<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 8, 2000
REGISTRATION NO. 333-47854
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CABLETRON SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 3577 04-2797263
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
35 INDUSTRIAL WAY
ROCHESTER, NEW HAMPSHIRE 03867
(603) 332-9400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID J. KIRKPATRICK
CORPORATE EXECUTIVE VICE PRESIDENT
OF FINANCE AND CHIEF FINANCIAL OFFICER
35 INDUSTRIAL WAY
ROCHESTER, NEW HAMPSHIRE 03867
(603) 332-9400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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DAVID B. WALEK, ESQ. ARTHUR I. ANDERSON, P.C.
ROPES & GRAY MCDERMOTT, WILL & EMERY
ONE INTERNATIONAL PLACE 28 STATE STREET
BOSTON, MASSACHUSETTS 02110-2624 BOSTON, MASSACHUSETTS 02109-1775
(617) 951-7000 (617) 535-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: Upon consummation of the merger referred to herein.
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INDUS RIVER NETWORKS, INC.
31 NAGOG PARK
ACTON, MASSACHUSETTS 01720
(978) 266-8100
December 8, 2000
Dear Indus River Networks Stockholder:
You are cordially invited to attend our special meeting of stockholders on
January 10, 2001, at 10:00 a.m., local time, at the offices of McDermott, Will &
Emery, 28 State Street, 34th Floor, Boston, Massachusetts 02109.
At the special meeting, we will ask you to vote on the merger of Indus
River and Cabletron Systems, Inc. Cabletron will issue an aggregate of 4,000,000
shares of Cabletron common stock and 50,000 shares of Cabletron series C
preferred stock in exchange for all of the shares of Indus River preferred
stock, Indus River common stock, and all options and warrants to purchase Indus
River stock. Cabletron will also reserve for issuance approximately 100,000
additional shares of Cabletron common stock and 1,100 additional shares of
Cabletron series C preferred stock to be issued to holders of additional options
granted in exchange for the forfeiting of acceleration rights and some options
granted to some employees hired by Indus River after August 18, 2000 with
Cabletron's consent.
In the merger, you will receive a number of shares of Cabletron series C
preferred stock and Cabletron common stock for each share of Indus River
preferred stock and Indus River common stock that you own. The exact exchange
rate will not be known until five trading days before the closing date of the
merger because it depends on the average closing price of Cabletron common stock
for the ten trading days ending on and including the fifth trading day before
the closing of the merger, and the fair market value of Cabletron series C
preferred stock determined as of the fifth trading day before the closing date
of the merger by an appraisal, both of which may fluctuate.
Based on an average closing price of $17.89 per share of Cabletron common
stock for the ten trading days ending on and including December 4, 2000 and an
appraised value of $486.40 per share of Cabletron series C preferred stock as of
December 4, 2000, and assuming the closing of the merger occurs on January 10,
2001 and a warrant to purchase 60,847 shares of Indus River series D preferred
stock is not exercised before the merger:
- each holder of Indus River series A preferred stock would receive
0.00271557 shares of Cabletron series C preferred stock and 0.21724568
shares of Cabletron common stock for each share of Indus River series A
preferred stock held by that holder;
- each holder of Indus River series B preferred stock would receive
0.00373338 shares of Cabletron series C preferred stock and 0.29867074
shares of Cabletron common stock for each share of Indus River series B
preferred stock held by that holder;
- each holder of Indus River series C preferred stock would receive
0.00448167 shares of Cabletron series C preferred stock and 0.35853378
shares of Cabletron common stock for each share of Indus River series C
preferred stock held by that holder;
- each holder of Indus River series D preferred stock issued on June 30,
1999 would receive .00514313 shares of Cabletron series C preferred stock
and 0.41145079 shares of Cabletron common stock for each share of Indus
River series D preferred stock held by that holder;
- each holder of Indus River series D preferred stock issued on July 8,
1999 would receive 0.00513886 shares of Cabletron series C preferred
stock and 0.41110886 shares of Cabletron common stock for each share of
Indus River series D preferred stock held by that holder; and
<PAGE> 3
- each holder of Indus River common stock would receive 0.00205897 shares
of Cabletron series C preferred stock and 0.16471791 shares of Cabletron
common stock for each share of Indus River common stock held by that
holder.
You will receive cash for any fractional share of Cabletron common stock or
Cabletron series C preferred stock that you would be entitled to receive in the
merger.
The Cabletron series C preferred stock may be converted into Cabletron
common stock at the option of the holder at any time after the earliest of:
- a spin-off of Cabletron's subsidiary, Enterasys Networks, Inc., the
subsidiary to which Cabletron intends to transfer the stock of Indus
River after the merger, after the first anniversary of the date the
Cabletron series C preferred stock is issued;
- a transaction involving Enterasys after which Cabletron no longer
controls Enterasys; and
- the second anniversary of the date the Cabletron series C preferred stock
is issued.
If Cabletron establishes a record date for a spin-off of Enterasys before the
first anniversary of the date the Cabletron series C preferred stock is issued,
and that spin-off is to be completed before that anniversary, then the Cabletron
series C preferred stock may be converted into Cabletron common stock at the
option of the holder immediately before the spin-off.
The Cabletron series C preferred stock may be redeemed at the option of the
holder immediately before the first to occur of:
- a spin-off of Enterasys after the first anniversary of the date the
Cabletron series C preferred stock is issued and before the second
anniversary of the issuance of the stock; and
- a transaction involving Enterasys after which Cabletron no longer
controls Enterasys before the second anniversary of the date the
Cabletron series C preferred stock is issued.
In a spin-off of Enterasys, Cabletron will pay the redemption price for
each share of Cabletron series C preferred stock in shares of Enterasys stock.
In a change of control of Enterasys, Cabletron will pay the redemption price for
each share of Cabletron series C preferred stock in securities or assets of the
surviving corporation immediately after the change of control of Enterasys.
If Cabletron establishes a record date for a spin-off of Enterasys before
the first anniversary of the date the Cabletron series C preferred stock is
issued, holders of Cabletron series C preferred stock will not be able to redeem
their shares of Cabletron series C preferred stock in the spin-off. However,
they will be able to convert their shares into Cabletron common stock before the
spin-off. If Cabletron begins a transaction resulting in a change of control of
Enterasys before the first anniversary of the date the Cabletron series C
preferred stock is issued, holders of Cabletron series C preferred stock will be
able to redeem or convert their shares of Cabletron series C preferred stock in
that transaction.
If Cabletron conducts a spin-off of Enterasys after the first anniversary
of the date the Cabletron series C preferred stock is issued, holders of
Cabletron series C preferred stock will be able to redeem or convert their
shares of Cabletron series C preferred stock in the spin-off.
The terms of the Cabletron series C preferred stock will provide for a more
favorable exchange ratio for redemption of the Cabletron series C preferred
stock compared to the exchange ratio for conversion of the stock if the holders
are able to choose between the two options.
Cabletron is not obligated to conduct a spin-off of Enterasys or other
disposition of Enterasys. If Cabletron does not do so, then holders of the
Cabletron series C preferred stock will not be able to exercise the redemption
right, and will not be able to exercise any conversion right until the second
anniversary of the date
<PAGE> 4
the Cabletron series C preferred stock is issued. A more detailed description of
the Cabletron series C preferred stock is contained in the accompanying proxy
statement/prospectus.
The merger agreement provides that 10% of the shares of Cabletron common
stock to be issued in the merger to the Indus River preferred stockholders and
founders will be placed in an escrow account to secure the indemnification
obligations of those Indus River stockholders under the merger agreement. All of
the Cabletron series C preferred stock issued in the merger will be held in an
escrow account for up to 30 months to facilitate any conversion or redemption of
that stock which may occur within 24 months of the closing. If, after this
30-month period, there has been no redemption or conversion of the shares of
Cabletron series C preferred stock, then those shares will be distributed to the
stockholders who are entitled to receive them.
Cabletron common stock is listed on the New York Stock Exchange under the
trading symbol CS and on December 7, 2000, Cabletron common stock closed at
$16.56 per share. The Cabletron series C preferred stock will not be listed on
any securities exchange and there is no existing trading market for the
Cabletron series C preferred stock. The shares of Cabletron series C preferred
stock will not be transferable except under the laws of descent and distribution
or to the partners of any stockholder which is an entity.
Cabletron and Indus River plan to treat the merger as a tax-free
reorganization for federal income tax purposes. After the merger, Cabletron
plans to transfer all of the stock in Indus River to its subsidiary, Enterasys.
Although Cabletron has announced its desire to establish its four operating
subsidiaries, including Enterasys, as independent companies, Cabletron is not
obligated to do so and continues to consider several possibilities for
Enterasys, including retaining Enterasys as a subsidiary of Cabletron. Depending
on if, and when, Cabletron conducts a spin-off or other disposition of
Enterasys, the IRS may attempt to combine the merger with that other
transaction, and take the position that the merger does not qualify as a
tax-free organization. If the IRS were successful, you would recognize gain or
loss for federal income tax purposes based on the difference between the fair
market value of the Cabletron common stock and Cabletron series C preferred
stock you received and the tax basis of the Indus River stock that you exchanged
for the Cabletron common stock and the Cabletron series C preferred stock. A
more detailed analysis of the material federal income tax consequences of the
merger is discussed in the accompanying proxy statement/prospectus.
Holders of Indus River stock who properly comply with statutory
requirements will be entitled to an appraisal under Delaware law if the merger
is completed.
Completion of the merger requires the approval of the holders of a majority
of the outstanding shares of Indus River common and preferred stock, voting
together as a single class, and the holders of two-thirds of the outstanding
shares of the Indus River convertible preferred stock, voting as a separate
class.
A number of Indus River stockholders have entered into a voting agreement
with Cabletron, and have agreed to vote their shares of Indus River stock for
adoption of the merger agreement. These stockholders have also granted to a
Cabletron representative an irrevocable proxy and a power of attorney to vote
its shares of Indus River stock for adoption of the merger agreement. On the
record date, these stockholders in the aggregate owned and were entitled to
vote:
- 86.3% of the Indus River preferred stock and Indus River common stock,
voting together as a single class; and
- 95.5% of the Indus River preferred stock, voting as a separate class.
Only stockholders who hold shares of Indus River stock at the close of
business on December 4, 2000 will be entitled to vote at the special meeting.
YOU SHOULD CONSIDER THE MATTERS DISCUSSED UNDER "RISK FACTORS" BEGINNING ON
PAGE 13 OF THE ENCLOSED PROXY STATEMENT/PROSPECTUS BEFORE VOTING. PLEASE REVIEW
CAREFULLY THE ENTIRE PROXY STATEMENT/PROSPECTUS.
<PAGE> 5
AFTER CAREFUL CONSIDERATION, INDUS RIVER'S BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT, AS IT HAS BEEN AMENDED, HAS
UNANIMOUSLY DETERMINED THAT THE MERGER IS ADVISABLE AND IS FAIR TO YOU AND IN
YOUR BEST INTERESTS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE ADOPTION OF
THE MERGER AGREEMENT.
Please complete, sign and return your proxy card. Please do not send any
stock certificates at this time. Thank you for your cooperation.
Sincerely,
/s/ Per A. Suneby
Per A. Suneby,
President
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved the merger described in the proxy
statement/prospectus or the Cabletron common stock and Cabletron series C
preferred stock to be issued in the merger, or determined if the proxy
statement/prospectus is accurate or adequate. Any representation to the contrary
is a criminal offense.
THE PROXY STATEMENT/PROSPECTUS IS DATED DECEMBER 8, 2000,
AND IS FIRST BEING MAILED TO STOCKHOLDERS ON OR ABOUT DECEMBER 11, 2000.
<PAGE> 6
INDUS RIVER NETWORKS, INC.
31 NAGOG PARK
ACTON, MASSACHUSETTS 01720
(978) 266-8100
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 10, 2001
To the Stockholders of Indus River Networks, Inc.:
We will hold a special meeting of the stockholders of Indus River Networks,
Inc. on January 10, 2001, at 10:00 a.m., local time, at the offices of
McDermott, Will & Emery, 28 State Street, Boston, 34th Floor, Massachusetts
02109 to consider and vote upon a proposal to adopt the merger agreement, as it
has been amended, among Cabletron Systems, Inc., Acton Acquisition Co., a wholly
owned subsidiary of Cabletron, and Indus River. The merger agreement has been
amended to extend the deadline for completing the merger.
Cabletron will issue an aggregate of 4,000,000 shares of Cabletron common
stock and 50,000 shares of Cabletron series C preferred stock in exchange for
all of the shares of Indus River preferred stock, Indus River common stock, and
all options and warrants to purchase Indus River stock. Cabletron will also
reserve for issuance approximately 100,000 additional shares of Cabletron common
stock and 1,100 additional shares of Cabletron series C preferred stock to be
issued to holders of additional options granted in exchange for the forfeiting
of acceleration rights and some options granted to some employees hired by Indus
River after August 18, 2000 with Cabletron's consent.
Under the merger agreement, each outstanding share of Indus River common
stock and Indus River preferred stock will be converted into a number of shares
of Cabletron series C preferred stock and Cabletron common stock. The exact
exchange rate will not be known until five trading days before the closing date
of the merger because it depends on the average closing price of Cabletron
common stock for the ten trading days ending on and including the fifth trading
day before the closing of the merger, and the fair market value of Cabletron
series C preferred stock determined as of the fifth trading day before the
closing date of the merger by an appraisal, both of which may fluctuate.
Based on an average closing price of $17.89 per share of Cabletron common
stock for the ten trading days ending on and including December 4, 2000 and an
appraised value of $486.40 per share of Cabletron series C preferred stock as of
December 4, 2000, and assuming the closing of the merger occurs on January 10,
2001 and a warrant to purchase 60,847 shares of Indus River series D preferred
stock is not exercised before to the merger:
- each holder of Indus River series A preferred stock would receive
0.00271557 shares of Cabletron series C preferred stock and 0.21724568
shares of Cabletron common stock for each share of Indus River series A
preferred stock held by that holder;
- each holder of Indus River series B preferred stock would receive
0.00373338 shares of Cabletron series C preferred stock and 0.29867074
shares of Cabletron common stock for each share of Indus River series B
preferred stock held by that holder;
- each holder of Indus River series C preferred stock would receive
0.00448167 shares of Cabletron series C preferred stock and 0.35853378
shares of Cabletron common stock for each share of Indus River series C
preferred stock held by that holder;
- each holder of Indus River series D preferred stock issued on June 30,
1999 would receive 0.00514313 shares of Cabletron series C preferred
stock and 0.41145079 shares of Cabletron common stock for each share of
Indus River series D preferred stock held by that holder;
- each holder of Indus River series D preferred stock issued on July 8,
1999 would receive 0.00513886 shares of Cabletron series C preferred
stock and 0.41110886 shares of Cabletron common stock for each share of
Indus River series D preferred stock held by that holder; and
<PAGE> 7
- each holder of Indus River common stock would receive 0.00205897 shares
of Cabletron series C preferred stock and 0.16471791 shares of Cabletron
common stock for each share of Indus River common stock held by that
holder.
You will receive cash for any fractional share of Cabletron common stock or
Cabletron series C preferred stock that you would be entitled receive in the
merger.
Although we know of no other matters that are expected to come before the
special meeting, the stockholders of Indus River may transact any other business
that may properly come before the meeting.
Only holders of record of shares of Indus River common stock and Indus
River preferred stock at the close of business on December 4, 2000, the record
date for the special meeting, are entitled to notice of, and to vote at, the
special meeting and any adjournments or postponements of it.
We cannot complete the merger unless the merger agreement is adopted by
holders of a majority of the outstanding shares of Indus River common stock and
Indus River preferred stock, voting together as a single class, and holders of a
majority of the outstanding shares of Indus River preferred stock, voting
together as a single class.
Holders of Indus River stock who properly comply with statutory
requirements are entitled to an appraisal of their shares under Delaware law.
FOR MORE INFORMATION ABOUT THE MERGER, PLEASE REVIEW THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS AND THE MERGER AGREEMENT ATTACHED AS ANNEX A TO THE PROXY
STATEMENT/PROSPECTUS.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. YOU MAY VOTE IN PERSON AT THE SPECIAL MEETING, EVEN IF
YOU HAVE RETURNED A PROXY CARD. IF YOU DO NOT VOTE BY PROXY OR IN PERSON AT THE
SPECIAL MEETING, IT WILL COUNT AS A VOTE AGAINST THE MERGER AGREEMENT.
PLEASE DO NOT SEND ANY STOCK CERTIFICATES AT THIS TIME.
By Order of the Board of Directors,
/s/ Per A. Suneby
Per A. Suneby
Secretary
Acton, Massachusetts
December 8, 2000
<PAGE> 8
REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about Cabletron from documents that are not included in or
delivered with this proxy statement/prospectus. This information is available to
you without charge upon your request. You can obtain documents incorporated by
reference in this proxy statement/prospectus by requesting them in writing or by
telephone from Cabletron at:
CABLETRON SYSTEMS, INC.
INVESTOR RELATIONS
35 INDUSTRIAL WAY
ROCHESTER, NEW HAMPSHIRE 03867
(603) 332-9400
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY JANUARY 3, 2001 TO
RECEIVE THEM BEFORE THE INDUS RIVER SPECIAL MEETING.
See "Where You Can Find More Information" on page 81.
<PAGE> 9
TABLE OF CONTENTS
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PAGE
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SUMMARY..................................................... 6
General................................................... 6
The Companies............................................. 9
Stock Prices and Dividends................................ 10
The Special Meeting....................................... 10
Selected Historical Financial Data -- Cabletron........... 12
RISK FACTORS................................................ 13
Risk Factors Relating to the Merger....................... 13
Risk Factors Relating to the Cabletron Series C Preferred
Stock.................................................. 13
Risk Factors Relating to Cabletron........................ 14
Risk Factors Relating to Indus River...................... 18
THE COMPANIES............................................... 20
Indus River Networks, Inc. ............................... 20
Cabletron Systems, Inc. .................................. 20
THE SPECIAL MEETING......................................... 21
Date, Time and Place...................................... 21
Purpose of Special Meeting................................ 21
Record Date; Stock Entitled to Vote; Quorum............... 21
Vote Required............................................. 22
Stockholder Agreements.................................... 22
Voting of Proxies......................................... 23
Revocability of Proxies................................... 23
Solicitation of Proxies................................... 23
Appraisal Rights.......................................... 23
THE MERGER.................................................. 24
Background to the Merger.................................. 24
Reasons for the Merger and Board of Directors
Recommendation......................................... 27
Appraisals of Cabletron Series C Preferred Stock by Adams,
Harkness & Hill, Inc. ................................. 28
Interests of Indus River Directors, Management and
Employees in the Merger................................ 32
Stock Options and Restricted Stock Agreements............. 33
Accounting Treatment...................................... 34
Form of the Merger........................................ 35
Merger Consideration...................................... 35
Conversion of Shares; Procedures for Exchange of
Certificates; Fractional Shares........................ 36
Effective Time of the Merger.............................. 38
Stock Exchange Listing of Cabletron Common Stock.......... 38
Employment Agreements..................................... 38
Significant United States Federal Income Tax Consequences
of the Merger.......................................... 38
Government Filings........................................ 41
Rights of Stockholders to Appraisals...................... 41
Appraisal Rights Procedures............................... 42
Resale of Cabletron Common Stock and Cabletron Series C
Preferred Stock........................................ 44
THE MERGER AGREEMENT........................................ 45
Conditions to the Completion of the Merger................ 45
No Solicitation........................................... 46
Termination............................................... 47
Conduct of Business Pending the Merger.................... 48
Amendment, Extension and Waiver........................... 49
Fees and Expenses......................................... 49
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i
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Representations and Warranties............................ 49
Additional Agreements..................................... 51
Indemnification and Insurance............................. 51
Amendments to Indus River's Certificate of
Incorporation.......................................... 51
Amendments to Indus River's By-Laws....................... 51
Indemnification and Escrow Agreement...................... 51
STOCK PRICES AND DIVIDENDS.................................. 54
DESCRIPTION OF CABLETRON CAPITAL STOCK...................... 56
Preferred Stock........................................... 56
Warrants, Options and Put Rights.......................... 66
COMPARISON OF RIGHTS OF SERIES C PREFERRED AND COMMON
STOCKHOLDERS OF CABLETRON AND STOCKHOLDERS OF INDUS
RIVER..................................................... 66
Capitalization............................................ 67
Voting Rights............................................. 67
Voting Requirement and Quorums for Stockholder Meetings... 67
Number of Directors....................................... 68
Board Classification...................................... 68
Nomination and Election of Directors...................... 68
Removal of Directors...................................... 69
Newly Created Directorships and Vacancies................. 69
Amendments to Certificate of Incorporation................ 70
Amendments to By-Laws..................................... 70
Stockholder Action........................................ 70
Special Stockholder Meetings.............................. 71
Limitation of Personal Liability of Directors and
Indemnification........................................ 71
Dividends................................................. 72
Liquidation............................................... 72
Conversion................................................ 73
Redemption Rights......................................... 74
Appraisal Rights.......................................... 75
Vote Required for Mergers................................. 76
Anti-Takeover Provisions.................................. 77
Stockholder Derivative Suits.............................. 77
INFORMATION CONCERNING INDUS RIVER.......................... 78
Security Ownership of Directors, Executive Officers and
Principal Stockholders of Indus River.................. 78
LEGAL MATTERS............................................... 81
EXPERTS..................................................... 81
OTHER MATTERS............................................... 81
WHERE YOU CAN FIND MORE INFORMATION......................... 81
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS............... 83
</TABLE>
Annexes:
Annex A Agreement and Plan of Merger
Annex B Section 262 of the Delaware General Corporation Law
Annex C Form of Escrow Agreement
Annex D Form of Stockholder Agreement for Founders
Annex E Form of Stockholder Agreement for Preferred Stockholders
Annex F Preliminary Appraisal of Adams, Harkness & Hill, Inc. dated
December 5, 2000
ii
<PAGE> 11
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
Q: WHY IS INDUS RIVER MERGING WITH CABLETRON?
A: Indus River will join and become part of Cabletron, one of the world's
leading developers, manufacturers and marketers of networking systems and
technology, and Indus River stockholders will become Cabletron stockholders.
Indus River will be joining Cabletron's Enterasys division, a leading
provider of global business communication solutions to enterprise customers.
By joining Enterasys, Indus River gains access to Enterasys' large installed
base of enterprise customers and generally gains access to Enterasys' large
distribution channels.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Cabletron will issue an aggregate of 4,000,000 shares of Cabletron common
stock and 50,000 shares of Cabletron series C preferred stock in exchange for
all of the shares of Indus River preferred stock, Indus River common stock,
and all options and warrants to purchase Indus River stock. Cabletron will
also reserve for issuance approximately 100,000 additional shares of
Cabletron common stock and 1,100 additional shares of Cabletron series C
preferred stock to be issued to holders of additional options granted in
exchange for the forfeiting of acceleration rights and some options granted
to some employees hired by Indus River after August 18, 2000.
If the merger is completed, you will receive a specified number of shares of
Cabletron common stock and Cabletron series C preferred stock for each share
of Indus River common stock and Indus River preferred stock that you own, and
cash for any fractional share of Cabletron common stock and any fractional
share of Cabletron series C preferred stock you would be entitled to receive
in the merger. Holders of Indus River preferred stock are entitled to be paid
a liquidation preference payment as part of the merger. Because the dollar
amount of the liquidation preference will be determined as of the closing
date and because the number of shares of Cabletron series C preferred stock
and Cabletron common stock constituting the liquidation preference payment
will be determined based on a 10 trading day average closing price of
Cabletron's common stock and an appraised value of the Cabletron series C
preferred stock, the exact exchange ratios for the number of shares of
Cabletron common stock and Cabletron series C preferred stock to be issued in
the merger will not be known until the fifth trading day before the closing
date.
Based on an average closing price of $17.89 per share of Cabletron common
stock for the ten trading days ending on and including December 4, 2000 and
an appraised value of $496.80 per share of Cabletron series C preferred stock
as of December 4, 2000, and assuming that the closing of the merger occurs on
January 10, 2001 and a warrant to purchase 60,847 shares of Indus River
series D preferred stock is not exercised before the merger:
- each holder of Indus River series A preferred stock would receive
0.00271557 shares of Cabletron series C preferred stock and 0.21724568
shares of Cabletron common stock for each share of Indus River series A
preferred stock held by that holder;
- each holder of Indus River series B preferred stock would receive
0.00373338 shares of Cabletron series C preferred stock and 0.29867074
shares of Cabletron common stock for each share of Indus River series B
preferred stock held by that holder;
- each holder of Indus River series C preferred stock would receive
0.00448167 shares of Cabletron series C preferred stock and 0.35853378
shares of Cabletron common stock for each share of Indus River series C
preferred stock held by that holder;
- each holder of Indus River series D preferred stock issued on June 30,
1999 would receive 0.00514313 shares of Cabletron series C preferred
stock and 0.41145079 shares of Cabletron common stock for each share of
Indus River series D preferred stock held by that holder;
<PAGE> 12
- each holder of Indus River series D preferred stock issued on July 8,
1999 would receive 0.00513886 shares of Cabletron series C preferred
stock and 0.41110886 shares of Cabletron common stock for each share of
Indus River series D preferred stock held by that holder; and
- each holder of Indus River common stock would receive 0.00205897 shares
of Cabletron series C preferred stock and 0.16471791 shares of Cabletron
common stock for each share of Indus River common stock held by that
holder.
The Cabletron series C preferred stock may be converted into Cabletron
common stock at the option of the holder at any time after the earliest of:
- a spin-off of Cabletron's subsidiary, Enterasys Networks, Inc., the
subsidiary to which Cabletron intends to transfer the stock of Indus
River after the merger, after the first anniversary of the date the
Cabletron series C preferred stock is issued;
- a transaction involving Enterasys after which Cabletron no longer
controls Enterasys at any time; and
- the second anniversary of the date the Cabletron series C preferred stock
is issued.
If Cabletron establishes a record date for a spin-off of Enterasys before the
first anniversary of the date the Cabletron series C preferred stock is issued,
and that spin-off is to be completed before that anniversary, then the Cabletron
series C preferred stock may be converted into Cabletron common stock at the
option of the holder immediately before the spin-off.
The Cabletron series C preferred stock may be redeemed at the option of the
holder immediately before the first to occur of:
- a spin-off of Enterasys after the first anniversary of the date the
Cabletron series C preferred stock is issued and before the second
anniversary of the issuance of the stock; and
- a transaction involving Enterasys after which Cabletron no longer
controls Enterasys before the second anniversary of the date the
Cabletron series C preferred stock is issued.
In a spin-off of Enterasys, Cabletron will pay the redemption price for
each share of Cabletron series C preferred stock in shares of Enterasys stock.
In a change of control of Enterasys, Cabletron will pay the redemption price for
each share of Cabletron series C preferred stock in securities or assets of the
surviving corporation immediately after the change of control of Enterasys.
If Cabletron establishes a record date for a spin-off of Enterasys before
the first anniversary of the date the Cabletron series C preferred stock is
issued, holders of Cabletron series C preferred stock will not be able to redeem
their shares of Cabletron series C preferred stock in the spin-off. However,
they will be able to convert their shares into Cabletron common stock before the
spin-off. If Cabletron begins a transaction resulting in a change of control of
Enterasys before the first anniversary of the date the Cabletron series C
preferred stock is issued, holders of Cabletron series C preferred stock will be
able to redeem or convert their shares of Cabletron series C preferred stock in
that transaction.
If Cabletron conducts a spin-off of Enterasys after the first anniversary
of the date the Cabletron series C preferred stock is issued, holders of
Cabletron series C preferred stock will be able to redeem or convert their
shares of Cabletron series C preferred stock in the spin-off.
The terms of the Cabletron series C preferred stock will provide a more
favorable exchange ratio for redemption of the Cabletron series C preferred
stock compared to the exchange ratio for conversion of the stock if the holders
are able to choose between the two options.
Cabletron is not obligated to conduct a spin-off of Enterasys or other
disposition of Enterasys. If Cabletron does not do so, then holders of the
Cabletron series C preferred stock will not be able to exercise the redemption
right at all, and will not be able to exercise any conversion right until the
second anniversary of the date the Cabletron series C preferred stock is issued.
There is a description of the Cabletron series C preferred stock on pages 59 to
66 of this proxy statement/prospectus.
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<PAGE> 13
The merger agreement provides that 10% of the shares of Cabletron common
stock to be issued in the merger to the Indus River preferred stockholders and
founders will be placed in an escrow account to secure the indemnification
obligations of those Indus River stockholders under the merger agreement. All of
the shares of Cabletron series C preferred stock issued in the merger will be
deposited in an escrow account for a period of up to 30 months to facilitate any
conversion or redemption of that stock.
Q: WHAT IS THE ESCROW FUND AND HOW DOES IT WORK?
A: If the merger is completed, Cabletron will deposit into an escrow account 10%
of the Cabletron common stock to be issued to the preferred stockholders and
founders of Indus River. The escrowed shares will be available to compensate
Cabletron if it is entitled to indemnification under the merger agreement.
The escrow account will be the sole and exclusive source available to
compensate Cabletron for damages due to a breach under the merger agreement,
other than for any claim of fraud, intentional misrepresentation or other
willful conduct. Any escrowed shares not used to indemnify Cabletron and
which are not the subject of an unresolved claim for indemnification by
Cabletron will be distributed to the Indus River stockholders entitled to
receive them after the first anniversary of the merger.
If the merger is completed, Cabletron will deposit into a separate escrow
account all of the Cabletron series C preferred stock to be issued to all
Indus River stockholders. The escrowed shares of Cabletron series C preferred
stock will not be used to secure the indemnification obligations of Indus
River stockholders, but rather will be held in escrow only to facilitate any
conversion or redemption of the shares of Cabletron series C preferred stock
occurring within 24 months of the closing. The shares of Cabletron series C
preferred stock will remain in the escrow account for up to 30 months. If,
after this 30-month period, there has been no redemption or conversion of the
shares of Cabletron series C preferred stock, then those shares will be
distributed by the escrow agent to the stockholders on whose behalf the
shares are being held.
Q: WHY IS THE INDUS RIVER BOARD OF DIRECTORS RECOMMENDING THAT I VOTE FOR
ADOPTION OF THE MERGER AGREEMENT?
A: After considering the support for the merger from its independent directors
and the other reasons described on pages 27 to 28 of this proxy
statement/prospectus, your board of directors unanimously believes that the
terms of the merger agreement are advisable and fair to, and in the best
interests of, Indus River and its stockholders.
Q: WHAT IS THE VOTE REQUIRED TO ADOPT THE MERGER AGREEMENT?
A: The affirmative vote of the holders of:
- a majority of the outstanding shares of Indus River common stock and
Indus River preferred stock, voting together as a single class; and
- two-thirds of the outstanding shares of Indus River preferred stock,
voting as a separate class,
is required to adopt the merger agreement. You will be able to vote your shares
of Indus River common stock and Indus River preferred stock at a special meeting
of Indus River stockholders to be held on January 10, 2001 at 10:00 a.m., local
time, at the offices of McDermott, Will & Emery, 28 State Street, Boston,
Massachusetts 02109.
Indus River stockholders holding:
- 86.3% of the outstanding shares of Indus River preferred stock and
Indus River common stock, voting together as a single class; and
- 95.5% of the outstanding shares of Indus River preferred stock, voting
as a separate class,
have executed stockholder agreements agreeing to vote their shares of Indus
River stock for adoption of the merger agreement. These stockholders have also
granted an irrevocable proxy and a power of attorney to Cabletron
representatives to vote their shares of Indus River stock for adoption of the
merger agreement. Thus, the required vote to adopt the merger agreement has been
obtained. There is a description of these stockholder agreements on page 22 of
this proxy statement/prospectus.
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<PAGE> 14
Q: WHAT IF THE MERGER IS NOT COMPLETED?
A: It is possible the merger will not be completed. That might happen if, for
example, any of the closing conditions specified in the merger agreement do
not occur. Should that occur, Cabletron, Indus River or any third party is
not under any obligation to make or consider any alternative proposal to
purchase your Indus River stock. The closing conditions specified in the
merger agreement are described in pages 45 to 46 of this proxy
statement/prospectus.
Q: WHAT ELSE WILL HAPPEN AT THE MEETING?
A: Although we expect no other matters to come before the special meeting, the
stockholders of Indus River may transact any other business that may properly
come before the meeting.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
proxy statement/prospectus, PLEASE COMPLETE AND SIGN YOUR PROXY CARD AND
RETURN IT IN THE ENCLOSED RETURN ENVELOPE AS SOON AS POSSIBLE SO THAT YOUR
SHARES MAY BE REPRESENTED AT THE SPECIAL MEETING. If you sign and send in
your proxy card and do not indicate how you want to vote, we will count your
proxy as a vote for adoption of the merger agreement. IF YOU ABSTAIN FROM
VOTING OR DO NOT VOTE ON THE PROPOSAL, YOUR ABSTENTION OR FAILURE TO VOTE
WILL HAVE THE SAME EFFECT AS A VOTE AGAINST ADOPTION OF THE MERGER AGREEMENT.
The special meeting will take place on January 10, 2001. You may attend the
special meeting and vote your shares in person, rather than signing and
mailing your proxy card.
Q: WHO MAY VOTE AT THE SPECIAL MEETING?
A: All stockholders of record as of the close of business on December 4, 2000
may vote. You are entitled to one vote for each share of Indus River common
stock that you own on the record date, and one vote for each share of Indus
River preferred stock that you own on the record date.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You may change your vote in one of three ways before your proxy is voted
at the special meeting. First, you may send a written notice stating that you
would like to revoke your proxy. Second, you may complete and submit a new
proxy card. If you choose either of these two methods, you must submit your
notice of revocation or your new proxy card to the secretary of Indus River
at the address given in the answer to the last question below. Third, you may
attend the special meeting and vote in person.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger has been completed, you will receive written
instructions for exchanging your stock certificates. PLEASE DO NOT SEND IN
YOUR STOCK CERTIFICATES WITH YOUR PROXY CARD.
Q: WHEN AND WHERE IS THE SPECIAL MEETING?
A: The special meeting will be held at the offices of McDermott, Will & Emery,
28 State Street, 34th Floor, Boston, Massachusetts 02109 at 10:00 a.m. local
time on January 10, 2001.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We expect to complete the merger immediately after the special meeting.
Q: WHAT RIGHTS DO I HAVE IF I OPPOSE THE MERGER?
A: You may seek appraisal of the fair value of your shares by complying with all
the Delaware law procedures explained on pages 41 to 44 and in annex B to
this proxy statement/prospectus.
4
<PAGE> 15
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger or if you need additional copies
of this proxy statement/ prospectus or the enclosed proxy card, you should
contact:
Indus River Networks, Inc.
Attention: David P. Gamache
31 Nagog Park
Acton, Massachusetts 01720
Telephone: (978) 266-8100
5
<PAGE> 16
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and does not contain all the information that is important
to you. For a more complete understanding of the merger, you should carefully
read this entire proxy statement/prospectus and the other documents to which we
refer you.
You should read the documents attached to this proxy statement/prospectus,
including the merger agreement and the amendment to the merger agreement which
are attached as annex A, your appraisal rights under Delaware law, which are
attached as annex B, the form of escrow agreement which is attached as annex C,
the form of stockholder agreement for Indus River founders, which is attached as
annex D, the form of stockholder agreement for Indus River preferred
stockholders, which is attached as annex E, and the preliminary appraisal of
Adams, Harkness & Hill, Inc. dated December 5, 2000 of the Cabletron series C
preferred stock, which is attached as annex F.
GENERAL
WHAT YOU WILL RECEIVE IN THE MERGER
Cabletron will issue an aggregate of 4,000,000 shares of Cabletron common
stock and 50,000 shares of Cabletron series C preferred stock in exchange for
all of the shares of Indus River preferred stock, Indus River common stock, and
all options and warrants to purchase Indus River stock. Cabletron will also
reserve for issuance approximately 100,000 additional shares of Cabletron common
stock and 1,100 additional shares of Cabletron series C preferred stock to be
issued to holders of additional options granted in exchange for the forfeiting
of acceleration rights and some options granted to some employees hired by Indus
River after August 18, 2000. Because each holder of Indus River preferred stock
is entitled to a liquidation preference payment as part of the merger, and
because the market price of Cabletron common stock fluctuates and the value of
the Cabletron series C preferred stock also varies, the exact exchange rate for
Indus River preferred stock and Indus river common stock will not be known until
five trading days before the closing date of the merger.
Based on an average closing price of $17.89 per share of Cabletron common
stock for the ten trading days ending on and including December 4, 2000 and an
appraised value of $486.40 per share of Cabletron series C preferred stock as of
December 4, 2000, and assuming that the closing of the merger occurs on January
10, 2001 and a warrant to purchase 60,847 shares of Indus River series D
preferred stock is not exercised before the merger:
- each holder of Indus River series A preferred stock would receive
0.00271557 shares of Cabletron series C preferred stock and 0.21724568
shares of Cabletron common stock for each share of Indus River series A
preferred stock held by that holder;
- each holder of Indus River series B preferred stock would receive
0.00373338 shares of Cabletron series C preferred stock and 0.29867074
shares of Cabletron common stock for each share of Indus River series B
preferred stock held by that holder;
- each holder of Indus River series C preferred stock would receive
0.00448167 shares of Cabletron series C preferred stock and 0.35853378
shares of Cabletron common stock for each share of Indus River series C
preferred stock held by that holder;
- each holder of Indus River series D preferred stock issued on June 30,
1999 would receive 0.00514313 shares of Cabletron series C preferred
stock and 0.41145079 shares of Cabletron common stock for each share of
Indus River series D preferred stock held by that holder;
- each holder of Indus River series D preferred stock issued on July 8,
1999 would receive 0.00513886 shares of Cabletron series C preferred
stock and 0.41110886 shares of Cabletron common stock for each share of
Indus River series D preferred stock held by that holder; and
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<PAGE> 17
- each holder of Indus River common stock would receive 0.00205897 shares
of Cabletron series C preferred stock and 0.16471791 shares of Cabletron
common stock for each share of Indus River common stock held by that
holder.
You will receive cash for any fractional share of Cabletron common stock or
Cabletron series C preferred stock that you would be entitled to receive in the
merger.
The Cabletron series C preferred stock may be converted into Cabletron
common stock at the option of the holder at any time after the earliest of:
- a spin-off of Cabletron's subsidiary, Enterasys Networks, Inc., the
subsidiary to which Cabletron intends to transfer the stock of Indus
River after the merger, after the first anniversary of the date the
Cabletron series C preferred stock is issued;
- a transaction involving Enterasys after which Cabletron no longer
controls Enterasys at any time; and
- the second anniversary of the date the Cabletron series C preferred stock
is issued.
If Cabletron establishes a record date for a spin-off of Enterasys before
the first anniversary of the date the Cabletron series C preferred stock is
issued, and that spin-off is to be completed before that anniversary, then the
Cabletron series C preferred stock may be converted into Cabletron common stock
at the option of the holder immediately before the spin-off.
The Cabletron series C preferred stock may be redeemed at the option of the
holder immediately before to the first to occur of:
- a spin-off of Enterasys after the first anniversary of the date the
Cabletron series C preferred stock is issued and before the second
anniversary of the issuance of the stock; and
- a transaction involving Enterasys after which Cabletron no longer
controls Enterasys before the second anniversary of the date the
Cabletron series C preferred stock is issued.
In a spin-off of Enterasys, Cabletron will pay the redemption price for
each share of Cabletron series C preferred stock in shares of Enterasys stock.
In a change of control of Enterasys, Cabletron will pay the redemption price for
each share of Cabletron series C preferred stock in securities or assets of the
surviving corporation immediately after the change of control of Enterasys.
If Cabletron establishes a record date for a spin-off of Enterasys before
the first anniversary of the date the Cabletron series C preferred stock is
issued, holders of Cabletron series C preferred stock will not be able to redeem
their shares of Cabletron series C preferred stock in the spin-off. However,
they will be able to convert their shares into Cabletron common stock before the
spin-off. If Cabletron begins a transaction resulting in a change of control of
Enterasys before the first anniversary of the date the Cabletron series C
preferred stock is issued, holders of Cabletron series C preferred stock will be
able to redeem or convert their shares of Cabletron series C preferred stock in
that transaction.
If Cabletron conducts a spin-off of Enterasys after the first anniversary
of the date the Cabletron series C preferred stock is issued, holders of
Cabletron series C preferred stock will be able to redeem or convert their
shares of Cabletron series C preferred stock in the spin-off.
The terms of the Cabletron series C preferred stock will provide for a more
favorable exchange ratio for redemption of the Cabletron series C preferred
stock compared to the exchange ratio for conversion of the stock if the holders
are able to choose between the two options.
Cabletron is not obligated to conduct a spin-off of Enterasys or other
disposition of Enterasys. If Cabletron does not do so, then holders of the
Cabletron series C preferred stock will not be able to exercise the redemption
right, and will not be able to exercise any conversion right until the second
anniversary of the date the Cabletron series C preferred stock is issued.
The merger agreement provides that 10% of the shares of Cabletron common
stock to be issued in the merger to the Indus River preferred stockholders and
founders will be placed in an escrow account that may
7
<PAGE> 18
be used to compensate Cabletron if it is entitled to indemnification under the
merger agreement. The escrow account will be the sole and exclusive source
available to compensate Cabletron for damages due to a breach under the merger
agreement, other than for any claim of fraud, intentional misrepresentation or
other willful conduct. Any escrowed shares not used to indemnify Cabletron and
which are not the subject of an unresolved claim for indemnification by
Cabletron will be distributed to each Indus River stockholder on whose behalf
the escrowed shares are being held after the first anniversary of the merger.
All of the shares of Cabletron series C preferred stock will be placed in a
separate escrow account with an escrow agent. The Cabletron series C preferred
stock will not be used to secure the indemnification obligations of Indus River
stockholders, but rather will be held in escrow only to facilitate any
conversion or redemption of the Cabletron series C preferred stock occurring
within 24 months of the closing. The shares of Cabletron series C preferred
stock will remain in the escrow account for up to 30 months. If, after this
30-month period, there has been no conversion or redemption of the shares of
Cabletron series C preferred stock, then those shares will be distributed to the
stockholders on whose behalf the shares are being held.
SIGNIFICANT UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Cabletron and Indus River plan to treat the merger as a tax-free
reorganization for federal income tax purposes. After the merger, Cabletron
plans to transfer all of the stock in Indus River to its subsidiary, Enterasys.
Although Cabletron has announced its desire to establish its four operating
subsidiaries, including Enterasys, as independent companies, Cabletron is not
obligated to do so and continues to consider several possibilities for
Enterasys, including retaining Enterasys as a subsidiary of Cabletron. Depending
on if, and when, Cabletron conducts a spin-off or other disposition of
Enterasys, the Internal Revenue Service may attempt to combine the merger with
that other transaction, and take the position that the merger does not qualify
as a tax-free reorganization. If the IRS were successful, you would recognize
gain or loss for federal income tax purposes based on the difference between the
fair market value of the Cabletron common stock and Cabletron series C preferred
stock you received and the tax basis of the Indus River stock that you exchanged
for the Cabletron common stock and the Cabletron series C preferred stock.
RECOMMENDATION OF THE INDUS RIVER BOARD OF DIRECTORS
The Indus River board of directors believes that the terms of the merger
and the merger agreement are advisable and fair to, and in the best interests
of, Indus River and its stockholders and unanimously recommends that
stockholders vote for adoption of the merger agreement.
APPRAISALS OF CABLETRON SERIES C PREFERRED STOCK BY ADAMS, HARKNESS & HILL, INC.
There is no established trading market for the Cabletron series C preferred
stock. Indus River has retained Adams, Harkness & Hill, Inc. to deliver an
appraisal of the fair market value of the shares of Cabletron series C preferred
stock to be paid as the liquidation preference payment due to Indus River
preferred stockholders in the merger. At the request of Indus River, Adams,
Harkness & Hill delivered a preliminary appraisal on December 5, 2000 that, as
of December 4, 2000, the aggregate fair market value of the Cabletron series C
preferred stock to be received by the Indus River stockholders in the merger was
approximately $24.32 million. It is possible that the valuation determined in
the final appraisal could be materially different from that determined in the
preliminary appraisal.
Adams, Harkness & Hill's appraisal addresses only the fair market value of
the Cabletron series C preferred stock to be received under the merger agreement
and does not address any other aspect of the merger or constitute a
recommendation to any holder of Indus River stock about how to vote at the Indus
River stockholder meeting.
INTERESTS OF INDUS RIVER DIRECTORS, MANAGEMENT AND EMPLOYEES IN THE MERGER
A number of directors, officers and employees of Indus River have interests
in the merger as directors, officers or employees that are different from those
of a stockholder generally. If we complete the merger, indemnification
arrangements for current directors, officers and employees of Indus River will
be continued
8
<PAGE> 19
and it is anticipated that some employees of Indus River will be retained as
employees of Cabletron. It is a condition of the merger that some executives and
employees, with stock options, enter into amendments to their stock option
agreements to modify the accelerated vesting provisions for those options in
exchange for the grant of additional stock options. Two executive officers of
Indus River will also receive options to purchase 200,000 shares of stock of
Cabletron's subsidiary, Enterasys.
APPRAISAL RIGHTS
If you do not wish to accept Cabletron common stock and Cabletron series C
preferred stock in the merger, you have the right under Delaware law to have the
fair value of your shares determined by the Delaware chancery court. This right
to appraisal is subject to a number of restrictions and technical requirements.
Generally, to exercise your appraisal rights you must:
- send a written demand to Indus River for appraisal in compliance with
Delaware law before the vote on the merger;
- not vote in favor of the merger; and
- continuously hold your Indus River stock, from the date you make the
demand for appraisal through the closing of the merger.
Merely voting against the merger will not protect your rights to an
appraisal. If you fail to follow all the steps required by Delaware law you will
lose your rights to appraisal.
THE COMPANIES
INDUS RIVER NETWORKS, INC.
31 Nagog Park
Acton, Massachusetts
(978) 266-8100
Indus River Networks designs, manufactures and markets enterprise-class
network hardware and software that enables organizations of all sizes to install
and manage remote access and site to site virtual private networks, or VPNs,
with centralized control and remote enforcement of predefined network access
policies. Additionally, the product suite incorporates fault management with
automatic error detection and recovery methods. These features simplify the
process of virtual private network installation and operational management while
enhancing control over network security and improving the cost-effectiveness of
the network.
Indus River sells its products and services to corporate and institutional
customers using both direct and indirect sales channels. RiverWorks(TM)
Enterprise VPN solutions are used in several industry sectors including major
financial, industrial, and service companies. These network installations
represent some of the largest VPN installations in the world with several
thousand remote users. The solution provides a broad range of connectivity
options that enable mobile access, high-speed telecommuting and global
site-to-site interconnection over the public Internet. Networks are secured with
technologies that provide end-point authentication and encryption of the data
stream. The products have been tested and certified by leading technology
companies and independent test labs for interoperability, performance and
standards compliance.
Indus River has approximately 65 employees, most of whom are located at its
headquarters in Acton, Massachusetts. Indus River was organized under the laws
of Delaware on August 7, 1996 and maintains its executive offices at 31 Nagog
Park, Acton, Massachusetts.
9
<PAGE> 20
CABLETRON SYSTEMS, INC.
35 Industrial Way
Rochester, New Hampshire 03867
(603) 332-9700
Cabletron is one of the world's leading designers, developers and
manufacturers of communications systems, software and products. Cabletron
delivers flexible and scalable network access and communications equipment and
software to Global 2000 enterprises, service providers and small businesses
worldwide. Cabletron's products include standards-based Ethernet, Fast Ethernet,
Token Ring, fiber distributed data interface, asynchronous transfer mode and
wide area networks networking solutions. Cabletron provides its business
solutions to global customers for enterprise connectivity, service provider
infrastructures, software and professional services by maintaining significant
operations in the United States, Europe, the Pacific Rim and other
industrialized areas of the world. Cabletron has established four operating
subsidiaries -- Aprisma Management Technologies, Enterasys Networks,
GlobalNetwork Technology Services and Riverstone Networks -- to enable it to
focus on the key high-growth areas of the communications marketplace, including
infrastructure management, business conducted electronically over the Internet,
professional services and service providers. Cabletron conducts its operations
through these subsidiaries.
STOCK PRICES AND DIVIDENDS
Shares of Cabletron common stock are listed on the New York Stock Exchange.
On August 18, 2000, the last full trading day before the public announcement of
the proposed merger, the last reported sale price of one share of Cabletron
common stock, as reported on the New York Stock Exchange Composite Transactions
Tape, was $34.77. On December 7, 2000, the last day for which information was
available before the date of this proxy statement/prospectus, the last reported
sale price of one share of Cabletron common stock, as reported on the New York
Stock Exchange Composite Transactions Tape, was $16.56. We are unable to provide
information about the market prices of the Cabletron series C preferred stock
and the Indus River stock, and the equivalent per share market prices of
Cabletron common stock have been omitted, because there is no established
trading market for shares of Indus River stock.
Cabletron has never paid dividends on its common stock and anticipates it
will continue to reinvest earnings to finance future growth. Indus River has
never paid dividends on its common stock.
THE SPECIAL MEETING
The special meeting of Indus River stockholders will be held at the offices
of McDermott, Will & Emery, 28 State Street, 34th Floor, Boston, Massachusetts
02109, at 10:00 a.m. local time on January 10, 2001. At the special meeting, all
stockholders will be asked to adopt the merger agreement, as it has been
amended, among Cabletron, Acton Acquisition Co., a wholly owned subsidiary of
Cabletron, and Indus River.
RECORD DATE; VOTING POWER
Indus River stockholders are entitled to notice of, and to vote at, the
special meeting if they owned shares as of the close of business on December 4,
2000 the record date.
VOTE REQUIRED
The affirmative vote of holders of:
- a majority of the outstanding shares of the Indus River common stock and
preferred stock, voting together as a single class; and
- two-thirds of the outstanding shares of the Indus River preferred stock,
voting together as a single class,
is required to adopt the merger agreement.
WE CANNOT COMPLETE THE MERGER UNLESS THE MERGER PROPOSAL IS ADOPTED BY THE
REQUIRED VOTE.
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<PAGE> 21
STOCKHOLDER AGREEMENTS
A number of Indus River stockholders have entered into stockholder
agreements with Cabletron and have agreed to vote their shares of Indus River
stock for adoption of the merger agreement. These stockholders have also granted
an irrevocable proxy and a power of attorney to Cabletron representatives to
vote that stockholder's shares of Indus River stock for adoption of the merger
agreement.
On the record date, these stockholders in the aggregate owned and agreed to
vote 86.3% of the Indus River preferred stock and Indus River common stock,
voting together as a single class, and 95.5% of the preferred stock, voting
together as a single class.
GOVERNMENT FILINGS
Cabletron and Indus River do not believe that any governmental filings are
required for the merger, except for the filing of the registration statement
with the Securities and Exchange Commission of which this proxy
statement/prospectus is a part.
11
<PAGE> 22
SELECTED HISTORICAL FINANCIAL DATA -- CABLETRON
HISTORICAL
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
------------------------- ------------------------------------------------------------------------
SEPTEMBER 2, AUGUST 31, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
2000 1999 2000 1999 1998 1997 1996
------------ ---------- ------------ ------------ ------------ ------------ ------------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.................. $ 536,498 $706,172 $1,459,593 $1,411,279 $1,377,330 $1,406,552 $1,100,349
Income (loss) from
operations............... (121,663) (34,096) (5,775) (291,616) (88,812) 326,278 206,935
Net income (loss) to common
stockholders............. $(180,732) $ (9,516) $ 464,271 $ (245,391) $ (34,961) $ 226,079 $ 144,485
========= ======== ========== ========== ========== ========== ==========
Net income (loss) per
common share -- basic.... $ (0.98) $ (0.05) $ 2.62 $ (1.47) $ (0.22) $ 1.46 $ 0.95
========= ======== ========== ========== ========== ========== ==========
Weighted average number of
common shares
outstanding -- basic..... 184,150 173,624 177,541 167,432 157,686 155,207 151,525
========= ======== ========== ========== ========== ========== ==========
Net income (loss) per
common share --
diluted.................. $ (0.98) $ (0.05) $ 2.46 $ (1.47) $ (0.22) $ 1.42 $ 0.93
========= ======== ========== ========== ========== ========== ==========
Weighted average number of
common shares
outstanding -- diluted... 184,150 173,624 188,618 167,432 157,686 158,933 155,171
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 2, AUGUST 31, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
2000 1999 2000 1999 1998 1997 1996
------------ ---------- ------------ ------------ ------------ ------------ ------------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............ $ 469,592 $ 407,464 $ 448,168 $ 370,945 $ 593,046 $ 679,056 $485,152
Total assets............... 1,919,634 1,477,084 3,166,507 1,566,500 1,682,048 1,310,809 996,908
Total stockholders'
equity................... 1,327,693 1,101,439 2,147,439 1,089,833 1,085,075 1,085,452 809,886
========== ========== ========== ========== ========== ========== ========
</TABLE>
THE INFORMATION IN THIS SECTION SHOULD BE READ WITH CABLETRON'S HISTORICAL
FINANCIAL STATEMENTS AND ACCOMPANYING NOTES.
12
<PAGE> 23
RISK FACTORS
Indus River stockholders should consider carefully the matters described
below in determining whether to adopt the merger agreement.
RISK FACTORS RELATING TO THE MERGER
- DECREASES IN THE PRICE OR VALUE OF CABLETRON COMMON STOCK AND CABLETRON
SERIES C PREFERRED STOCK WILL NOT ENTITLE INDUS RIVER STOCKHOLDERS OR
OPTIONHOLDERS TO RECEIVE ADDITIONAL CABLETRON SHARES IN THE MERGER.
Cabletron will issue a fixed number of shares of Cabletron common stock
and Cabletron series C preferred stock in the merger transaction,
including to holders of options and warrants to purchase Indus River
stock. Changes in the price of Cabletron common stock or in the value of
Cabletron series C preferred stock will not result in an adjustment in
the total shares of Cabletron common stock and Cabletron series C
preferred stock to be issued by Cabletron. If the price or value of
Cabletron common stock or Cabletron series C preferred stock declines,
then the value to Indus River stockholders of the merger transaction will
also decline.
The price of Cabletron common stock and the value of Cabletron series C
preferred stock may vary because of changes in the business, operations
or prospects of Cabletron, the timing of the completion of the merger,
the prospects of post-merger operations and general market and economic
conditions. Because the date that the merger is completed may be later
than the date of the special meeting, the price of Cabletron common stock
and the value of Cabletron series C preferred stock on the date of the
special meeting may not be indicative of its price on the date the merger
is completed. We urge Indus River stockholders to obtain current market
quotations for Cabletron common stock.
- THE SHARES OF CABLETRON COMMON STOCK THAT WILL BE ISSUED IN THE MERGER TO
THE INDUS RIVER PREFERRED STOCKHOLDERS AND FOUNDERS AND PLACED IN ESCROW
TO SECURE CABLETRON'S INDEMNIFICATION CLAIMS UNDER THE MERGER AGREEMENT
MAY NEVER BE DISTRIBUTED TO THE INDUS RIVER PREFERRED STOCKHOLDERS AND
FOUNDERS. The merger agreement provides that the shares of Cabletron
common stock placed in escrow will be available to indemnify Cabletron,
the surviving corporation and other specified persons after the merger
for breaches by Indus River of the merger agreement. If Indus River
breaches the merger agreement, Cabletron would be entitled to be paid
from the escrow fund the amount necessary to satisfy its damages. Indus
River founders and preferred stockholders may not receive any of the
shares in the escrow account since those shares might be used to
indemnify Cabletron.
- DEPENDING ON IF, AND WHEN, CABLETRON CONDUCTS A SPIN-OFF OR OTHER
DISPOSITION OF ENTERASYS, THE IRS MAY TAKE THE POSITION THAT THE MERGER
IS TAXABLE. Cabletron and Indus River plan to treat the merger as a
tax-free reorganization for federal income tax purposes. The federal
income tax treatment of the merger depends in part on whether, for
federal income tax purposes, the merger would be combined with a spin-off
or other disposition of Enterasys by Cabletron, the company to which
Cabletron plans to transfer the Indus River stock after the merger.
Cabletron has announced its desire to establish its four operating
subsidiaries, including Enterasys, as independent companies. Because
Cabletron is not obligated to carry out a spin-off or any other
disposition of Enterasys and continues to consider several possibilities
for Enterasys, including retaining Enterasys as a subsidiary of
Cabletron, Cabletron and Indus River plan to treat the merger as a
tax-free reorganization. If Cabletron carries out its announced intention
to spin off or dispose of Enterasys, and if the IRS were to successfully
assert that the spin-off or disposition should be combined with this
merger, then this merger would constitute a taxable purchase of stock.
You would recognize gain or loss for federal income tax purposes based on
the difference between the fair market value of the Cabletron common
stock and Cabletron series C preferred stock you received and the tax
basis of the Indus River stock that you exchanged for the Cabletron
common stock and the Cabletron series C preferred stock.
RISK FACTORS RELATING TO THE CABLETRON SERIES C PREFERRED STOCK
- BECAUSE THE CABLETRON SERIES C PREFERRED STOCK WILL NOT BE REGISTERED FOR
RESALE AND WILL NOT HAVE A LIQUID MARKET, THE HOLDERS OF CABLETRON SERIES
C PREFERRED STOCK WILL BE LIMITED IN THEIR ABILITY TO
13
<PAGE> 24
TRANSFER OR SELL THEIR SHARES. The Cabletron series C preferred stock
will not be registered for resale under the Securities Act and may not be
transferred except under the laws of descent and distribution or to the
partners or equity holders of any stockholder which is an entity. There
is no existing market for the Cabletron series C preferred stock and a
liquid market may not develop for the Cabletron series C preferred stock.
The holders of Cabletron series C preferred stock may be unable to sell
their Cabletron series C preferred stock, and the price at which holders
of the Cabletron series C preferred stock may be able to sell their
Cabletron series C preferred stock, if at all, is uncertain. Cabletron
does not intend to apply for listing of its series C preferred stock on
any securities exchange.
- THE HOLDERS OF CABLETRON SERIES C PREFERRED STOCK MAY NEVER BE ABLE TO
REDEEM THEIR SHARES OF CABLETRON SERIES C PREFERRED STOCK. The terms of
the Cabletron series C preferred stock provide that those shares may be
redeemed if Cabletron conducts a spin-off of its subsidiary, Enterasys,
after the first anniversary of the issuance of the shares and before the
second anniversary of the issuance of the shares. These shares may also
be redeemed if there is a transaction involving Enterasys after which
Cabletron no longer controls Enterasys before the second anniversary of
the issuance of the shares. It is possible that Cabletron will not
conduct a spin-off of Enterasys within this time frame. Similarly, it is
possible that there will not be a change of control of Enterasys within
this time frame. The holders of Cabletron series C preferred stock may
not able to redeem their shares of Cabletron series C preferred stock.
- THE HOLDERS OF CABLETRON SERIES C PREFERRED STOCK MAY NOT BE ABLE TO
CONVERT THEIR SHARES FOR A PERIOD OF TWO YEARS. The terms of the
Cabletron series C preferred stock provide that those shares may be
converted by the holders into shares of Cabletron common stock after the
earlier to occur of a spin-off of Enterasys, a transaction involving
Enterasys after which Cabletron no longer controls Enterasys, and the
second anniversary of the issuance of the Cabletron series C preferred
stock. If Cabletron conducts a spin-off of Enterasys within one year of
the issuance of the Cabletron series C preferred stock, the shares of
Cabletron series C preferred stock may be converted immediately before
the spin-off. It is possible that Cabletron will not conduct an Enterasys
spin-off before the second anniversary of the issuance of the Cabletron
series C preferred stock. Similarly, it is possible that there will not
be a change of control of Enterasys within this time frame. The holders
of Cabletron series C preferred stock may not be able to convert their
shares of Cabletron series C preferred stock until after the second
anniversary of the issuance of the shares of Cabletron series C preferred
stock.
RISK FACTORS RELATING TO CABLETRON
Cabletron's business is subject to numerous risks and uncertainties,
including those described below. References to Cabletron are to Cabletron and
its subsidiaries, through which Cabletron conducts its operations.
- IF CABLETRON IS NOT ABLE TO COMPLETE ITS PLANNED TRANSFORMATION ITS
PROFITABILITY COULD DECLINE BECAUSE CABLETRON WILL HAVE INCURRED
SIGNIFICANT COSTS AND EXPENSES TO ATTEMPT THE TRANSFORMATION. Cabletron
has transformed its business by creating four operating subsidiaries and
transferring a portion of its operating assets and related liabilities to
these four subsidiaries. Cabletron plans to conduct an initial public
offering of some or all of the operating subsidiaries followed by a
distribution of the remaining shares of the operating subsidiaries to
Cabletron's stockholders. Cabletron may also consider selling one or more
of its operating subsidiaries. If Cabletron does not complete the
transformation as planned, Cabletron's profitability could decline.
Cabletron will have devoted significant time and resources to complete
the transformation. Cabletron will have already incurred increased
expenses for the build-up of management and administrative capacity of
each operating subsidiary. Cabletron is not obligated to complete any of
these strategic transactions, and it is uncertain when or whether any of
these transactions will happen.
- EVEN IF CABLETRON SUCCESSFULLY COMPLETES ITS PLANNED TRANSFORMATION, ITS
PROFITABILITY COULD DECLINE IF CABLETRON CANNOT OFFSET THE COSTS AND
EXPENSES OF THE TRANSFORMATION WITH INCREASED REVENUES, PROFIT MARGINS OR
SALES THAT THE TRANSFORMATION IS INTENDED TO PRODUCE. As part of its
transformation, Cabletron has announced plans to discontinue several
product lines to allow the new subsidiaries to focus on their core
technologies. The discontinuance of these products may cause Cabletron's
overall
14
<PAGE> 25
revenue or profitability to decrease in the future if it is unable to
increase sales of other products or if it is unable to increase profit
margins. The cost of the transformation, such as the buildup of
management and administrative capacity at each subsidiary, could also
impair Cabletron's profitability.
- NEGATIVE EVENTS IN THE PUBLIC MARKET FOR TECHNOLOGY STOCKS MAY PREVENT
CABLETRON FROM COMPLETING ITS PLANNED TRANSFORMATION AND THIS MAY CAUSE
CABLETRON'S PROFITABILITY TO DECLINE BECAUSE CABLETRON WILL HAVE INCURRED
SIGNIFICANT COSTS AND EXPENSES TO ATTEMPT THE TRANSFORMATION. The public
market for technology stocks has recently experienced a significant
downturn, with many stocks suffering price declines of 50 percent or
more. Trading in these stocks has become extremely volatile. If current
market conditions persist, Cabletron may be unable or unwilling to
complete initial public offerings or private sales of any of its
operating subsidiaries. Cabletron's profitability could decline because
it will have already incurred significant costs and expenses to complete
the transformation, including the public offerings or sales of the
operating subsidiaries.
