a Material Adverse Effect on the NPB or the Acquired Assets and,
to Seller's Knowledge, no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to
comply; and
(b) neither the ownership nor use of properties of the
NPB nor the conduct of the business of the NPB conflicts with the
rights of any other Person or violates, or with the giving of notice or
the passage of time or both will violate, conflict with or result in a
default, right to accelerate or loss of rights under, any terms or
provisions of any of their charter or by-laws or any Lien, law,
ordinance, rule or regulation, any order, judgment or decree to which
the NPB is a party or by which the NPB may be bound or affected, except
for such conflicts, violations and defaults which would not have a
Material Adverse Effect.
3.12. No Material Adverse Change. Since the date of the Initial Statement
of Assets, there has not been any change which has resulted in a Material
Adverse Effect and no event has occurred or circumstance exists that would
reasonably be likely to result in such a Material Adverse Effect.
3.13. Demand Plan. Seller has previously provided a Demand Plan for
the NPB to Buyer, which plan was prepared in good faith and in a manner
consistent with past practice by Seller. The Demand Plan is based upon a number
of assumptions and estimates that, while presented with numerical specificity
and considered reasonable by the Seller, are (i) inherently subject to
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond the control of the NPB, and (ii) based upon assumptions
with respect to future business decisions that are subject to change.
Accordingly, actual results may vary from the Demand Plan, and these variations
may be material. Consequently, the Demand Plan is not a representation by Seller
that the results therein will be achieved.
3.14. Taxes. All Taxes required to have been withheld and paid with
respect to the NPB in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party have been
withheld and paid, and there are no Liens or other encumbrances on any of the
Acquired Assets that arose in connection with any failure (or alleged failure)
to pay any Tax.
<PAGE>
3.15. Real Property
(a) The Acton Facilities are all of the real property
that are part of the Acquired Assets. Except as set forth in ss.
3.15(a) of the Disclosure Schedule, with respect to the Acton Facility:
(i) the Seller has good and clear record and
marketable title to the parcel of real property, free and
clear of any Lien, except for installments of special
assessments not yet delinquent and recorded easements,
covenants, and other restrictions which do not materially
impair the current use, occupancy, or value, of the property
subject thereto;
(ii) there are no pending or, to the Knowledge
of Seller, threatened condemnation proceedings, lawsuits, or
administrative actions relating to the property or other
matters which would materiality adversely affect the use,
occupancy, or value thereof;
(iii) the buildings and improvements of the Acton
Facilities are located within the boundary lines of the real
property being sold by Seller to Buyer, are not in violation
of applicable setback requirements, zoning laws and ordinances
which violations would materially impair the current use,
occupancy or value of the property subject thereto, do not
encroach on any easement which encroachment would materially
impair the current use, occupancy or value of the property
subject thereto, and the land does not serve any adjoining
property for any purpose which would materially impair the
current use, occupancy, or value of the property subject
thereto;
(iv) to the Knowledge of Seller each facility
located on such parcel has received all approvals of
governmental authorities (including licenses and permits)
required in connection with the ownership or operation thereof
and have been operated and maintained in accordance with
applicable laws, rules, and regulations;
(v) there are no leases, subleases, licenses,
concessions, or other agreements, written or oral, granting to
any party or parties the right of use or occupancy of the
parcel or any portion thereof except for licensees or
concessions serving the premises;
(vi) there are no outstanding options or rights
of first refusal to purchase such parcel, or any portion
thereof or interest therein;
<PAGE>
(vii) there are no parties (other than the NPB or
other employees of the Seller or MCI or Bell Atlantic) in
possession of such parcel;
(viii) each facility located on such parcel is
supplied with utilities and other services necessary for the
operation of such facility, as presently operated; and
(ix) each parcel has direct access to a public
road or has access to a public road via a permanent,
irrevocable, appurtenant easement benefitting such parcel
adequate for the current use.
<PAGE>
3.16. Intellectual Property
(a) The Seller owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Assigned Intellectual
Property. Subject to obtaining all necessary consents as disclosed in
ss. 3.27 of the Disclosure Schedule, each item of Assigned Intellectual
Property owned or used by the Seller in connection with the business of
the NPB immediately prior to the Closing hereunder will be owned or
available for use by the Buyer on identical terms and conditions
immediately subsequent to the Closing hereunder except for facts and
circumstances specific to Buyer. Except as disclosed in ss. 3.16(a) of
the Disclosure Schedule, to the knowledge of the Seller, the Seller has
taken all necessary action to protect each item of Assigned
Intellectual Property, except for Assigned Licenses.
(b) Except as disclosed in ss. 3.16(b) of the Disclosure
Schedule, to the Knowledge of the Seller, the Seller in connection with
the NPB has not interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any intellectual property rights of
third parties (excluding patents pending but not yet issued as of the
Closing Date), and there has never been any written charge, complaint,
claim, demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that the Seller
must license or refrain from using any intellectual property rights of
any third party). Except as disclosed in ss. 3.16(b) of the Disclosure
Schedule, to the Knowledge of the Seller, Seller has provided to Buyer
all documents concerning claims that a third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with
any Assigned Intellectual Property rights of the Seller, except with
respect to Assigned Licenses.
(c) Section 3.16(c) of the Disclosure Schedule
identifies each patent or registration which has been issued with
respect to the Assigned Intellectual Property, except for Assigned
Licenses, and identifies each pending patent application or application
for registration which has been made with respect to the Assigned
Intellectual Property, except for Assigned Licenses. With respect to
<PAGE>
each item of Assigned Intellectual Property required to be identified
in section 3.16(c) of the Disclosure Schedule to the Knowledge of
Seller, no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of the
Seller, is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item other than in the course
of any proceedings in the U.S. Patent and Trademark Office (or any
international equivalent) relating to any pending patent or trademark
application.
(d) The Seller has delivered to the Buyer correct and
complete copies of all Assigned Licenses listed on Schedule 1.2. With
respect to each Assigned License, except as set forth in Section
3.16(d) of the Disclosure Schedule:
(i) to the Knowledge of Seller, the license,
sublicense, agreement, or permission covering the Assigned
License is legal, valid, binding, enforceable, and in full
force and effect and will continue to be legal, valid,
binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions
contemplated hereby;
(ii) to the Knowledge of Seller, it is not in
breach or default of any Assigned License;
(iii) to the Knowledge of Seller, no event has
occurred which with notice or lapse of time would constitute a
breach or default or permit termination, modification, or
acceleration thereunder; and, Seller has not provided written
notice of breach or default to any Licensor of an Assigned
License;
(iv) to the Knowledge of the Seller, it has not
repudiated any provision of an Assigned License, and it has
not received written notice from any Licensor of an Assigned
License that it has done so;
(v) to the Knowledge of Seller, each underlying
item of intellectual property is not subject to any
outstanding injunction, judgment, order, decree, ruling, or
charge;
(e) Except as set forth in Section 3.16(e) of the
Disclosure Schedule, no action, suit, proceeding, hearing,
investigation, charge, complaint, written claim, or written demand is
pending or, to the Knowledge of the Seller, has been threatened in
writing, which challenges the legality, validity, or enforceability of
the underlying item of Assigned Intellectual Property, other than in
the course of any proceedings in the U.S. Patent and Trademark Office
(or any international equivalent) relating to any pending patent or
trademark application.
<PAGE>
(f) Other than in connection with the sale, manufacture
or license of Products in the ordinary course, the Seller has not
granted any sublicense or similar right with respect to the Assigned
Licenses.
(g) To the Knowledge of Seller, the Assigned
Intellectual Property, together with the licenses granted pursuant to
ss. 8.2, constitutes all of the intellectual property necessary for the
design, sale, marketing, distribution, maintenance and support (but not
service) of the Products and having the Products manufactured;
(h) The Seller has granted no licenses with respect to
the Assigned Patents except for those set forth in ss. 3.16(h) of the
Disclosure Schedule.
3.17. Inventories. The inventory of the Seller in connection with the
business of the NPB consists of raw materials and supplies, manufactured and
purchased parts, goods in process, and finished goods, all of which is saleable,
suitable and usable for the production or completion of saleable products for
sale in the Ordinary Course of Business, except as reflected in the Initial
Statement of Assets and the Closing Date Statement of Assets. The inventory,
taken as a whole, reflected in the Initial Statement of Assets, is valued in
accordance with the Accounting Convention. Since June 28, 1997, no inventory has
been sold or disposed of except in the Ordinary Course of Business of the NPB.
3.18. Contracts. The Seller has delivered to the Buyer a correct and
complete copy of each material Contract (as amended to date) listed on Schedule
2.1(h). Except as disclosed in ss. 3.18 of the Disclosure Schedule, with respect
to each Contract: (i) the agreement is legal, valid, binding, enforceable, and
in full force and effect in all material respects; (ii) to the Seller's
Knowledge no party is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default, or permit
termination, modification, or acceleration, under the Contract; and (iii) to the
Seller's Knowledge no party has repudiated any provision of the Contract.
3.19. There are no outstanding powers of attorney executed on behalf of any
of the Seller in respect of the NPB.
3.20. Insurance and Risk Management. The NPB has been covered during the
past 2 years by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned period.
3.21. Litigation. Except as disclosed in ss. 3.21 of the Disclosure
Schedule, there are no judicial or administrative actions, claims, suits,
proceedings or investigations pending or, to the Knowledge of the Seller,
threatened, that would be reasonably likely to result in a Material Adverse
Effect and the Seller has no notice of any action seeking to enjoin the
<PAGE>
consummation of the transactions contemplated hereby and to the Knowledge of the
Seller, there is no Basis for any such action, claim, suit, proceeding or
investigation. There are no judgments, orders, decrees, citations, fines or
penalties heretofore assessed against the Seller which have had a Material
Adverse Effect.
3.22. Product Warranties; Defects; Liability. To the Knowledge of the
Seller, each product manufactured, sold, leased, or delivered by the NPB has
been in conformity in all material respects with all applicable federal, state,
local or foreign laws and regulations, contractual commitments and all express
and implied warranties. Section 3.22 of the Disclosure Schedule includes copies
of the standard terms and conditions of sale or lease for the NPB (containing
applicable guaranty, warranty, and indemnity provisions).
3.23. Employees.
(a) As of the date hereof, to the Knowledge of Robert
Rennick or Chris Sullivan no employee on the key employee list
previously provided by Seller to Buyer has any plans to terminate
employment with the Seller or not accept employment with Buyer. The
Seller has not experienced any material labor disputes or work stoppage
in the United States due to labor disagreements with regard to the
business of the NPB. With respect to the operations of the NPB in the
United States, the Seller is not nor has it ever been a party to any
collective bargaining agreements and the NPB has not been the subject
of any organizational activity.
(b) With respect to Overseas Employees, there is no
existing material labor dispute or work stoppage due to labor
disagreements specifically with regard to the business of the NPB.
3.24. Employee Benefits.
(a) Seller Plans. Seller has provided to Buyer a
description of the material terms of each material Employee Plan which
is maintained by Seller or any Related Entity which benefits any NPB
employee of the Seller (a "Seller Plan"). For purposes of this
Agreement, the term "Employee Plan" means any U.S. plan, program,
agreement, policy or arrangement (a "plan"), whether or not reduced to
writing, that is: (i) a welfare benefit plan within the meaning of
Section 3(1) of ERISA (a "Welfare Plan"); (ii) a pension benefit plan
within the meaning of Section 3(2) of ERISA; (iii) a stock bonus, stock
purchase, stock option, restricted stock, stock appreciation right or
similar equity-based plan; or (iv) any other deferred-compensation,
retirement, welfare-benefit, bonus, incentive or fringe benefit plan or
arrangement.
(b) The SAVE Plan. The SAVE Plan is qualified under
Section 401(a) of the Code and its associated trust is exempt from tax
<PAGE>
under section 501(a) of the Code and each has been administered in all
material respects in accordance with its terms and with applicable law.
Seller has received a favorable determination letter from the IRS with
respect to the SAVE Plan. There has been no non-exempt "prohibited
transaction" within the meaning of Code Section 4975(c) involving the
assets of the SAVE Plan. All required contributions on account of the
SAVE Plan have been made or accrued by the Seller in accordance with
GAAP. Section 3.24 of the Disclosure Schedule sets forth each and every
pending or, to the knowledge of Seller, threatened lawsuit, claim or
other controversy relating to the SAVE Plan, other than claims for
benefits in the normal course. Seller has delivered to Buyer the SAVE
Plan document and delivered or made available to Buyer all related SAVE
Plan documents.
(c) No Liability. No circumstance exists and no event
(including any action or the failure to do any act) has occurred with
respect to any Employee Plan (including, for purposes of this ss. 3.24
only, any non-U.S. employee plan) maintained or formerly maintained by
Seller or any Related Entity, or to which Seller or any Related Entity
is or has been required to contribute, that could subject Buyer to
Liability, or the assets of the NPB to any lien, under ERISA or the
Code, nor will the transactions contemplated by this Agreement give
rise to any such Liability or lien.
(d) Multiemployer Plans. With respect to Hired
Employees, neither Seller nor any Related Entity has or had any
liability to make payments or contributions to a multiemployer plan as
that term is defined in ERISA section 3(37), and has no actual or
potential liability under ERISA section 4201 for any complete or
partial withdrawal from a multiemployer plan.
3.25. Environment.
(a) Except as disclosed in ss. 3.25 of the Disclosure
Schedule:
(i) the Seller in connection with the business
of the NPB and the Acton Facilities has complied and is in
compliance with all applicable Environmental Laws the
violation of which could have a Material Adverse Effect;
(ii) the Seller in connection with the business
of the NPB and the Acton Facilities has obtained, and is and
has been in material compliance with the conditions of, all
Environmental Permits required for the continued conduct of
<PAGE>
the business of the NPB in the manner now conducted;
(iii) the Seller in connection with the business
of the NPB and the Acton Facilities has filed all required
applications, notices and other documents necessary to effect
the timely renewal or issuance of all Environmental Permits
for the continued conduct of the business of the NPB and the
Acton Facilities in the manner now conducted;
(iv) the Seller in connection with the present
or past assets, properties, businesses, leaseholds or
operations of the business of the NPB or the Acton Facilities
has not received nor is subject to, nor within the past three
years has been subject to, any outstanding order, decree,
judgment, complaint, agreement, claim, citation, or notice or
is subject to any ongoing judicial or administrative
proceeding indicating that the Seller or the past and present
assets of the NPB or the Acton Facilities are or may be: (A)
in violation of any Environmental Law; or (B) responsible for
the on-site or off-site storage or Release of any Hazardous
Materials;
(v) to the Knowledge of Seller, no proceeding
related to the matters covered by subsection (iv) have been
threatened within three years prior to the Closing Date;
(vi) Section 3.25 of the Disclosure Schedule
lists all property presently or previously leased, owned or
operated by the Seller in connection with the business of the
NPB that has been used in the business of the NPB or by any
other Person (including a prior owner or operator) for the
intentional disposal of Hazardous Materials;
(vii) Section 3.25 of the Disclosure Schedule
sets forth a list of all underground storage tanks owned or
operated at any time at the Acton Facilities or currently
owned and operated by the Seller in connection with the
business of the NPB; and
(viii) There have been no Releases of Hazardous
Materials on or underneath the Acton Facilities or any of the
real property owned or leased by the business of the NPB that
would be reasonably likely to have a Material Adverse Effect.
(b) For purposes of this ss. 3.25 only, all references
to the "Seller" are intended to include any and all other entities to
which the Seller is considered a successor under applicable
Environmental Laws. The representations and warranties in this section
are the only representations and warranties with respect to
Environmental Laws or environmental matters notwithstanding any other
language in this Agreement of general applicability.
3.26. Government Contracts. The Contracts listed on Schedule 2.1(h) do not
include any governmental contracts.
<PAGE>
3.27. Consents. Section 3.27 of the Disclosure Schedule sets forth a
true, correct and complete list of the identities of any Person whose consent or
approval is required with respect to any matter, agreement or contract (other
than immaterial matters, agreements or contracts) and the matter, agreement or
contract to which such consent relates in connection with the transfer,
assignment or conveyance by the Seller of any of the Acquired Assets.
3.28. Investment Intent. Seller is acquiring the Cabletron Shares
for its own account and not with a view to, or for resale in connection with,
any unregistered distribution thereof, and Seller has no present intention to
sell, convey, dispose of or otherwise distribute any interest in or risk related
to the Cabletron Shares except pursuant to an effective Registration Statement
or in a manner consistent with the requirements of the Securities Act. Seller
understands that the Cabletron Shares have not been registered under the
Securities by reason of a specific exemption from the registration provisions of
the Securities Act. Seller has had the opportunity to review the information set
forth in all of Cabletron's reports filed with the Securities and Exchange
Commission since December 31, 1995 (the "Reports"). In making its decision to
acquire the Cabletron Shares, Seller has relied solely upon the Reports and
other publicly available information, has not been provided with or relied upon
any material nonpublic information concerning Cabletron and has carefully
considered the risks regarding Cabletron set forth in detail in the Reports. The
Seller is a sophisticated investor with knowledge and experience in business and
financial matters and is able to bear the economic risk and lack of liquidity
inherent in holding the Cabletron Shares.
4. Representations and Warranties of the Byer. The Buyer represents and
warrants to the Seller that the statements contained in this ss. 4
are true, correct and complete as of the date of this Agreement
and, unless a date is specified in such representation and
warranty, will be true, correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted
for the date of this Agreement throughout ss. 4).
4.1. Organization of the Buyer. Each of Cabletron and Acquisition is a
corporation duly organized, validly existing, and in good standing under the
laws of the state of its incorporation.
4.2. Authority for Agreement. Each of Cabletron and Acquisition has the
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. All corporate actions or proceedings to be
taken by or on the part of Cabletron and Acquisition to authorize and permit the
execution and delivery by Cabletron and Acquisition of this Agreement and the
instruments required to be executed and delivered by Cabletron and Acquisition
pursuant hereto, the performance by Cabletron and Acquisition of their
respective obligations hereunder, and the consummation by Cabletron and
Acquisition of the transactions contemplated herein, have been duly and properly
taken. This Agreement has been duly executed and delivered by Cabletron and
<PAGE>
Acquisition and constitutes the legal, valid and binding obligation of Cabletron
and Acquisition, enforceable against each in accordance with its terms and
conditions.
4.3. Litigation. Buyer has no notice of any action seeking to
enjoin the consummation of the transactions contemplated hereby and to the
Knowledge of the Buyer, there is no Basis for any such action, claim, suit,
proceeding or investigation.
4.4. Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in ss. 2 above), will (i)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Cabletron and Acquisition is subject or
any provision of their respective charter or bylaws or (ii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license, instrument,
or other arrangement to which either Cabletron or Acquisition is a party or by
which either is bound or to which any of either Cabletron's or Acquisition's
assets is subject (or result in the imposition of any lien upon its assets),
except for violations, breaches or defects that would not make a material
adverse effect on Cabletron or Acquisition. Cabletron and Acquisition do not
need to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for the
Parties to consummate the transactions contemplated by this Agreement (including
the assignments and assumptions referred to in ss. 2 above), except for required
filings under the Hart-Scott-Rodino Act and foreign pre-merger notification
requirements, which filings have been made.
4.5. Brokers' Fees. Neither Cabletron nor Acquisition has any Liability
or obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement for which the
Seller could become liable or obligated.
4.6. Registration Statement. The Form S-3 registration statement (the
"Registration Statement") pursuant to which the Cabletron Shares to be issued
pursuant to this Agreement will be registered with the Commission shall not, at
the time the Registration Statement (including any amendments or supplements
thereto) is declared effective by the Commission, 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 Registration Statement shall comply in all
material respects as to form with the requirements of the Securities Act and the
rules and regulations thereunder. Notwithstanding the foregoing, Buyer makes no
representation or warranty with respect to any information supplied by the
Seller or the officers and directors of the Seller and its Subsidiaries which is
<PAGE>
contained in, or furnished in connection with the preparation of, the
Registration Statement.
4.7. SEC Reports and Financial Statements. Cabletron has timely
filed with the Commission all forms, reports and other documents which it
believes were required to be filed by it since December 31, 1995 under the
Securities Exchange Act and the Securities Act (as such documents have been
amended since the time of their filing, collectively, the "Buyer SEC
Documents"). The Buyer SEC Documents, including, without limitation, any
financial statements or schedules included therein, at the time filed, complied
in all material respects with the applicable requirements of the Securities
Exchange Act or the Securities Act, as the case may be. The consolidated
financial statements of Buyer included in the Buyer SEC Documents comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the Commission with respect thereto, have
been prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements, as permitted by Form 10-Q of the Commission)
and fairly present in all material respects (subject, in the case of the
unaudited statements, to normal, recurring audit adjustments which are not
material in amount) the consolidated financial position of Buyer and its
consolidated Subsidiaries as at the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended.
4.8. No Material Adverse Change. Except as disclosed in Schedule
4.8, since the date of the most recent Form 10-Q filed by Buyer with the
Commission, Buyer has conducted its operations only in the Ordinary Course of
Business. There has not been any change which has resulted in a material adverse
effect on the business, assets, financial condition, and results of operations
of Buyer and no circumstances exists that would be reasonably likely to result
in such a material adverse effect.
4.9. Employee Benefits. The Buyer 401(k) Plan is qualified under Section
401(a) of the Code and its associated trust is exempt from Tax under section
501(a) of the Code and each has been administered in accordance with its terms
and with applicable law. All required contributions on account of the Buyer
401(k) Plan have been made or accrued by the Buyer in accordance in accordance
with GAAP. Section 4.8 of the Disclosure Schedule sets forth each and every
pending or, to the knowledge of Buyer, threatened lawsuit, claim or other
controversy relating to the Buyer 401(k) Plan, other than claims for benefits in
the ordinary course. Buyer has made the Buyer 401(k) Plan and related documents
available to Seller. The Company has received a favorable determination letter
from the IRS with respect to the Buyer 401(k) Plan.
5. Covenants. The Parties agree as follows:
<PAGE>
5.1. General. Each of the Parties will use its best efforts to take all
action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
ss. 6 below and including the diligent defense in good faith of any action or
proceeding which may threaten the consummation of the transactions contemplated
hereby).
5.2. Notices and Consents. The Seller will give any notices to third
parties, and Buyer and Seller will use reasonable efforts to obtain any third
party consents, that are required to transfer the Acquired Assets to Buyer, and
any other consent that the Buyer may reasonably request. Each of the Parties
promptly will file Notification and Report Forms and related material that may
be required to be filed with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice under the Hart-Scott-Rodino
Act, and will make any further filings pursuant thereto that may be necessary or
requested in connection therewith. Notwithstanding any other provision of this
Agreement to the contrary, until any third party consent is obtained, or if an
attempted assignment thereunder would be ineffective or would affect the rights
of the Seller thereunder so that Buyer would not in receive all such rights,
Seller and Buyer will cooperate with each other to provide for the benefits of,
and to permit Buyer to assume all liabilities under, any such right, claim,
Permit or Contract any and all rights of Seller against a third party thereto
arising out of the breach or cancellation thereof by such third party; and any
transfer or assignment to Buyer by Seller of any property or property rights or
any contract or agreement which shall require the consent or approval of any
third party shall be made subject to such consent or approval being obtained.
5.3. Operation of Business. The Seller will not engage in any practice,
take any action, or enter into any transaction outside the Ordinary Course of
Business in respect of the NPB prior to Closing. Without limiting the generality
of the foregoing, prior to Closing, Buyer and Seller will use all reasonable
efforts to (A) keep available to Buyer the services of the NPB's present
employees, agents and independent contractors, and (B) preserve for the benefit
of Buyer the goodwill of the NPB's customers, suppliers and others having
business relations with it and (C) cooperate in establishing the terms of the
SCI Systems, Inc. contract.
