<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 12, 2000
REGISTRATION NO. 333-
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--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CABLETRON SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<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:
<TABLE>
<S> <C>
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>
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE(1) REGISTRATION FEE
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value.............. 7,250,000 shares(2) N/A $56.17 $1.00
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Series C Convertible Preferred Stock,
$1.00 par value......................... 50,000 shares N/A
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--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act, and calculated pursuant to
Rule 457(f) under the Securities Act. Pursuant to Rule 457(f)(2) under the
Securities Act, the proposed maximum aggregate offering price of the
registrant's common stock was calculated in accordance with Rule 457(f)(2)
under the Securities Act as one-third of the par value of the Indus River
securities being received in the transaction.
(2) The 7,250,000 shares of Common Stock to be registered includes 4,000,000
shares of Common Stock that will be issued in exchange for all of the shares
of preferred stock and common stock of Indus River and all options and
warrants to purchase Indus River stock (other than certain excluded
options), and 3,250,000 shares of common stock that will be reserved for
issuance upon the conversion of the Series C Convertible Preferred Stock.
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.
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--------------------------------------------------------------------------------
<PAGE> 2
INDUS RIVER NETWORKS, INC.
31 NAGOG PARK
ACTON, MASSACHUSETTS 01720
(978) 266-8100
October , 2000
Dear Indus River Networks Stockholder:
You are cordially invited to attend our special meeting of stockholders on
, November , 2000, 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. At (and with respect to options and warrants
after) the effective time of 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 (except for those additional options granted in connection with the
forfeiting of acceleration rights and some additional 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/or common stock that you own, based on a formula which
accounts for a liquidation preference payment to holders of Indus River
preferred stock. The exact exchange rate will not be known until five trading
days prior to the closing date of the merger because it is dependent upon the
average closing price of Cabletron common stock for the ten trading days ending
on and including the fifth trading day prior to the closing of the merger, and
the fair market value of Cabletron Series C preferred stock determined as of the
fifth trading day prior to the closing date of the merger by an appraisal, both
of which are subject to fluctuation.
Based on an average closing price of $ per share of Cabletron common
stock for the ten trading days ending on and including October , 2000 and an
appraised value of $ per share of Cabletron Series C preferred stock as of
October , 2000, and assuming the closing of the merger occurs on November ,
2000 and a warrant to purchase 60,847 shares of Indus River Series D preferred
stock is not exercised prior to consummation of the merger:
- each holder of Indus River Series A preferred stock would receive
shares of Cabletron Series C preferred stock and
shares of Cabletron common stock for each share of Indus River series A
preferred stock held by such holder;
- each holder of Indus River Series B preferred stock would receive
shares of Cabletron Series C preferred stock and
shares of Cabletron common stock for each share of Indus River series B
preferred stock held by such holder;
- each holder of Indus River Series C preferred stock would receive
shares of Cabletron Series C preferred stock and
shares of Cabletron common stock for each share of Indus River series C
preferred stock held by such holder;
- each holder of Indus River Series D preferred stock issued on June 30,
1999 would receive shares of Cabletron Series C preferred stock
and shares of Cabletron common stock for each share of Indus
River series D preferred stock held by such holder;
- each holder of Indus River Series D preferred stock issued on July 8,
1999 would receive shares of Cabletron Series C preferred stock
and shares of Cabletron common stock for each share of Indus
River series D preferred stock held by such holder; and
<PAGE> 3
- each holder of Indus River common stock would receive shares of
Cabletron Series C preferred stock and shares of Cabletron
common stock for each share of Indus River common stock held by such
holder.
You will receive cash for any fractional share of Cabletron common stock or
Cabletron Series C preferred stock that you would otherwise receive in the
merger.
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 (1) a spin-off of Cabletron's subsidiary, Enterasys Networks, Inc., the
subsidiary to which Cabletron intends to transfer the stock of Indus River
following the merger, after the first anniversary of the date the Cabletron
Series C preferred stock is issued, (2) a transaction involving Enterasys
pursuant to which Cabletron no longer controls Enterasys at any time and (3) the
second anniversary of the date the Cabletron Series C preferred stock is issued.
In addition, if Cabletron establishes a record date with respect to a spin-off
of Enterasys prior to the first anniversary of the date the Cabletron Series C
preferred stock is issued, and that spin-off is to be completed prior to such
first anniversary, then the Cabletron Series C preferred stock will be
convertible into Cabletron common stock at the option of the holder immediately
prior to the spin-off.
In addition, the Cabletron Series C preferred stock will be redeemable at
the option of the holder immediately prior to the first to occur of (1) a
spin-off of Enterasys following the first anniversary of the date the Cabletron
Series C preferred stock is issued and prior to the second anniversary of such
issuance and (2) a transaction involving Enterasys pursuant to which Cabletron
no longer controls Enterasys prior to the second anniversary of the date the
Cabletron Series C preferred stock is issued. With respect to 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. With respect to 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 following the transaction resulting in the change of
control of Enterasys.
If Cabletron establishes a record date with respect to a spin-off of
Enterasys prior to 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
connection with such spin-off. However, they will be able to convert their
shares into Cabletron common stock prior to any such spin-off. On the other
hand, if Cabletron consummates a transaction resulting in a change of control of
Enterasys prior to 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
connection with such transaction. In addition, if Cabletron conducts a spin-off
of Enterasys following 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
connection with such spin-off. The terms of the Cabletron Series C preferred
stock will provide an incentive for holders to choose to redeem their shares of
Cabletron Series C preferred stock as opposed to converting them if the holders
are able to choose between the two options by providing for a more favorable
exchange ratio for redemption of the Cabletron Series C preferred stock than
would be applicable to conversion of that stock. 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. 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 preferred stockholders and founders of
Indus River will be placed in escrow with an escrow agent and used to secure the
indemnification obligations of each Indus River stockholder under the merger
agreement. In addition, all of the Cabletron Series C preferred stock issued in
the merger will be held in an escrow account for up to 30 months in order to
facilitate any conversion or redemption of such stock which may occur during
such period, after which they will be distributed to the stockholders who are
entitled to
<PAGE> 4
receive them. Cabletron common stock is listed on the New York Stock Exchange
under the trading symbol "CS" and on , 2000, Cabletron common stock
closed at $ 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. In addition, 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. Following 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 each of its four
operating subsidiaries (including Enterasys) as an independent company,
Cabletron is not obligated to consummate such intention and continues to
consider several possibilities for Enterasys, including the possibility of
retaining Enterasys as a subsidiary of Cabletron. Depending on if, and when,
Cabletron consummates a spin-off or other disposition of Enterasys, the IRS may
attempt to combine the merger with such other transaction, and take the position
that the merger does not qualify as a tax-free organization. In that case, 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 your Indus River capital stock exchanged therefor. 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 capital stock who properly comply with certain
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, pursuant to which they have agreed to vote the shares of Indus
River stock they own "for" adoption of the merger agreement. Each of these
stockholders has 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 (1) 86.3% of the Indus River preferred stock and
Indus River common stock, voting together as a single class, and (2) 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 , 2000 will be entitled to vote at the special meeting.
YOU SHOULD CONSIDER THE MATTERS DISCUSSED UNDER "RISK FACTORS" COMMENCING
ON PAGE 15 OF THE ENCLOSED PROXY STATEMENT/PROSPECTUS BEFORE VOTING. PLEASE
REVIEW CAREFULLY THE ENTIRE PROXY STATEMENT/ PROSPECTUS.
AFTER CAREFUL CONSIDERATION, INDUS RIVER'S BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT, 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.
<PAGE> 5
Please complete, sign and return your proxy card. Please do not send any
stock certificates at this time. Thank you for your cooperation.
Sincerely,
--------------------------------------
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 connection with 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 , 2000,
AND IS FIRST BEING MAILED TO STOCKHOLDERS ON OR ABOUT , 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 NOVEMBER , 2000
To the Stockholders of Indus River Networks, Inc.:
We will hold a special meeting of the stockholders of Indus River Networks,
Inc. on , November , 2000, 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 among
Cabletron Systems, Inc., Acton Acquisition Co., a wholly owned subsidiary of
Cabletron, and Indus River.
At (and with respect to options and warrants after) the effective time of
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 (except for those
additional options granted in connection with the forfeiting of acceleration
rights and some additional 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/or preferred
stock will be converted into the right to receive a number of shares of
Cabletron Series C preferred stock and Cabletron common stock, based on a
formula which accounts for a liquidation preference payment to holders of Indus
River preferred stock. The exact exchange rate will not be known until five
trading days prior to the closing date of the merger because it is dependent
upon the average closing price of Cabletron common stock for the ten trading
days ending on and including the fifth trading day prior to the closing of the
merger, and the fair market value of Cabletron Series C preferred stock
determined as of the fifth trading day prior to the closing date of the merger
by an appraisal, both of which are subject to fluctuation.