- CABLETRON MAY NOT OBTAIN APPROVAL OF ALL ASPECTS OF ITS PLANNED
TRANSFORMATION, OR MAY NOT CARRY OUT ITS INTENT EVEN IF THE APPROVALS ARE
OBTAINED AND THIS MAY CAUSE CABLETRON'S PROFITABILITY TO DECLINE BECAUSE
CABLETRON WILL HAVE INCURRED SIGNIFICANT COSTS AND EXPENSES TO ATTEMPT
THE TRANSFORMATION. Any distribution of shares of a subsidiary to
Cabletron's stockholders may depend on receipt from the Internal Revenue
Service of a ruling that the distribution would be tax-free to
Cabletron's stockholders, that the transaction would qualify as a
tax-free reorganization, or other regulatory approvals. Also, a public
offering of any shares of a Cabletron subsidiary will depend on factors
such as the market conditions for public offerings, the operating
performance of that subsidiary, and the prospects of the markets for that
subsidiary's goods or services. Any of the strategic transactions related
to Cabletron's transformation would be implemented only if Cabletron's
board of directors continues to believe that the transaction is in the
best interests of Cabletron, its stockholders, and its subsidiaries.
Cabletron's profitability could decline because it will have already
incurred significant costs and expenses to complete the transformation,
including the public offerings or sales of the operating subsidiaries.
- CABLETRON FACES SIGNIFICANT COMPETITIVE PRESSURES IN THE DATA NETWORKING
INDUSTRY THAT MIGHT CAUSE CABLETRON TO LOSE MARKET SHARE, SUFFER
DECREASED REVENUES OR EXPERIENCE FLUCTUATIONS IN OPERATING RESULTS. The
data networking industry is subject to intense and increasing levels of
competition and consolidation. Cabletron expects substantial increases in
future competition from its current competitors, and from new competitors
that enter Cabletron's existing or future markets, including, by
acquiring data networking companies. Increased competition could result
in lower sales, reduced margins and loss of market share. Any of these
factors could increase fluctuations in operating results. If Cabletron
fails to successfully develop and market new products, enhance existing
products or respond adequately to technological changes, new standards or
product announcements, Cabletron may lose market share, and may suffer
decreased revenues because of the loss of market share.
Cabletron's primary competitors are Cisco, Lucent, Nortel, 3Com, Extreme
Networks, Foundry Networks and Juniper Networks. Several large
telecommunications equipment companies, including Nokia Corp., Alcatel,
Ericsson and Siemens have begun to compete in the data networking
industry and have recently made investments in or acquired several
smaller data networking companies.
- IF CABLETRON IS UNABLE TO DEVELOP AND MAINTAIN BRAND RECOGNITION IT MAY
HAVE DIFFICULTY ATTRACTING CUSTOMERS. As the data networking industry
has grown and matured, customers purchasing decisions have been
increasingly influenced by brand recognition. If Cabletron is unable to
develop and maintain competitive brand recognition, Cabletron's market
share will likely decrease.
- IF CABLETRON IS UNABLE TO ACQUIRE DATA NETWORKING COMPANIES OR INVEST IN
THEM IT MAY NOT BE ABLE TO INTRODUCE NEW PRODUCTS AND THIS MAY CAUSE
CABLETRON TO LOSE MARKET SHARE OR SUFFER DECREASED REVENUES. Cabletron's
competitors have pursued and are continuing to pursue a strategy of
acquiring and investing in data networking companies possessing advanced
networking technologies. This strategy helps Cabletron's competitors
secure access to the advanced technologies under development by the data
networking companies and enhances their ability to later acquire these
companies. This strategy also deters other competitors, including
Cabletron, from obtaining access to these companies' products or
acquiring these companies. The acquisition of and investment in these
companies allows Cabletron's
15
<PAGE> 26
competitors to offer new products without the lengthy time delays that
occur with internal product development and also permits potential
competitors who lack data networking products and technologies to more
quickly enter the data networking market. If Cabletron cannot acquire or
invest in data networking companies, its access to commercially
significant technologies may be limited and Cabletron may not be able to
offer products to meet its customers' needs, causing Cabletron's market
share to decline. Cabletron may have difficulty acquiring data networking
companies because there is significant competition for these
acquisitions, causing the prices paid to acquire data networking
companies to be extremely high compared to the assets and sales of these
companies. Cabletron's competitors may also have greater resources that
enable them to compete more effectively for the acquisition of companies.
- IF CABLETRON IS UNABLE TO SUCCESSFULLY INTEGRATE ACQUIRED COMPANIES, IT
MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP AND MARKET NEW
PRODUCTS. Cabletron has partially addressed the need to develop new
products by acquiring or investing in other data networking companies.
These acquisitions and investments involve risks that include:
- - difficulties in assimilating the operations, technologies and products
of the acquired companies;
- - the diversion of management's attention from other business concerns;
- - entering markets in which competitors have established market
positions; and
- - the potential loss of key employees of the acquired company.
The successful combination of companies in the high technology industry may
be more difficult to accomplish than in other industries because these
companies will require integration of product offerings and coordination of
their sales and marketing and research and development efforts.
- THE PERFORMANCE OF EARLY STAGE COMPANIES ACQUIRED BY CABLETRON COULD
CAUSE CABLETRON'S OVERALL PERFORMANCE TO DECLINE. The acquisition of
early stage companies involves risks that other acquisitions do not
involve. These companies often have limited operating histories, limited
or no prior sales, and may not have achieved profitability. The
technologies possessed by these companies are often unproven and the
development and marketing of products based upon these technologies may
require the investment of substantial time and resources. Despite any
investment of time and resources, Cabletron may not develop commercially
viable or profitable products. Cabletron may also not experience revenues
sufficient to justify its investment. If Cabletron engages in several
acquisitions of early stage companies, these risks could be magnified.
- IF CABLETRON IS UNABLE TO HIRE AND RETAIN KEY PERSONNEL ITS ABILITY TO
COMPETE MAY BE HARMED. Cabletron's success depends greatly upon its key
employees and management, including the presidents of the four new
operating subsidiaries. Recruiting and retaining skilled personnel,
including engineers, is highly competitive. If Cabletron cannot
successfully recruit and retain skilled personnel, particularly engineers
and sales personnel, its competitive position may be harmed and Cabletron
may have difficulty managing its business and meeting key objectives on
time. The volatility of Cabletron's common stock can also hamper
Cabletron's ability to retain employees. When the Cabletron common stock
price is less than the exercise price of stock options granted to
employees, turnover is likely to increase, which could have a negative
effect on Cabletron's operating results and financial condition.
- THE MARKET PRICE OF CABLETRON'S COMMON STOCK IS VOLATILE AND HOLDERS OF
CABLETRON COMMON STOCK MAY NOT BE ABLE TO RE-SELL THEIR SHARES AT OR
ABOVE THEIR CURRENT VALUE, OR AT ALL. As is frequently the case with the
stocks of high technology companies, the market price of the Cabletron's
stock has been, and may continue to be, volatile. The price of
Cabletron's common stock may be affected by:
- - periodic fluctuations in results of operations;
- - shortfalls in revenues or earnings from the levels anticipated by
securities analysts and others;
- - increased competition;
16
<PAGE> 27
- - the introduction of new products by the Cabletron or its competitors;
- - delays or difficulties in completing Cabletron's transformation into
four new companies;
- - changes in the mix of sales channels through which Cabletron's
products and services are sold;
- - the timing of significant customer orders; and
- - U.S. and international business trends.
The stock market has recently experienced extreme price and volume
fluctuations, which have particularly affected the market price for many
high-technology companies, but which have not necessarily been related to
the operating performance of these companies. Past performance of
Cabletron's stock price or of other technology companies' stock prices
should not be considered a reliable indicator of future performance of
Cabletron's stock price.
- CABLETRON'S MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE REQUIRING
LARGE EXPENDITURES FOR RESEARCH AND DEVELOPMENT THAT MAY NOT RESULT IN
INCREASED REVENUES. The market for networking products is subject to
rapid technological change, evolving industry standards and frequent new
product introductions requiring a high level of expenditures for research
and development. Cabletron may be required to make significant
expenditures to develop new integrated product offerings. If Cabletron
encounters delays in developing or introducing new products or product
enhancements or if the product enhancements do not gain market
acceptance, Cabletron will have difficulty maintaining its competitive
position. Even if Cabletron makes significant expenditures to develop new
products, customer demand for products may not grow at the rate expected
by Cabletron. Cabletron may also not be successful in developing,
manufacturing and marketing new products or product enhancements that
respond to customer demands or to evolving industry standards and
technological change. Cabletron may experience difficulties that could
delay or prevent the successful development, introduction, manufacture
and marketing of these products.
- IF CABLETRON IS UNABLE TO PROTECT ITS PROPRIETARY TECHNOLOGY IT MAY LOSE
MARKET SHARE OR SUFFER DECREASES IN PROFITABILITY. Cabletron's success
depends on its proprietary technology. Cabletron attempts to protect its
proprietary technology through patents, copyrights, trademarks, trade
secrets and license agreements. Cabletron's efforts may not be adequate
to prevent misappropriation of its technology. Patents issued to
Cabletron may be challenged, invalidated or circumvented. The laws of
some foreign countries do not protect Cabletron's proprietary rights at
the same level as do the laws of the United States. If Cabletron cannot
protect its proprietary technology, it may suffer loss of market share,
decreased sales or lower profitability.
- CABLETRON COULD BE LIABLE FOR SUBSTANTIAL DAMAGES IF A THIRD PARTY
SUCCESSFULLY ESTABLISHES THAT CABLETRON'S PRODUCTS INFRINGE ON THAT THIRD
PARTY'S INTELLECTUAL PROPERTY RIGHTS. Although Cabletron does not
believe that its products infringe the proprietary rights of any third
parties, third parties have periodically asserted infringement and other
claims against Cabletron and others could assert claims against Cabletron
in the future. If these claims are successful, the party making the
claims could obtain a judgment awarding substantial damages. This party
could also obtain an order which could effectively block Cabletron's
ability to license its products in the United States or abroad. Cabletron
could also be required to license technology to replace its infringing
technology at substantial cost and may be unable to license replacement
technology at all. Cabletron could also incur substantial costs and
diversion of management resources to defend any claims relating to
proprietary rights even if Cabletron did ultimately prevail in the
matter.
- CABLETRON COULD BE FORCED TO ABANDON A SUCCESSFUL PRODUCT OFFERING IF A
THIRD PARTY SUCCESSFULLY ESTABLISHED THAT CABLETRON'S PRODUCTS INFRINGE
ON THE THIRD PARTY'S INTELLECTUAL PROPERTY RIGHTS. If a third party
threatens to establish or successfully establishes that a Cabletron
product infringes on that third party's intellectual property rights,
Cabletron might be forced to abandon efforts to sell that product. If
this were to happen, Cabletron's revenues or profitability could fall.
17
<PAGE> 28
- DISRUPTIONS IN THE SUPPLY OF COMPONENTS USED BY CABLETRON TO MANUFACTURE
ITS PRODUCTS COULD AFFECT CABLETRON'S ABILITY TO DELIVER ITS PRODUCTS IN
A TIMELY AND COST-EFFECTIVE MANNER. Cabletron's products include
components that are available from single or limited sources, some of
which require long order lead times. Any reduction in supply,
interruption or extended delay in timely supply, variances in actual
needs from forecasts for long order lead time components, or change in
costs of components could affect Cabletron's ability to deliver its
products in a timely and cost-effective manner. With the increasing
technological sophistication of new products and related design and
manufacturing complexities, Cabletron anticipates that it may need to
rely on additional single source or limited suppliers for components or
manufacture of products and subassemblies.
- DISRUPTIONS IN THE MANUFACTURE OF CABLETRON'S PRODUCTS COULD AFFECT
CABLETRON'S ABILITY TO DELIVER ITS PRODUCTS ON TIME. Nearly all of
Cabletron's products are manufactured by third-party contract
manufacturers. The failure of a third-party manufacturer to manufacture
the products, to meet Cabletron's manufacturing standards or to deliver
the products in time for Cabletron to meet its delivery requirements
could cause Cabletron to suffer reduced revenues and lose market share.
RISK FACTORS RELATING TO INDUS RIVER
As a stand-alone company, Indus River's business is subject to numerous
risks and uncertainties, including those described below. Indus River's
stockholders should understand that these risks will continue to apply to Indus
River's business if the merger is not completed.
- INDUS RIVER HAS EXPERIENCED SIGNIFICANT OPERATING LOSSES THROUGHOUT ITS
HISTORY, EXPECTS THESE LOSSES TO CONTINUE AND MAY NOT ACHIEVE
PROFITABILITY IN THE FUTURE. Since its formation on August 7, 1996,
Indus River has incurred losses. Indus River incurred net losses of
$7,039,360 in the year ending December 31, 1998, net losses of $9,766,791
in the year ending December 31, 1999 and net losses of $11,958,832 for
the 10-month period ending October 31, 2000. As of October 31, 2000,
Indus River had an accumulated deficit of $31.3 million. If Indus River
fails to increase revenues substantially, it could fail to achieve
profitability.
- INDUS RIVER MAY NOT BE ABLE TO OBTAIN ADDITIONAL FINANCING WHEN NEEDED,
WHICH COULD REDUCE ITS ABILITY TO FUND OR EXPAND OPERATIONS. If the
merger with Cabletron is not completed and Indus River continues as a
stand-alone company, Indus River would not have sufficient capital to
continue its present business operations. As a stand-alone company, Indus
River will need to obtain significant additional funds for research and
development and working capital. If Indus River cannot obtain funds, it
could be forced to curtail its future business operations, or seek
combination with another company on terms less favorable than the terms
of the merger with Cabletron.
- INDUS RIVER MAY NOT BE ABLE TO PRODUCE SUFFICIENT REVENUES TO OPERATE ITS
BUSINESS IF ITS PRODUCTS DO NOT ACHIEVE MARKET ACCEPTANCE. The success
of Indus River's products depends on the ability to make potential
customers recognize the advantages and cost-effectiveness of its virtual
private network hardware and software products. Indus River does not have
other products through which it can earn revenue. Many of its customers
and potential customers have long-standing relationships with established
competitors of Indus River. If Indus River is unable to achieve
widespread acceptance of its products, it will have difficulty increasing
its revenues.
- INDUS RIVER'S LENGTHY SALES CYCLE MAKES IT DIFFICULT TO PREDICT QUARTERLY
RESULTS AND MAY CAUSE OPERATING RESULTS TO VARY SIGNIFICANTLY. Indus
River typically completes a sale of its product within four to nine
months of the initial customer inquiry. Timing of customer purchase
decisions is unpredictable and depends on a number of factors outside of
Indus River's control, including the technical skills of the customer and
its end-users, the size of the network being installed, the complexity of
the network environment and the degree of hardware and software
configuration required. If Indus River receives purchase orders for
significant dollar amounts on an irregular and unpredictable basis, its
business operations and financial condition could be harmed.
18
<PAGE> 29
- INDUS RIVER EARNS MOST OF ITS REVENUE FROM A SMALL BASE OF CUSTOMERS AND
ITS REVENUES MAY DECLINE SIGNIFICANTLY IF ANY CUSTOMER CANCELS OR DELAYS
A PURCHASE OF INDUS RIVER'S PRODUCTS. Indus River anticipates that sales
of its products to approximately 40 customers will account for a
significant portion of its total revenue. If Indus River fails to make
sales to a greater number of customers or loses any existing customers
its results of operations and financial condition could be harmed.
- INDUS RIVER FACES INTENSE COMPETITION AND FAILURE TO COMPETE SUCCESSFULLY
COULD MAKE IT DIFFICULT FOR INDUS RIVER TO ACQUIRE AND RETAIN CUSTOMERS.
Competitors in the virtual private network market include large companies
such as Nortel, Cisco and Checkpoint Systems. Many of these competitors
have substantially greater financial, technical, sales, marketing and
other resources than Indus River. These competitors also have greater
name recognition and larger customer bases. These competitors are able to
devote greater resources to the development, promotion, sale and support
of their products than Indus River. If Indus River is unable to compete
efficiently, its ability to increase its revenue and market share may be
harmed.
- THE FAILURE OF INDUS RIVER'S SUPPLIERS TO MEET ITS MANUFACTURING NEEDS
WOULD SERIOUSLY HARM ITS ABILITY TO TIMELY FILL CUSTOMER ORDERS. Indus
River uses Avnet Applied Computing to supply server platforms and Lineo
to supply its remote gateway products. If either of these suppliers
terminates its relationship with Indus River or is unable to satisfy
Indus River's supply requirements, Indus River's ability to fill customer
orders on time, its reputation and its operating results will suffer.
Qualifying new contract manufacturers and beginning production is
expensive and time consuming, and changing contract manufacturers would
disrupt Indus River's business, potentially causing Indus River to lose
revenue.
- THE LOSS OF KEY PERSONNEL COULD HARM INDUS RIVER'S ABILITY TO COMPETE.
Indus River's success depends upon the continued contributions of key
management, engineering, sales and marketing and manufacturing personnel.
Competition for highly skilled personnel is intense and Indus River may
not be successful in retaining its existing personnel or attracting
additional key personnel. The loss of the services of key personnel, or
the inability to attract and retain qualified personnel in the future,
particularly engineers and sales personnel could harm Indus River's
ability to manage its business and meet key objectives.
- INDUS RIVER'S ABILITY TO RETAIN OR ATTRACT CUSTOMERS WILL SUFFER IF IT IS
UNABLE TO RESPOND TO RAPID TECHNOLOGICAL CHANGE. The market for Indus
River's virtual private network systems and other service delivery
products is subject to rapid technological change. The introduction of
new products by competitors, market acceptance of products based on new
or alternative technologies or the emergence of new industry standards,
could cause Indus River's existing or future products to be obsolete.
- IF INDUS RIVER IS UNABLE TO PROTECT ITS PROPRIETARY TECHNOLOGY IT MAY BE
UNABLE TO COMPETE EFFECTIVELY. Indus River relies on a combination of
copyright, trademark and trade secret laws and restrictions on disclosure
to protect its intellectual property rights. Indus River also enters into
confidentiality or license agreements with its employees, consultants and
business partners. Despite Indus River's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy or obtain
and use its products or technology. Monitoring unauthorized use of Indus
River's products is difficult, and if Indus River is unable to prevent
unauthorized use of Indus River's technology, its business could be
harmed.
- IF INDUS RIVER IS UNABLE TO SUCCESSFULLY EXPAND ITS INTERNATIONAL
OPERATIONS, IT MAY BE UNABLE TO SUCCESSFULLY COMPETE. Indus River has
limited experience in marketing and distributing its products
internationally and may be unable to develop international market demand
for its products. Indus River may also not be able to take advantage of
free local dialing and other key domestic market incentives for its
product, which are unavailable internationally.
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THE COMPANIES
INDUS RIVER NETWORKS, INC.
31 Nagog Park
Acton, Massachusetts 01720
(978) 266-8100
Indus River Networks designs, manufactures and markets enterprise-class
network hardware and software that enables organizations of all sizes to install
and manage remote access and site to site virtual private networks, or VPNs,
with centralized control and remote enforcement of predefined network access
policies. Additionally, the product suite incorporates fault management with
automatic error detection and recovery methods. These features simplify the
process of virtual private network installation and operational management while
enhancing control over network security and improving the cost-effectiveness of
the network.
Indus River sells its products and services to corporate and institutional
customers using both direct and indirect sales channels. RiverWorks Enterprise
VPN solutions are used in several industry sectors including major financial,
industrial, and service companies. These network installations represent some of
the largest VPN installations in the world with several thousand remote users.
The solution provides a broad range of connectivity options that enable mobile
access, high-speed telecommuting and global site-to-site interconnection over
the public Internet. Networks are secured with technologies that provide
end-point authentication and encryption of the data stream. The products have
been tested and certified by leading technology companies and independent test
labs for interoperability, performance and standards compliance.
Indus River has approximately 65 employees, most of whom are located at its
headquarters in Acton, Massachusetts. Indus River was organized under the laws
of Delaware on August 7, 1996 and maintains its executive offices at 31 Nagog
Park, Acton, Massachusetts.
CABLETRON SYSTEMS, INC.
35 Industrial Way
Rochester, New Hampshire 03867
(603) 332-9700
Cabletron is one of the world's leading designers, developers and
manufacturers of communications systems, software and products. Cabletron
delivers flexible and scalable network access and communications equipment and
software to Global 2000 enterprises, service providers and small businesses
worldwide. Cabletron's products include standards-based Ethernet, Fast Ethernet,
Token Ring, fiber distributed data interface, asynchronous transfer mode and
wide area networks networking solutions. Cabletron provides its business
solutions to global customers for enterprise connectivity, service provider
infrastructures, software and professional services by maintaining significant
operations in the United States, Europe, the Pacific Rim and other
industrialized areas of the world. Cabletron has established four operating
subsidiaries -- Aprisma Management Technologies, Enterasys Networks,
GlobalNetwork Technology Services and Riverstone Networks -- to enable it to
focus on the key high-growth areas of the communications marketplace, including
infrastructure management, business conducted electronically over the Internet,
professional services and service providers. Cabletron conducts its operations
through these subsidiaries.
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THE SPECIAL MEETING
We are furnishing this proxy statement/prospectus to stockholders of Indus
River as part of the solicitation of proxies by the Indus River board of
directors for use at the special meeting.
DATE, TIME AND PLACE
We will hold the special meeting at the offices of McDermott, Will & Emery,
28 State Street, Boston, Massachusetts 02109, at 10:00 a.m., local time, on
January 10, 2001.
PURPOSE OF SPECIAL MEETING
At the special meeting, we will ask holders of Indus River stock to adopt
the merger agreement among Cabletron, Acton Acquisition Co., a wholly-owned
subsidiary of Cabletron, and Indus River. The Indus River board of directors has
determined that the merger is advisable and fair to, and in the best interests
of, Indus River stockholders, has unanimously approved the merger agreement and
the merger, and unanimously recommends that Indus River stockholders vote for
adoption of the merger agreement.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of record of Indus River stock at the close of business on
December 4, 2000, the record date, are entitled to notice of and to vote at the
special meeting. On the record date:
- 4,204,883 shares of Indus River common stock were issued and outstanding
and held by 57 holders of record;
- 5,100,000 shares of Indus River series A convertible preferred stock were
issued and outstanding and held by 8 holders of record;
- 3,197,973 shares of Indus River series B convertible preferred stock were
issued and outstanding and held by 16 holders of record;
- 70,710 shares of Indus River series C convertible preferred stock were
issued and outstanding and held by 5 holders of record; and
- 2,068,783 shares of Indus River series D convertible preferred stock were
issued and outstanding and held by 20 holders of record.
A quorum is present at the special meeting for purposes of the combined
vote of the holders of Indus River common stock and preferred stock if a
majority of the shares of Indus River preferred stock and Indus River common
stock, which are issued, outstanding and entitled to vote on the record date,
are represented in person or by proxy. A quorum is present for the single class
vote of the preferred stockholders if the holders of two-thirds of the shares of
preferred stock which are issued, outstanding and entitled to vote on the record
date are represented in person or by proxy. If the quorum for either the vote of
Indus River common and preferred stockholders or the vote of Indus River
preferred stockholders is not present at the special meeting, it is expected
that the meeting will be adjourned or postponed to solicit additional proxies.
Holders of record of Indus River common stock on the record date are
entitled to one vote for each share of Indus River common stock at the special
meeting. Holders of record of Indus River preferred stock on the record date are
entitled to one vote for each share of Indus River preferred stock at the
meeting.
On the record date, 93.0% of the outstanding shares of Indus River
preferred stock and Indus River common stock, and 70.2% of the outstanding
shares of Indus River preferred stock, were held by directors and executive
officers of Indus River and their affiliates.
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VOTE REQUIRED
The affirmative vote of holders of:
- a majority of the outstanding shares of the Indus River preferred stock
and Indus River common stock, voting together as a single class; and
- two-thirds of the outstanding shares of the Indus River preferred stock,
voting together as a single class,
is required to adopt the merger agreement.
IF YOU ABSTAIN FROM VOTING OR DO NOT VOTE, EITHER IN PERSON OR BY PROXY, IT
WILL HAVE THE EFFECT OF A VOTE AGAINST ADOPTION OF THE MERGER AGREEMENT. WE
CANNOT COMPLETE THE MERGER UNLESS THE PROPOSAL TO ADOPT THE MERGER AGREEMENT IS
APPROVED BY THE REQUIRED VOTE.
STOCKHOLDER AGREEMENTS
Cabletron and the individuals listed below entered into stockholder
agreements and agreed to vote the shares of Indus River stock they own for
adoption of the merger agreement. The form of the voting agreement for Indus
River founders is attached as annex D to the proxy statement/prospectus and the
form of stockholders agreement for the Indus River preferred stockholders is
attached as annex E to the proxy statement/prospectus.
The individuals that have entered into stockholder agreements with
Cabletron are:
- New Enterprise Associates III, Limited Partnership;
- NEA Presidents' Fund, LP;
- NEA Ventures 1997, LP;
- Canaan Equity, LP;
- Canaan Ventures II, Limited Partnership;
- Canaan Venture Partners II, LP;
- Canaan Ventures II Offshore C.V.;
- One Liberty Fund III, LP;
- Ascent Venture Partners II, LP;
- Ascent Venture Partners, LP;
- MCI Worldcom Venture Fund;
- Novell, Inc;
- Per A. Suneby;
- Malik Z. Khan; and
- Julian W. West
On the record date, these stockholders owned and agreed to vote:
- 86.3% of the outstanding shares of Indus River preferred stock and Indus
River common stock, voting together as a single class; and
- 95.5% of the Indus River preferred stock, voting together as a single
class.
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VOTING OF PROXIES
All shares represented by properly executed proxies received in time for
the special meeting will be voted at the special meeting in the manner specified
by the holders. PROPERLY EXECUTED PROXIES THAT DO NOT CONTAIN VOTING
INSTRUCTIONS ABOUT THE PROPOSAL WILL BE VOTED FOR ADOPTION OF THE MERGER
AGREEMENT.
Shares of Indus River stock represented at the special meeting but not
voting, including abstentions, will be treated as present at the special meeting
for purposes of determining the presence or absence of a quorum for the
transaction of all business.
Only shares voted for the proposal, including properly executed proxies
that do not contain voting instructions, will be counted as favorable votes for
adoption of the merger agreement. If an Indus River stockholder abstains from
voting or does not vote, either in person or by proxy, it will have the effect
of a vote against adoption of the merger agreement.
The persons named as proxies may propose and vote for one or more
adjournments or postponements of the special meeting, including adjournments or
postponements to permit further solicitation of proxies. No proxy voted against
the proposal to adopt the merger agreement will be voted in favor of any
adjournment or postponement.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form of proxy does not preclude you
from voting in person at the special meeting. You may revoke a proxy at any time
before its exercise by filing with the secretary of Indus River a duly executed
revocation of proxy, by submitting a duly executed proxy card to the secretary
of Indus River bearing a later date or by voting in person at the special
meeting. Attendance at the special meeting will not itself constitute revocation
of a proxy.
SOLICITATION OF PROXIES
The directors, officers and employees of Indus River may solicit proxies
from stockholders in person, by telephone or other electronic means.
PLEASE DO NOT SEND STOCK CERTIFICATES WITH YOUR PROXY CARD. A transmittal
form with instructions for the surrender of Indus River stock certificates will
be mailed to you as soon as possible after completion of the merger.
APPRAISAL RIGHTS
If you do not wish to accept Cabletron common stock and Cabletron series C
preferred stock in the merger, you have the right under Delaware law to have the
fair value of your shares determined by the Delaware Court of Chancery. This
right to appraisal is subject to a number of restrictions and technical
requirements. Generally, to exercise your appraisal rights you must:
- send a written demand to Indus River for appraisal in compliance with
Delaware law before the vote on the merger;
- not vote in favor of the merger; and
- continuously hold your Indus River stock from the date you make the
demand for appraisal through the closing of the merger.
Merely voting against the merger will not protect your rights to an appraisal.
Annex B to this proxy statement/prospectus contains a copy of the Delaware
statute governing appraisal rights. If you do not follow all the steps required
by Delaware law, you will lose your rights to appraisal. The Delaware law
requirements for exercising appraisal rights are described in further detail on
pages 41 to 44.
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THE MERGER
The discussion below summarizes the material terms of the merger. We urge
stockholders to read carefully the merger agreement, including the amendment to
the merger agreement and the form of escrow agreement which are attached as
annexes A and C to this proxy statement/prospectus.
BACKGROUND TO THE MERGER
At the end of 1999 and the beginning of 2000, management of Indus River
made presentations to the Indus River board of directors about Indus River's
business model and strategy. These presentations included the timing of and need
for additional financing. They also discussed the desirability of identifying
potential strategic partners or acquiring companies who could help Indus River
reach a larger market for its existing and planned product offerings.
At the request of the Indus River board of directors, Per A. Suneby,
president and chief executive officer of Indus River and Stephen J. Ricci, a
director of Indus River, interviewed several investment banking firms. On
February 7, 2000, Indus River retained Deutsche Banc Alex.Brown as a financial
advisor. Deutsche Banc was hired primarily to explore strategic alternatives
which might lead to a possible sale, merger or joint venture transaction for
Indus River and secondarily to advise on financial strategy and to provide
assistance with a possible financing. The Indus River board of directors had
determined that a sale, merger or a joint venture transaction had the potential
to provide Indus River with greater resources to compete with some of its large
competitors.
Beginning in February 2000, representatives of Indus River and Cabletron
held numerous discussions. The purpose of these discussions was to evaluate a
range of possible business relationships between Cabletron and Indus River.
On February 8, 2000, Garth Rose, vice president of business development for
Indus River, and Dan Harding, vice president of business development for
Cabletron, held a teleconference to discuss Cabletron's needs for virtual
private network equipment. They discussed a range of issues surrounding
Cabletron building a business relationship with Indus River.
On February 9, 2000, a non-disclosure agreement was executed between Indus
River and Cabletron.
On February 16, 2000, representatives of Indus River, including Julian W.
West, chief technology officer, David Zwicker, vice president of marketing, and
Mr. Rose met in Acton, Massachusetts with representatives of Cabletron,
including Mr. Harding, Graham Morrison, senior director of corporate
development, Ken Pappas, director of wide area network access and virtual
private network marketing, and Dick Bussiere, director of engineering. Michael
Murray, managing director at Deutsche Banc was also present at the meeting.
Indus River presented an overview of Indus River and its products, gave customer
examples, and gave a product demonstration.
On February 22, 2000, representatives of Indus River, including Mr. West,
and Paul Jones, vice president of engineering, met with Mr. Bussiere, and Dana
Cook from Cabletron in Acton, Massachusetts. Indus River held an in-depth
engineering discussion and gave an in-depth product demonstration. About one
week after this meeting, a RiverWorks VPN evaluation system was requested and
was installed in Cabletron's offices in Rochester, New Hampshire.
On February 25, 2000, Mr. Rose and Mr. West from Indus River met with John
Roese, chief technology officer, Ron Oakley, vice president of information
technology, Bill Burger, senior director service provider marketing, Mr. Pappas,
Mr. Bussiere, and other technical representatives from Cabletron in Rochester,
New Hampshire. The objective of the meeting was to demonstrate a typical Indus
River sales call to an enterprise customer using Cabletron as the prospect. At
the end of the meeting, Cabletron information technology representatives
requested a second RiverWorks VPN evaluation system for internal use and
testing. A lengthy technical discussion followed the mock sales call and Mr.
Jones from Indus River joined that meeting.
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On February 28, 2000, Mr. Rose and Mr. Morrison spoke about the status of
the discussions between Indus River and Cabletron. Mr. Morrison asked several
questions exploring Indus River's valuation expectations and indicated that Mr.
Harding would be calling Deutsche Banc to discuss next steps.
During the month of March 2000, numerous discussions occurred between Mr.
Harding and Deutsche Banc, primarily with Mr. Murray. Discussions were generally
about Cabletron's perception of Indus River's value and Indus River's valuation
expectations. During this time, a second RiverWorks VPN system was installed in
the Cabletron information technology department in Rochester, New Hampshire.
During the months of February and March 2000, Indus River also engaged in
strategic discussion with several other companies contacted through executives
of Indus River and representatives of Deutsche Banc concerning possible
acquisition, joint venture and original equipment manufacturer transactions.
On March 27, 2000, Mr. Suneby, David Gamache, chief financial officer, and
Mr. Rose of Indus River, and Robert Benner, managing director, Edward Arnstein,
associate, and Mr. Murray from Deutsche Banc spoke with the Indus River board of
directors to give them a merger and acquisition status update. The board was
advised of Cabletron's interest and also about other companies that were
expressing interest in Indus River.
On March 28, 2000, Mr. Suneby, Mr. Gamache, and Mr. Rose, from Indus River
and Mr. Benner from Deutsche Banc met with Mr. Harding and Mr. Roese from
Cabletron in Acton, Massachusetts. Mr. Roese presented Cabletron's planned
transformation of its four divisions and covered the plans surrounding an
Enterasys transformation in detail. Mr. Roese discussed Enterasys' technology
vision, internal organizational structure, and the synergy of merging Indus
River into Enterasys. Mr. Harding discussed Cabletron's view of Indus River's
value and proposed that the structure for the deal combine Cabletron shares and
Enterasys warrants. The meeting ended with the understanding that Cabletron
would submit a summary of proposed terms to Indus River within several days.
On April 3, 2000, Mr. Harding of Cabletron and Mr. Murray talked on the
phone. Cabletron had announced quarterly earnings and the status of the planned
transformation of four divisions on March 31, 2000. The stock market reacted
negatively to the news and Cabletron's stock price had dropped substantially.
Mr. Harding indicated that these developments had delayed his preparation of a
term sheet.
On April 5, 2000, Mr. Harding of Cabletron wrote to Mr. Suneby of Indus
River and stated that although Cabletron remained interested in Indus River,
Cabletron was not then going to make an acquisition offer for Indus River.
During April and May, Mr. Rose and multiple members of the Indus River
customer service group actively supported the ongoing RiverWorks VPN evaluations
at Cabletron.
On June 2, 2000, Cabletron placed a purchase order for a 1,000 user
RiverWorks VPN system for internal use at their Enterasys division.
On June 6, 2000, Mr. Pappas and Mr. Bussiere from Cabletron met with Mr.
Suneby, Mr. West, Mr. Gamache, Mr. Rose, and Mr. Zwicker from Indus River in
Acton, Massachusetts. Mr. Pappas expressed interest in signing an original
equipment manufacturer deal with Indus River and presented the advantages of an
original equipment manufacturer deal with Enterasys. The Indus River team
expressed a willingness to discuss an original equipment manufacturer
transaction, but also openly questioned if that was the right kind of business
relationship between Indus River and Enterasys.
On June 22, 2000, Mr. Suneby, and Mr. Rose from Indus River, and Mr. Murray
from Deutsche Banc met with Mr. Harding, Mr. Pappas, Mr. Bussiere, and Garry
McGuire, vice president of worldwide marketing for Enterasys, in Andover,
Massachusetts. The objective of the meeting was to do a full review and status
update and to discuss a range of possible business relationships among Indus
River, Cabletron and Enterasys. At the meeting Mr. Harding agreed that it made
sense to re-explore acquisition as an option. Mr. Pappas asked questions about
Indus River's site-to-site virtual private network capabilities and it was
agreed to set up a demonstration of Indus River's new site-to-site
functionality.
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On June 27, 2000, Mr. Bussiere and Mr. Pappas from Cabletron and Enterasys
met with Mr. West, Mr. Zwicker, Mr. Rose, Al Harper, vice president of sales,
and several senior Indus River engineers in Acton, Massachusetts. They observed
an in-depth demonstration of new site-to-site virtual private network
functionality and said they were very pleased with the demonstration. Mr.
Zwicker also presented a three-phase strategy of aggressively developing
next-generation virtual private network products and quickly bringing them to
market through Enterasys' sales channels.
On June 30, 2000, Henry Fiallo, president of Enterasys, Mr. Harding, Mr.
Pappas, Mr. Morrison, and Mr. Bussiere of Cabletron and Enterasys met with Mr.
Suneby, Mr. West, Mr. Zwicker and Mr. Rose of Indus River in Andover,
Massachusetts. Piyush Patel, chief executive officer of Cabletron, and Eric
Jaeger, executive vice president of corporate affairs for Cabletron, joined the
meeting by teleconference. Mr. Fiallo presented Enterasys' vision and the Indus
River team presented Indus River's company history and vision of synergy with
Enterasys.
On July 7, 2000, Mr. Harding of Cabletron called Mr. Suneby of Indus River
and indicated that Cabletron wanted to proceed with an acquisition of Indus
River. From July 10 to July 12, 2000, multiple conversations occurred between
Mr. Harding and Deutsche Banc discussing Cabletron's perception of Indus River's
value and Indus River's valuation expectations. On July 12, 2000, Mr. Harding
orally outlined to Mr. Benner the terms of an offer to acquire Indus River.
On July 12, 2000, at a regularly scheduled meeting of the Indus River board
of directors, Mr. Suneby, Mr. Gamache, and Mr. Rose and representatives of
Deutsche Banc and McDermott, Will & Emery, Indus River's law firm, discussed the
terms of Cabletron's oral offer to acquire Indus River. The representatives of
Deutsche Banc presented information concerning Cabletron and Enterasys and
information concerning Indus River's competitive position. The representative of
McDermott, Will & Emery reviewed some of the legal issues that would have to be
addressed in the transaction terms being proposed by Cabletron. After discussion
and analysis, the board of directors recommended that Indus River proceed with
the discussions with Cabletron.
On July 13, 2000, Mr. Suneby and Mr. Zwicker of Indus River met with Mr.
Jaeger, Mr. Harding, and Mr. Patel of Cabletron in Rochester, New Hampshire. The
objective of the meeting was for Mr. Jaeger and Mr. Patel to become better
acquainted with Mr. Suneby and Indus River.
On July 19 and 21, 2000, Mr. Suneby, Mr. Gamache, Mr. Rose of Indus River
and Mr. Benner of Deutsche Banc met with Mr. Harding of Cabletron at the offices
of Ropes & Gray, Cabletron's law firm, in Boston, Massachusetts. Representatives
of Ropes & Gray and McDermott, Will & Emery also participated in the meetings.
The meetings focused on discussing and negotiating the details of the
acquisition.
On July 25, 2000, Cabletron submitted a written term sheet to Indus River
outlining the terms of an acquisition of Indus River and a special meeting of
the Indus River board of directors was held by teleconference to evaluate the
term sheet. After discussion and analysis, all of the board members present
expressed their approval of moving forward with negotiations with Cabletron. By
a unanimous written consent circulated following the meeting, the board of
directors authorized the execution of a letter of intent incorporating the term
sheet presented by Cabletron. The letter of intent would be non-binding except
for the establishment of an exclusive dealing period for the purpose of
continuing negotiations and completing due diligence.
On July 31, 2000, the letter of intent was executed. It provided for an
exclusive dealing period through August 16, 2000.
During the last week of July through August 18, 2000, ongoing discussions
and negotiations continued primarily between Mr. Harding of Cabletron and
Cabletron's legal counsel, Ropes & Gray, and Mr. Gamache of Indus River, Mr.
Benner of Deutsche Banc and Indus River's legal counsel, McDermott, Will &
Emery. Meetings were held at the offices of Ropes & Gray in Boston,
Massachusetts.
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During the week of August 7, 2000, Cabletron completed its business and
technical due diligence. During that week, representatives of Ropes & Gray
conducted legal due diligence of Indus River at the offices of Indus River in
Acton, Massachusetts.
On August 14, 2000, a special meeting of the Indus River board of directors
was held. Representatives of Deutsche Banc and McDermott, Will & Emery reviewed
the terms of the acquisition transaction which had been negotiated and which
were substantially similar to the terms included in the letter of intent
previously authorized by the board of directors. After discussion and analysis
and consultation with Deutsche Banc and McDermott, Will & Emery and for the
reasons described under "-- Reasons for the Merger and Board of Directors
Recommendation" beginning on page 27 of this proxy statement/prospectus, the
Indus River board of directors unanimously authorized management to execute the
definitive merger agreement and related agreements.
On August 16, 2000, the parties extended the exclusive dealing period
through August 23, 2000.
In the evening of August 18, 2000, a definitive merger agreement was signed
by executives of Indus River and Cabletron.
On August 21, 2000, before trading began on the New York Stock Exchange,
Cabletron issued a press release announcing the execution of the merger
agreement.
On December 3, 2000, Indus River and Cabletron amended the merger agreement
to extend the termination date to March 1, 2001 from January 15, 2001.
REASONS FOR THE MERGER AND BOARD OF DIRECTORS RECOMMENDATION
In reaching its decision to approve the merger agreement and the merger and
to recommend adoption of the merger agreement by Indus River stockholders, the
Indus River board of directors consulted with management, its financial and
legal advisors and independently considered the proposed merger agreement and
the transactions covered by the merger agreement. The discussion below of the
factors considered by the Indus River board of directors in making its decision
is not intended to be exhaustive but includes all significant factors considered
by the Indus River board of directors.
The Indus River board of directors considered the following factors as
reasons that the merger will be beneficial to Indus River and its stockholders:
- The financial resources of Cabletron and its ability to fund the
continued development of Indus River's virtual private network product
suite;
- The access afforded to Indus River's products through Enterasys'
established relationships with large business organizations and
enterprises and with major customers, sales and marketing resources and
distribution channels;
- The strategic fit and complementary nature of Indus River's product suite
with Enterasys' security strategy and equipment and hardware; and
- The belief that an exchange of Indus River stock for shares of Cabletron
common stock and Cabletron series C preferred stock would provide Indus
River stockholders with greater future liquidity in a company that could
potentially capitalize on the business prospects of Indus River and
provide a better return on stockholder investment.
The Indus River board of directors reviewed with Indus River management:
- Information relating to the business, assets, management, competitive
position and operating performance of Indus River, including the
prospects of Indus River if it were to continue as an independent company
and its requirements for additional funding;
- The strategic importance of securing a larger partner for Indus River to
better exploit the potential market for virtual private networks and take
advantage of Indus River's technological leadership in virtual private
networks;
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- The market price and anticipated stability of Cabletron stock;
- The likelihood that the merger would be completed; and
- The expected qualification of the merger as a reorganization under
section 368(a) of the Internal Revenue Code.
The Indus River board of directors also identified and considered a number
of potentially negative factors in its deliberations concerning the merger,
including:
- The risk that the operations of Enterasys and Indus River might not be
successfully integrated;
- The risk that, despite the efforts of Indus River and Enterasys after the
merger, key personnel might leave Indus River;
- The risk that the potential benefits of the merger might not be fully
realized; and
- The risk that the market price for Cabletron stock might decline.
The Indus River board of directors believed that some of these risks were
unlikely to occur, that Indus River could avoid or mitigate others, and that,
overall, these risks were outweighed by the potential benefits of the merger.
In view of the variety of factors considered in its evaluation of the
merger agreement and the merger, the Indus River board of directors did not find
it practicable to quantify or assign relative weight to the specific factors
considered in reaching its determination. Individual members of the Indus River
board of directors may have given different weight to different factors.
Recommendation of the Indus River Board of Directors. After careful
consideration, the Indus River board of directors unanimously determined that
the terms of the merger agreement and the merger are advisable and fair to, and
in the best interests of, Indus River and its stockholders and has unanimously
approved the merger agreement and the merger. The Indus River board of directors
unanimously recommends that the stockholders of Indus River vote for adoption of
the merger agreement.
APPRAISALS OF CABLETRON SERIES C PREFERRED STOCK BY ADAMS, HARKNESS & HILL, INC.
The merger agreement specifies that the number of shares of Cabletron stock
issued in the merger that will constitute the liquidation preference payment
will be determined based on a 10 trading day average closing price of
Cabletron's common stock and an appraised value of the Cabletron series C
preferred stock as of five trading days before the closing date of the merger.
Adams, Harkness & Hill, Inc. has agreed to deliver this appraisal at the
closing.
Indus River selected Adams, Harkness & Hill to deliver the appraisal for a
number of reasons, including Adams, Harkness & Hill's qualifications, expertise
and reputation in the area of valuation and financial advisory work. Indus River
placed greatest emphasis on Adams, Harkness & Hill's reputation as a nationally
recognized investment banking firm and the fact that Adams, Harkness & Hill is
regularly engaged in the valuation of businesses and their securities in
mergers, acquisitions, leveraged buyouts, underwritings, private placements and
valuations for corporate and other purposes.
At the request of Indus River, Adams, Harkness & Hill has also delivered
the preliminary appraisal attached as annex F to this proxy
statement/prospectus. The sole purpose of this preliminary appraisal is to
include in this proxy statement/prospectus, an illustration of the distribution
of the shares of Cabletron common stock and Cabletron series C preferred stock
to be issued in the merger. Adams, Harkness & Hill expects that the types of
information obtained by and the valuation methodologies used by it in delivering
its final appraisal will be similar to those used in delivering its preliminary
appraisal. The valuation determined in the final appraisal may be materially
different from that determined in the preliminary appraisal.
On December 5, 2000, Adams, Harkness & Hill delivered its preliminary
appraisal that the aggregate fair market value of the Cabletron series C
preferred stock to be received by the Indus River stockholders in
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the merger was approximately $24.32 million as of December 4, 2000, based upon
and subject to the various considerations described in the preliminary
appraisal.
The full text of Adams, Harkness & Hill's preliminary appraisal, dated
December 5, 2000, is attached as annex F to this proxy statement/prospectus and
is incorporated in this proxy statement/prospectus by reference. The preliminary
appraisal describes the assumptions made, procedures followed, matters
considered and limitations on the scope of the review undertaken by Adams,
Harkness & Hill in delivering the preliminary appraisal. Adams, Harkness &
Hill's appraisal is directed to the board of directors of Indus River and
addresses only the fair market value of the Cabletron series C preferred stock
to be received under the merger agreement and does not address any other aspect
of the merger or constitute a recommendation to any holder of Indus River stock
about how to vote at the Indus River stockholder meeting. The following summary
of Adams, Harkness & Hill's preliminary appraisal is qualified in its entirety
by reference to the full text of the preliminary appraisal.
The discussion below is a summary of the various sources of information and
valuation methodologies used by Adams, Harkness & Hill in appraising the fair
market value of the Cabletron series C preferred stock. To determine the fair
market value of these securities, Adams, Harkness & Hill employed analyses based
on:
- The financial performance and relative valuations of selected public
companies considered to be comparable to Enterasys; and
- Discounted cash flow analysis of Enterasys.
In preparing its analysis, Adams, Harkness & Hill:
- Reviewed publicly available information concerning the business and
operations of Cabletron and Enterasys, including Cabletron's recent
filings with the Securities and Exchange Commission;
- Reviewed the merger agreement in the form presented to the Indus River
board of directors;
- Compared the financial position and operating results of Enterasys with
those of other publicly traded companies that Adams, Harkness & Hill
considered to be relevant; and
- Held discussions with members of Enterasys' management concerning
Enterasys' historical and current financial condition and operating
results, and its future prospects.
Adams, Harkness & Hill also reviewed relevant industry market research
studies, company research reports and general stock market performance. Other
than the information discussed above, Adams, Harkness & Hill did not review any
additional information in preparing its preliminary appraisal that was
independently material to its analysis. The Indus River board of directors did
not place any limitation on the procedures followed or factors considered by
Adams, Harkness & Hill in delivering its preliminary appraisal.
In delivering its preliminary appraisal, Adams, Harkness & Hill assumed and
relied upon the accuracy and completeness of all of the financial and other
information that was publicly available or provided to Adams, Harkness & Hill
by, or on behalf of, Enterasys, and did not independently verify that
information. Adams, Harkness & Hill assumed that projections and assumptions
were reasonably prepared on a basis not materially different from the best
currently available estimates and judgments of the management of Enterasys about
the future operating and financial performance of Enterasys. Adams, Harkness &
Hill did not obtain an independent evaluation or appraisal of any of the assets
or liabilities, whether or not contingent, of Cabletron or Enterasys. Adams,
Harkness & Hill's preliminary appraisal was based on economic, market, and
financial information existing on, and available to, Adams, Harkness & Hill as
of the date of its preliminary appraisal. Adams, Harkness & Hill's preliminary
appraisal did not predict or take into account any possible economic, monetary
or other changes which may occur, or information which may become available,
after the date of its preliminary appraisal.
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<PAGE> 40
Public Company Peer Analysis -- Enterasys
Adams, Harkness & Hill established a group of publicly traded companies to
address the business areas in which Enterasys operates. The peer group consists
of:
- 3Com Corporation
- ADTRAN, Inc.
- Alcatel SA
- Applied Digital Solutions
- Cisco Systems, Inc.
- Copper Mountain Networks, Inc.
- Extreme Networks, Inc.
- Avaya, Inc.
- Marconi, plc
- Nortel Networks Corporation
- Tut Systems, Inc.
Adams, Harkness & Hill compared financial measures and metrics of Enterasys
with the financial measures and metrics of the peer group companies. The
information included: market capitalization; enterprise value, calculated in the
manner described below; price/projected 2000 & 2001 earnings ratios; 2001
projected revenue; last twelve months revenue; enterprise value/2001 projected
revenue; enterprise value/last twelve months revenue; last twelve months
operating margin; last twelve months gross margin; and year/year quarterly
revenue growth.
Enterprise value/2001 projected revenue and price/projected 2000 & 2001
earnings ratios imply the range of value that public markets place on companies
in a particular market segment. Adams, Harkness & Hill employed an enterprise
value valuation in this analysis because this methodology implies value based on
a company's operations, regardless of how the company finances those operations.
To determine enterprise value, market capitalization is calculated as the
product of a company's common stock price per share multiplied by the number of
diluted shares outstanding. Adams, Harkness & Hill used a 20 trading day average
ending December 4, 2000, for all public company compatible analyses. The market
capitalization is then adjusted for a company's debt and cash positions by
adding the debt balance and subtracting the cash balance to arrive at an
enterprise value. Stated mathematically, enterprise value has been calculated
as:
(market value of equity) + (debt) - (cash, cash equivalents and short-term
investments)
The low, high and mean financial ratios for the peer group companies are
listed in the table below:
<TABLE>
<CAPTION>
MULTIPLE LOW HIGH AVERAGE
-------- --- ----- -------
<S> <C> <C> <C>
Enterprise Value/2001 Projected Revenue..................... 0.5 12.7 4.3
2001 Price/Projected Calendar Year 2001 Earnings............ 9.1 108.4 45.9
</TABLE>
To arrive at Enterasys' price/earnings multiples for calendar year 2001,
Adams, Harkness & Hill relied on guidance from Enterasys' management as a check
to validate published external research analysts' projections. Adams, Harkness &
Hill then compared the gross margins of the peer group companies to Enterasys'
estimated gross margins to narrow the peer group companies to a set of more
truly comparable companies. This group of comparable peer group companies
consists of:
- ADTRAN, Inc.
- Avaya, Inc.
- Copper Mountain Networks, Inc.
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<PAGE> 41
- Extreme Networks, Inc.
- Nortel Networks Corporation
- Tut Systems, Inc.
The low, high and mean financial ratios for the comparable peer group
companies are listed in the table below:
<TABLE>
<CAPTION>
MULTIPLE LOW HIGH AVERAGE
-------- --- ----- -------
<S> <C> <C> <C>
Enterprise Value/2001 Projected Revenue..................... 0.5 11.3 3.3
Price/Projected 2000 to 2001 Earnings Ratios................ 9.1 108.4 39.6
</TABLE>
Applying the mean enterprise value/2001 projected revenue and
price/projected 2000 & 2001 earnings ratio multiples of the comparable peer
group companies to Enterasys' calendar year 2001 projected revenue of $915
million and calendar year 2001 projected earnings of $51.0 million, Adams,
Harkness & Hill calculated the following implied estimated enterprise values for
Enterasys:
IMPLIED ENTERASYS
ENTERPRISE VALUE
MULTIPLE (IN MILLIONS)
-------- -----------------
Enterprise Value/2001 Projected Revenue..................... $3,017
Price/Projected 2000 to 2001 Earnings Ratios................ $2,019
Since Enterasys is not a publicly traded company, Adams, Harkness & Hill
applied an illiquidity discount to the implied enterprise values arrived at
using these multiples. Based upon historical studies, Adams, Harkness & Hill
used illiquidity discounts ranging between 30 - 40% to arrive at the following
adjusted implied range of enterprise values for Enterasys:
<TABLE>
<CAPTION>
IMPLIED ENTERASYS
ENTERPRISE VALUES WITH
ILLIQUIDITY DISCOUNT
(IN MILLIONS)
--------------------------
MULTIPLE 40% 35% 30%
-------- ------ ------ ------
<S> <C> <C> <C>
Enterprise Value/2001 Projected Revenue multiple......... $1,810 $1,961 $2,112
Price/Projected 2000 to 2001 Earnings Ratios............. $1,211 $1,312 $1,413
</TABLE>
Discounted Cash Flow Analysis
Adams, Harkness & Hill performed a discounted cash flow analysis to
estimate the present value of the stand-alone unlevered after-tax cash flows of
Enterasys. This means they analyzed after-tax cash flows before interest expense
of Enterasys. To perform the discounted cash flow analysis, Adams, Harkness &
Hill used the following data sources and assumptions:
- Management projections for revenue, gross margin, and operating margin;
- Projections by equity analysts of future Enterasys revenue growth;
- Enterasys beta, estimated based on the historical behavior of the peer
group companies and market research analyst estimates;
- Terminal value based upon 7.5 - 8.5% perpetual growth applied to
projected 2005 cash flow; and
- Cost of capital for Enterasys calculated using a risk free rate of 5.75%
and a market risk premium of 7.0%.
To determine a range of net present values for Enterasys, Adams, Harkness &
Hill performed a sensitivity analysis isolating two key variables: the five-year
annualized revenue growth rate, focusing on growth rates between 20-30%, and the
terminal value growth rate, focusing on growth rates between 7.5% and 8.5%.
Adams, Harkness & Hill used these variables to calculate the following implied
range of enterprise values for Enterasys:
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<PAGE> 42
SUMMARY CHART OF DISCOUNTED CASH FLOW RANGE AND RESULTING IMPLIED VALUE
<TABLE>
<CAPTION>
LOW MIDPOINT HIGH
------ -------- ------
<S> <C> <C> <C>
Enterprise Value ($ in millions)........................ $3,175 $3,968 $4,980
</TABLE>
Conclusion
To arrive at a preliminary appraised value for the shares of Cabletron
series C preferred stock to be received by the Indus River stockholders in the
merger, Adams, Harkness & Hill:
- Identified the high, low and midpoint valuations determined from the two
multiples analysis and the discounted cash flow analysis;
- Performed a weighted average calculation, assigning a 2x weight to each
midpoint value from each analysis; and
- Multiplied the resulting value by 1%.
Taken together, the information and analyses employed by Adams, Harkness &
Hill lead to Adams, Harkness & Hill's overall conclusion that, for purposes of
the preliminary appraisal, the aggregate fair market value of the 50,000 shares
of Cabletron series C preferred stock to be issued in the transaction as of
December 4, 2000 is $24.32 million, or $486.40 per share of Cabletron series C
preferred stock.
INTERESTS OF INDUS RIVER DIRECTORS, MANAGEMENT AND EMPLOYEES IN THE MERGER
In considering the recommendation of the Indus River board of directors in
favor of the merger, you should be aware that some directors, executive officers
and employees of Indus River have interests in the merger that are different
from the interests of stockholders of Indus River generally. These interests
relate to or arise from:
- the continued indemnification of current directors and officers and some
employees of Indus River;
- the retention of some current officers as employees of Cabletron or
Enterasys;
- accelerated vesting of rights relating to shares of other Indus River
common stock, or Cabletron restricted stock substituted for the Indus
River common stock, acquired or to be acquired by executives and
employees of Indus River subject to stock option agreements or restricted
stock purchase agreements with Indus River;
- the grant of additional Indus River stock options to employees who were
granted options on May 11, 2000, which contain a two-year vesting term,
in exchange for their agreement to modify the accelerated vesting
provisions for those options; and
- the potential payment of additional bonuses to Indus River employees
following the merger.
Except as described below those persons have, to the knowledge of Cabletron
and Indus River, no material interest in the merger apart from those of
stockholders generally. The Indus River board of directors was aware of, and
considered the interests of, their directors, executive officers, employees and
stockholders when it approved the merger agreement and the merger.
INDEMNIFICATION AND INSURANCE. The merger agreement provides that
Cabletron will, or will cause the surviving corporation to, fulfill and honor
all rights to indemnification or exculpation now existing in favor of the
employees, directors or officers of Indus River. These indemnification rights
are provided in: the Indus River certificate of incorporation and the Indus
River by-laws as these documents existed on August 18, 2000. Cabletron will
maintain for six years after the merger executive risk liability insurance for
employees, directors and officers for acts or omissions of those persons
occurring before the merger under terms and conditions at least as favorable as
Indus River's executive risk liability insurance policy in effect on August 18,
2000.
INDUS RIVER EXECUTIVE OFFICERS. It is anticipated that some Indus River
executive officers will become employees of Cabletron after the merger.
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<PAGE> 43
EMPLOYEE BENEFITS. Cabletron has agreed to provide employee benefit plans,
programs and arrangements to those individuals who will continue to be employees
of Indus River after the merger. Cabletron has also agreed that:
- the eligibility of each employee of Indus River, and that employee's
spouse and dependents, to participate in Cabletron's welfare plans after
the effective time of the merger will be determined without considering
any preexisting condition, waiting period, actively-at-work, or similar
exclusion or condition except for any condition or exclusion to which the
employee is subject under the applicable welfare plan of Indus River
before the effective time of the merger;
- employees of Indus River will receive credit under the Cabletron welfare
plans in which they participate after the effective time of the merger
toward coinsurance and deductibles for any payments made by them during
the calendar year in which the merger occurs under the applicable welfare
plans of Indus River; and
- after the merger, employees of Indus River will receive credit, for
purposes of determining eligibility for or vesting under its retirement,
welfare, vacation and similar plans or policies, for service with Indus
River before the effective time of the merger.
If Cabletron so requests, Indus River will cause its 401(k) plan to be
terminated before the completion of the merger. Cabletron will then cause its
401(k) plan to accept rollover distributions from Indus River's terminated plan.
EMPLOYEE ARRANGEMENTS. Per A. Suneby, the president and chief executive
officer of Indus River and Julian W. West, the chief technology officer of Indus
River, have entered into employment terms with the surviving corporation and
will, as part of their compensation packages, receive options to purchase
200,000 shares of Enterasys stock. Those options will vest 25 percent after one
year and then monthly for a period of three years.
STOCK OPTIONS AND RESTRICTED STOCK AGREEMENTS
Under the merger agreement, Cabletron will assume the Indus River stock
incentive program and all stock options granted under that plan. Each stock
option outstanding under the plan at the effective time of the merger will be
converted into a stock option to acquire Cabletron common stock and Cabletron
series C preferred stock on the same terms and conditions as applied to the
Indus River stock option. The exact conversion rate will not be known until five
trading days before the closing date of the merger.
The number of shares of Cabletron common stock to be issued for each Indus
River stock option will be equal to the product of:
- the number of shares of Indus River common stock that would be issued for
that option multiplied by
- the number of shares of Cabletron common stock issuable in exchange for
each share of Indus River common stock in the merger,
rounded down to the nearest whole share.
The number of shares of Cabletron series C preferred stock to be issued for
each Indus River stock option will be equal to:
- the number of shares of Indus River common stock that would be issued for
that option, multiplied by
- the number of shares of Cabletron series C preferred stock issuable in
exchange for each share of Indus River common stock in the merger,
rounded down to the nearest whole share.
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<PAGE> 44
The exercise price per Cabletron option issued in exchange for Indus River
stock options will be equal to the sum of:
- the product of:
- the exercise price per share of Indus River common stock for that option
immediately before the merger divided by the number of shares of
Cabletron common stock issuable in exchange for each share of Indus
River common stock in the merger, multiplied by
- the ratio of the total fair market value, determined as of the ten
trading days ending on and including the fifth trading day before the
closing date of the merger, of the Cabletron common stock issuable in
the merger to the total fair market value of all Cabletron stock issued
in the merger; and
- the product of:
- the exercise price per share of Indus River common stock for that option
immediately before the merger divided by the number of shares of
Cabletron series C preferred stock issuable in exchange for each share
of Indus River common stock in the merger, multiplied by
- the ratio of the total fair market value, determined as of the fifth
trading day before the closing date of the merger, of the Cabletron
series C preferred stock issuable in the merger to the total fair market
value of all Cabletron stock issued in the merger,
rounded up to the nearest cent.
Based on an average closing price of $17.89 per share of Cabletron common
stock for the ten trading days ending on and including December 4, 2000 and an
appraised value of $486.40 per share of Cabletron series C preferred stock as of
December 4, 2000, as determined by Adams, Harkness & Hill, each Indus River
stock option would convert into an option to purchase 0.00205897 shares of
Cabletron common stock and 0.16471791 shares of Cabletron series C preferred
stock at an average per share exercise price of $0.90. This calculation assumes
that the closing of the merger occurs on January 10, 2001. As of the record
date, the number of shares of Indus River common stock reserved for issuance
under outstanding Indus River stock options under the plan was 2,088,625.
After the merger, each restricted stock agreement between an Indus River
stockholder and Indus River and each stock option agreement between an Indus
River option holder and Indus River will be assumed by Cabletron, subject to the
same restrictions and vesting provisions contained in the related Indus River
restricted stock or stock option agreement, as any of those agreements may be
amended before the merger.
Subject to completion of the merger, some of Indus River's employees have
agreed to modify the terms of their stock options issued on May 11, 2000, which
contain a two-year vesting term, by agreeing to forfeit their right to
acceleration for 50% of the shares subject to those options. This acceleration
would have been triggered by the merger. In exchange for forfeiting this right,
those employees will receive additional grants of stock options that will vest
50 percent on August 21, 2001, with the remaining 50 percent vesting in three
equal installments on the last day of each three-month period after August 21,
2001, so long as the employee remains employed by the surviving corporation or
any successor in interest.
Cabletron will prepare and file with the Securities and Exchange Commission
an appropriate registration statement registering the shares of Cabletron common
stock and the shares of Cabletron series C preferred stock subject to the
assumed Indus River stock options. The registration statement will be kept
effective and current under the requirements of the Securities Act and the
Securities Exchange Act of 1934, for so long as any assumed Indus River options
remain outstanding.
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of accounting
under generally accepted accounting principles. Cabletron expects a significant
portion of the purchase price to be allocated to goodwill and identifiable
intangible assets. Under the purchase method, Cabletron will determine the fair
value of
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<PAGE> 45
assets acquired on liabilities assumed. Any premium paid over fair value will be
reflected on Cabletron's balance sheet as an intangible asset.
FORM OF THE MERGER
Subject to the terms and conditions of the merger agreement and the
requirements of Delaware law, Acton Acquisition Co., a wholly owned subsidiary
of Cabletron, will merge with and into Indus River. Indus River will be the
surviving corporation of the merger and a wholly owned subsidiary of Cabletron,
and will continue under the same name.
MERGER CONSIDERATION
Cabletron will issue an aggregate of 4,000,000 shares of Cabletron common
stock and 50,000 shares of Cabletron series C preferred stock in exchange for
all of the shares of Indus River preferred stock, Indus River common stock, and
all options and warrants to purchase Indus River stock. Cabletron will also
reserve for issuance approximately 100,000 additional shares of Cabletron common
stock and 1,100 additional shares of Cabletron series C preferred stock to be
issued to holders of additional options granted in exchange for the forfeiting
of acceleration rights described above and some options granted to some
employees hired by Indus River after August 18, 2000. The exact exchange rate
will not be known until five trading days before the closing date of the merger.
Based on an average price of $17.89 per share of Cabletron common stock for the
ten trading days ending on and including December 4, 2000 and an appraised value
of $486.40 per share of Cabletron series C preferred stock as of December 4,
2000, as determined by Adams, Harkness & Hill, this represents an aggregate of
approximately $98 million in total consideration to be paid by Cabletron in the
merger.