5.4. Preservation of Business. The Seller will use all reasonable efforts
to keep the business and properties of the NPB substantially intact, including
its present operations, physical facilities, working conditions, and
relationships with lessors, licensors, suppliers, customers, and employees,
other than the substitution of the Acton Facilities for the Littleton facility
and as otherwise contemplated hereby or by other written agreements between the
parties.
5.5. Access. The Seller will permit representatives of the Buyer to
have access at all reasonable times, and in a manner so as not to interfere with
<PAGE>
the normal business operations of the NPB, to all premises, properties,
personnel, business, financial management records, contracts and documents of or
pertaining to the NPB.
5.6. Notice of Developments. Each Party will give prompt written notice
to the other Party of any specific events occurring subsequent to the execution
of this Agreement and prior to the Closing Date causing a breach of any of its
own representations and warranties in ss. 3 and ss. 4 above. Disclosure by any
Party pursuant to this ss. 5.6, however, shall be deemed to amend or supplement
the Disclosure Schedule for the purpose of determining whether the
representations and warranties of the Seller are true and correct as of the
Closing Date for all purposes, including for purposes of Section 9.2 and 9.3,
but excluding for purposes of satisfying the conditions set forth in Section
6.1(a).
5.7. Exclusivity. So long as Buyer (upon Seller's request)
re-affirms its intention to consummate the transactions contemplated hereby, the
Seller will not (and the Seller will not cause or permit any of its
Subsidiaries, officers, directors, agents or Affiliates to) (i) solicit,
initiate, or encourage the submission of any proposal or offer from any Person,
or enter into or consummate any transaction, relating to the acquisition of any
portion of the Acquired Assets (other than sales in the Ordinary Course of
Business) or (ii) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or facilitate
in any other manner any effort or attempt by any Person to do or seek any of the
foregoing. The Seller will notify the Buyer immediately if any Person makes any
proposal, offer, inquiry, or contract with respect to any of the foregoing.
5.8. Insurance. The Seller shall assist (including by providing existing
title and/or title insurance information in Seller's possession or control to
Buyer) Buyer in obtaining title insurance policies at Buyer's expense.
5.9. Surveys. With respect to the Acton Facilities, the Seller shall
assist the Buyer in procuring a current survey at Buyer's expense, of the Acton
Facilities, prepared by a licensed surveyor and conforming to current ALTA
Minimum Detail Requirements for Land Title Surveys.
5.10. Employee Matters.
(a) Continued Employment.
(i) Buyer agrees to offer within five business
days of receiving Seller's final list of [*] Retained NPB
Employees employment to all of the NPB Employees (determined
as of a date two weeks prior to the Closing Date), up to a
maximum of [*] NPB Employees less the Retained NPB Employees.
"NPB Employees" means all of those individuals who, two weeks
prior to the proposed Closing Date, are actively employed by
Seller, any Affiliate of Seller or its Subsidiaries, as
* Confidential Treatment
<PAGE>
regular (not temporary) employees and who are among those
persons listed on Exhibit H on the date hereof. Seller shall
provide Buyer with a proposed list of [*] NPB Employees to be
retained by Seller (the "Retained NPB Employees") at least
three weeks prior to the proposed Closing Date. No persons
listed on the key employee list previously agreed to by the
Parties shall become Retained NPB Employees without the
consent of Buyer which shall not be unreasonably withheld,
conditioned or delayed. A final list of [*] Retained NPB
Employees shall be completed two weeks prior to the proposed
Closing Date. A certain number of the Retained NPB Employees
are to be included in the Digital Personnel Team pursuant to
the Reseller Agreement. For the purposes of this Section
5.10(a), any person who would otherwise be an NPB Employee,
but is, on the Closing Date: (i) on a leave of absence
approved by Seller or on disability, provided such leave of
absence is expected in good faith not to exceed thirteen weeks
in total, (ii) on a leave of absence pursuant to the Family
and Medical Leave of 1993 (the "FMLA") or similar applicable
non-U.S. law, (iii) on a leave of absence for military service
or (iv) as otherwise set forth in Schedule 5.10(a)
(collectively, "Permissible Leave of Absence") shall be
considered an NPB Employee. Notwithstanding anything to the
contrary contained herein, Buyer shall not otherwise be
required to offer employment to any individual who is not on
the active payroll on the Closing Date, excluding any person
on a Permissible Leave of Absence, including without
limitation any person whose leave has exceeded his/her
authorization or entitlement under the FMLA or similar
applicable non-U.S. law or who is otherwise on leave of
absence from which reinstatement is not guaranteed by law or
who is on unauthorized leave of absence or whose employment
has terminated or who has retired under the Seller Pension
Plan, before the Closing Date. Those to whom Buyer is
obligated to offer employment hereunder are hereafter referred
to as the "Offerees."
(ii) Seller shall provide Buyer with a list of
all NPB Employees with current work telephone numbers and home
addresses as soon as possible after the date of execution of
this Agreement. Within five business days of receiving
Seller's final list of [*] Retained NPB Employees, Buyer shall
offer employment in writing to all Offerees, such employment
to commence as of the Closing Date, except that, in the case
of any Offeree on a Permissible Leave of Absence, such
employment will commence following the Leave Expiration Date,
as hereafter defined. Buyer shall be required to hire only
those Offerees who on or before the Closing Date have not
explicitly refused the terms of employment offered by Buyer.
Offerees who actually commence employment with the Buyer are
hereafter referred to as the "Hired Employees" and,
individually, as a "Hired Employee". If Buyer hires an NPB
Employee after the Closing Date, except as provided in
paragraph (c) below, or any other individual previously
* Confidential Treatment
<PAGE>
employed by Seller or any Affiliate of Seller, such person
shall not constitute a Hired Employee. The terms and
conditions of Buyer's offer to hire Offerees shall be made in
writing and shall include pertinent conditions as determined
in the sole discretion of Buyer, subject to the following:
(A) Buyer will employ the Hired
Employees at will, except in those cases in which
Buyer and a Hired Employee enter into a written
contract of employment on or before the Closing Date;
provided, however, that Buyer agrees not to terminate
any Hired Employee other than for Cause during the
six month period immediately following the Closing
Date (the "Initial Employment Period"). For these
purposes, "Cause" shall mean materially deficient job
performance, material violation of any published
employment policy or practice of the Buyer or other
misconduct that could be harmful to the business,
interests or reputation of the Buyer or any
Subsidiary of Buyer for whom the Hired Employee is
providing services, each as determined by the Buyer
in its reasonable judgment.
(B) Each of the Hired Employees
shall initially be assigned to such position as shall
be determined by Buyer, but with responsibilities and
duties reasonably comparable to those of the Hired
Employee immediately prior to the Closing Date,
except as otherwise mutually agreed by Buyer and the
Hired Employee.
(C) Commencing on the date each
Hired Employee commences active employment with the
Buyer and except as otherwise expressly provided
herein, Hired Employees in the United States shall be
eligible to participate in all Employee Plans offered
to comparably situated employees of Buyer in the
United States to the extent such participation is
permitted by applicable plan terms and generally
applicable Buyer policies. For purposes of seniority
and vacation, personal and sick time accrual, each
Hired Employee shall receive credit with Buyer for
service while employed by Seller. With respect to
Overseas Employees, comparable provisions will be
made, in all cases in accordance with local law.
(iii) Buyer shall have no duty to hire any
Offeree who has not met, as of the date such Offeree's
employment was to begin pursuant to this Section 5.9(a), the
conditions set forth in Buyer's written offer of employment or
who has explicitly rejected Buyer's offer of employment or
resigned on or before the Closing Date. Such terms and
conditions may include the requirement that the Offeree report
<PAGE>
to work on such date, following the Closing Date, as is
specified in Buyer's written offer of employment, unless the
Offeree is on a Permissible Leave of Absence or, on the
Closing Date, is absent due to vacation or personal illness or
injury as hereinafter provided. An Offeree who has not
explicitly rejected Buyer's offer of employment or resigned,
but is on a Permissible Leave of Absence on the Closing Date
shall be treated as a Hired Employee for purposes of this
Agreement as of 12:01 a.m. of the day following the date the
leave expires (which date of expiration is elsewhere referred
to as the "Leave Expiration Date"), provided, however, that
(i) the Offeree had not explicitly rejected the Buyer's offer
of employment or resigned on or before the Closing Date; (ii)
the Offeree applies for instatement to employment with the
Buyer in a timely manner, in accordance with the terms of
his/her leave, applicable law and this ss.5.10; (iii) the
Offeree has met, as of the Leave Expiration Date, all other
applicable conditions precedent to employment; (iv) the
Offeree, in the case of leave due to the Offeree's personal
illness or injury, has been medically cleared to return to
active employment without restrictions or with restrictions
which constitute a reasonable accommodation under applicable
law, (iv) the termination of the leave is not the result of
the misconduct of or a failure to act by such Offeree, and (v)
for Offerees on disability or personal leave, that such
Offeree returns to work within 13 weeks of the onset of such
disability or leave (or as set forth in Schedule 5.10(a)). An
Offeree who has not explicitly rejected Buyer's written offer
of employment or resigned prior to Closing shall not be deemed
to have failed to report to work on the date specified in such
offer if the Offeree is absent due to vacation approved by
Seller in advance of the Closing Date and in accordance with
Seller's generally applicable policies or as a result of a
personal illness or injury which results in the Offeree being
absent from work for five (5) or fewer consecutive work days
on or after the Closing Date, but such Offeree shall not
become a Hired Employee until the date on which he/she
actually commences employment with the Buyer.
(iv) Seller shall terminate the employment of
or accept the retirement of each NPB Employee (other than
Retained NPB Employees) effective as of the date immediately
preceding the date such NPB Employee is to commence employment
with the Buyer as set forth herein.
(b) Employee Benefits.
(i) Defined Benefit Pension Plan. Each Hired
Employee will cease accruing benefits in the Seller Pension
Plan and the Restoration Pension Plan as of the Closing Date,
or such Hired Employee's Leave Expiration Date, if later,
(such applicable date hereinafter referred to as the "Plan
Eligibility Date"),and Seller shall take all necessary action
to ensure that each Hired Employee is fully vested in his or
<PAGE>
her accrued benefit as of the Plan Eligibility Date under the
Seller Pension Plan and the Restoration Pension Plan.
(ii) Defined Contribution Plan. As of the Plan
Eligibility Date of a Hired Employee, such Hired Employee will
cease contributing to the SAVE Plan, and the Seller shall take
all necessary action to ensure that such Hired Employee is
fully vested in his or her account balance under the SAVE Plan
and the Restoration SAVE Plan. Each Hired Employee shall be
eligible to participate in the Buyer 401(k) Plan upon
commencement of employment with Buyer in accordance with the
terms of the Buyer 401(k) Plan (including any term of general
application excluding a class of employees from eligibility
for such plan). The Buyer 401(k) Plan shall recognize as
service credit for purposes of eligibility for participation
and vesting all service credited under the SAVE Plan for a
Hired Employee as of the Hired Employee's Plan Eligibility
Date.
(iii) Transfer of Assets of the Save Plan. As
soon as practicable after the Closing Date, Seller will amend
its SAVE Plan to spin off and transfer an amount equal to the
account balances of the Hired Employees in the SAVE Plan
valued as of the most recent valuation date preceding the date
the transfer is made to the Buyer 401(k) Plan. Notwithstanding
anything in this subparagraph to the contrary, if Buyer is
unable in good faith to arrange for the transfer to the Buyer
401(k) Plan, such transfer shall not be executed until
appropriate arrangements are made. The transfer will be
accomplished in full compliance with the applicable provisions
of ERISA, the Code, and regulations and rulings promulgated
thereunder. Seller and Buyer agree to cooperate fully and to
file in a timely manner whatever reports, forms, and notices
as are necessary under applicable law as a result of, and to
effect, the transfer. The transfer will be accomplished by way
of a single transfer of plan assets constituting cash and
liabilities, except that any outstanding participant loans
from the SAVE Plan to Hired Employees that are not in default
may be transferred in kind to the extent not repaid prior to
the transfer. Seller agrees to provide to Buyer in a timely
manner all information for each Hired Employee, including
without limitation, accrued benefits under the SAVE Plan as of
the date of transfer, vesting service, and any other employee
information required by Buyer to determine benefits payable
from the Buyer 401(k) Plan.
(iv) Welfare Plans.
(A) Each Hired Employees shall
cease participating in all Welfare Plans, programs,
payroll practices or arrangements maintained by
Seller as of 12:01 a.m. on such Hired Employee's Plan
Eligibility Date, unless a different date is required
<PAGE>
by law. Under all of such plans, programs or
arrangements, a Hired Employee's service as
recognized under the comparable Seller plans,
programs, payroll practices and arrangements will be
credited as service with Buyer for purposes of
determining participation and benefit levels
thereunder to the same extent as credited by Seller,
unless otherwise prohibited by law or the terms of
any of Buyer's plans and programs that cannot
reasonably be amended.
(B) Buyer will offer coverage for
medical and dental benefits, group life insurance,
and short-term and long-term disability insurance
coverage as of 12:01 a.m. on the day following the
Plan Eligibility Date to each Hired Employee and his
or her dependents (as that term is defined by the
respective Buyer plans) in accordance with the terms
of the relevant Buyer benefit plans (including any
term excluding a class of employees from eligibility
for such plan), except to the extent provided for
herein or, with respect to Overseas Employees, as
required by law. Buyer will waive any applicable
waiting periods for participation under such plans
and will impose no limitation on coverage or
participation with respect to a pre-existing
condition of a Hired Employee or his or her
dependents, provided that such Hired Employee or
dependent of a Hired Employee has satisfied any
pre-existing condition limitation under the
comparable Seller Plan, and that such Hired Employee
or his or her dependent enroll in the relevant Buyer
benefit plan upon initial eligibility as specified in
such plans. Buyer and Seller shall coordinate (or
cause insurance carriers or third party
administrators to coordinate) medical benefits claims
for Hired Employees under their respective plans so
as to carry out the provisions above with respect to
Buyer's medical benefits and carry out the other
applicable provisions of this Agreement.
(v) Vacation. Except as otherwise required by
law, within 35 days after Closing, Seller shall pay each Hired
Employee, by lump sum payment, for the amount of their accrued
but unused vacation as of such Hired Employee's Plan
Eligibility Date to the extent such accrued vacation exceeds
ten days. Any remaining accrued vacation not paid for in this
manner shall be retained by such Hired Employees under Buyer's
vacation policy and shall be available for use by them
immediately. Each Hired Employee shall begin to accrue
vacation, in addition to such Hired Employee's retained
vacation accrual, under, and subject to, the Buyer vacation
policy as of the date such Hired Employee commences employment
with Buyer. Each Hired Employee with 20 or more years of
service with Seller as of such Hired Employee's Plan
Eligibility Date shall receive a beginning accrual, upon
commencement of employment with Buyer, of 5 days personal/sick
time and shall thereafter, along with all other Hired
<PAGE>
Employees, accrue sick/personal time under, and subject to,
the Buyer personal/sick time policy.
(vi) One-time Pension Replacement Payment.
Buyer shall make a cash payment to each Hired Employee upon
such Hired Employee's commencement of employment with Buyer in
an amount equal to the grossed-up value (assuming an effective
average tax rate of 35% for all Hired Employees) of the
product of 4% multiplied by such Hired Employee's
"compensation" (as determined under the Seller Pension Plan
and subject to the annual limit on compensation under Code
section 401(a)(17)) for the 1997 calendar year, provided that
such Hired Employee shall as a condition of employment with
Buyer agree to repay such amount in full to Buyer in the event
such Hired Employee's employment with Buyer terminates during
the six-month period immediately following the Closing Date.
(vii) Matching Contribution. As soon as
practicable following the close of the 1998 calendar year,
Buyer shall make a cash payment to each Hired Employee who is
employed by Buyer as of the last day of the 1998 calendar year
in an amount equal to the grossed-up value (assuming an
effective average tax rate of 35% for all Hired Employees) of
a 30% match on the first 6% of the Hired Employee's
compensation (as determined under the Buyer 401(k) Plan and
subject to the annual limit on compensation under Code section
401(a)(17)) deferred by the Hired Employee under the Buyer
401(k) Plan for the 1998 calendar year, provided, however,
that Buyer shall have no obligation to make any such cash
payment in the event that Buyer provides an equivalent level
of matching contribution (without regard to any gross-up) for
the benefit of Hired Employees under the Buyer 401(k) Plan.
(c) Termination at Law. In the event that any Hired
Employees outside the United States are entitled by law to severance
payments, Seller and Buyer shall share the costs of these severance
payments equally.
(d) Overseas Employees. On the Closing Date, Seller
shall transfer the employment of the Overseas Employees identified by
country on Exhibit F. To the extent that, by operation of law or any
agreement binding Seller, the transfer of employment of any Overseas
Employee requires the Buyer to assume any pension or similar obligation
related to an employee's tenure as an employee of Seller, Seller will
transfer to Buyer or its designated Subsidiary on the Closing Date the
monies necessary to fund the obligation or will otherwise make
available to the relevant Overseas Employees all of their accrued
benefits in their pension plans. If the Parties mutually agree that is
not desirable or it is not possible for Seller to transfer to Buyer the
employment of any Overseas Employee on the Closing Date because of a
Local Transfer Impediment, Seller and Buyer shall take all actions
reasonably necessary to eliminate the Local Transfer Impediment and
<PAGE>
Seller shall take all actions reasonably necessary to transfer the
employment of all Overseas Employees located in the affected country as
soon as possible.
(e) Prior to Closing, Seller shall disclose full and
accurate details of any employee benefit plans including pension and
insurance benefits payable to the Overseas Employees.
5.11. Access to Records.
(a) General. For a period of seven years after the
Closing Date, the Seller and its representatives shall have reasonable
access to any books and records of the NPB in the possession of Buyer
to the extent that such access may reasonably be required by the Seller
in connection with matters relating to or affected by the operations of
the NPB prior to the Closing Date. For a period of seven years after
the Closing Date, the Buyer and its representatives shall have
reasonable access to any books and records related to the NPB in the
possession of Seller to the extent that such access may reasonably be
required by the Buyer in connection with matters relating to or
affected by the operations of the NPB after the Closing Date. Such
access shall be afforded upon receipt of reasonable advance notice and
during normal business hours. If either Party desires to dispose of any
of such books and records prior to the expiration of such seven-year
period, such Party shall, prior to such disposition, give the other
Party a reasonable opportunity, at such other Party's expense, to
segregate and remove such books and records as such other Party may
select.
(b) Product-Related Claims. Seller agrees to use
reasonable efforts to provide Buyer prior to Closing with any written
materials in Seller's possession or control that are relevant to any
intellectual property infringement, epidemic field failure, product
liability or other material related claims previously made by third
parties concerning any Product. In the event that, in the future, any
of the Products becomes the subject of any intellectual property
infringement, epidemic field failure, product liability or other
material related claim, Seller agrees to use reasonable efforts to (i)
provide to Buyer any written materials or other information in Seller's
possession or control which are relevant to such claim, and (ii)
provide such other assistance as may be reasonably requested by Buyer.
Buyer shall reimburse Seller for all out-of-pocket expenses incurred by
Seller, subject to prior approval of major expenses and excluding any
expenses for which Seller is required to provide indemnification
pursuant to Section 9. Notwithstanding the foregoing, Seller shall have
no obligation to provide any materials or disclose any information
which it is prohibited by law or by contract from providing or
disclosing to Buyer.
<PAGE>
(c) Contracts. Seller agrees to use reasonable efforts
to deliver to Buyer prior to Closing a correct and complete copy of
each Contract not previously delivered to Buyer.
(d) Licensing Programs; Assigned Patents and
Trademarks. Seller agrees to use reasonable efforts to provide Buyer
prior to Closing with any written materials in Seller's possession or
control that are relevant to the Licensing Programs. Seller agrees to
use reasonable efforts to provide Buyer prior to Closing with any
written materials in Seller's possession or control that are relevant
to any infringement or alleged infringement of any Assigned Patent or
Assigned Trademark.
(e) Environmental Reports. The Seller shall deliver or
otherwise make available for inspection the Buyer true, complete and
correct copies as result of any reports, studies, analyses, test or
monitoring in Seller's possession, prepared since November 1, 1989 for
the Acton Facilities pertaining to Hazardous Materials in, on, beneath
or adjacent to said facilities or regarding the compliance with
applicable Environmental Laws as said facilities.
5.12. Transfer of Acquired Assets Located Outside the United
States. Buyer and Seller understand and agree that Acquired Assets located
outside the United States are the property of and Overseas Employees are
employed by Seller operating in the countries listed in Schedule 2.1(x) and
Exhibit F, and that transfers of such assets and of the employment of such
persons, as provided for in this Agreement, shall be made to Buyer operating in
each of the respective countries, the identity and address of which shall be
designated to Seller prior to the Closing Date. Buyer agrees that it will cause
its Subsidiaries to take all actions and execute and deliver any documents or
instruments necessary to complete the transfer of Acquired Assets located
outside of the United States and the employment of Overseas Employees on the
Closing Date.
5.13. Assistance in Effecting Transfer of Overseas Assets and
Employees. Buyer shall cooperate with Seller in their efforts to eliminate any
Local Transfer Impediment affecting the transfer of Acquired Assets or the
employment of any Overseas Employee. In the event of an occurrence of a
continuing Local Transfer Impediment, prior to the transfer of any Acquired
Assets or Overseas Employees, Seller and Buyer shall take all action reasonably
necessary to allow Buyer to enjoy the benefit of the Acquired Assets and the
Overseas Employees.
5.14. Bulk Sales Compliance. Buyer hereby waives compliance by Seller with
the provisions of the Bulk Sales Law of any state.
<PAGE>
5.15. Transfer Taxes. Seller and Buyer agree to share equally all Taxes
in connection with the transfer of the Acquired Assets hereunder other than
Taxes measured by or based upon either Party's income.
5.16. Manufacture of NPB Products. After the Closing, Seller agrees to
manufacture the Products at Seller's manufacturing facilities in Taiwan and Ayr,
Scotland [*] following Closing and at arm's length negotiated prices for up to
an additional twelve months. Seller shall provide a 12 months manufacturer's
warranty for products delivered from such facilities. Buyer agrees to assume a
certain manufacturing agreement currently being renegotiated between the Seller
and SCI Systems, Inc. provided the final agreement is acceptable to Buyer and
the term is not more than one year. Buyer agrees to advise Seller promptly after
the provision of the final agreement whether such agreement is acceptable to
Buyer.
5.17. Transitional Services. Seller will provide transitional payroll,
business systems, accounting and facilities services and leased facilities at
the pro rata fully loaded costs currently allocated for such services plus any
incremental costs incurred by Seller to offer such services to Buyer for up to
one year following the Closing or any closing in any foreign country.
5.18. Littleton Occupancy. Seller agrees that, if necessary, it
will enter into a building occupancy agreement with respect to the portion of
Littleton facility currently used in connection with the NPB to Buyer for up to
5 months following Closing, while the Acton Facilities are being re-fitted, at a
rate consistent with current fully loaded occupancy costs.
5.19. Acton Occupancy. Buyer agrees that, if necessary, it will
enter into a building occupancy agreement with respect to the Acton Facilities
for up to 5 months following Closing at a rate consistent with Seller's former
fully loaded occupancy costs.
5.20. Space for Telecommunications. Buyer agrees to arrange for
Seller to occupy at a nominal cost the portion of the larger of the Acton
Facilities which houses the MCI and Bell Atlantic telecommunications
infrastructures for as long as it houses such infrastructures.