Based on an average closing price of $ per share of Cabletron common
stock for the ten trading days ending on and including October , 2000 and
an appraised value of $ per share of Cabletron Series C preferred stock as
of October , 2000, and assuming the closing of the merger occurs on November
, 2000 and a warrant to purchase 60,847 shares of Indus River Series D
preferred stock is not exercised prior to consummation of the merger:
- each holder of Indus River Series A preferred stock would receive
shares of Cabletron Series C preferred stock and shares of Cabletron
common stock for each share of Indus River Series A preferred stock held
by such holder;
- each holder of Indus River Series B preferred stock would receive
shares of Cabletron Series C preferred stock and shares of Cabletron
common stock for each share of Indus River Series B preferred stock held
by such holder;
- each holder of Indus River Series C preferred stock would receive
shares of Cabletron Series C preferred stock and shares of Cabletron
common stock for each share of Indus River Series C preferred stock held
by such holder;
- each holder of Indus River Series D preferred stock issued on June 30,
1999 would receive shares of Cabletron Series C preferred stock and
shares of Cabletron common stock for each share of Indus River
Series D preferred stock held by such holder;
- each holder of Indus River Series D preferred stock issued on July 8,
1999 would receive shares of Cabletron Series C preferred stock and
shares of Cabletron common stock for each share of Indus River
Series D preferred stock held by such holder; and
<PAGE> 7
- each holder of Indus River common stock would receive shares of
Cabletron Series C preferred stock and shares of Cabletron common
stock for each share of Indus River common stock held by such holder.
You will receive cash for any fractional share of Cabletron common stock or
Cabletron Series C preferred stock that you would otherwise 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 , 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 capital stock who properly comply with certain
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.
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,
--------------------------------------
Per A. Suneby
Secretary
Acton, Massachusetts
October , 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 written or oral request. You can obtain documents
incorporated by reference in this proxy statement/prospectus by requesting them
in writing or by telephone from Cabletron at the following address and telephone
number:
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 , 2000
IN ORDER TO RECEIVE THEM BEFORE THE INDUS RIVER SPECIAL MEETING.
See "Where You Can Find More Information" (page 83).
<PAGE> 9
TABLE OF CONTENTS
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PAGE
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SUMMARY..................................................... 5
General................................................... 5
The Companies............................................. 8
Stock Prices and Dividends................................ 9
The Special Meeting....................................... 9
The Merger Agreement...................................... 10
Selected Historical Financial Data -- Cabletron........... 14
RISK FACTORS................................................ 15
Risk Factors Relating to the Merger....................... 15
Risk Factors Relating to the Cabletron Series C Preferred
Stock.................................................. 16
Risk Factors Relating to Cabletron........................ 17
Risk Factors Relating to Indus River...................... 17
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............................................. 21
Stockholder Agreements.................................... 22
Voting of Proxies......................................... 22
Revocability of Proxies................................... 22
Solicitation of Proxies................................... 22
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...................................... 35
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
Certain Material 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........................................ 46
Conditions to the Completion of the Merger................ 46
No Solicitation........................................... 47
Termination............................................... 48
Conduct of Business Pending the Merger.................... 49
Amendment, Extension and Waiver........................... 50
</TABLE>
i
<PAGE> 10
<TABLE>
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PAGE
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<S> <C>
Fees and Expenses......................................... 50
Representations and Warranties............................ 50
Additional Agreements..................................... 52
Indemnification and Insurance............................. 52
Amendments to Indus River's Certificate of
Incorporation.......................................... 52
Amendments to Indus River's By-Laws....................... 53
Indemnification and Escrow Agreement...................... 53
STOCK PRICES AND DIVIDENDS.................................. 55
DESCRIPTION OF CABLETRON CAPITAL STOCK...................... 57
Preferred Stock........................................... 57
Warrants, Options and Put Rights.......................... 67
COMPARISON OF RIGHTS OF SERIES C PREFERRED AND COMMON
STOCKHOLDERS OF CABLETRON AND STOCKHOLDERS OF INDUS
RIVER..................................................... 68
Capitalization............................................ 68
Voting Rights............................................. 68
Voting Requirement and Quorums for Stockholder Meetings... 69
Number of Directors....................................... 69
Board Classification...................................... 69
Nomination and Election of Directors...................... 70
Removal of Directors...................................... 70
Newly Created Directorships and Vacancies................. 71
Amendments to Certificate of Incorporation................ 71
Amendments to By-Laws..................................... 71
Stockholder Action........................................ 72
Special Stockholder Meetings.............................. 72
Limitation of Personal Liability of Directors and
Indemnification........................................ 72
Dividends................................................. 73
Liquidation............................................... 74
Conversion................................................ 74
Redemption Rights......................................... 75
Appraisal Rights.......................................... 76
Vote Required for Mergers................................. 77
Anti-Takeover Provisions.................................. 78
Stockholder Derivative Suits.............................. 79
CERTAIN INFORMATION CONCERNING INDUS RIVER.................. 80
Security Ownership of Directors, Executive Officers and
Principal Stockholders of Indus River.................. 80
LEGAL MATTERS............................................... 83
EXPERTS..................................................... 83
OTHER MATTERS............................................... 83
WHERE YOU CAN FIND MORE INFORMATION......................... 83
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........... 85
</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 October
, 2000
ii
<PAGE> 11
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
Q: WHY IS INDUS RIVER MERGING WITH CABLETRON?
A: This is a unique opportunity for Indus River to join and become part of
Cabletron, one of the world's leading developers, manufacturers and marketers
of networking systems and technology, and for Indus River stockholders to
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: At (and with respect to options and warrants after) the effective time of 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
(except for those additional options granted in connection with the
forfeiting of acceleration rights and some additional options granted to some
employees hired by Indus River after August 18, 2000 with Cabletron's
consent). If the merger is completed, you will receive a specified number of
shares of Cabletron common stock and a specified number of shares of
Cabletron Series C preferred stock for each share of Indus River common stock
and 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 otherwise receive in the merger. Holders of Indus
River preferred stock are entitled to be paid a liquidation preference
payment in connection with the merger. Because the dollar amount of the
liquidation preference is determined as of the closing date and because the
number of shares of Cabletron capital 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 prior
to the closing date. However, based on an average closing price of Cabletron
common stock for the ten trading days ending on and including October ,
2000 and the appraised value of the Cabletron Series C preferred stock as of
October , 2000, and assuming that the closing of the merger occurs on
November , 2000 and a warrant to purchase 60,847 shares of Indus River
Series D preferred stock is not exercised prior to consummation of merger:
- each holder of Indus River Series A preferred stock would receive
shares of Cabletron Series C preferred stock and shares of
Cabletron common stock in connection with the merger for each share of
Indus River Series A preferred stock held by such holder;
- each holder of Indus River Series B preferred stock would receive
shares of Cabletron Series C preferred stock and shares of
Cabletron common stock in connection with the merger for each share of
Indus River Series B preferred stock held by such holder;
- each holder of Indus River Series C preferred stock would receive
shares of Cabletron Series C preferred stock and shares of
Cabletron common stock in connection with the merger for each share of
Indus River Series C preferred stock held by such holder;
- each holder of Indus River Series D preferred stock issued on June 30,
1999 would receive shares of Cabletron Series C preferred stock
and shares of Cabletron common stock in connection with the merger
for each share of Indus River Series D preferred stock held by such
holder;
- each holder of Indus River Series D preferred stock issued on July 8,
1999 would receive shares of Cabletron Series C preferred stock
and shares of Cabletron common stock in connection with the merger
for each share of Indus River Series D preferred stock held by such
holder; and
<PAGE> 12
- each holder of Indus River common stock would receive shares of
Cabletron Series C preferred stock and shares of Cabletron
common stock in connection with the merger for each share of Indus River
common stock held by such holder.
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 (1) a spin-off of Cabletron's subsidiary, Enterasys Networks, Inc., the
subsidiary to which Cabletron intends to transfer the stock of Indus River
following the merger, after the first anniversary of the date the Cabletron
Series C preferred stock is issued, (2) a transaction involving Enterasys
pursuant to which Cabletron no longer controls Enterasys at any time and (3) the
second anniversary of the date the Cabletron Series C preferred stock is issued.