At the effective time of the merger, each holder of Indus River preferred
stock will receive the liquidation preference specified in the Indus River
certificate of incorporation:
- holders of Indus River series A preferred stock will receive $1.00 per
share of Indus River series A preferred stock, plus all accrued but
unpaid dividends
- holders of Indus River series B preferred stock will receive $2.72 per
share of Indus River series B preferred stock, plus all accrued but
unpaid dividends
- holders of Indus River series C preferred stock will receive $4.08 per
share of Indus River series C preferred stock, plus all accrued but
unpaid dividends
- holders of Indus River series D preferred stock will receive $5.34 per
share of Indus River series D preferred stock, plus all accrued but
unpaid dividends
Cabletron will pay this liquidation preference in shares of Cabletron
common stock and Cabletron series C preferred stock. The value of Cabletron
common stock and Cabletron series C preferred stock paid for the liquidation
preference will be determined based on the average closing price of Cabletron
common stock on the New York Stock Exchange for the ten trading days ending on
and including the fifth trading day before the closing date of the merger, and
the appraised fair market value of the series C preferred stock determined as of
the fifth trading day before the closing date of the merger by Adams, Harkness &
Hill. Cabletron will issue cash for any fractional shares of Cabletron common
stock or Cabletron series C preferred stock that Indus River preferred
stockholders would be entitled to receive as part of the liquidation preference
payment.
After the liquidation preference is paid, each holder of Indus River common
stock and each holder of Indus River preferred stock will receive, in exchange
for the Indus River shares held by that holder, shares of Cabletron series C
preferred stock and shares of Cabletron common stock for each share of Indus
River stock, whether common stock or preferred stock. The exact exchange rate
will not be known until five trading days before the closing date of the merger
because it is depends on the average closing price of Cabletron common stock for
the ten trading days ending on and including the fifth trading day before the
closing date of the merger, and the fair market value of Cabletron series C
preferred stock determined as of the fifth trading day before the closing date
of the merger by an appraisal conducted by Adams, Harkness & Hill, both of which
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<PAGE> 46
may fluctuate. The market price of Cabletron common stock and the fair market
value of Cabletron series C preferred stock will affect the number of shares
paid to the holders of Indus River preferred stock as the liquidation preference
payment, which will in turn affect the number of shares to be issued to each
holder of Indus River common stock and Indus River preferred stock. Cabletron
will issue cash for any fractional shares that Indus River stockholders would be
entitled to receive in the merger.
Based on an average closing price of $17.89 per share of Cabletron common
stock for the ten trading days ending on and including December 4, 2000, and an
appraised value of $486.40 per share of Cabletron series C preferred stock as of
December 4, 2000, as determined by Adams, Harkness & Hill, and assuming that the
closing of the merger occurs on January 10, 2001 and a warrant to purchase
60,847 shares of Indus River series D preferred stock is not exercised before
the merger, 15,423 shares of Cabletron series C preferred stock and 1,233,839
shares of Cabletron common stock will be issued to Indus River preferred
stockholders to pay the liquidation preference. After the payment of the
liquidation preference:
- each holder of Indus River series A preferred stock would receive
0.00271557 shares of Cabletron series C preferred stock and 0.21724568
shares of Cabletron common stock for each share of Indus River series A
preferred stock held by that holder;
- each holder of Indus River series B preferred stock would receive
0.00373338 shares of Cabletron series C preferred stock and 0.29867074
shares of Cabletron common stock for each share of Indus River series B
preferred stock held by that holder;
- each holder of Indus River series C preferred stock would receive
0.00448167 shares of Cabletron series C preferred stock and 0.35853378
shares of Cabletron common stock for each share of Indus River series C
preferred stock held by that holder;
- each holder of Indus River series D preferred stock issued on June 30,
1999 would receive 0.00514313 shares of Cabletron series C preferred
stock and 0.41145079 shares of Cabletron common stock for each share of
Indus River series D preferred stock held by that holder;
- each holder of Indus River series D preferred stock issued on July 8,
1999 would receive 0.00513886 shares of Cabletron series C preferred
stock and 0.41110886 shares of Cabletron common stock for each share of
Indus River series D preferred stock held by that holder; and
- each holder of Indus River common stock would receive 0.00205897 shares
of Cabletron series C preferred stock and 0.16471791 shares of Cabletron
common stock for each share of Indus River common stock held by that
holder.
Upon completion of the merger, all shares of Indus River stock will no
longer be outstanding, will automatically be canceled and will cease to exist.
Each holder of a certificate representing shares of Indus River stock, other
than shares for which appraisal rights have been properly exercised, will cease
to have any rights as a stockholder of Indus River except the right to receive
Cabletron common stock and Cabletron series C preferred stock, and to receive
cash for any fractional share of Cabletron common stock or series C preferred
stock that the holder would be entitled to receive. The total number of shares
of Cabletron common stock and Cabletron preferred stock to be paid in the merger
was determined through arm's-length negotiations between Cabletron and Indus
River.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
The conversion of Indus River stock into the right to receive Cabletron
series C preferred stock and Cabletron common stock will occur automatically at
the effective time of the merger. As of the effective time of the merger,
Cabletron will deposit with Boston Equiserve, or another institution selected by
Cabletron, the exchange agent, for the benefit of the holders of Indus River
stock, certificates representing the shares of the Cabletron common stock to be
issued under the merger agreement, less the number of shares of Cabletron common
stock to be deposited in an escrow account to secure the indemnification
obligations of the Indus River stockholders to Cabletron. After the merger,
Cabletron will deposit all of the shares of Cabletron series C preferred stock
to be issued under the merger agreement into a separate escrow account. The
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<PAGE> 47
Cabletron series C preferred stock will be held in the escrow account until the
earliest to occur of the 30 month anniversary of the closing date of the merger
or any conversion or redemption of those shares. As soon as possible after the
merger, the exchange agent will send a transmittal letter to each Indus River
stockholder. The transmittal letter will contain instructions for obtaining
shares of Cabletron common stock and Cabletron series C preferred stock in
exchange for shares of Indus River stock. PLEASE DO NOT SEND STOCK CERTIFICATES
WITH THE ENCLOSED PROXY CARD.
After the merger, each certificate that previously represented shares of
Indus River stock will represent only the right to receive the Cabletron series
C preferred stock and Cabletron common stock into which those shares were
converted in the merger and the right to receive cash for any fractional share
of Cabletron series C preferred stock and Cabletron common stock as described
below.
Until holders of certificates previously representing Indus River stock or
the purchase of that stock have surrendered those certificates to the exchange
agent for exchange, holders will not receive dividends or distributions on the
Cabletron series C preferred stock and the Cabletron common stock into which
those shares have been converted with a record date after the merger, and will
not receive cash for any fractional shares of Cabletron series C preferred stock
and the Cabletron common stock they would be entitled to receive. When holders
surrender those certificates, they will receive any unpaid dividends and any
cash for any fractional share of Cabletron series C preferred stock and the
Cabletron common stock they would be entitled to receive without interest.
Upon surrender of certificates previously representing Indus River stock,
and the letter of transmittal described above properly executed and any other
documents the exchange agent may reasonably require, the holder will be entitled
to receive:
- a certificate representing the number of whole shares of Cabletron common
stock into which the Indus River stock, represented by the surrendered
certificates, will have been converted at the effective time of the
merger, less the number of shares of Cabletron common stock, if any, to
be deposited in the escrow account on behalf of the holder;
- notice of the number of whole shares of Cabletron series C preferred
stock into which the Indus River stock, represented by the surrendered
certificates, will have been converted at the effective time of the
merger, and that those shares of Cabletron series C preferred stock have
been deposited into an escrow account on behalf of the holder; and
- cash instead of any fractional share of Cabletron common stock or
Cabletron series C preferred stock, calculated in the manner described in
the merger agreement and described below.
If there is a transfer of ownership of Indus River stock which is not
registered in the records of Indus River's transfer agent, certificates
representing the proper number of shares of Cabletron common stock and Cabletron
series C preferred stock may be issued to a person other than the person in
whose name the certificate so surrendered is registered if:
- that certificate is properly endorsed and in proper form for transfer;
and
- the person requesting the issuance:
- - pays to the exchange agent any transfer or other taxes resulting from
the issuance of shares of Cabletron stock in a name other than that
on the surrendered certificate; or
- - establishes to the satisfaction of Cabletron or any agent designated
by it that the tax has been paid or is not payable.
All shares of Cabletron common stock and Cabletron series C preferred stock
issued upon conversion of shares of Indus River stock, including any cash paid
for any fractional share of Cabletron stock or Cabletron series C preferred
stock, will be issued in full satisfaction of all rights relating to those
shares of Indus River stock.
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<PAGE> 48
No fractional share of Cabletron common stock or Cabletron series C
preferred stock will be issued to any Indus River stockholder upon surrender for
exchange of certificates previously representing Indus River stock.
Instead of any fractional share of Cabletron common stock, the Indus River
stockholder will receive cash equal to the product obtained by multiplying:
- the average closing price for a share of Cabletron common stock on the
New York Stock Exchange Composite Transactions Tape for the ten trading
days ending on and including the fifth trading day before the closing
date of the merger by
- the fractional share which the stockholder would be entitled to receive.
Instead of any fractional share of Cabletron series C preferred stock, the
Indus River stockholder will receive cash equal to the product obtained by
multiplying:
- the fair market value per share of Cabletron series C preferred stock
determined as of the fifth trading day before the closing date of the
merger, by an appraisal conducted by Adams, Harkness & Hill by
- the fractional share to which the stockholder would be entitled to
receive.
EFFECTIVE TIME OF THE MERGER
The merger will become effective upon the filing of a certificate of merger
with the secretary of state of the State of Delaware, or at a later time stated
in the certificate of merger or agreed upon by Cabletron and Indus River. The
filing of a certificate of merger will occur at the time of the closing of the
merger.
STOCK EXCHANGE LISTING OF CABLETRON COMMON STOCK
It is a condition to completion of the merger that the Cabletron common
stock issued to Indus River stockholders in the merger be authorized for listing
on the New York Stock Exchange, subject to official notice of issuance.
EMPLOYMENT AGREEMENTS
It is a condition to the merger that Per A. Suneby and Julian W. West, the
president and chief executive officer and chief technology officer of Indus
River enter into employment agreements with the surviving corporation and that
those agreements be in full force and effect at the effective time of the
merger.
SIGNIFICANT UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary discusses the material federal income tax
consequences of the merger to the stockholders of Indus River. This summary is
not a complete description of all the tax consequences of the merger and does
not address the tax consequences that may be relevant to particular categories
of stockholders subject to special treatment under federal income tax laws, such
as dealers in securities, banks, insurance companies, tax-exempt organizations,
corporate stockholders that are collapsible corporations, non-United States
persons, stockholders who acquired shares of Indus River common stock by
exercising options or in another manner as compensation, holders of options,
warrants or similar rights to acquire Indus River stock, stockholders who are
subject to the alternative minimum tax provisions of the Internal Revenue Code
of 1986, or stockholders who hold their shares as part of a hedging, straddle,
conversion or other risk reduction or constructive sale transaction.
This summary is based upon the Internal Revenue Code, applicable Treasury
regulations, published administrative rulings and court decisions all as of the
date of this proxy statement/prospectus. All of these items are subject to
change either prospectively or retroactively, and any change could affect the
continuing validity of the tax consequences described below. No information is
provided in this proxy statement/ prospectus about the tax consequences of the
merger arising under the laws of any state, local or foreign jurisdiction. This
summary discusses only the federal income tax consequences of the merger and
does not
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discuss the tax consequences of any other transaction that may occur before,
after or at the same time as the merger, whether or not any of these
transactions are undertaken as part of with the merger.
No ruling from the IRS concerning the federal income tax consequences of
the merger will be requested. The tax consequences described in this discussion
are not binding on the IRS or the courts and contrary positions may be
successfully asserted by the IRS or adopted by a court.
INDUS RIVER STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS ABOUT THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY
AND EFFECT OF ANY FOREIGN, STATE, LOCAL OR OTHER TAX LAWS.
CHARACTERIZATION OF THE MERGER FOR FEDERAL INCOME TAX PURPOSES
Cabletron and Indus River plan to treat the merger as a tax-free
reorganization for federal income tax purposes. This treatment will depend in
part on if, and when, Cabletron conducts a spin-off or other disposition of
Enterasys, the company to which Cabletron plans to transfer the Indus River
stock after the merger, and whether the IRS would attempt to assert that, for
federal income tax purposes, a spin-off or other disposition of Enterasys should
be combined with the merger. Although Cabletron has announced its desire to
establish its four operating subsidiaries, including Enterasys, as independent
companies, Cabletron is not obligated to do so and continues to consider several
possibilities for Enterasys, including the possibility of retaining Enterasys as
a subsidiary of Cabletron. Cabletron might carry out its announced intention to
spin off or dispose of Enterasys. If the IRS were to successfully assert that,
for federal income tax purposes, this merger should be combined with the
spin-off or other disposition of Enterasys, this merger would constitute a
taxable purchase and sale of Indus River stock.
Federal Income Tax Consequences to Indus River Stockholders
Treatment of Merger as a Tax-Free Reorganization. If the merger is treated
as a tax-free reorganization, the merger should result in the following federal
income tax consequences:
- An Indus River stockholder should not recognize gain or loss on the
exchange of Indus River stock solely for Cabletron stock. An Indus River
stockholder who receives cash proceeds instead of a fractional share
interest in Cabletron stock will recognize gain or loss equal to the
difference between those proceeds and the tax basis allocated to the
fractional share interest. This gain or loss will constitute capital gain
or loss if the stockholder's Indus River stock is held as a capital asset
at the effective time of the merger.
- The aggregate tax basis of the Cabletron stock, including any fractional
share of Cabletron stock not actually received and any shares of
Cabletron stock held in escrow, received by an Indus River stockholder
who exchanges Indus River stock for Cabletron stock will be the same as
the stockholder's aggregate tax basis in the Indus River stock
surrendered in exchange for Cabletron common stock and Cabletron series C
preferred stock.
- The holding period of the Cabletron stock received by an Indus River
stockholder will include the period during which the shares of Indus
River stock surrendered in exchange for Cabletron common stock and
Cabletron series C preferred stock were held so long as the Indus River
stock is held by the stockholder as a capital asset at the effective time
of the merger.
- Part of the aggregate shares of Cabletron common stock to be issued in
the merger will be held in escrow to satisfy possible indemnification
claims. Each former Indus River stockholder who has shares of Cabletron
common stock held in escrow should be treated for federal income tax
purposes as the owner of the escrow portion of its merger consideration.
That stockholder should recognize no gain or loss on the receipt of the
Cabletron common stock upon the release to the stockholder of its shares
from escrow. However, if the escrow agent pays any of the escrowed shares
to Cabletron to indemnify
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Cabletron, each former Indus River stockholder who has shares of
Cabletron common stock held in escrow will recognize gain or loss equal
to the difference between:
- - the fair market value of its portion of the escrowed shares paid to
Cabletron; and
- - its tax basis in the escrowed shares.
Each former Indus River stockholder who has shares of Cabletron common
stock held in escrow will increase the tax basis in its remaining
Cabletron stock by an amount equal to any indemnification payment.
- Indus River stockholders who exercise dissenters' rights and who receive
payment for their Indus River stock in cash should recognize gain or loss
measured by the difference between the amount of cash received and the
stockholder's basis in the shares surrendered. This is true if the
payment is neither essentially equivalent to a dividend within the
meaning of section 302 of the Internal Revenue Code nor has the effect of
a distribution of a dividend within the meaning of section 356(a)(2) of
the Internal Revenue Code.
A sale of Indus River stock as part of an exercise of dissenters' rights
will not be essentially equivalent to a dividend if the stockholder exercising
dissenters' rights owns no shares of Cabletron stock or Indus River stock,
either actually or constructively within the meaning of section 318 of the
Internal Revenue Code, immediately after the merger. If a stockholder's sale for
cash of Indus River stock as part of an exercise of dissenters' rights is
essentially equivalent to a dividend, then the stockholder may recognize
ordinary income for federal income tax purposes in an amount equal to the entire
amount of cash received.
Treatment of Merger as a Taxable Sale of Indus River Stock. If the merger
does not qualify as a tax-free reorganization, an Indus River stockholder will
be treated as having sold Indus River stock to Cabletron in exchange for
Cabletron stock. Each Indus River stockholder will recognize gain or loss at the
effective time of the merger equal to the difference between the stockholder's
adjusted tax basis in the Indus River stock and the fair market value of the
Cabletron stock received in exchange for the Indus River stock.
The gain or loss recognized by Indus River stockholders will be capital
gain or loss if the Indus River stock was held as a capital asset in the hands
of the stockholder, and will be long-term capital gain or loss if the
stockholder has held Indus River stock for more than one year. Long-term gain
will in general be subject to a maximum federal income tax rate of 20% for
noncorporate taxpayers. An Indus River stockholder's aggregate basis in the
Cabletron stock received will equal the fair market value at the effective time
of the merger of the Cabletron stock received. The holding period for the
Cabletron stock will begin the day after the effective time of the merger.
Treatment of Cabletron Series C Preferred Stock. The Cabletron series C
preferred stock should be treated for federal income tax purposes as common
stock of Cabletron, and holders of Indus River stock should not recognize gain
or loss on the exchange of Indus River stock for Cabletron series C preferred
stock if the merger is treated as a tax-free reorganization under the Internal
Revenue Code. However, because in some circumstances, the Cabletron series C
preferred stock is exchangeable for shares of Enterasys and has economic rights
that are determined based on the value of Enterasys, it is possible that the IRS
might assert that the Cabletron series C preferred stock is nonqualified
preferred stock of Cabletron or stock of Enterasys. If the IRS were to prevail
in either of these assertions, and even if the merger qualifies as a tax-free
reorganization in every other way, holders of Indus River stock would recognize
gain at the effective time of the merger equal to the lesser of:
- the fair market value of the Cabletron series C preferred stock or
- the difference between the fair market value of the Cabletron series C
preferred stock and Cabletron common stock received in the merger, and
the stockholder's adjusted tax basis in the Indus River stock exchanged
for the Cabletron series C preferred stock and Cabletron common stock.
If the Cabletron series C preferred stock were determined to be stock of
Enterasys and to constitute more than 20% of the aggregate consideration
provided in the merger, then the merger would be fully taxable and
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holders of Indus River stock would recognize gain or loss equal to the
difference between the fair market value of the Cabletron series C preferred
stock and Cabletron common stock received in the merger and their adjusted tax
basis in the Indus River stock exchanged for the Cabletron series C preferred
stock and the Cabletron common stock.
Cabletron and Indus River believe that the Cabletron series C preferred
stock should not constitute nonqualified preferred stock or Enterasys stock.
However, the IRS has not issued any administrative guidance concerning the scope
of the term nonqualified preferred stock or when stock of a parent would be
considered stock of the subsidiary and there can be no assurance that this
interpretation is correct.
If the Cabletron series C preferred stock is treated as stock of Cabletron,
its conversion into Cabletron common stock or redemption for Enterasys stock,
cash or other property should have the following federal income tax
consequences:
- Holders of Cabletron series C preferred stock should not recognize any
gain or loss on the conversion of their Cabletron series C preferred
stock into Cabletron common stock.
- Holders of Cabletron series C preferred stock should not recognize any
gain or loss on the redemption of their Cabletron series C preferred
stock for Enterasys stock, if the redemption is part of Cabletron's
distribution of Enterasys stock to the Cabletron stockholders and is
governed by section 355 of the Internal Revenue Code.
- If the redemption of Cabletron series C preferred stock is not governed
by section 355 of the Internal Revenue Code, holders of Cabletron series
C preferred stock will have a taxable redemption and should recognize
gain or loss on the redemption if the redemption is not essentially
equivalent to a dividend within the meaning of section 302 of the
Internal Revenue Code, as described above. The amount of gain or loss
recognized in a taxable redemption will equal the difference between the
cash, if any, and fair market value of other property received as
redemption proceeds and the adjusted tax basis in the Cabletron series C
preferred stock redeemed. If a stockholder's taxable redemption is
essentially equivalent to a dividend, that stockholder may recognize
ordinary income in an amount equal to the redemption proceeds, whether or
not received in cash.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF SIGNIFICANT
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND IS NOT A COMPLETE ANALYSIS OR
DISCUSSION OF ALL RELEVANT POTENTIAL TAX EFFECTS. INDUS RIVER STOCKHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS ABOUT THE SPECIFIC TAX CONSEQUENCES TO
THEM OF THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS AND THE
APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, AND OTHER APPLICABLE TAX
LAWS.
GOVERNMENT FILINGS
Cabletron and Indus River do not believe that any governmental filings in
the United States are required for the merger, other than the filing of the
registration statement with the Securities and Exchange Commission of which this
proxy statement/prospectus is a part.
RIGHTS OF STOCKHOLDERS TO APPRAISALS
Under the Delaware General Corporation Law, any holder of Indus River stock
who does not wish to accept the merger consideration for its shares of Indus
River common stock or Indus River preferred stock has the right to dissent from
the merger. A stockholder has the right to seek an appraisal of, and to be paid
the fair cash value for, its shares of Indus River preferred stock or Indus
River common stock, judicially determined, and paid to the stockholder in cash,
with a fair rate of interest, if any, only if that stockholder fully complies
with the provisions of section 262 of the Delaware General Corporation Law.
However, a dissenting Indus River stockholder will not be entitled to receive
any cash that represents value arising from the accomplishment or expectation of
the merger. A copy of section 262 of the Delaware General Corporation Law is
attached as annex B to this proxy statement/prospectus.
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Making sure that you actually perfect your appraisal rights can be
complicated. The procedural rules are specific and must be followed precisely.
Failure to comply with the procedure may cause a termination of your appraisal
rights. The following information is intended as a brief summary of the material
provisions of the statutory procedures you must follow to perfect your appraisal
right. Please review section 262 for the complete procedure. Indus River will
not give you any notice other than what is described in this proxy
statement/prospectus and what is required by the Delaware General Corporation
Law.
APPRAISAL RIGHTS PROCEDURES
If you are an Indus River preferred stockholder or an Indus River common
stockholder and you wish to exercise your appraisal rights, you must satisfy the
provisions of section 262 of the Delaware General Corporation Law. Section 262
requires that:
- YOU MUST MAKE A WRITTEN DEMAND FOR APPRAISAL: You must deliver a written
demand for appraisal to Indus River before the vote on the merger
agreement is taken at the special meeting. This written demand for
appraisal must be separate from your proxy card. A vote against the
merger agreement alone will not constitute demand for appraisal.
- YOU MUST REFRAIN FROM VOTING FOR APPROVAL OF THE MERGER: You must not
vote for approval of the merger agreement. If you vote, by proxy or in
person, in favor of the merger agreement, this will terminate your right
to appraisal. You can also terminate your right to appraisal if you
return a signed proxy card and:
- fail to vote against approval of the merger; or
- fail to note that you are abstaining from voting.
If you do either of these two things, then your appraisal rights will be
terminated even if you previously filed a written demand for appraisal.
- YOU MUST CONTINUOUSLY HOLD YOUR INDUS RIVER SHARES: You must
continuously hold your shares of Indus River stock, from the date you
make the demand for appraisal through the closing of the merger. If you
are the record holder of Indus River stock on the date the written demand
for appraisal is made but then transfer the shares before the merger, you
will lose any right to appraisal of those shares. You should read the
paragraphs below for more details on making a demand for appraisal.
A written demand for appraisal of Indus River stock is only effective if it
is signed by, or for, the stockholder of record who owns the shares at the time
the demand is made. The demand must be signed as the stockholder's name appears
on its Indus River preferred stock or common stock certificates. If you are the
beneficial owner of Indus River stock, but not the stockholder of record, you
must have the stockholder of record sign a demand for appraisal.
If you own Indus River stock in a fiduciary capacity, such as a trustee,
guardian or custodian, you must disclose the fact that you are signing the
demand for appraisal in that capacity.
If you own Indus River stock with more than one person, such as in a joint
tenancy or tenancy in common, all the owners must sign, or have signed for them,
the demand for appraisal. An authorized agent, which could include one or more
of the joint owners, may sign the demand for appraisal for a stockholder of
record. The agent must expressly disclose who the stockholder of record is and
that the agent is signing the demand as that stockholder's agent.
If you are a record owner, such as a broker, who holds Indus River stock as
a nominee for others, you may exercise a right of appraisal for the shares held
for one or more beneficial owners, while not exercising the right for other
beneficial owners. You should specify in the written demand the number of shares
for which you wish to demand appraisal. If you do not expressly specify the
number of shares, Indus River will assume that your written demand covers all
the shares of Indus River stock that are in your name.
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If you are an Indus River stockholder who elects to exercise appraisal
rights, you should mail or deliver a written demand to:
31 Nagog Park
Acton, Massachusetts, 01720
Attention: David P. Gamache
It is important that Indus River receive all written demands before the
vote concerning the merger agreement is taken at the special meeting. As
explained above, this written demand should be signed by, or on behalf of, the
stockholder of record. The written demand for appraisal should specify the
stockholder's name and mailing address, the number of shares of stock owned, and
that the stockholder is demanding appraisal of his shares.
If you fail to comply with any of these conditions and the merger becomes
effective, you will only be entitled to receive the merger consideration
provided in the merger agreement.
WRITTEN NOTICE: Within ten days after the closing of the merger, Indus
River must give written notice that the merger has become effective to each
stockholder who has fully complied with the conditions of section 262.
PETITION WITH THE CHANCERY COURT: Within 120 days after the merger, either
the surviving corporation or any stockholder who has complied with the
conditions of section 262, may file a petition in the Delaware Court of
Chancery. This petition should request that the chancery court determine the
value of the shares of stock held by all the stockholders who are entitled to
appraisal rights. If you intend to exercise your appraisal rights, you should
file this petition in the chancery court. Indus River has no intention at this
time to file this petition. Because Indus River has no obligation to file this
petition, if you do not file this petition within 120 days after the closing,
you will lose your rights of appraisal.
WITHDRAWAL OF DEMAND: If you change your mind and decide you no longer
want appraisal rights, you may withdraw your demand for appraisal rights at any
time within 60 days after the closing of the merger. You may also withdraw your
demand for appraisal rights after 60 days after the closing of the merger, but
only with the written consent of Indus River. If you effectively withdraw your
demand for appraisal rights, you will receive the merger consideration provided
in the merger agreement.
REQUEST FOR APPRAISAL RIGHTS STATEMENT: If you have complied with the
conditions of section 262, you are entitled to receive a statement from Indus
River. This statement will describe the number of shares that have demanded
appraisal rights, and the number of stockholders who own those shares. To
receive this statement, you must send a written request to Indus River within
120 days after the merger. After the merger, Indus River has 10 days after
receiving a request to mail you the statement.
CHANCERY COURT PROCEDURES: If you properly file a petition for appraisal
in the chancery court and deliver a copy to Indus River, Indus River will then
have 20 days to provide the chancery court with a list of the names and
addresses of all stockholders who have demanded appraisal rights and have not
reached an agreement with Indus River concerning the value of their shares. The
chancery court will then send notice to all the stockholders who have demanded
appraisal rights. If the chancery court thinks it is appropriate, the chancery
court has the power to conduct a hearing to determine whether the stockholders
have fully complied with section 262 and whether they are entitled to appraisal
rights under that section. The chancery court may also require you to submit
your stock certificates to the Registry in Chancery so that it can note on the
certificates that an appraisal proceeding is pending. If you do not follow the
chancery court's directions, you may be dismissed from the proceeding.
APPRAISAL OF SHARES: After the chancery court determines which
stockholders are entitled to appraisal rights, the chancery court will appraise
the shares of stock. To determine the fair value of the shares, the chancery
court will consider all relevant factors except for any appreciation or
depreciation due to the anticipation or accomplishment of the merger. After the
chancery court determines the fair value of the shares, it will direct Indus
River to pay that value to the stockholders who are entitled to appraisal
rights. The chancery court can also direct Indus River to pay interest, simple
or compound, on that value if the chancery court determines that interest is
appropriate. To receive payment for your shares, you must then surrender your
stock certificates to Indus River.
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The chancery court could determine that the fair value of shares of stock
is more than, the same as, or less than the merger consideration. If you demand
appraisal rights, you could receive less consideration than you would under the
merger agreement.
COSTS AND EXPENSES OF APPRAISAL PROCEEDING: The costs of the appraisal
proceeding may be assessed against Indus River and the stockholders
participating in the appraisal proceeding, in whatever manner the chancery court
believes is equitable under the circumstances. You may request that the chancery
court determine the amount of interest, if any, Indus River should pay on the
value of stock owned by stockholders entitled to the payment of interest. You
may also request that the chancery court allocate the expenses of the appraisal
action incurred by any stockholder pro rata against the value of all the shares
entitled to appraisal.
LOSS OF STOCKHOLDER'S RIGHTS: If you demand appraisal rights, after the
closing of the merger you will not be entitled:
- to vote the shares of stock for which you have demanded appraisal rights
for any purpose;
- to receive payment of dividends or any other distribution on the shares
of stock for which you have demanded appraisal, except for dividends or
distributions, if any, that are payable to holders of record as of a
record date before the effective time of the merger; or
- to receive the payment of the consideration provided for in the merger
agreement, unless you properly withdraw your demand for appraisal.
If no petition for an appraisal is filed within 120 days after the closing
of the merger, your right to an appraisal will cease. You may withdraw your
demand for appraisal and accept the merger consideration by delivering to Indus
River a written withdrawal of your demand, except that:
- any attempt to withdraw made more than 60 days after the closing of the
merger will require the written approval of Indus River; and
- an appraisal proceeding in the chancery court cannot be dismissed unless
the chancery court approves.
If you fail to comply strictly with the procedures described above you will
lose your appraisal rights. If you wish to exercise your appraisal rights, we
strongly urge you to consult a legal advisor before attempting to exercise your
appraisal rights.
RESALE OF CABLETRON COMMON STOCK AND CABLETRON SERIES C PREFERRED STOCK
Cabletron common stock issued in the merger will not be subject to any
restrictions on transfer arising under the Securities Act, except for shares
covered by a restricted stock agreement, shares to be placed in escrow to secure
the indemnification obligations of some Indus River stockholders under the
merger agreement and shares issued to any Indus River stockholder who may be
considered an affiliate of Indus River. An affiliate of Indus River is any
individual or entity that directly or indirectly, through one or more
intermediaries, controls, is controlled by or is under common control with,
Indus River or Cabletron. Affiliates are subject to the Rule 145 limitations on
the resale of their securities. If you are an affiliate you will be prohibited
from transferring any of the Cabletron series C preferred stock or Cabletron
common stock you receive in the merger, unless the disposition complies with the
volume limitations of paragraph (e)(1) of Rule 144 under the Securities Act and
is accomplished by using a broker that serves only in a broker capacity for you,
or until you are no longer an affiliate of Cabletron and at least one year has
passed since the date you acquired the securities. This proxy
statement/prospectus does not cover resales of Cabletron common stock received
by any person upon completion of the merger, and no person is authorized to make
any use of this proxy statement/prospectus in any resale.
Cabletron series C preferred stock issued in the merger will be subject to
restrictions on transfer and will bear a legend stating that the shares are
subject to restrictions on transfer. The shares will not be listed for trading
on the New York Stock Exchange or any other exchange. The shares of Cabletron
series C preferred stock issued in the merger will be held in escrow until the
earliest to occur of the 30 month anniversary of the closing date of the merger
or any conversion or redemption of the shares.
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THE MERGER AGREEMENT
This description summarizes the material provisions of the merger agreement
and the escrow agreement. We urge stockholders to read carefully the merger
agreement, including the amendment to the merger agreement, and the form of
escrow agreement which are attached as annexes A and C to this proxy statement/
prospectus.
CONDITIONS TO THE COMPLETION OF THE MERGER
Each party's obligation to complete the merger is subject to the
satisfaction or waiver of various conditions that include:
- holders of a majority of the outstanding shares of Indus River common
stock and preferred stock, voting together as a single class, must agree
to adopt the merger agreement;
- holders of two-thirds of the outstanding shares of Indus River preferred
stock, voting together as a single class, must agree to adopt the merger
agreement;
- the registration statement on Form S-4, of which this proxy
statement/prospectus is a part, must have become effective under the
Securities Act and must not be the subject of any stop order or
proceedings seeking a stop order;
- no law, order, injunction or other legal restraint or prohibition
preventing the merger may be in effect;
- no proceeding brought by any administrative agency or commission or other
governmental authority or instrumentality, seeking to restrain or
prohibit the merger, may be pending;
- there may not be any action taken, or any statute, rule, regulation or
order applicable to the merger, which makes the merger illegal;
- there must not have been instituted, pending or threatened, any action or
proceeding, or any investigation or other inquiry that might result in an
action or proceeding, by any governmental authority or administrative
agency before any governmental authority, administrative agency or court
of competent jurisdiction;
- there must not be any judgment, decree or order of any governmental
authority, administrative agency or court of competent jurisdiction,
seeking to prohibit or limit Cabletron from exercising rights and
privileges pertaining to its ownership of Indus River or the ownership or
operation by Cabletron or any of its subsidiaries of the business or
assets of Cabletron or any of its subsidiaries;
- there must not be any judgment, decree or order of any governmental
authority, administrative agency or court of competent jurisdiction
seeking to compel Cabletron or any of its subsidiaries to dispose of or
hold separate the business or assets of Cabletron or any of its
subsidiaries, including Indus River, because of the merger;
- all approvals, waivers and consents of any governmental or regulatory
authority necessary for the merger must have been obtained, including any
approvals, waivers and consents required under any federal or state
securities laws;
- the escrow agreement must have been entered into by Cabletron, Indus
River, a representative of the Indus River stockholders and the escrow
agent;
- Cabletron and Indus River must comply with their agreements and covenants
in all material respects; and
- the representations and warranties of Cabletron and Indus River contained
in the merger agreement must be true and correct in all material
respects.
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Cabletron's obligation to complete the merger is also subject to the
satisfaction or waiver of additional conditions:
- Indus River must have obtained all necessary consents, waivers,
approvals, authorizations or orders required to be obtained, and must
have made all filings required to have been made;
- all existing registration rights, preemptive rights and rights of first
refusal agreements entered into by the Indus River stockholders before
August 18, 2000 must have been terminated;
- Per A. Suneby and Julian W. West must have entered into employment terms
with the surviving corporation;
- Indus River must have retained a required percentage of employees
required by the merger agreement;
- a required percentage of Indus River employees who received stock options
on May 11, 2000, which contain a two-year vesting term, must have signed
agreements modifying the vesting terms of those options and, in exchange,
Indus River must have granted additional stock options to those
employees;
- no changes or circumstances shall have occurred that are or are
reasonably likely to be materially adverse to the business, assets,
prospects, financial condition or results of operations of Indus River,
or is or is reasonably likely to materially delay or prevent the merger
or the transactions described in the merger agreement.
Indus River's obligation to complete the merger is also subject to the
satisfaction or waiver of additional conditions:
- Cabletron common stock to be issued in the merger must be authorized for
listing on the New York Stock Exchange, subject to official notice of
issuance;
- Cabletron shall have caused the surviving corporation to have made offers
of employment to all employees of Indus River, subject to the completion
of the merger, the terms of which will be comparable in the aggregate to
the current employment arrangements between the employees and Indus
River;
- Cabletron must have obtained all necessary consents, waivers, approvals,
authorizations or orders required to be obtained and must have made all
filings required to have been made.
NO SOLICITATION
The merger agreement provides that Indus River will not, directly or
indirectly, through any officer, director, employee, representative or agent:
- solicit, initiate or encourage the initiation of any acquisition proposal
involving Indus River, other than the merger with Cabletron;
- engage in negotiations or discussions concerning, or provide any
nonpublic information to any person relating to, any acquisition
proposal, or
- agree to, approve or recommend any acquisition proposal.
An acquisition proposal is defined in the merger agreement as any inquiries
or proposals involving any merger, sale of substantial assets, sale of shares of
stock, including through a tender offer, or similar transactions involving Indus
River.
The merger agreement also provides that Indus River shall immediately
notify Cabletron after receipt of any acquisition proposal, or any modification
of or amendment to any acquisition proposal, or any request for nonpublic
information relating to Indus River in an acquisition proposal or for access to
the properties, books or records of Indus River by any person or entity that
informs the board of directors of Indus River that it is considering making, or
has made, an acquisition proposal.
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The merger agreement also provides that Indus River shall immediately cease
any existing discussions or negotiations with any persons, other than Cabletron,
conducted before August 18, 2000 concerning any of the matters mentioned above.
Indus River has also agreed not to release any third party from the
confidentiality provisions of any confidentiality agreement to which it is a
party. Indus River must also ensure that its officers, directors and employees
and any investment banker or other advisor or representative retained by Indus
River are aware of the restrictions described above.
TERMINATION
The merger agreement may be terminated at any time before the merger,
whether before or after approval of the merger by the stockholders of Indus
River:
- by mutual agreement of Cabletron and Indus River;
- by either Cabletron or Indus River, if the merger has not been completed
by March 1, 2001, and the party terminating the merger agreement did not
fail to fulfill any obligation under the merger agreement that causes the
merger not to be completed;
- by either Cabletron or Indus River, if any court of competent
jurisdiction or governmental, regulatory or administrative agency or
commission has issued a nonappealable final order, decree or ruling or
taken any other action having the effect of prohibiting the merger, if
the party terminating the merger agreement did not fail to comply with
its obligations under the merger agreement in a way that materially
contributed to the issuance of the order, decree, ruling or the taking of
the action;
- by Cabletron, if the stockholders of Indus River have not approved the
merger by March 1, 2001;
- by Cabletron or Indus River, if any representation or warranty made by
the other party was not true and correct in any material respect when
made, or has become untrue or incorrect;
- by Cabletron or Indus River, if the other party has materially breached
its obligations under the merger agreement, unless the breach is curable
before March 1, 2001 and the breaching party exercises its reasonable
best efforts to cure the breach;
- by Cabletron, if the board of directors of Indus River withdraws,
modifies or changes its approval or recommendation of the merger
agreement in a manner adverse to Cabletron, or resolves to do so, or
recommends an alternative acquisition transaction;
- by Cabletron or Indus River, if Indus River enters into an agreement
relating to an alternative acquisition transaction.
The merger agreement defines an alternative acquisition transaction as:
- a transaction in which any person, or group of persons, other than
Cabletron or its affiliates acquires or would acquire more than 25% of
the outstanding shares of Indus River preferred stock and Indus River
common stock;
- a merger or other business combination involving Indus River in which any
person, or group of persons, other than Cabletron and its affiliates
acquires more than 25% of the outstanding equity securities of Indus
River or the entity surviving the merger or business combination; or
- any other transaction in which any person, or group of persons, other
than Cabletron and its affiliates acquires or would acquire control of
assets of Indus River having a fair market value, as determined by Indus
River's board of directors in good faith, equal to more than 25% of the
fair market value of all of the assets of Indus River immediately before
the transaction.
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CONDUCT OF BUSINESS PENDING THE MERGER
Indus River has agreed that, before the merger, it will, subject to
exceptions in the merger agreement, or unless approved by Cabletron in writing:
- conduct its business only in the ordinary course of business and in a
manner consistent with past practice and shall not take any actions
except those that are in the ordinary course of business and in a manner
consistent with past practice;
- use all reasonable commercial efforts to preserve substantially intact
its business organization; and
- keep available the services of its present officers, employees and
consultants and preserve its present relationships with customers,
suppliers and other persons with which it has business relations.
Indus River has agreed that, before the merger and unless approved by
Cabletron in writing, it will not:
- amend or change its certificate of incorporation or by-laws, except as
described in the merger agreement;
- issue, sell, pledge, dispose of or encumber any shares of stock of any
class, or any options, warrants, convertible securities or other rights
of any kind to acquire any shares of stock, or any other ownership
interest in Indus River,
- authorize the issuance, sale, pledge, disposition or encumbrance of any
shares of stock of any class, or any options, warrants, convertible
securities or other ownership interest in Indus River, except for the
issuance of stock options to be issued in exchange for the forfeiting of
acceleration rights and to be issued to new employees hired with
Cabletron's consent;
- sell, pledge, dispose of or encumber any of its assets, tangible or
intangible, except for dispositions of obsolete or worthless assets and
sales of assets not in excess of $10,000 in the aggregate, other than
sales of inventory in the ordinary course of business;
- declare, set aside, make or pay any dividend or other distribution,
whether in cash, stock or property, on any of its stock;
- split, combine or reclassify any of its stock or issue or authorize or
propose the issuance of any other securities on behalf of, instead of or
in substitution for shares of its stock, except for the issuance of those
options to be issued in exchange for the forfeiting of acceleration
rights and to be issued to new employees hired with Cabletron's consent;
- amend the terms or change the period of exercisability of its securities
or purchase, repurchase, redeem or acquire in any other manner any of its
securities, or propose to do any of these actions, except for the
amendment of stock option agreements in exchange for the forfeiting of
acceleration rights;
- acquire, by merger, consolidation, or acquisition of stock or assets, any
corporation, partnership or other business organization or division of
another business organization or enter into or amend any contract,
agreement, commitment or arrangement to do so;
- incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse or, as an accommodation, become responsible
for, the obligations of any person or, except in the ordinary course of
business consistent with past practice, make any loans or advances, or
enter into or amend any contract, agreement, commitment or arrangement to
do so, except for the borrowing under a promissory note issued by
Cabletron to Indus River as provided for in the merger agreement;
- enter into or amend any material contract or agreement;
- authorize any capital expenditures or purchases of fixed assets which
are, in the aggregate, in excess of $50,000 or enter into or amend any
contract, agreement, commitment or arrangement to do so;
- increase the compensation payable or to become payable to its current
officers, employees or consultants;
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<PAGE> 59
- grant any severance or termination pay to, or enter into any agreement
with any current director, officer or other employee of or consultant to
Indus River related to the terms or conditions of his employment or
engagement to provide services or the termination of that person's
employment or engagement;
- establish, adopt, enter into or amend any collective bargaining, bonus,
profit sharing, stock option, restricted stock, pension, or other
compensation plan, employment, termination, severance or other plan,
agreement, trust, fund, or arrangement for the benefit of any current or
former directors, officers or employees, except as required by law or
permitted under the merger agreement;
- conduct a reduction-in-force, job or position elimination, lay off or the
like;
- take any action to change accounting policies or procedures;
- make or change any material tax election inconsistent with past practice
or change any tax accounting method or amend any tax return or file any
income tax return or settle or compromise any material federal, state,
local or foreign tax liability or agree to an extension of a statute of
limitations;
- pay, discharge or satisfy any claims, liabilities or obligations, other
than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities reflected or
reserved against in its financial statements or incurred in the ordinary
course of business and consistent with past practice; or
- take, or agree to take, any of these actions or any other action which
would make any of its representations or warranties contained in the
merger agreement untrue or incorrect or prevent it from performing or
cause it not to perform its obligations under the merger agreement.
AMENDMENT, EXTENSION AND WAIVER
Subject to applicable law:
- the merger agreement may be amended by the parties at any time before the
effective time of the merger, except that once the stockholders of Indus
River have approved the merger, no amendments may be made which by law
require approval of the stockholders of Indus River unless approval is
obtained; and
- waiver of compliance or consent to provisions of the merger agreement or
extensions of time must be in a writing signed by Cabletron and Indus
River.
FEES AND EXPENSES
Cabletron and Indus River will each pay its own expenses incidental to the
preparation of the merger agreement, the carrying out of the provisions of the
merger agreement and the merger itself, whether or not the merger occurs, except
that Cabletron will pay all fees and expenses for printing this proxy
statement/prospectus and all SEC filing fees.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties
relating to:
- corporate organization and qualification;
- charter documents and by-laws;
- capital structure;
- authorization, execution, delivery, performance and enforceability of,
and required consents, approvals, orders and authorizations of
governmental authorities relating to, the merger agreement and related
matters;
- the accuracy of information supplied in this proxy statement/prospectus
and the registration statement of which it is a part;
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<PAGE> 60
- absence of conflicts;
- required consents;
concerning only Indus River:
- required stockholder vote;
- status of contracts and other agreements entered into by Indus River and
absence of default by Indus River under those contracts and other
agreements;
- compliance with applicable laws;
- compliance with permits;
- financial statements provided by Indus River to Cabletron and accuracy
and fairness of those financial statements;
- absence of material changes or events;
- absence of undisclosed liabilities of Indus River;
- absence of material litigation;
- matters related to employee benefit plans;
- matters related to employment agreements;
- labor matters;
- absence of restrictions on business activities;
- good and valid title to property and validity of its leases;
- filing of tax returns and payment of taxes;
- environmental matters;
- intellectual property matters;
- affiliate transactions;
- government contracts;
- insurance matters;
- accounts receivable and inventories;
- equipment matters, including equipment leases;
- payment of fees to brokers, investment bankers and financial advisors;
- absence of change of control payments;
- expenses for negotiating the merger agreement and completing merger;
- product warranties and defects;
- absence of illegal payments;
- distributors, customers and suppliers; and
- the execution of stockholder agreements by the principal stockholders and
founders of Indus River;
concerning only Cabletron:
- documents filed by Cabletron with the SEC, the accuracy of information
contained in those documents and the absence of undisclosed liabilities
of Cabletron expected to have a material adverse effect on Cabletron and
its subsidiaries;
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- ownership of the merger subsidiary, Acton Acquisition Co., and lack of
prior activities by the merger subsidiary;
- validity of shares of Cabletron stock to be issued in the merger;
- validity of shares of Enterasys stock payable if there is a spin-off of
Enterasys;
- capital structure of Enterasys; and
- financial statements of Enterasys provided by Cabletron to Indus River
and accuracy and fairness of those financial statements.
ADDITIONAL AGREEMENTS
The merger agreement contains additional agreements, relating to:
- employee benefits plans, programs and arrangements to be provided by
Cabletron;
- stockholder agreements to be entered into by the principal stockholders
and founders of Indus River;
- that neither Cabletron nor Indus River will take any action that could
reasonably be expected to jeopardize the merger's ability to qualify as a
reorganization within the meaning of the Internal Revenue Code;
- indemnification by Cabletron of directors, officers and employees of
Indus River and maintenance by Cabletron of executive risk liability
insurance as described below under "-- Indemnification and Insurance;"
- indemnification of Cabletron by Indus River under an escrow agreement
described below under "-- Indemnification and Escrow Agreement;" and
- working capital financing to be provided to Indus River by Cabletron
under a promissory note issued by Cabletron to Indus River.
INDEMNIFICATION AND INSURANCE
Cabletron will, or will cause the surviving corporation to, fulfill and
honor in all respects all rights to indemnification or exculpation of directors
or officers and employees of Indus River, under any indemnification provision of
the Indus River certificate of incorporation, or Indus River by-laws as in
effect on the date of the merger agreement. Cabletron will maintain for 6 years
after the effective time of the merger executive risk liability insurance for
the benefit of those directors, officers and employees for their acts or
omissions which occur before the merger, under customary terms and conditions no
less favorable to those of Indus River's executive risk liability insurance
policy in effect on the date of the merger agreement.
AMENDMENTS TO INDUS RIVER'S CERTIFICATE OF INCORPORATION
As of the effective time of the merger, the certificate of incorporation of
Indus River, as in effect immediately before the merger, will be amended to be
the same as the certificate of incorporation of Acton Acquisition Co., except
that the name of the surviving corporation will be Indus River Networks, Inc.
AMENDMENT'S TO INDUS RIVER'S BY-LAWS
The by-laws of Acton Acquisition Co., as in effect immediately before the
merger, will be the by-laws of the surviving corporation after the merger.
INDEMNIFICATION AND ESCROW AGREEMENT
Escrow Fund and Indemnification.
The merger agreement provides that 10% of the shares of Cabletron common
stock to be issued in the merger to holders of Indus River preferred stock and
the founders of Indus River will be placed in escrow with
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<PAGE> 62
an escrow agent as soon as possible after the merger is completed. Those shares
of Cabletron common stock held in escrow will be subject to an escrow agreement
among State Street Bank and Trust Company, as escrow agent, Stephen J. Ricci, as
stockholder representative, and Cabletron, which is attached as annex C to this
proxy statement/prospectus. The number of shares of Cabletron common stock to be
received by those Indus River stockholders will be reduced by 10% of the shares
of Cabletron common stock the stockholders would otherwise be entitled to
receive. The escrow account will be the sole and exclusive source available to
compensate Cabletron for the indemnification obligations of each Indus River
stockholder under the merger agreement, other than for any claim of fraud,
intentional misrepresentation or other willful conduct.
Indus River has agreed to indemnify Cabletron, the surviving corporation
and their subsidiaries and affiliates from and against all claims, damages,
costs and expenses, including reasonable legal fees, because of breaches by
Indus River of the merger agreement. Cabletron may not seek indemnification
until the aggregate amount of all damages for which Cabletron is seeking
indemnification is at least $300,000. Cabletron may then seek indemnification
for all of its damages. If any claim is required to be paid from the escrow fund
containing the shares of Cabletron common stock, the value of the shares of
Cabletron common stock held in the escrow fund will be determined based on the
average of the closing prices of Cabletron common stock as reported in the Wall
Street Journal for the 30 trading days before the date of determination.
The escrow fund for the Cabletron common stock will terminate on the first
anniversary of the closing date of the merger. The remaining Cabletron common
stock in the escrow fund will then be distributed by the escrow agent to the
stockholders on whose behalf the shares are being held based on each
stockholder's percentage of the escrow fund. Any escrowed shares against which
Cabletron has made a claim before the first anniversary of the closing date of
the merger that has not been resolved, will not be released until the claim is
resolved.
The merger agreement provides that Stephen J. Ricci has been appointed as a
representative for the Indus River stockholders whose shares are being held in
escrow to take all actions necessary or appropriate in his judgment for the
accomplishment of the terms of the merger agreement. The holders of a majority
in interest of the shares of Cabletron common stock held in the escrow fund may
replace the stockholder representative upon at least 10 days' prior written
notice to Cabletron. The stockholder representative will not be required to
provide a bond and will not receive any compensation for his services. Notices
of communications to or from the stockholder representative will constitute
notice to or from each Indus River stockholder who has Cabletron common stock
deposited in the escrow fund. If Mr. Ricci is no longer able or willing to serve
as the stockholder representative, a new stockholder representative will be
chosen by stockholders holding a majority of the shares of Cabletron common
stock being held in escrow.
The stockholder representative will not be liable for any act done or
omitted in his capacity as stockholder representative while acting in good faith
and in the exercise of reasonable judgment, and any act done or omitted based on
the advice of counsel will be conclusive evidence of good faith. Those Indus
River stockholders who have executed a stockholder agreement, and whose shares
of Cabletron common stock are being held in the escrow account, have agreed to
individually indemnify the stockholder representative and hold him harmless
against any loss, liability or expense incurred without gross negligence or bad
faith on his part and arising out of the acceptance or administration of his
duties.
Any decision, act, consent or instruction of the stockholder representative
will constitute a decision of all Indus River stockholders whose shares of
Cabletron common stock are being held in the escrow account and will be final,
binding and conclusive upon each stockholder, and the escrow agent and Cabletron
may rely upon any decision, act, consent or instruction of the stockholder
representative. The escrow agent and Cabletron are relieved from any liability
to any person for acts done by them based on a decision, act, consent or
instruction of the stockholder representative.
Escrow of Shares of Cabletron Series C Preferred Stock.
The merger agreement also provides that all of the shares of Cabletron
series C preferred stock to be issued in the merger will be placed in a separate
escrow account with an escrow agent after the merger is
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completed. The shares of Cabletron series C preferred stock will be subject to
the provisions of the escrow agreement, the form of which is attached as annex C
to this proxy statement/prospectus.
The shares of Cabletron series C preferred stock will be held in escrow
only to facilitate any conversion or redemption occurring within 24 months of
the date of issuance of the Cabletron series C preferred stock. The shares will
remain in the escrow account until any conversion or redemption of the Cabletron
series C preferred stock, after which the stockholders on whose behalf the
shares are being held will receive;
- shares of Cabletron common stock issued upon conversion of Cabletron
series C preferred stock; or
- shares of Enterasys common stock or other securities issued upon
redemption of Cabletron series C preferred stock.
If no redemption or conversion occurs within 24 months of the date of
issuance of the Cabletron series C preferred stock, the shares held in escrow
will be distributed by the escrow agent to the stockholders on whose behalf the
shares are being held on or before the 30-month anniversary of the date of
issuance of the Cabletron series C preferred stock. The escrow agreement states
that the shares of Cabletron series C preferred stock may not be transferred
except under the laws of descent and distribution or to the partners or equity
holders of any stockholder which is an entity.
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STOCK PRICES AND DIVIDENDS
Cabletron common stock is listed for trading on the New York Stock Exchange
under the trading symbol CS. The following table lists, for the periods
indicated, the high and low sales prices per share of Cabletron common stock on
the New York Stock Exchange Composite Transactions Tape. Cabletron has paid no
dividends on its common stock and anticipates it will continue to reinvest
earnings to finance future growth. For current price information, stockholders
are urged to consult publicly available sources. Because there is no established
trading market for shares of Cabletron series C preferred stock or Indus River
stock, information concerning the market prices of Cabletron series C preferred
stock and Indus River stock has been omitted.
<TABLE>
<CAPTION>
CABLETRON
COMMON STOCK
------------------
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR 1996
First Quarter............................................. $ 27.88 $ 19.44
Second Quarter............................................ 29.81 24.31
Third Quarter............................................. 43.88 26.00
Fourth Quarter............................................ 41.63 32.94
FISCAL YEAR 1997
First Quarter............................................. $ 43.56 $ 31.63
Second Quarter............................................ 36.06 26.50
Third Quarter............................................. 41.50 27.56
Fourth Quarter............................................ 42.50 28.00
FISCAL YEAR 1998
First Quarter............................................. $ 46.50 $ 27.50
Second Quarter............................................ 46.13 27.88
Third Quarter............................................. 36.25 22.94
Fourth Quarter............................................ 23.50 12.63
FISCAL YEAR 1999
First Quarter............................................. $ 15.56 $ 12.50
Second Quarter............................................ 14.31 6.63
Third Quarter............................................. 15.31 6.63
Fourth Quarter............................................ 14.38 7.69
FISCAL YEAR 2000
First Quarter............................................. $ 15.31 $ 7.25
Second Quarter............................................ 16.81 11.94
Third Quarter............................................. 24.38 14.81
Fourth Quarter............................................ 49.00 22.00
FISCAL YEAR 2001
First Quarter............................................. $ 50.88 $ 19.00
Second Quarter............................................ 37.44 21.00
Third Quarter............................................. 37.13 15.75
Fourth Quarter through December 7, 2000................... 18.38 16.00
</TABLE>
The following table provides the high and low sales prices per share of
Cabletron common stock on the New York Stock Exchange Composite Transactions
Tape on August 18, 2000, the last trading day before the public announcement of
the merger agreement, and on December 7, 2000, the last trading day before the
date of this proxy statement/prospectus. Because there is no established trading
market for shares of Cabletron
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series C preferred stock or Indus River stock, information concerning the market
prices of Cabletron series C preferred stock and Indus River stock has been
omitted.
<TABLE>
<CAPTION>
CABLETRON
COMMON STOCK
-----------------
HIGH LOW
------ ------
<S> <C> <C>
August 18, 2000............................................. $35.88 $34.06
December 7, 2000............................................ $18.31 $16.25
</TABLE>
Because the market price of Cabletron common stock fluctuates, the market
value of the shares of Cabletron common stock that Indus River stockholders will
receive in the merger, may increase or decrease after the receipt of the shares.
Because there is no established trading market for the Cabletron series C
preferred stock, the market value of the shares of Cabletron series C preferred
stock that Indus River stockholders will receive in the merger may be difficult
to determine and the market value, if determinable, may increase or decrease
after the receipt of the shares. WE CANNOT GUARANTEE THE FUTURE PRICES OR
MARKETS FOR CABLETRON COMMON STOCK OR CABLETRON SERIES C PREFERRED STOCK.
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DESCRIPTION OF CABLETRON CAPITAL STOCK
Below is a description of the material terms of Cabletron's capital stock.
You should also read Cabletron's restated certificate of incorporation,
including the certificate of designation, preferences and rights of the series A
and series B participating convertible preferred stock and the form of
certificate of designation, preferences and rights of the series C convertible
preferred stock. Cabletron has filed copies of its certificate of incorporation,
by-laws and the form of the certificate of designation for the Cabletron series
C preferred stock with the SEC and has incorporated by reference those documents
as exhibits to the registration statement of which this prospectus is a part.
As of the date of this proxy statement/prospectus, Cabletron's authorized
capital consisted of:
- 450,000,000 shares of Cabletron common stock
- 2,000,000 shares of preferred stock designated as:
-- 65,000 shares of series A participating convertible preferred stock;
-- 25,000 shares of series B participating convertible preferred stock;
-- 1,910,000 shares of preferred stock which have not been designated.
As of October 2, 2000, Cabletron's outstanding capital consisted of:
- 90,000 shares of preferred stock, with the following amounts outstanding:
-- 65,000 shares of Cabletron series A preferred stock;
-- 25,000 shares of Cabletron series B preferred stock;
- 184,294,457 shares of Cabletron common stock
-- Warrants to purchase up to 450,000 shares of Cabletron common stock;
-- Additional warrants to purchase Cabletron common stock if specified
events occur or do not occur that affect any of Cabletron's operating
subsidiaries, Enterasys, Riverstone Networks, Inc., Aprisma Management
Technologies, Inc. or GlobalNetwork Technology Services, Inc.;
-- As of February 29, 2000, an aggregate of 15,998,256 options to purchase
Cabletron common stock of which, as of that date, 2,916,651 options
were exercisable;
-- As of February 29, 2000, 3,100,558 shares of Cabletron common stock
were subject to employee stock purchase plans; and
-- Put options to repurchase approximately 725,000 shares of Cabletron
common stock to Cabletron.
As of the effective time of the merger, Cabletron will designate a
sufficient number of shares of Cabletron series C preferred stock to be issued
in exchange for all of the shares of Indus River preferred stock, Indus River
common stock and all options and warrants to purchase Indus River stock.
PREFERRED STOCK
Cabletron may issue shares of preferred stock in one or more series as its
board of directors authorizes Cabletron to do. Before Cabletron issues a new
series of preferred stock, its board of directors must pass a resolution
designating the series, which serves to distinguish the new series from other
series and classes of stock. The resolution also states the number of shares to
be included in the new series and establishes the terms, rights, restrictions
and qualifications of the shares of the new series. These may include any
preferences, voting powers, dividend rights and redemption, sinking fund and
conversion rights. Before issuing the shares in a series, and unless it violates
the terms of any other outstanding series of preferred stock, Cabletron's board
of directors can increase or decrease the number of shares in a series, alter
the designation of a series or classify or reclassify any unissued shares of a
series by fixing or altering any terms, rights, restrictions and qualifications
of the shares in that series.
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SERIES A AND SERIES B PREFERRED STOCK
DIVIDENDS. The holders of shares of Cabletron series A and Cabletron
series B preferred stock are entitled to receive, when and as declared by
Cabletron's board of directors, cumulative cash dividends per share equal to the
greater of:
- $40.00 per year, plus accrued and unpaid dividends; and
- the amount determined by calculating the quotient of:
-- the product of:
--- all ordinary cash dividends declared during a fiscal quarter or a
share of Cabletron common stock, but excluding extraordinary
dividends or distributions;
--- four; and
--- the number of shares of Cabletron common stock issuable upon
conversion of a share of Cabletron series A or Cabletron series B
preferred stock, on the first day of the fiscal quarter.
-- divided by $1,000, plus accrued and unpaid dividends on the share of
Cabletron series A or Cabletron series B preferred stock.
Holders of Cabletron series A and Cabletron series B preferred stock are
entitled to accrual of dividends before Cabletron can distribute dividends to
holders of Cabletron common stock. Dividends on the Cabletron series A and
Cabletron series B preferred stock will accrue, whether or not they have been
declared and whether or not Cabletron has profits, surplus or other funds
legally available to pay them. Cabletron will not pay any cash dividends to
holders of Cabletron series A and Cabletron series B preferred stock without the
written consent or affirmative vote of the then issued and outstanding shares of
Cabletron series A preferred stock and Cabletron series B preferred stock.
Holders of Cabletron series A and Cabletron series B preferred stock are not
entitled to participate in any other dividends or distributions Cabletron makes
except a liquidation, as discussed below, or after conversion of Cabletron
series A or Cabletron series B preferred stock into Cabletron common stock.
LIQUIDATION. Upon Cabletron's liquidation, dissolution or winding up, the
holders of Cabletron series A and Cabletron series B preferred stock are
entitled to be paid in full a liquidation amount, determined as described below,
after the distribution of any of Cabletron's assets to the holders of any other
series or class of Cabletron's stock ranking senior to the Cabletron series A
and Cabletron series B preferred stock in a liquidation. For each share of
Cabletron series A and Cabletron series B preferred stock, the liquidation
amount is equal to the greater of:
- $1,000, plus accrued and unpaid dividends through the last day of the
most recently completed calendar quarter before the date of liquidation,
dissolution or winding up; and
- the amount a holder would be entitled to receive on a share of Cabletron
series A or Cabletron series B preferred stock in the liquidation,
dissolution or winding up if the holder converted that share into
Cabletron common stock immediately before the effectiveness of the
liquidation, dissolution or winding up.
If, after distribution of Cabletron's assets to the holders of stock senior
to Cabletron series A and Cabletron series B preferred stock, Cabletron's assets
are insufficient to pay the holders of Cabletron series A and Cabletron series B
preferred stock and the holders of any stock ranking equally with the Cabletron
series A and Cabletron series B preferred stock their full liquidation amounts,
then Cabletron's remaining assets legally available for distribution will be
distributed ratably among the holders of Cabletron series A and Cabletron series
B preferred stock. The holders of stock ranking junior to the Cabletron series A
and Cabletron series B preferred stock, including the holders of Cabletron
common stock and Cabletron series C preferred stock, will not be entitled to
participate in the liquidation.
VOTING RIGHTS. Except as required by law, the holders of Cabletron series
A and Cabletron series B preferred stock will have voting rights and powers
equal to the voting rights and powers of the holders of
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Cabletron common stock, voting with the holders of Cabletron common stock as a
single class, and any other shares of Cabletron's stock which, by their terms,
are entitled to vote with the Cabletron common stock as a single class. Each
holder of a Cabletron series A and Cabletron series B preferred stock will be
entitled to the number of votes for each share of Cabletron series A and
Cabletron series B preferred stock it holds equal to the number of shares of
Cabletron common stock into which each share of Cabletron series A or Cabletron
series B preferred stock, may be converted on the record date for holders
entitled to participate in the vote. Any holders of Cabletron series A and
Cabletron series B preferred stock will have the following additional voting
rights:
- the holders of a majority of the then outstanding shares of Cabletron
series A and Cabletron series B preferred stock must approve any
amendment or restatement of Cabletron's certificate of incorporation or
of the certificate of designation for the Cabletron series A and
Cabletron series B preferred stock that adversely affects the powers,
preferences and rights of the Cabletron series A and Cabletron series B
preferred stock;
- the holders of a majority of the then outstanding shares of Cabletron
series A preferred stock must approve any amendment or restatement of
Cabletron's certificate of incorporation or of the certificate of
designation for the Cabletron series A and Cabletron series B preferred
stock that adversely affects the powers, preferences and rights of the
Cabletron series A preferred stock; and
- the holders of a majority of the then outstanding shares of Cabletron
series B preferred stock must approve any amendment or restatement of
Cabletron's certificate of incorporation or of the certificate of
designation for the Cabletron series A and Cabletron series B preferred
stock that adversely affects the powers, preferences and rights of the
Cabletron series B preferred stock.