5.21. Refit of Acton Facilities. Buyer has paid Seller as part of
the cash portion of the Purchase Price $2,000,000 towards the cost of refitting
the Acton Facilities for the anticipated use thereof by Buyer. Buyer and Seller
will agree on a general understanding regarding the nature and scope of the
refit work and Seller hereby agrees that it shall be responsible to cause such
refitting of the Acton Facilities to be undertaken and completed using
appropriate and responsible designers and contractors to complete such refit as
soon as reasonably possible. Throughout such refitting Seller shall communicate
with Buyer regarding details of the refitting and in cooperation with Buyer make
such changes to the refit work as is needed from time to time for Buyer's
anticipated use of the Acton Facilities. Buyer shall be responsible to pay for
* Confidential Treatment
<PAGE>
any cost of the refitting which exceeds $2,000,000. However, Seller agrees to
promptly advise Buyer as soon as Seller first anticipates that there is likely
to be any cost overrun or should a cost overrun occur. Thereafter Seller shall
proceed as directed by Buyer to suspend, alter or complete the refitting. Seller
shall provide a written accounting of funds expended on the refit and shall not
be entitled to any fee for its services with respect to assisting Buyer with or
overseeing the refitting.
5.22. Distributors and Resellers. Seller agrees to use reasonable efforts
to assist Buyer in negotiating prior to Closing satisfactory agreements with the
NPB's major third party distributors and resellers.
5.23. Retention Program. Seller shall grant the right to receive
bonuses of up to [*] to NPB Employees before the Closing Date as an incentive
for such employees to remain in the employment of Seller between the date hereof
and the Closing Date, to become Hired Employees and to remain in the employment
of Buyer (the "New Bonuses"). Seller has previously granted the right to receive
so-called "stay-put" bonuses to certain NPB Employees the payment of which are
presently expected to extend beyond the Closing Date (the "Existing Bonuses";
together with the New Bonuses, the "Bonuses"). Seller shall remain responsible
for the total amount of the Existing Bonuses and the New Bonuses paid to the NPB
Employees, regardless of whether such amounts are paid before or after such NPB
Employees become Hired Employees.
5.24. Licences. Prior to Closing, Seller shall disclose to Buyer the
existence of any grant of any license or sublicense of any rights or
modification of any rights under or with respect to, or entered into any
settlement regarding any infringements of its rights to, any Assigned
Intellectual Property all arising after the date hereof other than in connection
with the sale, manufacture or license of Products in the ordinary course.
5.25. Employment Contracts. Prior to Closing, Seller shall disclose to
Buyer the existence of any material employment contract or collective bargaining
agreement entered into, written or oral, or modification of the terms of any
existing such contract or agreement all arising after the date hereof.
5.26. Litigation. Prior to Closing, each Party shall disclose to the other
the existence of any of the following matters which arise after the date hereof:
any judicial or administrative actions, claims, suits, proceedings or
investigations pending or, to the Knowledge of the such Party, threatened, that
would be reasonably likely to result in a Material Adverse Effect or a material
adverse effect to the Buyer, as the case may be. Prior to the Closing, each
Party shall disclose to the other any notice to such party of any action seeking
to enjoin the consummation of the transactions contemplated hereby and to the
Knowledge of such Party, the existence of any Basis for any such action, claim,
suit, proceeding or investigation. Each Party agrees to use its reasonable
efforts to defend against any action, suit, or proceeding before any court or
* Confidential Treatment
<PAGE>
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction wherein an unfavorable injunction, judgment, order, decree, ruling,
or charge would (i) prevent consummation of any of the transactions contemplated
by this Agreement or (ii) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation.
5.27. Form 8-K Financial Statements. Seller agrees to engage its
outside accountants to assist, at the Buyer's expense, in the preparation and
audit of the financial statements required by Buyer for its 8-K. Buyer agrees to
notify Seller of the financial statements required within 5 days of the date
hereof. Provided that Buyer complies with the foregoing, Seller agrees to
deliver such financial statements within 60 days after the Closing Date. Such
financial statements shall be prepared in accordance with GAAP.
5.28. Registration Statement. Prior to Closing Buyer shall prepare
and file with the Commission the Registration Statement with respect to the
Cabletron Shares to be issued pursuant to this Agreement and shall use its
reasonable efforts to cause the Registration Statement to become effective upon
or promptly following Closing and remain effective for a period of at least 90
days (or such shorter period during which the Seller shall have sold all
Cabletron Shares), provided that the Buyer shall have the right to delay or
suspend such Registration Statement two times for an aggregate period of 60 days
under the following circumstances: (i) in the event of any event or circumstance
which necessitates the making of any changes in the Registration Statement, or
any document incorporated or deemed to be incorporated therein by reference, so
that, in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or any omission to state a material fact required
to be stated therein or necessary to make the statements therein not misleading;
or (ii) the Buyer is in possession of material information that it deems
advisable not to disclose in a Registration Statement. Buyer agrees not to issue
any securities of Cabletron pursuant to an effective registration statement
under the Securities Act for the first thirty days for which the Registration
Statement is effective. Seller shall have the right to assign the rights under
this ss. 5.28 to any purchaser of not less than one-third of the Cabletron
Shares from Seller in a private placement. For purposes of ss.5.28, the period
during which the Registration Statement is suspended or delayed shall be deemed
a period during which the Registration Statement is not effective.
5.29. Listing of Cabletron Shares. Buyer shall use all reasonable efforts
to cause the Cabletron Shares to be issued pursuant to this Agreement to be
approved for listing on The New York Stock Exchange (or the principal exchange
on which Cabletron's Common Shares are then trading).
5.30. Cabletron Shares. The Cabletron Shares will be imprinted with a
legend substantially in the following form:
<PAGE>
The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended.
Such legend shall be removed from the certificates representing the Cabletron
Shares upon Seller's request in order to deliver any shares sold pursuant to the
Registration Statement or whenever the legend is not required by applicable law.
Prior to effectiveness of the Registration Statement, Seller must furnish the
Buyer before any transfer of Cabletron Shares with (i) a written opinion
reasonably satisfactory to the Buyer in form and substance from counsel
reasonably satisfactory to the Buyer by reason of experience to the effect that
the holder may transfer Cabletron Shares as desired without registration under
the Securities Act and (ii) a written undertaking executed by the desired
transferee reasonably satisfactory to the Buyer in form and substance agreeing
to be bound by the restrictions on transfer contained herein.
5.31. Future Assurances. From time to time after the Closing Date, at
the request of either Party hereto and at the expense of such Party, the Parties
hereto shall execute and deliver such other instruments of sale, transfer,
conveyance, assignment and confirmation and take such action as Buyer may
reasonably determine is necessary to transfer, convey and assign to Buyer, and
to confirm Buyer's title to or interest in the Acquired Assets, to put Buyer in
actual possession and operating control thereof and to assist Buyer in
exercising all rights with respect thereto. The Seller hereby constitutes and
appoints Buyer and its successors and assigns as its true and lawful attorney in
fact in connection with the transactions contemplated by this instrument, with
full power of substitution, in the name and stead of the Seller but on behalf of
and for the benefit of the Buyer and its successors and assigns, to demand and
receive any and all of the assets, properties, rights and business hereby
conveyed, assigned, and transferred or intended so to be, and to give receipt
and releases for and in respect of the same and any part thereof, and from time
to time to institute and prosecute, in the name of the Seller or otherwise, for
the benefit of the Buyer or its successors and assigns, proceedings at law, in
equity, or otherwise, which the Buyer or its successors or assigns reasonably
deem proper in order to collect or reduce to possession or endorse any of the
Acquired Assets and to do all acts and things in relation to the assets which
the Buyer or its successors or assigns reasonably deem desirable.
6. Conditions to Obligation to Close
6.1. Conditions to Obligation of the Buyer. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(a) Representations and Warranties. The representations
and warranties set forth in ss. 3 above shall be true, correct and
<PAGE>
complete when made and shall be deemed to have been made again at and
as of the Closing Date and shall then be true, correct and complete,
except where such failure to be true, correct and complete would not,
in the aggregate, have a Material Adverse Effect. In addition, the
written disclosure pursuant to ss.5.6 by Seller shall be taken into
account in determining whether the representations and warranties of
the Seller are true and correct as of the Closing Date for all
purposes, including for purposes of Section 9.2 and 9.3, but excluding
for purposes of satisfying the condition set forth in this Section
6.1(a);
(b) Performance by Sellers. The Seller shall have
performed and complied with all of its covenants, agreements and
obligations hereunder in all material respects through the Closing;
(c) Consents. [Intentionally omitted];
(d) Absence of Litigation. No action, suit, or
proceeding shall be pending before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction which would in Buyer's good faith judgment be reasonably
likely to result in an unfavorable injunction, judgment, order, decree,
ruling, or charge (and no such injunction, judgment, order, decree,
ruling, or charge shall be in effect) that would (i) prevent
consummation of the transactions contemplated by this Agreement or (ii)
cause the transactions contemplated by this Agreement to be rescinded
following consummation;
(e) Anti-trust Matters. All applicable waiting periods
(and any extensions thereof) under the Hart-Scott-Rodino Act shall have
expired or otherwise been terminated and any other material consents,
approvals or filings under any national, supranational or international
merger control law the absence of which would prohibit the consummation
of a material portion of the transactions contemplated under this
Agreement shall have been obtained or made;
(f) Certificates. The Seller shall have delivered to the
Buyer a certificate signed by an authorized officer to the effect that
each of the conditions specified above in ss. 6.1 are satisfied
in all respects;
(g) Additional Agreements. The Seller shall have
entered into agreements in form and substance set forth in Exhibits B,
C, D, G and H attached hereto and the same shall be in full force and
effect; and
(h) No Material Adverse Change. There shall not have
been any change which has resulted in a Material Adverse Effect and no
event has occurred or circumstance exists that would reasonably be
expected to result in such a Material Adverse Effect.
<PAGE>
The Buyer may waive any condition specified in this ss. 6.1 if it executes a
writing so stating at or prior to the Closing and such waiver shall not be
considered a waiver of any other provision in this Agreement unless the writing
specifically so states.
6.2. Conditions to Obligations of the Sellers. The obligation of the Seller
to consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
(a) Representations and Warranties. The representations
and warranties set forth in ss. 4 above shall be true, correct and
complete (in all material respects in the case of those representations
and warranties which are not by their express terms qualified by
reference to materiality) when made and shall be deemed to have been
made again at and as of the Closing Date and shall then be true,
correct and complete (in all material respects, in the case of those
representations and warranties which are not by their express terms
qualified by reference to materiality). In addition, the written
disclosure pursuant to ss.5.6 by Buyer shall be taken into account in
determining whether the representations and warranties of Buyer are
true and correct as of the Closing Date for all purposes, including for
purposes of Section 9.4, but excluding for purposes of satisfying the
condition set forth in this Section 6.2(a);
(b) Performance by Buyer. The Buyer shall have performed
and complied with all of its covenants, agreements and obligations
hereunder in all material respects through the Closing;
(c) Absence of Litigation. No action, suit, or
proceeding shall be pending before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction which would in Seller's good faith judgment be reasonably
likely to result in an unfavorable injunction, judgment, order, decree,
ruling, or charge (and no such injunction, judgment, order, decree,
ruling, or charge shall be in effect) that would (i) prevent
consummation of any of the transactions contemplated by this Agreement
or (ii) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation;
(d) Consents. [Intentionally omitted.];
(e) Certificates. The Buyer shall have delivered to the
Seller a certificate signed by the Chief Financial Officer of Buyer to
the effect that each of the conditions specified above in ss.
6.2(a)-(c) is satisfied in all respects;
(f) Anti-trust Matters. All applicable waiting periods
(and any extensions thereof) under the Hart-Scott-Rodino Act shall have
expired or otherwise been terminated and any other consents, approvals
or filings under any national, supranational or international merger
<PAGE>
control law the absence of which would prohibit the consummation of a
material portion of the transactions contemplated under this Agreement
shall have been obtained or made; and
(g) Additional Agreements. The Buyer shall have entered
into agreements in form and substance set forth in Exhibits B, C, D, G
and H attached hereto and the same shall be in full force and effect.
7. Confidentiality. Each Party will treat and hold as such all of the
Confidential Information and refrain from using any of the Confidential
Information except in connection with the transactions contemplated by
this Agreement or the Reseller Agreement. In the event that either
Party is requested or required (by oral question or request for
information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar process) to disclose
any Confidential Information, such Party will notify the other Party
promptly of the request or requirement so that the other Party may seek
an appropriate protective order or waive compliance with the provisions
of this ss. 7. If, in the absence of a protective order or the receipt
of a waiver hereunder, such Party is, on the advice of counsel,
required to disclose any Confidential Information, such Party may
disclose the Confidential Information; provided, however, that such
Party shall use reasonable efforts to obtain, at the request of the
other Party, an assurance that confidential treatment will be accorded
to such portion of the Confidential Information required to be
disclosed as the other Party shall designate.
8. Other Post-Closing Agreements
8.1 Noncompetition.
(a) Seller agrees that, except as set forth below (1)
[*], it and its affiliates will not design or manufacture (or have
designed or manufactured for it) and (2) [*] it and its affiliates
will not private label with any Digital Brand any products which are
substantially similar in function and performance to:
(i) The NPB hardware products (and the
software incorporated therein) being transferred to Buyer,
including without limitation, those hubs, routers, switches,
bridges, structured wiring (DECconnect), adapters, remote
access devices (e.g., access concentrators) and terminal
servers being transferred, and logical extensions thereof (one
example of the "logical extension" of a product is a fast
ethernet switch to a gigabit ethernet switch);
* Confidential Treatment
<PAGE>
(ii) Buyer data networking and
telecommunication hardware products (and the software
incorporated therein) identified in the initial Product
Roadmap (as defined in the Reseller Agreement), and logical
extensions thereof;
(iii) Data networking or telecommunication
hardware products (and the software incorporated therein)
specifically designed for transporting data between two or
more computing devices, such as hubs, routers, switches,
bridges, structured wiring, adapters, remote access devices
(e.g., access concentrators) and terminal servers, and logical
extensions thereof.
(iv) NPB network management software being
transferred to Buyer (clearVISN), and logical extensions
thereof (other than embedded "client" modules that have no
standalone function); and
(v) Those portions of Buyer's SPECTRUM
software identified in the initial Product Roadmap which are
substantially similar to NPB software products and simple
extensions thereof,(including without limitation, clearVISN
and planned extensions of clearVISN) and logical extensions
thereof.
(b) Notwithstanding Section 8.1(a) above: (i) Seller
shall be permitted to embed networking capabilities of its own
development or from third parties in products which are not and are not
marketed primarily as data networking or telecommunication hardware
products. The parties acknowledge that products contemplated within
this exclusion include, but are not limited to, firewall and tunnel
products, proxy servers and extensions and follow-ons thereto, (ii)
Seller also shall be permitted to private label with any Digital Brand
and resell client and server products (which are not and are not
marketed primarily as data networking or telecommunication hardware
products) developed and manufactured by a third party OEM which contain
third party networking component products independently selected by the
OEM to meet Digital or customer specified form, fit, function,
performance and cost, so long as Digital specifications do not (1)
specify a required supplier or (2) result in effectively limiting the
OEM's choices to a single supplier (unless in either case the customer
specifically requested a specific supplier) of any networking
components to be incorporated into such OEM manufactured client or
server products.
(c) The covenants set forth in Section 8.1(a): (i) are
subject to pre-existing contractual obligations existing as of the
Closing Date and not transferred to Buyer under this Agreement
involving annual sales by Seller of not greater than $5 million for any
individual product and $15 million in the aggregate and (ii) do not
apply to any products in Seller's current portfolio being retained by
Seller (and logical extensions thereof) provided such products are not
substantially similar in function and performance to the products
described in Sections 8.1(a)(i) and (ii) above.
<PAGE>
(d) Seller further agrees that during the initial term
of the Reseller Agreement it will not directly or indirectly without
the prior written consent of Buyer, recruit, offer employment, employ,
engage as a consultant, lure or entice away or in any other manner
persuade or attempt to persuade any person to leave the employ of Buyer
who is a Hired Employee; provided, however, this provision shall not
apply to (i) any Hired Employee terminated by Buyer; (ii) any Hired
Employee whose employment with Buyer voluntarily terminates within two
years of the Closing Date after the later of twelve months from the
Closing Date or six months after cessation of such person's employment
with Buyer; and (iii) any Hired Employee whose employment with Buyer
voluntarily terminates more than two years after the Closing Date four
months after cessation of such person's employment with Buyer. Buyer
agrees to consider in good faith requests for exceptions to this
provision. Seller agrees that it will not directly or indirectly
without the prior written consent of Buyer, employ or engage as a
consultant any NPB Employee who is both not a Retained NPB Employee and
not a Hired Employee for one year following the later of separation or
the Closing Date.
8.2. Intellectual Property Licenses.
(a) Buyer hereby grants to Seller a non-exclusive,
royalty-free, perpetual, irrevocable, worldwide license to make, use
and sell products and services using the Assigned Intellectual
Property, but excluding (i) the Assigned Trademarks except as permitted
under the Reseller Agreement, and (ii) the Software Source Code License
Agreement between Seller and Proteon Inc. dated June 30, 1995 and any
other Assigned License to the extent not sublicensable. The foregoing
license to Seller does not include the right of Seller to grant
sublicenses except (i) to a directly or indirectly wholly-owned
subsidiary of Seller for use consistent with this section, (ii) to a
third party solely for the purpose of manufacturing products or
performing services on behalf of Seller or a directly or indirectly
wholly-owned subsidiary of Seller bearing the Digital Marks, or (iii)
to Intel Corporation pursuant to the form of agreement referenced in
the Settlement Agreement between Seller and Intel Corporation dated
October 27, 1997.
(b) Seller hereby grants to Buyer a non-exclusive,
royalty-free, perpetual, irrevocable, worldwide license to make, use
and sell products and services using the Retained Patents. The
foregoing license to Buyer does not include the right of Buyer to grant
sublicenses, except (i) to a directly or indirectly wholly-owned
subsidiary of Buyer for use consistent with this section, or (ii) to a
third party solely for the purpose of manufacturing products or
performing services on behalf of Buyer or a directly or indirectly
wholly-owned Subsidiary of Buyer bearing the Digital Marks or Cabletron
Marks.
<PAGE>
(c) Seller hereby grants Buyer a limited,
non-exclusive, royalty-free, perpetual, worldwide license to Seller's
remaining Patents, trade secrets, know-how and other proprietary
information to the extent necessary to make, use or sell the Products
or the Products Under Development. The foregoing license to Buyer does
not include the right of Buyer to grant sublicenses, except (i) to a
directly or indirectly wholly-owned subsidiary of Buyer for use
consistent with this section, or (ii) to a third party solely for the
purpose of manufacturing Products or Products Under Development on
behalf of Buyer or a directly or indirectly wholly-owned Subsidiary of
Buyer.
(d) Each Party covenants that it shall not commence
litigation against the other for infringement of any Patent committed
prior to the Closing Date. The foregoing covenant does not prevent
either Party from initiating a compulsory counterclaim arising from an
infringement claim brought by the other.
(e) Each Party covenants that it shall not commence
litigation against the other for infringement of any product existing
as of the Closing Date of any Patent committed after the Closing Date.
The foregoing covenant does not prevent either Party from initiating a
compulsory counterclaim arising from an infringement claim brought by
the other.
(f) Seller hereby grants Buyer a non-exclusive,
royalty-free, worldwide license to copy, have copied, make derivative
works with respect to, use, distribute and sublicense the Retained
Software solely as part of the Products, the Products Under Development
and logical extensions thereof.
(g) In the event Seller ceases to manufacture or
otherwise supply to Buyer any integrated circuits or other components
used in the Products that cannot be obtained at a reasonable price from
another source, Buyer shall automatically have a license under Seller's
applicable intellectual property in order to produce such integrated
circuits or components solely for use in data and telecommunications
network hardware products sold by Buyer.
(h) The licenses granted in this section 8.4 may not be
transferred or assigned by either party without the consent of the
licensor except to a successor in connection with any sale of all or
substantially all of the assets of the licensee or the relevant
division or unit of the licensee, or in connection with any merger or
business combination where the licensee is not the surviving entity.
8.3. Chargeback Provisions.
(a) Buyer agrees to promptly forward any request by a
third party for payment of a Chargeback Item to Seller for payment by
Seller directly unless Buyer believes it is in its best interests to
<PAGE>
pay the Chargeback Item itself. Seller agrees to reimburse Buyer in
accordance with this Section 8.3 for any Chargeback Item that Buyer
pays up to $5,000 per item and up to an aggregate of $50,000 per month
for a period not to exceed six months after Closing. To the extent of
any reimbursement paid to Buyer for a Chargeback Item pursuant to this
ss. 8.3, Buyer shall not be entitled to any recovery under ss. 9.2.
The Chargeback Items shall mean any of the following liabilities of the
NPB existing at Closing: (i) market development fund commitments to
resellers, stock rotations commitments, pricing errors to customers,
warranty (including spares) on Products sold prior to the Closing Date,
sales returns on Products, and other similar commitments to customers
or resellers of the NPB; and (ii) miscellaneous reimbursement expenses
of Hired Employees. On no more than a monthly basis, Buyer shall submit
to Seller an itemized written list identifying in reasonable detail any
Chargeback Items for which Buyer seeks reimbursement by Seller. Seller
shall have 20 calendar days to dispute any item on such list. At the
end of such twenty day period, Seller agrees to pay Buyer within 10
business days for all undisputed Chargeback Items set forth on such
list. For any items on such list that remain in dispute, Buyer and
Seller shall attempt for five calendar days to mutually resolve such
disputes. At the end of such five day period, either Party may appoint
Deloitte & Touche, certified public accountants, to resolve the
remaining disputes related to the Chargeback Items. If Deloitte &
Touche is unavailable, the Parties will select a nationally-recognized
accounting firm by lot (after excluding their respective regular
outside accounting firms). The determination of any accounting firm so
selected will be set forth in writing and will be conclusive and
binding upon the Parties. In the event the Parties submit any disputes
to an accounting firm for resolution as provided in this section, the
Buyer and the Seller will share equally the fees and expenses of the
accounting firm. Within 10 business days after the determination of any
accounting firm so selected, Seller shall pay Buyer for any disputed
Chargeback Items which such accounting firm determined Seller was
liable to Buyer.
(b) Buyer and Seller agree to effect the payment of the
Bonuses to Hired Employees pursuant to this ss. 8.3(b). One week prior
to the date upon which each Bonus payment is to be made to Hired
Employees, Buyer shall deliver an invoice to Seller setting forth the
amount of such Bonuses to be paid on such date. Seller shall pay Buyer
the amount of such invoice by wire transfer at least two days before
the payment date. Assuming that Buyer has received the payment due from
Seller, Buyer shall pay the Bonuses to the applicable Hired Employees
on the payment date. Buyer shall not be entitled to indemnification
under ss. 9.2 for amounts received by Seller under this ss. 8.3(b).
Buyer shall promptly forward to Seller reasonably satisfactory evidence
of each Bonus payment.
8.4. Unique ASICs.
<PAGE>
(a) Seller presently produces certain ASICs
(Application Specific Integrated Circuits) at its Hudson, Massachusetts
facility that are used solely in the Products (the "Unique ASICs"). As
part of its agreement with Intel Corporation ("Intel"), Seller
presently anticipates that it will transfer the facilities and rights
to make the Unique ASICs to Intel. Seller will retain the right to
purchase the Unique ASICs from Intel.
(b) Seller agrees to supply such Unique ASICs to Buyer
pursuant to the Reseller Agreement. Seller agrees that neither it nor
its Affiliates will sell any of the Unique ASICs to any Person other
than Buyer.
(c) As promptly as possible following the closing of
Seller's transaction with Intel, Seller agrees to provide Buyer with a
written description of the procedure pursuant to which Seller can make
an end-of-life final purchase of such Unique ASICs, including the
amount of notice, if any Intel is required to provide to Seller and the
other parameters concerning the procedure. Seller agrees to notify
Buyer immediately in the event that Intel informs Seller that it
intends to cease production of a Unique ASIC in order that Buyer may
make a "last buy" purchase of such Unique ASIC. In connection with such
notice, Seller shall provide Buyer with a forecast for its purchases of
the Product incorporating such Unique ASIC for the remaining term of
the Reseller Agreement. In the event that Buyer purchases a sufficient
quantity of the Unique ASIC to satisfy the forecast (in addition to the
quantity that Buyer has purchased for its other needs), Seller agrees
to repurchase any such Unique ASICs purchased to satisfy Seller's
forecasted need that remain unused at the end of the term of the
Reseller Agreement at Buyer's cost.