In addition, if Cabletron establishes a record date with respect to a spin-off
of Enterasys prior to the first anniversary of the date the Cabletron Series C
preferred stock is issued, and that spin-off is to be completed prior to such
first anniversary, then the Cabletron Series C preferred stock will be
convertible into Cabletron common stock at the option of the holder immediately
prior to the spin-off.
In addition, the Cabletron Series C preferred stock will be redeemable at
the option of the holder immediately prior to the first to occur of (1) a
spin-off of Enterasys following the first anniversary of the date the Cabletron
Series C preferred stock is issued and prior to the second anniversary of such
issuance and (2) a transaction involving Enterasys pursuant to which Cabletron
no longer controls Enterasys prior to the second anniversary of the date the
Cabletron Series C preferred stock is issued. With respect to 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 following the transaction resulting in the change of
control of Enterasys.
If Cabletron establishes a record date with respect to a spin-off of
Enterasys prior to 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
connection with such spin-off. However, they will be able to convert their
shares into Cabletron common stock prior to such spin-off. On the other hand, if
Cabletron consummates a transaction resulting in a change of control of
Enterasys prior to 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
connection with such transaction. In addition, if Cabletron conducts a spin-off
of Enterasys following 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
connection with such spin-off. The terms of the Cabletron Series C preferred
stock will provide an incentive for holders to choose to redeem their share of
Cabletron Series C preferred stock as opposed to converting them if the holders
are able to choose between the two options by providing for a more favorable
exchange ratio for redemption of the Cabletron Series C preferred stock than
would be applicable to conversion of that stock. 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 60 to 67 of this proxy
statement/prospectus.
The merger agreement provides that 10% of the shares of Cabletron common
stock to be issued in the merger to the preferred stockholders and founders
of Indus River will be placed in an escrow account in order to secure the
indemnification obligations of each Indus River stockholder under the
merger agreement. In addition, all of the shares of Series C preferred
stock issued in the merger will be deposited in an escrow account for a
period of up to 30 months in order to facilitate any conversion or
redemption of such shares.
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
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<PAGE> 13
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
following the first anniversary of the consummation of the merger.
In addition, 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. However, 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, after which they 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 set forth 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 (1) a majority of the outstanding
shares of Indus River common stock and Indus River preferred stock, voting
together as a single class, and (2) 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 November , 2000 at 10:00 a.m., local time,
at the offices of McDermott, Will & Emery, 28 State Street, Boston,
Massachusetts 02109.
Indus River stockholders holding (1) 86.3% of the outstanding shares of Indus
River preferred stock and Indus River common stock, voting together as a
single class and (2) 95.5% of the outstanding shares of Indus River preferred
stock, voting as a separate class, have executed stockholder agreements
agreeing to vote the shares of Indus River stock, they own "for" adoption of
the merger agreement. Each of these stockholders has 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. Accordingly, 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.
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 set forth in the merger agreement do
not occur. Should that occur, none of Cabletron, Indus River or any third
party is under any obligation to make or consider any alternative proposal
regarding the purchase of your Indus River stock. The closing conditions set
forth in the merger agreement are described in pages 46 to 47 of this proxy
statement/prospectus.
Q: WHAT ELSE WILL HAPPEN AT THE MEETING?
A: Although we know of no other matters which 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.
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 ABSTEN-
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<PAGE> 14
TION 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 , 2000. 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 , 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 set forth 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.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We expect to complete the merger immediately following 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 42 to 44 and in Annex B.
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
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<PAGE> 15
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. In particular, you should read the documents attached to this proxy
statement/prospectus, including the merger agreement which is 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 appraisal of Adams, Harkness & Hill, Inc. dated October ,
2000 with respect to the Cabletron Series C preferred stock, which is attached
as Annex F. Also, see "Where You Can Find More Information" on page 83. We have
included page references parenthetically to direct you to a more complete
description of the topics presented in this summary.
GENERAL
WHAT YOU WILL RECEIVE IN THE MERGER (PAGE 35)
At and (with respect to options and warrants) after the effective time of
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 (except for those
additional options granted in connection with the forfeiting of acceleration
rights described above and some additional options granted to some employees
hired by Indus River after August 18, 2000 with Cabletron's consent). Because
each holder of Indus River preferred stock is entitled to a liquidation
preference payment in connection with the merger, and because the market price
of Cabletron common stock fluctuates, and because 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 prior to the closing date of the merger.
Based on an average closing price of $ per share of Cabletron common
stock for the ten trading days ending on and including October , 2000 and an
appraised value of $ per share of Cabletron Series C preferred stock as of
October , 2000, and assuming that the closing of the merger occurs on November
, 2000 and a warrant to purchase 60,847 shares of Indus River Series D
preferred stock is not exercised prior to consummation of the merger:
- each holder of Indus River Series A Preferred stock would receive
shares of Cabletron Series C preferred stock and shares of Cabletron
common stock for each share of Indus River Series A preferred stock held
by such holder;
- each holder of Indus River Series B Preferred stock would receive
shares of Cabletron Series C preferred stock and shares of Cabletron
common stock for each share of Indus River Series B preferred stock held
by such holder;
- each holder of Indus River Series C Preferred stock would receive
shares of Cabletron Series C preferred stock and shares of Cabletron
common stock for each share of Indus River Series C preferred stock held
by such holder;
- each holder of Indus River Series D Preferred stock issued on June 30,
1999 would receive shares of Cabletron Series C preferred stock and
shares of Cabletron common stock for each share of Indus River
Series D preferred stock held by such holder;
- each holder of Indus River Series D Preferred stock issued on July 8,
1999 would receive shares of Cabletron Series C preferred stock and
shares of Cabletron common stock for each share of Indus River
Series D preferred stock held by such holder and
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<PAGE> 16
- each holder of Indus River common stock would receive shares of
Cabletron Series C preferred stock and shares of Cabletron common
stock for each share of Indus River common stock held by such holder.
You will receive cash for any fractional share of Cabletron common stock or
Cabletron Series C preferred stock that you would otherwise receive in the
merger.
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 (1) a spin-off of Cabletron's subsidiary, Enterasys Networks, Inc., the
subsidiary to which Cabletron intends to transfer the stock of Indus River
following the merger, after the first anniversary of the date the Cabletron
Series C preferred stock is issued, (2) a transaction involving Enterasys
pursuant to which Cabletron no longer controls Enterasys at any time and (3) the
second anniversary of the date the Cabletron Series C preferred stock is issued.
In addition, if Cabletron establishes a record date with respect to a spin-off
of Enterasys prior to the first anniversary of the date the Cabletron Series C
preferred stock is issued, and that spin-off is to be completed prior to such
first anniversary, then the Cabletron Series C preferred stock will be
convertible into Cabletron common stock at the option of the holder immediately
prior to the spin-off.
In addition, the Cabletron Series C preferred stock will be redeemable at
the option of the holder immediately prior to the first to occur of (1) a
spin-off of Enterasys following the first anniversary of the date the Cabletron
Series C preferred stock is issued and prior to the second anniversary of such
issuance and (2) a transaction involving Enterasys pursuant to which Cabletron
no longer controls Enterasys prior to the second anniversary of the date the
Cabletron Series C preferred stock is issued. With respect to 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. With respect to 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 following the transaction resulting in the change of
control of Enterasys.
If Cabletron establishes a record date with respect to a spin-off of
Enterasys prior to 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
connection with such spin-off. However, they will be able to convert their
shares into Cabletron common stock prior to any such spin-off. On the other
hand, if Cabletron consummates a transaction resulting in a change of control of
Enterasys prior to 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
connection with such transaction. In addition, if Cabletron conducts a spin-off
of Enterasys following 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
connection with such spin-off. The terms of the Cabletron Series C preferred
stock will provide an incentive for holders to choose to redeem their shares of
Cabletron Series C preferred stock as opposed to converting them if the holders
are able to choose between the two options by providing for a more favorable
exchange ratio for redemption of the Cabletron Series C preferred stock than
would be applicable to conversion of that stock. 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. There is a more detailed description of the Cabletron
Series C preferred stock in this proxy statement/prospectus.
The merger agreement provides that 10% of the shares of Cabletron common
stock to be issued in the merger to the preferred stockholders and founders of
Indus River will be placed in an escrow account that may 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 such escrowed shares are being held
following the first anniversary of the consummation of the merger.
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<PAGE> 17
In addition, all of the shares of Cabletron Series C preferred stock to be
issued in the merger to Indus River stockholders 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, after which they
will be distributed by the escrow agent to the stockholders on whose behalf the
shares are being held.