CONVERSION RIGHTS. Each holder of Cabletron series A and Cabletron series
B preferred stock may, at its option, convert any of its shares of Cabletron
series A and Cabletron series B preferred stock at any time into shares of
Cabletron common stock. Cabletron series A and Cabletron series B preferred
stock can be converted into Cabletron common stock at an initial rate obtained
by multiplying the applicable conversion rate by the number of shares of
Cabletron series A and Cabletron series B preferred stock held by the holder
that are being converted by the holder.
For each share of Cabletron series A and Cabletron series B preferred
stock, the applicable conversion rate is determined by dividing $1,000, plus
accrued and unpaid dividends, by the applicable conversion value. The applicable
conversion value is $40.00 for Cabletron series A preferred stock and $30.00 for
Cabletron series B preferred stock. The applicable conversion value will be
adjusted for stock splits, stock dividends, recapitalizations and other similar
events.
If Cabletron is unable to redeem the Cabletron series A and Cabletron
series B preferred stock as Cabletron is required to do, then the applicable
conversion value will be adjusted to equal the product of 90% multiplied by the
market price of Cabletron common stock on the date specified for redemption or
on the date the holders of Cabletron series A and Cabletron series B preferred
stock receive notice that Cabletron cannot conduct a redemption. Generally, the
market price of the Cabletron common stock will be equal to the last sale price
of the stock on the New York Stock Exchange.
Before any corporate change, Cabletron will make appropriate provisions to
ensure that each holder of Cabletron series A and Cabletron series B preferred
stock will have the right to receive, upon conversion of the holder's preferred
stock into Cabletron common stock, the stock, securities or assets that the
holder would have been entitled to receive in the corporate change if that
holder had converted its preferred stock into Cabletron common stock before the
record date for the corporate change. Cabletron will not engage in any corporate
change unless, before the corporate change, the successor corporation or the
purchasing corporation assumes in writing the obligation to deliver to each
holder of Cabletron series A and Cabletron series B preferred stock the shares
of stock, securities or assets that the holder is entitled to receive as
described above. For purposes of the Cabletron series A and Cabletron series B
preferred stock, a corporate change means any capital reorganization,
reclassification, consolidation, merger or sale of all or substantially all of
Cabletron's assets to another person which is completed in a way that holders of
Cabletron common stock are entitled to
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receive either directly or upon Cabletron's subsequent liquidation, securities
or assets in exchange for Cabletron common stock.
REDEMPTION.
At Holder's Option. From February 23, 2003 on, each holder of Cabletron
series A and Cabletron series B preferred stock shall have the right to require
Cabletron to redeem all, but not less than all, of that holder's shares of
Cabletron series A and Cabletron series B preferred stock at a redemption price
per share equal to $1,000, plus accrued and unpaid dividends. If Cabletron
enters into any agreement which will result in a change of control, then each
holder of Cabletron series A and Cabletron series B preferred stock will have
the right to require Cabletron to redeem all, but not less than all, of that
holder's shares of Cabletron series A and Cabletron series B preferred stock at
a redemption price per share equal to the greater of:
- $1,010, plus accrued and unpaid dividends; and
- the market price per share of Cabletron common stock into which each
share of Cabletron series A and Cabletron series B preferred stock could
then be converted upon the change of control.
At Cabletron's Option. From February 23, 2004 on, Cabletron may redeem
all, but not less than all, of the outstanding shares of Cabletron series A and
Cabletron series B preferred stock. The redemption price per share will be equal
to $1,000, plus accrued and unpaid dividends. Cabletron's redemption rights are
subject to the conversion rights of each holder of Cabletron series A and
Cabletron series B preferred stock, who may exercise their redemption rights at
any time before the close of business on the redemption date.
Cabletron is not prohibited from redeeming or repurchasing any shares of
Cabletron series A or Cabletron series B preferred stock while there is any
arrearage in the payment of dividends on the stock.
SERIES C PREFERRED STOCK
DIVIDENDS. When the Cabletron series C preferred stock is issued, the
holders of Cabletron series C preferred stock will be entitled to receive cash
dividends that do not constitute extraordinary distributions to the same extent
as holders of Cabletron common stock. Each share of Cabletron series C preferred
stock will be entitled to receive dividends at a rate per share equal to the
product of the dividend declared on each share of Cabletron common stock and the
applicable conversion rate. The applicable conversion rate is currently 10,
adjusted for stock splits, stock dividends, recapitalizations and other similar
events. The applicable conversion rate will be adjusted in the manner described
below in "-- Conversion Rights."
The holders of Cabletron series C preferred stock will not be entitled to
participate in any extraordinary distribution. An extraordinary distribution
means any dividend or distribution, including, any distribution of cash, stock
or other securities or property, by way of dividend, spin-off, reclassification,
recapitalization or similar corporate rearrangement, on the Cabletron common
stock other than:
- a stock split, stock dividend or similar transaction;
- an Enterasys spinoff;
- an Enterasys transaction;
- the payment of an ordinary cash dividend; or
- the purchase or repurchase by Cabletron of any shares of Cabletron common
stock.
An Enterasys spinoff means the distribution, through a dividend, exchange,
issuance or other similar transaction, of 51% or more of the common stock of
Enterasys to Cabletron's stockholders. An Enterasys transaction means a sale,
other disposition, consolidation, merger or reorganization of Enterasys, other
than an Enterasys spinoff, after which Cabletron no longer controls Enterasys.
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<PAGE> 70
CONVERSION RIGHTS. The Cabletron series C preferred stock will be
convertible into Cabletron common stock at the option of the holder at any time
following the earliest to occur of:
- an Enterasys spinoff that occurs on or after the first anniversary of the
date the Cabletron series C preferred stock is issued;
- an Enterasys transaction at any time; and
- the second anniversary of the date the Cabletron series C preferred stock
is issued.
If Cabletron establishes a record date for an Enterasys spinoff before the
first anniversary of the date the Cabletron series C preferred stock is issued,
and that spin-off is to be completed before the first anniversary, then the
Cabletron series C preferred stock will be convertible into Cabletron common
stock at the option of the holder immediately before the Enterasys spinoff.
Cabletron may never conduct an Enterasys spinoff or an Enterasys transaction. It
is possible that holders of Cabletron series C preferred stock will not be able
to convert their shares of Cabletron series C preferred stock until the second
anniversary of the date the Cabletron series C preferred stock is issued.
A holder of Cabletron series C preferred stock that elects to convert its
shares of Cabletron series C preferred stock into Cabletron common stock will
receive the number of shares of Cabletron common stock equal to the number of
shares of Cabletron series C preferred stock held by that holder multiplied by
the applicable conversion rate.
The Applicable Conversion Rate. The applicable conversion rate will
initially be 10. The applicable conversion rate will be adjusted for a number of
circumstances as discussed below. Other than adjustments to the applicable
conversion rate for events such as stock splits, stock dividends and
combinations discussed under "-- Adjustments to the Applicable Conversion
Rate -- Stock Dividends, Stock Splits, Combinations," the applicable conversion
rate will never be adjusted to exceed 65. The applicable conversion rate will
usually be determined based on the value of the stock of Cabletron's subsidiary,
Enterasys. The value will be determined in the manner described below.
ADJUSTMENTS TO THE APPLICABLE CONVERSION RATE -- STOCK DIVIDENDS, STOCK
SPLITS, COMBINATIONS. If there is:
- a subdivision of the outstanding shares of Cabletron common stock into a
greater number of shares of Cabletron common stock, such as through a
stock split, stock dividend or recapitalization; or
- a combination of the outstanding shares of Cabletron common stock into a
smaller number of shares of Cabletron common stock, such as through a
reverse stock split,
then the applicable conversion rate will be adjusted to reflect the stock
dividend, stock split or recapitalization.
ENTERASYS SPINOFF WITHIN ONE YEAR OF THE DATE OF ISSUANCE OF THE CABLETRON
SERIES C PREFERRED STOCK. If Cabletron establishes a record date for an
Enterasys spinoff before the first anniversary of the date the Cabletron series
C preferred stock is issued, and that spin-off is to be completed before the
first anniversary, then the Cabletron series C preferred stock will be
convertible into Cabletron common stock at the option of the holder immediately
before the Enterasys spinoff. The applicable conversion rate will be permanently
adjusted to equal the quotient obtained from the following formula:
<TABLE>
<S> <C> <C> <C> <C>
applicable conversion rate E X P(E)
= -------------
50,000 X P(C)
</TABLE>
In this formula:
- E is equal to the number of Enterasys shares equal to 1% of the
fully-diluted stock of Enterasys, determined as of the day the merger
closes, adjusted for stock splits, stock dividends, recapitalizations,
extraordinary distributions and other similar events affecting the stock
of Enterasys;
- P(E) is the market price of the Enterasys stock, determined as of the
close of business on the applicable record date; and
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<PAGE> 71
- P(C) is the market price of Cabletron common stock as of the close of
business on that record date.
For an Enterasys spinoff, the market price of Enterasys stock will usually
be equal to the last sale price of the stock on the New York Stock Exchange on
the applicable trading day. For an Enterasys transaction, the market price of
Enterasys stock will usually be the price at which Enterasys stock is sold in
the Enterasys transaction. Generally, the market price of the Cabletron common
stock will be equal to the last sale price of the stock on the New York Stock
Exchange on the applicable trading day.
ENTERASYS SPINOFF OR ENTERASYS TRANSACTION WITHIN TWO YEARS OF THE DATE OF
ISSUANCE OF THE CABLETRON SERIES C PREFERRED STOCK. If Cabletron conducts an
Enterasys spinoff after the first anniversary of the date the Cabletron series C
preferred stock is issued and before the second anniversary of that date, or if
Cabletron conducts an Enterasys transaction before the second anniversary of the
date the Cabletron series C preferred stock is issued, then the Cabletron series
C preferred stock will be convertible into Cabletron common stock at the option
of the holder after the earlier to occur of that event. After that event, the
applicable conversion rate will be permanently adjusted to equal the quotient
obtained from the following formula:
<TABLE>
<S> <C> <C> <C> <C>
Applicable Conversion Rate = .9 X E X P(E)
-------------
50,000 X P(C)
</TABLE>
In this formula:
- E is equal to the number of Enterasys shares equal to 1% of the
fully-diluted stock of Enterasys, determined as of the day the merger
closes, adjusted for stock splits, stock dividends, recapitalizations,
extraordinary distributions and other similar events affecting the stock
of Enterasys;
- P(E) is the market price of the Enterasys stock distributed in the
Enterasys spinoff or the Enterasys transaction determined as of the close
of business on the first trading day after the Enterasys spinoff or
Enterasys transaction; and
- P(C) is the market price of Cabletron common stock as of the close of
business on that trading day.
For an Enterasys spinoff, the market price of Enterasys stock will usually
be equal to the last sale price of the stock on the New York Stock Exchange on
the applicable trading day. For an Enterasys transaction, the market price of
Enterasys stock will usually be the price at which Enterasys stock is sold in
the Enterasys transaction. The market price of the Cabletron common stock will
usually be equal to the last sale price of the stock on the New York Stock
Exchange on the applicable trading day.
NO ENTERASYS SPINOFF OR ENTERASYS TRANSACTION WITHIN TWO YEARS OF THE DATE
OF ISSUANCE OF THE CABLETRON SERIES C PREFERRED STOCK. If Cabletron does not
conduct either an Enterasys spinoff or an Enterasys transaction before the
second anniversary of the date the Cabletron series C preferred stock is issued,
then the Cabletron series C preferred stock will be convertible into Cabletron
common stock at the option of the holder immediately after the second
anniversary of the date the Cabletron series C preferred stock is issued. After
this second anniversary, the applicable conversion rate will be permanently
adjusted to equal the quotient obtained from the following formula:
<TABLE>
<S> <C> <C> <C> <C>
applicable conversion rate = E X P(E)
-------------
50,000 X P(C)
</TABLE>
In this formula:
- E is equal to the number of Enterasys shares equal to 1% of the
fully-diluted stock of Enterasys, determined as of the day the merger
closes, adjusted for stock splits, stock dividends, recapitalizations,
extraordinary distributions and other similar events affecting the stock
of Enterasys;
- P(E) is the market price of the Enterasys stock, determined as of the
second anniversary of the date the Cabletron series C preferred stock is
issued; and
- P(C) is the market price of Cabletron common stock as of the close of
business on that day.
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<PAGE> 72
Cabletron's board of directors will determine the market price of Enterasys
stock. If the holders of a majority of the outstanding shares of Cabletron
series C preferred stock object to the determination by Cabletron's board, then
Cabletron will hire an investment banking firm to conduct an appraisal of the
fair value of Enterasys stock. The market price of the Cabletron common stock
will usually be equal to the last sale price of the stock on the New York Stock
Exchange on the second anniversary of the date the Cabletron series C preferred
stock is issued.
Corporate Change. Before any corporate change, Cabletron will make sure
that each holder of Cabletron series C preferred stock will receive, upon
conversion of the holder's preferred stock into Cabletron common stock, the
stock, securities or assets that the holder would have been entitled to receive
in the corporate change if that holder had converted its preferred stock into
Cabletron common stock before the record date for the corporate change.
Cabletron will not engage in any corporate change unless, before the corporate
change, the successor corporation or the purchasing corporation assumes in
writing the obligation to deliver to each holder of Cabletron series C preferred
stock, the shares of stock, securities or assets that the holder is entitled to
receive as described above. For purposes of the Cabletron series C preferred
stock, a corporate change shall mean any capital reorganization,
reclassification, consolidation, merger or sale of all or substantially all of
Cabletron's assets to another person which is completed in a way that holders of
Cabletron common stock are entitled to receive, either directly or upon
Cabletron's subsequent liquidation, securities or assets in exchange for
Cabletron common stock.
CORPORATE CHANGE BEFORE ENTERASYS SPINOFF, ENTERASYS TRANSACTION OR THE
SECOND ANNIVERSARY OF THE DATE OF ISSUANCE OF THE CABLETRON SERIES C PREFERRED
STOCK. If a corporate change were to occur before the first to occur of an
Enterasys spinoff, an Enterasys transaction and the second anniversary of the
date the Cabletron series C preferred stock is issued, then the applicable
conversion rate will be adjusted to equal the greater of:
- 10, adjusted for stock splits, stock dividends and combinations, as
described above under "-- Adjustments to the Applicable Conversion
Rate -- Stock Dividends, Stock Splits, Combinations;" and
- the quotient obtained from the following formula:
<TABLE>
<S> <C> <C> <C> <C>
applicable conversion rate = E X P(E)
-------------
50,000 X P(C)
</TABLE>
In this formula:
- E is equal to the number of Enterasys shares equal to 1% of the
fully-diluted stock of Enterasys, determined as of the day the merger
closes, adjusted for stock splits, stock dividends, recapitalizations,
extraordinary distributions and other similar events affecting the
stock of Enterasys;
- P(E) is the market price of the Enterasys stock, determined as of the
effective date of the corporate change; and
- P(C) is the market price of Cabletron common stock as of the close of
business on that day.
Cabletron's board of directors will determine the market price of Enterasys
stock. If the holders of a majority of the outstanding shares of Cabletron
series C preferred stock object to the determination by Cabletron's board, then
Cabletron will hire an investment banking firm to conduct an appraisal of the
fair value of Enterasys stock. The market price of the Cabletron common stock
will usually be equal to the price at which Cabletron common stock is sold in
the corporate change.
CORPORATE CHANGE AFTER AN ENTERASYS SPINOFF, ENTERASYS TRANSACTION OR THE
SECOND ANNIVERSARY OF THE DATE OF ISSUANCE OF THE CABLETRON SERIES C PREFERRED
STOCK. If a corporate change were to occur after the first to occur of an
Enterasys spinoff, an Enterasys transaction and the second anniversary of the
date the Cabletron series C preferred stock is issued, then the applicable
conversion rate will be adjusted in the manner described above under
"-- Enterasys spinoff or Enterasys transaction within Two Years of the Date of
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<PAGE> 73
Issuance of the Cabletron Series C Preferred Stock" or "-- No Enterasys Spinoff
or Enterasys Transaction within Two Years of the Date of Issuance of the
Cabletron Series C Preferred Stock."
Conversion Procedure. Cabletron will give each holder of Cabletron series
C preferred stock at least 30 days notice of Cabletron's intention to either
conduct an Enterasys spinoff or an Enterasys transaction. Cabletron's notice
will also advise each holder of Cabletron series C preferred stock of its
conversion rights for its Cabletron series C preferred stock. Each holder of
Cabletron series C preferred stock will have 15 days from the date of the notice
to deliver a written notice to the escrow agent advising the escrow agent of its
intention to require or not require Cabletron to convert all, but not less than
all, of the shares of Cabletron series C preferred stock held by that holder.
Each holder of Cabletron series C preferred stock wishing to exercise its
conversion right must surrender the certificate or certificates representing the
shares being converted with this written notice, unless they are being held by
the escrow agent at the time. Each conversion of Cabletron series C preferred
stock will be considered to have been completed as of the close of business on
the effective date of the conversion as specified in the conversion notice,
except that this date cannot be earlier than the date Cabletron or Cabletron's
agent receives the conversion notice. If the conversion notice does not specify
a date, then the conversion date will be considered to be the date on which
Cabletron or Cabletron's agent receives the conversion notice. On the conversion
date, the holder's rights as a holder of Cabletron series C preferred stock will
cease and the holder will subsequently have the rights of a holder of Cabletron
common stock.
Promptly after the conversion date Cabletron will deliver to the converting
holder at the address provided in the conversion notice:
- a certificate or certificates representing the number of shares of
Cabletron common stock issued upon conversion, in the same name or names
as the certificates representing the converted shares or in any other
name or names as the converting holder tells Cabletron, subject to legal,
contractual or other restrictions on transfer, and in the denomination or
denominations that the converting holder tells Cabletron;
- a check for cash for any fractional interest in a share of Cabletron
common stock as discussed below; and
- a certificate representing any shares of Cabletron series C preferred
stock that were represented by the certificate or certificates delivered
to the Corporation as part of the conversion but that were not converted.
If Cabletron is to issue certificates for shares of Cabletron common stock
upon the conversion of Cabletron series C preferred stock in the name of the
holder of the Cabletron series C preferred stock, Cabletron will do so without
charging the holder any issuance tax. If Cabletron is to issue certificates for
shares of Cabletron common stock upon conversion of Cabletron series C preferred
stock in any other name, Cabletron will not issue any certificates until payment
of any applicable transfer tax has been made by the holder.
Cabletron will not issue any fractional shares or scrip representing
fractions of shares of Cabletron common stock upon conversion of any shares of
Cabletron series C preferred stock. If a holder of Cabletron series C preferred
stock makes a conversion that results in the holder's having a fractional
interest in a share of Cabletron common stock, Cabletron will pay to the holder
of those shares a cash amount based on the current market price of the Cabletron
common stock on the trading day immediately before the conversion, instead of
issuing a fractional share of Cabletron common stock.
REDEMPTION. Each holder of Cabletron series C preferred stock will have
the right to require Cabletron to redeem all, but not less than all, of that
holder's shares of Cabletron series C preferred stock immediately before the
occurrence of the first to occur of:
- an Enterasys spinoff after the first anniversary of the date of issuance
of the Cabletron series C preferred stock and before the second
anniversary of the date of issuance of the Cabletron series C preferred
stock; and
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<PAGE> 74
- an Enterasys transaction.
If a holder of Cabletron series C preferred stock requests redemption of
its shares in an Enterasys spinoff, Cabletron will pay the redemption price at
the beginning of the spin-off. The redemption price that Cabletron will pay for
each share of Cabletron series C preferred stock will be paid in shares of
Enterasys stock and will be equal to the number of Enterasys shares equal to 1%
of the fully-diluted stock of Enterasys, determined as of the day the merger
closes, adjusted for stock splits, stock dividends, recapitalizations,
extraordinary distributions and other similar events affecting the stock of
Enterasys, divided by 50,000.
If a holder of Cabletron series C preferred stock seeks to redeem its
shares in an Enterasys transaction, Cabletron will pay the redemption price on
an after-tax basis immediately after the Enterasys transaction. The redemption
price that Cabletron will pay for each share of Cabletron series C preferred
stock will be paid in securities or assets of the surviving corporation
immediately after the Enterasys transaction. The redemption price will be equal
in value, on an after-tax basis, to the number of Enterasys shares equal to 1%
of the fully-diluted stock of Enterasys, determined as of the day the merger
closes, adjusted for stock splits, stock dividends, recapitalizations,
extraordinary distributions and other similar events affecting the stock of
Enterasys, divided by 50,000.
If Cabletron intends to conduct an Enterasys spinoff before the first
anniversary of the date of issuance of the Cabletron series C preferred stock,
holders of Cabletron series C preferred stock will not be able to redeem their
shares of Cabletron series C preferred stock as part of the spin-off. They will
be able to convert their shares into Cabletron common stock before the spin-off.
If Cabletron conducts an Enterasys transaction before the first anniversary of
the date of issuance of the Cabletron series C preferred stock, holders of
Cabletron series C preferred stock will be able to redeem their shares of
Cabletron series C preferred stock in that transaction. Cabletron may never
conduct an Enterasys spinoff. It is possible that holders of the Cabletron
series C preferred stock will not be able to exercise the redemption right
described above.
The redemption rights for the Cabletron series C preferred stock will
terminate immediately after the first to occur of:
- an Enterasys spinoff;
- an Enterasys transaction; and
- the second anniversary of the date of issuance of the Cabletron series C
preferred stock.
Redemption Procedures. Cabletron will give each holder of Cabletron series
C preferred stock at least 30 days notice of its intention to either conduct an
Enterasys spinoff or an Enterasys transaction. Cabletron's notice will also
advise each holder of Cabletron series C preferred stock of its redemption
rights. Each holder of Cabletron series C preferred stock will have 15 days from
the date of the notice to deliver a written notice to the escrow agent advising
the escrow agent of its intention to require or not require Cabletron to redeem
all, but not less than all, of the Cabletron series C preferred stock held by
that holder. If a holder of Cabletron series C preferred stock desires to redeem
its shares in an Enterasys spinoff, Cabletron will be obligated on the
redemption date to pay to that holder, upon the holder's surrender to Cabletron
of the certificate or certificates representing the shares of Cabletron series C
preferred stock to be redeemed, the full redemption price of the shares of
Cabletron series C preferred stock in shares of Enterasys stock. If a holder of
Cabletron series C preferred stock desires to redeem its shares in an Enterasys
transaction, Cabletron will be obligated on the redemption date to pay to that
holder, upon the holder's surrender to Cabletron of the certificate or
certificate representing the shares of Cabletron series C preferred stock to be
redeemed, the full redemption price of the shares of Cabletron series C
preferred stock in the securities or assets of the surviving corporation after
the Enterasys transaction.
LIQUIDATION. Upon Cabletron's liquidation, dissolution or winding up, the
holders of Cabletron series C preferred stock will be entitled to be paid in
full a liquidation amount, determined as described below, after the distribution
of any of Cabletron's assets to the holders of any other series or class of
Cabletron's stock ranking senior to the Cabletron series C preferred stock in a
liquidation, including the Cabletron series A and Cabletron series B preferred
stock.
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<PAGE> 75
If Cabletron's liquidation, dissolution or winding up occurs before the
first to occur of an Enterasys spinoff, an Enterasys transaction and the second
anniversary of the date of issuance of the Cabletron series C preferred stock,
then the liquidation amount will be equal to the greater of:
- $1.00;
- the amount a holder would be entitled to receive on a share of Cabletron
series C preferred stock in the liquidation, dissolution or winding up if
the holder converted that share into Cabletron common stock immediately
before the liquidation, dissolution or winding up is effective; and
- the amount a holder would be entitled to receive on a share of Cabletron
series C preferred stock in the liquidation, dissolution or winding up if
the holder converted that share into Cabletron common stock immediately
before the liquidation, dissolution or winding up is effective, but
without taking into account any adjustment to the applicable conversion
rate for an Enterasys spinoff or an Enterasys transaction.
If Cabletron's liquidation, dissolution or winding up occurs after the
first to occur of an Enterasys spinoff, an Enterasys transaction and the second
anniversary of the date of issuance of the Cabletron series C preferred stock,
then the liquidation amount will be equal to the greater of:
- $1.00;
- the amount a holder would be entitled to receive on a share of Cabletron
series C preferred stock in the liquidation, dissolution or winding up if
the holder converted that share into Cabletron common stock immediately
before the liquidation, dissolution or winding up is effective, including
taking into account any adjustment to the applicable conversion rate for
an Enterasys spinoff, an Enterasys transaction or following the second
anniversary of the date of issuance of the Cabletron series C preferred
stock.
If, after distribution of any of Cabletron's assets to the holders of stock
senior to the Cabletron series C preferred stock, Cabletron's assets are
insufficient to pay the holders of Cabletron series C preferred stock and the
holders of any stock ranking equally with the Cabletron series C preferred
stock, their full liquidation amounts, then Cabletron's remaining assets legally
available for distribution will be distributed ratably among the holders of
Cabletron series C preferred stock and the holders of any stock ranking equally
with the Cabletron series C preferred stock. The holders of stock ranking junior
to the Cabletron Series C preferred stock, including the holders of Cabletron
common stock, will not be entitled to participate in the liquidation.
VOTING RIGHTS. Except as required by law, the holders of Cabletron series
C preferred stock will have voting rights and powers equal to the voting rights
and powers of the holders of Cabletron common stock. The holders of Cabletron
series C preferred stock will vote with the holders of Cabletron common stock
and any other shares of Cabletron's stock which, by their terms, are entitled to
vote with the Cabletron common stock, as a single class. Each holder of
Cabletron series C preferred stock will be entitled to the number of votes for
each share of Cabletron series C preferred stock it holds equal to the product
of the number of shares of Cabletron series C preferred stock held by the holder
and the applicable conversion rate on the record date for holders entitled to
participate in the vote. The holders of a majority of the then outstanding
shares of Cabletron series C preferred stock must also approve any amendment or
restatement of Cabletron's certificate of incorporation or of the certificate of
designation for the Cabletron series C preferred stock that adversely affects
the powers, preferences and rights of the Cabletron series C preferred stock.
ESCROW AGREEMENT. The shares of Cabletron series C preferred stock will be
held by State Street Bank and Trust Company, as escrow agent, and will be
subject to the provisions of the escrow agreement, the form of which is attached
as annex C to this proxy statement/prospectus. The shares of Cabletron series C
preferred stock will be held in escrow only to facilitate any conversion or
redemption of the Cabletron series C preferred stock occurring within 24 months
of the date of issuance of the Cabletron series C preferred stock. The shares
will remain in the escrow account until any conversion or redemption, after
which the stockholders on whose behalf the shares are being held will receive
the shares of Cabletron common stock issued upon the conversion of the Cabletron
series C preferred stock or the shares of Enterasys common stock or any other
securities issued upon the redemption of the Cabletron series C preferred stock.
If no redemption of
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conversion occurs within 24 months of the date of issuance of the Cabletron
series C preferred stock, the shares being held in escrow will be distributed by
the escrow agent to the stockholders on whose behalf the shares are being held
on or before the 30-month anniversary of the date of issuance of the Cabletron
series C preferred stock. The escrow agreement provides that the shares of
Cabletron series C preferred stock may not be transferred except under the laws
of descent and distribution or to the partners or equity holders of any
stockholder which is an entity.
WARRANTS, OPTIONS AND PUT RIGHTS
In August 2000, Cabletron issued warrants to Silver Lake Partners, L.P. and
other investors under a securities purchase agreement to purchase up to 250,000
shares of Cabletron common stock at an initial exercise price of $45.00 per
share, in cash, adjusted for dividends, distributions, stock splits, stock
dividends, combinations, consolidations, mergers, sales of assets,
reorganizations and similar matters. These warrants expire on August 30, 2007.
In August 2000, Cabletron also issued warrants to Silver Lake Partners and
other investors under the securities purchase agreement to purchase up to an
aggregate of 200,000 shares of Cabletron common stock at an initial exercise
price of $35.00 per share, adjusted for dividends, distributions, stock splits,
stock dividends, combinations, consolidations, mergers, sales of assets,
reorganizations and similar matters. These warrants also expire on August 30,
2007.
Cabletron has also agreed to issue additional warrants to Silver Lake
Partners and other investors under the securities purchase agreement to purchase
additional shares of Cabletron common stock if, before an initial public
offering of the stock of any of Cabletron's operating subsidiaries to Cabletron
stockholders, or a sale of a majority of the assets or voting stock of any of
Cabletron's operating subsidiaries, Cabletron:
- determines to recombine a majority of the assets of an operating
subsidiary with Cabletron;
- informs Silver Lake Partners and other investors that an operating
subsidiary does not intend to engage in an initial public offering, a
distribution of its stock to Cabletron stockholders or a sale of a
majority of its assets or voting stock;
- grants to employees of an operating subsidiary rights to acquire stock of
Cabletron in exchange for the cancellation of substantially all of the
options to acquire stock of an operating subsidiary held by employees; or
- is acquired by a third party.
Each operating subsidiary has granted to Silver Lake Partners and other
investors rights to purchase common stock of the operating subsidiaries.
As of February 29, 2000, Cabletron had options outstanding to purchase
15,998,256 shares of Cabletron common stock, at a weighted-average exercise
price of $11.16. As of that date, 2,916,651 options, at a weighted-average
exercise price of $10.26, were exercisable. Also, 3,100,558 shares of Cabletron
common stock were subject to purchase by Cabletron employees under employee
stock purchase plans.
COMPARISON OF RIGHTS OF SERIES C PREFERRED AND COMMON STOCKHOLDERS
OF CABLETRON AND STOCKHOLDERS OF INDUS RIVER
The rights of Cabletron and Indus River stockholders are governed by the
Delaware General Corporation Law, and the certificates of incorporation and
by-laws of Cabletron and Indus River. Upon completion of the merger, the rights
of Indus River stockholders who become stockholders of Cabletron in the merger
will be governed by the Delaware General Corporation Law, Cabletron's
certificate of incorporation, including the certificate of designation for the
Cabletron series C preferred stock, and Cabletron's by-laws.
The following description summarizes the material differences that may
affect the rights of stockholders of Cabletron series C preferred and common
stockholders of Cabletron and stockholders of Indus River but is not a complete
statement of all those differences, or a complete description of the specific
provisions referred to
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in this summary. The identification of specific differences is not intended to
indicate that other equally or more significant differences do not exist.
Stockholders should read carefully the relevant provisions of the Delaware
General Corporation Law, Cabletron's certificate of incorporation, the form of
certificate of designation for the Cabletron series C preferred stock, and
Cabletron's by-laws and Indus River's certificate of incorporation and by-laws.
CAPITALIZATION
CABLETRON. Cabletron's authorized stock is described above under
"Description of Cabletron Capital Stock."
INDUS RIVER. The total authorized shares of stock of Indus River consists
of 30,000,000 shares of common stock and 22,000,000 shares of preferred stock.
As of the record date, 4,204,883 shares of Indus River common stock were issued
and outstanding, and 10,437,466 shares were reserved for issuance upon the
conversion of preferred stock. As of the same date, the breakdown of Indus
River's preferred stock was:
- 5,100,000 shares of preferred stock had been designated as series A
convertible preferred stock, of which 5,100,000 shares were issued and
outstanding;
- 3,197,973 shares of preferred stock had been designated as series B
convertible preferred stock, of which 3,197,973 shares were issued and
outstanding;
- 70,710 shares of preferred stock had been designated as series C
convertible preferred stock, of which 70,710 shares were issued and
outstanding; and
- 2,500,000 shares of preferred stock had been designated as series D
convertible preferred stock, of which 2,068,783 shares were issued and
outstanding.
Indus River's certificate of incorporation provides that the board of
directors may increase or decrease the number of shares of any series of
preferred stock after the issuance of shares of that series, but not above the
total number of authorized shares of the preferred stock and not below the
number of shares of that series then outstanding.
VOTING RIGHTS
CABLETRON. Each holder of Cabletron common stock is entitled to one vote
for each share held of record and may not cumulate votes for the election of
directors. Each holder of Cabletron series C preferred stock is entitled to the
number of votes equal to the number of whole shares of Cabletron common stock
into which the shares of Cabletron series C preferred stock held are convertible
on the record date. The initial conversion rate for the Cabletron series C
preferred stock will be 10-to-1 and will be adjusted as described above under
"Description of Cabletron Capital Stock -- Preferred Stock -- Series C Preferred
Stock -- Conversion Rights." Except as provided by law and in some situations
described in the certificate of designation for the Cabletron series C preferred
stock, holders of Cabletron series C preferred stock will vote with the holders
of Cabletron common stock, and the holders of any other series of Cabletron
stock entitled to vote, as a single class.
INDUS RIVER. Each holder of Indus River common stock is entitled to one
vote for each share held at all meetings of stockholders and written actions and
may not cumulate votes. Each holder of Indus River preferred stock is entitled
to the number of votes equal to the number of whole shares of Indus River common
stock into which the shares of Indus River preferred stock held are convertible
on the record date. Except as provided by law and in some situations described
in Indus River's certificate of incorporation, holders of Indus River preferred
stock vote with the holders of Indus River common stock as a single class.
VOTING REQUIREMENT AND QUORUMS FOR STOCKHOLDER MEETINGS
CABLETRON. Under Cabletron's certificate of incorporation and by-laws, a
majority of the issued and outstanding stock entitled to vote, present in person
or by proxy, at any meeting of stockholders will constitute a quorum for the
transaction of business at the meeting.
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The Cabletron by-laws provide that a majority of the votes properly cast
upon any question other than an election to an office will decide the question,
except when a larger vote is required by law, by the Cabletron certificate of
incorporation or by the Cabletron by-laws. A plurality of the votes properly
cast for election to any office will elect to that office, except when a larger
vote is required by law, by the Cabletron certificate of incorporation or the
Cabletron by-laws.
INDUS RIVER. Under Indus River's by-laws, a majority of the issued and
outstanding stock entitled to vote, present in person or by proxy, at any
meeting of stockholders will constitute a quorum for the transaction of business
at the meeting. The Indus River by-laws provide that a majority of the votes
properly cast upon any question other than an election to an office will decide
the question, except when a larger vote is required by law, by the Indus River
certificate of incorporation or by the Indus River by-laws. A plurality of the
votes properly cast for election to any office will elect to that office, except
when a larger vote is required by law, by the Indus River certificate of
incorporation or the Indus River by-laws.
NUMBER OF DIRECTORS
Under the Delaware General Corporation Law, the minimum number of directors
is one. The Delaware General Corporation Law permits the board of directors to
change the authorized number of the range of directors by amendment to the
by-laws, unless the directors are not authorized in the certificate of
incorporation to amend the by-laws or the number of directors is fixed in the
certificate of incorporation. If the board of directors is not authorized to
change the number of directors, then a change may be made only upon approval by
the stockholders.
CABLETRON. The Cabletron certificate of incorporation does not set a
number of directors.
INDUS RIVER. The Indus River by-laws provide for not less than three and
no more than seven directors, or any other number that the stockholders may
establish. The Indus River certificate of incorporation provides for the
election of seven directors, and that the directors may not be increased in
excess of seven without the consent of at least two-thirds of the then
outstanding shares of each series of Indus River preferred stock, voting
together as a single class.
BOARD CLASSIFICATION
CABLETRON. The Cabletron by-laws provide for Cabletron's directors to be
divided into three equal classes with each class comprised of one-third of the
directors being elected to serve until the third succeeding annual meeting.
INDUS RIVER. Neither the Indus River certificate of incorporation nor the
Indus River by-laws provides for board classification.
NOMINATION AND ELECTION OF DIRECTORS
CABLETRON. Cabletron's certificate of incorporation provides for directors
to be elected at an annual meeting of stockholders held on a date and at a time
designated by or in the manner provided in the Cabletron by-laws. Cabletron's
certificate of incorporation provides that elections of directors need not be by
written ballot, unless required by the Cabletron by-laws. The Cabletron by-laws
state that no ballot will be required for any election unless requested by a
stockholder present or represented at the meeting and entitled to vote in the
election. The Cabletron by-laws provide that directors are elected by a
plurality of the votes properly cast by stockholders voting in person or by
proxy at the annual meeting of stockholders. Subject to the rights of the
holders of any Cabletron preferred stock, nominations for the election of
directors may be made by the board of directors or by any stockholder entitled
to vote for the election of directors.
Any Cabletron stockholder entitled to vote for the election of directors
may nominate persons for election as directors by giving timely written notice
to the secretary accompanied by a petition signed by at least 100 record holders
of Cabletron's stock, which represent 1% of the outstanding shares entitled to
vote in the election of directors. To be timely, notice must be given to
Cabletron's principal executive offices not less than 45 days nor more than 60
days before the meeting. If less than 40 days notice or prior public disclosure
of the
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date of the meeting is given or made to the stockholders, to be timely, notice
by the stockholder must be received at Cabletron's principal executive offices
not later than the close of business on the 10th day after the day on which
notice of the date of the meeting was mailed or public disclosure was made. To
be in proper written form, a stockholder's notice must state in writing:
- for each person nominated by the stockholder to serve as director, all
information relating to that person that is required to be disclosed in
solicitations of proxies for election of directors under Regulation 14A
under the Exchange Act, including, the person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected; and
- for the stockholder giving the notice, the name and address of the
stockholder, and the class and number of shares of Cabletron stock which
are beneficially owned by the stockholder.
If any person is nominated by Cabletron's board of directors for election as a
director, that person shall furnish to the secretary the same information about
the nominee that those stockholders submitting notices of nomination are
required to submit.
INDUS RIVER. Indus River's by-laws provide that directors are elected at
the annual meeting of the stockholders in the manner provided in the Indus River
certificate of incorporation. Each director holds office until a successor is
elected and qualified, or until his earlier, resignation, removal or
disqualification.
Indus River's certificate of incorporation provides that the holders of
record of the shares of Indus River preferred stock, voting together as a single
class, are entitled to elect three members of Indus River's board of directors,
and the holders of record of the shares of Indus River common stock, voting as a
separate class, are entitled to elect three directors, one of whom shall be the
chief executive officer. The seventh director will be designated by the chief
executive officer and confirmed by a vote of the holders of record of the shares
of Indus River preferred stock, voting together as a single class. If Indus
River fails to redeem the Indus River preferred stock in the manner provided in
its certificate of incorporation, the holders of record of the shares of Indus
River preferred stock, voting together as a single class, will be entitled to
elect a majority of the directors, and will use their best efforts to cure the
default as soon as possible. A majority of the shares of Indus River preferred
stock then outstanding will constitute a quorum for the election of directors by
the holders of Indus River preferred stock. Directors may resign by delivering a
written resignation to Indus River at its principal office or to Indus River's
president or secretary.
REMOVAL OF DIRECTORS
CABLETRON. Cabletron's certificate of incorporation provides for removal
of directors at any time, but only if there is a valid concern about the
director's ability and fitness to perform his duties, and only by the
affirmative vote of 85% of the total number of votes of the then outstanding
shares of Cabletron stock entitled to vote generally in the election of
directors, voting together as a single class excluding shares beneficially owned
by a related person. Related person is defined below under "-- Vote Required for
Mergers".
INDUS RIVER. Indus River's by-laws provide that, a director may be removed
at any time by the affirmative vote of a majority of shares issued and
outstanding and entitled to vote to elect that director. The Indus River
certificate of incorporation provides that any director elected by a separate
class may only be removed by a vote of the holders of a majority of the shares
of that class.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
CABLETRON. Cabletron's by-laws provide that vacancies may be filled only
by a majority vote of the directors in office, even if the number of directors
remaining in office is less than a quorum, and newly created directorships may
be filled by the board of directors, or if not so filled, by the stockholders at
the next annual meeting or at any special meeting they called for that purpose.
INDUS RIVER. Indus River's by-laws provide that, subject to the provision
of the Indus River certificate of incorporation, any vacancies and newly created
directorships resulting from an increase in the number of
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directors may be filled by a vote of the stockholders, or by a majority of the
directors then in office, even if than a quorum, or by a sole remaining
director.
The Indus River certificate of incorporation provides for a vacancy in any
directorship elected by the holders of the Indus River preferred stock will be
filled only by vote of the holders of Indus River preferred stock, and a vacancy
in any directorship elected by the holders of Indus River common stock to be
filled only by vote of the holders of Indus River common stock.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
CABLETRON. Cabletron's certificate of incorporation provides that the
affirmative vote of the holders of at least 85% of the total number of votes of
the then outstanding shares of stock of Cabletron entitled to vote generally in
the election of directors, voting together as a single class, but excluding
shares beneficially owned by a related person, will be required to amend
significant provisions contained in Cabletron's certificate of incorporation.
Cabletron's certificate of incorporation also provides in the applicable
certificate of designation that Cabletron may not amend, alter or repeal the
preference, rights, or powers of Cabletron's preferred stock, including the
Cabletron series C preferred stock, if the amendment would adversely affect the
preferred stock, without the written consent or affirmative vote of the holders
of a majority of the then outstanding shares of preferred stock to be affected
by the action, given in writing or by vote at a meeting, consenting or voting
separately as a class.
INDUS RIVER. Indus River's certificate of incorporation provides that if
any shares of Indus River preferred stock are outstanding, Indus River may not
amend, alter or repeal its certificate of incorporation in a manner materially
detrimental or adverse to the rights of the holders of Indus River preferred
stock, without the approval of the holders of at least two-thirds of the then
outstanding shares of Indus River preferred stock, voting or consenting together
as a single class. The certificate of incorporation also provides that no
provision of the terms of the Indus River series A, series B, series C or series
D preferred stock may be amended, modified or waived without the written consent
or affirmative vote of at least two-thirds of the then outstanding shares of
Indus River preferred stock, voting or consenting together as a single class.
AMENDMENTS TO BY-LAWS
CABLETRON. Cabletron's certificate of incorporation provides that
Cabletron's by-laws may be altered or repealed and new by-laws may be adopted by
a vote of a majority of the directors, and also by a 2/3 vote of the Cabletron
stockholders.
INDUS RIVER. Indus River's certificate of incorporation provides that if
any shares of Indus River preferred stock are outstanding, Indus River may not
amend, alter or repeal its by-laws in a manner materially detrimental or adverse
to the rights of the holders of Indus River preferred stock, without the
approval of the holders of at least two-thirds of the then outstanding shares of
Indus River preferred stock, voting or consenting together as a single class.
The Indus River by-laws provide that the by-laws may be adopted, amended or
repealed by a vote of a majority of the directors then in office or by vote of a
majority of the stock outstanding and entitled to vote. Any by-law, whether
adopted, amended or repealed by the stockholders or directors, may be amended or
reinstated by the stockholders or the directors.
STOCKHOLDER ACTION
CABLETRON. Cabletron's certificate of incorporation provides that any
action required or permitted to be taken by the Cabletron stockholders must be
done at a properly called annual or special meeting and may not be done by
written consent.
INDUS RIVER. Indus River's by-laws provide that, unless otherwise provided
in the certificate of incorporation, any action which may be taken at a meeting
of stockholders may be taken without a meeting, without prior notice and without
a vote, if a consent in writing, describing the action taken, is signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to
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authorize or take the action at a meeting at which all shares entitled to vote
on the matter were present and voted.
SPECIAL STOCKHOLDER MEETINGS
CABLETRON. Cabletron's by-laws provide that a special meeting of
Cabletron's stockholders may be called at any time by the chairman, if any, of
Cabletron's board of directors, the president or the board of directors. A
special meeting may also be called by the secretary upon application of a
majority of the directors.
INDUS RIVER. Indus River's by-laws provide that special meetings of the
stockholders may be called at any time by request of:
- the chairman of the board of directors,
- the president,
- any two directors,
- the holders of at least 35% of the outstanding shares of Indus River
series A preferred stock,
- the holders of at least 45% of the outstanding shares of Indus River
series B preferred stock, or
- the holders of at least 45% of the outstanding shares of Indus River
series D preferred stock.
The request shall state the purpose of the proposed meeting. Notice of the
special meeting must be given to each stockholder entitled to vote at the
meeting, not less than ten and not more than sixty days before the date of the
meeting.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS AND INDEMNIFICATION
CABLETRON. Cabletron's certificate of incorporation provides that a
director will not be personally liable to Cabletron or to its stockholders for
monetary damages for a breach of fiduciary duty as a director, except if
exculpation from liabilities is not permitted under the Delaware General
Corporation Law. The Delaware General Corporation Law prohibits exculpation for:
- any breach of the director's duty of loyalty to Cabletron or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- liability for unlawful payment of dividends or unlawful stock purchases
or redemptions; or
- any transaction from which the director received an improper personal
benefit.
Cabletron's certificate of incorporation also provides that no amendment
to, or repeal of, the provisions related to liability will apply to or affect
the liability or alleged liability of any director for, or related to, any acts
or omissions of the director before the amendment.
Cabletron's certificate of incorporation provides a right to
indemnification to directors and officers of Cabletron subject to the
limitations under Delaware General Corporation Law.
INDUS RIVER. Indus River's certificate of incorporation also provides that
a director will not be personally liable to Cabletron or to its stockholders for
monetary damages for a breach of fiduciary duty as a director, except if
exculpation from liabilities is not permitted under the Delaware General
Corporation Law.
Indus River's certificate of incorporation also provides that no amendment
to, or repeal of, the provisions related to liability will apply to or affect
the liability or alleged liability of any director for, or related to, any acts
or omissions of the director before the amendment.
Indus River's certificate of incorporation provides a right to
indemnification to directors and officers of Indus River subject to the
limitations under Delaware General Corporation Law.
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DIVIDENDS
CABLETRON. Cabletron's certificate of designation for the Cabletron series
A and Cabletron series B preferred stock provides that the holders of
outstanding shares of Cabletron series A and Cabletron series B preferred stock
are entitled to receive, when declared by Cabletron's board of directors,
cumulative cash dividends per share equal to a minimum of $40.00 per year and
those holders may receive a greater amount as provided in the certificate of
designation. Holders of Cabletron series A and Cabletron series B preferred
stock are entitled to accrual of dividends before Cabletron can distribute
dividends to holders of Cabletron common stock or holders of Cabletron series C
preferred stock, and dividends on the Cabletron series A and Cabletron series B
preferred stock will accrue, whether or not they have been declared and whether
or not Cabletron has profits, surplus or other funds legally available to pay
them. Cabletron will not pay any cash dividends to holders of Cabletron series A
and Cabletron series B preferred stock without the written consent or
affirmative vote of the then issued and outstanding shares of Cabletron series A
preferred stock and Cabletron series B preferred stock. Holders of Cabletron
series A and Cabletron series B preferred stock are not entitled to participate
in any other dividends.
Cabletron's certificate of designation for the Cabletron series C preferred
stock will provide that the holders of outstanding shares of Cabletron series C
preferred stock will be entitled to receive cash dividends to the same extent as
holders of Cabletron common stock, except that the holders of Cabletron series C
preferred will not be entitled to receive dividends that constitute an
extraordinary distribution. Each share of Cabletron series C preferred stock
will be entitled to receive dividends at a rate per share equal to the dividend
declared on each share of Cabletron common stock multiplied by the applicable
conversion rate, which is determined as described above under "Description of
Cabletron Capital Stock -- Preferred Stock -- Series C Preferred
Stock -- Conversion Rights."
Cabletron has paid no dividends on its common stock and anticipates that it
will continue to reinvest earnings to finance future growth.
INDUS RIVER. Indus River's certificate of incorporation provides that the
holders of Indus River series A preferred stock are entitled to receive, when
declared by the Indus River board of directors, quarterly dividends at the rate
of $0.07 per share. The holders of Indus River series B preferred stock are
entitled to receive, when declared by the Indus River board of directors,
quarterly dividends at the rate of $0.19 per share. The holders of Indus River
series C preferred stock are entitled to receive, when declared by the Indus
River board of directors, quarterly dividends at the rate of $0.29 per share.
The holders of Indus River series D preferred stock are entitled to receive,
when declared by the Indus River board of directors, quarterly dividends at the
rate of $0.374 per share. Dividends accrue daily, whether or not earned or
declared, and are cumulative. Dividends may also be declared and paid on the
common stock, when declared by the Indus River board of directors, subject to
the rights and preferences of the holders of Indus River preferred stock.
Indus River's certificate of incorporation also provides that, if any
shares of Indus River preferred stock are outstanding, Indus River may not pay
any dividend on any shares of stock other than the Indus River preferred stock,
without the approval of the holders of at least two-thirds of the then
outstanding shares of Indus River preferred stock, voting or consenting together
as a single class. However, Indus River may pay dividends that are payable on
Indus River stock if the dividends are solely in the form of additional shares
of Indus River stock without this approval.
LIQUIDATION
CABLETRON. Holders of Cabletron common stock have no preferential rights
if there is a liquidation of Cabletron. Holders of Cabletron series C preferred
stock have preferential rights over holders of Cabletron common stock if there
is a liquidation of Cabletron. Holders of Cabletron series C preferred stock are
junior in rights of liquidation to holders of Cabletron series A and Cabletron
series B preferred stock. If there is a liquidation, holders of Cabletron series
C preferred stock will be entitled to receive a liquidation amount determined in
the manner described above in "Description of Cabletron Capital
Stock -- Preferred Stock -- Series C Preferred Stock -- Liquidation."
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INDUS RIVER. Indus River's certificate of incorporation provides that in a
liquidation of Indus River, the holders of Indus River preferred stock then
outstanding are entitled to be paid out of Indus River's assets available for
distribution to its stockholders:
- holders of shares of Indus River series A preferred stock are entitled to
be paid an amount equal to $1.00 per share;
- holders of shares of Indus River series B preferred stock are entitled to
be paid an amount equal to $2.72 per share;
- holders of shares of Indus River series C preferred stock are entitled to
be paid an amount equal to $4.08 per share; and
- holders of shares of Indus River series D preferred stock are entitled to
be paid an amount equal to $5.34 per share.
Payment is subject to appropriate adjustment for stock dividends, stock
splits, combinations or other similar recapitalizations affecting the preferred
shares, plus any accrued dividends, whether or not declared, and any dividends
declared but unpaid on the preferred shares. If, upon the liquidation of Indus
River the remaining assets of Indus River available for distribution to its
stockholders are insufficient to pay the holders of a particular series of Indus
River preferred stock the full amount they are entitled to receive, the holders
of shares of Indus River preferred stock will share ratably in distribution of
the remaining assets and funds of Indus River in proportion with their holdings.
Indus River's certificate of incorporation also provides that, after the payment
of all preferential amounts required to be paid to the holders of Indus River
preferred stock, any remaining assets and funds of Indus River available for
distribution will be distributed ratably among the holders of Indus River common
stock and Indus River preferred stock, based upon the number of shares held by
each stockholder, on an as-converted basis.
Indus River's certificate of incorporation provides that the consolidation
or merger of Indus River into or with any other entity or entities which results
in the exchange of outstanding securities of Indus River for securities or other
consideration issued or paid by that entity or its affiliate, and the sale,
lease, abandonment, transfer or other disposition by Indus River of all or
substantially all its assets, will be a liquidation.
CONVERSION
CABLETRON. Holders of Cabletron common stock have no rights to convert
their shares into any other securities. Subject to the terms, conditions,
limitations and adjustments stated in the certificate of designation for the
Cabletron series C preferred stock, the holders of Cabletron series C preferred
stock will generally have the right, at their option, to convert their shares of
Cabletron series C preferred stock into Cabletron common stock after the earlier
to occur of:
- an Enterasys spinoff that occurs on or after the first anniversary of the
date the series C preferred stock is issued;
- an Enterasys transaction at any time; and
- the second anniversary of the date the series C preferred stock is
issued.
If Cabletron establishes a record date for an Enterasys spinoff before the
first anniversary of the date the series C preferred stock is issued, then the
holders of Cabletron series C preferred stock will have the right, at their
option, to convert their shares of Cabletron series C preferred stock
immediately before the Enterasys spinoff. If any holder of Cabletron series C
preferred stock elects to exercise its conversion rights, it will receive the
number of fully paid and non assessable shares of Cabletron common stock,
determined by using the formula in the certificate of designation for the
Cabletron series C preferred stock, and that is described above under
"Description of Cabletron Capital Stock -- Preferred Stock -- series C Preferred
Stock -- Conversion Rights." No fractional shares of Cabletron common stock may
be issued upon conversion of Cabletron series C preferred stock. Instead of any
fractional shares that a holder would be entitled to receive, Cabletron will pay
cash equal to the fraction multiplied by the then applicable conversion rate.
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INDUS RIVER. Holders of Indus River common stock have no right to convert
their shares into any other securities. Subject to the terms, conditions,
limitations and adjustments stated in Indus River's certificate of
incorporation, the holders of each series of Indus River preferred stock have
the right, at their option, to convert any shares of preferred stock into the
number of fully paid and nonassessable shares of Indus River common stock,
determined by using the formula in the Indus River certificate of incorporation.
Based on the formula and taking into consideration previous stock splits, the
current rates of conversion are:
- each share of Indus River series A preferred stock is convertible into
one share of Indus River common stock;
- each share of Indus River series B preferred stock is convertible into
one share of Indus River common stock;
- each share of Indus River series C preferred stock is convertible into
one share of Indus River common stock; and
- each share of Indus River series D preferred stock is convertible into
one share of Indus River common stock.
No fractional shares of common stock may be issued upon conversion of Indus
River preferred stock. Instead of any fractional shares that a holder would be
entitled to receive, Indus River will pay cash equal to the fraction multiplied
by the then effective applicable conversion price.
The Indus River certificate of incorporation also provides that if Indus
River conducts a firm commitment underwritten public offering of shares of Indus
River common stock in which the aggregate price paid for those shares by the
public is at least $30,000,000, and the price paid by the public is at least
$10.68 per share, then the Indus River preferred stock shall be subject to
mandatory conversion into shares of common stock on the basis described above.
REDEMPTION RIGHTS
CABLETRON. Holders of Cabletron common stock have no redemption rights.
Each holder of Cabletron series C preferred stock has the right to require
Cabletron to redeem all, but not less than all, of that holder's shares of
series C preferred stock immediately before the occurrence of the first to occur
of:
- an Enterasys spinoff after the first anniversary of the date of issuance
of the series C preferred stock and before the second anniversary of the
date of issuance of the series C preferred stock; and
- an Enterasys transaction.
The redemption price to be paid will be equal in value to 1% of the
fully-diluted stock of Enterasys, determined as of the day the merger closes,
adjusted for stock splits, stock dividends, recapitalizations, extraordinary
distributions and other similar events affecting the stock of Enterasys, divided
by 50,000. If the redemption right is exercised in an Enterasys spinoff, the
redemption price will be paid in shares of Enterasys stock at the beginning of
the spin-off. If the redemption right is exercised in an Enterasys transaction,
the redemption price will be paid in securities or assets of the surviving
corporation immediately after the transaction.
The redemption rights for the Cabletron series C preferred stock will
terminate immediately after the first to occur of:
- an Enterasys spinoff;
- an Enterasys transaction; and
- the second anniversary of the date of issuance of the series C preferred
stock.
Cabletron will give each holder of Cabletron series C preferred stock at
least 30 days notice of its intention to either conduct an Enterasys spinoff or
an Enterasys transaction, advising each holder of series C preferred stock of
its conversion and redemption rights. Each holder of series C preferred stock
will have
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<PAGE> 85
15 days from the date of the notice to deliver a notice to the escrow agent
advising the escrow agent of its intention to require Cabletron to redeem or
convert all, but not less than all, of the series C preferred stock held by that
holder.
INDUS RIVER. Indus River's certificate of incorporation provides that on
June 30, 2004, June 30, 2005 and June 30, 2006, at the election of the holders
of a majority of the shares of Indus River series A preferred stock, Indus River
series B preferred stock, Indus River series C preferred stock and Indus River
series D preferred stock then outstanding, Indus River will redeem the shares of
Indus River preferred stock. The redemption price will be $1.00 per share of
Indus River series A preferred stock, $2.72 per share of Indus River series B
preferred stock, $4.08 per share of Indus River series C preferred stock and
$5.34 per share of Indus River series D preferred stock, plus declared but
unpaid dividends for each share of preferred stock. This redemption price will
be adjusted for dividends, stock splits, combinations or other similar
recapitalizations affecting the shares. The portions of Indus River preferred
stock to be redeemed on each redemption date will be:
- 33 1/3% on June 30, 2004
- 50% of the remaining outstanding shares on June 30, 2005 and
- 100% all remaining outstanding shares on June 30, 2006.
If the funds of Indus River legally available for redemption of Indus River
preferred stock on any mandatory redemption date are not sufficient to redeem
the shares of Indus River preferred stock required to be redeemed, the funds
that are legally available for redemption will be used to redeem the maximum
possible number of shares of Indus River preferred stock on a pro rata basis.
If, at any time, additional funds of Indus River become legally available for
redemption of Indus River preferred stock, those funds will be used, at the end
of the next fiscal quarter, to redeem, the balance of the shares that are
subject to the right of redemption.
Indus River's certificate of incorporation also provides for a special
mandatory conversion of the Indus River series A preferred stock, Indus River
series B preferred stock and Indus River series D preferred stock if the holders
of that preferred stock do not exercise rights to participate in a subsequent
equity financing. If that occurs, the shares of Indus River preferred stock will
be automatically converted into Indus River series A-1 preferred stock, Indus
River series B-1 preferred stock and Indus River series D-1 preferred stock,
with rights and preferences similar to the original preferred stock, except that
the conversion price will be fixed and will not be subject to adjustment.
APPRAISAL RIGHTS
CABLETRON. Cabletron is a Delaware corporation. Under the Delaware General
Corporation Law, dissenters' rights of appraisal are available to a stockholder
of a corporation only in some mergers or consolidations involving that
corporation. Appraisal rights are not available under the Delaware General
Corporation Law if the corporation's stock is either:
- listed on a national securities exchange, as the Cabletron common stock
is, or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
or
- held of record by more than 2,000 stockholders;
Appraisal rights will be available if the merger or consolidation requires
stockholders to exchange their shares of Cabletron common stock for anything
other than:
- shares of the surviving corporation, plus cash instead of any fractional
shares; or
- shares of another corporation that will be listed on a national
securities exchange, designated as a national market system security on
an interdealer quotation system by the National Association of Securities
Dealers or held of record by more than 2,000 stockholders, plus cash
instead of fractional shares.
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No appraisal rights are available under the Delaware General Corporation
Law if the corporation is the surviving corporation, and no vote of its
stockholders is required for the merger.
INDUS RIVER. Indus River is also a Delaware corporation and dissenters'
rights of appraisal are available for shares of Indus River common stock and
Indus River preferred stock in some mergers or consolidations involving Indus
River in the same manner as described above.
VOTE REQUIRED FOR MERGERS
The Delaware General Corporation Law generally requires the affirmative
vote of a majority of a corporation's outstanding shares entitled to vote,
unless the certificate of incorporation requires a greater proportion, to
authorize a merger, consolidation, share exchange, dissolution or disposition of
all or substantially all of its assets. Unless required by its charter, no
authorizing stockholder vote is required of a corporation surviving a merger if:
- that corporation's charter is not amended by the merger;
- each share of stock of that corporation will be an identical share of the
surviving corporation after the merger; and
- the number of shares to be issued in the merger does not exceed 20% of
that corporation's outstanding common stock immediately before the
effective date of the merger.
Unless a dissolution is adopted by a majority of the board of directors, a
dissolution must be approved by all stockholders entitled to vote on the matter.
CABLETRON. Cabletron's certificate of incorporation provides that some
transactions, including mergers, consolidations, issuances of securities, some
asset dispositions, liquidations or dissolutions between Cabletron and a related
person must be approved by the affirmative vote of 85% of the outstanding shares
of stock entitled to vote generally for the election of directors unless:
- the board of directors of Cabletron has approved a binding agreement with
the person or entity for the transaction or has approved the transaction
which resulted in that party becoming a related person, before the time
that party became a related person, and a majority of the members of the
board of directors that voted for the approval of the transaction were
continuing directors; or
- the related person is a majority-owned subsidiary of Cabletron.
The Cabletron certificate of incorporation defines a related person as any
individual, corporation, partnership, unincorporated association or other person
or entity that, with its affiliates and associates, beneficially owns, or during
the three-year period immediately before the date on which it is sought to be
determined whether that person is a related person, owned 5% or more of the
outstanding shares of voting stock of any class of Cabletron's securities. The
term related person does not include:
- Cabletron or any direct or indirect majority-owned subsidiary of
Cabletron;
- any person that, with its affiliates and associates, beneficially owned
in the aggregate 5% or more of the outstanding shares of voting stock of
any class of Cabletron stock at the time of Cabletron's initial public
offering, any affiliate or associate of that person or any person that
acquired those shares from that person by gift, inheritance or in a
transaction in which no consideration was exchanged; or
- any person whose ownership of shares in excess of the 5% limitation
stated above is the result of action taken solely by Cabletron.
However, a person will be a related person if afterwards that person acquires
additional shares of voting stock of Cabletron. A person who does this will not
be a related person if the additional shares were acquired because of corporate
action not caused, directly or indirectly by that person. For the purpose of
determining whether a person is a related person, the voting stock of Cabletron
considered outstanding shall include stock beneficially owned by the person.
However, the voting stock outstanding will not include any other unissued
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<PAGE> 87
stock of Cabletron which may be issuable under any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options, or
other similar securities.
INDUS RIVER. Indus River is a Delaware corporation and is subject to the
provisions of the Delaware General Corporation Law described above. The Indus
River's certificate of incorporation also provides that if any shares of Indus
River preferred stock are outstanding, Indus River may not consolidate or merge
with or into any other entity without the approval of the holders of at least
two-thirds of the then outstanding shares of Indus River preferred stock, voting
or consenting as a single class.
ANTI-TAKEOVER PROVISIONS
The Delaware General Corporation Law prohibits some transactions between a
Delaware corporation and an interested stockholder, which is defined as a person
that is directly or indirectly a beneficial owner of 15% or more of the voting
power of the outstanding voting stock of a Delaware corporation and affiliates
and associates of that person. This provision prohibits some business
combinations, which is defined broadly to include mergers, consolidations, sales
or other dispositions of assets having an aggregate value in excess of 10% of
the consolidated assets of the corporation, and other transactions, between an
interested stockholder and a corporation for a period of three years after the
date the interested stockholder acquired its stock. However, the prohibition
does not apply if either:
- the business combination is approved by the corporation's board of
directors before the date the interested stockholder acquired its shares;
- the interested stockholder acquired at least 85% of the voting stock of
the corporation, excluding shares held by directors of the corporation
who are also officers and shares held under employee stock plans, in the
transaction in which it became an interested stockholder; or
- the business combination is approved by a majority of the board of
directors and the affirmative vote of two-thirds of the votes entitled to
be cast by disinterested stockholders at an annual or special meeting.
This law applies automatically to a Delaware corporation unless its
certificate of incorporation or bylaws explicitly state that the law will not
apply, or if the corporation has less than 2,000 stockholders of record and does
not have voting stock listed on a national securities exchange or listed for
quotation with a registered national securities association.
CABLETRON. Neither the Cabletron certificate of incorporation nor the
Cabletron by-laws exempts Cabletron from the provision of the Delaware General
Corporation Law limiting transactions with interested stockholders.