8.5. Open Patents.
(a) With respect to the Assigned Patents identified in
Schedule 1.3 with an "*" (the "Open Patents"), Buyer acknowledges that
these patents relate to certain emerging network standards and that
Seller has made certain commitments to standards organizations
regarding the availability of nonexclusive licenses under the Open
Patents at reasonable royalty rates. Seller has provided Buyer with all
written materials related to Seller's interactions with standard
organizations regarding the Open Patents. Buyer agrees to honor
Seller's commitments to the standards organizations and to make
licenses to the Open Patents available in accordance with the policies
of the relevant standards organizations, provided that Buyer reserves
the right to use the Open Patents "defensively" against any Person
asserting that Buyer's products infringe patents held by such Person.
9. Indemnification
<PAGE>
9.1. Survival of Representations and Warranties. All of the representations
and warranties of the Buyer and the Seller (except for those contained in
ss.ss.3.3 (Authorization of Transaction) 3.6 (Title to Assets) and 3.14 (Taxes))
contained herein or in any document, certificate or other instrument required to
be delivered hereunder shall survive the Closing (even if the other Party knew
or had reason to know of any misrepresentation or breach of warranty at the time
of Closing) and continue in full force and effect until 15 months after the
Closing Date. The representations and warranties of Seller contained in
ss.ss.3.3 and 3.6 shall survive the Closing and shall continue in full force and
effect for 5 years after the Closing Date and in ss.3.14 shall survive the
Closing and shall continue in full force and effect for the applicable statute
of limitations. The termination of any representation and warranty shall not
affect any claim for breaches of representations or warranties (or any
allegation by a third party that, if established, would constitute a breach of a
representation or warranty) if written notice thereof is given to the breaching
party or parties prior to such termination date. All covenants and indemnities
of any Party in this Agreement or in any document or certificate delivered
hereunder shall, unless otherwise specifically provided therein, remain in full
force and effect forever. This Section 9 is subject to Section 5.6.
9.2. Indemnification Provisions for Benefit of the Buyer. Seller agrees to
indemnify, defend and hold harmless Buyer and its directors, officers and
Affiliates against and in respect of all Liabilities, obligations, judgments,
Liens, injunctions, charges, orders, decrees, rulings, damages, dues,
assessments, Taxes, losses, fines, penalties, expenses, fees, costs, amounts
paid in settlement (including reasonable attorneys' and expert witness fees and
disbursements in connection with investigating, defending or settling any action
or threatened action), arising out of any claim, damages, complaint, demand,
cause of action, audit, investigation, hearing, action, suit or other proceeding
asserted or initiated or otherwise existing in respect of any matter
(collectively, the "Losses") that results from:
(a) the breach of any representation or warranty made
by Seller herein, or resulting from any misrepresentation or breach of
warranty, all determined as if all materiality and knowledge provisions
were not contained therein (for this purpose only those qualifiers
containing the defined term "Knowledge" shall constitute knowledge
qualifiers), or nonfulfillment of any agreement or covenant of Seller
contained herein or in any agreement or instrument required to be
entered into in connection herewith or from any misrepresentation in or
omission from any schedule, document, certificate or other instrument
required to be furnished by Seller hereunder; provided, however, that
the Seller shall be liable under this ss.9.2(a) in respect of Losses if
the aggregate of such Losses exceeds $10,000,000 in which case the
Seller will be liable for all Losses relating back to the first dollar;
provided, that for Losses pursuant to this ss.9.2(a), individual claims
that are less than $200,000 shall be excluded for all purposes and,
provided, further, that the maximum liability of Seller for aggregate
Losses arising from the breach of any representations or warranties
shall not exceed $50,000,000;
<PAGE>
(b) any Liability of the Seller (including any
liability of the Seller existing prior to or resulting from actions
taken or events occurring prior to Closing), other than an Assumed
Liability (including any Liability that becomes a Liability of the
Buyer under any bulk transfer law of any jurisdiction, under any common
law doctrine of de facto merger or successor liability, or otherwise by
operation of law).
In the event that Seller may be obliged to indemnify Buyer under both subsection
(a) and subsection (b) of this ss. 9.2, their obligations under subsection (b)
shall be controlling and the limitations provided in ss.ss. 9.1 and 9.2(a)
hereof relating to their obligations in respect of Losses resulting from the
inaccuracy of any representation and warranty, or any misrepresentation, breach
of warranty or non-fulfillment of an agreement or covenant as described in ss.
9.2(a), shall not apply. Buyer shall provide Seller written notice for any claim
made in respect of the indemnification provided in this ss. 9.2, whether or not
arising out of a claim by a third party. Notwithstanding the foregoing, Assumed
Liabilities shall in no event be considered a Loss under this ss. 9.2.
9.3. Seller's Environmental Indemnification.
(a) Notwithstanding any other provision of this
Agreement to the contrary (other than ss. 5.6, ss. 9.7 and the proviso
of ss. 9.2 relating to a cap on total Losses), this ss. 9.3 shall
control and limit Seller's obligation to indemnify Buyer for
environmental matters. Seller shall defend, indemnify, and hold
harmless Buyer from and against any and all Losses to the extent it
relates to the NPB or the Acquired Assets resulting from: (i) cleanup
of Hazardous Materials Released, disposed of or discharged on or prior
to the Closing Date on or beneath the Acton Facilities on or prior to
the Closing Date; (ii) the failure of the Seller prior to the Closing
Date to be in compliance with any Environmental Laws in effect as of
and enforceable as of the Closing Date; (iii) the disposal, treatment,
storage or recycling of Hazardous Materials, on or prior to the Closing
Date, at any real property other than the real property being
transferred to Buyer as part of the Acquired Assets; and (iv) any
breach of the representations made in ss. 3.25 (claims for such breach
to be subject to the time and monetary limitations of ss.ss. 9.2 and
9.2(a) except to the extent that such claims are also subject to ss.
9.2(b).
(b) Notwithstanding subsection (a) above, Seller shall
only be required to defend, indemnify, and hold harmless Buyer to the
extent that: (i) cleanup of the Hazardous Materials is required by a
Governmental Entity or recommended by a Massachusetts Licensed Site
Professional ("LSP") as required under an applicable Environmental Law
that is in effect as of and is enforceable as of the Closing Date;
(iii) the Remediation Standards that must be met in order to satisfy
the requirements of the applicable Environmental Law or Governmental
Entity (A) are no more stringent than the Remediation Standards that
were in effect as of and were enforceable as of the Closing Date under
the applicable Environmental Law that is the source of the obligation
<PAGE>
to conduct a cleanup, or, where no such Remediation Standards had been
promulgated and were enforceable as of the Closing Date, Remediation
Standards that were applied, within one year prior to the Closing Date,
on a case-by-case basis, to properties that are most similar to the
property that is subject to a cleanup and (B) are also those
Remediation Standards that would be the least stringent permanent
solution (provided that this does not preclude a Class C Response
Action Outcome pursuant to the Massachusetts Contingency Plan, 310 CMR
40.000, where a permanent solution is not technically feasible) set
forth in the Remediation Standards that would be applicable given the
use of the property as of the date before the Closing Date; (iv) such
cleanup is for substances that were designated as Hazardous Materials
and would have been subject to cleanup under an applicable
Environmental Law had such cleanup been initiated on or before the
Closing Date; and (v) such cleanup is conducted using the most cost
effective methods for investigation, remediation and/or containment
consistent with applicable Environmental Law or the Requirements of a
Governmental Entity. To the extent that the Losses incurred in
connection with a cleanup covered by subsection (a) are in excess of
the Losses that would be incurred for a cleanup meeting the conditions
set forth in this subsection (b), Seller shall have no obligation to
indemnify Buyer for such excess Losses.
(c) Notwithstanding anything to the contrary herein,
Seller and Buyer covenant to each other that the Seller indemnity in
this ss. 9.3 shall be subject to the following limitations: (i) if the
cost of cleanup or correcting a non-compliance with law subject to
indemnify by Seller are increased after the Closing Date due to an or
omission by a person other than Seller or Seller's agents, Seller shall
not be responsible for any such increase in costs incurred; (ii) Seller
shall not be responsible for any capital improvements and repairs and
modifications to capital improvements associated with the property or
the facilities of the Company made after the Closing Date; (iii) if
Seller is undertaking performance of its obligations pursuant to this
ss. 9.3, Seller shall not be responsible for the costs associated with
Buyer's oversight of Seller's performance, including the cost of
Buyer's oversight of Seller's legal counsel, consultants, or employees;
and (iv) Seller shall not be responsible for any costs that are
incurred by Seller in performing it indemnity obligations under this
ss. 9.3 due to any change related to the property or the Company
resulting or arising from the closure or sale of a facility or
business, the construction of new structures or equipment, a
modification to existing structures or equipment, the excavation or
movement of soil, or a change in use of the facilities from
manufacturing to any other use.
(d) To the extent that Buyer makes a claim for breach
of the representation set forth in ss. 3.25, or for a non-compliance
with applicable Environmental Law, and such matter relates to a cleanup
of Hazardous Materials at the Acton Facilities, the provisions of this
ss. 9.3 shall govern the rights and obligations of the parties.
<PAGE>
(e) Indemnification shall be available under this ss.
9.3 only with respect to those specific claims for which Buyer has
provided written notice to Seller by the fifth anniversary of the
Closing Date. Such notice must include, based on reasonably available
evidence, the following: (i) location; (ii) the extent of contamination
and the impacted media, if known; and (iii) a copy of any notices filed
with or received from any Governmental Entity, LSP or other Person, or,
if no such notice has been filed or received, the basis upon which the
claimant seeks indemnification. Claims brought pursuant to this ss. 9.3
shall be subject to the procedures for indemnification set forth in ss.
9.5 if such claims are third party claims. Buyer shall be responsible
for managing any cleanup of the Acton Facilities or any matters
relating thereto, notwithstanding Seller's indemnification obligations
pursuant to this Section 9.3. Buyer agrees that: (i) it shall promptly
provide copies to Seller of all notices, correspondence, draft reports,
final reports, intended submissions and final submissions, proposed and
final workplans, governmental responses thereto, and other documents or
information of similar import; (ii) it shall afford Seller a reasonable
opportunity to comment and consult on any such intended submissions,
draft reports, proposed workplans and similar documents; (iii) it shall
provide Seller notice of any meetings with the governing regulatory
authority concerning any matter subject to the indemnity hereunder,
including, but not limited, any meetings related to the establishment
of applicable Remediation Standards; (iv) it shall provide Seller
reasonable notice of any intended field work to be conducted at the
Acton Facilities, shall allow Seller and its agents, employees,
consultants, attorneys and other representatives to observe and monitor
such field work and to obtain split samples at Seller's request; and
(v) it shall promptly provide Seller with the results of any such field
work. Seller shall be responsible for its own costs and expenses with
respect to its participation in any matters covered hereunder.
9.4. Inbdemnification Provisions for Benefit of the Seller. Buyer hereby
agrees to indemnify, defend and hold harmless Seller and its directors, officers
and Affiliates against and in respect of all Liabilities, obligations,
judgments, Liens, injunctions, charges, orders, decrees, rulings, damages, dues,
assessments, Taxes, losses, fines, penalties, damages, expenses, fees, costs,
amounts paid in settlement (including reasonable attorneys' and expert witness
fees and disbursements in connection with investigating, defending or settling
any action or threatened action) arising out of any claim, complaint, demand,
cause of action, audit, investigation, hearing, action, suit or other proceeding
asserted or initiated in respect of any matter that results from (i) the
inaccuracy of any representation or warranty made by Buyer herein, or resulting
from any misrepresentation, breach of warranty, all determined as if all
materiality and knowledge qualifiers were not contained therein (for this
purpose, only those qualifiers containing the defined term "Knowledge" shall
constitute knowledge qualifiers) or nonfulfillment of any agreement or covenant
of Buyer, contained herein or in any agreement or instrument required to be
entered into in connection herewith or from any misrepresentation in or omission
from any schedule, document, certificate or other instrument required to be
furnished by Buyer hereunder; provided, however, that the Buyer shall be liable
<PAGE>
under this ss.9.4(i) in respect of Losses if the aggregate of such Losses
exceeds $2,500,000 in which case the Buyer will be liable for all Losses
relating back to the first dollar; provided, that individual claims that are
less than $200,000 shall be excluded from the calculation of Losses from this
ss.9.4(i), and, provided, further, that the maximum liability of Buyer for
aggregate Losses arising from breach of representations or warranties shall not
exceed $50,000,000; and (ii) any Liability of the Buyer, including without
limitation, any Assumed Liability.
In the event that Buyer may be obliged to indemnify Seller under both subsection
(i) and subsection (ii) of this ss. 9.4, their obligations under subsection (ii)
shall be controlling and the limitations provided in ss.ss. 9.1 and 9.4(i)
hereof relating to their obligations in respect of Losses resulting from the
inaccuracy of any representation and warranty, or any misrepresentation, breach
of warranty or non-fulfillment of an agreement or covenant as described in ss.
9.4(i), shall not apply. Seller shall provide Buyer written notice for any claim
made in respect of the indemnification provided in this ss. 9.4, whether or not
arising out of a claim by a third party.
9.5. Matters Involving Third Parties.
(a) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim")
which may give rise to a claim for indemnification against any other
Party (the "Indemnifying Party") under this ss. 9, then the Indemnified
Party shall promptly notify each Indemnifying Party thereof in writing;
provided, however, that no delay on the part of the Indemnified Party
in notifying any Indemnifying Party shall relieve the Indemnifying
Party from any obligation hereunder unless (and then solely to the
extent) the Indemnifying Party forfeits any rights or defenses.
(b) Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim with counsel
of its choice reasonably satisfactory to the Indemnified Party so long
as (i) the Indemnifying Party notifies the Indemnified Party in writing
within 15 days after the Indemnified Party has given notice of the
Third Party Claim that the Indemnifying Party will indemnify the
Indemnified Party from and against the entirety of any Losses the
Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim to the extent
it is required to do so, (ii) the Indemnifying Party provides the
Indemnified Party with evidence acceptable to the Indemnified Party
that the Indemnifying Party will have the financial resources to defend
against the Third Party Claim and fulfill its indemnification
obligations hereunder, and (iii) the Indemnifying Party conducts the
defense of the Third Party Claim actively and diligently and the
representation of both parties by the same counsel is not inappropriate
due to actual or potential conflicts of interest between them. The
Indemnified Party agrees to cooperate fully with the Indemnifying Party
<PAGE>
and its counsel in the defense against any Third Party Claim, and to
the extent that any Party assumes the defense of any Third Party Claim
as provided herein, such Party agrees to conduct the defense of such
Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with ss. 9.5(b) above,
(i) the Indemnified Party may retain separate co-counsel at its sole
cost and expense and participate in the defense of the Third Party
Claim, (ii) the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party
Claim without the prior written consent of the Indemnifying Party
(which consent shall not unreasonably be withheld), (iii) the
Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim unless
written agreement is obtained releasing the Indemnified Party from all
liability thereunder, and (iv) the Indemnifying Party will not consent
to the entry of any judgement or enter into any settlement with respect
to a Third Party Claim seeking an injunction or other equitable relief
on the sale of a product of the Indemnified Party that generated
$10,000,000 or more of revenue for the Indemnified Party in the twelve
months from the date of such proposed consent, without the prior
written consent of the Indemnified Party (which consent shall not
unreasonably be withheld, conditioned or delayed).
(d) In the event any of the conditions in ss. 9.5(b)
above is or becomes unsatisfied, however, (i) the Indemnified Party may
defend against any Third Party Claim, and will not consent to the entry
of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnifying
Party, which shall not be unreasonably withheld; (ii) the Indemnifying
Parties will reimburse the Indemnified Party promptly and periodically
for the costs of one counsel in defending against the Third Party Claim
(including attorneys' fees and expenses), and (iii) the Indemnifying
Parties will remain responsible for any Losses the Indemnified Party
may suffer resulting from, arising out of, relating to, in the nature
of, or caused by the Third Party Claim to the fullest extent provided
in this ss. 9.
9.6. Exslusive Remedy. Except for remedies of specific performance,
the foregoing indemnification provisions shall be the exclusive remedy of the
Buyer and the Seller with respect to the transactions contemplated by this
Agreement; provided, however, the limitation on remedies provided in this ss.
9.6 shall in no way limit either Parties remedies under the Reseller Agreement.
9.7. Tax Effect. The amount of Losses payable by the Seller
pursuant to this ss. 9 as a result of a claim by the Buyer shall be (i) reduced
by the amount of any Tax benefit actually realized by the Buyer (for itself or
on behalf of the Indemnified Party) and (ii) increased by the amount of any
increased Taxes (including by reason of reduced amortization deductions)
actually incurred by the Buyer (for itself or on behalf of the Indemnified
Party) as a result of Seller's indemnification payment of Losses for such
<PAGE>
claims. The parties agree that to the extent allowed by applicable law, the
Seller's indemnification payment of Losses shall be reported as an adjustment to
the Purchase Price.
10. Termination
10.1. Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(a) the Parties may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(b) either Party may terminate this Agreement if the
Closing shall not have occurred prior to February 28, 1998; provided,
however, that this date shall be automatically extended to March 31,
1998 in the event that the FTC or DOJ issues a second request with
respect to filing under the Hart-Scott-Rodino Act;
(c) either Party may terminate this Agreement if
consummation of the transactions contemplated hereby would violate any
nonappealable final order, decree or judgment of any court or
governmental body having competent jurisdiction; or
(d) either Party may terminate this Agreement if the
other Party shall have materially breached any representation, warranty
or covenant contained in this Agreement and such breach would
reasonably be expected to have a Material Adverse Effect, in the case
of Seller, or a material adverse effect on the aggregate benefits
Seller would receive hereunder as contemplated hereby in the case of
Buyer and such breach shall not be amenable to cure.
10.2. Effect of Termination. If any Party terminates this Agreement
pursuant to ss. 10.1 above, all rights and obligations of the Parties hereunder
shall terminate without any Liability of any Party to any other Party except for
any Liability of any Party then in breach and except as set forth in ss. 10.3.
10.3. Termination Fee. If either Party shall terminate this
Agreement for any reason whatsoever, Buyer shall pay a fee of $7,500,000 in cash
to Seller within one business day after such termination. Such fee shall not be
subject to set-off or any other claim and is in addition to all other remedies
available and is payable regardless of fault.
<PAGE>
11. Miscellaneous.
11.1. Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior approval of the other
Party; provided, however, that any Party may make any public disclosure it
believes in good faith is required by applicable law or any listing or trading
agreement concerning its publicly-traded securities (in which case the
disclosing Party will provide the other Party with the opportunity to review in
advance the disclosure).
11.2. No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
11.3. Entire Agreement. This Agreement (including the documents
referred to herein), between the Parties and any other written agreements
entered into between the Parties contemporaneously herewith constitute the
entire agreement between the Parties and supersedes any prior understandings,
agreements, or representations by or between the Parties, written or oral, to
the extent they related in any way to the subject matter hereof.
11.4.Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party; provided, however, that the Buyer may (i) assign any or all
of its rights and interests hereunder to one or more of its Affiliates and (ii)
designate one or more of its Affiliates to perform its obligations hereunder;
provided that Buyer shall continue to be liable hereunder.
11.5. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
11.6. Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.7. Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given (i) upon
confirmation of facsimile, (ii) one business day following the date sent when
sent by overnight delivery and (iii) five business days following the date
mailed when mailed by registered or certified mail return receipt requested and
postage prepaid at the following address:
<PAGE>
If to the Seller:
Chris Sullivan
Vice President
Digital Equipment Corporation
111 Powdermill Road
Maynard, Massachusetts 01754-1418
Copy to:
Gail Mann
Vice President, Asst. General Counsel
111 Powdermill Road
Maynard, Massachusetts 01754-1418
If to the Buyer:
Cabletron Systems, Inc.
35 Industrial Way
Rochester, New Hampshire 03867
Attention: Donald B. Reed
Copy to:
David A. Fine
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Tel: 617-951-7000
Fax: 617-951-7050
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
<PAGE>
11.8. Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the Commonwealth of Massachusetts
without giving effect to any choice or conflict of law provision or rule
(whether of the Commonwealth of Massachusetts or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the
Commonwealth of Massachusetts.
11.9. Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Seller. The consummation of the transactions contemplated by this
Agreement at Closing shall not be deemed to have resulted in a waiver of any
breach of a representation or warranty (whether or not such party knew or had
reason to know of such misrepresentation or breach of warranty) unless such
waiver was expressly set forth in a writing signed by Buyer and Seller. No
waiver by any Party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
11.10. Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
11.11. Expenses. Except as otherwise provided herein, each of the
Buyer and the Seller will bear his or its own costs and expenses (including
legal and accounting fees and expenses) and the Seller will bear all of the
costs and expenses (including legal and accounting fees and expenses) of the NPB
incurred in connection with this Agreement and the transactions contemplated
hereby.
11.12. Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. Nothing in the
Disclosure Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made herein unless the Disclosure Schedule identifies
the exception with particularity and describes the relevant facts in detail.
Without limiting the generality of the foregoing, the mere listing (or inclusion
of a copy) of a document or other item shall not be deemed adequate to disclose
an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
item itself). The Parties intend that each representation, warranty, and
<PAGE>
covenant contained herein shall have independent significance. If any Party has
breached any representation, warranty, or covenant contained herein in any
respect, the fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty, or covenant.
11.13. Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
11.14. Specific Performance. Each of the Parties acknowledges and agrees
that the other Party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter in addition to any other remedy to which it may be
entitled, at law or in equity.
11.15. Waiver of Jury Trial. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, THE SELLER HEREBY WAIVES, AND COVENANTS
THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY
RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT TO ANY ISSUE, CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION ARISING OUT OF OR PASSED UPON THIS AGREEMENT OR THE
SUBJECT MATTER HEREOF, WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER
SOUNDING IN TORT OR CONTRACT OR OTHERWISE.
<PAGE>
*****
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the date first above written.
CABLETRON SYSTEMS, INC.
By: /s/ Donald B. Reed
Name: Donald B. Reed
Title: President
CTRON ACQUISITION, INC.
By: /s/ Donald B. Reed
Name: Donald B. Reed
Title: President
DIGITAL EQUIPMENT CORPORATION
By: /s/ Harold D. Copperman
Name: Harold D. Copperman
Title: Senior Vice President and
General Manager
Products Division
<PAGE>
EXHIBIT 2.1
CABLETRON SYSTEMS, INC.
DISCLOSURE SCHEDULE
INDEX
Exhibits
Exhibit A - Initial Statement of Assets
Exhibit B - Form of Reseller Agreement
Exhibit C - Assignment and Assumption Agreement
Exhibit D - Bill of Sale
Exhibit E - Statements of Operations
Exhibit F - List of NPB Employees
Exhibit G - Assignment of Patents and Patent Applications
Exhibit H - Assignment of Trademarks, Trademark Applications and
Goodwill
Schedules
Schedule 1.1 (a) - Accounting Convention
Schedule 1.1 (b) - Agreed-Upon Procedures
Schedule 1.2 - Assigned Licenses
Schedule 1.3 - Assigned Patents
Schedule 1.4 - Assigned Trademarks
Schedule 1.5 - Products
Schedule 1.6 - Retained Patents
<PAGE>
Schedule 1.7 - Licensing Programs
Schedule 2.1(a) - Encumbrances on Acquired Assets
Schedule 2.1(h) - Contracts
Schedule 2.1(i) - Permits
Schedule 2.1(x) - International Assets
Schedule 4.8 - Exceptions to Representation 4.8
Schedule 5.10(a) - Disability Schedule
Disclosure Schedule of Cabletron Systems, Inc.