OWNERSHIP OF CABLETRON FOLLOWING THE MERGER
At the effective time of the merger, Cabletron will issue 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 shares issuable under all options and warrants to
purchase Indus River common stock (except for those additional options granted
in connection with the forfeiture of acceleration rights described on page 34 of
this proxy statement/prospectus and additional options granted to some employees
hired by Indus River after August 18, 2000 with Cabletron's consent). Based on
the number of currently outstanding shares of Cabletron common stock and
Cabletron Series C preferred stock, following the merger, former Indus River
stockholders will own less than 3% of the outstanding shares of Cabletron common
stock and 100% of the outstanding shares of Cabletron Series C preferred stock.
CERTAIN MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
(PAGE 38)
Cabletron and Indus River plan to treat the merger as a tax-free
reorganization for Federal income tax purposes. Following 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 each of its four
operating subsidiaries (including Enterasys) as an independent company,
Cabletron is not obligated to consummate such intention and continues to
consider several possibilities for Enterasys, including the possibility of
retaining Enterasys as a subsidiary of Cabletron. Depending on if, and when,
Cabletron consummates a spin-off or other disposition of Enterasys, the IRS may
attempt to combine the merger with such other transaction, and take the position
that the merger does not qualify as a tax-free reorganization. In that case, 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 your Indus River capital stock exchanged therefor. A more detailed
analysis of the material Federal income tax consequences of the merger is
discussed in this proxy statement/prospectus.
RECOMMENDATION OF THE INDUS RIVER BOARD OF DIRECTORS (PAGE 27)
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.
To review the background and reasons for the merger in greater detail, as
well as certain risks related to the merger, see pages 24 to 28 and 15 to 16.
APPRAISALS OF CABLETRON SERIES C PREFERRED STOCK BY ADAMS, HARKNESS & HILL, INC.
(PAGE 28)
Because there is no established trading market for the Cabletron Series C
preferred stock, for purposes of determining the Cabletron Series C preferred
stock payable with respect to the liquidation preference payment, Indus River
has retained Adams, Harkness & Hill, Inc. to render an appraisal of the fair
market value of the shares of Cabletron Series C preferred stock that will be
received by the Indus River stockholders in connection with the merger. At the
request of Indus River, Adams, Harkness & Hill rendered a preliminary appraisal
on October , 2000 that, as of October , 2000, the aggregate fair market
value of the Cabletron Series C preferred stock to be received by the Indus
River stockholders in connection with the merger was approximately $
million. Adams, Harkness & Hill expects that the types of information obtained
by and the valuation methodologies used by Adams, Harkness & Hill in rendering
the final appraisal in connection with the closing of the merger will be
substantially similar to those used in rendering the preliminary appraisal,
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<PAGE> 18
although 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 pursuant to the merger
agreement and does not address any other aspect of the merger or constitute a
recommendation to any holder of Indus River stock as to how to vote at the Indus
River stockholder meeting. For additional information about the appraisal,
including 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, see "The Merger -- Appraisals of
Cabletron Series C Preferred Stock by Adams, Harkness & Hill, Inc." on page 28.
The full text of AH&H's preliminary appraisal, dated October , 2000 is
attached as Annex F to this proxy statement/prospectus and is incorporated in
this proxy statement/prospectus by reference.
INTERESTS OF INDUS RIVER DIRECTORS, MANAGEMENT AND EMPLOYEES IN THE MERGER (PAGE
32)
Indus River stockholders should note that a number of directors, officers
and employees of Indus River have interests in the merger as directors, officers
or employees that are different from, or in addition to, those of a stockholder
generally. If we complete the merger, indemnification arrangements for current
directors, officers and employees of Indus River will be continued 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 certain executives and
employees, with stock options, enter into amendments to their respective stock
option agreements which modify the accelerated vesting provisions associated
with those options in exchange for the grant of additional stock options. In
addition, two executive officers of Indus River will receive options to purchase
200,000 shares of stock of Cabletron's subsidiary, Enterasys Networks, Inc.
APPRAISAL RIGHTS (PAGE 41)
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, in order 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
- continuously hold your Indus River capital 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. Failure to follow all the steps
required by Delaware law will result in the loss of your rights to appraisal.
The Delaware law requirements for exercising appraisal rights are described in
further detail on pages 42 to 44.
THE COMPANIES (PAGE 20)
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 deploy
and manage remote access and site to site virtual private networks ("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 VPN deployment and operational management while enhancing control
over network security and improving the cost-effectiveness of the network.
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<PAGE> 19
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 deployed in several industry sectors including
major financial, industrial, and service companies. These network installations
represent some of the largest VPN deployments in the world with remote
populations numbering several thousand 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 60 employees, most of whom are located at the
company's 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 leading edge
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, enterprise e-business, professional services and
service providers.
STOCK PRICES AND DIVIDENDS (PAGE 55)
Shares of Cabletron common stock are listed on the New York Stock Exchange.
On August 18, 2000, the last full trading day prior to 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 , 2000, the last day for which information was
available prior to 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 $ . We are unable
to provide information with respect to 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 (PAGE 21)
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 November , 2000. At the special meeting,
all stockholders will be asked to adopt the merger agreement among Cabletron,
Acton Acquisition Co., a wholly owned subsidiary of Cabletron, and Indus River.
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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
, 2000 the record date.
On the record date, there were outstanding 4,204,883 shares of Indus River
common stock, 5,100,000 shares of Indus River Series A convertible preferred
stock, 3,197,973 shares of Indus River Series B convertible preferred stock,
70,710 shares of Indus River Series C convertible preferred stock and 2,068,783
shares of Indus River Series D convertible preferred stock. Stockholders will
have one vote at the special meeting for each share of Indus River common stock
that they owned on the record date, and will have one vote for each share of
Indus River preferred stock that they owned on the record date, whether voting
together with the common stock or as a separate vote of all preferred stock
entitled to vote.
On the record date, 92.5% of the outstanding shares of Indus River common
stock and preferred 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.
VOTE REQUIRED
The affirmative vote of holders of (1) a majority of the outstanding shares
of the Indus River common stock and preferred stock, voting together as a single
class and (2) 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
REQUISITE VOTE.
STOCKHOLDER AGREEMENTS
A number of Indus River stockholders have entered into stockholder
agreements with Cabletron pursuant to which they have agreed to vote the shares
of Indus River stock they own "for" adoption of the merger agreement. Each of
these stockholders has 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. The form of the stockholder
agreement for Indus River founders is attached as Annex D to the proxy
statement/prospectus and the form of stockholder agreement for Indus River
preferred stockholders is attached as Annex E to the proxy statement/prospectus.
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.
THE MERGER AGREEMENT (PAGE 46)
The merger agreement is attached as Annex A to this proxy
statement/prospectus. We encourage you to read the entire merger agreement. It
is the principal document governing the merger.
CONDITIONS TO THE COMPLETION OF THE MERGER (PAGE 46)
Cabletron and Indus River will complete the merger only if they satisfy or,
in some cases, waive several conditions, including the following:
- 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 as a separate class, must agree to adopt the merger
agreement;
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<PAGE> 21
- no law, order or injunction preventing the consummation of the merger may
be in effect;
- the registration statement on Form S-4, of which this proxy
statement/prospectus forms a part, must have become and remain effective
under the Securities Act;
- Indus River and Cabletron must comply with their respective agreements
and covenants in all material respects;
- the respective representations and warranties of Indus River and
Cabletron contained in the merger agreement must be true and correct, in
all material respects, in accordance with the applicable standards set
forth in the merger agreement;
- Indus River and 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;
- in the case of Cabletron only, all existing registration rights,
preemptive rights and rights of first refusal agreements entered into by
the Indus River stockholders prior to August 18, 2000 must have been
terminated either in accordance with their terms or by Indus River and
each of the other parties to the agreements;
- in the case of Cabletron only, Per A. Suneby and Julian W. West must have
entered into employment terms with the surviving corporation;
- in the case of Cabletron only, Indus River must have retained a required
percentage of employees as set forth in the merger agreement and the
schedules to the merger agreement;
- in the case of Cabletron only, 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;
- in the case of Cabletron only, no change, effect or circumstance shall
have occurred that, individually or when taken together with all other
such changes, effects or circumstances is or is 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 consummation of the merger or
the transactions contemplated by the merger agreement;
- in the case of Indus River only, Cabletron common stock to be issued in
accordance with the merger must be authorized for listing on the New York
Stock Exchange, subject to official notice of issuance; and
- in the case of Indus River only, Cabletron shall have caused the
surviving corporation to have made offers of employment to all employees
of Indus River, subject to consummation of the merger, the terms of which
will be comparable in the aggregate to the current employment
arrangements between such employees and Indus River.