INDUS RIVER. Indus River is also a Delaware corporation and is subject to
the same provisions of the Delaware General Corporation Law. Neither the Indus
River certificate of incorporation nor the Indus River by-laws exempts Indus
River from the provision of the Delaware General Corporation Law limiting
transactions with interested stockholders.
STOCKHOLDER DERIVATIVE SUITS
Under the Delaware General Corporation Law, a stockholder may bring a
derivative action on behalf of the corporation only if the stockholder was a
stockholder of the corporation at the time of the transaction in question or if
he obtained his stock by operation of law. A stockholder must also first make
demand on the corporation that it bring suit and have that demand be refused,
unless it is shown that the demand would have been futile.
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<PAGE> 88
INFORMATION CONCERNING INDUS RIVER
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS
OF INDUS RIVER
The following table provides information about the number of shares of
Indus River stock that were beneficially owned as of November 30, 2000 by:
- each person that beneficially owns more than 5% of the outstanding shares
of Indus River common stock and preferred stock;
- each director of Indus River;
- Indus River's chief executive officer;
- the four other most highly compensated Indus River executive officers who
received annual compensation in excess of $100,000, collectively referred
to below as the executive officers; and
- all Indus River executive officers and directors as a group.
Except as indicated by the notes to the table below, the holders listed
below have sole voting and investment power over the shares beneficially owned.
Beneficial ownership is determined according to the rules of the Securities and
Exchange Commission. Beneficial ownership includes restricted stock or shares
subject to options which will vest or will be exercisable within 60 days
following November 30, 2000, and shares which become exercisable upon the
completion of the merger. All percentages assume that the restricted stock or
options of the particular person or group in question, and no others, have
vested or have been exercised. Unless stated differently below, the address for
each person is to the care of Indus River.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP AS OF NOVEMBER 30, 2000
-------------------------------------------------------
NAME OF DIRECTORS, EXECUTIVE OFFICERS, PERCENT PERCENT
PRINCIPAL STOCKHOLDERS, AND OF OF
EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP CLASS OF STOCK SHARES (#) PREFERRED COMMON
------------------------------------------- -------------- ---------- ----------- --------
<S> <C> <C> <C> <C>
5% BENEFICIAL HOLDERS
New Enterprise Associates(1).................. Preferred 2,411,544 23.1% 36.4%
11951 Freedom Drive, Suite 1240
Reston, VA 20190
Canaan Ventures(2)............................ Preferred 2,411,543 23.1% 36.4%
105 Rowayton Avenue
Rowayton, CT 06853
One Liberty Ventures(3)....................... Preferred 2,411,543 23.1% 36.4%
150 Cambridgepark Drive Common 266,333 * 4.0%
Cambridge, MA 02140
Ascent Venture Partners(4).................... Preferred 1,426,217 13.7% 25.3%
60 State Street
Boston, MA 02109
MCI Worldcom Venture Fund..................... Preferred 936,101 9.0% 18.2%
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20036
Per A. Suneby................................. Common 1,041,630 * 24.8%
EXECUTIVE OFFICERS AND DIRECTORS
Per A. Suneby(5).............................. Common 1,041,630 * 24.8%
Julian W. West(6)............................. Common 580,073 * 13.8%
Malik Z. Khan(7).............................. Common 775,296 * 18.4%
David Zwicker(8).............................. Common 214,999 * 5.1%
Garth Rose(9)................................. Common 162,187 * 3.9%
David Gamache(10)............................. Common 165,938 * 3.9%
William A. Harper(11)......................... Common 75,000 * 1.8%
Craig DeMunbrun(12)........................... Common 50,000 * 1.2%
Stephen J. Ricci.............................. Common 266,333 * 4.0%
Preferred 2,411,543 23.1% 36.4%
</TABLE>
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<PAGE> 89
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP AS OF NOVEMBER 30, 2000
-------------------------------------------------------
NAME OF DIRECTORS, EXECUTIVE OFFICERS, PERCENT PERCENT
PRINCIPAL STOCKHOLDERS, AND OF OF
EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP CLASS OF STOCK SHARES (#) PREFERRED COMMON
------------------------------------------- -------------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Arthur J. Marks............................... Preferred 2,411,544 23.1% 36.4%
James C. Furnivall............................ Preferred 2,411,543 23.1% 36.4%
Arthur I. Anderson(13)........................ Preferred 43,744 * 1.0%
Benson P. Shapiro(14)......................... Common 75,000 * 1.8%
Preferred 50,955 * 1.2%
All executive officers and directors as a
group....................................... Common 3,406,455 * 29.5%
Preferred 7,329,329 70.2% 63.5%
</TABLE>
---------------
* Beneficial ownership does not exceed 1% of the outstanding Indus River
common stock.
(1)Shares consist of restricted stock held by the following funds:
- 2,374,466 shares held by NEA Associates VII, Limited Partnership. Arthur
J. Marks, a member of the board of directors of Indus River, is the
general partner of NEA Partners VII, Limited Partnership, which is the
general partner of NEA Associates VII, Limited Partnership. Mr. Marks
disclaims beneficial ownership of these shares, except for his pecuniary
interest in the shares.
- 32,078 shares held by NEA Presidents' Fund, L.P. Mr. Marks is also the
general partner of NEA General Partners, L.P., which is the general
partner of NEA Presidents' Fund, L.P. Mr. Marks disclaims beneficial
ownership of these shares, except for his pecuniary interest in the
shares.
- 5,000 shares held by NEA Ventures 1997, L.P.
(2)Shares consist of restricted stock held by the following funds:
- 1,569,877 shares held by Canaan Equity L.P. James C. Furnivall, a member
of the board of directors of Indus River, is a manager member of Canaan
Equity Partners LLC, which is the general partner of Canaan Equity L.P.
Mr. Furnivall disclaims beneficial ownership of these shares, except for
his pecuniary interest in the shares.
- 326,566 shares held by Canaan Ventures II Limited Partnership
- 515,100 shares held by Canaan Ventures II Offshore C.V.
(3)Shares consist of restricted stock held by One Liberty Fund III, L.P.
Stephen J. Ricci, a member of the board of directors of Indus River is the
general partner of One Liberty Fund III, L.P. Mr. Ricci disclaims his
beneficial ownership of these shares except for his pecuniary interest in
the shares.
(4)Shares consist of restricted stock held by the following funds:
- 814,981 shares held by Ascent Venture Partners II, L.P.
- 611,236 shares held by Ascent Venture Partners, L.P.
(5)Shares consist of restricted stock, of which 954,827 shares were vested as
of November 30, 2000, and 86,803 shares will vest as part of accelerated
vesting provisions upon completion of the merger.
(6)Shares consist of restricted stock, of which 531,733 shares were vested as
of November 30, 2000, and 48,340 shares will vest as part of accelerated
vesting provisions upon completion of the merger.
(7)Shares consist of restricted stock, of which 710,688 shares were vested as
of November 30, 2000, and 64,608 shares will vest as part of accelerated
vesting provisions upon completion of the merger.
(8)Includes 100,000 shares of restricted stock which vest as follows:
- 81,250 shares were vested as of November 30, 2000
- 18,750 shares will vest as part of accelerated vesting provisions upon
completion of the merger
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<PAGE> 90
Also includes 114,999 shares underlying stock options which vest as
follows:
- 85,936 shares were vested as of November 30, 2000
- 29,063 shares will vest as part of accelerated vesting provisions upon
completion of the merger
(9)Shares consist of restricted stock which vest as follows:
- 111,562 shares were vested as of November 30, 2000
- 9,375 shares will vest within 60 days of November 30, 2000
- 41,250 shares will vest as part of accelerated vesting provisions upon
completion of the merger
(10)Includes 154,688 shares of restricted stock which vest as follows:
- 103,125 shares were vested as of November 30, 2000
- 10,313 shares will vest within 60 days of November 30, 2000
- 41,250 shares will vest as part of accelerated vesting provisions upon
completion of the merger
Also includes 11,250 shares underlying stock options which vest as follows:
- 6,250 shares were vested as of November 30, 2000
- 5,000 shares will vest as part of accelerated vesting provisions upon
completion of the merger
(11)Shares consist of stock options, of which 37,500 will vest within 60 days of
November 30, 2000 and 37,500 shares will vest as part of accelerated vesting
provisions upon completion of the merger.
(12)Shares consist of stock options, all of which vest as part of accelerated
vesting provisions upon completion of the merger.
(13)Shares consist of restricted stock, all of which are held by an affiliate of
Mr. Anderson. Mr. Anderson disclaims beneficial ownership of these shares.
(14)Shares consist of restricted stock, of which 56,250 shares were vested as of
November 30, 2000, and 18,750 shares will vest as part of accelerated
vesting provisions upon completion of the merger.
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LEGAL MATTERS
Ropes & Gray, Boston, Massachusetts will deliver an opinion to Cabletron
about the validity of the securities offered by this proxy statement/prospectus.
Ropes & Gray, Boston, Massachusetts will deliver an opinion to Cabletron
about the disclosure of income tax consequences of the merger.
McDermott, Will & Emery, Boston, Massachusetts will deliver an opinion to
Indus River about the disclosure of income tax consequences of the merger
contained in this proxy statement/prospectus.
An affiliate of Arthur Anderson, who is the president of a professional
corporation that is a partner of McDermott, Will & Emery, owns 43,744 shares of
Indus River preferred stock. Mr. Anderson disclaims his beneficial ownership of
these shares.
EXPERTS
The consolidated financial statements and the related consolidated
financial statement schedule of Cabletron and its subsidiaries as of February
29, 2000 and February 28, 1999, and for each year in the three-year period ended
February 29, 2000, have been incorporated by reference in the registration
statement, of which this proxy statement/prospectus is a part, in reliance upon
the reports of KPMG LLP, independent certified public accountants. Those reports
are also incorporated by reference in the registration statement of which this
proxy statement/prospectus is a part, and upon the authority of that firm as
experts in accounting and auditing.
OTHER MATTERS
As of the date of this proxy statement/prospectus, the Indus River board of
directors knows of no matters that will be presented for consideration at the
special meeting of stockholders other than as described in this proxy
statement/prospectus.
WHERE YOU CAN FIND MORE INFORMATION
Cabletron files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, statements or other information that Cabletron files with the
Securities and Exchange Commission at the Securities and Exchange Commission:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference room. These Securities and Exchange
Commission filings are also available to the public from commercial document
retrieval services and at the Internet world wide web site maintained by the
Securities and Exchange Commission at http://www.sec.gov. Reports, proxy
statements and other information concerning Cabletron may also be inspected at
the offices of the New York Stock Exchange at 20 Broad Street, New York, New
York 10005.
Cabletron filed a registration statement on Form S-4 on December 8, 2000 to
register with the Securities and Exchange Commission the Cabletron common stock
and the Cabletron series C preferred stock to be issued to Indus River
stockholders in the merger. This proxy statement/prospectus is a part of that
registration statement. As allowed by Securities and Exchange Commission rules,
this proxy statement/prospectus does not contain all the information you can
find in Cabletron's registration statement or the exhibits to the registration
statement.
The Securities and Exchange Commission allows Cabletron to incorporate by
reference information into this proxy statement/prospectus, which means that
Cabletron can disclose important information to you by
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<PAGE> 92
referring you to other documents filed separately by Cabletron with the
Securities and Exchange Commission. The information incorporated by reference is
considered part of this proxy statement/prospectus, except for any information
superseded by information contained directly in this proxy statement/prospectus
or in later filed documents incorporated by reference in this proxy
statement/prospectus.
This proxy statement/prospectus incorporates by reference the documents
mentioned below that Cabletron previously filed with the Securities and Exchange
Commission. These documents contain important business and financial information
about Cabletron that is not included in or delivered with this proxy
statement/prospectus.
<TABLE>
<CAPTION>
CABLETRON FILINGS
(FILE NO. 1-10228) PERIOD
--------------------------------------------- ---------------------------------------------
<S> <C>
Annual report on Form 10-K Fiscal year ended February 29, 2000, as filed
on May 30, 2000
Quarterly reports on Form 10-Q Quarters ended June 3, 2000 and September 2,
2000
Current reports on Form 8-K Filed May 5, 2000 and September 11, 2000, as
amended by Form 8-K/A filed September 29,
2000
Proxy statement, including any additional Filed June 6, 2000
materials submitted with the proxy statement
The description of Cabletron common stock Filed April 9, 1989
contained in Cabletron's registration
statement on Form 8-A, including any
amendments or reports filed for the purpose
of updating the description
</TABLE>
Cabletron also incorporates by reference additional documents that may be
filed with the Securities and Exchange Commission under sections 13(a), 13(c),
14 or 15(d) of the Exchange Act between the date of this proxy
statement/prospectus and the date of the special meeting. These include periodic
reports, such as annual reports on Form 10-K, quarterly reports on Form 10-Q
current reports on Form 8-K, and proxy statements.
Cabletron has supplied all information contained or incorporated by
reference in this proxy statement/ prospectus relating to Cabletron and Indus
River has supplied all information relating to Indus River.
Indus River stockholders should not send in their Indus River certificates
until they receive the transmittal materials from the exchange agent. Indus
River stockholders of record who have further questions about their share
certificates or the exchange of their Indus River stock for Cabletron common
stock should call the exchange agent.
You can obtain any of the documents incorporated by reference through
Cabletron, the Securities and Exchange Commission or the Securities and Exchange
Commission's Internet web site mentioned above. Documents incorporated by
reference are available from Cabletron without charge, excluding all exhibits,
except that if Cabletron has specifically incorporated by reference an exhibit
in this proxy statement/prospectus, the exhibit will also be provided without
charge. Stockholders may obtain documents incorporated by reference in this
proxy statement/prospectus by requesting them in writing or by telephone from
Cabletron at:
Cabletron Systems, Inc.
35 Industrial Way
Rochester, New Hampshire 03867
Attention: Investor Relations
Telephone: (603) 332-9400
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus. Neither Cabletron nor Indus River
has authorized anyone to provide you with information that is different from
what is contained in this proxy statement/prospectus. This proxy
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statement/prospectus is dated December 8, 2000. You should not assume that the
information contained in this proxy statement/prospectus is accurate as of any
date other than that date. Neither the mailing of this proxy
statement/prospectus to stockholders nor the issuance of Cabletron common stock
and Cabletron series C preferred stock in the merger should cause you to assume
that the information contained in the proxy statement/prospectus is accurate as
of any date other than that date.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
Some of the statements in this proxy statement/prospectus, including those
in the Summary, Risk Factors, Merger, Stock Prices and Dividends and Description
of Cabletron Capital Stock sections, are forward-looking statements that involve
risks and uncertainties. Some of the statements in the documents incorporated by
reference in this proxy statement/prospectus, including Cabletron's annual
report on form 10-K and quarterly reports on form 10-Q, are also forward-looking
statements that involve risks and uncertainties. These forward-looking
statements include statements about Cabletron's and Indus River's financial
condition, plans, objectives, strategies, expectations, intentions, operating
efficiencies or synergies, competitive positions, growth opportunities for
existing products, plans and objectives of management, markets for stock of
Cabletron and Indus River, future financial performance and other statements
that are not historical facts. This proxy statement/prospectus contains words
like anticipates, believes, expects, future and intends, and similar expressions
to mean that the statement is forward-looking. You should not rely too much on
these forward-looking statements, which apply only as of the date of this proxy
statement/prospectus. Cabletron's and Indus River's actual results could differ
materially from those anticipated in the forward-looking statements for many
reasons, including the risks described under Risk Factors.
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ANNEX A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CABLETRON SYSTEMS, INC.
AND
ACTON ACQUISITION CO.
AND
INDUS RIVER NETWORKS, INC.
DATED AS OF AUGUST 18, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 95
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. THE MERGER........................................................... A-1
SECTION 1.1 The Merger.................................................. A-1
1.2 Effective Time.............................................. A-2
1.3 Effect of the Merger........................................ A-2
1.4 Charter; By-Laws............................................ A-2
1.5 Directors and Officers...................................... A-2
1.6 Effect on Capital Stock..................................... A-3
1.7 Exchange of Certificates.................................... A-6
1.8 Stock Transfer Books........................................ A-7
1.9 No Further Ownership Rights in Shares....................... A-7
1.10 Lost, Stolen or Destroyed Certificates...................... A-7
1.11 Tax Consequences............................................ A-7
1.12 Taking of Necessary Action; Further Action.................. A-7
1.13 No Liability................................................ A-8
1.14 Withholding Rights.......................................... A-8
1.15 Material Adverse Effect..................................... A-8
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................... A-8
2.1 Organization, Qualification and Other Equity Interests...... A-8
2.2 Charter and By-Laws......................................... A-8
2.3 Capitalization.............................................. A-8
2.4 Authority Relative to this Agreement (a).................... A-9
2.5 Contracts; No Conflict; Required Filings and Consents....... A-9
2.6 Compliance; Permits......................................... A-10
2.7 Financial Statements........................................ A-10
2.8 Absence of Certain Changes or Events........................ A-11
2.9 No Undisclosed Liabilities.................................. A-11
2.10 Absence of Litigation....................................... A-11
2.11 Employee Benefit Plans, Employment Agreements............... A-11
2.12 Labor Matters............................................... A-13
2.13 Registration Statement, Proxy Statement/Prospectus.......... A-13
2.14 Restrictions on Business Activities......................... A-14
2.15 Title to Property........................................... A-14
2.16 Taxes....................................................... A-14
2.17 Environmental Matters....................................... A-15
2.18 Intellectual Property....................................... A-16
2.19 Affiliated Transactions..................................... A-17
2.20 Government Contracts........................................ A-17
2.21 Insurance................................................... A-17
2.22 Accounts Receivable/Inventories............................. A-18
2.23 Equipment................................................... A-18
2.24 Brokers..................................................... A-18
2.25 Change in Control Payments.................................. A-18
</TABLE>
-i-
<PAGE> 96
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
2.26 Full Disclosure............................................. A-18
2.27 Expenses.................................................... A-18
2.28 Product Warranties; Defects................................. A-18
2.29 No Illegal Payments, etc.................................... A-19
2.30 Distributors, Customers and Suppliers....................... A-19
2.31 Stockholder Agreement....................................... A-19
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB............ A-19
3.1 Organization and Qualification; Subsidiaries................ A-19
3.2 Charter and By-Laws......................................... A-19
3.3 Capitalization.............................................. A-20
3.4 Authority Relative to this Agreement........................ A-20
3.5 No Conflict, Required Filings and Consents.................. A-20
3.6 SEC Filings; Financial Statements........................... A-21
3.7 Registration Statement; Proxy Statement/Prospectus.......... A-21
3.8 Ownership of Merger Sub; No Prior Activities................ A-22
3.9 Parent Shares; Enterasys Shares............................. A-22
3.10 Capitalization of Enterasys................................. A-22
3.11 Financial Statements of Enterasys........................... A-22
ARTICLE IV. CONDUCT OF BUSINESS PENDING THE MERGER.............................. A-23
4.1 Conduct of Business by the Company Pending the Merger....... A-23
4.2 No Solicitation............................................. A-24
ARTICLE V. ADDITIONAL AGREEMENTS................................................ A-25
5.1 Proxy Statement/Prospectus; Registration Statement.......... A-25
5.2 Proxy Statement/Prospectus.................................. A-25
5.3 Stockholder Meeting......................................... A-25
5.4 Access to Information; Confidentiality...................... A-25
5.5 Consents; Approvals......................................... A-25
5.6 Notification of Certain Matters............................. A-26
5.7 Further Action.............................................. A-26
5.8 Public Announcements........................................ A-26
5.9 Conveyance Taxes............................................ A-26
5.10 [INTENTIONALLY OMITTED]..................................... A-27
5.11 Benefit Plans............................................... A-27
5.12 Stockholder Agreements...................................... A-27
5.13 Escrow Agreement............................................ A-27
5.14 Working Capital Financing................................... A-27
5.15 Tax Treatment............................................... A-27
5.16 Advisory Fees............................................... A-27
ARTICLE VI. CONDITIONS TO THE MERGER............................................ A-27
6.1 Conditions to Obligation of Each Party to Effect the
Merger...................................................... A-27
6.2 Additional Conditions to Obligations of Parent and Merger
Sub......................................................... A-28
</TABLE>
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<PAGE> 97
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
6.3 Additional Conditions to Obligation of the Company.......... A-29
ARTICLE VII. TERMINATION........................................................ A-30
7.1 Termination................................................. A-30
7.2 Effect of Termination....................................... A-31
7.3 Fees and Expenses........................................... A-31
ARTICLE VIII. GENERAL PROVISIONS................................................ A-31
8.1 Parent Indemnification...................................... A-31
8.2 Indemnification of Parent................................... A-32
8.3 Escrow Fund................................................. A-33
8.4 Damage Threshold............................................ A-33
8.5 Escrow Period............................................... A-33
8.6 Claims upon Escrow Fund..................................... A-33
8.7 Objections to Claims........................................ A-33
8.8 Resolution of Conflicts; Arbitration........................ A-34
8.9 Stockholder Representative.................................. A-34
8.10 Distribution Upon Termination of Escrow Period.............. A-35
8.11 Third-Party Claims.......................................... A-35
8.12 Maximum Liability and Remedies.............................. A-36
8.13 Notices..................................................... A-36
8.14 Certain Definitions......................................... A-36
8.15 Amendment................................................... A-37
8.16 Waiver...................................................... A-37
8.17 Headings.................................................... A-37
8.18 Severability................................................ A-37
8.19 Entire Agreement............................................ A-37
8.20 Assignment; Guarantee of Merger Sub and Surviving
Corporation Obligations..................................... A-38
8.21 Parties in Interest......................................... A-38
8.22 Failure or Indulgence Not Waiver; Remedies Cumulative....... A-38
8.23 Governing Law............................................... A-38
8.24 Counterparts................................................ A-38
</TABLE>
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<PAGE> 98
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 18, 2000 (this
"AGREEMENT"), among Cabletron Systems, Inc., a Delaware corporation ("PARENT"),
Acton Acquisition Co., a Delaware corporation and a wholly owned subsidiary of
Parent ("MERGER SUB"), and Indus River Networks, Inc., a Delaware corporation
(the "COMPANY").
WITNESSETH:
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have
each determined that it is advisable and in the best interests of their
respective stockholders for Parent and Merger Sub to enter into a business
combination with the Company upon the terms and subject to the conditions set
forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors of
Parent, Merger Sub and the Company have each approved the merger of Merger Sub
with and into the Company (the "MERGER") in accordance with the applicable
provisions of the Delaware General Corporation Law (the "DGCL"), upon the terms
and subject to the conditions set forth herein;
WHEREAS, Parent, Merger Sub and the Company intend, by approving
resolutions authorizing this Agreement, to adopt this Agreement as a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "CODE"), and the regulations promulgated thereunder;
WHEREAS, pursuant to the Merger, all of the outstanding shares (the "COMMON
SHARES") of the Company's common stock, par value $.00001 per share (the
"COMPANY COMMON STOCK"), and all of the outstanding shares (the "COMPANY
PREFERRED SHARES," and together with the Common Shares, the "SHARES"), of the
Company's Series A Convertible Preferred Stock, par value $.00001 per share (the
"SERIES A PREFERRED STOCK"), the Company's Series B Convertible Preferred Stock,
par value $.00001 per share (the "SERIES B PREFERRED STOCK") the Company's
Series C Convertible Preferred Stock, par value $.00001 per share (the "SERIES C
PREFERRED STOCK"), and the Company's Series D Convertible Preferred Stock, par
value $.00001 per share (the "SERIES D PREFERRED STOCK,"and together with the
Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock, the "COMPANY PREFERRED STOCK") shall be converted into the
right to receive the Aggregate Merger Consideration (as defined in Section
1.7(b)), upon the terms and subject to the conditions set forth herein;
WHEREAS, Parent may contribute Company to Enterasys Networks, Inc., a
Delaware corporation ("ENTERASYS"), following the Merger.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub, and the Company hereby agree as follows:
ARTICLE I -- THE MERGER
SECTION 1.1 The Merger.
(a) Effective Time. At the Effective Time (as defined in Section
1.2), and subject to and upon the terms and conditions of this Agreement
and the DGCL, Merger Sub shall be merged with and into the Company, the
separate corporate existence of Merger Sub shall cease, and the Company
shall continue as the surviving corporation. The Company as the surviving
corporation after the Merger is hereinafter sometimes referred to as the
"SURVIVING CORPORATION."
(b) Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to
Section 7.1 and subject to the satisfaction or waiver of the conditions set
forth in Article VI, the consummation of the Merger (the "CLOSING") will
take place as promptly as practicable (and in any event within two business
days) after satisfaction or waiver of the conditions set forth in Article
VI, at the offices of Ropes & Gray, One International Place, Boston,
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Massachusetts, unless another date, time or place is agreed to in writing
by the parties hereto (the "CLOSING DATE").
(c) Company Closing Certificate. At the Closing, the Company shall
deliver to Parent a certificate, in form and substance satisfactory to
Parent and signed by its Chief Executive Officer and Chief Financial
Officer (the "COMPANY CLOSING CERTIFICATE"), certifying as of the Closing
(i) the number of outstanding shares of Company Common Stock, (ii) the
number of shares of Company Preferred Stock and (iii) the number of shares
of Company Common Stock issuable upon the conversion or exercise of all
options, warrants, and other securities (including, without limitation,
shares of Company Preferred Stock) of the Company convertible into or
exercisable for shares of Company Common Stock that are outstanding at the
Closing. The sum of the shares identified in (i) and (iii) less any shares
of Company Common Stock issuable upon the exercise of Options (as defined
in Section 1.6(c)) granted as provided in Sections 4.1(b) and 6.2(h) are
hereinafter referred to as the "TOTAL COMPANY OUTSTANDING SHARES."
(d) Parent Closing Certificate. At the Closing, Parent shall deliver
to the Company a certificate, in form and substance satisfactory to the
Company and signed by a duly authorized executive officer (the "PARENT
CLOSING CERTIFICATE"), certifying as of the Closing (i) the number as to
each class of outstanding shares of the capital stock of Enterasys and (ii)
the number as to each class of shares of capital stock of Enterasys
issuable upon the conversion or exercise of all options, warrants, and
other securities of Enterasys or Parent convertible into or exercisable for
shares of capital stock of Enterasys that are outstanding at the Closing.
SECTION 1.2 Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI, the parties
hereto shall cause the Merger to be consummated by filing a duly executed and
delivered copy of the Certificate of Merger substantially in the form attached
hereto as Exhibit 1.2 as contemplated by the DGCL (the "CERTIFICATE OF MERGER"),
with the office of the Secretary of State of the State of Delaware, in such form
as required by, and executed in accordance with the relevant provisions of, the
DGCL (the time of such filing being the "EFFECTIVE TIME").
SECTION 1.3 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Certificate of Merger and
the applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.4 Charter; By-Laws.
(a) Charter. Unless otherwise determined by the Parent prior to the
Effective Time, at the Effective Time, the Certificate of Incorporation of
the Surviving Corporation, as in effect immediately prior to the Effective
Time, shall be amended and restated to read as did the Certificate of
Incorporation of Merger Sub immediately prior to the Effective Time, except
that the name of the Surviving Corporation will remain unchanged.
(b) By-Laws. Unless otherwise determined by the Parent prior to the
Effective Time, at the Effective Time, the By-Laws of the Surviving
Corporation, as in effect immediately prior to the Effective Time, shall be
amended and restated to read as did the By-Laws of Merger Sub immediately
prior to the Effective Time, except that the name of the Surviving
Corporation shall remain unchanged.
SECTION 1.5 Directors and Officers. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of
Merger Sub immediately prior to the Effective Time shall be the initial officers
of the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
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<PAGE> 100
SECTION 1.6 Effect on Capital Stock.
(a) General. Parent will issue 4,000,000 shares of common stock, $.01
par value ("PARENT COMMON STOCK") and 50,000 shares of Series C
Participating Convertible Preferred Stock, $1.00 par value (the "PARENT
PREFERRED STOCK," and together with the Parent Common Stock, the "PARENT
SHARES"), in connection with the acquisition by Parent of the Total Company
Outstanding Shares. The total number of Parent Shares shall be issuable in
respect of the Total Company Outstanding Shares and, except as provided
herein, no adjustment shall be made in the number of Parent Shares issued
at the Closing or in the number of Parent Shares issuable upon exercise of
Options, including, without limitation, as a result of (x) any increase or
decrease in the market price of Parent Common Stock prior to the Effective
Time, or (y) any cash proceeds received by the Company from the date hereof
to the Closing Date pursuant to the exercise of Options or pursuant to the
exercise of any other rights to acquire any capital stock of the Company.
(b) Conversion of Securities.
(i) Liquidation Preference Payments. Each Company Preferred Share
issued and outstanding immediately prior to the Effective Time
(excluding any Company Preferred Shares to be canceled pursuant to
Section 1.6(d)) shall be entitled to receive the liquidation preference
for such Preferred Share, as provided in the Company's Certificate of
Incorporation (each, a "LIQUIDATION PREFERENCE PAYMENT," and
collectively, the "LIQUIDATION PREFERENCE PAYMENTS"). The Liquidation
Preference Payment for each share of Company Preferred Stock shall be
payable in a number of shares of (i) Parent Common Stock equal to that
share's portion of the aggregate of the Liquidation Preference Payments
for that share's series of Company Preferred Stock multiplied by the
Common Exchange Ratio and (ii) Parent Preferred Stock equal to that
share's portion of the aggregate of the Liquidation Preference Payments
for that share's series of Company Preferred Stock multiplied by the
Preferred Exchange Ratio, as described below.
(A) For each series of the Company Preferred Stock:
(1) the Preferred Exchange Ratio for that series equals the
Preferred Liquidation Shares for that series divided by the
aggregate of the Liquidation Preference Payments for that
series;
(2) the Preferred Liquidation Shares for that series equals 50,000
multiplied by the quotient of (x) the aggregate of the
Liquidation Preference Payments for that series divided by (y)
the Total Fair Market Value (as defined herein).
(3) the Common Exchange Ratio for that series equals the Common
Liquidation Shares for that series divided by the aggregate of
the Liquidation Preference Payments for that series; and
(4) the Common Liquidation Shares for that series equals the number
of shares of Parent Common Stock issuable at Closing pursuant to
Section 1.6(a) and reserved at Closing for issuance upon
exercise of the Options (excluding Options granted under the
Stock Option Plan as contemplated by Sections 4.1(b) and 6.2(h)
hereof) multiplied by the quotient of (i) the aggregate of the
Liquidation Preference Payments for that series divided by (ii)
Total Fair Market Value.
(B) For purposes of this Agreement,
(1) "TOTAL FAIR MARKET VALUE" equals the sum of (x) the Parent
Preferred Stock Fair Market Value (as defined herein) and (y)
the Parent Common Stock Fair Market Value (as defined herein);
(2) "PARENT PREFERRED STOCK FAIR MARKET VALUE" equals the product of
50,000 multiplied by the fair market value per share of Parent
Preferred Stock as determined by an appraisal conducted by
Adams, Harkness & Hill, Inc. (or an another appraiser designated
by the Company) as of the fifth trading day prior to the Closing
Date;
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<PAGE> 101
(3) "PARENT COMMON STOCK FAIR MARKET VALUE" equals the product of
the number of shares of Parent Common Stock issuable at Closing
pursuant to Section 1.6(a) and reserved at Closing for issuance
upon exercise of the Options (excluding Options granted under
the Stock Option Plan as contemplated by Sections 4.1(b) and
6.2(h) hereof) multiplied by the average of the closing price of
Parent Common Stock (as reported on the New York Stock Exchange
composite tape) for the ten (10) trading days ending on and
including the fifth trading day prior to the Closing Date (such
average, the "Average Common Price");
(4) "AGGREGATE PREFERRED LIQUIDATION SHARES" is the sum of the
Preferred Liquidation Shares for all series of Company Preferred
Stock; and
(5) "AGGREGATE COMMON LIQUIDATION SHARES" is the sum of the Common
Liquidation Shares for all series of Company Preferred Stock.
(ii) Additional Merger Consideration. Each Share issued and
outstanding immediately prior to the Effective Time (excluding any Shares
to be canceled pursuant to Section 1.6(c)) shall be converted, subject to
Section 1.6(g), into the right to receive a pro rata portion of the
Additional Merger Consideration. The "ADDITIONAL MERGER CONSIDERATION" is
the payment to the holders of shares of Company Common Stock (treating the
Company Preferred Stock on an as-converted basis (as provided in the
Company's Certificate of Incorporation)) of shares of Parent Common Stock
and shares of Parent Preferred Stock as follows:
Each holder of Shares shall be entitled to receive (A) shares of
Parent Preferred Stock equal to the product of the number of Shares held
by such holder and the Additional Preferred Exchange Ratio and (B)
shares of parent Common Stock equal to the product of the number of
Shares held by such holder and the Additional Common Exchange Ratio.
The "ADDITIONAL PREFERRED EXCHANGE RATIO" equals (1) 50,000 minus
the Aggregate Preferred Liquidation Shares divided by (2) the Total
Company Outstanding Shares.
The "ADDITIONAL COMMON EXCHANGE RATIO" equals (1) the number of
shares Parent Common Stock issuable at Closing pursuant to Section
1.6(a) and reserved at Closing for issuance upon exercise of the Options
(excluding Options granted under the Stock Option Plan as contemplated
by Sections 4.1(b) and 6.2(h) hereof) minus the Aggregate Common
Liquidation Shares divided by (2) the Total Company Outstanding Shares.
(c) Stock Options.
(i) The employees of the Company have been granted options (each,
an "OPTION") to purchase Company Common Stock. At the Effective Time, by
virtue of the Merger and without any further action on the part of the
holders thereof, each Option shall be assumed by Parent, and shall
constitute an option to acquire, on the same terms and conditions as
were applicable under the Company's Stock Incentive Program (the "STOCK
OPTION PLAN") prior to the Effective Time: (A) the number (rounded down
to the nearest whole number) of shares of Parent Common Stock equal to
the product of (1) the number of shares of Company Common Stock issuable
upon the exercise of such Option immediately prior to the Effective Time
(not taking into account whether or not such Option was in fact
exercisable, but excluding any Company Common Stock issued prior to the
Effective Time pursuant to such Option), multiplied by (2) the
Additional Common Exchange Ratio, at a price per share (rounded up to
the next highest cent) equal to the Common Exercise Price and (B) the
number (rounded down to the nearest whole number) of shares of Parent
Preferred Stock equal to the product of the number of shares of Company
Common Stock issuable upon the exercise of such Option immediately prior
to the Effective Time (not taking onto account whether or not such
Option was in fact exercisable, but excluding any Company Common Stock
issued prior to the Effective Time pursuant to such Option) and the
Additional Preferred Exchange Ratio, at a price per share (rounded up to
the next highest cent) equal to the Preferred Exercise Price.
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<PAGE> 102
The "COMMON EXERCISE PRICE" equals the product of (A) the exercise
price per share of the shares of Company Common Stock issuable upon
exercise of such Option immediately prior to the Effective Time divided
by the Additional Common Exchange Ratio multiplied by (B) Parent Common
Stock Fair Market Value divided by Total Fair Market Value.
The "PREFERRED EXCHANGE PRICE" equals the product of (A) the
exercise price per share of the shares of Company Common Stock issuable
upon exercise of such Option immediately prior to the Effective Time
divided by the Additional Preferred Exchange Ratio multiplied by (B) the
Parent Preferred Stock Fair Market Value divided by Total Fair Market
Value.
(ii) Conversion of Securities. Parent shall take all corporate
action necessary to reserve for issuance a sufficient number of Parent
Shares for delivery pursuant to the terms set forth in this Section
1.6(c).
(iii) Subject to any applicable limitations under the Securities
Act of 1933, as amended (the "SECURITIES ACT"), Parent shall file a
Registration Statement on Form S-8 (or any successor form), effective as
of the Effective Time, with respect to the Parent Shares issuable upon
exercise of the Options (including those additional Options to be
granted under the Stock Option Plan as contemplated by Section 4.1(b)
and 6.2(h) hereof), and the Parent shall use all reasonable efforts to
maintain the effectiveness of such registration statement (and maintain
the current status of the prospectus or prospectuses relating thereto)
for so long as such Options shall remain outstanding.
(iv) Parent shall cause the shares of Parent Common Stock issued
pursuant to the Merger and the shares of Parent Common Stock registered
on the Form S-8 described above to be approved for listing, upon
official notice of issuance, on the New York Stock Exchange.
(d) Cancellation. Each Share, if any, held in the treasury of the
Company immediately prior to the Effective Time shall by virtue of the
Merger and without any action on the part of the holder thereof, shall
cease to be outstanding, be canceled and retired without payment of any
consideration therefor and cease to exist.
(e) Capital Stock of Merger Sub. Each share of common stock, par
value $.01, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly
issued, fully paid and nonassessable share of common stock, no par value,
of the Surviving Corporation.
(f) Adjustments to Exchange Ratios. The number of shares to be issued
pursuant to this Section 1.6 shall be adjusted to reflect fully the effect
of any stock split, reverse split, stock dividend, reorganization,
recapitalization or other like change with respect to Parent Shares or
Company Common Stock occurring after the date hereof and prior to the
Effective Time.
(g) Fractional Shares. No certificates or scrip representing less
than one Parent Share shall be issued upon the surrender or exchange of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding Shares (the "CERTIFICATES"). In lieu of any such
fractional share, each holder of Shares who would otherwise have been
entitled to a fraction of a Parent Share upon surrender of Certificates for
exchange shall be paid upon such surrender cash (without interest) as
follows: (i) with respect to shares of Parent Common Stock, an amount
determined by multiplying (A) the Average Common Price by (B) the
fractional interest of Parent Common Stock to which such holder would
otherwise be entitled and (ii) with respect to shares of Parent Preferred
Stock, an amount determined by multiplying (a) the Average Preferred Price
by (B) the fractional interest of Parent Preferred Stock to which such
holder would otherwise be entitled. "AVERAGE PREFERRED PRICE" shall be
determined by calculating the quotient of the Parent Preferred Stock Fair
Market Value divided by 50,000. As soon as practical after determining the
amount of cash, if any, to be paid to former holders of Company Common
Stock with respect to any fractional Parent Shares, the Exchange Agent (as
defined in Section 1.7(a)) shall promptly pay such amounts to such holders
in accordance with Article I. Parent will make available to the Exchange
Agent the cash necessary for this purpose.
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<PAGE> 103
(h) Terms of Parent Preferred Stock. The Parent Preferred Stock shall
have such terms as are set forth on the Certificate of Designation,
Preferences and Rights of the series C Convertible Preferred Stock of
Cabletron Systems, Inc. (the "SERIES C CERTIFICATE OF DESIGNATION")
substantially in the form attached hereto as Exhibit 1.6(h).
SECTION 1.7 Exchange of Certificates.
(a) Exchange Agent. At the Effective Time, Parent shall supply, or
shall cause to be supplied, to or for the account of Boston Equiserve, or
such other bank or trust company as shall be designated by Parent (the
"EXCHANGE AGENT"), in trust for the benefit of the holders of Company
Common Stock, for exchange in accordance with this Section 1.7, through the
Exchange Agent, a sufficient number of certificates evidencing the Parent
Shares to effect the payment of the portion of the Aggregate Merger
Consideration payable, subject to the provisions of Section 1.6(b) less the
number of shares of Parent Common Stock to be deposited into the Escrow
Fund (as defined in Section 8.3) and less the number of shares of Parent
Preferred Stock to be held in escrow as provided herein. Parent shall cause
all Parent Shares and all Shares to be issued in connection with the Merger
to be duly authorized, validly issued, fully paid and nonassessable.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Parent will instruct the Exchange Agent to mail to each
holder of record of Certificates (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent and shall be in such form and have such other provisions
as Parent may reasonably specify that are not inconsistent with the terms
of this Agreement), and (ii) instructions to effect the surrender of the
Certificates in exchange for the Aggregate Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange Agent together
with such letter of transmittal, duly executed, and such other customary
documents as may be required pursuant to such instructions, the holder of
such Certificate shall be entitled to receive in exchange therefor (A)
certificates evidencing that number of whole shares of Parent Common Stock
which such holder has the right to receive in accordance with the
provisions of Section 1.6(b) in respect of the Shares formerly evidenced by
such Certificate, less the number of shares of Parent Common Stock to be
deposited in the Escrow Fund on such holder's behalf pursuant to Article
VIII hereof, (B) certificates evidencing that number of whole shares of
Parent Preferred Stock which such holder has the right to receive in
accordance with the provisions of Section 1.6(b) in respect of the Shares
formerly evidenced by such Certificate, which certificates shall be
delivered to State Street Bank & Trust, as escrow agent (the "ESCROW
AGENT"), and (C) cash in respect of fractional shares as provided in
Section 1.6(g) (the Liquidation Preference Payments, Additional Merger
Consideration and cash being collectively, the "AGGREGATE MERGER
CONSIDERATION"), and the Certificate so surrendered shall forthwith be
canceled. Until so surrendered, each outstanding Certificate that, prior to
the Effective Time, represented Shares will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of
dividends and subject to Section 1.6(g), to evidence the ownership of the
number of full Parent Shares into which such shares of Company Common Stock
and Company Preferred Stock shall have been so converted.
As soon as practicable after the Effective Time, and subject to and in
accordance with the provisions of Section 8.3 hereof, Parent shall cause to
be delivered to the Escrow Agent a certificate or certificates representing
those shares of Parent Common Stock issued by Parent pursuant to Section
1.6(b) to be held in escrow by Escrow Agent as set forth in Section 1.7(b)
of the Company Disclosure Schedule (as defined in Article II) ("ESCROW
SHARES"), which shall be registered in the name of the Escrow Agent as
nominee for the holders of certificates cancelled pursuant to this Section
1.7. The Escrow Shares shall be comprised entirely of shares of Parent
Common Stock. Such shares shall be beneficially owned by such holders and
shall be held in escrow and shall be available to compensate Parent for
certain damages as provided in Article VIII. The Escrow Shares will appear
as issued and outstanding on Parent's balance sheet and will be legally
outstanding under applicable state law. All dividends paid on Escrow Shares
(excluding any shares of Parent capital stock paid in connection with a
stock split or stock dividend) will be distributed currently to each of the
exchanging stockholders, and all voting rights of the Escrow Shares
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<PAGE> 104
will be exercisable by or on behalf of each such stockholder. To the extent
not used for such purposes, such shares shall be released, all as provided
in Article VIII hereof.
As soon as practicable after the Effective, Time, Parent shall cause
to be delivered to the Escrow Agent all certificates representing the
shares of Parent Preferred Stock (the "PARENT PREFERRED ESCROW SHARES"),
which shall be registered in the name of the Escrow Agent as nominee for
the holders of certificates cancelled pursuant to this Section 1.7. The
entire portion of Parent Preferred Escrow Shares issuable to stockholders
pursuant to Section 1.6(a) or Section 1.6(b) shall be deposited with the
Escrow Agent. Such shares shall be beneficially owned by such holders and
shall be held in escrow until the earliest to occur of the thirty (30)
month anniversary of the Closing Date or any conversion or redemption of
such shares in accordance with the terms of the Series C Certificate of
Designation. The Parent Preferred Escrow Shares will appear as issued and
outstanding on Parent's balance sheet and will be legally outstanding under
applicable state law. All dividends paid on Parent Preferred Escrow Shares
(excluding any shares of Parent capital stock paid in connection with a
stock split or stock dividend) will be distributed currently to each of the
exchanging Company stockholders, and all voting and other rights of the
Preferred Parent Escrow Shares will be exercisable by or on behalf of each
such stockholder.
(c) Transfers of Ownership. If any certificate for Parent Shares is
to be issued in, or any cash is to be paid to, a name other than that in
which the Certificate surrendered in exchange therefor is registered, it
will be a condition to the issuance or payment thereof that the Certificate
so surrendered will be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange or payment will have
paid to Parent or any agent designated by it any transfer or other taxes
required by reason of the issuance of a certificate for Parent Shares in,
or payment of cash to, any name other than that of the registered holder of
the certificate surrendered, or have established to the satisfaction of
Parent or any agent designated by it that such tax has been paid or is not
payable.
SECTION 1.8 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers of Company Common Stock thereafter on the records of
the Company Preferred Stock of Company.
SECTION 1.9 No Further Ownership Rights in Shares. The Aggregate Merger
Consideration delivered upon the surrender for exchange of Shares in accordance
with the terms hereof shall be deemed to have been issued in full satisfaction
of all rights pertaining to such Shares, and there shall be no further
registration of transfers on the records of the Surviving Corporation of Shares
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article I.
SECTION 1.10 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue or pay the Aggregate Merger Consideration in exchange for such lost,
stolen or destroyed Certificates, upon the making of an affidavit of that fact
by the holder thereof; provided, however, that Parent may, in its discretion and
as a condition precedent to the payment of the Aggregate Merger Consideration,
require the owner of such lost, stolen or destroyed Certificates to deliver an
agreement of indemnification in form reasonably satisfactory to Parent, or a
bond in such sum as Parent may reasonably direct as indemnity against any claim
that may be made against Parent or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
SECTION 1.11 Tax Consequences. It is intended by the parties hereto that
the transaction effected by the Merger shall constitute a reorganization within
the meaning of Section 368(a) of the Code. The parties hereto hereby adopt this
Agreement as a "plan of reorganization" within the meaning of Sections
1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
SECTION 1.12 Taking of Necessary Action; Further Action. Each of Parent,
Merger Sub and, the Company will take all such reasonable and lawful action as
may be necessary or appropriate in order to effectuate the Merger in accordance
with this Agreement as promptly as possible. If, at any time after the Effective
Time, any such further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights,
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privileges, powers and franchises of the Company and Merger Sub, the officers
and directors of the Company and Merger Sub immediately prior to the Effective
Time are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary action.
SECTION 1.13 No Liability. Neither Parent, Merger Sub nor the Company
shall be liable to any holder of Company Preferred Stock or Company Common Stock
for any Aggregate Merger Consideration properly delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law following
the passage of time specified therein.
SECTION 1.14 Withholding Rights. Parent or the Exchange Agent shall be
entitled to deduct and withhold from the Aggregate Merger Consideration
otherwise payable pursuant to this Agreement to any holder of Company Preferred
Stock or Company Common Stock such amounts as Parent or the Exchange Agent is
required to deduct and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by Parent or the Exchange Agent, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of the Shares in respect of which such deduction and withholding
was made by Parent or the Exchange Agent.
SECTION 1.15 Material Adverse Effect. When used in connection with the
Company or Parent or any of Parent's subsidiaries, as the case may be, the term
"MATERIAL ADVERSE EFFECT" means any change, effect or circumstance that,
individually or when taken together with all other such changes, effects or
circumstances that have occurred prior to the date of determination of the
occurrence of the Material Adverse Effect, (a) is or is reasonably likely to be
materially adverse to the business, assets (including intangible assets),
prospects, financial condition or results of operations of the Company or Parent
and its subsidiaries taken as a whole, or (b) is or is reasonably likely to
materially delay or prevent the consummation of the transactions contemplated
hereby.
ARTICLE II -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub that,
except as set forth in the written disclosure schedule delivered on or prior to
the date hereof by the Company to Parent that is arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
II (the "COMPANY DISCLOSURE SCHEDULE"):
SECTION 2.1 Organization, Qualification and Other Equity Interests. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has the requisite
corporate power and authority to own, lease and operate the properties it
purports to own, operate or lease and to carry on its business as it is now
being conducted. The Company is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except where the
failure to be so duly qualified or licensed and in good standing could not
reasonably be expected to have a Material Adverse Effect. The Company does not
directly or indirectly own any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity.
SECTION 2.2 Charter and By-Laws. The Company has heretofore furnished to
Parent a complete and correct copy of its Certificate of Incorporation and
By-Laws as amended to date. Such Certificate of Incorporation and By-Laws are in
full force and effect. The Company is not in violation of any of the provisions
of its Certificate of Incorporation or By-Laws.
SECTION 2.3 Capitalization. The authorized capital stock of the Company
consists of 30,000,000 shares of Company Common Stock, of which 4,153,446 are
issued and outstanding; 22,000,000 shares of Company Preferred Stock of which:
(i) 5,100,000 shares are designated as Series A Preferred Stock, 5,100,000 of
which shares are issued and outstanding; (ii) 3,197,973 shares are designated
Series B Preferred Stock, 3,197,973 of which shares are issued and outstanding;
(iii) 70,710 shares are designated Series C Preferred Stock, 70,710 of which
shares are issued and outstanding; (iv) 2,500,000 shares are designated as
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Series D Preferred Stock, 2,068,783 of which shares are issued and outstanding.
As of the date hereof, (a) 2,154,937 shares of Company Common Stock were
reserved for future issuance pursuant to outstanding Options and 10,437,466
shares of Company Common Stock were reserved for issuance pursuant to the
conversion of the shares of Company Preferred Stock outstanding on the date
hereof. Except as set forth in Section 2.3 of the Company Disclosure Schedule,
there are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
the Company or obligating the Company to issue or sell any shares of capital
stock of, or other equity interests in, the Company. All shares of the capital
stock of the Company subject to issuance as aforesaid, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, shall be duly authorized, validly issued, fully paid and
nonassessable. There are no obligations, contingent or otherwise, of the Company
to repurchase, redeem or otherwise acquire any shares of Company Common Stock or
to provide funds to or make any investment (in the form of a loan, capital
contribution, guaranty or otherwise) in any other entity. None of the
outstanding shares of capital stock of the Company were issued in violation of
the Securities Act or any state securities laws ("BLUE SKY LAWS").
SECTION 2.4 Authority Relative to this Agreement. (a) The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action on the part
of the Company, and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate the transactions so
contemplated other than the Merger Approval (as defined herein). The Board of
Directors of the Company has determined that it is advisable and in the best
interest of the Company's stockholders for the Company to enter into a business
combination with Parent upon the terms and subject to the conditions of this
Agreement, and has unanimously recommended that the Company's stockholders
approve and adopt this Agreement and the Merger. This Agreement has been duly
and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by Parent and Merger Sub, as applicable,
constitutes a legal, valid and binding obligation of the Company enforceable
against it in accordance with its terms.
(b) The affirmative vote of the (i) holders of a majority of the
outstanding shares of Company Common Stock and the Company Preferred Stock
(on an as-converted basis), voting as a class, and (ii) holders of
two-thirds of the outstanding shares of the Company Preferred Stock voting
as a separate class (collectively, the "MERGER APPROVAL") is necessary to
approve this Agreement and the Merger.
SECTION 2.5 Contracts; No Conflict; Required Filings and Consents.
(a) Section 2.5(a) of the Company Disclosure Schedule includes a list
of (i) all loan agreements, notes, indentures, mortgages, pledges,
conditional sale or title retention agreements, security agreements,
equipment obligations, guaranties, standby letters of credit, equipment
leases or lease purchase agreements to which the Company is a party or by
which it is bound; and (ii) all contracts, agreements, commitments or other
understandings or arrangements to which the Company is a party or by which
it or its properties or assets are bound or affected, but excluding
contracts, agreements, equipment leases, equipment obligations, commitments
or other understandings or arrangements involving payments or receipts by
the Company of less than $10,000 in any single instance but not more than
$20,000 in the aggregate (the "COMPANY MATERIAL CONTRACTS").
(b) Except as disclosed in Section 2.5(b) of the Company Disclosure
Schedule, (i) the Company has not breached, is not in default under, and
has not received written notice of any breach of or default under, any of
the Company Material Contracts, (ii) as far as the Company is aware, no
other party to any of the Company Material Contracts has breached or is in
default of any of its obligations thereunder, and (iii) each of the Company
Material Contracts is in full force and effect, except in any such case for
breaches, defaults or failures to be in full force and effect that have not
had and could not reasonably be expected to have a Material Adverse Effect.
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(c) Except as disclosed in Section 2.5(c) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby will not, (i) conflict
with or violate the Certificate of Incorporation or By-Laws of the Company,
(ii) conflict with or violate any federal, foreign, state or provincial
law, rule, regulation, order, judgment or decree (collectively, "LAWS")
applicable to the Company or by which any of its properties is bound or
affected, or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default)
under, or impair the Company's rights or alter the rights or obligations of
any third party under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a
security interest, lien, claim, encumbrance or any other restriction on any
of the properties or assets of the Company pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which the Company is a party or by
which the Company or any of its properties is bound or affected, except in
any such case for any such conflicts, violations, breaches, defaults or
other occurrences that could not reasonably be expected to have a Material
Adverse Effect.
(d) Except as disclosed in Section 2.5(d) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company will not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any federal, foreign, state or provincial governmental or
regulatory authority or any other person except for (i) applicable
requirements, if any, of the Securities Act , the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder (the
"EXCHANGE ACT"), Blue Sky Laws, any required anti-trust or similar filings,
and the filing and recordation of appropriate merger or other documents as
required by the DGCL, (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or otherwise materially delay consummation
of the Merger, or otherwise prevent or materially delay the Company from
performing its obligations under this Agreement, or would not otherwise
have a Material Adverse Effect and (iii) those consents identified in
Section 2.5(d) of the Company Disclosure Schedule.
SECTION 2.6 Compliance; Permits.
(a) Except as disclosed in Section 2.6(a) of the Company Disclosure
Schedule, the Company is in compliance in all material respects with all
Laws applicable to the Company or by which any of its properties is bound
or affected and is not in conflict with, or in default or violation of any
note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company is
a party or by which the Company or any of its properties is bound or
affected, except for any such conflicts, defaults or violations which could
not reasonably be expected to have a Material Adverse Effect.
(b) Except as disclosed in Section 2.6(b) of the Company Disclosure
Schedule, the Company holds all franchises, grants, authorizations,
covenants, permits, licenses, easements, variances, exemptions, consents,
certificates, orders and approvals from governmental authorities which are
necessary for the operation of the business of the Company as it is now
being conducted (collectively, the "COMPANY PERMITS"). The Company is in
compliance in all material respects with the terms of the Company Permits,
except where the failure to so comply could not reasonably be expected to
have a Material Adverse Effect.
SECTION 2.7 Financial Statements.
(a) Attached to the Company Disclosure Schedule are (i) the audited
balance sheets of the Company as of December 31, 1999 and 1998, together
with the related statements of income, cash flows and stockholders' equity
for the fiscal years then ended, (the "AUDITED FINANCIAL STATEMENTS") and
(ii) the unaudited balance sheet of the Company as of July 31, 2000,
together with the related statements of income, cash flow and stockholders'
equity for the seven month period then ended (the "UNAUDITED FINANCIAL
STATEMENTS" and together with the Audited Financial Statements, the
"FINANCIAL STATEMENTS").
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(b) Each of the Audited Financial Statements and the Unaudited
Financial Statements was prepared in accordance with generally accepted
accounting principles as in effect, in the United States on the date hereof
("GAAP") applied on a consistent basis throughout the periods involved and
each fairly presents the financial position of the Company as at the
respective dates thereof and the results of its operations, cash flows and
stockholder equity for the periods indicated, except that the Unaudited
Financial Statements were or are subject to normal and recurring year-end
adjustments, which were not or are not expected to be material in amount,
and that the Unaudited Financial Statements do not have notes thereto.
Based on GAAP, there is no absolute or contingent liability of the Company
that, as of the date thereof, should be reflected on the unaudited balance
sheet of the Company as of July 31, 2000 (the "July 31, 2000 Balance
Sheet") or in the notes thereto that is not reflected or disclosed.
SECTION 2.8 Absence of Certain Changes or Events. Since July 31, 2000,
the Company has conducted its business in the ordinary course and has used all
reasonable efforts to maintain the value of its business as a going concern.
Except as set forth in Section 2.8 of the Company Disclosure Schedule, there has
not occurred (a) any change in the business, operating results, assets,
properties or condition (financial or otherwise) or prospects of the Company
that could reasonably be expected to have a Material Adverse Effect; (b) any
amendments or changes in the Certificate of Incorporation (except as
contemplated hereby) or By-Laws of the Company; (c) any damage to, destruction
or loss of any asset of the Company (whether or not covered by insurance) that
could reasonably be expected to have a Material Adverse Effect; (d) any material
change by the Company in its accounting methods, principles or practices; (e)
any material revaluation by the Company of any of its assets, including, without
limitation, writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; (f) any other action
or event that would have required the consent of Parent pursuant to Section 4.1
had such action or event occurred after the date of this Agreement; or (g) any
sale of the property or assets of the Company, except in the ordinary course of
business. Except as set forth in Section 2.8 of the Company Disclosure Schedule,
since the date of the July 31, 2000 Balance Sheet, no supplier, vendor,
licensor, distributor or customer has terminated its business relationship with
the Company or modified its business relationship with the Company in a manner
that is likely to result in a Material Adverse Effect, and the Company has not
received notice that any supplier, vendor, licensor, distributor or customer (i)
intends to terminate, or is considering a termination of, its business
relationship with the Company or (ii) intends to modify its relationship with
the Company, in either instance, in a manner that is likely to result in a
Material Adverse Effect.
SECTION 2.9 No Undisclosed Liabilities. Except as disclosed in Schedule
2.9 of the Company Disclosure Schedule, the Company has no liabilities
(absolute, accrued, contingent, determined, determinable or otherwise), nor has
there occurred any condition, situation or set of circumstances that could
reasonably result in such a liability, in each case except liabilities (a) in
the aggregate adequately provided for in the Financial Statements, (b) incurred
since July 31, 2000 in the ordinary course of business consistent with past
practice, or (c) incurred in connection with this Agreement.
SECTION 2.10 Absence of Litigation. Except as disclosed in Section 2.10
of the Company Disclosure Schedule, there are no claims, actions, suits, or
proceedings or any investigations pending or, to the knowledge of the Company,
threatened, against the Company or any properties or rights of the Company
before any federal, foreign, state or provincial court, arbitrator or
administrative, governmental or regulatory authority or body, nor, to the
knowledge of the Company, is there any reasonable basis therefor, that could
reasonably be expected to have a Material Adverse Effect.
SECTION 2.11 Employee Benefit Plans, Employment Agreements.
(a) Section 2.11 (a) of the Company Disclosure Schedule lists all
Company Benefit Plans. For the purposes of this Agreement, the term
"COMPANY BENEFIT PLAN" means any of the following (i) that is maintained by
the Company or by one or more ERISA Affiliates for the benefit of any
present or former employee of the Company or of any ERISA Affiliate, or
(ii) to which the Company or any ERISA Affiliate contributes or is required
to contribute, or (iii) under which the Company or any ERISA Affiliate is
required to pay premiums or benefits: employee pension plans (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), employee welfare
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plans (as defined in Section 3(1) of ERISA), and all other bonus, stock
option, stock purchase, incentive, commission, deferred compensation,
supplemental retirement, severance and other compensation, equity, fringe
or employee benefit plans, programs or arrangements, whether or not reduced
to writing, including, without limitation, employment, executive
compensation, consulting, change in control or severance agreements. For
the purposes of this Agreement, the term "ERISA AFFILIATE" means any trade
or business (whether or not incorporated) that would be treated as one
employer with the Company under Section 414(b), (c) or (m) of the Code.
There have been delivered to Parent true and complete copies of (i) each
Company Benefit Plan that has been reduced to writing, together with any
related trust or custodial agreement, insurance or services contract, and
plan summaries, all as amended; (ii) an accurate written summary that
includes the material terms of each Company Benefit Plan that has not been
reduced to writing; (iii) the most recent annual report on Form 5500
series, with accompanying schedules and attachments, filed with respect to
each Company Benefit Plan for which such a filing is required to be made,
and (iv) the most recent Internal Revenue Service ("IRS") determination
letter with respect to each Company Benefit Plan intended to be qualified
under Section 401(a) of the Code, together with any application for such a
determination letter that is currently pending before the Internal Revenue
Service.
(b) (i) None of the Company Benefit Plans promises or provides medical
or other welfare benefits (including, without limitation, retiree benefits)
to any person following termination of employment except for so-called
"COBRA" continuation coverage to the extent required by Part 6 of Subtitle
B of Title I of ERISA; (ii) neither the Company nor any ERISA Affiliate has
ever maintained, contributed to, or been required to contribute to, any
plan that is or was a "multiemployer plan" as such term is defined in
Section 3(37) of ERISA, a pension plan subject to Title IV of ERISA or a
plan subject to Part 3 of Title I of ERISA; (iii) there has been no
"prohibited transaction," as such term is defined in Section 406 of ERISA
or Section 4975 of the Code, with respect to any Company Benefit Plan,
other than any such transaction that is exempt pursuant to Section 408 of
ERISA and Section 4975 of the Code; (iv) each Company Benefit Plan complies
in all material respects, both as to form and in operation, with applicable
law, and there has been no failure to comply with applicable law or with
the terms of any Company Benefit Plan that could result in any liability to
the Company or to any ERISA Affiliate; (v) all contributions, if any, to
and premiums, if any, under each Company Benefit Plan that are required
(whether by law or by the terms of such Company Benefit Plan or otherwise)
to have been contributed or paid have been timely contributed or paid, and
any such contributions or premiums that are not yet due have been properly
accrued or otherwise properly accounted for, in accordance with GAAP
consistently applied, in the financial statements of the Company; (v) each
Company Benefit Plan intended to qualify under Section 401(a) of the Code
and each trust intended to qualify under Section 501(a) of the Code is the
subject of a favorable determination letter from the IRS, and nothing has
occurred that could reasonably be expected to impair such determination;
and (vi) there are no lawsuits or other claims or proceedings (other than
claims for benefits in the ordinary course) pending or, to the best
knowledge of the Company, threatened with respect to any Company Benefit
Plan.
(c) Section 2.11(c) of the Company Disclosure Schedule sets forth a
true and complete list of each current or former employee, officer or
director of the Company or any subsidiary of the Company who holds (i) any
option to purchase Company Common Stock as of the date hereof, together
with the number of shares of Company Common Stock subject to such option,
the option price of such option (to the extent determined as of the date
hereof), whether such option is intended to qualify as an incentive stock
option within the meaning of Section 422(b) of the Code (an "ISO"), and the
expiration date of such option; (ii) any other right, directly or
indirectly, to acquire Company Common Stock, together with the number of
shares of Company Common Stock subject to such right. Section 2.11(c) of
the Company Disclosure Schedule also sets forth the total number of such
ISOs, such nonqualified options and such other rights. The Company has
delivered to the Parent true and complete copies of each form of instrument
referred to in clause (i) or (ii) of the immediately preceding sentence.
(d) Section 2.11(d) of the Company Disclosure Schedule sets forth a
true and complete list (whether or not also disclosed under Section 2.11(a)
of the Company Disclosure Schedule) of: (i) all
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employment agreements with officers or employees or consultants of the
Company; (ii) all agreements with consultants who are individuals that
obligate the Company to make minimum annual cash payments in an amount
exceeding $20,000; (iii) all employees of, or consultants to, the Company
who have executed a non-competition agreement with the Company; (iv) all
severance agreements, programs and policies of the Company with or relating
to its employees, in each case with outstanding commitments exceeding
$20,000, excluding programs and policies required to be maintained by law;
and (iv) all plans, programs, agreements and other arrangements of the
Company with or relating to its employees which contain change in control
provisions.
SECTION 2.12 Labor Matters.
(a) None of the employees of the Company is represented by a labor
organization; no demand for recognition of any employees of the Company has
been made by or on behalf of any labor organization; no representation
petition respecting the employees of the Company has been filed with the
National Labor Relations Board; and the Company is not aware of any efforts
by any labor organization to organize its employees.
(b) The Company is not a party to any collective bargaining agreement
or other labor union contract applicable to persons employed by the Company
and no collective bargaining agreement or other labor contract is currently
being negotiated by the Company.