Disclosure Schedule of Digital Equipment Corporation
<PAGE>
8 December 1997
Mr. Donald B. Reed, President
Mr. David Kirkpatrick, Chief Financial Officer
Cabletron Systems, Inc.
36 Industrial Way
Rochester, NH 03866-5005
Dear Don and David:
This letter agreement is being furnished to Cabletron Systems, Inc. and Ctron
Acquisition, Inc. (collectively, the "Buyer") by Digital Equipment Corporation
("Seller") to amend the Asset Purchase Agreement ("Agreement") between the Buyer
and Seller dated November 24, 1997. All terms used herein shall have the
meanings ascribed to them in the Agreement.
The Agreement is herby amended as follows:
1. Section 1 of the Agreement is amended by adding the following definition
"Adjusted Cabletron Stock Price" means the average, rounded to th nearest
one-thousandth of a dollar ($0.001), of the midpoints of the high and low
sales prices of Cabletron Common Stock as reported on the New York Stock
Exchange Composite Tape (as reported by the eastern edition of The Wall
Street Journal or, if not reported thereby, as reported by another
authoritative source as mutually agreed by the Buyer and the Seller) for
the ten (10) consecutive trading days during the period ending on the
trading day immediately preceding the Closing Date.
2. Section 2.5(a) of the Agreement is amended in its entirey to read as
follows: Cash At the Closing, (x) $91,800,000 in cash (subject to
adjustment pursuant to Section 2.6) and (y) in the event of the Cabletron
Stock Price is greater than the Adjusted Cabletron Stock Price, an
additional amount of cash consideration equal to the amount by which the
difference, if any, between the aggregate value of the Cabletron Shares
determined with reference to the Cabletron Stock Price and the value of
the Cabletron Shares determined with refernce to the Adjusted Cabletron
Stock Price exceeds $7,500,000, all of such cash payable by wire transfer
to the Seller in accordance with instructions of the Seller given to the
Buyer prior to the Closing.
3. The first paragraph of Section 2.5(c)(ii) of the Agreement is amended
in its entirety to read as follows: Second Year Product Credits. Subject
to adjustment pursuant to Section 2.6, (x) $125,000,000 is Second Year
Product Credits and (y) in the event the Cabletron Stock Price is greater
than the Adjusted Cabletron Stock Price, a dollar amount of additional
Second Year Product Credits, equal to the differnce, if any, between the
aggregrate value of the Cabletron Shares detemined with reference to the
Cabletron Stock price and the value of the Cabletron Shares determined
with reference to the Adjusted Cabletron Stock Price, up to $7,500,000.
4. Section 2.5 of the Agreement is amended by adding thereto the following
Section 2.5(d): At Buyer's option, in lieu of delivering to Seller at
Closing the Cabletron Shares, Buyer may elect to furnish Seller, so long as
Buyer so notifies Seller at least two business days prior to Closing, with
additional cash consideration, payable in accordance with the provisions
of Section 2.5(a), equal to the value of the Cabletron Shares detemined
with reference to the Adjusted Cabletron Stock Price.
Except as expressly modified herein, the Agreement shall remain in full force
and effect in accordance with its terms.
Pleeas indicate your agreement with the terms hereof by dating and signing the
duplicate copy of this letter enclosed and returning it by facsimile, followed
originally executed copy, to Gail S. Mann, Vice President, Assistant General
Counsel, Secretary and Clerk at Digital Equipment Corporation, 111 Powdermill
Road (MSO2-3/F13), Maynard, MA 01754. facsimile number 978-493-7310.
Sincerely,
Digital Equipment Corporation
By: /s/ Harold D. Copperman
Harold D. Copperman
Senior Vice President and General Manager
Products Division
Acknoweledged and agreed to:
Cabletron Systems, Inc.
CTRON Acquisition, Inc.
By: /s/ Donald B. Reed
Donald B. Reed
President
EXHIBIT 10.1
RESELLER
AND
SERVICES AGREEMENT
between
SELLER
and
DIGITAL
EQUIPMENT
CORPORATION(1)
(1) Confidential Treatment has been requested as to certain portions of this
agreement. The term "Confidential Treatment" and the mark (*) is used throughout
this agreement in order to indicate that material has been omitted and
separatley filed with the Securities and Exchange Commission.
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS 2
2. TERM AND TERMINATION 7
3. PRODUCT PURCHASING REQUIREMENTS AND PROCEDURES 8
4. PRICING AND PRICE CHANGES 13
5. DELIVERY OF PRODUCTS 15
6. QUALITY, INSPECTION, AND ACCEPTANCE 18
7. PAYMENT 19
8. PRODUCT SERVICES 19
9. DIGITAL PRODUCT BRANDING 22
10. SELLER'S SALE RESTRICTIONS/PARTIES'
SALES COMPENSATION 26
11. DOCUMENTATION 27
12. PROPRIETARY RIGHTS AND LICENSES 27
13. PRODUCT LOANS, BETA SITES, MODELING 29
14. TECHNICAL SUPPORT BY SELLER 29
15. PERSONNEL 30
16. TRAINING 32
17. END OF LIFE 33
<PAGE>
18. ENGINEERING AND FIELD CHANGE ORDERS 33
19. SALES AND RELATIONSHIP PLANNING AND ENGAGEMENT 34
20. MARKETING 35
21. WARRANTY 35
22. STOCK ROTATION 37
23. ESCROW DEPOSIT 37
24. SUPPLY BY DIGITAL 38
25. LIMITATION OF LIABILITY AND REMEDIES 38
26. CONFIDENTIAL INFORMATION AND AUDITS 39
27. COMPLIANCE WITH LAWS 41
28. INDEMNIFICATION AND INSURANCE 41
29. NOTICES 43
30. FORCE MAJEURE 44
31. GENERAL 44
<PAGE>
RESELLER AND SERVICES AGREEMENT
This Agreement ("Agreement") made and effective as of November
24, 1997 ("Effective Date") between Cabletron Systems, Inc., having a principal
place of business at 35 Industrial Way, Rochester, New Hampshire 03867 (together
with all Subsidiaries collectively referred to as "Seller") and DIGITAL
EQUIPMENT CORPORATION, having a principal place of business at 111 Powdermill
Road, Maynard, Massachusetts 01754 (together with all Subsidiaries collectively
referred to as "Digital").
W I T N E S S E T H:
WHEREAS, Seller is in the business of, among other things,
providing networking technology products to its customers and Digital is in the
business of, among other things, providing systems integration, network
management, technology deployment, and outsourcing services to its clients;
WHEREAS, Seller and Digital are entering into an asset
purchase agreement ("Asset Purchase Agreement") which (i) involves the transfer
of assets associated with its networking product business; and (ii) defines the
roles and responsibilities of the parties hereto, and the requirements of each
in developing, marketing, selling and supporting a set of defined products;
WHEREAS, a condition of the Asset Purchase Agreement is the
execution of certain ancillary agreements including this Agreement;
WHEREAS, Seller wishes to appoint Digital as a reseller of
certain products on certain terms;
WHEREAS, Seller wishes to market and support Digital as its
Strategic Network Services Partner and Digital wishes to market and support
Seller as its Strategic Network Product Partner;
WHEREAS, Seller shall provide certain products and services to
Digital and third parties; and
WHEREAS, the parties wish to describe their respective rights
and obligations herein.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants, promises, and undertakings hereinafter set forth, Digital and
Seller hereby agree as follows:
<PAGE>
1.. DEFINITIONS
Capitalized terms contained herein but not defined shall
have the meaning set forth in the Asset Purchase Agreement.
1.1. "Authorized Warranty Service Provider" shall mean any Person to which
either party subcontracts some or all of its service obligations.
1.2. "Baseline ESF Percentage" shall mean the percentage of sales of NPB
Products to Shared Resellers during the four (4) quarters prior to the
Closing Date which represents sales by Digital Enterprise Sales Force
(as compared to sales by NPB channel sales personnel to such Shared
Resellers), as mutually agreed between the parties prior to Closing.
1.3. "Business Day" shall mean Monday through Friday, excluding local
holidays.
1.4. "Closing Date" shall mean the closing date as defined in the Asset
Purchase Agreement.
1.5. "Contract Services" shall mean all hardware/Software services that
Digital provides to Customers that are not Warranty Services.
1.6. "Control" and the correlative terms "Controlling," "Controlled By" and
"Under Common Control With" for purposes of this definition means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through
ownership of voting securities or by contract, or otherwise, but only
during the period of such ownership or control.
1.7. "Customers" shall mean purchasers of Products and/or Services.
1.8. "DEC Formative Marks" shall mean the marks set forth on Appendix
2 to Schedule 9.1.1.
1.9. "Demand Forecast" shall mean a written demand forecast produced by
Digital and delivered to Seller that specifies the amount of Products
Digital expects to purchase over at least the succeeding twelve months,
with dollar volumes specified on a monthly basis.
1.10. "Digital-Branded Products" shall mean all NPB Products, all products
set forth on Schedule 9.6, and all other Products to which the parties
agree, to be sold under the Digital Marks.
<PAGE>
1.11. "Digital Marks" shall mean the Digital Brand, the DEC Formative Marks,
and the Relationship Logo set forth on Schedule 9.1.1 and all
Appendices thereto, as the same may be amended by Digital from time to
time.
1.12. "Digital Brand" shall mean the Digital logo that is set forth on
Schedule 9.1.1, and any logo that Digital uses to replace that logo.
1.13. "Digital Partner" shall mean any Person selling and/or servicing
Digital-Branded Products, including external Product resellers,
Digital's internal services organization, and Authorized Warranty
Service Providers, in each case to the extent that such person
purchases such Products through Digital or provides such services on
behalf of Digital.
1.14. "Digital Price Book" shall mean Digital's published price list for (i)
Digital-Branded Products and (ii) certain Seller Products to be
included by mutual agreement of the parties.
1.15. "Digital Service Agreement" shall mean agreements between Digital and
Customers for Services.
1.16. "Digital Services Division" shall mean MCS, NSIS, and OMS, or any other
organization(s) within Digital that perform(s) the functions performed
by these divisions as of the Closing Date.
1.17. "Dead on arrival" or "DOA" shall mean that the product does not
function upon initial receipt by a Customer.
1.18. "End of Life" or "EOL" shall have the meaning set forth in Section
17.1.
1.19. "Engineering Change Order" or "ECO" shall mean a manufacturing change
to a Product necessitated by problems or defects in form fit or
function or by product safety concerns.
1.20. "Enterprise Sales Force" shall mean all Digital field sales personnel
that are not NPB channel sales personnel immediately prior to the
Closing Date.
1.21. "Escrow Deposit" shall mean (i) all Software source code for Products
on the Product Road Map or otherwise provided by Seller hereunder
(including from time to time each upgrade, enhancement or other
modification), together with, to the extent in existence, (A) any
pertinent commentary or explanation that may be necessary to render
such source code understandable and usable by a trained
computer-programming expert, (B) such system documentation, statements
of principles of operation and schematics as are necessary or
useful for the effective understanding of such source code, and (C) all
devices, programming or documentation (including compilers,
workbenches, tools and higher-level or proprietary languages) employed
<PAGE>
by Seller for the development, maintenance and implementation of such
source code; (ii) all technical specifications for the Products on
the Product Road Map or otherwise provided by Seller hereunder and all
documentation related thereto; and (iii) manufacturing technical
specifications and processes, and all documentation related thereto.
1.22. "First Revenue Ship" or "FRS" shall mean the initial shipment of a New
Product by Seller.
1.23. "First Volume Ship" shall mean the initial shipment of New Products by
Seller in volumes to satisfy Digital's forecasted needs, as set forth
in the Product Road Map.
1.24. "Field Replacement Unit" or "FRU" shall mean a field replaceable unit,
or those parts, options, and/or components that can be used to effect a
fix on a Product.
1.25. "First Year Product Credits" means first year Product Credits as that
term is defined in the Asset Purchase Agreement which may be used by
Digital to purchase from Seller, at prices set forth herein,
Digital-Branded Products that are ordered under this Agreement during
the period beginning on the Closing Date and ending on the first
anniversary of the Closing Date (the "First Year") for requesting
delivery at any time until thirty days
after the end of the First Year.
1.26. "Full Revenue Quota Credit" shall mean the lesser of (i) a one hundred
percent (100%) sales quota credit or (ii) the best equivalent sales
quota credit generally provided by Digital for other Digital products.
1.27. "Gold Key Program" shall have the meaning set forth in Section 8.3.
1.28. "including" shall mean including but not limited to.
1.29. "Intellectual Property Rights" shall mean all copyrights, trademarks,
servicemarks, trade secrets, patents and other intellectual property
rights wherever in the world enjoyable.
1.30. "MDF" shall mean marketing development funds.
1.31. "Minimum Product Volumes" shall have the meaning set forth in Section
3.2.
1.32. "Multivendor Customer Services" or "MCS" shall mean Warranty Services
and Contract Services.
<PAGE>
1.33. "New Products" shall mean future Products to be included in the terms
of this Agreement by the mutual agreement of Digital and Seller,
pursuant to the Product Road Map. New Products shall be classified as
Digital-Branded Products or Seller Products.
1.34. "NSIS" shall mean Digital's Network Systems Integration Services.
1.35. "NPB Products" shall mean the products that are part of Digital's
Network Product Business that have achieved FRS as of the Closing Date
and will be transferred by Digital to Seller under the Asset Purchase
Agreement.
1.36. "OEM" shall mean original equipment manufacturer.
1.37. "OMS" shall mean Operations Management Services
1.38. "One Tier Reseller" means a reseller that buys Product directly from a
manufacturer for resale directly to an end user.
1.39. "Person" for these purposes means any individual, partnership, firm,
association, trust, estate, corporation or any other legal or business
entity.
1.40. "Product Information" shall mean descriptions of documentation,
technical tips, Software support tools, publications, technical
newsletters, training materials and all other information in any media
which Digital may reasonably require in order to sell, support and
maintain the Products and/or deliver Services to Customers.
1.41. "Product Road Map" shall mean the standards, specifications and other
terms regarding the Products set forth on Schedule 3.1, as amended from
time to time pursuant to the procedures expressly set forth in this
Agreement.
1.42 "Product Credits" shall mean Product Credits to be used by Digital for
the purchase of Digital-Branded Products, as further set forth in the
Asset Purchase Agreement.
1.43. "Products" shall mean, collectively, NPB Products, Digital-Branded
Products, Seller Products, and all Spare Parts and Field Replacement
Units related to the foregoing.
1.44. "Relationship Logo" shall mean the Digital logo set forth on Appendix 1
to Schedule 9.1.1, encircled by a relationship designation, as set
forth in Appendix 7 to Schedule 9.1.1.
1.45. "Required Lead Time" shall mean the Seller's published lead times.
1.46 "Resale Products" shall mean Products purchased by Digital for resale
or redistribution to third parties.
<PAGE>
1.47 "RFP" shall mean a Request for Proposal.
1.48. "Rotate" shall mean to return a Product to Seller for either (i)
replacement of a more current revision level of the same Product; or
(ii) replacement with a different Product.
1.49. "SCI" shall mean SCI Technology, Inc.
1.50. "Second Year Product Credits" means second year Product Credits as that
term is defined in the Asset Purchase Agreement which may be used by
Seller to purchase from Buyer, at prices set forth in this Agreement,
Digital-Branded Products that are ordered during the period beginning
on the first anniversary of the Closing Date and ending on the second
anniversary of the Closing Date (the "Second Year") requesting delivery
at any time until thirty days after the Second Year.
1.51. "Seller Marks" shall mean the trademarks, service marks, logos and
designs of Seller.
1.52. "Seller Products" shall mean all non-Digital-Branded Products offered
by Seller under the Seller Marks.
1.53. "Seller Selling Partner" shall mean any Person selling Digital-Branded
Products, at any level, under a contract with, or authorization from,
Seller.
1.54. "Seller Tradename" shall have the meaning set forth in Section 9.9.
1.55. "Services" shall mean all services and support provided by Digital or
Digital Partners to its Customers.
1.56 "Shared Resellers" shall mean those resellers listed on Schedule 1.56.
1.57. "Software" shall mean all computer program, databases and firmware, (i)
embedded in the Products or (ii) sold on a stand-alone basis as
Products, and all user documentation and technical specifications
associated therewith.
1.58. "Spare Parts" shall mean all new or like-new spares or spare parts used
to effect a fix on a Product.
1.59. "Subsidiary" as used with reference to any Person means any Person
controlling, controlled by, or under common Control with such Person.
1.60. "Term" shall have the meaning set forth in Section 2.1.
1.61. "Two Tier Reseller" means a reseller that buys Product directly from a
manufacturer for resale directly to a reseller, who in turn will resell
directly to an end user.
<PAGE>
1.62. "Unique Materials" shall mean all materials or components ordered by
Seller for use in Digital-Branded Products, and for which Seller has no
alternate use.
1.63. "Warranty" shall mean a standard Product warranty provided to a
Customer in accordance with the specifications for such Product.
1.64 "Warranty Services" shall mean those services provided by Digital or
Digital Partners to a Customer in connection with a Warranty.
1.65. "Year 2000 Compliant" shall mean that all computer hardware, software,
and microcode has user interfaces, date data fields, processing logic,
and output that correctly recognize, process, reflect and otherwise
support date data for all dates, including dates occurring after
December 31, 1999.
2.. TERM AND TERMINATION
2.1. This Agreement shall extend for an initial term beginning on the
Closing Date and ending on June 30, 2001, unless terminated sooner
pursuant to judicial or similar order (the "Term").
2.2. Upon termination of this Agreement, (A) subject to Section 17.1,
Seller's obligation to manufacture Product necessary for Digital to (i)
purchase Spare Parts; (ii) meet any outstanding contractual obligations
to its Customers, including with respect to Warranty Services and
Contract Services, and/or (iii) to conclude any Digital or Digital
Partners' sales opportunities, shall survive termination for six months
and (B) Digital will continue to receive the technical support and
related services set forth in Section 14.
2.3. In addition to those Sections that survive termination pursuant to
Section 2.2, the following Sections of this Agreement shall also
survive termination: Definitions, Section 10.6, Technical Support by
Seller, Section 17.1, Limitation of Liability; Audits and Confidential
Information; Compliance With Laws; Indemnification and Insurance;
General and all related schedules.
2.4. Upon termination of the Agreement, other than pursuant to judicial or
similar order because of breach of this Agreement by Seller, if Seller
has finished inventory of Digital-Branded Products, Seller shall offer
Digital a right of first offer which offer shall remain open for thirty
(30) days to purchase all such Digital-Branded Products at the prices
Digital was paying immediately prior to termination. In the event
Digital does not exercise this right, Seller may sell-off such Products
for an additional sixty (60) days after Digital notifies Seller it will
not exercise this right. At the conclusion of such sixty (60) day
<PAGE>
period, Seller must either remove the Digital Marks from all such
Products or destroy such Products and provide Digital with written
certification of such removal or destruction. The license to Digital
Marks granted hereunder shall survive for such sell-off period solely
to the extent necessary for Seller to exercise its rights under this
Section 2.4.
3.. PRODUCT PURCHASING REQUIREMENTS AND PROCEDURES
3.1. Attached hereto as Schedule 3.1 is the Product Road Map for the first
twelve (12) months of this Agreement. Schedule 3.1 also sets forth (i)
the procedures for creating a new Product Road Map quarterly, or more
frequently, if agreed between the parties, and (ii) escalation
procedures in the event of a disagreement between the parties.
3.1.1. Seller is contractually committed to comply with the Product
Road Map [*] covered by the then current Product Road Map,
subject to changes approved by both parties.
3.1.2. If Seller notifies Digital through the Product Road Map
process that it proposes to cease production of any Product
that has achieved First Volume Ship, and Digital has
delivered or delivers to Seller within one month of receipt
of such notice a Demand Forecast that contains a forecast of
sales by Digital for such Product in excess of ten ($10)
million for the twelve (12) months following such notice
(and the forecast amount is reasonably consistent with prior
Demand Forecasts given then current marketplace conditions),
then Seller shall produce at least the Demand Forecast
amount of such Product and Digital shall be bound, under the
terms of this Agreement, to purchase such amount.
3.1.3. If Digital has proposed adding a New Product to the Product
Road Map for introduction at least nine months following the
date of such proposal and: (i) production by Seller of the
Product is technologically feasible; and (ii) Digital has
presented Seller with a forecast that shows sales of such
New Product comprising thirty-five ($35) million or more of
Digital's total forecast sales for the twelve (12) months
following the proposed introduction of such New Product,
then, at Seller's option: (x) Seller may agree to make
the New Product and Digital shall have a contractual
commitment to purchase at least the amount forecast at
agreed upon OEM pricing, or (y) if Seller declines
to produce the New Product, Digital's corresponding Minimum
Product Volumes shall be reduced by fifty cents ($.50) for
each forecast dollar. If the parties disagree on whether
the introduction of a New Product is technologically
feasible, such disagreement shall be submitted for
escalation treatment as set forth in the Product Road Map.
A proposal under this provision must identify the form, fit,
*Confidential Treatment
<PAGE>
functionality and performance of the New Product with
sufficient specificity to allow Seller to assess the
technological feasibility and manufacturability of the New
Product. OEM pricing means, except as otherwise agreed, an
industry standard OEM discount accounting for relevant
volumes purchased.
3.2. Subject to Seller's compliance with its contractual obligations under
this Agreement respecting the then current Product Road Map, and the
terms and conditions of this Agreement including Section 3.4, Digital
shall purchase the following minimum volumes of Products ("Minimum
Product Volumes") during the following Term years:
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------------- ------------------------------------- -------------------------------------
YEAR PURCHASES PURCHASES FOR
FOR RESALE SPARE PARTS AND
AND INTERNAL USE
- ---------------------------------------- ------------------------------------- -------------------------------------
Digital Fiscal Year 98 [*] [*]
- ---------------------------------------- ------------------------------------- -------------------------------------
Digital Fiscal Year 99 [*] [*]
- ---------------------------------------- ------------------------------------- -------------------------------------
Digital Fiscal Year 00 [*] [*]
- ---------------------------------------- ------------------------------------- -------------------------------------
Digital Fiscal Year 01 [*] [*]
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
3.2.1. For purposes of calculating the Minimum Product Volumes,
Digital Fiscal Year 98 shall commence on January 1, 1998 and
end on June 30, 1998. Digital Fiscal Year 99 shall commence
on July 1, 1998, and terminate on June 30, 1999. Digital
Fiscal Year 00 shall commence on July 1, 1999 and terminate
on June 30, 2000. Digital Fiscal Year 01 shall commence on
July 1, 2000 and terminate on June 30, 2001.
Notwithstanding the foregoing, if Digital Fiscal Year 98 is
decreased by one or two months, then Digital's Minimum
Product Volume for Fiscal Year 98 shall be decreased and
Digital's Minimum Product Volume for Fiscal Year 01 shall be
increased by [*] for decreases of one month, and
[*] for decreases of two months. If Digital's
Fiscal year 98 is decreased by more than two months, the
parties shall meet to determine the allocation of Digital's
Minimum Product Volumes.
3.2.2. The volume of dollar purchases by Digital shall be
determined based on the purchase price after any discounts
are applied. Purchases for Spare Parts and internal use in
excess of the amounts set forth above shall be applied
against the Minimum Product Volume purchases for resale
requirements.
3.2.3. Purchases by Digital from Seller of Products and any other
products and/or services shall be applied towards the
Minimum Product Volumes.
*Confidential Treatment
<PAGE>
3.3. As set forth in, and subject to, the Asset Purchase Agreement, Digital
has First Year Product Credits in an amount set forth in the Asset
Purchase Agreement, and Second Year Product Credits of $125 million.