NO SOLICITATION (PAGE 47)
The merger agreement provides that Indus River will not, directly or
indirectly, through any officer, director, employee, representative or agent
solicit, initiate or encourage any acquisition proposal or engage in
negotiations or discussions concerning an acquisition proposal or provide any
nonpublic information to any person relating to, any acquisition proposal, or
agree to, approve or recommend any acquisition proposal. Indus River has agreed
to promptly advise Cabletron of any acquisition proposal and inquiries with
respect to any acquisition proposal.
INDEMNIFICATION AND ESCROW AGREEMENT (PAGE 53)
The merger agreement provides that 10% of the shares of Cabletron common
stock to be issued to the preferred stockholders and founders of Indus River
will be placed in escrow as soon as practicable after the
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<PAGE> 22
merger is completed. 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 misconduct. The escrow will terminate one year after the date of
the merger at which time all shares of Cabletron common stock that are in the
escrow account and are not the subject of any claim by Cabletron will be
released from escrow. Any shares of Cabletron common stock that are the subject
of an unasserted claim will continue to be held in escrow until all such claims
have been resolved.
In addition, the merger agreement provides that all of the shares of
Cabletron Series C preferred stock to be issued to Indus River stockholders in
the merger will be placed in a separate escrow account as soon as practicable
after the merger is completed. The Cabletron Series C preferred stock will not
be used to secure the indemnification obligations of the Indus River
stockholders, but rather will be held in escrow only to facilitate any
conversion or redemption of the Cabletron Series C preferred stock. The shares
will remain in the escrow account until the first to occur of: 30-month
anniversary of the closing date of the merger or a redemption or conversion of
the shares of Cabletron Series C preferred stock in accordance with the
provisions of the certificate of designation related to the Cabletron Series C
preferred stock. Following the occurrence of such event, the shares of Cabletron
Series C preferred stock will be released from escrow.
TERMINATION (PAGE 48)
The merger agreement may be terminated and the merger abandoned at any time
prior to the merger, whether before or after adoption of the merger agreement 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 January 15, 2001;
- 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 permanently restraining,
enjoining or otherwise prohibiting the merger;
- by Cabletron, if the stockholders of Indus River have not approved the
merger by January 15, 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, in accordance with the
applicable standards set forth in the merger agreement;
- by Cabletron or Indus River, if the other party has materially breached
its obligations under the merger agreement, unless the breach is curable
before January 15, 2001 through the exercise of the breaching party's
reasonable best efforts and the breaching party continues to exercise 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; or
- by Cabletron or Indus River, if Indus River enters into an agreement
relating to an alternative acquisition transaction.
GOVERNMENT FILINGS (PAGE 41)
Cabletron and Indus River do not believe that any governmental filings in
the United States are required with respect to 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.
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<PAGE> 23
ACCOUNTING TREATMENT (PAGE 35)
The merger will be accounted for under the "purchase" method of accounting
in accordance with 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, the acquiring company
determines the fair value of assets acquired on liabilities assumed; any premium
paid over fair value is reflected on the acquiror's balance sheet as an
intangible asset.
FEES AND EXPENSES (PAGE 50)
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 consummation of the merger whether or not the merger
occurs, except that Cabletron will pay all fees and expenses incurred in
connection with the printing of this proxy statement/prospectus and all SEC
filings fees.
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<PAGE> 24
SELECTED HISTORICAL FINANCIAL DATA -- CABLETRON
HISTORICAL
<TABLE>
<CAPTION>
FISCAL QUARTERS
ENDED FISCAL YEAR ENDED
------------------- ------------------------------------------------------------------------
JUNE 3, MAY 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........................ $275,064 $349,533 $1,459,593 $1,411,279 $1,377,330 $1,406,552 $1,100,349
Income (loss) from operations.... (69,947) (39,977) (5,775) (291,616) (88,812) 326,278 206,935
Net income (loss)................ $(37,860) $(22,525) $ 464,271 $ (245,391) $ (34,961) $ 226,079 $ 144,485
======== ======== ========== ========== ========== ========== ==========
Net income (loss) per
share -- basic................. $ (0.21) $ (0.13) $ 2.62 $ (1.47) $ (0.22) $ 1.46 $ 0.95
======== ======== ========== ========== ========== ========== ==========
Weighted average number of shares
outstanding -- basic........... 184,116 173,090 177,541 167,432 157,686 155,207 151,525
======== ======== ========== ========== ========== ========== ==========
Net income (loss) per
share -- diluted............... $ (0.21) $ (0.13) $ 2.46 $ (1.47) $ (0.22) $ 1.42 $ 0.93
======== ======== ========== ========== ========== ========== ==========
Weighted average number of shares
outstanding -- diluted......... 184,116 173,090 188,618 167,432 157,686 158,933 155,171
</TABLE>
<TABLE>
<CAPTION>
JUNE 3, MAY 31, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
2000 1999 2000 1999 1998 1997 1996
---------- ---------- ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............. $ 399,939 $ 334,208 $ 448,168 $ 370,945 $ 593,046 $ 679,056 $485,152
Total assets................. 2,083,844 1,533,730 3,166,507 1,566,500 1,682,048 1,310,809 996,908
Total stockholders' equity... 1,500,750 1,078,618 2,147,439 1,089,833 1,085,075 1,085,452 809,886
========== ========== ========== ========== ========== ========== ========
</TABLE>
THE INFORMATION IN THIS SECTION SHOULD BE READ ALONG WITH CABLETRON'S
HISTORICAL FINANCIAL STATEMENTS AND ACCOMPANYING NOTES. SEE "WHERE YOU CAN FIND
MORE INFORMATION" ON PAGE 83.
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<PAGE> 25
RISK FACTORS
In addition to the other information included and incorporated by reference
in this proxy statement/ prospectus, Indus River stockholders should consider
carefully the matters described below in determining whether to adopt the merger
agreement.
RISK FACTORS RELATING TO THE MERGER
- THE AGGREGATE NUMBER OF SHARES OF CABLETRON COMMON STOCK AND CABLETRON
SERIES C PREFERRED STOCK TO BE ISSUED BY CABLETRON IN THE MERGER IS FIXED
AND WILL NOT BE ADJUSTED IN THE EVENT OF ANY CHANGE IN STOCK
PRICE. Under the merger agreement, 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 shares issuable under all
options and warrants to purchase Indus River common stock (except for
those additional options granted in connection with the forfeiture of
acceleration rights described on page 34 of this proxy
statement/prospectus and some additional options granted to some
employees hired by Indus River after August 18, 2000 with Cabletron's
consent). This is a fixed number and will not be adjusted in the event of
any increase or decrease in the price of Cabletron common stock or in the
value of Cabletron Series C preferred stock. However, because each holder
of Indus River Preferred Stock is entitled to a liquidation preference
payment in connection with the merger, the exchange ratio for Indus River
common stock and Indus River preferred stock will vary depending on the
stock price of Cabletron common stock and the value of Cabletron Series C
preferred stock. The price of Cabletron common stock and the value of
Cabletron Series C preferred stock at the closing of the merger may vary
from its respective price or value on the date of this proxy
statement/prospectus and on the date of the special meeting. 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, general market and economic
conditions and other factors. 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 PRICE OF CABLETRON COMMON STOCK MAY BE AFFECTED BY FACTORS DIFFERENT
FROM THOSE AFFECTING THE VALUE OF INDUS RIVER STOCK. Upon completion of
the merger, holders of Indus River stock will become holders of Cabletron
common stock and Cabletron Series C preferred stock. Cabletron's business
differs from that of Indus River, and Cabletron's results of operations,
as well as the price of Cabletron common stock and the value of Cabletron
Series C preferred stock, may be affected by factors different from those
affecting Indus River's results of operations and the value of Indus
River stock. For a discussion of Cabletron's business and factors to
consider in connection with this business, see Cabletron's Annual Report
on Form 10-K for the fiscal year ended February 29, 2000 and Quarterly
Report on Form 10-Q for the period ended June 3, 2000.