(c) There is no pending or threatened employee strike, work stoppage
or labor dispute with respect to any employees of the Company.
(d) Except as set forth in Schedule 2.12(d), there are no
controversies or disputes pending or threatened between the Company and any
of its employees before any court, commission, board, agency, arbitrator,
grievance procedure or any other forum.
(e) The Company is in compliance in all material respects with all
agreements, whether written or oral, with all past, present and prospective
employees of the Company and a true and complete copy of each such
agreement or, in the case of an oral agreement, a summary of all material
provisions, has been made available to Parent.
(f) The Company is in compliance with all federal, state and local
laws respecting employment and employment practices, terms and conditions
of employment, and wage and hour and labor management relations
requirements.
(g) The Company is not in arrears in the payment of wages,
withholding, social security or other taxes, unemployment insurance
premiums, workers compensation premiums or other similar obligations.
(h) The Company is not now subject to any affirmative action
obligations, whether under Executive Order 11246 or otherwise.
SECTION 2.13 Registration Statement, Proxy Statement/Prospectus. Subject
to the accuracy of the representations of Parent in Section 3.6, the information
supplied by the Company for inclusion in the registration statement (the
"REGISTRATION STATEMENT") pursuant to which Parent Shares to be issued in the
Merger will be registered with the Securities and Exchange Commission (the
"SEC"), shall not at the time the Registration Statement is declared effective
by the SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The information supplied by the Company for inclusion in the
proxy statement/prospectus to be sent to the stockholders of the Company in
connection with the meeting of the stockholders of the Company to consider the
Merger (the "STOCKHOLDER MEETING") (such proxy statement/prospectus as amended
or supplemented is referred to herein as the "PROXY STATEMENT/PROSPECTUS"), will
not, on the date the Proxy Statement/Prospectus (or any amendment thereof or
supplement thereto) is first mailed to stockholders, at the time of the
Stockholder Meeting, or at the Effective Time, contain any statement which, at
such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or shall omit to state
any material fact necessary in order to make the statements made therein not
false or misleading. If at any time
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prior to the Effective Time any event relating to the Company or any of its
respective affiliates, officers or directors should be discovered by the Company
which should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement/Prospectus, the Company shall promptly inform
Parent and Merger Sub. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information supplied by Parent or
Merger Sub, which is contained in any of the foregoing documents.
SECTION 2.14 Restrictions on Business Activities. Except for this
Agreement, there is no agreement, judgment, injunction, order or decree binding
upon the Company or any other person which has or could reasonably be expected
to have the effect of prohibiting or impairing any business practice of the
Company, any acquisition of property by the Company or the conduct of business
by the Company as currently conducted or as proposed to be conducted by the
Company.
SECTION 2.15 Title to Property. The Company has good and defensible title
to all of its properties and assets, free and clear of all liens, charges and
encumbrances, except liens for taxes not yet due and payable and such liens or
other imperfections of title, if any, as do not materially detract from the
value of or interfere with the present use of the property affected thereby; and
all leases pursuant to which the Company leases from others material amounts of
real or personal property, are in good standing, valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing material default or event of default (or event which with
notice or lapse of time, or both, would constitute a material default), except
where the lack of such good standing, validity and effectiveness or the
existence of such default or event of default could not reasonably be expected
to have a Material Adverse Effect. The Company does not own any real property.
Section 2.15 of the Company Disclosure Schedule sets forth a complete and
correct description of all leases of real property to which the Company is a
party (the "LEASES"). Each of the Leases is legal, valid, binding, enforceable
and in full force and effect, and subject to giving the necessary notices and
obtaining the necessary consents as set forth in Section 2.5(d) of the Company
Disclosure Schedule, each Lease covering such item 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. True,
complete and correct copies of all of the Leases have been delivered to Parent.
No action has been taken or omitted by the Company, and, to the knowledge of the
Company, no other event has occurred or condition exists, that constitutes, or
after notice or lapse of time or both would constitute, a default under any
Lease or that may reasonably be expected to result in a loss of rights or the
creation of any lien thereunder or pursuant thereto. The leasehold interests of
the Company are not subject to any lien, and the Company is in quiet possession
of the properties covered by the Leases to which it is a party.
SECTION 2.16 Taxes.
(a) For purposes of this Agreement, "TAX" or "TAXES" shall mean taxes,
fees, levies, duties, tariffs, imposts, and governmental impositions or
charges of any kind in the nature of (or similar to) taxes, payable to any
federal, state, local or foreign taxing authority, whether disputed or not,
including without limitation (i) income, franchise, profits, gross
receipts, ad valorem, net worth, value added, sales, use, service, real or
personal property, special assessments, capital stock, license, payroll,
withholding, employment, social security (or similar), workers'
compensation, unemployment compensation, disability, utility, severance,
production, excise, stamp, occupation, premiums, windfall profits,
environmental (including taxes under Code section 59A), customs duties,
registration, alternative and add-on minimum, estimated, transfer and gains
taxes, or other tax of any kind whatsoever and (ii) in all cases, including
interest, penalties, additional taxes and additions to tax imposed with
respect thereto; and "TAX RETURNS" shall mean returns, reports,
declarations, forms and information returns or statements relating to Taxes
including any schedule or attachment thereto required to be filed with the
IRS or any other federal, foreign, state, local or provincial taxing
authority, domestic or foreign, including, without limitation,
consolidated, combined and unitary tax returns, including any amendments
thereto.
(b) Other than as disclosed in Section 2.16(b) of the Company
Disclosure Schedule, (i) the Company has filed all Tax Returns required to
be filed by it and all such Tax Returns were correct and complete in all
material respects; (ii) the Company has paid and discharged all Taxes due
and payable
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(whether or not shown on any Tax Return); (iii) no deficiencies have been
asserted or assessments made as a result of any examinations of the Tax
Returns referred to in clause (i) by the IRS or the appropriate state,
local or foreign taxing authority; (iv) no action, suit, proceeding, audit,
claim, deficiency or assessment has been claimed or raised or is pending
with respect to any Taxes of the Company; (v) the Company has withheld from
its employees, customers, creditors, stockholders, and other payees (and
timely paid to the appropriate governmental authority) all amounts required
by the Tax withholding provisions of applicable federal, state, local, and
foreign laws for all periods; (vi) there has not been filed a consent under
Code section 341(f) concerning collapsible corporations with respect to the
Company; (vii) the Company has not made any payment, is not obligated to
make any payment, and is not a party to any agreement that could obligate
it to make any payment that will not be deductible under Code sections 162,
280G or 404 or be subject to the excise tax of Code section 4999; (viii) no
claim has ever been made by any authority in a jurisdiction where the
Company does not file Tax Returns that it is or may be subject to Tax by
that jurisdiction; (ix) there are no other Taxes that would be due if
asserted by a taxing authority, except with respect to which the Company is
maintaining reserves to the extent currently required; (x) the Company has
not granted any waiver of any statute of limitations with respect to, or
any extension of a period for the assessment of, any Tax; and (xi) there
are no powers of attorney with respect to Taxes of the Company currently in
effect.
(c) The Company (i) has never been a member of an affiliated group
filing a consolidated federal income Tax Return, (ii) is not a party to any
Tax sharing or Tax allocation agreement, arrangement or understanding,
(iii) is not liable for the Taxes of any other person under Treasury
Regulation 1.1502-6 (or any similar provision of state, local or foreign
law), as a transferee or successor, by contract or otherwise, and (iv) is
not a party to any joint venture, partnership or other arrangement that
could be treated as a partnership for income Tax purposes.
(d) Section 2.16(d) of the Company Disclosure Schedule lists (i) all
federal, state, local and foreign income Tax Returns filed with respect to
the Company for taxable periods ending on or after inception, and indicates
those Tax Returns that have been audited and that currently are the subject
of audit and (ii) the amount of any net operating loss, net capital loss,
unused investment or other credit, unused foreign tax, excess charitable
contribution, Code Section 481 adjustment and other Tax attributes
allocable to the Company.
(e) The unpaid Taxes of the Company (A) did not as of date of the
Unaudited Financial Statements exceed the accruals for Taxes (other than
deferred Taxes established to reflect book-tax timing differences) set
forth on the face of the Unaudited Financial Statements and (B) does not
exceed that reserve as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of the Company in
filing Tax Returns.
(f) The Company is not and never has been, a United States real
property holding corporation (as defined in Section 897(c)(2) of the Code)
during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code. The Company does not own any property of a character, the indirect
transfer of which, pursuant to this Agreement, would give rise to any
material documentary, stamp or other transfer Tax.
SECTION 2.17 Environmental Matters. The Company: (i) has obtained all
Company Permits which are required to be obtained under all applicable federal,
state, foreign or local laws or any regulation, code, plan, order, decree,
judgment, notice or demand letter issued, entered, promulgated or approved
thereunder relating to pollution or protection of the environment, including
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials or wastes into ambient
air, surface water, ground water, or land or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials or wastes by the Company or any of its subsidiaries ("ENVIRONMENTAL
LAWS"); (ii) is in compliance with all terms and conditions of such required
approvals, and also is in compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables contained in applicable Environmental Laws; and (iii) as of the date
hereof, has not received notice of any past or
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present violations of Environmental Laws or any event, condition, circumstance,
activity, practice, incident, action or plan which is reasonably likely to
interfere with or prevent continued material compliance with or which would give
rise to any material common law or statutory liability, or otherwise form the
basis of any material claim, action, suit or proceeding, against the Company or
any of its subsidiaries based on or resulting from the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge or release into the environment, of any pollutant,
contaminant or hazardous or toxic material or waste; and (iv) has taken all
actions necessary under applicable Environmental Laws to register any products
or materials required to be registered by the Company or its agents thereunder.
Except as set forth in Section 2.17 of the Company Disclosure Schedule, the
Company has operated in compliance with all Environmental Laws, and has not
violated and is not in violation of, or liable under, any Environmental Law that
could reasonably be expected to have a Material Adverse Effect. To the Company's
knowledge, except as set forth in Section 2.17 of the Company Disclosure
Schedule, there has not been, and there is not (a) any past or continuing
release or threat of release of any Hazardous Substance into the environment at
or (b) any manufacturing, refinement, transportation, importation, use or
processing of any Hazardous Substance on or from, any real property currently or
previously leased or owned by the Company or any of its predecessors. To the
Company's knowledge, except as set forth in Section 2.17 of the Company
Disclosure Schedule, no Hazardous Substances of, or generated by, the Company or
any of its predecessors have been disposed of or come to rest at any site that
has been included in any published federal, state or local "Superfund" site list
or any other list of hazardous or toxic waste sites. To the Company's knowledge,
except as set forth in Section 2.17 of the Company Disclosure Schedule, there
never has been, and there currently is not, any underground storage tank,
landfill, surface impoundment or disposal area located on, any polychlorinated
biphenyls ("PCBs") or PCB-containing equipment used, treated or stored on, or
any "hazardous waste" (as defined by the federal Resource Conservation and
Recovery Act or any comparable state or local law) used, treated, contained or
stored on, any Real Estate or real property leased by the Company or any of its
predecessors.
SECTION 2.18 Intellectual Property.
(a) The Company, directly or indirectly, owns, or is licensed or
otherwise possesses legally enforceable rights to use, all inventions,
patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, maskworks, network protocols, schematics,
technology, trade secrets, research and development, know-how, technical
data, computer software programs or applications (in both source code and
object code form), and tangible or intangible proprietary information or
material (excluding Commercial Software as defined in paragraph (e) below)
that are used in or necessary to the business of the Company as currently
conducted (the "COMPANY INTELLECTUAL PROPERTY RIGHTS"). All of the
employees, consultants and independent contractors of the Company or any
predecessor of the Company (including any entity from which the Company
purchased assets other than in the ordinary course of business) that have
participated in the development of the Company Intellectual Property, or
any portion thereof, in any way have entered into agreements with the
Company (or with a predecessor of the Company, but which agreements have
been validly assigned to, and are enforceable by, the Company) assigning
all right, title and interest in the Company Intellectual Property to the
Company.
(b) Section 2.18(b) of the Company Disclosure Schedule sets forth a
complete list of all patents, trademarks, copyrights, trade names and
service marks, and any applications therefor, included in the Company
Intellectual Property Rights, and specifies, where applicable, the
jurisdictions in which each such Company Intellectual Property Right has
been issued or registered or in which an application for such issuance and
registration has been filed, including the respective registration or
application numbers and the names of all registered owners.
(c) Section 2.18(c) of the Company Disclosure Schedule sets forth a
complete list of all licenses, sublicenses and other agreements as to which
the Company is a party and pursuant to which the Company or any other
person is authorized to use any Company Intellectual Property Right
(excluding object code end-user licenses granted to end-users in the
ordinary course of business that permit use of software products without a
right to modify, distribute or sublicense the same ("END-USER LICENSES"))
or other trade secret material to the Company, and includes the identity of
all parties thereto. The
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Company is not in violation of any license, sublicense or agreement
described on such list except such violations as do not materially impair
the Company's rights under such license, sublicense or agreement. The
execution and delivery of this Agreement by the Company, and the
consummation of the transactions contemplated hereby, will neither cause
the Company to be in violation or default under any such license,
sublicense or agreement, nor entitle any other party to any such license,
sublicense or agreement to terminate or modify such license, sublicense or
agreement, except as set forth on Section 2.18(c) of the Company Disclosure
Schedule. To the knowledge of the Company, no other party to any such
license is in material breach or default, and no event has occurred which
with notice or lapse of time would constitute a material breach or default
or permit termination, modification or acceleration thereunder.
(d) The Company is the sole and exclusive owner or licensee of, with
all right, title and interest in and to (free and clear of any liens or
encumbrances) the Company Intellectual Property Rights, and has sole and
exclusive rights (and is not contractually obligated to pay any
compensation to any third party in respect thereof) to the use thereof or
the material covered thereby in connection with the services or products in
respect of which Company Intellectual Property Rights are being used. To
the best of the Company's knowledge, the Company has not interfered with,
infringed upon, misappropriated, or otherwise violated any intellectual
property rights of third parties, and none of the Company and its directors
and officers (and employees of the Company with responsibility for Company
Intellectual Property Rights matters) has ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that the
Company must license or refrain from using any intellectual property rights
of any third party). To the knowledge of any of the Company and its
directors and officers (and employees of the Company with responsibility
for Company Intellectual Property Rights matters), no third party has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Company Intellectual Property Rights. All registered
trademarks, service marks and copyrights held by the Company are valid and
subsisting. No Company Intellectual Property Right or product of the
Company is subject to any outstanding decree, order, judgment, or
stipulation restricting in any manner the licensing thereof by the Company.
The Company has not entered into any agreement under which the Company is
restricted from selling, licensing or otherwise distributing any of its
products to any class of customers, in any geographic area, during any
period of time or in any segment of the market. The Company has a policy
requiring each employee to execute a confidentiality agreement
substantially in the form previously delivered to Parent.
(e) "COMMERCIAL SOFTWARE" means commercially available software
programs generally available to the public which have been licensed to the
Company pursuant to end-user licenses and which are used in the Company's
business but are in no way a component of or incorporated in or
specifically required to develop or support any of the Company's products
and related trademarks, technology and know-how.
SECTION 2.19 Affiliated Transactions. Except as set forth in Section 2.19
of the Company Disclosure Schedule, the Company is not a party to or bound by
any contract, commitment or understanding with any of the stockholders,
directors or officers of the Company or any of their affiliates or any member of
their family and none of the stockholders, directors or officers of the Company
or any of its affiliates or any member of their family owns or otherwise has any
rights to or interests in any asset, tangible or intangible, which is used in
the business of the Company.
SECTION 2.20 Government Contracts. Except as set forth in Section 2.20 of
the Company Disclosure Schedule, the Company has not been and is not a party to
any contract or arrangement with any federal, state or local government agency.
SECTION 2.21 Insurance. Section 2.21 of the Company Disclosure Schedule
sets forth an accurate and complete list and summary description (including
nature of coverage, and limits) of all policies of insurance maintained, owned
or held by the Company on the date hereof. All of such insurance policies are in
full force and effect. The Company is not in default with respect to its
obligations under any of such insurance policies, except where such default
could not reasonably be expected to have a Material Adverse Effect.
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SECTION 2.22 Accounts Receivable/Inventories.
(a) The accounts receivable of the Company as reflected in the most
recent Financial Statements, to the extent uncollected on the date hereof,
and the accounts receivable reflected on the books of the Company are valid
and existing and represent monies due from products sold and services
actually performed in the ordinary course of business, are current and, to
the knowledge of the Company, collectible in accordance with their terms at
their recorded amounts, and are subject to no refunds or adjustments and to
no defenses, rights of setoff, assignments, restrictions, encumbrances or
conditions enforceable by third parties on or affecting any thereof.
(b) The inventory of the Company as reflected in the most recent
Financial Statements consists of raw materials and supplies, manufactured
and purchased parts, goods in process, and finished goods, all of which is
merchantable and fit or suitable and usable for the production or
completion of merchantable products for sale in the ordinary course of
business, and none of which is slow-moving, obsolete, below standard
quality, damaged, or defective. Each item of such inventory reflected in
the July 31, 2000 Balance Sheet and books and records of the Company is
reflected on the basis of a complete physical count. Since July 31, 2000,
no inventory has been sold or disposed of except through sales in the
ordinary course of business.
SECTION 2.23 Equipment. All of the tangible personal property of the
Company other than inventory (the "EQUIPMENT") is in good working order,
operating condition and state of repair, ordinary wear and tear excepted.
Section 2.23 of the Company Disclosure Schedule lists each Equipment Lease or
other contractual obligation (including all amendments) under which any
Equipment having a cost or aggregate capital Equipment Lease obligations in
excess of $10,000 is held or used (the "EQUIPMENT LEASES") (indicating for each
Equipment Lease (i) a description of the property Equipment Leased thereunder,
including location, (ii) the term thereof and a description of any available
renewal periods, (iii) the rental and other material payment terms, (iv) the
owner of the property subject to such Equipment Lease and (v) whether any
consents are required under such Equipment Lease in connection with the
transactions contemplated by this Agreement). The Company has delivered to
Parent true and complete copies of each Equipment Lease and any and all other
material contractual obligations relating to any of the Equipment Leases, in
each case as in effect on the date hereof and as it will be in effect at the
Closing, including, without limitation, all amendments.
SECTION 2.24 Brokers. Except as disclosed in Section 2.24 of the Company
Disclosure Schedule, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company or its affiliates.
SECTION 2.25 Change in Control Payments. Except as disclosed in Section
2.25 of the Company Disclosure Schedule, the Company has no plans, programs or
agreements to which it is a party (including, without limitation, any
agreements, arrangements, plans or policies with or applicable to employees or
consultants), or to which it is subject, pursuant to which payments may be
required or acceleration of benefits may be required upon a change of control of
the Company.
SECTION 2.26 Full Disclosure. No representation or warranty made by the
Company contained in this Agreement and no statement contained in any
certificate or schedule furnished by the Company to Parent or Merger Sub in, or
pursuant to the provisions of, this Agreement, including without limitation the
Company Disclosure Schedule, contains any untrue statement of a material fact or
omits or will omit to state any material fact necessary, in light of the
circumstances under which it was made, in order to make statements herein or
therein not misleading.
SECTION 2.27 Expenses. Section 2.27 of the Company Disclosure Schedule
attached hereto sets forth a description of the estimated expenses of the
Company, which the Company expects to incur, or has incurred, in connection with
the transactions contemplated by this Agreement.
SECTION 2.28 Product Warranties; Defects. Except as disclosed in Section
2.28 of the Company Disclosure Schedule, each product manufactured, sold, leased
or delivered by the Company has been in
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conformity with all applicable federal, state, local and foreign laws and
regulations, contractual commitments and all express and implied warranties.
Section 2.28 of the Company Disclosure Schedule includes copies of the standard
terms and conditions of sale or lease for the products of the Company
(containing applicable guaranty, warranty and indemnity provisions).
SECTION 2.29 No Illegal Payments, etc. Neither the Company, nor any of
the directors, officers, employees, agents of affiliates of the Company (a) has
directly or indirectly (i) given or agreed to give any illegal gift,
contribution, payment or similar benefit to any supplier, customer, governmental
official or employee or other Person who was, is or may be in a position to help
or hinder the Company (or assist in connection with any actual or proposed
transaction) or (ii) made or agreed to make any illegal contribution, or
reimbursed any illegal political gift or contribution made by any other Person,
to any candidate for federal, state, local or foreign public office, in each
case which might subject the Company to any damage or penalty in any civil,
criminal or governmental litigation or proceeding or (b) has established or
maintained any unrecorded fund or asset or made any false entries on any books
or records for any purpose.
SECTION 2.30 Distributors, Customers and Suppliers. Section 2.30 of the
Company Disclosure Schedule sets forth a complete and accurate list of: (a) the
ten largest distributors of the products and services of the Company during the
fiscal year ended December 31, 1999 and during the first seven months of 2000,
indicating the specific products and services distributed by each such
distributor, the existing contractual arrangements, if any, with each such
distributor and the volume of products distributed by each such distributor; (b)
the ten largest customers (by dollar volume) of the Company during the fiscal
year ended December 31, 1999 and during the first seven months of 2000,
indicating the existing contractual arrangements with each such customer by
product; and (c) all suppliers of significant materials or services to the
Company, indicating the contractual arrangements for continued supply from each
such supplier.
SECTION 2.31 Stockholder Agreement. Principal Stockholders of the Company
(as set forth in Section 2.31 of the Company Disclosure Schedule) have agreed in
writing to vote for approval of the Merger and agreed to indemnify and reimburse
the Stockholder Representative (as defined in Section 8.9(a)) for certain
expenses pursuant to an agreement substantially in the form attached hereto as
Exhibit 2.31(a) or Exhibit 2.31(b) (each a "STOCKHOLDER AGREEMENT").
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent and warrant
to the Company (except as to those representations and warranties contained in
Sections 3.2, 3.4, 3.5 and 3.9 concerning Enterasys and those representations
and warranties contained in Sections 3.10 and 3.11 as to which Parent
individually represents and warrants) that, except as set forth in the written
disclosure schedule delivered on or prior to the date hereof by Parent to the
Company that is arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article III (the "PARENT DISCLOSURE
SCHEDULE"):
SECTION 3.1 Organization and Qualification; Subsidiaries. Each of Parent
and its subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
the requisite corporate power and authority necessary to own, lease and operate
the properties it purports to own, operate or lease and to carry on its business
as it is now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power, authority could not
reasonably be expected to have a Material Adverse Effect. Each of Parent and
each of its subsidiaries is duly qualified or licensed as a foreign corporation
to do business, and is in good standing, in each jurisdiction where the
character of its properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that could not
reasonably be expected to have a Material Adverse Effect.
SECTION 3.2 Charter and By-Laws. Parent has heretofore furnished to the
Company a complete and correct copy of its Certificate of Incorporation and
By-Laws, as amended to date, and a complete and correct copy of Enterasys'
Certificate of Incorporation and By-Laws, as amended to date. Each of such
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Certificate of Incorporation and By-Laws are in full force and effect. Neither
Parent nor Enterasys is in violation of any of the provisions of its respective
Certificate of Incorporation or By-Laws.
SECTION 3.3 Capitalization. The capitalization of Parent consists solely
of the following: (a) as of the date of this Agreement, 450,000,000 authorized
shares of Parent Common Stock; (b) 184,191,181 shares of Parent Common Stock
were issued and outstanding as of June 30, 2000; (c) as of July 26, 2000,
6,609,836 shares of Parent Common Stock were reserved for future issuance to
employees pursuant to stock options under stock option plans of Parent, and
13,700,798 employee stock options were outstanding; (d) as of July 26, 2000,
2,908,333 shares of Parent Common Stock were reserved for future issuance upon
the conversion of convertible securities issuable pursuant to the transactions
contemplated by the Securities Purchase Agreement, dated as of July 26, 2000,
between Parent and Silver Lake Partners, L.P. (the "SILVER LAKE TRANSACTIONS");
(e) as of July 26, 2000, 1,910,000 authorized shares of "blank check" preferred
stock, par value $1.00 per share, none of which were issued and outstanding; (f)
upon filing of the Certificate of Designation, Preferences and Rights of the
Series A and Series B Participating Convertible Preferred Stock (the "SERIES A
AND B CERTIFICATE OF DESIGNATION"), 65,000 authorized shares of 4% Series A
Participating Convertible Preferred Stock, none of which were issued and
outstanding prior to issuance pursuant to the Silver Lake Transactions, and (g)
upon filing the Series A and B Certificate of Designation, 25,000 authorized
shares of 4% Series B Participating Convertible Preferred Stock, none of which
were issued and outstanding prior to issuance pursuant to the Silver Lake
Transactions. No material change in such capitalization has occurred between
July 26, 2000 and the date hereof. Except as set forth in this Section 3.3 or in
Section 3.3 of the Parent Disclosure Schedule, as of the date hereof, there are
no options, warrants or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of Parent or any
of its subsidiaries or obligating Parent or any of its subsidiaries to issue or
sell any shares of capital stock of, or other equity interests in, Parent or any
of its subsidiaries. Except as set forth in Section 3.3 of the Parent Disclosure
Schedule as of the date hereof, there are no obligations, contingent or
otherwise, of Parent or any of its subsidiaries to repurchase, redeem or
otherwise acquire any shares of Parent Common Stock or the capital stock of any
subsidiary or to provide funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in any such subsidiary. Except as set forth
in Section 3.3 of the Parent Disclosure Schedule, as of July 26, 2000, all of
the outstanding shares of capital stock of each of Parent's subsidiaries is duly
authorized, validly issued, fully paid and nonassessable and all such shares are
owned by Parent or another subsidiary of Parent free and clear of all security
interests, liens, claims, pledges, agreements, limitations in Parent's voting
rights, charges or other encumbrances of any nature whatsoever.
SECTION 3.4 Authority Relative to this Agreement. Each of Parent and
Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement and, if applicable, the Series C Certificate of
Designation, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Series C Certificate of Designation, if
applicable, by Parent and Merger Sub and the consummation by Parent and Merger
Sub of the transactions contemplated hereby and thereby have been duly and
validly authorized by all necessary corporate action on the part of Parent and
Merger Sub, and to the extent necessary, Enterasys, and no other corporate
proceedings on the part of Parent, Merger Sub or Enterasys are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby
or thereby. As of the date of this Agreement, the Board of Directors of Parent
has determined that it is advisable and in the best interest of Parent to enter
into this Agreement and the Series C Certificate of Designation and has approved
this Agreement and the Series C Certificate of Designation and the transactions
contemplated hereby and thereby. The Merger, this Agreement, the Series C
Certificate of Designation and the transactions contemplated hereby and thereby
do not require the approval or consent of the Parent's stockholders or
Enterasys' Stockholders. This Agreement has been duly and validly executed and
delivered by Parent and Merger Sub, and, assuming the due authorization,
execution and delivery by the Company, constitutes a legal, valid and binding
obligation of Parent and Merger Sub enforceable against each of them in
accordance with its terms.
SECTION 3.5 No Conflict, Required Filings and Consents.
(a) Except as set forth in Section 3.5(a) of the Parent Disclosure
Schedule, the execution and delivery of this Agreement and, if applicable,
the Series C Certificate of Designation, by Parent and
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Merger Sub do not, and the performance of this Agreement and, if
applicable, the Series C Certificate of Designation, by Parent and Merger
Sub will not, (i) conflict with or violate the Certificate of Incorporation
or By-Laws of Parent, Merger Sub or Enterasys, (ii) conflict with or
violate any Laws applicable to Parent or any of its subsidiaries or by
which its or their respective properties are bound or affected, or (iii)
result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or impair
Parent's or any of its subsidiaries' rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of
Parent or any of its subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent or any of its subsidiaries is a
party or by which Parent or any of its subsidiaries or its or any of their
respective properties are bound or affected, except in any such case for
any such conflicts, violations, breaches, defaults or other occurrences
that could not reasonably be expected to have a Material Adverse Effect.
(b) The execution and delivery of this Agreement and, if applicable,
the Series C Certificate of Designation, by Parent and Merger Sub does not,
and the performance of this Agreement and, if applicable, the Series C
Certificate of Designation, by Parent and Merger Sub do not, require any
consent, approval, authorization or permit on the part of the Parent,
Merger Sub or Enterasys of, or filing with or notification to, any domestic
or foreign governmental or regulatory authority except (i) for applicable
requirements, if any, of the Securities Act, the Exchange Act, the Blue Sky
Laws, and the filing and recordation of appropriate merger or other
documents as required by the DGCL, and (ii) where the failure to obtain
such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay consummation of the
Merger, or otherwise prevent Parent or Merger Sub from performing their
respective obligations under this Agreement and, if applicable, the Series
C Certificate of Designation, and would not have a Material Adverse Effect.
SECTION 3.6 SEC Filings; Financial Statements.
(a) Parent has filed all forms, reports and documents required to be
filed with the SEC and has heretofore delivered or made available to the
Company, in the form filed with the SEC, its Annual Report on Form 10-K for
the fiscal years ended February 29, 2000 and February 28, 1999, (ii)
reports on Form 10-Q for the quarterly period ending May 31, 2000, (iii)
all proxy statements relating to Parent's meetings of stockholders (whether
annual or special) since January 1, 1998 (iv) all other reports or
registration statements filed by Parent with SEC since January 1, 1999, and
(v) all amendments and supplements to all such reports and registration
statements filed by Parent with the SEC (collectively, the "PARENT SEC
REPORTS"). The Parent SEC Reports (i) were prepared in all material
respects in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. None of
Parent's subsidiaries is required to file any forms, reports or other
documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Parent SEC Reports has
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes thereto) and each fairly presents in all
material respects the consolidated financial position of Parent and its
subsidiaries as at the respective dates thereof and the consolidated
results of its operations and cash flows for the periods indicated, except
that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments, which were not or are not
expected to be material in amount.
SECTION 3.7 Registration Statement; Proxy Statement/Prospectus. Subject
to the accuracy of the representations of the Company in Section 2.13, the
Registration Statement shall not, at the time the Registration Statement
(including any amendments or supplements thereto) is declared effective by the
SEC,
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contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements included therein, in light of the
circumstances under which they were made, not misleading. The information
supplied by Parent and Merger Sub for inclusion in the Proxy
Statement/Prospectus will not, on the date the Proxy Statement/Prospectus (or
any amendment or supplement thereto) is first mailed to stockholders of the
Company, at the time of the Stockholders Meeting and at the Effective Time,
contain any statement which, at such time and in light of the circumstances
under which it shall be made, is false or misleading with respect to any
material fact, or will omit to state any material fact necessary in order to
make the statements therein not false or misleading. If at any time prior to the
Effective Time any event relating to Parent, Merger Sub or any of their
respective affiliates, officers or directors should be discovered by Parent or
Merger Sub which should be set forth in an amendment to the Registration
Statement or a supplement to the Proxy Statement/Prospectus, Parent or Merger
Sub will promptly inform the Company. Notwithstanding the foregoing, Parent and
Merger Sub make no representation or warranty with respect to any information
supplied by the Company, which is contained in any of the foregoing documents.
The Registration Statement and Proxy Statement/Prospectus shall comply in all
material respects as to form with the requirements of the Securities Act, the
Exchange Act and the rules and regulations thereunder. Notwithstanding the
foregoing, Parent makes no representation or warranty with respect to any
information supplied by the Company, which is contained in, or furnished in
connection with the preparation of, the Registration Statement.
SECTION 3.8 Ownership of Merger Sub; No Prior Activities. Merger Sub was
formed solely for the purpose of engaging in the transactions contemplated by
this Agreement. As of the date hereof and the Effective Time, except for
obligations or liabilities incurred in connection with its incorporation or
organization and the transactions contemplated by this Agreement and except for
this Agreement and any other agreements or arrangements contemplated by this
Agreement, Merger Sub has not and will not have incurred, directly or
indirectly, through any subsidiary or affiliate, any obligations or liabilities
or engaged in any business activities of any type or kind whatsoever or entered
into any agreements or arrangements with any person.
SECTION 3.9 Parent Shares; Enterasys Shares. The Parent Shares issuable
as Aggregate Merger Consideration will be, when issued by Parent pursuant to the
terms of this Agreement, duly authorized, fully paid and nonassessable, will be
issued in compliance with all applicable state and federal securities laws, and
will be free and clear of all liens, claims and encumbrances. The shares of
Enterasys stock to be paid to the holders of Parent Shares in connection with an
Enterasys Spinoff will have been duly authorized fully paid and nonassessable,
will be issued in compliance with all applicable state and federal securities
laws, and will be free and clear of all liens, claims and encumbrances. An
"ENTERASYS SPINOFF" shall mean the distribution (by way of dividend, exchange,
issuance or other similar transaction) of fifty-one percent (51%) or more of the
capital stock of Enterasys to the stockholders of Parent.
SECTION 3.10 Capitalization of Enterasys. As of the closing of the Silver
Lake Transactions, the capitalization of Enterasys will consist solely of the
following: (a) 129,834,833 authorized shares of common stock, of which 1,000
shares will be issued and outstanding; and (b) 79,379,224 authorized shares of
Series A Convertible Preferred Stock, all of which shares will be issued and
outstanding, owned of record and beneficially by Parent and convertible into
79,379,224 shares of common stock of Enterasys as of the closing of the Silver
Lake Transactions. As of July 26, 2000, there are issued and outstanding
employee options to acquire 21,663,250 shares of common stock of Enterasys.
Except as described in the preceding two sentences, or as disclosed in Section
3.3 of the Parent Disclosure Schedule, Enterasys has outstanding no options,
warrants or other securities or rights convertible into or exercisable for
common stock or other securities of Enterasys.
SECTION 3.11 Financial Statements of Enterasys.
(a) Parent has provided to the Company the unaudited balance sheet of
Enterasys as of June 3, 2000, together with the related statement of profit
and loss for the quarter then ended (the "ENTERASYS FINANCIAL STATEMENTS").
(b) The Enterasys Financial Statements were prepared in accordance
with GAAP applied on a consistent basis throughout the periods involved and
fairly present the financial position of Enterasys as at
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the date thereof and the results of its operations for the period
indicated, except that such financial statements were or are subject to
normal and recurring year-end adjustments, which were not or are not
expected to be material in amount, and that such financial statements do
not have notes thereto.
ARTICLE IV -- CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.1 Conduct of Business by the Company Pending the Merger. The
Company covenants and agrees that, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, unless Parent shall otherwise agree in writing or as
otherwise contemplated by this Agreement, the Company shall conduct its business
only in, and the Company shall not take any action except in, the ordinary
course of business and in a manner consistent with past practice other than
actions taken by the Company in contemplation of the Merger; and the Company
shall use all reasonable commercial efforts to preserve substantially intact the
business organization of the Company, to keep available the services of the
present officers, employees and consultants of the Company and to preserve the
present relationships of the Company with customers, suppliers and other persons
with which the Company has business relations. By way of amplification and not
limitation, except as contemplated by this Agreement, the Company shall not
during the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time, directly or
indirectly do, or propose to do, any of the following without the prior written
consent of Parent:
(a) amend or otherwise change the Certificate of Incorporation or
By-Laws of the Company, except in connection with those additional Options
to be granted under the Stock Option Plan as contemplated by Section 6.2(h)
hereof;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of
capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital
stock, or any other ownership interest (including, without limitation, any
phantom interest) in the Company (except for the issuance of shares of
Company Common Stock issuable pursuant to Options which were granted under
the Stock Option Plan and are outstanding on the date hereof and except for
the additional issuance of Options as contemplated by Section 6.2(h) and
the additional issuance of Options granted to those prospective employees
proposed to be hired by the Company as identified in Section 4.1(b) of the
Company Disclosure Schedule and granted to those additional employees hired
by Company with the consent of Parent);
(c) sell, pledge, dispose of or encumber any assets (tangible or
intangible) of the Company except for (i) dispositions of obsolete or
worthless assets and (ii) sales of assets not in excess of $10,000 in the
aggregate, other than sales of inventory in the ordinary course of
business;
(d) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of any of its capital stock, (ii) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock (except for the issuance of
shares of Company Common Stock issuable pursuant to (A) Options which were
granted under the Stock Option Plan and are outstanding on the date hereof,
(B) those additional Options to be granted under the Stock Option Plan as
contemplated by Section 4.1(b) or 6.2(h) hereof), or (iii) except as
contemplated by Section 6.2 (h) hereof, amend the terms or change the
period of exercisability of, purchase, repurchase, redeem or otherwise
acquire, any of its securities including without limitation, shares of
Company Common Stock or any option, warrant or right, directly or
indirectly, to acquire shares of Company Common Stock, or propose to do any
of the foregoing;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof; (ii) other than the Note (as defined in Section 5.14),
incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse or otherwise as an accommodation become
responsible for, the obligations of any person or, except in the ordinary
course of business consistent with past practice, make any loans or
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advances; (iii) enter into or amend any material contract or agreement;
(iv) authorize any capital expenditures or purchases of fixed assets which
are, in the aggregate, in excess of $50,000; or (v) enter into or amend any
contract, agreement, commitment or arrangement to effect any of the matters
prohibited by this Section 4.1(e);
(f) except as provided in Section 4.1(f) of the Company Disclosure
Schedule, increase the compensation payable or to become payable to its
current officers, employees or consultants, or grant any severance or
termination pay to, or enter into agreement with any current director,
officer or other employee of or consultant to the Company with respect to
the terms or conditions of his or her employment or engagement to provide
services or the termination thereof, or establish, adopt, enter into or
amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any current or former
directors, officers or employees, except, in each case, as is required by
law;
(g) conduct a reduction-in-force, job or position elimination, lay off
or the like;
(h) take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue
recognition, payments of accounts payable and collection of accounts
receivable);
(i) make or change any material tax election inconsistent with past
practice or change any tax accounting method or amend any Tax Return or
file any income tax return or settle or compromise any material federal,
state, local or foreign tax liability or agree to an extension of a statute
of limitations;
(j) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities reflected or
reserved against in the Financial Statements or incurred in the ordinary
course of business and consistent with past practice; or
(k) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1 (a) through (j) above, or any action which would
make any of the representations or warranties of the Company contained in
this Agreement untrue or incorrect or prevent the Company from performing
or cause the Company not to perform its covenants hereunder.
SECTION 4.2 No Solicitation. The Company shall not, directly or
indirectly, through any officer, director, employee, representative or agent of
the Company, (i) solicit, initiate or encourage the initiation of any inquiries
or proposals regarding any merger, sale of substantial assets, sale of shares of
capital stock (including without limitation by way of a tender offer) or similar
transactions involving the Company other than the Merger (any of the foregoing
inquiries or proposals being referred to herein as an "ACQUISITION PROPOSAL"),
(ii) engage in negotiations or discussions concerning, or provide any nonpublic
information to any person relating to, any Acquisition Proposal or (iii) agree
to, approve or recommend any Acquisition Proposal.
(a) The Company shall immediately notify Parent after receipt of any
Acquisition Proposal, or any modification of or amendment to any Acquisition
Proposal, or any request for nonpublic information relating to the Company in
connection with an Acquisition Proposal or for access to the properties, books
or records of the Company by any person or entity that informs the Board of
Directors of the Company that it is considering making, or has made, an
Acquisition Proposal. Such notice to Parent shall be made orally and in writing.
(b) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any persons (other than Parent and
Merger Sub) conducted heretofore with respect to any of the foregoing. The
Company agrees not to release any third party from the confidentiality
provisions of any confidentiality agreement to which the Company is a party.
(c) The Company shall ensure that the officers, directors and employees of
the Company and any investment banker or other advisor or representative
retained by the Company are aware of the restrictions described in this Section
4.2.
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ARTICLE V -- ADDITIONAL AGREEMENTS
SECTION 5.1 Proxy Statement/Prospectus; Registration Statement. As
promptly as practicable after the execution of this Agreement, the Company and
Parent shall prepare and file with the SEC a Form S-4 registration statement
which shall comply with all applicable securities laws and constitute the Proxy
Statement/Prospectus and the Registration Statement of the Parent with respect
to the Parent Shares that may be issued in connection with the Merger and shall
use all reasonable efforts to cause the Registration Statement to become
effective as soon as practicable, and the Company shall mail the Proxy
Statement/ Prospectus to Company stockholders, as soon thereafter as
practicable. The Proxy Statement/Prospectus shall include the recommendation of
the Board of Directors of the Company in favor of the Merger. Parent shall also
take any action required to be taken under applicable state securities or Blue
Sky Laws in connection with the issuance of Parent Shares as part of the
Aggregate Merger Consideration and upon the assumption and exercise of each
Option.
SECTION 5.2 Proxy Statement/Prospectus. The Company shall furnish Parent
with all information concerning the Company and the holders of its capital stock
and shall take such further action as Parent may reasonably request in
connection with the Proxy Statement/Prospectus and the issuance of the Parent
Shares. If at any time prior to the Effective Time any event or circumstance
relating to the Company, Parent or any of their respective subsidiaries,
affiliates, officers or directors should be discovered by such party which
should be set forth in an amendment or a supplement to the Proxy
Statement/Prospectus, such party shall promptly inform the other thereof and
take appropriate action in respect thereof.
SECTION 5.3 Stockholder Meeting. The Company shall call and hold the
Stockholder Meeting as promptly as practicable and in accordance with applicable
laws for the purpose of obtaining the approval of the Merger, this Agreement,
and the transactions contemplated hereby. The Company shall use all its best
efforts to solicit from all of its stockholders proxies in favor of adoption of
the Merger, this Agreement and approval of the transactions contemplated hereby;
and shall take all other action necessary or advisable to secure the vote or
consent of stockholders to obtain such approvals.
SECTION 5.4 Access to Information; Confidentiality. Upon reasonable
notice and subject to restrictions contained in confidentiality agreements to
which such party is subject (from which such party shall use reasonable efforts
to be released), the Company and Parent shall (and shall cause each of their
subsidiaries to) each afford to the officers, employees, accountants, counsel
and other representatives of the other, reasonable access, during the period
from the date of this Agreement to the Effective Time, to all its properties,
books, contracts, commitments and records and, during such period, the Company
and Parent each shall (and shall cause each of their subsidiaries to) furnish
promptly to the other all information concerning its business, properties and
personnel as such other party may reasonably request, and each shall make
available to the other the appropriate individuals (including attorneys,
accountants and other professionals) for discussion of the other's business,
properties and personnel as either Parent or the Company may reasonably request.
SECTION 5.5 Consents; Approvals. Each of the Company and Parent shall use
their reasonable best efforts to obtain all consents, waivers, approvals,
authorizations or orders (including, without limitation, all United States and
foreign governmental and regulatory rulings and approvals), and the Company and
Parent shall make all filings (including, without limitation, all filings with
United States and foreign governmental or regulatory agencies) required in
connection with the authorization, execution and delivery of this Agreement by
the Company, on the one hand, and Parent, on the other hand, and the
consummation by them of the transactions contemplated thereby and hereby, in
each case as promptly as practicable. Each of the Company and Parent shall
furnish promptly all information required to be included in the Proxy
Statement/Prospectus or for any application or other filing to be made pursuant
to the rules and regulations of any United States or foreign governmental body
in connection with the transactions contemplated by this Agreement. The parties
hereto will consult and cooperate with one another, and consider in good faith
the views of one another, in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to any federal or state antitrust or fair trade law.
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(a) Each of Parent and Company shall use all commercially reasonable
efforts to resolve such objections, if any, as may be asserted by any
court, administrative agency or commission or other governmental authority
or instrumentality (a "GOVERNMENTAL ENTITY") with respect to the
transactions contemplated by this Agreement under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, the Sherman Act, as
amended, the Clayton Act, as amended, the Federal Trade Commission Act, as
amended, and any other federal, state or foreign statutes, rules,
regulations, orders or decrees that are designed to prohibit, restrict or
regulate actions having the purpose or effect of monopolization or
restraint of trade (collectively, "ANTITRUST LAWS"). In connection
therewith, if any administrative or judicial action or proceeding is
instituted (or threatened to be instituted) challenging any transaction
contemplated by this Agreement as violative of any Antitrust Law, each of
Parent and Company shall cooperate and use all commercially reasonable
efforts vigorously to contest and resist any such action or proceeding and
to have vacated, lifted, reversed, or overturned any decree, judgment,
injunction or other order, whether temporary, preliminary or permanent
(each an "ORDER,"that is in effect and that prohibits, prevents, or
restricts consummation of the Merger or any such other transactions, unless
by mutual agreement Parent and Company decide that litigation is not in
their respective best interests. Notwithstanding the provisions of the
immediately preceding sentence, it is expressly understood and agreed that
Parent shall have no obligation to litigate or contest any administrative
or judicial action or proceeding or any Order beyond the earlier of (i)
January 15, 2001 or (ii) the date of a ruling preliminary enjoining the
Merger issued by a court of competent jurisdiction. Each of Parent and
Company shall use all commercially reasonable efforts to take such action
as may be required to cause the expiration of the notice periods under
Antitrust Laws with respect to such transactions as promptly as possible
after the execution of this Agreement.
SECTION 5.6 Notification of Certain Matters. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence or nonoccurrence of any event the occurrence or nonoccurrence
of which would be reasonably likely to cause any representation or warranty
contained in this Agreement to become materially untrue or inaccurate, or (ii)
any failure of any of the Company, Parent or Merger Sub, as the case may be,
materially to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder. No disclosure by any party pursuant
to this Section 5.6, however, shall be deemed to amend or supplement the Company
Disclosure Schedule or the Parent Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of contract.
SECTION 5.7 Further Action. Upon the terms and subject to the conditions
hereof each of the parties hereto shall use all reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all other things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement, to obtain in a
timely manner all necessary waivers, consents and approvals and to effect all
necessary registrations and filings, and otherwise to satisfy or cause to be
satisfied all conditions precedent to its obligations under this Agreement. The
foregoing covenant shall not include any obligation by Parent to agree to
divest, abandon, license or take similar action with respect to any assets
(tangible or intangible) of Parent or the Company.
SECTION 5.8 Public Announcements. Parent and the Company shall consult
with each other before issuing any press release with respect to the Merger or
this Agreement and shall not issue any such press release or make any such
public statement without the prior consent of the other party, which shall not
be unreasonably withheld; provided, however, that Parent may, without the prior
consent of the Company, issue such press release or make such public statement
as may upon the advice of counsel be required by law or the rules and
regulations of the New York Stock Exchange if it has used reasonable efforts to
consult with the Company prior thereto.
SECTION 5.9 Conveyance Taxes. Each of Parent and the Company shall
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications, or other documents regarding any real property
transfer or gains, sales, use, transfer, value added, stock transfer and stamp
taxes, any transfer, recording, registration and other fees, and any similar
taxes which become payable in connection with the transactions contemplated
hereby that are required or permitted to be filed at or before the Effective
Time.
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SECTION 5.10 [Intentionally Omitted]
SECTION 5.11 Benefit Plans. Parent shall provide that: (i) the
eligibility of the each employee of the Company (and his or her spouse and
dependents) to participate in the welfare plans (as defined in ERISA section
3(1)) of Parent or the Surviving Corporation after the Effective Time will be
determined without regard to any preexisting condition, waiting period,
actively-at-work, or similar exclusion or condition except for any such
condition or exclusion to which the employee is subject under the applicable
welfare plan of the Company as of the Effective Time; (ii) employees of the
Company will receive credit under the welfare plans of the Parent or the
Surviving Corporation in which they participate after the Effective Time toward
coinsurance and deductibles for any payments made by them during the calendar
year in which the Effective Time occurs under the applicable welfare plans of
the Company; and (iii) employees of the Surviving Corporation will receive
credit, for purposes of determining eligibility for or vesting under (but in no
event for determining the amount of any benefit under) its retirement, welfare,
vacation and similar plans or policies, for service with the Company prior to
the Effective Time. At Parent's request, Company shall cause its 401(k) plan to
be terminated no later than the date immediately preceding the Closing Date.
Upon receipt of reasonable satisfactory evidence of qualifications terminated
plan, Parent shall cause its 401(k) plan to accept rollover distributions from
Company's terminated plan.
SECTION 5.12 Stockholder Agreements. Upon execution of this Agreement,
Company shall deliver or cause to be delivered to Parent from each of the
Principal Stockholders of the Company, an executed Stockholder Agreement.
Section 2.31 of the Company Disclosure Schedule sets forth a list of the
Principal Stockholders and each such Principal Stockholder's holding of capital
stock of the Company.
SECTION 5.13 Escrow Agreement. On or before the Effective Time, the
Escrow Agent and the Stockholder Representative will execute the Escrow
Agreement contemplated by Article VIII in form and substance reasonably
satisfactory to the parties hereto (the "ESCROW AGREEMENT").
SECTION 5.14 Working Capital Financing. Prior to the earlier of the
Closing Date or termination of this Agreement pursuant to Article VII, Parent
agrees to provide working capital financing to the Company at a rate not less
than $1.5 million per month, following execution of this Agreement. Each loan
advance made pursuant to this Section 5.14 shall be evidenced by a promissory
note substantially in form and substance as set forth in Exhibit 5.14 (the
"NOTE").
SECTION 5.15 Tax Treatment. Except as otherwise contemplated by this
Agreement (and all ancillary agreements, including the series C Certificate of
Designation), none of Parent, Merger Sub and the Company will take any action
which could reasonably be expected to prevent the Merger from qualifying as a
reorganization under the provisions of Section 368(a) of the Code. Parent,
Merger Sub and the Company further agree to report the Merger for all Tax
purposes as a reorganization within the meaning of Section 368(a) of the Code.
SECTION 5.16 Advisory Fees. The accounting, legal and appraisal fees and
expenses incurred by the Company in connection with this Agreement and the
transactions contemplated hereby (the "ADVISORY FEES") shall not exceed
$600,000. If such Advisory Fees exceed $600,000, the Aggregate Merger
Consideration shall be reduced to the extent of any fees in excess of $600,000.
SECTION 5.17 Enterasys. Parent shall use commercially reasonable efforts
to cause the closing of the Silver Lake Transactions to occur.
ARTICLE VI -- CONDITIONS TO THE MERGER
SECTION 6.1 Conditions to Obligation of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Effectiveness of Registration Statement. As of the Closing, the
Registration Statement shall have been declared effective by the SEC under
the Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no proceedings
for
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that purpose and no similar proceeding in respect of the Proxy
Statement/Prospectus shall have been initiated or threatened by the SEC;
(b) Merger Approval. The Merger Approval shall have been obtained;
(c) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect,
nor shall any proceeding brought by any administrative agency or commission
or other governmental authority or instrumentality, domestic or foreign,
seeking any of the foregoing be pending; and there shall not be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced
or deemed applicable to the Merger, which makes the consummation of the
Merger illegal;
(d) Governmental Approval. Parent and Company and their respective
subsidiaries shall have timely obtained from each Governmental Entity all
approvals, waivers and consents, if any, necessary for consummation of or
in connection with the Merger and the several transactions contemplated
hereby, including such approvals, waivers and consents as may be required
under the Securities Act and under Blue Sky Laws;
(e) Escrow Agreement. Parent, Company, Escrow Agent and the
Stockholder Representative shall have entered into the Escrow Agreement;
and
(f) Governmental Actions. There shall not have been instituted,
pending or threatened any action or proceeding (or any investigation or
other inquiry that might result in such an action or proceeding) by any
governmental authority or administrative agency before any governmental
authority, administrative agency or court of competent jurisdiction, nor
shall there be in effect any judgment, decree or order of any governmental
authority, administrative agency or court of competent jurisdiction, in
either case, seeking to prohibit or limit Parent from exercising all
material rights and privileges pertaining to its ownership of the Surviving
Corporation or the ownership or operation by Parent or any of its
subsidiaries of all or a material portion of the business or assets of
Parent or any of its subsidiaries, or seeking to compel Parent or any of
its subsidiaries to dispose of or hold separate all or any material portion
of the business or assets of Parent or any of its subsidiaries (including
the Surviving Corporation and its subsidiaries), as a result of the Merger
or the transactions contemplated by this Agreement.
SECTION 6.2 Additional Conditions to Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to effect the Merger are also
subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and
correct (in all material respects, in the case of those representations and
warranties that are not by their express terms qualified by reference to
materiality) when made and (other than (i) changes contemplated or
permitted by this Agreement and (ii) those representations and warranties
which by their express terms are made solely as of a specified earlier date
(which shall remain true and correct as of such date) shall be deemed to
have been made again at and as of the Effective Time and shall then be true
and correct (in all material respects, in the case of those representations
and warranties that are not by their express terms qualified by reference
to materiality), and Parent shall have received a certificate to such
effect signed by the President of the Company; provided, however, that with
respect to those representations and warranties which contain a reference
to materiality or to a Material Adverse Effect, adverse changes in general
industry conditions or the announcement of competitive products or product
enhancements by third parties shall not by themselves be deemed to be
material or to constitute a Material Adverse Effect for purposes of this
Section 6.2(a);
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with or by it at or
prior to the Effective Time, and Parent and Merger Sub shall have received
a certificate to such effect signed on behalf of the Company by the
President and the Chief Financial Officer of the Company;
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(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by the Company for the due authorization, execution and
delivery of this Agreement and the consummation by it of the transactions
contemplated hereby shall have been obtained and made by the Company,
including, but not limited to, those consents identified in Section 2.5(d)
of the Company Disclosure Schedule;
(d) Opinion of Counsel to the Company. Parent shall have received an
opinion of McDermott, Will & Emery, counsel to the Company, in form
reasonably satisfactory to Parent;
(e) [Intentionally Omitted];
(f) Termination of Existing Rights. All existing registration rights,
preemptive rights and rights of first refusal with respect to the purchase
of the capital stock of the Company of holders of Company securities shall
have been terminated and Parent and Merger Sub shall have received a
certificate to such effect signed on behalf of the Company by the President
and the Chief Financial Officer of the Company;
(g) Employees. As of the Closing Date, the Company shall have the
respective percentages of employees for each class of employee as set forth
in Section 6.2(g) of the Company Disclosure Schedule;
(h) Option Modification Agreements; New Option Grants. The Company
shall have granted additional Options under the Stock Option Plan to at
least the percentage of employees set forth in Section 6.2(h) of the
Company Disclosure Schedule as consideration for the execution and delivery
by such percentage of employees of Option Modification Agreements
substantially in the form set forth in Section 6.2(h) of the Company
Disclosure Schedule;
(i) No Material Adverse Effect. There shall not have occurred a
Material Adverse Effect with respect to the Company and no event has
occurred or circumstance exists that may result in a Material Adverse
Effect, provided, however, that adverse changes in general industry
conditions or the announcement of competitive products or product
enhancements by third parties shall not by themselves be deemed to
constitute a Material Adverse Effect for purposes of this Section 6.2(i);
and
(j) As of the Closing Date, the persons identified in Section 6.2(j)
of the Company Disclosure Schedule shall have entered into employment terms
with Surviving Corporation substantially as described in Section 6.2(j) of
the Company Disclosure Schedule.
(k) General. All instruments and legal and corporate proceedings in
connection with the transactions contemplated by this Agreement shall be
reasonably satisfactory in form and substance to Parent, and Parent shall
have received counterpart originals, or certified or other copies, of all
documents, including records of corporate and probate proceedings and
opinions of counsel, that it may reasonably request in connection
therewith.
SECTION 6.3 Additional Conditions to Obligation of the Company. The
obligation of the Company to effect the Merger is also subject to the following
conditions:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall be
true and correct (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
and correct (in all material respects, in the case of those representations
and warranties which are not by their express terms qualified by reference
to materiality), and the Company shall have received a certificate to such
effect signed by the Chief Financial Officer of Parent;
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Effective Time, and the Company shall have received
a certificate to such effect signed by the Chief Financial Officer of
Parent;
(c) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by Parent and Merger Sub for the due
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authorization, execution and delivery of this Agreement and the
consummation by them of the transactions contemplated hereby shall have
been obtained and made by Parent and Merger Sub;
(d) Opinion of General Counsel to Parent. The Company shall have
received an opinion of Ropes & Gray, counsel to Parent, in form reasonably
satisfactory to the Company;
(e) Listing of Parent Shares. Parent shall have caused any Shares of
Parent Common Stock that are issued pursuant to the Merger to be approved
for quotation, upon official notice of issuance, on the New York Stock
Exchange;
(f) Employment Offers. Parent will cause the Surviving Corporation to
make offers of employment to all of the employees of the Company as of the
Closing Date, subject to the consummation of the Closing, the terms of
which will be comparable in the aggregate to the current employment
arrangements between such employees and the Company; provided, that no
provisions of this Agreement shall be construed to create an express or
implied contract of employment for a specific term between Surviving
Corporation, Merger Sub or Parent and any person who is, or has been, an
employee of the Company or to restrict the right of Surviving Corporation,
Merger Sub or Parent to terminate the employment of any such person; and
(g) General. All instruments and legal and corporate proceedings in
connection with the transactions contemplated by this Agreement shall be
reasonably satisfactory in form and substance to the Company, and the
Company shall have received counterpart originals, or certified or other
copies, of all documents, including records of corporate proceedings and
opinions of counsel, that it may reasonably request in connection
therewith.
ARTICLE VII -- TERMINATION
SECTION 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval thereof by the
stockholders of the Company:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and the Company; or
(b) by either Parent or the Company if the Merger shall not have been
consummated by January 15, 2001 (provided that the right to terminate this
Agreement under this Section 7.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before
such date); or
(c) by either Parent or the Company if a court of competent
jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued a nonappealable final order, decree or ruling
or taken any other action having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger (provided that the right to
terminate this Agreement under this Section 7.1(c) shall not be available
to any party who has not complied with its obligations under Sections 5.5
and 5.7 and such noncompliance materially contributed to the issuance of
any such order, decree or ruling or the taking of such action);
(d) by Parent or the Company if the Merger Approval shall not have
been obtained by January 15, 2001; or
(e) by Parent, if: (i) the Board of Directors of the Company shall
withdraw, modify or change its approval or recommendation of this Agreement
or the Merger in a manner adverse to Parent or shall have resolved to do
so; or (ii) the Board of Directors of the Company shall have recommended to
the Stockholders an Alternative Transaction (as defined below);
(f) by Parent or the Company, (i) if any representation or warranty of
the Company or Parent, respectively, set forth in this Agreement shall be
untrue when made (in any material respect), provided, however, that with
respect to those representations and warranties which contain a reference
to materiality or to a Material Adverse Effect, adverse changes in general
industry conditions or the
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announcement of competitive products or product enhancements shall not by
themselves be deemed to be material or to constitute a Material Adverse
Effect for purposes of this Section 7.1(f), or (ii) upon a material breach
of any covenant or agreement on the part of the Company or Parent,
respectively, set forth in this Agreement, such that the conditions set
forth in Section 6.2(a) or 6.2(b), or Section 6.3(a) or 6.3(b), as the case
may be, would not be satisfied (either (i) or (ii) above being a
"TERMINATING BREACH"), provided, that, if such Terminating Breach is
curable prior to January 15, 2001 by the Company or Parent, as the case may
be, through the exercise of its reasonable best efforts and for so long as
the Company or Parent, as the case may be, continues to exercise such
reasonable best efforts, neither Parent nor the Company, respectively, may
terminate this Agreement under this Section 7.1(f);
(g) by Parent, if any representation or warranty of the Company shall
have become untrue such that the condition set forth in Section 6.2(a)
would not be satisfied, or by the Company, if any representation or
warranty of Parent shall have become untrue such that the condition set
forth in Section 6.3(a) would not be satisfied, in either case other than
by reason of a Terminating Breach; or
(h) by Parent or the Company, if the Company enters into a definitive
agreement relating to an Alternative Transaction.
As used herein, "ALTERNATIVE TRANSACTION" means any of (i) a
transaction pursuant to which any person (or group of persons) other than
Parent or its affiliates (a "THIRD PARTY") acquires or would acquire more
than 25% of the outstanding Shares, (ii) a merger or other business
combination involving the Company pursuant to which any Third Party
acquires more than 25% of the outstanding equity securities of the Company
or the entity surviving such merger or business combination; or (iii) any
other transaction pursuant to which any Third Party acquires or would
acquire control of asset of the Company having a fair market value (as
determined by the Board of Directors of the Company in good faith) equal to
more than 25% of the fair market value of all of the assets of the Company
immediately prior to such transaction.
SECTION 7.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.1, this Agreement shall forthwith become void
except for the confidentiality provisions of Section 5.4 and Sections 5.8, 7.3,
8.13, 8.16, 8.18, 8.19, 8.20, 8.22 and 8.23; provided, however, that nothing
herein shall relieve any party from liability for any breach or wrongful or
unpermitted termination hereof.
SECTION 7.3 Fees and Expenses. Except as set forth in this Section 7.3,
all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated; provided, however, that
Parent shall pay the fees and expenses incurred in connection with the printing
of the Proxy Statement/ Prospectus (including any preliminary materials related
thereto and including any registration fees payable to the SEC) and any
amendments or supplements thereto.
ARTICLE VIII -- GENERAL PROVISIONS
SECTION 8.1 Parent Indemnification.
(a) Charter and By-Laws. Parent shall cause the Surviving Corporation
and its successors to fulfill and honor in all respects all rights to
indemnification or exculpation now existing in favor of the employees,
directors or officers of the Company (each a "COMPANY INDEMNIFIED PARTY")
as provided in its Certificate of Incorporation or By-Laws for a period of
not less than six years from the Closing Date; provided, however, that, in
the event any claim or claims are asserted or made within such six-year
period, all rights to indemnification in respect of any such claim or
claims shall continue until disposition of any and all such claims. Any
determination required to be made with respect to whether a Company
Indemnified Party's conduct complies with the standards set forth in the
Certificate of Incorporation or By-Laws of the Company or otherwise shall
be made by independent counsel selected by the Company Indemnified Party
reasonably satisfactory to the Surviving Corporation (whose fees and
expenses shall be paid by the Surviving Corporation).
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(b) Executive Risk Liability Insurance: Employment Practices,
Fiduciary, Directors and Officers. For a period of six years after the
Effective Time, Parent shall cause to be maintained in effect executive
risk liability insurance with respect to each Company Indemnified Party
covering acts or omissions by such Person and typically covered by such
insurance, occurring prior to the Effective Time under customary terms and
conditions, but no less favorable (to the extent commercially feasible) to
those of the Company's executive risk liability insurance policy in effect
on the date hereof. Parent agrees to arrange with the insurance broker of
Parent's choice, for the negotiation and purchase of the executive risk
liability insurance policy described above in this Section 8.1(b).
(c) Survival. This Section 8.1 shall survive the Closing, and is
intended to benefit the Company Indemnified Parties and their respective
heirs and legal representatives (each of which shall be entitled to enforce
this Section 8.1 against Parent and the Surviving Corporation, as the case
may be, as a third-party beneficiary of this Agreement).
SECTION 8.2 Indemnification of Parent.
(a) Survival of Representations and Warranties. The representations
and warranties of the Company made in this Agreement and in the documents
and certificates delivered in connection herewith shall survive the Merger
for a period of one year from the Closing Date (the "INDEMNITY PERIOD") and
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any other party hereto, any person
controlling any such party or any of their officers or directors, whether
prior to or after the execution of this Agreement. No claim for
indemnification under this Section 8.2 for breach of a representation or
warranty or any other claim for a breach of representation or warranty may
be commenced after the Indemnity Period which may be commenced within the
applicable statute of limitations), provided, however, that claims made
within the applicable time period shall survive to the extent of such claim
until such claim is finally determined and, if applicable, paid.