3.3.1 Digital may apply its Product Credits to Digital-Branded
Product purchases in its sole discretion, provided that:
(i) in the event that Digital fails to meet its Minimum
Product Volume commitment in Fiscal Year 98: (x) Second Year
Product Credits shall be reduced by sixty percent (60%) of
the amount of the Fiscal Year 98 shortfall; (y) Digital may
not apply any First Year Product Credits in Fiscal Year 99
until a volume of Digital-Branded Products equal to the
Fiscal Year 98 shortfall is purchased other than in Product
Credits, at those prices set forth in Section 4; and (z)
Digital may not apply any Second Year Product Credits to
purchases in Fiscal Year 99 until a volume of
Digital-Branded Products equal to sixty percent (60%) of the
Fiscal Year 98 shortfall is purchased in Year Two (as
defined in the Asset Purchase Agreement) other than in
Product Credits, at those prices set forth in Section 4; and
(ii) in the event that Digital fails to meet its Minimum
Product Volume commitment in Fiscal Year 99: (x) any
remaining Second Year Product Credits shall be reduced by
sixty percent (60%) of the amount of the Fiscal Year 99
shortfall; and (y) Digital may not apply any remaining
Second Year Product Credits to purchases in Fiscal Year 00
until a volume of Digital-Branded Products equal to the
shortfall is purchased other than in Product Credits, at
those prices set forth in Section 4.
3.3.2. In the event that Minimum Product Volumes for the aggregate
of Fiscal Year 98 and Fiscal Year 99 (pro-rated to a six (6)
month period) are reduced to a level below the amount of
First Year Product Credits pursuant to Section 3.4, then
Digital shall receive a dollar-for-dollar carryover of
unused First Year Product Credits to Second Year Product
Credits.
3.4.4 The Minimum Product Volumes will be subject to the following:
3.4.1. Other than for delays caused directly by Digital, or by SCI
for one hundred and twenty (120) days following the Closing
Date, if Digital issues a valid Purchase Order for a Product
on the Product Road Map that is accepted by Seller and [ * ]
after the scheduled delivery date, the parties shall
escalate the problem to the parties' respective Relationship
Managers, or their respective designee, who will either (i)
create a recovery plan for expeditious shipment of the
Product; or (ii) agree on an alternative Product to be
offered by Seller, provided that the final determination as
to whether
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Digital shall accept such alternative Product shall be in the sole discretion of
Digital. In the event that Seller fails to provide an adequate shipment remedy
or a substitute that is acceptable to Digital [ * ].
3.5. Digital shall authorize purchase of Products by issuing written (which
includes electronic data interchange and facsimile) or telephonic
orders on its then current purchase order form and any documents
incorporated therein by reference ("Purchase Order"). The terms of
this Agreement shall supersede the pre-printed terms and conditions of
any Purchase Order. All terms and conditions not specifically set
forth in this Agreement but appearing on the face of the Purchase Order
shall apply to such transactions as if set forth in this Agreement.
In the event of a conflict between this Agreement and any term or
condition in any Purchase Order, this Agreement shall govern. No terms
appearing on the face of a Purchase Order, other than with respect to
time of delivery, mode of transportation, special discounts, and
similar commercial terms acknowledged in writing by the Seller, shall
be deemed to amend, modify or limit the application of any express term
of this Agreement. Digital shall use its reasonable commercial efforts
to send confirming written Purchase Orders within two (2) weeks after
issuing any telephonic Purchase Orders.
3.6. Seller may not unreasonably reject a Purchase Order that is consistent
with the terms of this Agreement. Seller shall promptly acknowledge all
Purchase Orders, but in no event may Seller reject a Purchase Order
later than seven (7) days after receipt of a Purchase Order. Acceptance
by Seller is limited to Digital's offer as contained in this Agreement
and the Purchase Order. Unless otherwise agreed between the parties, no
additional or different provisions proposed by either party shall
apply. In addition, the parties agree that this Agreement and any
issued Purchase Orders constitute a Contract for the Sale of Goods and
satisfy all statutory and legal formalities of a contract.
3.7. Commencing twelve (12) months after the Effective Date, Seller shall be
required to meet the Required Lead Time with respect to [ * ]
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[ * ] during each quarter throughout the term of this Agreement.
3.7.1 In the event that Seller fails to meet the foregoing
requirement, and does not meet that requirement during the
following quarter, [ * ].
3.8. Commencing twelve (12) months after the Effective Date, Seller shall
use all reasonable efforts to deliver Products by the originally
scheduled ship date specified by Seller with respect to [ * ].
3.8.1. In the event that Seller fails to deliver Products by the
originally scheduled ship date specified by Seller with
respect to [ * ].
3.9. The provisions of Sections 3.7 and 3.8 shall not apply to (i) Products
on allocation, and (ii) New Products for the first ninety (90) days
after introduction.
3.10. Promptly after the first anniversary of the Closing Date, the parties
shall calculate the percentage of sales of Digital-Branded Products by
Digital (as compared to Seller) to Shared Resellers (based on invoice
net of return totals) during the first year after the Closing Date (the
"Future ESF Percentage"). The parties shall adjust Digital's Minimum
Product Volume purchase commitments for Fiscal Year '99 by the
following formula:
(Baseline ESF Percentage minus Future ESF Percentage)
multiplied by (the combined sales by Digital Enterprise
Sales Force and Seller of Digital-Branded Products to Shared
Resellers in Fiscal Year 99), provided that in no event
shall the adjustment to Digital's Minimum Product Volumes
(up or down) pursuant to Section 3.10 exceed $7.5 million.
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4.. PRICING AND PRICE CHANGES
4.1. The price to Digital of all NPB Products that are Resale Products shall
be the lesser of (i) Digital's List Price less Digital's current
discounts; and (ii) Seller's best comparable reseller channel pricing.
4.2. The price for all Resale Products other than NPB Products shall be
Seller's Platinum Plus pricing (which is currently Seller's best
comparable reseller channel pricing program). If the Platinum Plus
program is changed, eliminated or superseded, Digital will receive
Seller's best comparable reseller channel pricing program.
4.3. The price of Products used for demonstrations and as lab equipment,
Products purchased for internal use and not for Spare Parts by Digital,
and Customer loan equipment [ * ]. Unless otherwise agreed between the
parties, no MDF or incentive programs shall apply to such purchases.
4.4. The price of Spare Parts used for the provision of Contract Services of
NPB Products shall be [ * ] from the pricing set forth in Sections 4.1
and 4.2. Refurbished Spare Parts may be substituted when Digital is
providing maintenance service but not in connection with any warranty.
Unless otherwise agreed between the parties, no MDF or incentive
programs shall apply to such purchases. The price for repair services
for NPB Product Spare Parts provided in connection with Digital's
provision of Contract Services of NPB Products shall be [ * ].
4.5. In the event that Digital purchases Products in excess of the Minimum
Product Volumes in any given Fiscal Year, it shall be [ * ].
4.6. Seller shall provide Digital written notice of any change in Seller's
pricing that applies to Digital [ * ]. If Seller fails to give Digital
such prior notice:
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4.6.1. [ * ]
4.6.2. [ * ]
4.7. Seller's prices shall include all charges such as packaging, packing,
customs duties imposed before passage of title, and all taxes except
sales, use and other such taxes imposed upon the sale or transfer of
Product for which Digital is solely responsible under applicable law
and for which Digital is properly invoiced by Seller. If Product or
Spare Parts is supplied without normal packaging or packing, Seller
will pass on to Digital its resultant cost savings in connection
therewith.
4.8. Notwithstanding anything else in this Agreement, Seller shall provide
reasonable consideration, on an opportunity basis, to any special
pricing and/or discount terms and conditions which may be requested by
Digital for a specific contract opportunity. Such requests shall be
made by Digital to the local Seller sales and/or channels manager for
review. Seller shall respond to Digital's request within forty-eight
(48) hours from the date of the request, unless otherwise agreed to by
the parties.
4.9. Digital shall accrue [ * ] in applicable categories per quarter which
can be utilized for a variety of Seller product related business and
marketing activities, as specified and approved by Seller, such as
training, advertising, trade shows, presentation materials, seminars,
special events and promotional materials. MDF funds may not be used for
travel or lodging costs, provided that the use of MDF Funds in
connection with training need not be approved by Seller.
4.10. Unless approved by Seller, MDF funds: (i) may not be applied against
future Product purchases; and (ii) may not be used to satisfy any
outstanding balance owed to Seller.
4.11. Digital shall submit invoices and proof of items purchased to Seller
prior to the disbursement of MDF. Seller shall reimburse Digital within
sixty (60) days from date of Seller approval of the invoice, or in the
case of Seller charges, deduct directly from the MDF account.
4.12. With the prior approval of Seller, MDF may be utilized in advance based
on projected purchase levels in subsequent quarters.
4.13. In the event this Agreement terminates, other than pursuant to judicial
or similar order because of breach of the Agreement by Seller, only MDF
requests submitted and approved prior to termination shall be
reconciled. MDF requests submitted subsequent to
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such termination will not be accepted, and all remaining MDF will be forfeited.
All advanced MDF owed to Seller are payable at final settlement.
5.. DELIVERY OF PRODUCTS
5.1. All Products shall be deemed to have been purchased on their originally
scheduled ship date (i) for purposes of the application of such
purchases towards the satisfaction of the Minimum Product Volumes and
application of the Product Credits and (ii) to determine Seller's
compliance with Sections 3.6 and 3.7.
5.2. Digital Purchase Orders upon acceptance by Seller shall state Seller's
committed delivery dates for each Product. The minimum period between
Digital's issuance of a Purchase Order and the committed delivery date
shall be the Required Leadtime. At the request of Digital, Seller shall
use reasonable efforts to expedite a shipping date.
5.3. Except as otherwise provided in this Agreement, all deliveries shall be
FOB Origin. Digital shall select the carrier and shall pay
transportation charges on a "freight collect" basis. Digital may
require that Products be shipped by Seller to various destinations
including directly to a Customer. The Purchase Order will clearly
specify the "Ship To" location for each order placed with Seller.
5.4. If Seller has more than one geographic location which could supply
Resale Product, Seller shall use reasonable efforts to make such
Product available to Digital from Seller's closest location to
Digital's "Ship To" location.
5.5. If Seller delivers a Product more than [*] of the schedule delivery
date, Digital may (i) return such Product, at Seller's expense, for
subsequent delivery on the scheduled delivery date (provided, that
in the case of Products shipped outstide the United States, this
clause shall apply only for Products delivered [*] of the scheduled
delivery date); or (ii) retain such Product and postpone payment until
it would have been due if Seller had delivered such Product on
schedule. Without limiting any of Digital's rights and remedies in
equity or at law, if Seller has failed to deliver any Product by the
scheduled delivery date, such Product shall be considered "late" and
Digital may require that Seller ship that Product via premium means
(e.g., guaranteed overnight delivery) at Seller's expense, or may
cancel the order for such Product, without cost or liability to
Digital.
5.6. In the event of a Product or a Product component shortage, Seller shall
fill orders placed by Digital to satisfy Digital end user Customer
requirements on a pro rata basis with other
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purchasers (based upon the average purchased volumes subject to such shortage
for the prior three months).
5.7. Seller shall deliver the exact quantity of Product scheduled for
delivery pursuant to Purchase Orders. If Seller delivers less than the
scheduled volume, Seller shall correct the shortage within two (2)
Business Days. If Seller fails to corrct such shortage within this
period, without limiting any of Digital's rights and remedies under
this Agreement. Digital may cancel the pertinent portion of the
Purchase Order without cost or liability.
5.8. If Digital's Purchase Order specifies export after passage of title,
Seller shall furnish Digital with all necessary export/import
documentation at Seller's expense. Export/import documentation shall be
in accordance with the INCOTERMS then in force.
5.9. Digital may cancel and/or reschedule delivery of individual Purchase
Orders, or portions thereof, in accordance with the Schedules described
below. Oral directions to reschedule deliveries shall be permitted and
shall be confirmed in writing by Digital within two (2) weeks following
such oral directions. Digital shall be assessed a cancellation fee as
follows:
The following cancellation terms shall apply to (i) all NPB Products together
with upgrades and revisions thereto which conform to such Products in form, fit
and function, and (2) all Products on the Product Road Map that are unique to
Digital's requirements in form, fit and function, and have no Seller-branded
equivalent:
- ---------------------------------------- ---------------------------------------
DAYS BEFORE RESULT OF
SCHEDULED DELIVERY CANCELLATION
- ---------------------------------------- ---------------------------------------
[ * ] [ * ]
- ---------------------------------------- ---------------------------------------
[ * ] [ * ]
- ---------------------------------------- ---------------------------------------
[ * ] [ * ]
- ---------------------------------------- ---------------------------------------
[ * ] [ * ]
- ---------------------------------------- ---------------------------------------
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Seller shall provide reasonable consideration, on an opportunity basis, to any
special cancellation terms which may be requested by Digital Services Division
for specific contract opportunities. Such requests shall be made by Digital to
Seller's local sales and/or channels manager for review. Seller shall respond to
Digital's request within 48 hours from the date of the request, unless otherwise
agreed to by the parties.
The following cancellation terms shall apply to all other Products:
- ---------------------------------------- ---------------------------------------
DAYS BEFORE RESULT OF
SCHEDULED DELIVERY CANCELLATION
- ---------------------------------------- ---------------------------------------
[ * ] [ * ]
- ---------------------------------------- ---------------------------------------
[ * ] [ * ]
- ---------------------------------------- ---------------------------------------
[ * ] [ * ]
- ---------------------------------------- ---------------------------------------
5.10. Digital may reschedule any Purchase Order(s), or portions of any
Purchase Order(s) pursuant to the following guidelines:
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------ ---------------------------- --------------------------- ----------------------------
Days in advance of Seller Amount of order that can Number of times Number of days
committed delivery date: be rescheduled: order can be that order can be
rescheduled: rescheduled for:
- ------------------------------ ---------------------------- --------------------------- ----------------------------
[ * ] [ * ] [ * ] [ * ]
- ------------------------------ ---------------------------- --------------------------- ----------------------------
[ * ] [ * ] [ * ] [ * ]
- ------------------------------ ---------------------------- --------------------------- ----------------------------
[ * ] [ * ] [ * ] [ * ]
- ------------------------------ ---------------------------- --------------------------- ----------------------------
[ * ] [ * ] [ * ] [ * ]
- ------------------------------ ---------------------------- --------------------------- ----------------------------
[ * ] [ * ] [ * ] [ * ]
- ------------------------------ ---------------------------- --------------------------- ----------------------------
</TABLE>
5.11 Digital shall provide rolling twelve (12) month Demand Forecasts of its
intended purchases from Seller for Resale Products. Seller shall
provide quarterly forecasts of its Product availability to Digital, and
shall cooperate with Digital in dealing with any forecasted shortfall
on a timely basis. The parties acknowledge that all forecasts shall be
non-binding, provided that the forecast for the [*] immediately
following the date of submission of the forecast for NPB Products
shall constitute a binding commitment ("Binding Forecast") by
Digital to purchase the forecasted amounts, subject to Sections 5.10
and 5.11.
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5.11.1 Digital's Binding Forecast shall be binding both with
respect to the total dollar volume and Product mix contained
in such Binding Forecast, provided that Digital may change
the Product mix with respect to twenty five percent (25%) of
the total dollar value of the Binding Forecast.
5.11.2 In the event that Seller accepts a Purchase Order for
Products that are included in the Binding Forecast and fails
to deliver such Product(s) within thirty (30) days from the
scheduled delivery date, Digital shall be released from the
Binding Forecast for the forecasted value of the late or
non-delivered Product, and Digital shall have no obligation
to replace such Products with other Products.
5.12. Digital's Demand Forecast is expected to be at least eighty-five
percent (85%) of its Minimum Product Volume commitment for the same
corresponding period. In the event that Digital's Demand Forecast is
ever less than eighty-five percent (85%), the parties shall meet
promptly to establish a remedial plan.
5.13. A copy of Seller's packing list shall accompany all Product shipments
and shall indicate Digital's Purchase Order Number, Part Number, and
Serial Number.
6.. QUALITY, INSPECTION, AND ACCEPTANCE
6.1. Prior to delivery, Seller shall insure that all Products conform to the
guidelines set forth on Schedule 6.1.
6.2. Digital may perform source inspection and quality assurance reviews in
accordance with the Quality Assurance Guidelines contained in Schedule
6.1, but this shall in no way relieve Seller of its obligation to
deliver conforming Product, nor does said right of inspection waive (i)
any of Seller's obligations hereunder; (ii) the rights of Digital to
inspect the Products upon delivery; or (iii) the specific Product
Warranty provisions. Seller shall assist Digital, at Digital's request,
in performing such inspection and reviews.
6.3. Seller shall have fourteen (14) days from the date of notification by
Digital of a deviation from the Quality Assurance Guidelines to cure
such deviation. In the event such deviation is not cured within
fourteen (14) days, Digital, at its option, may:
6.3.1 require that Seller cease all further sales and shipment of the
non-conforming Products until such non-conformance is cured; or
<PAGE>
6.3.2 immediately terminate Seller's right to continue to use the
Digital Marks on said Products.
6.4. All Products repaired by Seller pursuant to the Warranty Services or
otherwise at the request of Digital, shall be subject to the Product
standards, including the Quality Assurance Guidelines and acceptance
standards, set forth in Schedule 6.1 and in the Product Road Map.
7.. PAYMENT
7.1. Digital shall issue payment to Seller for conforming Products that have
been received thirty (30) calendar days after the date of receipt of a
valid invoice. Digital shall be offered all early payment programs
offered by Seller.
7.2. Digital may apply Product Credits to invoiced payments as set forth in
Section 3.
7.3. Amounts owed to Digital due to rejections of Products, or discrepancies
on paid invoices will be, at Digital's option, fully credited against
current or future invoices payable by Digital. Such netting should be
fully reconciled with the Seller on a monthly basis.
7.4. Seller shall pay Digital [ * ]. The foregoing takes into account the
fact that Digital will provide as part of the Warranty Services (i)
call handling, (ii) purchasing, stocking and storage of Spare Parts and
replacement whole units, and (iii) logistics and revision management,
and will not be providing repair services.
7.5. Digital shall invoice Seller for its provision of Warranty Services
every thirty (30) days. All invoiced payments shall be due fifteen days
after the date of receipt of an undisputed invoice.
8.. PRODUCT SERVICES
8.1. NPB Products and Digital-Branded Products shall be serviced as follows:
8.1.1. Warranty Services. [*] for all NPB Products and
Digital-Branded Products
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worldwide, except in the territories set forth on Schedule 8.1.1. Digital may
provide such Warranty Services directly to Customers or through its Authorized
Warranty Service Providers.
8.1.2 Contract Services. Seller shall promote Digital as Seller's
Strategic Network Services Partner for Contract Services.
This shall include, at a minimum, informing any Customer
seeking such Services that Digital is Seller's Strategic
Network Services Partner; providing such Customer with any
contact information provided by Digital to Seller for such
purposes; and complying with the requirements of Sections 19
and 20 herein. At Digital's option, it may offer such
Contract Services directly to Customers or through its
Authorized Warranty Service Providers.
8.2. Seller Products shall be serviced as follows:
8.2.1. Warranty Services. Seller hereby appoints Digital as the
exclusive Warranty Services provider for all Seller Products
in the territories set forth in Schedule 8.2.1, as the same
may be amended from time to time by the parties. Digital may
provide such Warranty Services directly to Customers or
through its Authorized Warranty Service Providers.
8.2.2 Contract Service. Seller shall promote Digital as Seller's
Strategic Network Services Partner for Contract Services in
the territories set forth in Schedule 8.2.1, as the same may
be amended from time to time by the parties. This shall
include, at a minimum, informing any Customer seeking such
Services that Digital is Seller's Strategic Network Services
Partner; providing such Customer with any contact
information provided by Digital to Seller for such purposes;
and complying with the requirements of Sections 19 and 20
herein. At Digital's option, Digital may offer such
Contract Services directly to customers or through its
Authorized Warranty Service Providers.
8.3. Pursuant to authorization from Digital, Seller and Seller Selling
Partners may offer for sale Contract Services during the term of the
Agreement in accordance with the terms and conditions of the Digital
Gold Key Program attached hereto as Schedule 8.3 ("Gold Key Program").
Seller and Seller Selling Partners must be granted authorization by
Digital prior to offering such Contract Services. Pricing, discounts
and compensation shall be determined based on the Gold Key Program
arrangement with the respective selling party. Except as provided in
the Gold Key Program terms and conditions, Digital will provide no
other form of fee or compensation for service sales during the term of
the Agreement. Seller Selling Partners that have been granted
authorization by Digital prior to execution of the Agreement
shall not require additional authorization by Digital, provided that
such Seller Selling Partners maintain conformance to the Gold Key
Program requirements as set forth in the attached Schedule.
<PAGE>
8.4. Nothing contained herein shall prevent Digital from marketing or
promoting its Services directly or indirectly to Customers, or offering
Customers a Services Agreement independent of Seller.
8.5. Digital may freely subcontract all of its Services obligations.
8.6. In the event that, at any point during the term of this Agreement,
Digital is engaged to provide Contract Services to a Seller customer
for whom Seller itself, (not through a subcontractor) is providing
service on the Closing Date, then [ * ].
8.7. In the event that, at any time following the Closing Date, Seller
decides to subcontract its obligations under any contract for the
servicing of Seller Products (either in connection with a new service
agreement entered into by Seller or in connection with the renewal of
an existing service subcontracting agreement between Seller and a third
party), Seller shall [ * ].
8.8. Seller acknowledges that Digital's worldwide implementation of the
Services contemplated by this Agreement will likely be accomplished in
a phased approach. Seller also acknowledges that Digital's ability
and commitment to perform such Services is greatly dependent on
Seller's delivery to Digital of all necessary training, tools,
diagnostics, information and support ("Readiness Requirements") in a
timely and efficient manner. As such, Seller will work with Digital to
establish a Service Readiness Plan, (the "Plan"). The Plan shall be
incorporated by reference into this Agreement, and shall establish
detailed operational instructions concerning how to invoke the service
relationship created by this Agreement. The parties agree to assign
the necessary resources to begin the development of the Plan
immediately upon execution of this Agreement. Specifics to be
included in the Plan shall be: (i) Seller's deliverables respecting
Digital's implementation of Warranty Services and Contract Services;
(ii) logistics planning and disposition requirements; (iii) training
and information/documentation deliverables for all NPB Products,
Digital-Branded Products and Seller Products; (iv) Digital staffing
and training requirements to satisfy mutually acceptable certification
levels; (v) field deployment (persons/equipment); (vi) communications
and infrastructure requirements; (vii) problem tracking and
reporting requirements; and (viii) sales forecasting details
(types/frequency) by region/territory. Readiness Requirements for New
Products shall be added to the Plan by amendment.
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8.9. Digital shall provide Warranty Services during its normal business
hours, Monday through Friday, 8 a.m. to 5 p.m. local time, excluding
locally observed holidays.
8.10. Seller will provide the warranty registration cards with the
Digital-Branded Products. All warranty registration cards shall contain
the warranty information described on Schedule 8.10.
8.11. Seller will provide Digital with whole units, [ * ], for Digital's use
in planning and determining backup support when New Products are
introduced. Such units will be shipped to Digital at least two (2)
weeks prior to the commencement of any New Product sales to Customers.
The units shall be limited to internal support use and training and may
not be resold by Digital to Customers. Digital may disassemble such
whole units for support when New Products are introduced. Upon FRS,
Digital shall either return any New Products provided hereunder or
purchase the New Products at Digital's Spare Parts price.
8.12. Seller will establish a Priority/Urgent Order support process to
support Digital Warranty Services and Contract Services on an on-going
basis.
8.13. Seller will package Spare Parts consistent with MCS' current packaging
requirements, a copy of which is attached hereto as Schedule 6.1.