- THE MERGER AGREEMENT PROVIDES THAT 10% OF THE SHARES OF CABLETRON COMMON
STOCK TO BE ISSUED IN THE MERGER TO THE PREFERRED STOCKHOLDERS AND
FOUNDERS OF INDUS RIVER WILL BE PLACED IN ESCROW TO SECURE
INDEMNIFICATION CLAIMS MADE BY CABLETRON UNDER THE MERGER AGREEMENT. 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 any breach
of any representation or warranty made by Indus River in the merger
agreement or in any certificate or other document delivered to Cabletron
in connection with the merger agreement, any breach or nonfulfillment by
Indus River of any of the covenants, agreements or obligations contained
in the merger agreement or any certificate or other document delivered to
Cabletron in connection with the merger agreement, or any claim by a
holder or former holder of Indus River stock or options, warrants or
other securities convertible into or exercisable for shares of Indus
River stock, or any other person or entity, seeking to assert, or based
upon, ownership or rights of ownership to any shares of Indus River
stock,
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<PAGE> 26
any rights of an Indus River stockholder, or rights to notice or to vote,
any rights under the Indus River certificate of incorporation or Indus
River by-laws or any claim that his, her or its Indus River stock or
options, warrants or other securities convertible into or exercisable for
shares of Indus River stock were wrongfully repurchased, canceled,
terminated or otherwise limited by Indus River. As soon as practicable
after the date of the merger, Cabletron will cause 10% of the shares of
Cabletron common stock issued to the Indus River preferred stockholders
and founders to be deposited into an escrow account, which will be
available to it to satisfy the indemnification rights of Cabletron. There
can be no assurance that those Indus River stockholders will receive any
of the shares in the escrow account should they be used to satisfy an
indemnification claim by Cabletron under the terms of the merger
agreement. See "The Merger Agreement -- Indemnification and Escrow
Agreement" on page 53 and "The Merger -- Merger Consideration" on page
35.
- DEPENDING ON IF, AND WHEN, CABLETRON CONSUMMATES 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
Cabletron's spin-off or other disposition of Enterasys, the company to
which Cabletron plans to transfer the Indus River stock after the merger.
Cabletron has announced its desire to establish each of its four
operating subsidiaries (including Enterasys) as an independent company.
Because Cabletron is not obligated to consummate the spin-off or
disposition of Enterasys and continues to consider several possibilities
for Enterasys (including the possibility of retaining Enterasys as a
subsidiary of Cabletron), Cabletron and Indus River plan to treat the
merger as a tax-free reorganization. However, if Cabletron consummates
its announced intention to spin off or otherwise dispose of Enterasys and
if the IRS were to successfully assert that, for Federal income tax
purposes, the spin-off or disposition should be combined with this
merger, then this merger would constitute a taxable purchase of stock in
which case 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 your Indus River stock exchanged therefor.
For a more detailed analysis of the material Federal income tax
consequences of the merger, see "The Merger -- Certain Material United
States Federal Income Tax Consequences of the Merger" on page 38.
RISK FACTORS RELATING TO THE CABLETRON SERIES C PREFERRED STOCK
- THE CABLETRON SERIES C PREFERRED STOCK WILL HAVE LIMITED LIQUIDITY AND
MARKETABILITY. 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 there can
be no assurance as to the liquidity of any market that may develop for
the Cabletron Series C preferred stock, the ability of the holders of
Cabletron Series C preferred stock to sell their Cabletron Series C
preferred stock or the price at which holders of the Cabletron Series C
preferred stock may be able to sell their Cabletron Series C preferred
stock. Cabletron does not intend to apply for listing of the Cabletron
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 such shares will be
redeemable by the holders if Cabletron conducts a spin-off of its
subsidiary, Enterasys, after the first anniversary of the issuance of
such shares and prior to the second anniversary of the issuance of such
shares, or if there is a transaction involving Enterasys pursuant to
which Cabletron no longer controls Enterasys prior to the second
anniversary of the issuance of such shares. With respect to 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. With
respect to 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 following
the transaction resulting in the
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<PAGE> 27
change of control of Enterasys. It is very possible that Cabletron will
not conduct a spin-off of Enterasys within this time frame, if at all.
Similarly, it is possible that there will not be a change of control of
Enterasys within this time frame, if at all. As a result, the holders of
Cabletron Series C preferred stock may not able to redeem their shares of
Cabletron Series C preferred stock. For a more detailed description of
the redemption rights with respect to the Cabletron Series C preferred
stock, please see "Description of Cabletron Capital Stock -- Preferred
Stock -- Series C Preferred Stock -- Redemption" on page 65.
- 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 such shares will be
convertible by the holders into shares of Cabletron common stock
following the earlier to occur of a spin-off of Enterasys, a transaction
involving Enterasys pursuant to which Cabletron no longer controls
Enterasys and the second anniversary of the issuance of the Cabletron
Series C preferred stock. In addition, if Cabletron were to conduct a
spin-off of Enterasys within one year of the issuance of the Cabletron
Series C preferred stock, such shares would be convertible immediately
prior to such spin-off. It is very possible that Cabletron will not
conduct an Enterasys spin-off prior to the second anniversary of the
issuance of the Cabletron Series C preferred stock, if at all. Similarly,
it is possible that there will not be a change of control of Enterasys
within this time frame, if at all. As a result, the holders of Cabletron
Series C preferred stock may not be able to convert their shares of
Cabletron Series C preferred stock until following the second anniversary
of the issuance of such shares. For a more detailed description of the
conversion rights with respect to the Cabletron Series C preferred stock,
please see "Description of Cabletron Capital Stock -- Preferred
Stock -- Series C Preferred Stock -- Conversion Rights" on page 61.
RISK FACTORS RELATING TO CABLETRON
For a discussion of Cabletron's business and risk factors to consider in
connection with this business, see Cabletron's Annual Report on Form 10-K for
the fiscal year ended February 29, 2000 and Quarterly Report for the period
ended June 3, 2000.
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 and other risks will continue to apply
to Indus River's business if the merger is not consummated.
- INDUS RIVER HAS A LIMITED OPERATING HISTORY AND HAS NOT HAD PROFITABLE
OPERATIONS. Since its inception on August 7, 1996, Indus River has
incurred losses. Indus River incurred net losses of $7,039,360 in the
fiscal year ending December 31, 1998. Indus River incurred net losses of
$9,766,791 in the fiscal year ending December 31, 1999. As of July 31,
2000, Indus River had an accumulated deficit of $27.1 million. If Indus
River's future revenues do not increase substantially, then planned
expenditures would have a material adverse effect on Indus River's future
business, results of operations and financial condition.
- INDUS RIVER WILL NEED ADDITIONAL FINANCING. If the merger with Cabletron
is not consummated and Indus River continues as a stand-alone company,
Indus River would not have sufficient capital to continue its business
operations as currently conducted. Indus River will also be required to
obtain significant additional debt and/or equity funds for research and
development and to otherwise provide working capital for its continuing
operations. While Indus River believes it will be able to raise the funds
required to finance its operations as a stand-alone company, it cannot
assure you that the required funds will be available when needed on terms
favorable to Indus River. If the required funds cannot be obtained, Indus
River could be forced to revise its business plans, including possible
curtailment of its future business operations, reduction of its planned
future growth or a combination with another company on terms less
favorable than the terms governing the merger with Cabletron.
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<PAGE> 28
- MARKET ACCEPTANCE OF INDUS RIVER'S VPN SYSTEMS IS NOT ASSURED AND MAY NOT
BE ACHIEVED. If the VPN systems do not achieve market acceptance, or if
market acceptance occurs more slowly than expected, Indus River's ability
to increase its revenues and achieve profitability could be harmed. The
success of Indus River's products depends, in part, on the ability to
make potential customers recognize the advantages and cost-effectiveness
of the products. In addition, many of its customers and potential
customers have long-standing relationships with suppliers of competing
technologies and network architectures that have already achieved a
degree of market acceptance. If the VPN systems do not quickly achieve
sufficient customer acceptance, Indus River may be unable to attract
additional users to generate the volume of business necessary for
widespread acceptance of its products.
- VPN HARDWARE AND SOFTWARE IS CURRENTLY INDUS RIVER'S ONLY PRODUCT LINE,
AND ITS FUTURE REVENUES SUBSTANTIALLY DEPEND ON ITS COMMERCIAL
SUCCESS. To date, the Company's RiverWorks(TM) line of VPN systems are
the only products that have been shipped to Indus River's customers.
Indus River's future revenues depend substantially on the commercial
success of the VPN hardware and software product line. If Indus River's
customers and potential customers do not adopt, purchase and successfully
deploy the VPN systems in large numbers, Indus River's revenue may not
grow and its operating results may be seriously harmed.
- INDUS RIVER HAS A LENGTHY SALES CYCLE. As a result, Indus River's
revenues and operating results may vary significantly and unexpectedly
from quarter to quarter. A customer's decision to purchase any VPN system
involves a significant commitment of its resources and a lengthy
evaluation, testing and product qualification process. 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 deployment, the
complexity of the network environment and the degree of hardware and
software configuration required. Customers with complex networks may
expand their networks in large increments on a periodic basis.