(b) Indemnification of the Parent and Merger Sub. From and after the
Effective Time, the Escrow Fund shall be used to indemnify, defend,
protect, and hold harmless each of Parent, Merger Sub, the Surviving
Corporation and each of their respective subsidiaries and affiliates (each
in its capacity as an indemnified party, an "INDEMNITEE") at all times from
and after the date of this Agreement from and against all claims, damages,
actions, suits, proceedings, demands, assessments, adjustments, costs and
expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation, but excluding the benefit of
any tax deduction and any insurance recovery) (collectively "DAMAGES") as a
result of or incident to (i) any breach of any representation or warranty
of the Company (or any meritorious allegation by a third person of facts
that, if true, would constitute such a breach) set forth herein or in any
certificate or other document delivered by the Company in connection
herewith (as such representation or warranty would read if all
qualifications as to knowledge, materiality and Material Adverse Effect
were deleted from it) with respect to which a claim for indemnification is
brought by an Indemnitee within the applicable survival period described in
Section 8.2(b), (ii) any breach or nonfulfillment by the Company, or any
noncompliance by the Company with, any covenant, agreement, or obligation
contained herein or in any certificate or other document delivered in
connection herewith (or any meritorious allegation by a third person of
facts that, if true, would constitute such a breach, nonfulfillment, or
noncompliance) except to the extent waived by Parent, or (iii) any claim by
a holder or former holder of the Company's capital stock or options,
warrants or other securities convertible into or exercisable for shares of
the Company's capital stock (the "CONVERTIBLE SECURITIES") or any other
person or entity, seeking to assert, or based upon: (A) ownership or rights
of ownership to any shares of capital stock of the Company; (B) any rights
of a stockholder of the Company (other than the right to receive the
Aggregate Merger Consideration pursuant to this Agreement), including any
option, preemptive rights, or rights to notice or to vote; (C) any rights
under the Certificate of Incorporation or By-Laws of the Company; or (D)
any claim that his, her or its shares or Convertible Securities were
wrongfully repurchased, canceled, terminated or otherwise limited by the
Company, regardless of whether an action, suit or preceding can or has been
made against the Company.
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SECTION 8.3 Escrow Fund. To provide a source of funds for the indemnity
provided for in Section 8.2 hereof, the Escrow Shares shall be deposited by
Parent in an escrow account with the Escrow Agent, as of the Closing Date, such
deposit to constitute an escrow fund (the "ESCROW FUND") to be governed by the
terms set forth in this Agreement and the provisions of an Escrow Agreement to
be executed and delivered pursuant to Section 5.13. The Escrow Fund shall be
allocated in whole numbers of Escrow Shares among the stockholders on a pro-rata
basis in accordance with the number of shares of Parent Common Stock deposited
with the Escrow Agent. Upon compliance with the terms hereof and subject to the
provisions of this Article VIII, an Indemnitee shall be entitled to obtain
indemnity from the Escrow Fund for Damages covered by the indemnity provided for
in Section 8.2 of this Agreement.
SECTION 8.4 Damage Threshold. Notwithstanding the foregoing, Parent may
not receive any shares from the Escrow Fund unless and until an Officer's
Certificate (as defined therein) identifying Damages the aggregate amount of
which exceeds $300,000 has been delivered to the Escrow Agent as provided in
Section 8.6 below and such amount is determined pursuant to this Article VIII to
be payable, in which case the Indemnitee shall receive shares equal in value to
the full amount of Damages.
SECTION 8.5 Escrow Period. Except as contemplated by Section 8.6 hereof,
the escrow period shall end, and all Escrow Shares in the Escrow Fund shall be
released, on the first anniversary of the Closing Date (the "TERMINATION DATE").
No claim for indemnification under this Article VIII may be made after the
Termination Date except for claims based on fraud.
SECTION 8.6 Claims upon Escrow Fund.
(a) Upon receipt by the Escrow Agent on or before the end of the
Termination Date of a certificate signed by an officer of Parent (an
"OFFICER'S CERTIFICATE") and in accordance with the Escrow Agreement:
(i) stating that an Indemnitee has incurred, paid or properly accrued
(in accordance with GAAP) or knows of facts giving rise to a reasonable
probability that it will have to incur, pay or accrue (in accordance with
GAAP) Damages in an aggregate stated amount with respect to which such
Indemnitee is entitled to payment from the Escrow Fund pursuant to this
Agreement; and
(ii) specifying in reasonable detail the individual items of Damages
included in the amount so stated, the date each such item was incurred,
paid or properly accrued (in accordance with GAAP), or the basis for such
anticipated liability, the specific nature of the breach to which such item
is related, the Escrow Agent shall, subject to the provisions of Section
8.7 of this Agreement, deliver to such Indemnitee shares of Parent Common
Stock in an amount necessary to indemnify such Indemnitee for the Damages
claimed. All shares of Parent Common Stock subject to such claims shall
remain in the Escrow Fund until the Damages are actually incurred or paid
or until the Escrow Agent determines in its reasonably good faith judgment
that no Damages will be required to be incurred or paid (in which event
such shares shall be distributed to the stockholders of the Company in
accordance with Section 8.8 below).
(b) For the purpose of compensating an Indemnitee for Damages pursuant
to this Agreement, the Parent Common Stock in the Escrow Fund shall be
valued at the average of the closing prices as reported in the edition of
The Wall Street Journal distributed in New York, NY of Parent Common Stock
for the thirty (30) trading days prior to the date of the final
determination of the amount of Damages to which Parent or Surviving
Corporation is entitled pursuant to this Article VIII (the "DETERMINATION
PRICE").
(c) The Stockholder Representative shall have the option to compensate
an Indemnitee for any Damages, or any portion of such Damages, with cash
rather than Escrow Shares. Upon satisfaction of any claim with cash, a
number of Escrow Shares shall be released by the Escrow Agent to the
Stockholder Representative equal to the total dollar amount of such cash
compensated claim divided by the Determination Price.
SECTION 8.7 Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Stockholder Representative and for a period of thirty
(30) days after such delivery to the Escrow Agent, the Escrow Agent shall make
no
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delivery of Parent Common Stock, cash, or other property pursuant to Section 8.6
hereof unless the Escrow Agent shall have received written authorization from
the Stockholder Representative to make such delivery. After the expiration of
such thirty (30) day period, the Escrow Agent shall make delivery of the Parent
Common Stock or other property in the Escrow Fund in accordance with Section 8.6
hereof, provided that no such payment or delivery may be made if the Stockholder
Representative shall object in a written statement to the claim made in the
Officer's Certificate, and such statement shall have been delivered to the
Escrow Agent and to Parent prior to the expiration of such thirty (30) day
period.
SECTION 8.8 Resolution of Conflicts; Arbitration. (a) In case the
Stockholder Representative shall so object in writing to any claim or claims by
Parent made in any Officer's Certificate, the Stockholder Representative and
Parent shall attempt in good faith to agree upon the rights of the respective
parties with respect to each of such claims. If the Stockholder Representative
and Parent should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to rely on any such memorandum and shall
distribute the Parent Common Stock or other property from the Escrow Fund in
accordance with the terms thereof.
(b) If no such agreement can be reached after good faith negotiation,
either Parent or the Stockholder Representative may, by written notice to
the other, demand arbitration of the matter unless the amount of the
Damages is at issue in pending litigation with a third party, in which
event arbitration shall not be commenced until such amount is ascertained
or both parties agree to arbitration; and in either such event the matter
shall be settled by arbitration conducted by the Arbitrator (as defined
herein) under the Commercial Arbitration Rules of the American Arbitration
Association. Within fifteen (15) days after such written notice is sent,
Parent and the Stockholder Representative shall each select one arbitrator,
and the two arbitrators so selected shall select a third arbitrator (the
"ARBITRATOR").
(c) Judgment upon any award rendered by the arbitrators may be entered
in any court having jurisdiction. Any such arbitration shall be held in
Boston, Massachusetts under the commercial rules then in effect of the
American Arbitration Association. The costs of any such arbitration shall
be borne one-half for the account of Parent and one-half by the
stockholders (out of the Escrow Fund to the extent available after all
claims have been satisfied).
SECTION 8.9 Stockholder Representative.
(a) Stephen J. Ricci is hereby appointed as the representative (the
"STOCKHOLDER REPRESENTATIVE") for and on behalf of the stockholders to take
all actions necessary or appropriate in the judgment of the Stockholder
Representative for the accomplishment of the terms of this Agreement,
including the execution of the Escrow Agreement. The holders of a majority
in interest of the shares of Parent Common Stock held in the Escrow Fund
may replace the Stockholder Representative upon not less than ten (10)
days' prior written notice to Parent. No bond shall be required of the
Stockholder Representative and the Stockholder Representative shall receive
no compensation for his services. Notices of communications to or from the
Stockholder Representative shall constitute notice to or from each of the
stockholders. If Stephen J. Ricci dies or is otherwise no longer able or
willing to serve as the Stockholder Representative, a new Stockholder
Representative shall be chosen by the stockholders holding a majority in
interest of the Escrow Shares.
(b) The Stockholder Representative shall not be liable for any act
done or omitted in such capacity while acting in good faith and in the
exercise of reasonable judgment, and any act done or omitted pursuant to
the advice of counsel shall be conclusive evidence of such good faith. The
Principal Stockholders shall severally indemnify the Stockholder
Representative and hold him harmless against any loss, liability or expense
(including any expenses of legal counsel retained by the Stockholder
Representative) incurred without gross negligence or bad faith on the part
of the Stockholder Representative and arising out of or in connection with
the acceptance or administration of his duties hereunder.
(c) Any decision, act, consent or instruction of the Stockholder
Representative shall constitute a decision of all stockholders for whom
shares of Parent Common Stock or otherwise issuable to them are
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deposited in the Escrow Fund and shall be final, binding and conclusive
upon every stockholder, and the Escrow Agent and any Indemnitee may rely
upon any decision, act, consent or instruction of the Stockholder
Representative as being the decision, act, consent or instruction of each
and every stockholder. The Escrow Agent and any Indemnitee are hereby
relieved from any liability to any person for acts done by them in
accordance with such decision, act, consent or instruction of the
Stockholder Representative.
SECTION 8.10 Distribution Upon Termination of Escrow Period. Within five
(5) business days following the Termination Date, the Escrow Agent shall deliver
to the stockholders all of the Escrow Shares in the Escrow Fund in excess of any
amount of such Escrow Shares reasonably necessary to satisfy any unsatisfied or
disputed claims for Damages specified in any Officer's Certificate delivered to
the Escrow Agent on or before the Termination Date. As soon as all such claims
have been resolved, the Escrow Agent shall deliver to the stockholders all
Escrow Shares remaining in the Escrow Fund and not required to satisfy such
claims. Deliveries of Escrow Shares to the stockholders pursuant to this section
shall be made in proportion to the allocation set forth in Section 8.3.
SECTION 8.11 Third-Party Claims. In the event an Indemnitee becomes aware
of a third-party claim which such Indemnitee believes may result in a demand
against the Escrow Fund, such Indemnitee shall promptly notify the Stockholder
Representative of such claim. Such Indemnitee shall have the right to settle any
such claim with the written consent of the Stockholder Representative, which
consent shall not be unreasonably withheld; provided, however, that the
Stockholder Representative may, at his or her option, direct the settlement
negotiations other than for claims related to (i) the Company Intellectual
Property or (ii) disputes or disagreements with customers of Parent or Company.
In the event that the Stockholder Representative consents to any such
settlement, neither the stockholders nor the Stockholder Representative shall
have any power or authority to object under Section 8.7 or any other provision
of this Agreement to the amount of any claim by an Indemnitee against the Escrow
Fund for indemnity with respect to such settlement (provided that the
stockholders and the Stockholder Representative shall not be precluded from
objecting that the claim is not the type of claim (but without objections to the
amount of the claim) for which such Indemnitee is entitled to indemnification
from the Escrow Fund). If any proceeding is commended, or if any claim, demand
or assessment is asserted, in respect of which a claim for indemnification is or
might be made against the Escrow Fund based on matters other than (i) the
Company Intellectual Property or (ii) claims made by customers of Parent or
Company, the Stockholder Representative may, at his or her option, contest or
defend any such action, proceeding, claim, demand or assessment, with counsel
selected by the Stockholder Representative who is reasonably acceptable to such
Indemnitee; provided, however, that if such Indemnitee shall reasonably object
to such control, then the Stockholder Representative and such Indemnitee shall
cooperate in the defense of such matter; provided further, that the Stockholder
Representative shall not admit any liability with respect thereto or settle,
compromise, pay or discharge the same without the prior written consent of
Parent, which consent shall not be unreasonably withheld. With respect to any
claim for indemnification based on matters relating to the Company Intellectual
Property, or customers of Company or Parent, an Indemnitee shall have the option
to defend any such proceeding with counsel reasonably satisfactory to the
Stockholder Representative, which consent shall not be unreasonably withheld. In
the event that the Stockholder Representative consents to any such settlement,
neither the stockholders nor the Stockholder Representative shall have any power
or authority to object under Section 8.8 or any other provision of this
Agreement to the amount of any claim by Parent against the Escrow Fund for
indemnity with respect to such settlement (provided that the stockholders and
the Stockholder Representative shall not be precluded form objecting that the
claim is not the type of claim (but without objections to the amount of the
claim) for which such Indemnitee is entitled to indemnification from the Escrow
Fund). The Stockholder Representative or the Indemnitee, whichever is not
controlling the defense of any matter, shall be entitled to participate in such
defense, at such Indemnitee's or the stockholders' expense. Any costs of defense
of third party claims up to $500,000 and fifty percent (50%) of the costs
thereafter (including attorneys' fees), incurred on behalf of the Stockholder
Representative or stockholders (calculated on a cumulative basis for all third
party claims to which this Section 8.11 applies) shall be submitted to the
Escrow Agent and reimbursed with shares from the Escrow Fund. For the purpose of
reimbursing such costs, the Parent Common Stock in the Escrow Fund shall be
valued at the average of the closing prices as reported in the edition of The
Wall
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Street Journal distributed in New York, NY, of Parent Common Stock for the
thirty (30) trading days prior to the date that an invoice for such costs is
sent to the Escrow Agent.
SECTION 8.12 Maximum Liability and Remedies. The rights of an Indemnitee
to make claims upon the Escrow Fund in accordance with this Article VIII shall
be the sole and exclusive remedy of such Indemnitee after the Effective Time
with respect to any breach by Company under this Agreement and no current or
former stockholder, option holder, warrant holder, director, officer, employee
or agent of Company shall have any personal liability to an Indemnitee after the
Effective Time as a result of such breach; provided, however, that nothing
herein limits any potential remedies of Parent or the Surviving Corporation,
arising under applicable state and federal laws with respect to any fraud,
intentional misrepresentations or other willful misconduct. Nothing in this
Agreement shall limit the liability of any Principal Stockholder in connection
with any breach by such stockholder of the Stockholder Agreement.
SECTION 8.13 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made if and when delivered personally or by overnight courier to the parties
at the following addresses or sent by electronic transmission, with confirmation
received, to the facsimile numbers specified below (or at such other address or
facsimile number for a party as shall be specified by like notice):
(a) If to Parent or Merger Sub:
Cabletron Systems, Inc.
35 Industrial Way
Rochester, NH 03866-5000
Attention: Dan Harding
Telephone No.: (603) 337-2323
Facsimile No.: (603) 337-1518
With a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: David B. Walek, Esq.
Telephone No.: (617) 951-7000
Facsimile No.: (617) 951-7050
(b) If to the Company:
Indus River Networks, Inc.
31 Nagog Park
Acton, MA 01720
Attention: Per Suneby
Telephone No.: (978) 266-8100
Facsimile No.: (978) 266-8111
With a copy to:
McDermott, Will & Emery
28 State Street
Boston, MA 02109-1775
Attention: Arthur I. Anderson, P.C.
Telephone No.: (617) 535-4000
Facsimile No.: (617) 535-3800
SECTION 8.14 Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliates" means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person; including, without limitation,
any partnership or joint venture in which the first mentioned person
(either alone, or through or together with any other subsidiary) has,
directly or indirectly, an interest of 5% or more;
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<PAGE> 134
(b) "beneficial owner" with respect to any shares of Company Common
Stock means a person who shall be deemed to be the beneficial owner of such
shares (i) which such person or any of its affiliates or associates (as
such term is defined in Rule 12b-2 of the Exchange Act) beneficially owns,
directly or indirectly, (ii) which such person or any of its affiliates or
associates has, directly or indirectly, (A) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (B) the right to vote pursuant to any agreement, arrangement
or understanding, or (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its
affiliates or associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any shares;
(c) "business day" means any day other than a day on which banks in
The Commonwealth of Massachusetts are required or authorized to be closed;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management or policies of a person, whether through the ownership of stock,
as trustee or executor, by contract or credit arrangement or otherwise;
(e) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d)(3) of the Exchange Act); and
(f) "subsidiary" or "subsidiaries" of the Company, Parent or any other
person means any corporation, partnership, joint venture or other legal
entity of which the Company, the Surviving Corporation, Parent or such
other person, as the case may be (either alone or through or together with
any other subsidiary), owns, directly or indirectly, more than 50% of the
stock or other equity interests the holders of which are generally entitled
to vote for the election of the board of directors or other governing body
of such corporation or other legal entity.
SECTION 8.15 Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after approval
of the Merger by the stockholders of the Company, no amendment may be made which
by law requires further approval by the stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto.
SECTION 8.16 Waiver. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid only if
set forth in an instrument in writing signed by the party or parties to be bound
thereby.
SECTION 8.17 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.18 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
SECTION 8.19 Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof.
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<PAGE> 135
SECTION 8.20 Assignment; Guarantee of Merger Sub and Surviving Corporation
Obligations. This Agreement shall not be assigned by operation of law or
otherwise, except that Parent and Merger Sub may assign all or any of their
rights hereunder to any affiliate thereof, provided, that, no such assignment
shall relieve the assigning party of its obligations hereunder. Parent
guarantees the full and punctual performance by Merger Sub and the Surviving
Corporation of all the obligations hereunder of Merger Sub and the Surviving
Corporation or any such assignees.
SECTION 8.21 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, including, without limitation, by way of subrogation, other than
Section 8.1(a) (which is intended for the benefit of the Company Indemnified
Parties and may be enforced by such Company Indemnified Parties). and Section
8.1 (c) (which is intended for the benefit of the Indemnitees and may be
enforced by such Indemnitees).
SECTION 8.22 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude any other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available, except that claims described in Section 8.2(b) may
only be made against the Escrow Fund after the Effective Time.
SECTION 8.23 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware without giving
effect to the conflict of law principles thereof.
SECTION 8.24 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
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<PAGE> 136
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have each caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
CABLETRON SYSTEMS, INC.
By: /s/ DANIEL J. HARDING
------------------------------------
Name: Daniel J. Harding
Title: Vice President of Business
Development
ACTON ACQUISITION CO.
By: /s/ DANIEL J. HARDING
------------------------------------
Name: Daniel J. Harding
Title:
INDUS RIVER NETWORKS, INC.
By: /s/ PER A. SUNEBY
------------------------------------
Name: Per A. Suneby
Title: President and Chief
Executive Officer
A-39
<PAGE> 137
EXHIBITS
<TABLE>
<S> <C>
1.2 Form of Certificate of Merger to be filed in Delaware
1.6(h) Form of Series C Certificate of Designation
2.31(a) Form of Stockholder Agreement for Principal Stockholders
other than Founders
2.31(b) Form of Stockholder Agreement for Founders
5.14 Form of Note
</TABLE>
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<PAGE> 138
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
This Amendment No. 1 to Agreement and Plan of Merger (the "AMENDMENT") is
made by and among Cabletron Systems, Inc., a Delaware corporation ("PARENT"),
Acton Acquisition Co., a Delaware corporation and a wholly owned subsidiary of
Parent ("MERGER SUB"), and Indus River Networks, Inc., a Delaware corporation
(the "COMPANY"), and is dated as of December 3, 2000.
RECITALS
The parties hereto are party to an Agreement and Plan of Merger dated as of
August 18, 2000 (the "MERGER AGREEMENT") and desire to make certain changes to
the Merger Agreement.
AGREEMENT
SECTION 1. Amendment of Merger Agreement.
1.1. Section 5.5(a) of the Merger Agreement is hereby amended by deleting
the date "January 15, 2001" and replacing it with the date "March 1, 2001".
1.2. Section 7.1(b) of the Merger Agreement is hereby amended by deleting
the date "January 15, 2001" and replacing it with the date "March 1, 2001".
1.3. Section 7.1(d) of the Merger Agreement is hereby amended by deleting
the date "January 15, 2001" and replacing it with the date "March 1, 2001".
1.4. Section 7.1(f) of the Merger Agreement is hereby amended by deleting
the date "January 15, 2001" and replacing it with the date "March 1, 2001".
SECTION 2. Miscellaneous.
The parties hereby agree that all references to the Merger Agreement
contained in any documents delivered in connection with or at the closing under
the Merger Agreement be deemed to refer to the Merger Agreement as amended
hereby. Except as expressly amended hereby, the Merger Agreement is hereby
confirmed as unchanged and in full force and effect and neither party shall be
deemed to have waived any rights under the Merger Agreement. Capitalized terms
used herein and not otherwise defined shall have the same meaning as in the
Merger Agreement. This Amendment sets forth the entire agreement of the parties
hereto with respect to its subject matter. The headings of this Agreement are
for convenience of reference only and shall not alter or otherwise affect the
meaning hereof. This Amendment may be executed in any number of counterparts
which together shall constitute one instrument and shall be governed by and
construed in accordance with the domestic substantive laws of the State of
Delaware without giving effect to any choice or conflict of law provision or
rule that would cause the application of the domestic substantive laws of any
other jurisdiction, and shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns.
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<PAGE> 139
IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby,
have duly executed this Amendment as of the date first written above.
CABLETRON SYSTEMS, INC.
By: /s/ DANIEL J. HARDING
----------------------------------
Name: Daniel J. Harding
Title: Vice President of Business
Development
ACTON ACQUISITION CO.
By: /s/ DANIEL J. HARDING
----------------------------------
Name: Daniel J. Harding
Title:
INDUS RIVER NETWORKS, INC.
By: /s/ PER A. SUNEBY
----------------------------------
Name: Per A. Suneby
Title: President and Chief
Executive Officer
A-42
<PAGE> 140
ANNEX B
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
SEC.262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to sec.
251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or sec.
264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
<PAGE> 141
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
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<PAGE> 142
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
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<PAGE> 143
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
B-4
<PAGE> 144
ANNEX C
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Agreement") is entered into as of , 2000, by
and among Cabletron Systems, Inc., a Delaware corporation ("Cabletron"), Stephen
J. Ricci, as representative of the stockholders of Indus River Networks, Inc., a
Delaware corporation ("Company") (Stephen J. Ricci is sometimes referred to
herein as the "Stockholder Representative"), and State Street Bank and Trust
Company, as escrow agent ("Escrow Agent").
BACKGROUND
A. Pursuant to that certain Agreement and Plan of Merger dated as of August
18, 2000 (the "Merger Agreement"), by and among Cabletron, Acton Acquisition
Co., a Delaware corporation and a wholly-owned subsidiary of Cabletron ("Merger
Sub") and the Company, as of the date hereof the Merger Sub is merging with and
into the Company, with the Company being the surviving entity (the "Merger").
Capitalized terms used in this Agreement and not otherwise defined herein shall
have the meanings given such terms in the Merger Agreement. Escrow Agent
acknowledges receipt of the Merger Agreement.
B. Pursuant to Section 1.7(b) and Section 8.3 of the Merger Agreement, the
Company has agreed that, at the closing of the transactions contemplated by the
Merger Agreement (the "Closing"), Cabletron shall deposit the Escrow Shares and
the Parent Preferred Escrow Shares into separate escrow accounts with the Escrow
Agent, the deposit of the Escrow Shares to constitute an escrow fund (the
"Common Shares Escrow Fund") and the deposit of the Parent Preferred Shares to
constitute a separate escrow fund (the "Preferred Shares Escrow Fund" and
collectively with the Common Shares Escrow Fund, the "Escrow Funds"). Only the
Escrow Shares in the Common Shares Escrow Fund shall be available to satisfy any
indemnification claims of Cabletron set forth in Article VIII of the Merger
Agreement.
C. The Escrow Agent is willing to hold the Escrow Shares and Parent
Preferred Escrow Shares in escrow in accordance with the provisions of this
Agreement, and to act as escrow agent hereunder.
NOW, THEREFORE, in consideration of the mutual premises and covenants set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which hereby are acknowledged, the parties hereto, intending to
be and being legally bound, agree as follows:
1. Escrow. The parties hereby appoint Escrow Agent to serve as escrow
agent, subject to and in accordance with the terms of this Agreement. Escrow
Agent hereby accepts such appointment as Escrow Agent and agrees to hold the
Escrow Shares and Parent Preferred Escrow Shares (in each case, to the extent
delivered to it hereunder) in the Escrow Funds and to disburse the Escrow Shares
and Parent Preferred Escrow Shares in accordance with the terms of this
Agreement. On or promptly after the Closing Date, Cabletron shall cause to be
delivered to Escrow Agent a certificate or certificates representing the Escrow
Shares and the Parent Preferred Escrow Shares, which shall be registered in the
name of "Embassy & Co." as nominee for the Escrow Agent, together with a written
notice to the Escrow Agent stating that such certificates are being deposited
into the Escrow Funds under this Agreement and (i) certifying to the Escrow
Agent the date of the Closing Date, (ii) identifying the specific certificate or
certificates that constitute the Escrow Shares on one hand, and the specific
certificate or certificates that constitute the Parent Preferred Escrow Shares
on the other hand, and (iii) certifying that such certificates constitute all of
the Escrow Shares and Parent Preferred Escrow Shares required to be delivered
into the Escrow Funds under the Merger Agreement and this Section, subject to
delivery of any Parent Preferred Escrow Shares in respect of Company Stock
Options assumed by Cabletron and exercised after the Closing Date. At the time
of such delivery of the Escrow Shares and Parent Preferred Escrow Shares to the
Escrow Agent, the Company shall provide the Escrow Agent with a list setting
forth the name and address of each such stockholder and the number of Escrow
Shares and/or Parent Preferred Escrow Shares which such stockholder is entitled
to receive under the Merger Agreement, which list shall be attached hereto as
Exhibit A (as amended from time to time pursuant to the terms of this Agreement,
"Exhibit A"). The Escrow Agent shall be under no duty to examine such
<PAGE> 145
certificates or to determine or inquire whether any such certificate complies
with the requirements of the Merger Agreement, and shall have no liability or
responsibility for the genuineness, validity or sufficiency of, or title to, any
such certificate.
2. Beneficial Ownership, Voting, Dividend Rights, Transfer of Escrow
Shares.
A. The Escrow Shares and Parent Preferred Escrow Shares shall be
beneficially owned by the stockholders of the Company entitled to receive them
under the Merger Agreement and all voting rights shall be exercisable by or on
behalf of each such stockholder (subject to Section 18(H) of this Agreement).
Any and all dividends other than cash distributions (including, without
limitation, any distribution of stock or other securities or property by way of
a dividend, spinoff, reclassification, recapitalization or similar corporate re-
arrangement or subdivision) paid by Cabletron with respect to the Escrow Shares
or the Parent Preferred Escrow Shares shall be made to the Escrow Agent on
behalf of the stockholders entitled to receive such distribution and such
distribution shall be deemed to be a part of the Common Shares Escrow Fund or
the Preferred Shares Escrow Fund, as applicable. Any and all cash distributions
paid by Cabletron with respect to the Escrow Shares or the Parent Preferred
Escrow Shares shall be distributed by Cabletron concurrently to the stockholders
to which such shares relate. If any such cash dividends are paid to the Escrow
Agent, such cash (i) shall not become part of the Escrow Funds, and (ii) shall
be disbursed by the Escrow Agent to the stockholders entitled thereto (based
upon Exhibit A). The Escrow Agent shall be under no duty or obligation to invest
(or otherwise pay interest on) any such cash dividends received by it from time
to time hereunder.
B. Until such time as they are distributed as hereinafter provided, no
Escrow Shares or Parent Preferred Shares, or any interest therein, shall be
transferred, except under the laws of descent and distribution or to the
partners or equity holders of any stockholder which is an entity. Any such
transfer by a stockholder of Escrow Shares and/or Parent Preferred Escrow Shares
shall be effected by delivery to the Escrow Agent, the Stockholder
Representative and Cabletron of appropriate written transfer instructions
substantially in the form attached hereto as Exhibit B-1, together with a duly
executed irrevocable stock power substantially in the form attached hereto as
Exhibit B-2. Upon receipt of such written transfer instructions and stock power,
duly executed with signatures guaranteed, the Escrow Agent shall amend Exhibit A
hereto to include the name of the transferee and the number of Escrow Shares
and/or Parent Preferred Escrow Shares to which such transferee is entitled, and
shall correspondingly adjust the number of Escrow Shares and/or Parent Preferred
Escrow Shares which the transferor is entitled to receive. Any reference to any
"stockholder" herein, shall be deemed to include and apply to any transferee
pursuant to this Section 2(B) who is, at the relevant time, the beneficial owner
of any Escrow Shares or Parent Preferred Shares as reflected on Exhibit A,
unless the context otherwise requires.
3. Stockholder Representative.
A. For all purposes set forth in this Agreement including the right to
receive the Notice (as defined in Section 4(A) below) and to provide the Counter
Notice (as defined in Section 4(B) below) and the Non-Dispute Notice (as defined
in Section 4(B) below), the Company hereby appoints Stephen J. Ricci as the
representative for and on behalf of the stockholders of the Company. Any
decision, act, consent or instruction of the Stockholder Representative shall
constitute a decision of all stockholders for whom Escrow Shares or Parent
Preferred Escrow Shares issuable to them are deposited in the Escrow Funds and
shall be final, binding and conclusive upon every stockholder, and the Escrow
Agent and any Indemnitee may rely upon any decision, act, consent or instruction
of the Stockholder Representative as being the decision, act, consent or
instruction of each and every stockholder. Notices of communications to or from
the Stockholder Representative shall constitute notice to or from each of the
stockholders.
B. No bond shall be required of the Stockholder Representative and the
Stockholder Representative shall receive no compensation for his services. The
Stockholder Representative shall not be liable for any act done or omitted in
such capacity while acting in good faith and in the exercise of reasonable
judgment, and any act done or omitted pursuant to the advice of counsel shall be
conclusive evidence of such good faith. The Escrow Agent and any Indemnitee are
hereby relieved from any liability to any person for acts done by them in
accordance with such decision, act, consent or instruction of the Stockholder
Representative. The Principal
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Stockholders have agreed to severally indemnify the Stockholder Representative
and hold him harmless against any liability, loss or expense (including any
expenses of legal counsel retained by the Stockholder Representative) incurred
without gross negligence or bad faith on the part of the Stockholder
Representative and arising out of or in connection with the acceptance or
administration of his duties hereunder and under the Merger Agreement.
C. The holders of a majority in interest of Escrow Shares held in the
Common Shares Escrow Fund may remove and replace the Stockholder Representative
upon not less than ten (10) days' prior written notice to Cabletron and the
Escrow Agent. If the Stockholder Representative resigns, dies, or is otherwise
no longer able or willing to serve as the Stockholder Representative, a new
Stockholder Representative shall be chosen within thirty (30) days of such
event, by the holders of a majority in interest of Escrow Shares held in the
Common Shares Escrow Fund, and prompt written notice of such replacement shall
be given by such holders to Cabletron and the Escrow Agent. Any resignation of
the Stockholder Representative shall not be effective until such a successor
shall exist. The choice of a successor Stockholder Representative appointed in
any manner permitted above shall be final and binding upon all of the
stockholders. The decisions and actions of any successor Stockholder
Representative shall be, for all purposes, those of the Stockholder
Representative as if originally named herein.
4. Distribution of the Escrow Shares.
A. At any time and from time to time, on or before the first anniversary of
the Closing (the "Termination Date"), Cabletron may provide written notice (a
"Notice") to the Escrow Agent specifying in reasonable detail the nature and
dollar amount of any Damages incurred subject to indemnification under Article
VIII of the Merger Agreement. Such Notice shall consist of a certificate
executed by a duly authorized officer of Cabletron, certifying in reasonable
detail, (i) that an Indemnitee has incurred, paid or properly accrued (in
accordance with GAAP) or knows of facts giving rise to a reasonable probability
that it will have to incur, pay or accrue (in accordance with GAAP) Damages in
an aggregate stated amount with respect to which such Indemnitee is entitled to
payment from the Common Shares Escrow Fund pursuant to the Merger Agreement, and
(ii) the individual items of Damages included in the amount so stated, the date
each such item was incurred, paid or properly accrued (in accordance with GAAP),
or the basis for such anticipated liability and the specific nature of the
breach to which such item is related.
B. At the time of delivery of any Notice to the Escrow Agent, a duplicate
copy of such Notice shall be delivered by Cabletron to the Stockholder
Representative. If the Stockholder Representative shall provide written notice
to Cabletron and the Escrow Agent disputing any Damages set forth in the Notice
(a "Counter Notice") within thirty (30) days following receipt by the
Stockholder Representative of such Notice, such dispute shall be resolved as
provided in subsection 4(C) below. If no Counter Notice is received by the
Escrow Agent within thirty (30) days of the Escrow Agent's receipt of a Notice,
or if prior to the expiration of such thirty (30) day period the Escrow Agent
shall have received written notification from the Stockholder Representative
that it does not dispute the Damages set forth in the Notice (a "Non-Dispute
Notice"), then the dollar amount of Damages claimed by Cabletron as set forth in
its Notice shall be deemed established for purposes of this Agreement and the
Merger Agreement and, after the earlier of the expiration of such thirty (30)
day period or receipt by the Escrow Agent of a Non-Dispute Notice, the Escrow
Agent shall deliver to such Indemnitee Escrow Shares in an amount necessary to
indemnify such Indemnitee for the Damages claimed (based on the applicable
Determination Price, as of the date of expiration of such 30 day period, as
determined pursuant to Section 4(F) hereof), as nearly practicable, rounded up
to the nearest whole share.
C. If a Counter Notice is given by the Stockholder Representative in
response to a Notice, the Stockholder Representative and Cabletron shall use
good faith attempts over a thirty (30) day period to agree upon the rights of
the respective parties with respect to each claim for Damages set forth in such
Notice. If the Stockholder Representative and Cabletron should so agree within
such thirty (30) day period, a memorandum setting forth such agreement shall be
prepared and signed by both parties and shall be furnished to the Escrow Agent
(which memorandum shall, at a minimum, specify the amount of Damages to be paid
from the Common Shares Escrow Fund and the Determination Price to be applied for
purposes thereof). The Escrow
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Agent shall be entitled to rely on any such memorandum and shall distribute the
Escrow Shares from the Common Shares Escrow Fund in accordance with the terms
thereof.
If no such agreement can be reached after good faith negotiation within
such thirty (30) day period, either Cabletron or the Stockholder Representative
may, by written notice to the other, initiate arbitration of the matter (unless
the amount of the Damages at issue is in pending litigation with a third party,
in which event arbitration shall not be commenced until such amount is
ascertained or both parties agree to arbitration). Within fifteen (15) days
after such written notice is sent, Cabletron and the Stockholder Representative
shall each select one arbitrator, and the two arbitrators so selected shall
select a third arbitrator (collectively, the "Arbitrators"). Judgment upon any
award rendered by the Arbitrators may be entered in any court having
jurisdiction. Any such arbitration shall be held in Boston, Massachusetts under
the commercial rules then in effect of the American Arbitration Association (the
"AAA"). The costs of any such arbitration shall be borne one-half for the
account of Cabletron and one-half by the stockholders. The Escrow Agent is
authorized and directed to make any distribution out of the Common Shares Escrow
Fund upon its receipt of written notice from either Cabletron or the Stockholder
Representative of a judgment rendered by a court upon any such Arbitrators'
award determining that an amount (specified therein) is owed to Cabletron in
respect of a claim for Damages, with a copy of such court judgment attached
(such distribution to be made on the basis of the applicable Determination Price
as of the date on which the Escrow Agent receives such notice, as determined
pursuant to Section 4(F) hereof, rounded up to the nearest whole share).
D. The Escrow Agent is also directed and authorized to make distributions
out of the Common Shares Escrow Fund to Cabletron upon receipt of any court
order determining that an amount is owed to Cabletron pursuant to Article VIII
of the Merger Agreement (such distribution to be based upon the applicable
Determination Price as of the date of the Escrow Agent's receipt of such court
order, as determined pursuant to Section 4(F), and rounded up to the nearest
whole share). Cabletron shall provide the Stockholder Representative a copy of
such court order. The Escrow Agent shall be authorized to act on such court
order without further inquiry.
E. Within five (5) business days following the Termination Date, the Escrow
Agent shall deliver to the stockholders all of the Escrow Shares that remain in
the Common Shares Escrow Fund (if any), less the number of Escrow Shares
(rounded up to the nearest whole share) in such Common Shares Escrow Fund as is
most nearly equal to the amount reasonably necessary to satisfy any unsatisfied
or disputed claims for Damages specified in any Notice delivered to the Escrow
Agent on or before the Termination Date, which has not been paid or resolved in
accordance with Section 4(C) hereof (based upon the Determination Price,
determined as of the Termination Date pursuant to Section 4(F) hereof). As soon
as all such claims have been resolved pursuant to Section 4(C), the Escrow Agent
shall deliver to each of the stockholders on whose behalf the Escrow Shares are
held, all Escrow Shares remaining in the Common Shares Escrow Fund and not
required to satisfy such claims. Deliveries of Escrow Shares to the stockholders
pursuant to this section shall be made in such amounts as are set forth next to
each stockholder's name on Exhibit A hereto, or if less than all such Escrow
Shares shall be delivered, in proportion to each such stockholder's pro rata
percentage of the Escrow Shares remaining in the Common Shares Escrow Fund.
F. (i) In determining the number of Escrow Shares to be delivered in
respect of any claim for Damages pursuant to this Agreement, the Escrow Shares
in the Common Shares Escrow Fund shall be valued at the average of the closing
prices as reported in the edition of The Wall Street Journal distributed in New
York, NY of Parent Common Stock for the thirty (30) trading days prior to the
applicable date as of which such value is to be determined for purposes of, and
as provided in, this Agreement (the "Determination Price"). At any time or times
when a distribution of Escrow Shares is called for under this Agreement, the
Escrow Agent shall be entitled to request and receive from Cabletron or the
Stockholder Representative, and shall be entitled to rely conclusively upon, a
certificate to the Escrow Agent executed by Cabletron and the Stockholder
Representative setting forth the Determination Price (as of the date or dates
requested by the Escrow Agent); and the Escrow Agent shall not be liable for any
delay or error on the part of Cabletron or the Stockholder Representative in
making such determination or providing such certification. If for any reason
closing prices for the relevant thirty trading days are not reported in The Wall
Street Journal as provided above with respect to any such determination, the
Determination Price shall be determined by the mutual agreement of
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Cabletron and the Stockholder Representative and certified to the Escrow Agent,
on which it shall be entitled to rely conclusively, on the basis of such
methodology as shall be agreed upon by Cabletron and the Stockholder
Representative; and the Escrow Agent shall have no liability for any delay or
error on the part of Cabletron or the Stockholder Representative in making such
determination or providing such certificate.
(ii) The Stockholder Representative shall have the option to compensate an
Indemnitee for any Damages, or any portion of such Damages, with cash rather
than Escrow Shares. Upon satisfaction of any claim with cash, a number of Escrow
Shares shall be released by the Escrow Agent to the Stockholder Representative
equal to the total dollar amount of such cash used to pay such claim divided by
the Determination Price; provided, however that (i) with respect to an
undisputed claim for Damages, the Stockholder Representative shall give written
notice to the Escrow Agent executed by the Stockholder Representative and
acknowledged in writing by Cabletron (which acknowledgement shall not be
unreasonably withheld) of the amount it elects to pay in cash (a "Cash Payment
Notice"), and shall pay such cash amount specified therein to the Escrow Agent
in immediately available funds by the earlier of thirty (30) days from the
Escrow Agent's receipt of a Notice or the Escrow Agent's receipt of a
Non-Dispute Notice, and (ii) with respect to a disputed claim for Damages, the
Stockholder Representative shall give a Cash Payment Notice to the Escrow Agent,
together with payment in immediately available funds of the amount to be paid in
cash concurrently with or prior to the Escrow Agent's receipt of the memorandum
described in Section 4(C) hereof or decision of Arbitrators described in Section
4(C) hereof or the court order described in Section 4(C) hereof, as the case may
be. The Escrow Agent shall not be under any duty or obligation to invest (or
otherwise pay interest on) any such cash received by it at any time or times
hereunder.
G. The rights of an Indemnitee to make claims upon the Escrow Fund shall be
the sole and exclusive remedy of such Indemnitee with respect to any breach by
Company under the Merger Agreement and the transactions contemplated thereby and
no current or former stockholder, option holder, warrant holder, director,
officer, employee or agent of Company shall have any personal liability to an
Indemnitee as a result of such breach; provided, however, that nothing herein or
in the Merger Agreement shall limit any potential remedies of Cabletron or the
Surviving Corporation, arising under applicable state and federal laws with
respect to any fraud, intentional misrepresentations or other willful
misconduct. Nothing in this Agreement or the Merger Agreement shall limit the
liability of any Principal Stockholder in connection with any breach by such
stockholder of the Stockholder Agreement executed by such Principal Stockholder.
5. Distribution of Parent Preferred Escrow Shares. The Parent Preferred
Escrow Shares shall be held by the Escrow Agent in the Preferred Shares Escrow
Fund and shall not be distributed except in accordance with the provisions of
this Section 5.
(i) If, during the one-year period ending with the first anniversary of the
Closing Date, Cabletron shall establish a record date with respect to an
Enterasys Spinoff or an Enterasys Transaction to be completed prior to the first
anniversary of the Closing Date, then pursuant to Section 6 and Section 7 of
Cabletron's Certificate of Designation, Preferences and Rights of the Series C
Convertible Preferred Stock (the "Series C Designation"), Cabletron shall
deliver to each holder of Series C Preferred Stock set forth on Exhibit A, and
to the Escrow Agent, not less than thirty (30) days written notice of the record
date for the Enterasys Spinoff or the Enterasys Transaction. Such notice shall
specify (a) whether it relates to an Enterasys Spinoff or an Enterasys
Transaction, (b) in the case of an Enterasys Spinoff, each holder's right to
convert its shares of Series C Preferred Stock into Cabletron Common Stock, or,
in the case of an Enterasys Transaction, each holder's right to convert or
redeem its shares of Series C Preferred Stock, (c) the applicable conversion and
redemption prices set forth in the Series C Designation, and (d) the applicable
procedures and notice requirements for conversion or redemption set forth herein
and in Section 6 and Section 7 of the Series C Designation. Each holder of
Series C Preferred Stock shall have fifteen (15) days from the date of such
notice to deliver to the Escrow Agent written notice of its intention to convert
or redeem, or its objection to any conversion or redemption of its shares of
Series C Preferred Stock, as applicable.
With respect to an Enterasys Spinoff, promptly following the expiration of
such fifteen (15) day period, the Escrow Agent shall deliver to Cabletron the
certificate or certificates representing the Parent Preferred Escrow Shares
together with a list of each holder of Parent Preferred Escrow Shares set forth
on Exhibit A
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from whom the Escrow Agent has received within such fifteen (15) day period
written notice electing to convert such holder's shares of Series C Preferred
Stock into Cabletron Common Stock, or from whom the Escrow Agent has not
received within such fifteen (15) day period any objection in writing to such
conversion, or from whom the Escrow Agent has not received written notice with
respect to such conversion (or any notice at all) within such fifteen (15) day
period. The Escrow Agent may request, from time to time, written confirmation
executed by Cabletron and the Stockholder Representative of the information
compiled by the Escrow Agent and set forth on the list delivered to Cabletron.
Cabletron shall then, immediately prior to consummation of the Enterasys
Spinoff, (i) convert into Cabletron Common Stock the Parent Preferred Escrow
Shares of each holder set forth on such list, and deliver such Cabletron Common
Stock to such holder, all in the manner provided in the Series C Designation,
and (ii) return to the Escrow Agent a certificate, registered in the name of
Embassy & Co., as nominee for the Escrow Agent, representing the balance of
Parent Preferred Escrow Shares not so converted, together with an amended
Exhibit A properly adjusted to reflect such conversion.
With respect to an Enterasys Transaction, promptly following the expiration
of such fifteen (15) day period, the Escrow Agent shall deliver to Cabletron the
certificate or certificates representing the Parent Preferred Escrow Shares
together with a list of each holder of Parent Preferred Escrow Shares set forth
on Exhibit A from whom the Escrow Agent has received within such fifteen (15)
day period written notice electing to redeem such holder's shares of Series C
Preferred Stock, or from whom the Escrow Agent has not received within such
fifteen (15) day period any objection in writing to such redemption, or from
whom the Escrow Agent has not received within such fifteen (15) day period
written notice electing to convert such holder's shares of Series C Preferred
Stock into Cabletron Common stock, or from whom the Escrow Agent has not
received written notice with respect to such conversion or redemption (or any
notice at all) within such fifteen (15) day period. The Escrow Agent may
request, from time to time, written confirmation executed by Cabletron and the
Stockholder Representative of the information compiled by the Escrow Agent and
set forth on the list delivered to Cabletron. Cabletron shall then, immediately
prior to consummation of the Enterasys Transaction, (i) redeem the Parent
Preferred Escrow Shares of any holder set forth on such list, and shall deliver
the redemption proceeds therefrom to such holder, in the manner provided in the
Series C Designation, and (ii) return to the Escrow Agent a certificate
registered in the name of Embassy & Co., as nominee for the Escrow Agent,
representing the balance of Parent Preferred Escrow Shares not so redeemed,
together with an amended Exhibit A properly adjusted to reflect such redemption.
If, within fifteen (15) days of the written notice from Cabletron of the
record date for the Enterasys Transaction, the Escrow Agent has received written
notice from a holder of Series C Preferred Stock set forth on Exhibit A electing
conversion of such holder's Series C Preferred Stock into Cabletron Common
Stock, then the Escrow Agent shall promptly after the expiration of such fifteen
(15) day period deliver to Cabletron the certificate or certificates
representing the Parent Preferred Escrow Shares (unless already delivered to
Cabletron pursuant to the preceding paragraph) together with a list of the
holders from whom it has received such notice electing conversion. The Escrow
Agent may request written confirmation, from time to time, executed by Cabletron
and the Stockholder Representative of the information compiled by the Escrow
Agent and set forth on the list delivered to Cabletron. Cabletron shall then,
immediately following the consummation of the Enterasys Transaction, (i) convert
into Cabletron Common Stock the Parent Preferred Escrow Shares of any holder set
forth on such list and deliver such Cabletron Common Stock to such holder, all
in the manner provided in the Series C Designation, and (ii) return to the
Escrow Agent a certificate, registered in the name of Embassy & Co., as nominee
for the Escrow Agent, representing the balance of Parent Preferred Escrow Shares
not so converted, together with an amended Exhibit A properly adjusted to
reflect such conversion.
Any Parent Preferred Escrow Shares not so converted or redeemed (whether
upon written notice of the holder or as a result of the failure to consummate an
Enterasys Spinoff or an Enterasys Transaction, as applicable) shall remain in
the Preferred Shares Escrow Fund and shall not be distributed except in
accordance with the provisions of this Section 5.
(ii) If, during the one-year period ending with the second anniversary of
the Closing Date, Cabletron shall establish a record date with respect to an
Enterasys Spinoff or an Enterasys Transaction to be completed
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prior to the second anniversary of the Closing Date, then pursuant to Section 6
and Section 7 of the Series C Designation, Cabletron shall deliver to each
holder of Series C Preferred Stock set forth on Exhibit A, and to the Escrow
Agent, not less than thirty (30) days written notice of the record date for the
Enterasys Spinoff or the Enterasys Transaction, as applicable. Such notice shall
specify (a) whether it relates to an Enterasys Spinoff or an Enterasys
Transaction, (b) each holder's right to convert its shares of Series C Preferred
Stock into shares of Cabletron Common Stock or to redeem its shares of Series C
Preferred Stock, (c) the applicable conversion and redemption prices set forth
in the Series C Designation, and (d) the applicable procedures and notice
requirements for conversion or redemption set forth herein and in Section 6 and
Section 7 of the Series C Designation. Each holder of Series C Preferred Stock
shall have fifteen (15) days from the date of such notice to deliver to the
Escrow Agent written notice of its intention to convert or redeem, or its
objection to any conversion or redemption of its shares of Series C Preferred
Stock, as applicable.
Promptly following the expiration of such fifteen (15) day period, the
Escrow Agent shall deliver to Cabletron the certificate or certificates
representing the Parent Preferred Escrow Shares together with a list of each
holder of Parent Preferred Escrow Shares set forth on Exhibit A from whom the
Escrow Agent has received within such fifteen (15) day period written notice
electing to redeem such holder's shares of Series C Preferred Stock, or from
whom the Escrow Agent has not received within such fifteen (15) day period any
objection in writing to such redemption, or from whom the Escrow Agent has not
received within such fifteen (15) day period written notice electing to convert
such holder's shares of Series C Preferred Stock into Cabletron Common stock, or
from whom the Escrow Agent has not received written notice with respect to such
conversion or redemption (or any notice at all) within such fifteen (15) day
period. The Escrow Agent may request, from time to time, written confirmation
executed by Cabletron and the Stockholder Representative of the information
compiled by the Escrow Agent and set forth on the list delivered to Cabletron.
Cabletron shall then, immediately following the consummation of the Enterasys
Spinoff or Enterasys Transaction, as the case may be, (i) redeem the Parent
Preferred Escrow Shares of any holder set forth on such list, and shall deliver
the redemption proceeds therefrom to such holder, in the manner provided in the
Series C Designation, and (ii) return to the Escrow Agent a certificate
registered in the name of Embassy & Co., as nominee for the Escrow Agent,
representing the balance of Parent Preferred Escrow Shares not so redeemed,
together with an amended Exhibit A properly adjusted to reflect such redemption.
If, within fifteen (15) days of the written notice from Cabletron of the
record date for the Enterasys Spinoff or Enterasys Transaction, as the case may
be, the Escrow Agent has received written notice from a holder of Series C
Preferred Stock set forth on Exhibit A electing conversion of such holder's
Series C Preferred Stock into Cabletron Common Stock, then the Escrow Agent
shall promptly after the expiration of such fifteen (15) day period deliver to
Cabletron the certificate or certificates representing the Parent Preferred
Escrow Shares (unless already delivered to Cabletron pursuant to the preceding
paragraph) together with a list of the holders from whom it has received such
notice electing conversion. The Escrow Agent may request, from time to time,
written confirmation executed by Cabletron and the Stockholder Representative of
the information compiled by the Escrow Agent and set forth on the list delivered
to Cabletron. Cabletron shall then, immediately following the consummation of
the Enterasys Spinoff or Enterasys Transaction, as the case may be, (i) convert
into Cabletron Common Stock the Parent Preferred Escrow Shares of any holder set
forth on such list and deliver such Cabletron Common Stock to such holder, all
in the manner provided in the Series C Designation, and (ii) return to the
Escrow Agent a certificate, registered in the name of Embassy & Co., as nominee
for the Escrow Agent, representing the balance of Parent Preferred Escrow Shares
not so converted, together with an amended Exhibit A properly adjusted to
reflect such conversion.
Any Parent Preferred Escrow Shares not so redeemed or converted (whether
upon written notice of the holder or as a result of the failure to consummate an
Enterasys Spinoff or an Enterasys Transaction) shall remain in the Preferred
Shares Escrow Fund and shall not be distributed except in accordance with the
provisions of this Section 5.
(iii) Within thirty (30) days of the two-year anniversary of the Closing
Date, Cabletron shall deliver to each holder of Series C Preferred Stock and to
the Escrow Agent a written notice in accordance with Section 6 and Section 7 of
the Series C Designation. Such notice shall (a) advise such holder of the
termination of such holder's redemption right, (b) advise such holder of such
holder's right to convert its
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shares of Series C Preferred Stock into shares of Cabletron Common Stock, (c)
specify the applicable conversion price set forth in the Series C Designation,
and (d) specify the applicable procedures and notice requirements for conversion
set forth herein and in Section 6 and Section 7 of the Series C Designation.
Each holder of Series C Preferred Stock shall have fifteen (15) days from the
date of such notice to deliver to the Escrow Agent written notice of its
intention to convert or its objection to any conversion of its shares of Series
C Preferred Stock.
Promptly following the expiration of such fifteen (15) day period, the
Escrow Agent shall deliver to Cabletron the certificate or certificates
representing the Parent Preferred Escrow Shares together with a list of each
holder of Parent Preferred Escrow Shares set forth on Exhibit A from whom the
Escrow Agent has received within such fifteen (15) day period written notice
electing to convert such holder's shares of Series C Preferred Stock, or from
whom the Escrow Agent has not received within such fifteen (15) day period any
objection in writing to such conversion, or from whom the Escrow Agent has not
received written notice with respect to such conversion (or any notice at all)
within such fifteen (15) day period. The Escrow Agent may request, from time to
time, written confirmation executed by Cabletron and the Stockholder
Representative of the information compiled by the Escrow Agent and set forth on
the list delivered to Cabletron. Cabletron shall then, (i) convert into
Cabletron Common Stock the Parent Preferred Escrow Shares of each holder set
forth on such list, and deliver such Cabletron Common Stock to such holder, all
in the manner provided in the Series C Designation, and (ii) return to the
Escrow Agent a certificate, registered in the name of Embassy & Co., as nominee
for the Escrow Agent, representing the balance of Parent Preferred Escrow Shares
not so converted, together with an amended Exhibit A properly adjusted to
reflect such conversion. Any Parent Preferred Escrow Shares not so converted
shall remain in the Preferred Shares Escrow Fund and shall not be distributed
except in accordance with the provisions of this Section 5.
(iv) Promptly following the thirty (30) month anniversary of the Closing
Date (as identified to the Escrow Agent in the Cabletron notice accompanying
deposit of the Escrow Shares and Parent Preferred Escrow Shares pursuant to
Section 1), the Escrow Agent shall release any Parent Preferred Escrow Shares
remaining in the Preferred Shares Escrow Fund and shall distribute such Parent
Preferred Escrow Shares to each of the holders to which such Parent Preferred
Escrow Shares relate in the amounts set forth on Exhibit A.
(v) Notwithstanding anything to the contrary in this Section 5, in the
event of the consummation of a Corporate Change (as defined in the Series C
Designation) at any time prior to the Termination Date, Cabletron shall deliver
to the Escrow Agent the stock, securities or assets to which the holders of
Series C Preferred Stock set forth on Exhibit A are entitled as consideration in
connection with the Corporate Change, as provided in Section 6.4 of the Series C
Designation, accompanied by a certificate (i) stating that such delivery is in
connection with a Corporate Change as provided in Section 6.4 of the Series C
Designation, (ii) certifying that the stock, securities or assets delivered
therewith constitute all of the assets to which the holders of Series C
Preferred Stock set forth on Exhibit A are entitled as consideration in
connection with such Corporate Change as provided in Section 6.4 of the Series C
Designation, (iii) identifying the specific amount(s) or portion(s) of such
stock, securities and/or assets (as applicable) to which each such holder set
forth on Exhibit A is entitled, respectively, and (iv) directing the Escrow
Agent to deliver to Cabletron any and all certificates representing Parent
Preferred Escrow Shares then held by the Escrow Agent (a "Corporate Change
Notice"); and the Escrow Agent shall concurrently deliver to Cabletron the
certificate or certificates representing such holders' Parent Preferred Escrow
Shares. Promptly thereafter, the Escrow Agent shall distribute to each of the
holders set forth on Exhibit A, the amount of such stock, securities or assets
to which each holder is entitled as set forth in the Corporate Change Notice.
6. Duties and Powers of Escrow Agent.
A. The Escrow Agent shall not be under any duty to give the Escrow Funds
held by it hereunder any greater degree of care than it gives its own similar
property and shall not be required to invest any shares or funds held hereunder.
Uninvested shares or funds held hereunder shall not earn or accrue interest.
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B. The Escrow Agent shall be entitled to rely upon any order, judgment,
certification, demand, notice, instrument or other writing delivered to it
hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity of the
service thereof. The Escrow Agent may act in reliance upon any instrument or
signature believed by it to be genuine and may assume that the person purporting
to give receipt or advice or make any statement or execute any document in
connection with the provisions hereof has been duly authorized to do so. The
Escrow Agent may conclusively presume that the undersigned representative of any
party hereto which is an entity other than a natural person has full power and
authority to instruct Escrow Agent on behalf of that party unless written notice
to the contrary is delivered to the Escrow Agent.
C. The Escrow Agent may act pursuant to the advice of counsel with respect
to any matter relating to this Agreement and shall not be liable for any action
taken or omitted by it in good faith in accordance with such advice.
D. The Escrow Agent does not have any interest in the Escrow Funds
deposited hereunder, but is serving as escrow holder only and having only
possession thereof. Any payments of income from the Escrow Funds shall be
subject to withholding regulations then in force with respect to United States
taxes. If requested by the Escrow Agent, the parties hereto will provide the
Escrow Agent with appropriate Internal Revenue Service Forms W-9 for tax
identification number certification, or non-resident alien certifications at the
Closing. Such forms, if requested by the Escrow Agent, shall be provided to the
recipient of any distributions from the Escrow Funds by Escrow Agent prior to
making any such distributions from the Escrow Funds.
E. The other parties hereto authorize the Escrow Agent, for any securities
held hereunder, to use the services of any United States central securities
depository, including, without limitation, the Depository Trust Company and the
Federal Reserve Book Entry System.
F. In the event of any disagreement between the other parties hereto
resulting in adverse claims or demands being made in connection with the Common
Shares Escrow Fund or in the event that the Escrow Agent is in doubt as to what
action it should take hereunder, the Escrow Agent shall be entitled to retain
the Common Shares Escrow Fund until the Escrow Agent shall have received (i) a
final order of the Arbitrators acting in accordance with Section 4(C) hereof
directing delivery of the Common Shares Escrow Fund, (ii) a final non-appealable
order of a court of competent jurisdiction directing delivery of the Common
Shares Escrow Fund, or (iii) a written agreement executed by all of the other
parties hereto directing delivery of the Common Shares Escrow Fund, in which
event the Escrow Agent shall disburse the Common Shares Escrow Fund in
accordance with such order or agreement without further inquiry. The Escrow
Agent shall act on such arbitration or court order without further inquiry.
7. Limited Liability. In performing any of its duties hereunder, the
Escrow Agent shall not incur any liability to anyone for any damages, losses, or
expenses, except for any willful misconduct or gross negligence by the Escrow
Agent hereunder, and, accordingly, the Escrow Agent shall not incur any such
liability with respect to (i) any action taken or omitted in good faith upon
advice of its legal counsel given with respect to any questions relating to the
duties and responsibilities of the Escrow Agent under this Agreement or (ii) any
action taken or omitted in reliance on any instrument, including any written
notice or instruction provided for in this Agreement, not only as to its due
execution and authorization, and the validity and effectiveness of its
provisions, but also as to the truth and accuracy of any information contained
therein, which the Escrow Agent shall in good faith believe to be genuine, to
have been signed or presented by a person or persons having authority to sign or
present such instrument, and to conform with the provisions of this Agreement.
8. Indemnity. Cabletron agrees to indemnify the Escrow Agent against, and
hold the Escrow Agent harmless from, any and all claims, actions, demands,
losses, damages, expenses (including, without limitation, court costs,
attorneys' fees and expenses, and accountants' fees), and liabilities that may
be imposed upon the Escrow Agent in the performance of its duties hereunder as
Escrow Agent, including, without limitation, any litigation arising from this
Agreement or involving the subject matter hereof, but excluding any such claims,
actions, demands, losses, damages, expenses, and liabilities resulting from or
arising out of any willful misconduct or gross negligence by the Escrow Agent
hereunder.
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<PAGE> 153
9. Resignation and Removal of Escrow Agent. The Escrow Agent (and any
successor escrow agent) may at any time resign or be removed by the mutual
consent of Cabletron and the Stockholder Representative upon written notice to
the other parties hereto given at least thirty (30) days prior to the effective
date of such resignation or removal. The resignation or removal of Escrow Agent
shall not be effective until delivery of the Escrow Funds to any successor
escrow agent jointly designated by Cabletron and the Stockholder Representative
in writing, or to any court of competent jurisdiction, whereupon the Escrow
Agent shall be discharged of and from any and all further obligations arising in
connection with this Agreement. If the Escrow Agent has not received a
designation of a successor escrow agent within thirty (30) days of the notice of
resignation or removal, the Escrow Agent's sole responsibility after that time
shall be to interplead and deposit the Escrow Funds with the arbitrator
whereupon its duties hereunder shall cease.
10. Intentionally Omitted.
11. Notices. All notices, consents, waivers and other communications
under this Agreement must be in writing and will be deemed to have been duly
given: (i) upon delivery by hand (with written confirmation of receipt); (ii)
upon transmission by facsimile (with written confirmation of receipt), provided
that a copy is mailed by registered mail, return receipt requested; (iii) upon
receipt by the addressee, if transmitted by postage prepaid registered or
certified mail, return receipt requested or (iv) upon receipt by the addressee,
if sent by a nationally recognized overnight delivery service (receipt
requested), in each case to the appropriate addresses and facsimile numbers set
forth below (or to such other addresses and facsimile numbers as a party may
designate by notice to the other parties):
<TABLE>
<S> <C>
If to Cabletron: Cabletron Systems, Inc.
35 Industrial Way
Rochester, NH 03866-5000
Attention: Dan Harding
Telephone No.: (603) 337-2323
Facsimile No.:
With a copy to: Ropes & Gray
One International Place
Boston, MA 02110
Attention: David B. Walek, Esq.
Telephone No.: (617) 951-7000
Facsimile No.: (617) 951-7050
If to Stockholder Representative: Stephen J. Ricci
One Liberty Ventures
150 Cambridgepark Drive
Cambridge, MA 02140
Telephone No.: (617) 492-7280
Facsimile No.: (617) 492-7290
</TABLE>
C-10
<PAGE> 154
<TABLE>
<S> <C>
With a copy to: McDermott, Will & Emery
28 State Street
Boston, Massachusetts, 02109
Attention: Arthur I. Anderson, P.C.
Telephone No.: (617) 535-4000
Facsimile No.: (617) 535-3800
If to Escrow Agent: By first class mail, to:
State Street Bank and Trust Company
Global Investors Services Group
Corporate Trust
P.O. Box 778
Boston, Massachusetts 02102-0778
Attention: Cabletron/Indus River Escrow
Or if by facsimile, addressed as above
and sent to the following
facsimile number:
Facsimile No.: (617)-662-1466
(Telephone No.: (617)-662-1796)
Or if by hand, certified or
registered mail or overnight
courier or delivery, to:
State Street Bank and Trust Company
Global Investors Services Group
Corporate Trust, 6th Floor
2 Avenue de Lafayette
Boston, Massachusetts 02111-1724
Attention: Cabletron/Indus River Escrow
</TABLE>
12. Assignment. No assignment by Cabletron of its rights and obligations
under this Agreement shall be effective, unless such assignment is made (i)
pursuant to the prior written consent of the Stockholder Representative, which
consent will not be unreasonably withheld, or (ii) to an affiliate or a
successor of all or substantially all of the business of Cabletron. No
assignment by the Stockholder Representative of his or her respective rights and
obligations under this Agreement shall be effective unless such assignment is
made pursuant to the prior written consent of Cabletron, which consent will not
be unreasonably withheld. The Escrow Agent shall receive written notice of any
such assignment.