8.14. If material shortages arise due to Seller parts sourcing or Digital
support parts consumption which impact Seller's ability to manufacture
Products or Digital's ability to provide Services under the terms of
this Agreement, then Seller and Digital shall meet within two (2)
Business Days to develop parts shortage resolutions which will ensure
the uninterrupted flow of Products and Services.
9.. DIGITAL PRODUCT BRANDING
9.1. Digital hereby grants to Seller, during the Term, a limited,
non-exclusive, worldwide nontransferrable license, without the right to
grant sublicenses, to use the Digital Marks solely in accordance with
this Agreement and the Product Road Map. The license granted to Seller
shall terminate upon termination of this Agreement, and upon
termination, Seller shall immediately cease all use of the Digital
Marks subject to the provisions of Section 2.4 hereof. Seller may not
assign the license granted in this Section 9.1 without the prior
written consent of Digital.
9.1.1. Digital may terminate this license with respect to an
individual Product if Seller neglects or fails to perform or
observe any of the obligations set forth on
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Schedule 9.1.1 with respect to such individual Product that Digital determines,
in its sole discretion, causes a material adverse effect on Digital's trademark
rights, and such condition is not remedied within thirty (30) days after written
notice of such neglect or failure; or if Seller enters bankruptcy proceedings,
becomes insolvent, makes an assignment for the benefit of its creditors,
discontinues its business or is placed in receivership. Notwithstanding the
foregoing, if Seller is using reasonable and prompt efforts to cure such neglect
or failure, Digital shall not exercise its right of termination hereunder until
the earlier of (i) ten (10) days after the end of such thirty (30) day cure
period, and (ii) Seller ceases using reasonable efforts to cure such neglect or
failure, as determined in Digital's sole discretion.
9.2. Seller shall brand all products and related materials with the Digital
Marks in accordance with this Agreement, including this Section and
Schedules 9.1.1 and 9.8.
9.3. Seller shall submit all uses of the Digital Marks and the Digital Brand
to Digital for its prior approval, which shall not be unreasonably
withheld. Digital's approval of any standard layouts and designs shall
be limited to ensuring that such layouts and designs comply with the
standards set forth in Schedule 9.1.1, as the same may be amended from
time to time. After a layout or design has been approved. Seller may
use the approved layouts or designs and substantially identical layouts
and designs upon products, packaging and marketing collateral without
further approval of Digital, except in the event that the standards set
forth on Schedule 9.1.1 have been modified by Digital, in which case
all such layouts and designs must be resubmitted to Digital for
reapproval. The parties shall meet once per year for Digital to review
all uses of the Digital Marks and the Digital Brand and confirm such
uses are in accordance with this Agreement.
9.4. During the Term, Seller shall sell all NPB Products sold to Digital
under the Digital Marks. Seller shall affix all New Products that are
Digital-Branded Products with the Digital Marks prior to First Revenue
Ship.
9.5. In the event that Seller sells NPB Products other than under the
Digital Marks, the parties shall establish an engagement plan to define
the roles and responsibilities of each party in the engagement, sale
and delivery of such Products.
9.6. After the Closing Date, the Seller Products listed on Schedule 9.6
shall be sold under the Digital Marks in accordance with the Product
Road Map. Before the First Revenue Ship of such Products under the
Digital Marks, Seller must have met all of Digital's requirements with
respect to the items listed in Section 8.8 to insure that Digital is
prepared to be the exclusive Warranty Service and Contract Service
provider for all such Products. Digital shall use reasonable
efforts to expedite the approval of the branding of all such Seller
Products with the Digital Marks, it being understood that the average
<PAGE>
time required is expected to be no less than eight (8) weeks but in no
event shall exceed twelve (12) weeks after the Closing Date.
9.7 All Products set forth on or anticipated by the Product Road Map are
eligible to be branded with the Digital Marks, subject to Digital's
consent, such consent not to be unreasonably withheld, and provided
such Products meet the criteria set forth on Schedule 9.1.1, which may
reasonably be amended from time to time by Digital. Seller shall
propose Products to Digital to determine if such Products meet these
criteria. Digital shall have the sole right to determine whether a
Product meets the criteria. If Seller disputes a determination by
Digital that a Product should not be branded with the Digital Marks,
then the dispute will be subject to the Escalation Process set forth in
the Product Road Map Schedule. if such Escalation Process does not
resolve the issue, Digital shall not be obligated to brand the Products
with the Digital Marks. Notwithstanding the foregoing, Seller may seek,
through litigation, a determination that the Product met the criteria,
and, as relief, that the Product should be branded with the Digital
Marks. Any Products for which Seller obtains such relief shall be
treated as Digital-Branded Products for purposes of this Agreement.
9.8. Seller shall adhere to all Digital standards regarding the use of the
Digital Marks, as applicable to Digital's own products. The current
Digital standards are set forth in Schedule 9.8. Digital shall
provide Seller with sixty (60) days prior written notice of any
material changes to Digital's trademark standards. In the event that
Digital provides less than sixty (60) days notice: (i) any direct costs
incurred by Seller for materials that conformed to the previous
trademark guidelines during the Shortfall Period shall be reimbursed by
Digital; and (ii) Seller shall not be responsible for failures
to meet shipping dates arising from the fact that Digital provided less
than sixty (60) days notice. For purposes of this Section 9.8,
"Shortfall Period" shall mean the period prior to the date that
Digital provided notice of the change in its trademark standards
equivalent to (60 days minus the number of days notice actually
provided by Digital).
9.9. Seller shall be entitled to refer to an organization within Seller that
sells only Digital-Branded Products as the "Digital Network Products
Group, a Cabletron Systems, Inc. Company" (the "Seller Tradename").
9.9.1 Seller shall not use Seller Tradename in any way that
suggests that the Seller is Digital or is authorized to act
on behalf of Digital.
9.9.2 Seller may not use the word mark "DIGITAL" other than as
part of the Seller Tradename.
9.9.3 Seller shall be entitled to use the Seller Tradename on all
marketing, business and product collateral, including
without limitation business cards, stationary, facsimile
<PAGE>
sheets, price lists, trade show displays and material,
training materials, product documentation and similar
materials.
9.9.4 The Seller Tradename and the Relationship Logo may only be
used to identify the group or division within Seller which
is manufacturing, selling, marketing, and servicing
Digital-Branded Products and doing business under the Seller
Tradename and the Relationship Logo. It may not be used for
product branding.
9.9.5 Seller shall not co-join the Seller Tradename with the
Digital Brand.
9.9.6 Subject to the limitations set forth herein, Buyer shall be
entitled to use the Relationship Logo on the same material
upon which the Seller Tradename appears.
9.9.7 The example set forth on Schedule 9.9.5 illustrates
permitted uses of the Digital Brand, subject to Digital's
approval, with respect to color, size and appearance of the
Digital Brand.
9.9.8 Seller acknowledges that all use of the word "DIGITAL" by
Seller in the Seller Tradename shall be pursuant to a
license from Digital, and that all such use shall inure to
the benefit of Digital.
9.9.9. Upon request by Digital, Seller shall assist Digital in the
preparation, execution and filing of any registered user or
other agreements deemed necessary by Digital in order to
protect the Digital Marks, and Digital shall reimburse
Seller for all of Seller's reasonable out-of-pocket costs
incurred in connection therewith.
9.10. Seller shall abide by the Digital Trademark License and Quality
Requirements terms set forth on Schedule 9.6.
9.11 Seller is not granted any rights to use the Digital Marks on products
or services other than pursuant to this Agreement.
9.12. Digital agrees that it shall not use the mark "Digital Network Products
Group" after the Term.
<PAGE>
10.. SELLER'S SALE RESTRICTIONS/PARTIES' SALES COMPENSATION
10.1. All NPB Products and Digital-Branded Products, and any components
thereof, shall be included in the Digital Price Book. In the future,
Digital, in its sole discretion, may include Seller Products in the
Digital Price Book. All packaging for NPB Products and Digital-Branded
Products, and any components thereof, shall bear the Digital Marks.
10.2 Unless otherwise agreed between the parties, consistent with Digital's
current policy, Digital's internal sales force shall earn Full Revenue
Quota Credit in connection with (i) its sale of all Digital-Branded
Products and Services, and (ii) Approved Seller Products and Services
that have been sold and fulfilled by Digital.
10.3 In the event that Seller's direct sales force takes an order for
Digital-Branded Products directly from end users, Seller must fulfill
such orders through a Seller Selling Partner. Notwithstanding the
foregoing, unless otherwise agreed between the parties, Seller's sales
force shall receive comparable sales quota credit for the sale of
Digital-Branded Products as it receives for Seller Products.
10.4. Seller shall be responsible for accrediting all Seller Selling
Partners, pursuant to Seller's guidelines set forth on Schedule 10.4,
as they may be amended from time to time.
10.5. Seller agrees to use reasonable efforts to comply with Digital's
currently existing point-of-sale ("POS") process, which requires, among
other things, the monthly provision by Seller of sales out information
for all Digital-Branded Products sold by Seller Selling Partners,
provided that the foregoing shall be a required obligation for Tier-1
resellers. Digital agrees to use its reasonable efforts to provide
Seller with sales out information for all Digital-Branded Products sold
by Digital Partners, provided that the foregoing shall be a required
obligation for Tier-1 resellers. The specific information provided by
each party shall include (i) sales activity per the preceding calendar
month; (ii) Digital-Branded Product name and number; (iii)
end-Customer's name; (iv) vertical market; (v) ship to and bill to
locations (including country, state, and zip/postal code); (vi) total
invoice cost; and (viii) quantity per unit and extended cost.
10.6 Each party shall have the right to audit at its own expense, the other
party's documents and records to the extent they relate to any
obligation under this Section 10. Each party shall notify the other not
less than thirty (30) days prior to its intent to conduct such audit.
All audits shall be conducted during normal working hours. Audits shall
be conducted no more than once during each six (6) month period.
<PAGE>
10.7 Digital may not provide sales quota credit on sales of third party
network equipment, other than Seller Products, to any Digital sales
group except for sales through the Digital Services Division sales
force.
11.. DOCUMENTATION
11.1. Seller shall supply Digital with copies of originals and/or electronic
versions of all Product Information, including the documents listed in
the documentation plan, attached hereto as Schedule 11.1.
11.2. Seller hereby grants to Digital and its Authorized Warranty Service
Providers a royalty-free, non-exclusive, worldwide license to reproduce
and distribute, in whole or in part, all Product Information and any
other service related materials or documentation provided by Seller to
Digital or Digital Partners hereunder.
11.3. Seller shall provide Digital with sufficient copies, in Digital media
(e.g., CD format), of the then current generally available technical
documentation for the Products for supporting sales and services of the
Products. Digital shall have the right at no charge, to copy such
documentation for its own internal use, including posting such
documentation on Digital's internal electronic bulletin board.
12.. PROPRIETARY RIGHTS AND LICENSES
12.1. Digital owns all right, title and interest, including all Intellectual
Property Rights in all materials (including diagnostic Software,
hardware and Software tools and associated documentation) developed by
Digital for its own use or use of its Authorized Warranty Service
Providers in the performance of Services.
12.2 Seller hereby grants to Digital and its Digital Partners a
non-exclusive, worldwide license, until the expiration of the last
Digital Services Agreement, to duplicate, use, and distribute, directly
and indirectly, all Seller Software, including revisions and updates.
All Software, including revisions and updates, shall be available for
duplication and distribution internally by Digital, and to Customers
and/or third parties via down-loading from Seller's on-line
database(s). Digital will pay Seller a royalty on any Software that is
duplicated and distributed by Digital, at rates to be negotiated by the
parties. Royalty payments shall be reduced by the amount of any tax
required to be withheld against Seller income from royalties by a
government or governmental agency; provided that the parties shall
<PAGE>
cooperate in good faith to reduce such withholding to the extent
legally possible. Where reduced or nil rates of withholding tax apply
under the provisions of double taxation treaties, Seller shall provide
Digital with the authorizations necessary to apply for such rates, and
Digital shall make such filings as may be necessary to claim the
benefit of the reduced or nil rate. Digital shall provide Seller any
certification of the amounts withheld and copies of any certificates
furnished by a withholding jurisdiction. In the event that Digital
makes any payment without deduction of withholding tax, Seller shall
indemnify Digital against any subsequent liability arising from the
failure to make such a deduction. Prior to First Revenue Ship of a
Software Product or revision or upgrade thereto, Seller will provide
Digital with a distribution master for such Product, revision or
upgrade.
12.2.1 Notwithstanding the foregoing, Digital may issue no charge
Purchase Orders for all Software that is provided by Seller
generally to Customers at no cost. Such Software shall be
provided to Digital in such quantities as requested by
Digital, on a royalty-free basis.
12.2.2 Notwithstanding the foregoing, the provisions of Section
12.2 shall not apply to Seller's "Spectrum" software
Product. With respect to Seller's Spectrum Product, Seller
grants to Digital the right to provide support, including
upgrades and revisions, for such Product subject to mutually
agreed upon pricing and other provisions for the service and
support of such Product.
12.3 Seller hereby grants to Digital and its Authorized Warranty Service
Providers a royalty free, non-exclusive, worldwide license, until the
expiration of the last Digital Services Agreement, to use and
distribute, and to provide Customers, both directly and indirectly,
electronic access to all data and information contained in Seller's
Product information database (excluding company confidential
information) for the purpose of providing support to Customers.
12.4. Seller hereby grants to Digital and Digital Partners, during the Term
and for the time period set forth in Section 2.2 hereof, a
royalty-free, non-exclusive, worldwide license to use the Seller's
Marks in connection with the marketing, promotion and sale of Products
or Services. Under no circumstances shall Seller's branding, labeling
or Product identification be modified or otherwise mutilated.
12.5. Except as may be otherwise expressly stated herein, and except as
required by a party to exercise its express rights and obligations
hereunder, neither the terms of this Agreement, nor the acts of either
party under this Agreement, shall be considered in any way as a grant
of any license whatsoever under any of Digital's or Seller's present or
future Intellectual Property Rights, nor is any such license granted by
implication, estoppel, or otherwise.
<PAGE>
13.. PRODUCT LOANS, BETA SITES, MODELING
13.1. Digital may be given the opportunity to act as a beta site for all
Products. To the extent normally required by Seller, Digital will
execute Seller's standard beta site Agreement, subject to any mutually
agreeable modifications thereto.
13.2. Seller shall make available to Digital, at no charge to Digital, and
for use by appropriately-trained Digital personnel, all available
application Software which is produced by Seller and normally
distributed to Seller's Selling Partner to assist field sales and
engineering personnel in the modeling, configuration and testing of
Products.
13.3. Seller shall make available for use by Digital and Digital's Authorized
Warranty Service Providers service tools (including diagnostic Software
and hardware, hardware tools and associated documentation) to assist
Digital and Digital's Authorized Warranty Service in performing
Services hereunder. The types, quantities and deployment of such
service tools will be mutually determined by the parties. The
proprietary service tools shall remain the exclusive property of
Seller, and shall be returned to Seller upon expiration or termination
of this Agreement.
14.. TECHNICAL SUPPORT BY SELLER
14.1 During the Term and until the expiration of all Digital Service
Agreements, not to exceed five (5) years, Seller will assist Digital
personnel in resolving Customer or Product problems, including by
escalating to Seller's engineering and manufacturing organization as
set forth in the Escalation and Prioritization Guidelines attached
hereto as Schedule 14.1, until the Customer problem has been completely
resolved and closed in accordance with the parties' call closure
procedures.
14.2. During the Term and until the expiration of all Digital Service
Agreements, not to exceed five (5) years, Seller will provide MCS with
level 3 technical support to allow MCS to provide Warranty Services
and Contract Services to Customers and for Products used internally.
Such Seller support shall be provided from Seller's Support Center via
telephone, facsimile or e-mail messages, as appropriate, twenty-four
(24) hours per day, seven (7) days per week, for Priority 1 and 2
Problem Escalations, and eight (8) hours per day (during Digital's
standard working hours), Monday through Friday, for Priority 3
and 4 Problem Escalations, as defined, and in accordance with, the
Escalation and Prioritization Guidelines.
<PAGE>
14.3. During the Term and until the expiration of all Digital Service
Agreements, not to exceed five (5) years, Seller shall provide level 3
Software support in accordance with the service delivery model set
forth on Schedule 14.3.
14.4. Seller shall provide Digital and Digital Partners with pre- and
post-Product sales technical support, as set forth in a Technical
Support Plan to be mutually agreed upon by the parties within thirty
(30) days of execution of this Agreement and incorporated herein by
reference, and any other sales and technical support reasonably
requested by Digital.
14.5. [*]
14.6. All support provided by Seller pursuant to this Section 14 shall be [ *
]. Seller shall utilize a Product serial numbering system that ensures
that Digital has full capabilities to validate a Customer's Product
Warranty when a Customer is contacting Digital for Warranty Services.
14.7. Seller shall utilize a Product serial numbering system that ensures
that Digital has full capabilities to validate a Customer's Product
Warranty when a Customer is contacting Digital for Warranty Services.
14.8. Seller shall not be in breach of its support obligations under this
Agreement in the event that it ceases to provide support due to the
fact that Seller no longer has access to, or any inventory of, ASICs as
that term is defined in the Asset Purchase Agreement.
15.. PERSONNEL
15.1. Each party shall appoint a Relationship Director to manage all aspects
of the relationship including: (i) agreement amendments,
interpretations, and negotiations; (ii) field and sales engagement
planning information management; (iii) partner business reviews; (iv)
escalations; (v) partner sales and marketing programs; (vi) strategic
business planning including the Product strategy and the Product Road
Map; and (vii) such additional matters that the parties may agree upon.
*Confidential Treatment
<PAGE>
15.2. The parties agree that during the Term, they shall both maintain
appropriate personnel teams ("Program Office") that shall meet
periodically to effect the terms of this Agreement, including
individuals with the following areas of expertise:
15.2.1 forecasts and Spare Parts management, including acquisition;
15.2.2 product and service planning and management;
15.2.3. pre- and post-sales technical support, including
configuration and server interface support;
15.2.4. marketing development program management;
15.2.5. contract performance;
15.2.6. third party relationship management;
15.2.7. agreement amendments, interpretations, and negotiations;
15.2.8. field and sales engagement planning information management;
15.2.9. partner business reviews;
15.2.10. partner sales and marketing programs;
15.2.11. strategic business planning;
15.2.12. supporting global Customers and global partners; and
15.2.13. training development.
15.3. The initial organization structure for the parties' relationship is
attached as Schedule 15.3. Seller shall have the right to approve
Digital's initial Program Office, such approval not to be unreasonably
withheld.
15.4. The Digital Program Office shall consist of at least thirty dedicated
individuals and will include people within both Digital's Enterprise
Sales Force and Digital Services groups (or such groups' equivalents),
reasonably acceptable to Seller as related to employees identified on
the Seller's Key Employee Team, as that team is defined in the Asset
Purchase Agreement. Seller's Program Office shall consist of
individuals with complimentary skills and knowledge.
<PAGE>
15.5. For any period during which Seller is providing support under Sections
14.1, 14.2, 14.3 or 17.1 after the term hereof the parties' pre- and
post-sales technical support team shall continue for such period.
16.. TRAINING
16.1. Seller shall provide to Digital and Digital Partners all training
services necessary to meet the varying needs and requirements of
Digital's sales support organizations, including training: (i) sales
and sales support personnel; (ii) design architects and consultants;
and (iii) on-site and off-site maintenance and technical service,
support personnel and engineering services personnel. The training may
be provided using the following methods: (i) computer based training
(CBT); (ii) train the trainer programs; (iii) web-based offerings; (iv)
test-outs for certification; and/or (v) additional training
requirements set forth in a Training Plan to be determined by the
parties and incorporated by reference within thirty (30) days of this
Agreement. Training will be held at locations to be determined by
mutual agreement.
16.2. Seller will provide Digital and Digital Partners with sales and
technical training as follows: [ * ]. Seller agrees that all such
training may be paid for with MDF funds described in Section 4.9.
16.3. Seller shall provide to Digital and Digital Partners all materials
generally made available to its Seller Selling Partners including
Seller's self-study material on the Products, if any, and sets of all
present and future maintenance, diagnostic, and training documentation,
including video tapes and student workbooks, applicable to each
Product.
16.4. Upon Digital's request, Seller shall provide Digital and Digital
Partners with software, videotapes, presentation scripts and other
Product marketing materials offered by Seller to demonstrate the
features and functions of the Products for use by Digital and Digital
Partners in training or in the sales and marketing of its Services.
Seller agrees to make available to Digital and Digital Partners all
necessary training and training documentation
* Confidential Treatment
<PAGE>
in advance of FRS of New Products to enable Digital and Digital Partners to
adequately prepare for New Products sales and support.
17.. END OF LIFE
17.1. Upon termination of this Agreement, or in the event Seller discontinues
the manufacture and/or distribution of a Product(s) and/or removes such
Product(s) from its Price List, (collectively "End of Life"), [ * ].
17.2 Seller may not designate a Product as End of Life other than in
accordance with the Product Road Map.
18.. ENGINEERING AND FIELD CHANGE ORDERS
18.1. Seller will provide to Digital all safety related ECOs, including all
required Spare Parts, and technical service bulletins, [ * ] by
Seller or the applicable manufacturer. All other ECO
materials and technical service bulletins are to be provided to Digital
[ * ] by Seller or the applicable manufacturer.
18.2. Seller will bear all Spare Parts costs and will work with Digital to
determine the labor costs for all safety related ECO's and mandatory
ECO's required to bring the Product into functional conformity with its
design specifications. In addition, ECO's that affect purchased stock
and/or consigned units, purchased field Spare Parts, and Products under
Digital Services Agreements will be implemented in accordance with a
mutually agreed upon update schedule at no charge to Digital.
18.3. If Seller notifies Digital of a safety-related Product recall, Seller
shall be fully responsible for all costs associated with the purge and
return of Products from Digital's inventory.
*Confidential Treatment
<PAGE>
For non-safety Product recalls, the parties shall mutually determine at the time
of notification by Seller how payment of inventory purges and Product returns
shall be handled. Digital will advise Seller of the need for an ECO('s) due to
problems or defects in form, fit or function of the Products or Product safety
concerns. To the extent Seller determines a change is necessary, Seller shall
work with Digital to determine the means by which implementation of such changes
shall be accomplished.
19.. SALES AND RELATIONSHIP PLANNING AND ENGAGEMENT
19.1. Digital and Seller will inform the sales and support personnel of each
as to the availability, pricing and positioning of the Products and
Services by including appropriate information regarding Digital's
preferred services and systems provider role and Seller's network
products partnering role in Seller's and Digital's sales and marketing
literature, trade shows, customer seminars, sales training, and other
appropriate marketing/business development materials.
19.2. The parties' regional and country management shall compile a list of
countries where it is advantageous to develop formal business plans.
These jointly developed business plans will guide the engagement
between Digital and Seller in such country(ies), subject to this
Agreement. The plans will include, but not be limited to: (i) Digital's
targeted Product needs; (ii) opportunities for joint sales and
marketing activities; and (iii) appropriate business review processes
between Digital and Seller.
19.3. Each party shall develop standard descriptions of itself, its products
and its services for inclusion in the other party's sales material as
deemed appropriate by the other party. Notwithstanding the foregoing,
each party shall have the right to approve, upon reasonable advance
notice, any sales material that describes itself, its products, or its
services. Such approval shall be provided promptly, and shall not be
unreasonably withheld.
19.4. Subject to client ownership and/or confidentiality requirements,
Digital will use reasonable efforts to keep Seller generally informed
as to (i) problems encountered and resolutions developed with respect
to any Product, and (ii) all material modifications, design changes or
improvements to the Products suggested by any Customer, or any employee
or agent of Digital. Digital shall have no obligation to provide
Seller with the actual modifications, design changes, or improvements.
The provision of the foregoing information shall not confer on Seller
any Intellectual Property Rights in such information. Seller may use
all such information without obligation of any nature to Digital.