Accordingly, Indus River may receive purchase orders for significant
dollar amounts on an irregular and unpredictable basis.
- INDUS RIVER RELIES UPON A SMALL BASE OF CUSTOMERS. Indus River
anticipates that sales of its products to relatively few customers will
account for a significant portion of its total revenue. The failure of
Indus River to diversify its customer base and increase its sales to
end-user customers may have material adverse effects on the result of
operations and financial condition of Indus River.
- INDUS RIVER'S MARKET FOR VPN SYSTEMS IS HIGHLY COMPETITIVE. Competitors
in this market include large companies such as Nortel Networks
Corporation, Cisco Systems, Inc. and Checkpoint Systems, Inc. Many of
these larger competitors have substantially greater financial, technical,
sales, marketing and other resources than Indus River as well as greater
name recognition and larger installed customer bases. As a result, these
larger competitors are able to devote greater resources to the
development, promotion, sale and support of their products than Indus
River can as a stand-alone company. Additionally, a number of smaller
companies have announced plans to compete for business in this market. 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,
Inc. to supply its remote gateway products. If either Avnet Applied
Computing or Lineo terminates its relationship with Indus River or is
unable to produce sufficient quantities of Indus River's products in a
timely manner and at satisfactory quality levels, Indus River's ability
to fill customer orders on time, its reputation and its operating results
will suffer. Qualifying new contract manufacturers and commencing volume
production is expensive and time consuming, and changing contract
manufacturers would disrupt Indus River's business, potentially causing
Indus River to lose revenue.
- INDUS RIVER DEPENDS ON ITS KEY PERSONNEL, AND THE HIRING OF ADDITIONAL
PERSONNEL. Indus River's success depends upon the continued
contributions of key management, engineering, sales and marketing and
manufacturing personnel, many of whom would be difficult to replace. In
particular,
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Indus River believes that its future success is highly dependent on
retention of these employees. Indus River believes that its future
success will also depend in large part upon its ability to attract and
retain additional highly skilled personnel. Competition for highly
skilled personnel is intense and there can be no assurance that Indus
River will be successful in retaining its existing or attracting
additional key personnel. The loss of the services of any of Indus
River's key personnel, the inability to attract and retain qualified
personnel in the future or delays in hiring required personnel,
particularly engineers and sales personnel, could materially adversely
affect Indus River's business, operating results and financial condition.
- INDUS RIVER'S MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE. The
market for Indus River's VPN systems and other service delivery products
is likely to be characterized by rapid technological change, frequent new
product introductions and changes in customer and end user requirements.
Indus River may be unable to respond quickly or effectively to these
developments. Indus River may experience design, manufacturing, marketing
and other difficulties that could delay or prevent our development,
introduction or marketing of new products and enhancements. 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 render Indus River's existing or future
products obsolete.
- INDUS RIVER MAY BE UNABLE TO PROTECT ITS PROPRIETARY TECHNOLOGY. 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 third parties with whom
Indus River has strategic relationships. Despite Indus River's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy
or otherwise obtain and use its products or technology. Monitoring
unauthorized use of Indus River's products is difficult, and Indus River
cannot be certain that the steps it has taken will prevent unauthorized
use of Indus River's technology, particularly in foreign countries where
the laws may not protect its proprietary rights as fully as in the United
States.
- INDUS RIVER FACES RISKS ASSOCIATED WITH ITS INTERNATIONAL OPERATIONS THAT
COULD HARM ITS FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Indus
River intends to substantially expand its international operations and
enter new international markets. This expansion will require significant
management attention and financial resources to develop appropriate
international sales and support channels. Additionally, Indus River
intends to rely on a limited number of international partners to increase
sales and to manage customer service. Indus River has limited experience
in marketing and distributing its products internationally and may be
unable to develop international market demand for its products directly
or through distribution arrangements. In addition, its international
operations may be affected by other factors, including:
- - certification requirements and unexpected changes in them or in other
regulatory requirements;
- - difficulties inherent in developing versions of its products that
comply with local standards;
- - difficulties and costs of staffing and managing foreign operations;
- - potential consequences of foreign currency fluctuations;
- - potentially adverse tax consequences; or
- - political and economic instability.
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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 deploy
and manage remote access and site to site 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 VPN deployment 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 deployed in several industry sectors including major
financial, industrial, and service companies. These network installations
represent some of the largest VPN deployments in the world with remote
populations numbering several thousand 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 60 employees, most of whom are located at the
company's 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 leading edge
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, enterprise e-business, professional services and
service providers.
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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
November , 2000.
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
October , 2000, the record date, are entitled to notice of and to vote at the
special meeting. On the record date, (1) 4,204,883 shares of Indus River common
stock were issued and outstanding and held by 57 holders of record, (2)
5,100,000 shares of Indus River Series A convertible preferred stock were issued
and outstanding and held by 8 holders of record, (3) 3,197,973 shares of Indus
River Series B convertible preferred stock were issued and outstanding and held
by 16 holders of record, (4) 70,710 shares of Indus River Series C convertible
preferred stock were issued and outstanding and held by 5 holders of record, and
(5) 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 and outstanding and entitled to vote on the record date,
are represented in person or by proxy. A quorum is present with respect to 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 such number of votes per share as shall equal the number of shares
of common stock into which such preferred stock is then convertible. 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, 92.5% 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.
VOTE REQUIRED
The affirmative vote of holders of (1) a majority of the outstanding shares
of the Indus River preferred stock and Indus River common stock, voting together
as a single class, and (2) 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 AGREE-
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MENT. WE CANNOT COMPLETE THE MERGER UNLESS THE PROPOSAL TO ADOPT THE MERGER
AGREEMENT IS APPROVED BY THE REQUISITE VOTE.
STOCKHOLDER AGREEMENTS
Each of New Enterprise Associates VII, Limited Partnership, NEA Presidents'
Fund, LP, NEA Ventures 1997, LP, Canaan Equity, LP, Canaan Ventures II, Limited
Partnership, 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 have entered into
a stockholder agreement with Cabletron pursuant to which they 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.
On the record date, these stockholders owned and agreed to vote (1) 86.3%
of the outstanding shares of Indus River preferred stock and Indus River common
stock, voting together as a single class, and (2) 95.5% of the Indus River
preferred stock, voting together as a single class.
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 WITH RESPECT TO 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
prior to 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
In addition to solicitation by mail, 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 practicable after completion of the merger.
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APPRAISAL RIGHTS
If you do not wish to accept Cabletron common 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, in order 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
- continuously hold your Indus River capital 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 42 to 44.
See "The Merger -- Right of Stockholders to Appraisals" on page 41, "The
Merger -- Appraisal Rights Procedures" on page 42, and "Comparison of Rights of
Series C Preferred and Common Stockholders of Cabletron and Stockholders of
Indus River -- Appraisal Rights" on page 76.
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THE MERGER
The following discussion summarizes the material terms of the merger and
the merger agreement. We urge stockholders to read carefully the merger
agreement and the form of escrow agreement which are attached as Annexes A and C
to this proxy statement/prospectus, respectively.
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 which reviewed Indus
River's business model and strategy, including the timing of and need for
additional financing, as well as the desirability of identifying potential
strategic partners or acquirors who could help Indus River maximize the market
potential for existing and planned product offerings.
At the request of the Indus River board of directors, Per A. Suneby and
Stephen J. Ricci interviewed several investment banking firms and, on February
7, 2000 retained Deutsche Bank Alex.Brown as a financial advisor, 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 the large companies that compete with Indus River.
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 ("VPN") 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 the company 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 IT representatives requested a second
RiverWorks VPN evaluation system for internal use and testing. A lengthy
technical discussion followed the "sales call" and Mr. Jones from Indus River
joined that meeting.
On February 28, 2000, Mr. Rose and Mr. Morrison talked on the phone 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.
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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 of 2000, Indus River also engaged
in strategic discussion with several other companies contacted through
executives of Indus River and representatives of Deutsche Banc regarding
possible acquisition, joint venture and original equipment manufacturer ("OEM")
transactions.
On March 27, Per Suneby, President and Chief Executive Officer, 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 term sheet 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 at that time 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 OEM deal with
Indus River and presented the advantages of an OEM deal with Enterasys. The
Indus River team expressed a willingness to discuss OEM, but also openly
questioned if OEM 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 between Indus
River on the one hand and Cabletron and Enterasys on the other hand. At the
meeting Mr. Harding agreed that it made sense to re-explore acquisition as an
option. Mr. Pappas asked detailed questions about Indus River's site-to-site VPN
capabilities and it was agreed to set up a demonstration of Indus River's new
site-to-site functionality.