13. Waiver. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise or any such right, power,
or privilege will preclude any other or
C-11
<PAGE> 155
further exercise of any such right, power, or privilege or the exercise of any
other right, power, or privilege. To the maximum extent permitted by applicable
law, (i) no claim or right arising out of this Agreement can be discharged by
one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by any other party; (ii) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given and (iii) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
14. Escrow Agent's Fee. The Escrow Agent's fee for performing its duties
under this Agreement shall be as set forth in the fee schedule attached hereto
as Exhibit C, which fee shall be paid in cash by Cabletron. Each of Cabletron
and the Company agrees, jointly and severally, to reimburse the Escrow Agent on
demand for all costs and expenses incurred by the Escrow Agent in connection
with the acceptance or administration of this Agreement or the escrow created
hereby or the performance or observance of its duties hereunder which are in
excess of its compensation for normal services hereunder, including without
limitation, payment of any legal fees and expenses incurred by the Escrow Agent
in connection with resolution of any claim by any party hereunder.
15. Governing Law. This Agreement and the rights arising from it shall be
governed by, construed and interpreted in accordance with the laws of the
Commonwealth of Massachusetts, without regard to conflicts of law principles.
16. Jurisdiction; Service of Process. Any action or proceeding seeking to
enforce any provision of, or based on any right arising out of, this Agreement
may be brought against any of the parties in the courts of the City of Boston,
Massachusetts, or, if it has or can acquire jurisdiction, in the United States
District Court for the District of Massachusetts, and each of the parties
consents to the jurisdiction of such courts (and of the appropriate appellate
courts) in any such action or proceeding and waives any objection to venue laid
therein. Process in any action or proceeding referred to in the preceding
sentence may be served on any party anywhere in the world.
17. Cooperation. Subject to the terms and conditions of this Agreement,
each of the parties hereto shall undertake in good faith to use commercially
reasonable efforts to take, or cause to be taken, such action, to execute and
deliver, or cause to be executed and delivered, such additional documents and
instruments and to do, or cause to be done, all things necessary, proper or
advisable under the provisions of this Agreement and under applicable law to
consummate and make effective the transaction contemplated by this Agreement and
shall use its good faith in carrying out the intent of this Agreement.
18. Miscellaneous.
A. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, executors, administrators,
personal representatives, successors, and permitted assigns. Any and all rights
granted to any of the parties hereto may be exercised by their agents or
personal representatives.
B. Time is of the essence of this Agreement.
C. This Agreement may be executed in several counterparts, each of which
shall be deemed an original, and all such counterparts together shall constitute
one and the same instrument.
D. In the event that any court of competent jurisdiction shall determine
that any provision of this Agreement is invalid, such determination shall not
effect the validity of any other provision of this Agreement which shall remain
in full force and effect and which shall be construed to be valid under
applicable law.
E. This Agreement constitutes the sole and entire agreement of the parties
hereto with respect to the subject matter hereof and no promises, agreements or
understandings, whether oral or written, shall be of any force or effect unless
set forth herein. This Agreement may not be amended, except by a written
agreement executed by all of the parties hereto.
F. The headings of sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation.
C-12
<PAGE> 156
G. The Escrow Agent is not a party to, nor is it bound by, nor need it give
consideration to the terms or provisions of, any agreement or undertaking among
the undersigned or any of them, or between the undersigned or any of them and
other persons, including, but not limited to, the Merger Agreement, the Series C
Designation, or any agreement or undertaking which may be evidenced by or
disclosed by the Escrow Funds, it being the intention of the parties hereto that
the Escrow Agent assent to and be obligated to give consideration only to the
terms and provisions hereof. The Escrow Agent's receipt of a copy of the Merger
Agreement is solely for the purpose of providing to the Escrow Agent access to
the defined terms appearing therein.
H. Neither the Escrow Agent nor its nominee shall be under any duty to take
any action to preserve, protect, exercise or enforce any rights or remedies
under or with respect to the Escrow Shares or the Parent Preferred Escrow
Shares, or any other securities or assets held in the Escrow Funds at any time
or times (including without limitation with respect to the exercise of any
voting or consent rights, conversion or exchange rights, defense of title,
preservation of rights against prior matters or otherwise). Notwithstanding the
foregoing, upon the Stockholder Representative's written request received by the
Escrow Agent at least three (3) business days in advance, the Escrow Agent shall
execute or cause its nominee to execute, and deliver to the Stockholder
Representative a proxy or other instrument in the form supplied to it by the
Stockholder Representative for voting or otherwise exercising any right of
consent with respect to any of the Escrow Shares held by it hereunder, to
authorize therein the Stockholder Representative to exercise such voting or
consent authority in respect of the Escrow Shares (provided that the Escrow
Agent shall not be obliged to execute any such proxy or other instrument if, in
its judgment, the terms thereof may subject the Escrow Agent to any liabilities
or obligations in its individual capacity). The Escrow Agent shall not be under
any duty or responsibility to forward to any stockholders, or to notify any
stockholders with respect to, or to take any action with respect to, any notice,
solicitation or other document or information, written or otherwise, received
from an issuer or other person with respect to the Escrow Shares or Parent
Preferred Escrow Shares, including but not limited to, proxy material, tenders,
options, the pendency of calls and maturities and expiration of rights.
I. Notwithstanding any term herein to the contrary, the Escrow Agent (i)
shall be obligated only for the performance of such duties as are expressly and
specifically set forth in this Agreement on its part to be performed, each of
which is ministerial (and shall not be construed to be fiduciary) in nature, and
no implied duties or obligations of any kind shall be read into this Agreement
against or on the part of the Escrow Agent, and (ii) shall not be obligated to
take any legal or other action hereunder which might in its judgment involve or
cause it to incur any expense or liability unless it shall have been furnished
with acceptable indemnification.
J. In no event shall the Escrow Agent be liable for indirect, punitive,
special or consequential damage or loss (including but not limited to lost
profits) whatsoever, even if the Escrow Agent has been informed of the
likelihood of such loss or damage and regardless of the form of action.
K. The Escrow Agent shall have no more or less responsibility or liability
on account of any action or omission of any book-entry depository, securities
intermediary, clearing agent or transfer agent than any such book-entry
depository, securities intermediary or other agent has to the Escrow Agent,
except to the extent that such action or omission of any book-entry depository,
securities intermediary or agent was caused by the Escrow Agent's own gross
negligence or willful misconduct in breach of this Agreement.
L. Notwithstanding anything herein to the contrary, at any time that the
Escrow Agent is authorized or directed or otherwise required to make a
disbursement or distribution from the Escrow Funds, or from proceeds thereof, as
applicable, the Escrow Agent, without liability, may refrain from making such
disbursement or distribution if and to the extent that there are any amounts
then due or owing to the Escrow Agent under or pursuant to this Agreement by the
recipient of such proposed distribution. Upon receipt of payment for such
amounts, the Escrow Agent shall promptly make such disbursement or distributions
notwithstanding the Escrow Agent's receipt, if any, of a Notice after the date
on which such distribution or disbursement otherwise would have been made if the
Escrow Agent had not exercised its right to withhold pursuant to the preceding
sentence.
C-13
<PAGE> 157
M. It is understood and agreed that, should any dispute arise with respect
to the delivery, ownership, right of possession, and/or disposition of the
Escrow Funds, or should any claim be made upon the Escrow Agent or the Escrow
Funds by a third party, the Escrow Agent upon receipt of notice of such dispute
or claim is authorized and shall be entitled (at its sole option and election)
to retain in its possession without liability to anyone, all or any of said
Escrow Funds until such dispute shall have been settled either by the mutual
written agreement of the parties involved or by a final order, decree or
judgment of a court in the United States of America, the time for perfection of
an appeal of such order, decree or judgment having expired. The Escrow Agent
may, but shall be under no duty whatsoever to, institute or defend any legal
proceedings which relate to the Escrow Funds.
N. The Escrow Agent shall not be responsible for delays or failures in
performance resulting from acts beyond its control. Such acts shall include but
not be limited to acts of God, strikes, lockouts, riots, acts of war, epidemics,
governmental regulations superimposed after the fact, fire, communication line
failures, computer viruses, power failures, earthquakes or other disasters.
O. This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications which may hereafter be
executed, and (b) certificates and other information previously or hereafter
furnished, may be reproduced by any photographic, photostatic, microfilm,
optical disk, micro-card, miniature photographic or other similar process. The
parties agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
P. Unless the context expressly requires otherwise, any distribution to
stockholders under this Agreement shall be made pro rata based upon (i) in the
case of Escrow Shares, each stockholder's proportionate amount of ownership of
Escrow Shares reflected on Exhibit A, or (ii) in the case of Parent Preferred
Escrow Shares, each stockholder's proportionate amount of ownership of Parent
Preferred Escrow Shares reflected on Exhibit A; in each case based upon Exhibit
A as most recently amended, as of the date of such distribution.
Q. Whenever this Agreement calls for distribution of Escrow Shares, such
distribution shall be made, unless otherwise expressly provided herein, by the
Escrow Agent (or its nominee) making delivery of the certificate or certificates
representing such Escrow Shares to Cabletron, with appropriate instruction for
the transfer and delivery of such shares (together with an appropriate executed
stock power, if necessary).
R. In no instance shall the Escrow Agent be responsible or liable for any
actions, omissions or delays on the part of Cabletron (including, without
limitation, with respect to any redemption, conversion, transfer or delivery of
shares), the Stockholder Representative, the Company or other person or entity,
including without limitation with respect to any failure by any of the foregoing
to comply with the terms of this Agreement (or any agreement referred to
herein).
S. Any reference in this Agreement to "days" shall mean calendar days,
unless otherwise specifically stated.
C-14
<PAGE> 158
IN WITNESS WHEREOF, the parties hereto have duly signed this Escrow
Agreement as of the day and year first above written.
<TABLE>
<CAPTION>
CABLETRON: ESCROW AGENT:
<S> <C>
Cabletron Systems, Inc. State Street Bank & Trust
By: By:
-----------------------------------------------------
Name: -----------------------------------------------------
Title: Name:
Title:
</TABLE>
STOCKHOLDER REPRESENTATIVE:
------------------------------------------------------
Stephen J. Ricci
C-15
<PAGE> 159
EXHIBIT A
HOLDERS OF ESCROW SHARES AND PARENT PREFERRED ESCROW SHARES
<TABLE>
<CAPTION>
PARENT
PREFERRED
ESCROW ESCROW
NAME SHARES SHARES
---- ------ ---------
<S> <C> <C>
Dennis A. Kirshy............................................
New Enterprise Associates VII, L.P. ........................
NEA Presidents' Fund, L.P. .................................
NEA Ventures 1997, L.P. ....................................
Canaan Equity, L.P. ........................................
Canaan Ventures II, L.P. ...................................
Canaan Ventures II, Offshore C.V. ..........................
One Liberty Fund III, L.P. .................................
Ascent Venture Partners II, L.P. ...........................
Ascent Venture Partners, L.P. ..............................
The Collmeyer Family Trust UTA .............................
The Quantam College Trust ..................................
Arthur Collmeyer ...........................................
Benson D. Shapiro ..........................................
Sharon L. Sisskind .........................................
Arno Penzias ...............................................
Christopher W. Lynch .......................................
Christopher Dick ...........................................
Le Serre ...................................................
Leigh E. Michl .............................................
Robert Coneybeer ...........................................
Michael Howard .............................................
Comerica Bank-California, Custodian for John McQuillan, IRA
R/O.......................................................
MCI Worldcom Venture Fund ..................................
Novell, Inc. ...............................................
Comdisco, Inc. .............................................
Reach Venturers ............................................
Rock Ventures, LLC .........................................
William A. Schuler .........................................
Malik Z. Khan ..............................................
Per A. Suneby ..............................................
Wray West ..................................................
Infonetics Research, Inc. ..................................
Chad Carpenter .............................................
Bruce Schneier .............................................
Paul R. Jones ..............................................
David Zwicker ..............................................
Garth A. Rose ..............................................
David Gamache ..............................................
Bradford Kemp ..............................................
Carol Howard ...............................................
Jeffrey M. Mullen...........................................
Kevin C. Quan...............................................
</TABLE>
C-16
<PAGE> 160
<TABLE>
<CAPTION>
PARENT
PREFERRED
ESCROW ESCROW
NAME SHARES SHARES
---- ------ ---------
<S> <C> <C>
Inderpreet Singh (Khurana)..................................
Diana M. Piantedosi.........................................
Lee W. Cooprider............................................
Shawn O'Reilly..............................................
Rindress MacDonald..........................................
Rajat Gopal.................................................
Richard C. Kasten, Jr. .....................................
Charles McKinley Norton ....................................
Anastasios P. Makris........................................
Ann F. Slattery.............................................
Vitaly Vatnikov.............................................
Benjamin McCann.............................................
Warren Maxwell..............................................
Mark J. Rambacher...........................................
Sharon Cullina..............................................
Peter B. Livingstone........................................
Kent R. Backe...............................................
Michelle King...............................................
B. Scott Andersen...........................................
Michael G. Fenlon...........................................
Brendon J. Howe.............................................
Robert G. Murray............................................
Thomas Miani................................................
Noreen Finn.................................................
Patricia Coffin.............................................
Dan Daniels.................................................
Donna Maisch................................................
Anthony M. Asaro............................................
Manuel J. DaSilva...........................................
Monica L. Galarza...........................................
Heng-Chun Chen..............................................
Scott Liberman..............................................
Daniel J. Foley.............................................
Chris C. Schuch.............................................
Lori Sylvia.................................................
Michael Neri................................................
Dave Crooks.................................................
John Z. Amin................................................
Michael Palin...............................................
</TABLE>
C-17
<PAGE> 161
EXHIBIT B-1
[DATE]
State Street Bank and Trust Company
as Escrow Agent
Corporate Trust Division
2 Avenue de Lafayette - 6th Floor
Boston, MA 02111
Attention: Cabletron/Indus River Escrow
Re: Escrow Agreement dated as of , 2000 (the "Escrow
Agreement") by and among Cabletron Systems, Inc. (the "Company"),
Stephen J. Ricci, as representative of the stockholders of Indus River
Networks, Inc. (the "Stockholders Representative") and State Street
Bank and Trust Company, as Escrow Agent (the "Escrow Agent"); Transfer
Instruction.
Dear Sir or Madam:
This is a written transfer instruction given to the Escrow Agent pursuant
to Section 2(B) of the Escrow Agreement.
The undersigned stockholder hereby (i) certifies to the Escrow Agent that
it/he/she is the owner of the Escrow Shares or Parent Preferred Escrow Shares
identified below, (ii) instructs the Escrow Agent that the undersigned
stockholder has transferred, assigned and conveyed all right, title and interest
in and to such Escrow Shares and/or Parent Preferred Escrow Shares identified
below to the transferee identified below (whose name and address correctly
appears below), and (iii) certifies that such transfer is pursuant to applicable
laws of descent and distribution or to the partners or equity holders of the
undersigned stockholder, being an entity, in compliance with and as permitted by
Section 2(B) of the Escrow Agreement:
<TABLE>
<CAPTION>
Number of Escrow Shares Number of Parent Preferred Name and Address of
Transferred Escrow Shares Transferred Transferee
------------------------------ ------------------------------ ------------------------------
<S> <C> <C>
</TABLE>
Enclosed herewith is an irrevocable stock power (substantially in the form
of Exhibit B-2 attached to the Escrow Agreement) duly executed on behalf and in
the name of the undersigned stockholder, with signature guaranteed.
Any capitalized terms appearing but not otherwise expressly defined herein
are used with the same meaning as assigned to such terms in the Escrow
Agreement.
This written transfer instruction is effective as of the date first above
written.
-----------------------------------
By:
-------------------------------
Title:
Name:
C-18
<PAGE> 162
EXHIBIT B-2
IRREVOCABLE STOCK POWER
For value received, the undersigned does hereby bargain, sell, assign and
transfer unto , shares of the Stock (the
"Stock") of Cabletron Systems, Inc. ("Corporation") standing in the name of
State Street Bank and Trust Company as Escrow Agent ("Escrow Agent") which the
undersigned is entitled to receive pursuant to that certain Escrow Agreement
dated as of September , 2000 between the Corporation, Escrow Agent and Stephen
J. Ricci, as Stockholder Representative, and does hereby constitute and appoint
, the undersigned's true and lawful attorney-in-fact,
IRREVOCABLY, in the undersigned's name and stead, to sell, assign, transfer, and
make over, all or any part of said Stock, and for that purpose to make and
execute all necessary acts of assignment and transfer thereof, and to substitute
one or more persons with like full power, hereby ratifying and confirming all
that said attorney-in-fact or such substitute or substitutes shall lawfully do
by virtue hereof.
IN WITNESS WHEREOF, I have hereunto executed this Irrevocable Stock Power
as of this day of , 20 .
Witness:
-------------------------------------- ---------------------------------------
Name:
Signature(s) Guaranteed By:
--------------------------------------
--------------------------------------
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<PAGE> 163
ANNEX D
STOCKHOLDER AGREEMENT
THIS STOCKHOLDER AGREEMENT (this "Agreement") is entered into as of the
day of , 2000 between Cabletron Systems, Inc., a
Delaware corporation (the "Parent"), and the undersigned stockholder (the
"Stockholder") of Indus River Networks, Inc., a Delaware corporation (the
"Company").
RECITALS
A. Company and Parent have entered into an Agreement and Plan of Merger,
dated as of August 18, 2000 (the "Merger Agreement"), pursuant to which Acton
Acquisition Co., a wholly-owned subsidiary of Parent, will be merged with and
into Company (the "Merger").
B. Upon the consummation of the Merger and in connection therewith, the
undersigned Stockholder will become the owner of shares of Common Stock of
Parent and of shares of series C Convertible Preferred Stock of Parent
(collectively, the "Parent Shares") to be issued pursuant to a registration or
an exemption from registration under the Securities Act of 1933 as amended (the
"Act").
C. The parties to the Merger Agreement intend to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code") and intend to cause the Merger to qualify as a
"reorganization" under the provisions of Section 368(a)(1)(A) of the Code.
D. Pursuant to the Merger Agreement, the parties agreed that on the signing
of the Merger Agreement, Parent and Stockholder would execute and deliver a
Stockholder Agreement containing the terms and conditions set forth herein.
E. In order to induce Parent to enter into the Merger Agreement, Company
has agreed to solicit the proxy of certain significant stockholders of Company
on behalf of Parent, and to request that certain significant stockholders of
Company to execute and deliver voting agreements to Parent.
F. Pursuant to Section 5.13 of the Merger Agreement, an Escrow Agreement
(the "Escrow Agreement") shall be entered into between the Parent and a
representative (the "Stockholder Representative") of certain of the former
stockholders of Company.
G. The undersigned Stockholder understands and acknowledges that Company
and Parent are entitled to rely on (i) the truth and accuracy of the undersigned
Stockholder's representations contained herein and (ii) the undersigned
Stockholder's performance of the obligations set forth herein.
NOW, THEREFORE, in consideration of the promises and the mutual agreements,
provisions and covenants set forth in the Merger Agreement and in this
Agreement, it is hereby agreed as follows:
1. Share Ownership and Agreement to Retain Shares.
1.1. Transfer and Encumbrance.
(a) Stockholder is the beneficial owner of that number of Shares of
Company Capital Stock set forth on the signature page hereto (the
"Shares"). The Shares constitute the Stockholder's entire interest in
the outstanding capital stock of Company. No other person or entity not
a signatory to this Agreement has a beneficial interest in or a right to
acquire such Shares of Company Capital Stock or any portion of the
shares (except, with respect to stockholders which are partnerships,
partners, retired partners or former partners of Stockholders). The
Shares are and will be at all times up until the Expiration Date (as
defined below) free and clear of any liens, claims, options, charges or
other encumbrances other than those existing under the Act. The
Stockholder's principal residence or place of business is set forth on
the signature page hereto.
D-1
<PAGE> 164
(b) Stockholder agrees not to transfer (except as may be
specifically required by court order or by operation of law), sell,
exchange, pledge or otherwise dispose of or encumber the Shares or any
New Shares (as defined in Section 1.2), or to make any offer or
agreement relating to the transfer, sale, exchange, pledge, disposal or
encumbrance thereof, at any time prior to the Expiration Date. As used
herein, the term "Expiration Date" shall mean the earlier to occur of
(i) the Effective Time (as defined in the Merger Agreement) of the
Merger, and (ii) termination of the Merger Agreement pursuant to its
terms.
1.2. New Shares. Stockholder agrees that any shares of capital
stock of Company that Stockholder purchases or with respect to which
Stockholder otherwise acquires beneficial ownership after the date of
this Agreement and prior to the Expiration Date ("New Shares") shall be
subject to the terms and conditions of this Agreement to the same extent
as if they constituted Shares.
2. Agreement to Vote Shares. Prior to the Expiration Date, at every
meeting of the stockholders of Company called with respect to any of the
following, and at every adjournment thereof, and on every action or
approval by written consent of the stockholders of Company with respect to
any of the following, Stockholder shall vote the Shares and any New Shares
in favor of approval of the Merger and any matter that could reasonably be
expected to facilitate the Merger and against any matter that could
reasonably be expected to prevent, delay or impede the completion of the
Merger.
3. Irrevocable Proxy. Stockholder hereby agrees to timely deliver to
Parent a duly executed proxy in the form attached hereto as Exhibit A (the
"Proxy") with respect to each and every meeting of stockholders of Company
or action or approval by written consent of stockholders of Company, such
Proxy to cover the total number of Shares and New Shares in respect of
which Stockholder is entitled to vote at any such meeting or such written
consent. In the event that Stockholder is unable to provide any such Proxy
in a timely manner, Stockholder hereby grants Parent a power of attorney to
execute and deliver such Proxy for and on behalf of Stockholder, such power
of attorney, which being coupled with an interest, shall survive any death,
disability, bankruptcy, or any other such impediment. Effective immediately
upon the execution of this Agreement by the Stockholder, the Stockholder
hereby revokes any and all prior proxies given by the Stockholder with
respect to the matters contemplated hereby and agrees not to grant any
subsequent proxies with respect to such matters until after the Expiration
Date.
4. Covenants of Stockholder. Stockholder hereby represents to Parent
as follows:
(a) Stockholder will observe and comply with the Act and the
General Rules and Regulations thereunder, as now in effect and as from
time to time amended and including those hereafter enacted or
promulgated, in connection with any offer, sale, exchange, transfer,
pledge or other disposition of the Parent Shares or any part thereof.
(b) Until the Expiration Date, Stockholder will not (and will use
Stockholder's best efforts to cause Company, its affiliates, officers,
directors and employees and any investment banker, attorney, accountant
or other agent retained by Stockholder or such other parties, not to):
(i) initiate or solicit, directly or indirectly, any proposal, plan or
offer to acquire all or any substantial part of the business or
properties or capital stock of Company (each, an "Acquisition
Proposal"); (ii) initiate, directly or indirectly, any contact with any
person in an effort to, or with a view towards, soliciting any
Acquisition Proposal; (iii) furnish information concerning Company's
business, properties or assets to any corporation, partnership, person
or other entity or group (other than Parent, or any associate, agent or
representative of Parent) under any circumstances that could reasonably
be expected to relate to an actual or potential Acquisition Proposal; or
(iv) negotiate or enter into discussions or an agreement, directly or
indirectly, with any entity or group with respect of any potential
Acquisition Proposal. In the event the Stockholder shall receive or
become aware of any Acquisition Proposal subsequent to the date hereof,
Stockholder shall promptly inform Parent as to any such matter and the
details thereof.
5. Escrow Fund; Stockholder Representative;
Indemnification. Stockholder hereby agrees to the placement in an escrow
fund (the "Escrow Fund") of certain shares of Common Stock of Parent
issuable
D-2
<PAGE> 165
to Stockholder pursuant to the Merger as provided in Section 1.7 of the
Merger Agreement. Stockholder further agrees to be bound by the
indemnification provisions set forth in Article 8 of the Merger Agreement,
and Stockholder consents to the appointment of Stephen J. Ricci as the
Stockholder Representative in accordance with Section 8.9 of the Merger
Agreement and agrees to indemnify the Stockholder Representative and hold
him harmless against any loss, liability or expense (including any expenses
of legal counsel retained by the Stockholder Representative) incurred
without gross negligence or bad faith on the part of the Stockholder
Representative and arising out of or in connection with the acceptance or
administration of his duties under the Merger Agreement or the Escrow
Agreement.
6. Additional Documents. Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Parent, to carry out the purpose and intent of this
Agreement.
7. Consent and Waiver. Stockholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger
under the terms of any agreement to which Stockholder is a party or
pursuant to any rights Stockholder may have.
8. Confidentiality. Stockholder agrees (i) to hold any information
regarding this Agreement and the Merger in strict confidence, and (ii) not
to divulge any such information to any third person, until such time as the
Merger has been publicly disclosed by Parent or as required by applicable
laws, rules or regulations.
9. Miscellaneous.
9.1. Survival. All representations, warranties and covenants
contained in Sections 4, 5, 6, 7, 8 and 9 of this Agreement shall
survive the Closing.
9.2. Severability. If any term, provision, covenant or
restrictions of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, then the remainder of
the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
9.3. Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns,
but, except as otherwise specifically provided herein, neither this
Agreement nor any of the rights, interests or obligations of the parties
hereto may be assigned by either of the parties without the prior
written consent of the other. This Agreement is intended to bind
Stockholder as a stockholder of Company only with respect to the
specific matters set forth herein.
9.4. Amendment and Modification. This Agreement may not be
modified, amended, altered or supplemented except by the execution and
deliver of a written agreement executed by the parties hereto.
9.5. Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Parent will be irreparably harmed and that there will
be no adequate remedy at law for a violation of any of the covenants or
agreements of Stockholder set forth herein. Therefore, it is agreed
that, in addition to any other remedies that may be available to Parent
upon any such violation, Parent shall have the right to enforce such
covenants and agreements by specific performance, injunctive relief or
by any other means available to Parent at law or in equity and the
Stockholder hereby agrees that it will not oppose the granting of such
relief on the basis that Parent has an adequate remedy at law and waives
any requirement for the security or posting of any bond in connection
with such enforcement.
9.6. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if (i) delivered
personally or by commercial delivery service, or (ii) after five
business days from the date mailed by registered or certified mail
(return receipt requested) or
D-3
<PAGE> 166
(iii) one business day after dispatch via facsimile (with confirmation
of receipt) to the parties at the following address (or at such other
address for a party as shall be specified by like notice):
(a) If to the Stockholder, at the address set forth below the
Stockholder's signature at the end hereof.
(b) If to Parent or the Company:
Cabletron Systems, Inc.
35 Industrial Way
Rochester, NH 03866-5000
Attention: Dan Harding
Telephone No.: (603) 337-2323
Facsimile No.:
with a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: David B. Walek, Esq.
Telephone No.: (617) 951-7000
Facsimile No.: (617) 951-7050
or to such other address as any party hereto or the Company may
designate for itself by notice given as herein provided.
9.7. Governing Law. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of
Delaware.
9.8. Entire Agreement. This Agreement and the Proxy contain the
entire understanding of the parties in respect of the subject matter
hereof, and supersede all prior negotiations and understandings between
the parties with respect to such subject matter.
9.9. Counterpart. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
9.10. Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction or interpretation
of this Agreement.
D-4
<PAGE> 167
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
CABLETRON SYSTEMS, INC.
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
STOCKHOLDER:
By:
------------------------------------
------------------------------------
(SOCIAL SECURITY OR TAX I.D. NUMBER)
Total Number of Shares of Company Capital Stock owned on the date hereof:
<TABLE>
<S> <C> <C>
Common Stock:
------------------
Series A Preferred Stock:
------------------
Series B Preferred Stock:
------------------
Series C Preferred Stock:
------------------
Series D Preferred Stock:
------------------
</TABLE>
State of Residence:
------------------------------------
D-5
<PAGE> 168
EXHIBIT A
IRREVOCABLE PROXY
TO VOTE STOCK OF COMPANY
The undersigned stockholder of Indus River Networks, Inc., a Delaware
corporation ("Company"), hereby irrevocably (to the fullest extent permitted by
the Delaware General Corporation Law) appoints the members of the Board of
Directors of Cabletron Systems, Inc., a Delaware corporation ("Cabletron"), and
each of them, or any other designee of Cabletron, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the
fullest extent that the undersigned is entitled to do so) with respect to all of
the shares of capital stock of Company that now are or hereafter may be
beneficially owned by the undersigned, and any and all other shares or
securities of Company issued or issuable in respect thereof on or after the date
hereof (collectively, the "Shares") in accordance with the terms of this
Irrevocable Proxy. The Shares beneficially owned by the undersigned stockholder
of Company as of the date of this Irrevocable Proxy are listed on the final page
of this Irrevocable Proxy. Upon the undersigned's execution of this Irrevocable
Proxy, any and all prior proxies given by the undersigned with respect to any
Shares are hereby revoked and the undersigned agrees not to grant any subsequent
proxies with respect to the Shares until after the Expiration Date (as defined
below).
This Irrevocable Proxy is irrevocable (to the fullest extent provided in
the Delaware General Corporation Law), is coupled with an interest, including,
but not limited to, that certain Stockholder Agreement dated as of even date
herewith by and among Cabletron and the undersigned, and is granted in
consideration of Cabletron entering into that certain Agreement and Plan of
Merger by and among Company, Acton Acquisition Co. and Cabletron (the "Merger
Agreement"), which agreement provides for the merger of Acton Acquisition Co., a
wholly-owned subsidiary of Cabletron, with and into the Company (the "Merger").
As used herein, the term "Expiration Date" shall mean the earlier to occur of
(i) such date and time as the Merger shall become effective in accordance with
the terms and provisions of the Merger Agreement, and (ii) the date of
termination of the Merger Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting and other rights of the undersigned with respect to the
Shares (including, without limitation, the power to execute and deliver written
consents pursuant to the Delaware General Corporation Law), at every annual,
special or adjourned meeting of the stockholders of the Company and in every
written consent in lieu of such meeting as follows: (a) in favor or approval of
the Merger and the Merger Agreement; (b) against any matters which are
inconsistent with the timely and efficient completion of the Merger as
contemplated in the Merger Agreement.
The attorneys and proxies named above may not exercise this Irrevocable
Proxy or any other matter except as provided above. The undersigned stockholder
may vote the Shares on all other matters.
All authority herein conferred shall survive the death or incapacity of the
undersigned and any obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned.
D-6
<PAGE> 169
This Irrevocable Proxy is coupled with an interest as aforesaid and is
irrevocable.
Dated: , 2000
------------------------------------
By:
------------------------------------
Address:
------------------------------------
------------------------------------
(SOCIAL SECURITY OR TAX I.D. NUMBER)
Total Number of Shares of Company Capital Stock owned on the date hereof:
<TABLE>
<S> <C> <C>
Common Stock:
------------------
Series A Preferred Stock:
------------------
Series B Preferred Stock:
------------------
Series C Preferred Stock:
------------------
Series D Preferred Stock:
------------------
</TABLE>
State of Residence:
------------------------------------
D-7
<PAGE> 170
ANNEX E
STOCKHOLDER AGREEMENT
THIS STOCKHOLDER AGREEMENT (this "Agreement") is entered into as of the
day of , 2000 between Cabletron Systems, Inc., a
Delaware corporation (the "Parent"), and the undersigned stockholder (the
"Stockholder") of Indus River Networks, Inc., a Delaware corporation (the
"Company").
RECITALS
A. Company and Parent have entered into an Agreement and Plan of Merger,
dated as of August 18, 2000 (the "Merger Agreement"), pursuant to which Acton
Acquisition Co., a wholly-owned subsidiary of Parent, will be merged with and
into Company (the "Merger").
B. Upon the consummation of the Merger and in connection therewith, the
undersigned Stockholder will become the owner of shares of Common Stock of
Parent and of shares of series C Convertible Preferred Stock of Parent
(collectively, the "Parent Shares") to be issued pursuant to a registration or
an exemption from registration under the Securities Act of 1933 as amended (the
"Act").
C. The parties to the Merger Agreement intend to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code") and intend to cause the Merger to qualify as a
"reorganization" under the provisions of Section 368(a)(1)(A) of the Code.
D. Pursuant to the Merger Agreement, the parties agreed that on the signing
of the Merger Agreement, Parent and Stockholder would execute and deliver a
Stockholder Agreement containing the terms and conditions set forth herein.
E. In order to induce Parent to enter into the Merger Agreement, Company
has agreed to solicit the proxy of certain significant stockholders of Company
on behalf of Parent, and to request that certain significant stockholders of
Company to execute and deliver voting agreements to Parent.
F. Pursuant to Section 5.13 of the Merger Agreement, an Escrow Agreement
(the "Escrow Agreement") shall be entered into between the Parent and a
representative (the "Stockholder Representative") of certain of the former
stockholders of Company.
G. The undersigned Stockholder understands and acknowledges that Company
and Parent are entitled to rely on (i) the truth and accuracy of the undersigned
Stockholder's representations contained herein and (ii) the undersigned
Stockholder's performance of the obligations set forth herein.
NOW, THEREFORE, in consideration of the promises and the mutual agreements,
provisions and covenants set forth in the Merger Agreement and in this
Agreement, it is hereby agreed as follows:
1. Share Ownership and Agreement to Retain Shares.
1.1. Transfer and Encumbrance.
(a) Stockholder is the beneficial owner of that number of Shares of
Company Capital Stock set forth on the signature page hereto (the
"Shares"). The Shares constitute the Stockholder's entire interest in
the outstanding capital stock of Company. No other person or entity not
a signatory to this Agreement has a beneficial interest in or a right to
acquire such Shares of Company Capital Stock or any portion of the
shares (except, with respect to stockholders which are partnerships,
partners, retired partners or former partners of Stockholders). The
Shares are and will be at all times up until the Expiration Date (as
defined below) free and clear of any liens, claims, options, charges or
other encumbrances other than those existing under the Act. The
Stockholder's principal residence or place of business is set forth on
the signature page hereto.
E-1
<PAGE> 171
(b) Stockholder agrees not to transfer (except as may be
specifically required by court order or by operation of law), sell,
exchange, pledge or otherwise dispose of or encumber the Shares or any
New Shares (as defined in Section 1.2), or to make any offer or
agreement relating to the transfer, sale, exchange, pledge, disposal or
encumbrance thereof, at any time prior to the Expiration Date. As used
herein, the term "Expiration Date" shall mean the earlier to occur of
(i) the Effective Time (as defined in the Merger Agreement) of the
Merger, and (ii) termination of the Merger Agreement pursuant to its
terms.
1.2. New Shares. Stockholder agrees that any shares of capital
stock of Company that Stockholder purchases or with respect to which
Stockholder otherwise acquires beneficial ownership after the date of
this Agreement and prior to the Expiration Date ("New Shares") shall be
subject to the terms and conditions of this Agreement to the same extent
as if they constituted Shares.
2. Agreement to Vote Shares. Prior to the Expiration Date, at every
meeting of the stockholders of Company called with respect to any of the
following, and at every adjournment thereof, and on every action or
approval by written consent of the stockholders of Company with respect to
any of the following, Stockholder shall vote the Shares and any New Shares
in favor of approval of the Merger and any matter that could reasonably be
expected to facilitate the Merger and against any matter that could
reasonably be expected to prevent, delay or impede the completion of the
Merger.
3. Irrevocable Proxy. Stockholder hereby agrees to timely deliver to
Parent a duly executed proxy in the form attached hereto as Exhibit A (the
"Proxy") with respect to each and every meeting of stockholders of Company
or action or approval by written consent of stockholders of Company, such
Proxy to cover the total number of Shares and New Shares in respect of
which Stockholder is entitled to vote at any such meeting or such written
consent. In the event that Stockholder is unable to provide any such Proxy
in a timely manner, Stockholder hereby grants Parent a power of attorney to
execute and deliver such Proxy for and on behalf of Stockholder, such power
of attorney, which being coupled with an interest, shall survive any death,
disability, bankruptcy, or any other such impediment. Effective immediately
upon the execution of this Agreement by the Stockholder, the Stockholder
hereby revokes any and all prior proxies given by the Stockholder with
respect to the matters contemplated hereby and agrees not to grant any
subsequent proxies with respect to such matters until after the Expiration
Date.
4. Covenants of Stockholder. Stockholder hereby represents to Parent
as follows:
(a) Stockholder will observe and comply with the Act and the
General Rules and Regulations thereunder, as now in effect and as from
time to time amended and including those hereafter enacted or
promulgated, in connection with any offer, sale, exchange, transfer,
pledge or other disposition of the Parent Shares or any part thereof.
(b) Until the Expiration Date, Stockholder will not (and will use
Stockholder's best efforts to cause Company, its affiliates, officers,
directors and employees and any investment banker, attorney, accountant
or other agent retained by Stockholder or such other parties, not to):
(i) initiate or solicit, directly or indirectly, any proposal, plan or
offer to acquire all or any substantial part of the business or
properties or capital stock of Company (each, an "Acquisition
Proposal"); (ii) initiate, directly or indirectly, any contact with any
person in an effort to, or with a view towards, soliciting any
Acquisition Proposal; (iii) furnish information concerning Company's
business, properties or assets to any corporation, partnership, person
or other entity or group (other than Parent, or any associate, agent or
representative of Parent) under any circumstances that could reasonably
be expected to relate to an actual or potential Acquisition Proposal; or
(iv) negotiate or enter into discussions or an agreement, directly or
indirectly, with any entity or group with respect of any potential
Acquisition Proposal. In the event the Stockholder shall receive or
become aware of any Acquisition Proposal subsequent to the date hereof,
Stockholder shall promptly inform Parent as to any such matter and the
details thereof.
5. Stockholder Representative; Indemnification. Stockholder hereby
consents to the appointment of Stephen J. Ricci as the Stockholder
Representative in accordance with Section 8.9 of the Merger
E-2
<PAGE> 172
Agreement and agrees to indemnify the Stockholder Representative and hold
him harmless against any loss, liability or expense (including any expenses
of legal counsel retained by the Stockholder Representative) incurred
without gross negligence or bad faith on the part of the Stockholder
Representative and arising out of or in connection with the acceptance or
administration of his duties under the Merger Agreement or the Escrow
Agreement.
6. Additional Documents. Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Parent, to carry out the purpose and intent of this
Agreement.
7. Consent and Waiver. Stockholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger
under the terms of any agreement to which Stockholder is a party or
pursuant to any rights Stockholder may have.
8. Confidentiality. Stockholder agrees (i) to hold any information
regarding this Agreement and the Merger in strict confidence, and (ii) not
to divulge any such information to any third person, until such time as the
Merger has been publicly disclosed by Parent or as required by applicable
laws, rules or regulations.
9. Miscellaneous.
9.1. Survival. All representations, warranties and covenants
contained in Sections 4, 5, 6, 7, 8 and 9 of this Agreement shall
survive the Closing.
9.2. Severability. If any term, provision, covenant or
restrictions of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, then the remainder of
the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
9.3. Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns,
but, except as otherwise specifically provided herein, neither this
Agreement nor any of the rights, interests or obligations of the parties
hereto may be assigned by either of the parties without the prior
written consent of the other. This Agreement is intended to bind
Stockholder as a stockholder of Company only with respect to the
specific matters set forth herein.
9.4. Amendment and Modification. This Agreement may not be
modified, amended, altered or supplemented except by the execution and
deliver of a written agreement executed by the parties hereto.
9.5. Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Parent will be irreparably harmed and that there will
be no adequate remedy at law for a violation of any of the covenants or
agreements of Stockholder set forth herein. Therefore, it is agreed
that, in addition to any other remedies that may be available to Parent
upon any such violation, Parent shall have the right to enforce such
covenants and agreements by specific performance, injunctive relief or
by any other means available to Parent at law or in equity and the
Stockholder hereby agrees that it will not oppose the granting of such
relief on the basis that Parent has an adequate remedy at law and waives
any requirement for the security or posting of any bond in connection
with such enforcement.
9.6. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if (i) delivered
personally or by commercial delivery service, or (ii) after five
business days from the date mailed by registered or certified mail
(return receipt requested) or (iii) one business day after dispatch via
facsimile (with confirmation of receipt) to the parties at the following
address (or at such other address for a party as shall be specified by
like notice):
(a) If to the Stockholder, at the address set forth below the
Stockholder's signature at the end hereof.
E-3
<PAGE> 173
(b) If to Parent or the Company:
Cabletron Systems, Inc.
35 Industrial Way
Rochester, NH 03866-5000
Attention: Dan Harding
Telephone No.: (603) 337-2323
Facsimile No.:
with a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: David B. Walek, Esq.
Telephone No.: (617) 951-7000
Facsimile No.: (617) 951-7050
or to such other address as any party hereto or the Company may
designate for itself by notice given as herein provided.
9.7. Governing Law. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of
Delaware.
9.8. Entire Agreement. This Agreement and the Proxy contain the
entire understanding of the parties in respect of the subject matter
hereof, and supersede all prior negotiations and understandings between
the parties with respect to such subject matter.
9.9. Counterpart. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
9.10. Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction or interpretation
of this Agreement.
E-4
<PAGE> 174
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
CABLETRON SYSTEMS, INC.
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
STOCKHOLDER:
By:
------------------------------------
------------------------------------
(SOCIAL SECURITY OR TAX I.D. NUMBER)
Total Number of Shares of Company Capital Stock owned on the date hereof:
<TABLE>
<S> <C> <C>
Common Stock:
------------------
Series A Preferred Stock:
------------------
Series B Preferred Stock:
------------------
Series C Preferred Stock:
------------------
Series D Preferred Stock:
------------------
</TABLE>
State of Residence:
------------------------------------
E-5
<PAGE> 175
EXHIBIT A
IRREVOCABLE PROXY
TO VOTE STOCK OF COMPANY
The undersigned stockholder of Indus River Networks, Inc., a Delaware
corporation ("Company"), hereby irrevocably (to the fullest extent permitted by
the Delaware General Corporation Law) appoints the members of the Board of
Directors of Cabletron Systems, Inc., a Delaware corporation ("Cabletron"), and
each of them, or any other designee of Cabletron, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the
fullest extent that the undersigned is entitled to do so) with respect to all of
the shares of capital stock of Company that now are or hereafter may be
beneficially owned by the undersigned, and any and all other shares or
securities of Company issued or issuable in respect thereof on or after the date
hereof (collectively, the "Shares") in accordance with the terms of this
Irrevocable Proxy. The Shares beneficially owned by the undersigned stockholder
of Company as of the date of this Irrevocable Proxy are listed on the final page
of this Irrevocable Proxy. Upon the undersigned's execution of this Irrevocable
Proxy, any and all prior proxies given by the undersigned with respect to any
Shares are hereby revoked and the undersigned agrees not to grant any subsequent
proxies with respect to the Shares until after the Expiration Date (as defined
below).
This Irrevocable Proxy is irrevocable (to the fullest extent provided in
the Delaware General Corporation Law), is coupled with an interest, including,
but not limited to, that certain Stockholder Agreement dated as of even date
herewith by and among Cabletron and the undersigned, and is granted in
consideration of Cabletron entering into that certain Agreement and Plan of
Merger by and among Company, Acton Acquisition Co. and Cabletron (the "Merger
Agreement"), which agreement provides for the merger of Acton Acquisition Co., a
wholly-owned subsidiary of Cabletron, with and into the Company (the "Merger").
As used herein, the term "Expiration Date" shall mean the earlier to occur of
(i) such date and time as the Merger shall become effective in accordance with
the terms and provisions of the Merger Agreement, and (ii) the date of
termination of the Merger Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting and other rights of the undersigned with respect to the
Shares (including, without limitation, the power to execute and deliver written
consents pursuant to the Delaware General Corporation Law), at every annual,
special or adjourned meeting of the stockholders of the Company and in every
written consent in lieu of such meeting as follows: (a) in favor or approval of
the Merger and the Merger Agreement; (b) against any matters which are
inconsistent with the timely and efficient completion of the Merger as
contemplated in the Merger Agreement.
The attorneys and proxies named above may not exercise this Irrevocable
Proxy or any other matter except as provided above. The undersigned stockholder
may vote the Shares on all other matters.
All authority herein conferred shall survive the death or incapacity of the
undersigned and any obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned.
E-6
<PAGE> 176
This Irrevocable Proxy is coupled with an interest as aforesaid and is
irrevocable.
Dated: , 2000
------------------------------------
By:
------------------------------------
Address:
------------------------------------
------------------------------------
(SOCIAL SECURITY OR TAX I.D. NUMBER)
Total Number of Shares of Company Capital Stock owned on the date hereof:
<TABLE>
<S> <C> <C>
Common Stock:
------------------
Series A Preferred Stock:
------------------
Series B Preferred Stock:
------------------
Series C Preferred Stock:
------------------
Series D Preferred Stock:
------------------
</TABLE>
State of Residence:
-----------------------------------------
E-7
<PAGE> 177
ANNEX F
December 5, 2000
Board of Directors
Indus River Networks, Inc.
31 Nagog Park
Acton, MA 01720
Dear Sirs:
On August 14, 2000, Adams, Harkness & Hill, Inc. ("AH&H") was engaged by
Indus River Networks, Inc. (together with its subsidiaries and affiliates, the
"Client") to provide certain investment banking services in connection with the
transaction (the "Transaction") contemplated by that certain Agreement and Plan
of Merger, dated as of August 18, 2000 (the "Merger Agreement"), by and among
Client, Cabletron Systems, Inc. ("Cabletron"), and Acton Acquisition Co., a
wholly-owned subsidiary of Cabletron ("Merger Sub"). Pursuant to the terms of
the Merger Agreement, Client's shareholders shall receive, in consideration of
all of the outstanding capital stock of Client, aggregate consideration
comprising four million (4,000,000) shares of common stock, par value $.01, of
Cabletron ("Cabletron Common Stock") and fifty thousand (50,000) shares of
Series C Convertible Preferred Stock, par value $1.00, of Cabletron ("Series C
Preferred Stock"). AH&H has been engaged by Client to provide its Board of
Directors (the "Board") with an appraisal of the value of the shares of Series C
Preferred Stock to be issued by Cabletron as of five (5) trading days prior to
the consummation of the Transaction (the "Appraisal"). Client has also engaged
AH&H to provide the Board with a preliminary appraisal of the value of the
Series C Preferred Stock (the "Preliminary Appraisal") for the sole purpose of
including in the proxy statement/prospectus filed in connection with the
Transaction an illustration of the valuation methodologies to be used by AH&H in
delivering its Appraisal. AH&H, as part of its investment banking activities, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes.
In the course of our analysis and valuation, we used publicly available
financial and other information regarding Cabletron and, in particular, its
Enterasys Networks operating division ("Enterasys"), which we assumed to be
reliable. Our conclusion is based on the assumption that such information is
complete and accurate in all material respects.
In addition to the publicly available information mentioned above, the
principal sources of information upon which we relied in performing our
valuation included, but were not limited to, the following:
- Interviews with certain members of the management teams of Client,
Cabletron, and Enterasys respectively;
- publicly available information regarding certain companies comparable to
Enterasys;
- documentation and other materials and information regarding the
Transaction and the Series C Preferred Stock; and
- such other information and analyses as we deemed necessary or appropriate
in order to determine the fair market value of the Series C Preferred
Stock.
Our valuation methodology included, but was not limited to: (i) an analysis
of the terms of the Series C Preferred Stock; (ii) an analysis of Cabletron's
current and projected operating model; (iii) an analysis of Enterasys' current
and projected operating model; (iv) a discounted cash flow valuation analysis of
Enterasys; and (v) a comparable company valuation analysis of Enterasys. Based
on the foregoing analyses and valuation methodologies, it is our conclusion
that, for purposes of this Preliminary Appraisal, the aggregate fair market
value as of December 4, 2000 of the 50,000 shares of Series C Preferred Stock is
$24.32 million, or $486.40 per share.
F-1
<PAGE> 178
This Preliminary Appraisal is limited to the fair market value of the
Series C Preferred Stock as of December 4, 2000. We are expressing no opinion as
to the fairness, from a financial point of view or otherwise, of the
consideration to be received by the shareholders of Client in the Transaction,
nor are we expressing any opinion as to the value of the Cabletron Common Stock.
Moreover, this Preliminary Appraisal does not constitute a recommendation to any
shareholder of Client as to how such shareholder should vote with respect to the
Transaction. In reaching our conclusions regarding the valuation expressed
herein, we assume there are no hidden or unexpected conditions that could affect
the value of Cabletron or Enterasys and accept no responsibility for discovering
such conditions.
We expect that the types of information analyzed and the valuation
methodologies used by us in delivering the Appraisal will be similar to those
used in delivering this Preliminary Appraisal. However, the valuation determined
in the Appraisal may be materially different from the valuation set forth in
this Preliminary Appraisal.
This Preliminary Appraisal is rendered on the basis of securities market
conditions prevailing as of December 4, 2000 and on the conditions and
prospects, financial and otherwise, of Cabletron and Enterasys as known to us on
December 4, 2000. We have not conducted, nor have we received copies of, any
independent valuation or appraisal of any of the assets of Cabletron or
Enterasys. This Preliminary Appraisal has been prepared in accordance with and
subject to the engagement letter between AH&H and Client, dated August 14, 2000,
and is intended for the use of Client solely for the purpose stated herein and
may not be used for any other purpose without our prior written consent, except
that this letter may be included in its entirety in any filing made by Cabletron
and Client with the Securities and Exchange Commission with respect to the
Transaction contemplated by the Merger Agreement.
Sincerely,
/s/ ADAMS, HARKNESS & HILL, INC.
--------------------------------------
ADAMS, HARKNESS & HILL, INC.
F-2
<PAGE> 179
PART II
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal or investigative (other than an
action by or in the right of the corporation) by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such person's conduct was
unlawful. Section 145 further provides that a corporation similarly may
indemnify any such person serving in any such capacity who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor, against expenses actually and reasonably incurred in connection with the
defense or settlement of such action or suit if such person acted in good faith
and in a manner such person reasonably believed to be in or not opposed to the
best interest of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Delaware Court of Chancery or such other court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 102(b)(7) of the Delaware General Corporation Law, as amended,
permits a corporation to include in its certificate of incorporation a provision
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that such provision shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit.
The registrant's Restated Certificate of Incorporation provides that the
registrant's directors shall not be liable to the registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director, except to the
extent that exculpation from liabilities is not permitted under the Delaware
General Corporation Law as in effect at the time such liability is determined.
The Restated Certificate of Incorporation further provides that the registrant
shall indemnify its directors and officers to the full extent permitted by the
law of the State of Delaware.
II-1
<PAGE> 180
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following Exhibits are filed with, or incorporated by reference in,
this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2 Agreement and Plan of Merger by and among the registrant,
Acton Acquisition, Co. and Indus River Networks, Inc.
("Indus River") dated as of August 18, 2000 (the "Merger
Agreement"), as amended on December 3, 2000, which is
included as Annex A to the proxy statement/prospectus which
is part of this registrant statement. The Exhibits to the
Merger Agreement (other than Exhibit 1.2 (the "Agreement of
Merger")) and the Disclosure Schedules of the registrant and
of Indus River are not included with the Merger Agreement.
3.1 Amended and Restated Certificate of Incorporation of
Cabletron Systems, Inc., a Delaware corporation, which is
incorporated by reference to Exhibit 3.1 of the registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 2, 2000.
3.2 Amended and Restated By-laws of Cabletron Systems, Inc.,
which is incorporated by reference to Exhibit 3.6 of the
registrant's Annual Report on Form 10-K for the fiscal year
ended February 29, 2000.
3.3 Certificate of Designation, Preferences and Rights of the
Series A Preferred and Series B Participating Convertible
Preferred Stock of Cabletron Systems, Inc., which is
incorporated by reference to Exhibit 2.4 of the registrant's
Current Report on Form 8-K, filed on September 11, 2000.
3.4 Form of Certificate of Designation, Preferences and Rights
of the Series C Convertible Preferred Stock of Cabletron
Systems, Inc.
4.1 Specimen stock certificate of Cabletron common stock, which
is incorporated by reference to Exhibit 4.1 of the
registrant's registration statement on Form S-1, No.
33-28055.
*4.2 Specimen stock certificate of Cabletron series C preferred
stock.
4.3 Form of Escrow Agreement by and among the registrant, Indus
River, the stockholder representative and State Street Bank
& Trust, as escrow agent, which is included as Annex C to
the proxy statement/prospectus which is part of this
registration statement.
5.1 Opinion of Ropes & Gray as to the legality of the securities
to be issued.
8.1 Opinion of Ropes & Gray as to certain United States federal
income tax consequences of the merger.
8.2 Opinion of McDermott, Will & Emery as to certain United
States federal income tax consequences of the merger.
10.1 Amended and Restated Securities Purchase Agreement, dated as
of August 29, 2000, between Cabletron and Silver Lake, which
is incorporated by reference to Exhibit 2.1 of the
registrant's Current Report on Form 8-K, filed on September
11, 2000.
10.2 Assignment Agreement, dated as of August 29, 2000, among
Silver Lake Partners, L.P. and the Investors named therein,
which is incorporated by reference to Exhibit 4.1 of the
registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 2, 2000.
10.3 Standstill Agreement, dated as of August 29, 2000, between
Cabletron and the Investors, which is incorporated by
reference to Exhibit 2.3 of the registrant's Current Report
on Form 8-K, filed on September 11, 2000.
10.4 Form of Class A Warrant of Cabletron, which is incorporated
by reference to Exhibit 2.5 of the registrant's Current
Report on Form 8-K, filed on September 11, 2000.
10.5 Form of Class B Warrant of Cabletron, which is incorporated
by reference to Exhibit 2.6 of the registrant's Current
Report on Form 8-K, filed on September 11, 2000.
</TABLE>
II-2
<PAGE> 181
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.6 Form of Subsidiary Stock Purchase Right, which is
incorporated by reference to Exhibit 4.6 of the registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 2, 2000.
10.7 Form of Subsidiary Warrant, which is incorporated by
reference to Exhibit 4.7 of the registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended September
2, 2000.
10.8 Registration Rights Agreement, dated as of August 29, 2000,
among Cabletron and the Investors, which is incorporated by
reference to Exhibit 2.7 of the registrant's Current Report
on Form 8-K, filed on September 11, 2000.
10.9 Registration Rights Agreement, dated as of August 29, 2000,
among Aprisma and the Investors, which is incorporated by
reference to Exhibit 2.8 of the registrant's Current Report
on Form 8-K, filed on September 11, 2000.
10.10 Registration Rights Agreement, dated as of August 29, 2000,
among Enterasys and the Investors, which is incorporated by
reference to Exhibit 2.9 of the registrant's Current Report
on Form 8-K, filed on September 11, 2000.
10.11 Registration Rights Agreement, dated as of August 29, 2000,
among GNTS and the Investors, which is incorporated by
reference to Exhibit 2.10 of the registrant's Current Report
on Form 8-K, filed on September 11, 2000.
10.12 Registration Rights Agreement, dated as of August 29, 2000,
among Riverstone and the Investors, which is incorporated by
reference to Exhibit 2.11 of the registrant's Current Report
on Form 8-K, filed on September 11, 2000.
23.1 Consent of Ropes & Gray (included as part of Exhibit 5.1 to
this registration statement).
23.2 Consent of Ropes & Gray (included as part of Exhibit 8.1 to
this registration statement).
23.3 Consent of McDermott, Will & Emery (included as part of
Exhibit 8.2 to this registration statement).
23.4 Consent of KPMG LLP.
*24 Power of Attorney (Previously filed as part of signature
page to the initial filing of this registration statement,
filed on October 12, 2000).
99.1 Form of Proxy Card to be mailed to the holders of Indus
River stock.
99.2 Form of Stockholder Agreement between the registrant and the
Indus River stockholder named therein, which is included as
Annex D to the proxy statement/prospectus which is part of
this registration statement.
99.3 Form of Stockholder Agreement between the registrant and the
Indus River stockholder, named therein, which is included as
Annex E to the proxy statement/prospectus which is part of
this registration statement.
99.4 Preliminary Appraisal of Adams, Harkness & Hill, Inc., which
is included as Annex F to the proxy statement/prospectus
which is part of this registration statement.
99.5 Consent of Adams, Harkness & Hill, Inc. (included as part of
Exhibit 99.4 to this registration statement).
</TABLE>
---------------
* Previously filed.
II-3
<PAGE> 182
ITEM 22. UNDERTAKINGS.
(1) The undersigned registrant hereby undertakes:
(i) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(ii) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(iii) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(2) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) The undersigned registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the registrant
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(4) The registrant undertakes that every prospectus (i) that is filed
pursuant to the immediately preceding paragraph, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(5) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforce-
II-4
<PAGE> 183
able. In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy s
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(6) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(7) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE> 184
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the town of
Rochester, State of New Hampshire.
CABLETRON SYSTEMS, INC.
By: /s/ DAVID J. KIRKPATRICK
----------------------------------
David J. Kirkpatrick
Corporate Executive Vice President
and Chief Financial Officer
Dated: December 8, 2000
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed below on December 8, 2000 by
the following persons in the capacities indicated.
SIGNATURE CAPACITY
--------- --------
* Chairman, President and Chief Executive
------------------------------------ Officer (principal executive officer)
Piyush Patel
/s/ DAVID J. KIRKPATRICK Corporate Executive Vice President of
------------------------------------ Finance and Chief Financial Officer
David J. Kirkpatrick (principal financial and accounting
officer)
* Secretary and Director
------------------------------------
Michael D. Myerow
* Director
------------------------------------
Craig R. Benson
* Director
------------------------------------
Paul R. Duncan
*By: /s/ DAVID J. KIRKPATRICK
-------------------------------
David J. Kirkpatrick
Attorney-in-fact
II-6
<PAGE> 185
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2 Agreement and Plan of Merger by and among the registrant,
Acton Acquisition, Co. and Indus River Networks, Inc.
("Indus River") dated as of August 18, 2000 (the "Merger
Agreement"), as amended on December 3, 2000, which is
included as Annex A to the proxy statement/prospectus which
is part of this registrant statement. The Exhibits to the
Merger Agreement (other than Exhibit 1.2 (the "Agreement of
Merger")) and the Disclosure Schedules of the registrant and
of Indus River are not included with the Merger Agreement.
3.1 Amended and Restated Certificate of Incorporation of
Cabletron Systems, Inc., a Delaware corporation, which is
incorporated by reference to Exhibit 3.1 of the registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 2, 2000.
3.2 Amended and Restated By-laws of Cabletron Systems, Inc.,
which is incorporated by reference to Exhibit 3.6 of the
registrant's Annual Report on Form 10-K for the fiscal year
ended February 29, 2000.
3.3 Certificate of Designation, Preferences and Rights of the
Series A Preferred and Series B Participating Convertible
Preferred Stock of Cabletron Systems, Inc., which is
incorporated by reference to Exhibit 2.4 of the registrant's
Current Report on Form 8-K, filed on September 11, 2000.
3.4 Form of Certificate of Designation, Preferences and Rights
of the Series C Convertible Preferred Stock of Cabletron
Systems, Inc.
4.1 Specimen stock certificate of Cabletron common stock, which
is incorporated by reference to Exhibit 4.1 of the
registrant's registration statement on Form S-1, No.
33-28055.
*4.2 Specimen stock certificate of Cabletron series C preferred
stock.
4.3 Form of Escrow Agreement by and among the registrant, Indus
River, the stockholder representative and State Street Bank
& Trust, as escrow agent, which is included as Annex C to
the proxy statement/prospectus which is part of this
registration statement.
5.1 Opinion of Ropes & Gray as to the legality of the securities
to be issued.
8.1 Opinion of Ropes & Gray as to certain United States federal
income tax consequences of the merger.
8.2 Opinion of McDermott, Will & Emery as to certain United
States federal income tax consequences of the merger.
10.1 Amended and Restated Securities Purchase Agreement, dated as
of August 29, 2000, between Cabletron and Silver Lake, which
is incorporated by reference to Exhibit 2.1 of the
registrant's Current Report on Form 8-K, filed on September
11, 2000.
10.2 Assignment Agreement, dated as of August 29, 2000, among
Silver Lake Partners, L.P. and the Investors named therein,
which is incorporated by reference to Exhibit 4.1 of the
registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 2, 2000.
10.3 Standstill Agreement, dated as of August 29, 2000, between
Cabletron and the Investors, which is incorporated by
reference to Exhibit 2.3 of the registrant's Current Report
on Form 8-K, filed on September 11, 2000.
10.4 Form of Class A Warrant of Cabletron, which is incorporated
by reference to Exhibit 2.5 of the registrant's Current
Report on Form 8-K, filed on September 11, 2000.
10.5 Form of Class B Warrant of Cabletron, which is incorporated
by reference to Exhibit 2.6 of the registrant's Current
Report on Form 8-K, filed on September 11, 2000.
10.6 Form of Subsidiary Stock Purchase Right, which is
incorporated by reference to Exhibit 4.6 of the registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 2, 2000.
</TABLE>
<PAGE> 186
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.7 Form of Subsidiary Warrant, which is incorporated by
reference to Exhibit 4.7 of the registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended September
2, 2000.
10.8 Registration Rights Agreement, dated as of August 29, 2000,
among Cabletron and the Investors, which is incorporated by
reference to Exhibit 2.7 of the registrant's Current Report
on Form 8-K, filed on September 11, 2000.
10.9 Registration Rights Agreement, dated as of August 29, 2000,
among Aprisma and the Investors, which is incorporated by
reference to Exhibit 2.8 of the registrant's Current Report
on Form 8-K, filed on September 11, 2000.
10.10 Registration Rights Agreement, dated as of August 29, 2000,
among Enterasys and the Investors, which is incorporated by
reference to Exhibit 2.9 of the registrant's Current Report
on Form 8-K, filed on September 11, 2000.
10.11 Registration Rights Agreement, dated as of August 29, 2000,
among GNTS and the Investors, which is incorporated by
reference to Exhibit 2.10 of the registrant's Current Report
on Form 8-K, filed on September 11, 2000.
10.12 Registration Rights Agreement, dated as of August 29, 2000,
among Riverstone and the Investors, which is incorporated by
reference to Exhibit 2.11 of the registrant's Current Report
on Form 8-K, filed on September 11, 2000.
23.1 Consent of Ropes & Gray (included as part of Exhibit 5.1 to
this registration statement).
23.2 Consent of Ropes & Gray (included as part of Exhibit 8.1 to
this registration statement).
23.3 Consent of McDermott, Will & Emery (included as part of
Exhibit 8.2 to this registration statement).
23.4 Consent of KPMG LLP.
*24 Power of Attorney (Previously filed as part of signature
page to the initial filing of this registration statement,
filed on October 12, 2000).
99.1 Form of Proxy Card to be mailed to the holders of Indus
River stock.
99.2 Form of Stockholder Agreement between the registrant and the
Indus River stockholder named therein, which is included as
Annex D to the proxy statement/prospectus which is part of
this registration statement.
99.3 Form of Stockholder Agreement between the registrant and the
Indus River stockholder, named therein, which is included as
Annex E to the proxy statement/prospectus which is part of
this registration statement.
99.4 Preliminary Appraisal of Adams, Harkness & Hill, Inc., which
is included as Annex F to the proxy statement/prospectus
which is part of this registration statement.
99.5 Consent of Adams, Harkness & Hill, Inc. (included as part of
Exhibit 99.4 to this registration statement).
</TABLE>
---------------
* Previously filed.