Seller's use of such information shall be at its own risk and neither
Digital nor the party making the applicable suggestion shall be liable
for any damages arising from such use.
<PAGE>
19.5. Digital shall receive invitations to attend Seller's annual partners'
conference, and Seller shall waive any registration or other fee
normally charged by Seller as a condition of attendance at such
conference.
20.. MARKETING
20.1. Seller shall promote Digital as its Strategic Network Services Partner,
and Digital shall promote the Seller as its Strategic Network Products
Partner. This designation does not preclude any partnerships,
relationships and programs between Digital and other vendors or service
providers, or between Seller and other vendors or service providers,
that do not conflict with this Section 20, provided that neither party
shall designate any other party in a manner that may imply a more
significant relationship.
20.2. Seller and Digital will mutually agree on a joint marketing and public
relations plan to support sales and services through Digital Partners
and Seller Selling Partners ("Marketing Plan"). The Marketing Plan will
be updated minimally twice a year to ensure that it remains relevant
and current.
20.2.1. Digital will implement the activities set forth in Schedule
20.2.1 to transition Digital's relationship with Digital's
resellers to Seller.
20.3. Except as set forth in this Agreement, both parties shall have the
exclusive right to determine the nature and extent of their own
advertising and marketing efforts.
20.4. Seller shall be designated at a corporate level as Digital's sole
preferred supplier for its internal network equipment needs. Digital
shall not designate a competitor of Seller as a major internal network
equipment supplier.
21.. WARRANTY
21.1. The manufacturer of a Product shall bear all costs associated with the
one-year manufacturers warranty.
21.2. Seller warrants to Digital that any services performed by Seller in
connection with this Agreement shall be performed in a workmanlike
manner.
<PAGE>
21.3. Seller warrants that all Products sold by Seller to Digital under the
terms of this Agreement will be free from defects in workmanship and
materials under normal unse and service for (i) one year for hardware
and Software and (ii) ninety (90) days for floppy dics and magnetic
media. All Warranty claims must comply with the terms of the Warranty
set forth on Schedule 8.10. The manufacturer of the Product, whether
Digital or Seller, as the case may be, shall be responsible for all
Product repairs during the one (1) year Warranty period.
21.4. Seller warrants that (i) the Software provided hereunder will perform
in substantial conformance to the program specifications therefor
during its one-year warranty period; (ii) that all defects in the
Software identified during the one-year warranty period will be
corrected; (iii) that the Software is Year 2000 Compliant; and (iv)
the magnetic media containing Software will not fail during the first
ninety (90) days.
21.5. The Warranty for Digital-Branded Products shall be as set forth on the
Warranty Schedule attached hereto, Schedule 8.10. The parties shall
mutually agree on all additions to, deletions from or changes to the
Schedule. Prior to shipment of any Digital-Branded Products, Seller
shall incorporate the Warranty set forth on Schedule 8.10 into its
Products literature, documentation and corresponding Warranty
registration cards or forms.
21.6. In the case of a breach of the forgoing warranties, Seller shall use
commericially reasonable efforts to remedy the breach.
21.7. Any replaced or repaired Spare Parts carry an additional ninety (90)
day warranty or the remainder of the initial Warranty period, whichever
is longer. All expenses associated with the transportation of Products
(to and from Seller's facilities) shall be borne by Seller, except in
the event that Products shall not require repair due to a no problem
found ("NPF") diagnosis by Seller. In cases of NPF, Digital shall be
responsible fo delivery expenses to Seller's facilities, and Seller
shall pay for delivery expenses back to Digital provided that.
21.7.1 In the event that Digital determines that a product is DOA,
Seller shall ship a replacement Product at Seller's cost within
twenty-four (24) hours of notification by Digital. Digital
shall return the DOA Product to Seller at Seller's cost.
21.7.2 In the event that Seller evaluates and determines that there is
NPF in greater than ten (10%) percent of the Products or parts
returned in a six (6) month period, Seller reserves the right to
charge Digital for each returned unit determined to be NPF
thereafter the lesser of (i) $150 or (ii) twenty-five percent
(25%) of the purchase price.
<PAGE>
21.8. The above warranties shall survive any delivery, acceptance, payment,
termination or expiration of a Purchase Order or this Agreement, and
shall run to Digital, its successors, assigns and Customers.
21.9. THE FOREGOING WARRANTIES OF SELLER ARE IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
22.. STOCK ROTATION
22.1. Digital may Rotate up to [ * ]. In accordance with this Section,
Digital may Rotate Digital-Branded Products for Seller Products and
Seller Products for Digital-Branded Products, in its sole discretion.
22.2. Digital shall bear all transportation charges to Seller's designated
site for Products to be Rotated.
22.3. In no event shall Seller discontinue or remove a Product from its price
list other than in accordance with the Product Road Map process.
23.. ESCROW DEPOSIT
23.1 Upon request by Digital, Seller will place the Escrow Deposit into
escrow with a nationally recognized escrow agent in the United States
reasonably acceptable to both parties (the "Escrow Agent") pursuant to
a mutually agreed escrow agreement between the parties. Digital will be
responsible for the expenses of the Escrow Agent, and any of Seller's
direct and reasonable costs in excess of $5,000 per quarter. Seller
shall not be obligated to escrow any third party component utilized in
connection with its Spectrum Products.
23.2. The escrow agreement will provide, among other things, the terms under
which Digital will have access to the Escrow Deposit.
*Confidential Treatment
<PAGE>
24.. SUPPLY BY DIGITAL
24.1. Digital shall supply Seller with all Unique Materials that are used in
NPB Products and Seller Products. In the event of component shortages
by Digital, Digital will allocate among Seller and other purchasers pro
rata based on Digital's Demand Forecast for the past three (3) months.
Pricing for unique components will be the most favored nation pricing
for similar volumes but no more than existing transfer pricing,
adjusted for cost increases.
24.2. Seller will have the right to purchase NPB Products from Digital's
Taiwan and Scotland facilities for up to an eighteen (18) month period
commencing on the Closing Date. The price to Seller for such NPB
Products shall be (i) Digital's current intercompany transfer pricing
during the six (6) month period after the Closing Date and (ii) at an
arm's length negotiated price thereafter.
24.2.1 Digital shall provide Seller with Digital's standard
manufacturing warranty for NPB Products purchased by Seller
under this Section 24.
24.3. The parties shall negotiate the pricing, terms, and conditions of a
separate supply agreement prior to the Closing Date.
25.. LIMITATION OF LIABILITY AND REMEDIES
25.1. Except for damages awarded to a third party for indemnification claims
covered by this Agreement, neither party shall be liable to the other
for any damages arising from lost data, incidental, consequential,
special or indirect damages of the other of any kind (whether in
contract, tort, or under statute), even if the party has been advised
of the possibility of such damages.
25.2. Notwithstanding any provision contained herein to the contrary, except
with respect to the Product Credits and Minimum Product Volume
commitments, in no event will the aggregate liability of either party
or its respective officers, directors, employees and subsidiaries to
either party or to any third person for damages, direct or otherwise,
arising out of or in connection with this Agreement exceed twenty (20)
million dollars ($20,000,000) regardless of the cause or form of
action.
<PAGE>
25.3. The parties acknowledge that, in addition to any remedy they may have
at law or equity, nothing in this Agreement shall prevent (i) either
party from seeking termination of the Agreement; (ii) Digital from
recovering its remaining Product Credits as damages; and/or (iii)
Seller from recovering Digital's remaining Minimum Product Volumes as
damages.
25.4. Nothing in this Agreement shall preclude either party from seeking
relief through law or equity for any breach by the other party of this
Agreement.
26.. CONFIDENTIAL INFORMATION AND AUDITS
26.1. For purposes of this Agreement, "Confidential Information" means (i)
any information regarding the terms of this Agreement; (ii) any
information, in whatever form, designated by the disclosing party (the
"Disclosing Party") in writing as confidential, proprietary or marked
with words of like import when provided to the receiving party (the
"Receiving Party"); and (iii) information orally conveyed if the
Disclosing Party states at the time of the oral conveyance or promptly
thereafter that such information is Confidential, and provides specific
written confirmation thereof within 30 days of the oral conveyance.
26.2. Confidential Information will not include information which:
26.2.1. at or prior to the time of disclosure by the Disclosing Party
was known to the Receiving Party through lawful means;
26.2.2. at or after the time of disclosure by the Disclosing Party
becomes generally available to the public through no act or
omission on the Receiving Party's part;
26.2.3. is developed by the Receiving Party independent of any
Confidential Information it receives from the Disclosing
Party; or
26.2.4. the Receiving Party receives from a third Person free to make
such disclosure without breach of any legal obligation.
26.3. The Receiving Party may disclose Confidential Information pursuant to
any statute, regulation, order, subpoena or document discovery request,
provided that prior written notice of such disclosure is furnished to
the Disclosing Party as soon as practicable in order to afford the
Disclosing Party an opportunity to seek a protective order (it being
agreed that if the Disclosing Party is unable to obtain or does not
seek a protective order and the Receiving Party is legally compelled to
disclose such information, disclosure of such information may be made
without liability).
<PAGE>
26.4. The Receiving Party acknowledges the confidential and proprietary
nature of the Disclosing Party's Confidential Information and agrees
that it shall not discuss, reveal, or disclose the Disclosing Party's
Confidential Information to any other Person (other than Affiliates),
or use any Confidential Information for any purpose other than as
contemplated hereby, in each case, without the prior written consent of
the Disclosing Party. The Receiving Party agrees to take reasonable
precautions (no less rigorous than the Receiving Party takes with
respect to its own comparable Confidential Information) to prevent
unauthorized or inadvertent disclosure of the Confidential Information
of the Disclosing Party. In the event that a Receiving Party wished to
disclose Confidential Information to one of its professional advisors,
it may do so only if that professional advisor agrees to abide by the
terms of this Section.
26.5. The Receiving Party will, at the request of the Disclosing Party,
during the Term or thereafter (i) promptly return all Confidential
Information held or used by the Receiving Party in whatever form, or
(ii) at the discretion of the Disclosing Party, promptly destroy all
such Confidential Information, including all copies thereof, and those
portions of all documents that incorporate such Confidential
Information.
26.6. In view of the difficulties of placing a monetary value on the
Confidential Information, the Disclosing Party may be entitled to a
preliminary and final injunction without the necessity of posting any
bond or undertaking in connection therewith to prevent any further
breach of this Section or further unauthorized use of its Confidential
Information. This remedy is separate from any other remedy the
Disclosing Party may have.
26.7. The provisions of this Section will survive for three years after the
end of the Term.
26.8. Seller shall have the right to audit consigned parts or units as
received, stored and consumed by Digital. Seller shall notify Digital
not less than thirty (30) days prior to its intent to conduct such
audits. All audits shall be conducted during normal working hours.
Audits shall be conducted no more than once during each six (6) month
period. Physical inventory and cycle counts are the responsibility of
Digital. Such physical inventory and cycle counts shall be performed in
accordance with Digital standard business policies and practices.
26.9. Each party agrees to retain appropriate documentation regarding its
obligations hereunder, for at least three years following the
termination of this Agreement. Each party shall have the right at its
own expense, not more than once each year on reasonable advance notice
and during normal business hours, to have its independent auditor
inspect such documentation for the purpose of verifying the accuracy of
the figures reported and amounts owed pursuant to this Agreement. Any
discrepancies that are identified as a result of such an audit and are
not disputed will be promptly corrected by the parties. Any information
disclosed as a result of such an audit will be Confidential
Information.
<PAGE>
27.. COMPLIANCE WITH LAWS
27.1. All Products supplied and work performed by Digital and Seller under
this Agreement shall comply with all material applicable (United States
and other) laws and regulations, including customs and trade
regulations regarding restraints on the use of convict labor,
government procurement, export controls, environmental, health and
safety, and labor laws and regulations. Either party's failure to
comply with any of the requirements of this Section shall be considered
a material breach of this Agreement.
27.2. Upon request, the parties agree to provide the other with information
and certifications required to demonstrate compliance with Section
27.1. Schedule 27.2 describes some, but not all of the applicable
United States regulatory requirements with which Seller agrees to
comply and/or provide information and certifications.
28.. INDEMNIFICATION AND INSURANCE
28.1. Seller shall defend, indemnify, and hold Digital, its Subsidiaries, and
Digital Partners and their representatives, its officers, directors,
agents, subsidiaries, affiliates, and employees harmless from and
against any and all claims, losses, expenses (including reasonable
attorney's fees and expenses), demands, settlements, or judgments
("Damages") which result from or arise out of:
28.1.1. Seller's breach of any obligation, representation, covenant or
warranty provided or required hereunder.
28.1.2. Any claim against Digital alleging that Products, or any
component thereof, infringes any Intellectual Property rights
in any country. If an injunction against Digital's, a
Customer's or Digital Partners' use, sale, lease, license, or
other distribution of the Products, or any component thereof,
results from such a claim (or if Digital reasonably believes
such an injunction is likely), Seller shall, at its expense
(and in addition to the Seller's other obligations,
hereunder), and as Digital requests: obtain for Digital
and/or Customers or Digital Partners the right to continue
using, selling, leasing, licensing, or otherwise istributing
the Products, or replace or modify such Products so they
become noninfringing but functionally equivalent.
<PAGE>
28.1.3. Seller making greater service commitments to its Customers
then are set forth in the Gold Key Program.
28.1.4. The acts, errors, omissions, or negligence of Seller while on
the property of Digital or its Customers or Digital Partners,
regardless of whether the loss, damage, or injury resulting
for sale occurs after the Seller has left such property.
28.1.5. The presence of any equipment or tools used by Seller in the
performance of this Agreement, on the property of Digital or
its Customers or Digital Partners.
28.1.6. The use by Seller of Digital's equipment, tools, or facilities
whether or not any claims are based upon the condition of the
foregoing or Digital's, its agent's or employee's alleged
negligence in permitting its use.
28.1.7. Seller's obligations to any third Person.
28.1.8. Any product liability claims related to the Products
including, but not limited to, personal injury as well as
damage to real or personal property arising out of the use or
sale of the Products, and regardless of the theory upon which
the claim is based including, but not limited to, negligence,
strict liability, and breach of warranty.
28.2. Digital acknowledges that Seller's indemnification obligations under
Sections 28.1.2 and 28.1.8, solely as each relates to the NPB Products,
shall apply to NPB Products sold following the first anniversary of the
Closing Date, provided that Seller's indemnification obligations for
NPB Products shall commence immediately for any claim that arises
because of any upgrade or modification to the NPB Products made by, or
at the direction of, Seller, that would not have arisen in the absence
of such upgrade or modification.
28.3. Digital shall defend, indemnify, and hold Seller, its officers,
directors, agents, and employees harmless from and against any and all
Damages which result from or arise out of:
28.3.1. Digital's breach of any obligation, representation, covenant
or warranty provided or required hereunder.
28.3.2. The acts, errors, omissions, or negligence of Digital while on
the property of the Seller or its Customers, regardless of
whether the loss, damage, or injury resulting for sale occurs
after Digital has left such property; or
28.3.3. The presence of any equipment or tools used by Digital in the
performance of this Agreement, on the property of the Seller
or its Customers.
<PAGE>
28.3.4. Digital making greater Warranty commitments to its Customers
than are authorized under this Agreement.
28.3.5. The use by Digital of Seller's equipment, tools, or facilities
whether or not any claims are based upon the condition of the
foregoing or Seller's, its agent's or employee's alleged
negligence in permitting its use.
28.3.6. Digital's obligations to any third Person.
29.. NOTICES
Any notice given under this Agreement shall be written or sent
by telex or facsimile. Written notice shall be sent by registered mail or
certified mail, postage prepaid, return receipt requested, or by any other
overnight delivery service which delivers to the noticed destination, and
provides proof of delivery to the sender. All notices shall be effective when
first received at the following addresses:
If to Seller: If to Digital:
Cabletron Systems, Inc. Digital Equipment Corporation
36 Industrial Way 111 Powdermill Road
Rochester, NH 03866 Maynard, MA 01754
Attn: David Kirkpatrick Attn: Relationship Manager
Telecopy: (613) 332-4004 Telecopy: (508) 841-3522
with a copy to: with copies to:
Ropes & Gray Digital Equipment Corporation
One International Place 111 Powdermill Road
Boston, Massachusetts 02110-2624 Maynard, MA 01754
Attn: David A. Fine, Esq. Attn: Gail Mann, Esq.
Telecopy: (617) 951-7050 Telecopy: (508) 493-6049
<PAGE>
30.. FORCE MAJEURE
30.1. Neither party shall be liable for failure to perform any of its
obligations under this Agreement during any period in which such party
cannot perform due to fire, flood, or other natural disaster or act of
God, war, embargo, riot, or the intervention of any government
authority, provided that the party so delayed immediately notifies the
other party of such delay, and provided further that the party claiming
the benefit of this Section shall use reasonable effort to resume
performance. In the event a party cannot perform substantially all of
its obligations under this Agreement because of such an event, the
other party may terminate this Agreement.
31.. GENERAL
31.1. The rights and remedies of the parties provided in this Agreement shall
not be exclusive and are in addition to any other rights and remedies
provided at law or in equity.
31.2. This Agreement shall be binding upon and inure to the benefit of the
successors and permitted assigns of the parties hereto. Neither party
may assign or otherwise transfer this Agreement without the written
consent of the other party, and such consent shall not be unreasonably
withheld; however either party may assign this Agreement without the
consent of the other party in connection with the sale of all or
substantially all of its assets, whether by asset purchase, merger, or
otherwise.
31.3. Subject to the non-compete provisions set forth in the Asset Purchase
Agreement, nothing will be deemed to limit or restrict Digital from
entering into agreements with any other person covering services or
products similar to the Products or Services, or from offering similar
product or services itself.
31.4. The parties are independent contractors, and nothing in this Agreement
shall be construed as making either party the agent, joint venturer,
partner or employee of the other. Neither party shall make any
representation or warranty on behalf of the other, including but not
limited to any representation or warranty concerning the quality,
performance or other characteristics of the Products or Services other
than those which are consistent in all respects with, and do not expand
the scope of, the warranties set forth in this Agreement or the Gold
Key Program.
<PAGE>
31.5. If any provision of this Agreement is held illegal or unenforceable by
any court of competent jurisdiction, the parties shall meet and use
reasonable efforts to amend this Agreement with a provision that meets
the intent of the parties.
31.6. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts, without regard for its
principles of conflicts of law. The parties hereby consent to the
jurisdiction of the courts of the Commonwealth of Massachusetts or the
United States Federal District Court for the District of Massachusetts
for the purpose of any action or proceeding brought by them in
connection with this Agreement.
31.7. Digital and Seller agree to comply with U.S. laws and regulations
governing the export of technology and products, including the Export
Administration Act of 1979, as amended, any successor legislation, and
the Export Administration Regulations issued by the Department of
Commerce, Bureau of Export Administration. Digital and Seller agree to
cooperate with each other, including, without limitation, providing
required documentation and information, in order to obtain the
necessary government authorizations prior to any export of technology
or Products under this Agreement.
31.8. The failure of either party to enforce, in any one or more instances,
any of the terms or conditions of this Agreement shall not be construed
as a waiver of the future performance of any such term or condition.
31.9. This Agreement and all Schedules and any addenda hereto, together with
the Asset Purchase Agreement, (i) represent the entire agreement of the
parties regarding the subject matter hereof; (ii) supersedes all prior
oral and written understandings and agreements between the parties
concerning the subject matter hereof; and (iii) may not be modified or
amended except in a writing signed by the executive officers of the
parties.
<PAGE>
DIGITAL EQUIPMENT CORPORATION SELLER
/s/ Harold D. Copperman /s/ Donald B. Reed
Authorized Signature Authorized Signature
Harold D. Copperman Donald B. Reed
Senior Vice President and General Manager President
Products Division
Name and Title Name and Title
November 24, 1997 November 24, 1997
Date Date
<PAGE>
EXHIBIT 10.1
CABLETRON SYSTEMS, INC.
DISCLOSURE SCHEDULE
INDEX
Schedule 1.56 - Shared Resellers
Schedule 3.1 - Product Road Map Outline
Schedule 6.1 - Quality Assurance Guidelines
Schedule 8.1.1 - Territories in Which Digital Will Not Perform Warranty
Services
Schedule 8.2.1 - Seller Warranty Services Territories to be Provided by
Digital
Schedule 8.3 - Gold Key Program
Schedule 8.10 - Warranty Services and Descriptions
Schedule 9.1.1 - Trademark License and Quality Requirements
Appendix 1 - The Digital Brand
Appendix 2 - DEC Formative Marks
Appendix 3 - Digital Logo Reproduction Requirements
Appendix 4 - Eligibility for Digital Branding Criteria
Appendix 5 - Digital Brand Relationship Logo Usage Requirements
Appendix 6 - Usage Criteria for the DEC Formative Marks
Appendix 7 - Relationship Logo
Schedule 9.6 - Current Cabletron Products to be Branded with the
Digital Marks
Schedule 9.8 - Digital's Requirements for Current Use of the Digital
Marks
Schedule 9.9.5 - Business Card Drawing
<PAGE>
Schedule 10.4 - Europe and U.S. Accreditation Guidelines
Schedule 11.1 - Documentation Plan
Schedule 14.1 - Escalation and Prioritization Guidelines
Schedule 14.3 - Contract Services Delivery Model
Schedule 15.3 - Relationship Director Responsibilities
Appendix 1 - Digital Networks Program Office
Schedule 20.2.1 - Preferred Service Provider Marketing Plan
Schedule 27.2 - Legal Compliance Schedule
<TABLE>
<CAPTION>
EXHIBIT 11.1
CABLETRON SYSTEMS, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
For periods ended November 30, 1997 and 1996
(in thousands of dollars, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
November 30, November 30,
1997 1996 1997 1996
---- ---- ---- ----
Net Income Per Common Share - (non-dilutive)
<S> <C> <C> <C> <C>
Net income .................................. $ 19,898 $ 67,742 $136,309 $161,789
======== ======== ======== ========
Weighted average common shares outstanding .. 157,986 155,299 157,527 154,968
======== ======== ======== ========
Reported net income per common share ........ $ 0.13 $ 0.44 $ 0.87 $ 1.04
======== ======== ======== ========
Net Income Per Common Share - (full dilution)
Net income .................................. $ 19,898 $ 67,742 $136,309 $161,789
======== ======== ======== ========
Weighted average common shares outstanding .. 157,986 155,299 157,527 154,968
Add net additional common shares upon
exercise of common stock options ............ 1,889 3,414 2,379 4,921
-------- -------- -------- --------
Adjusted average common shares outstanding .. 159,875 158,713 159,906 159,889
======== ======== ======== ========
Net income per common share - (full
dilution) .................................. $ 0.12 $ 0.43 $ 0.85 $ 1.01
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extrated from the
Consolidated Balance Bheet, Consolidated Statement of Operations and
Consolidated statement of Cash Flows included in the Company's Form 10-Q for
the period ending November 30, 1997, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000846909
<NAME> Cabletron Systems, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> NOV-30-1997
<EXCHANGE-RATE> 1.00
<CASH> 206,926
<SECURITIES> 214,680
<RECEIVABLES> 298,672
<ALLOWANCES> 16,530
<INVENTORY> 280,021
<CURRENT-ASSETS> 1,095,512
<PP&E> 410,148
<DEPRECIATION> 198,125
<TOTAL-ASSETS> 1,486,844
<CURRENT-LIABILITIES> 243,615
<BONDS> 0
0
0
<COMMON> 1,581
<OTHER-SE> 1,238,649
<TOTAL-LIABILITY-AND-EQUITY> 1,486,844
<SALES> 1,065,808
<TOTAL-REVENUES> 1,065,808
<CGS> 476,867
<TOTAL-COSTS> 476,867
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 206,799
<INCOME-TAX> 70,490
<INCOME-CONTINUING> 136,309
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136,309
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.85
</TABLE>