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 VPN functionality and
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said they were very pleased with the demonstration. Mr. Zwicker also presented a
three-phase strategy of aggressively developing next-generation VPN 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 via 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 as well
as 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 via 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.
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.
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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 set forth 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, prior to the commencement of trading on the New York
Stock Exchange, Cabletron issued a press release announcing the execution of the
merger agreement.
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 contemplated by the merger agreement. The following discussion
of the factors considered by the Indus River board of directors in making its
decision is not intended to be exhaustive but includes all material 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 VPN 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.
- The belief that an exchange of the Indus River capital 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.
In the course of its deliberations, the Indus River board of directors
reviewed with Indus River management a number of other factors relevant to the
merger. In particular, the Indus River board of directors considered, among
other things:
- 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 in
order to better exploit the potential market for VPNs and take advantage
of Indus River's technological leadership in VPNs.
- The market price and anticipated stability of Cabletron stock.
- The likelihood that the merger would be completed.
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- 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.
- The risk that the market price for Cabletron stock might decline.
The Indus River board of directors believed that certain 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 connection with its
evaluation of the merger agreement and the merger, the Indus River board of
directors did not find it practicable to and did not quantify or otherwise
assign relative weight to the specific factors considered in reaching its
determination. In addition, 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
capital 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 (the "Final Appraisal")
of the Cabletron Series C preferred stock as of, in each case, five trading days
prior to the closing date of the merger. Adams, Harkness & Hill, Inc. ("AH&H")
has agreed to render the Final Appraisal in connection with the closing.
AH&H was retained by Indus River to render an appraisal of the fair market
value of the shares of Cabletron Series C preferred stock that will be received
by the Indus River stockholders in connection with the merger. Indus River
selected AH&H for a number of reasons, including AH&H's qualifications,
expertise and reputation in the area of valuation and financial advisory work.
In this regard, Indus River placed greatest emphasis on AH&H's reputation as a
nationally recognized investment banking firm and the fact that AH&H is
regularly engaged in the valuation of businesses and their securities in
connection with mergers, acquisitions, leveraged buyouts, underwritings, private
placements and valuations for corporate and other purposes.
At the request of Indus River, AH&H has also rendered the preliminary
appraisal (the "Preliminary Appraisal") attached as Annex F to this proxy
statement/prospectus for the sole purpose, together with other identified
assumptions, of including in this proxy statement/prospectus in several places,
including on pages 1, 5 and 36, an illustration based on such assumptions of the
distribution of the shares of Cabletron common stock and Cabletron Series C
preferred stock to be issued in the merger. AH&H expects that the types of
information obtained by and the valuation methodologies used by AH&H in
rendering the Final Appraisal will be substantially similar to those used in
rendering the Preliminary Appraisal, but there can be no assurance that the
valuation determined in the Final Appraisal will not be materially different
from that determined in the Preliminary Appraisal.
On October , 2000, AH&H rendered 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 the merger was
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<PAGE> 39
approximately $ million as of October , 2000, based upon and subject to the
various considerations set forth in the Preliminary Appraisal.
The full text of AH&H's Preliminary Appraisal, dated October , 2000, is
attached as Annex F to this proxy statement/prospectus and is incorporated in
this proxy statement/prospectus by reference. The Preliminary Appraisal sets
forth, among other things, the assumptions made, procedures followed, matters
considered and limitations on the scope of the review undertaken by AH&H in
rendering the Preliminary Appraisal. AH&H'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 pursuant to the merger
agreement and does not address any other aspect of the merger or constitute a
recommendation to any holder of Indus River stock as to how to vote at the Indus
River stockholder meeting. The following summary of AH&H's Preliminary Appraisal
is qualified in its entirety by reference to the full text of the Preliminary
Appraisal.
The following is a summary of the various sources of information and
valuation methodologies used by AH&H in appraising the fair market value of the
Cabletron Series C preferred stock. To determine the fair market value of these
securities, AH&H employed analyses based on the following:
- The financial performance and relative valuations of selected public
companies deemed comparable to Enterasys; and
- Discounted cash flow analysis of Enterasys.
- In connection with preparing its analysis, AH&H:
- Reviewed publicly available information concerning the business and
operations of Cabletron and Enterasys, including but not limited to
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 AH&H deemed relevant; and
- Held discussions with members of Enterasys' management concerning
Enterasys' historical and current financial condition and operating
results, as well as its future prospects.
AH&H also reviewed relevant industry market research studies, company
research reports and general stock market performance. Other than as set forth
above, AH&H 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 upon AH&H with respect to
the procedures followed or factors considered by AH&H in rendering its
Preliminary Appraisal.
In rendering its Preliminary Appraisal, AH&H assumed and relied upon the
accuracy and completeness of all of the financial and other information that was
publicly available or provided to AH&H by, or on behalf of, Enterasys, and did
not independently verify such information. With respect to the publicly
available financial projections and assumptions relating to Enterasys relied
upon by AH&H, AH&H assumed that they have been reasonably prepared on a basis
not materially different from the best currently available estimates and
judgments of the management of Enterasys as to the future operating and
financial performance of Enterasys. In conducting its review, AH&H did not
obtain an independent evaluation or appraisal of any of the assets or
liabilities (contingent or otherwise) of Cabletron or Enterasys. AH&H's
Preliminary Appraisal was necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to
AH&H as of the date of its Preliminary Appraisal. AH&H'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 written Preliminary Appraisal.
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<PAGE> 40
Public Company Peer Analysis -- Enterasys
AH&H established a group of publicly traded companies (the "Peer Group
Companies") to address the business areas in which Enterasys operates. The group
consists of:
- 3Com Corporation
- ADTRAN, Inc.
- Alcatel SA
- Alteon Websystems, Inc.
- Applied Digital Solutions
- Cisco Systems, Inc.
- Copper Mountain Networks, Inc.
- Extreme Networks, Inc.
- Foundry Networks, Inc.
- Lucent Technologies, Inc.
- Marconi, plc
- Nortel Networks Corporation
- Tut Systems, Inc.
AH&H compared certain financial measures and metrics of Enterasys with
those of the Peer Group Companies. Such information included: market
capitalization ("MC"); enterprise value ("EV"), calculated in the manner set
forth below; price/projected 2000 & 2001 earnings ratios ("Forward 2000 & 2001
P/Es"); 2001 projected revenue ("2001E Revenue"); last twelve months ("LTM")
Revenue; EV/2001E Revenue; EV/LTM Revenue; LTM operating margin; LTM gross
margin; and year/year quarterly revenue growth.
EV/2001E Revenue and Forward 2000 & 2001 P/E multiples imply the range of
value that public markets place on companies in a particular market segment.
AH&H employed an EV 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 EV, MC is calculated as the product of a
company's common stock price per share (AH&H used a 20 trading day average
ending October , 2000, for all public company comparable analyses) multiplied
by the number of diluted shares outstanding. The MC 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 EV. Stated mathematically, EV 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 Revenue...............................
Calendar Year 2001 Price/Earnings...........................
</TABLE>
To arrive at Enterasys' P/E multiples for calendar year 2001, AH&H relied
on guidance from Enterasys' management as a check to validate published external
research analysts' projections. AH&H then compared the respective 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 (the
"Comparable Companies"). The group of Comparable Companies consists of:
- 3Com Corporation
- ADTRAN, Inc.
- Copper Mountain Networks, Inc.
- Extreme Networks, Inc.
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<PAGE> 41
- Foundry Networks, Inc.
- Lucent Technologies, Inc.
- Nortel Networks Corporation
The low, high and mean financial ratios for the Comparable Companies are
listed in the table below:
<TABLE>
<CAPTION>
MULTIPLE LOW HIGH AVERAGE
-------- --- ---- -------
<S> <C> <C> <C>
EV/2001E Revenue............................................
Forward 2001 P/E............................................
</TABLE>
Applying the mean EV/2001E Revenue and Forward 2001 P/E multiples of the
Comparable Companies to Enterasys' calendar year 2001 projected revenue of $890
million and calendar year 2001 projected earnings of $48.9 million,
respectively, AH&H calculated the following implied estimated enterprise values
for Enterasys:
<TABLE>
<CAPTION>
IMPLIED ENTERASYS
MULTIPLE ENTERPRISE VALUE
-------- -----------------
<S> <C>
EV/2001E Revenue ($ in millions)............................ $
Forward 2001 P/E ($ in millions)............................ $
</TABLE>
Since Enterasys is not a publicly traded company, AH&H applied an
illiquidity discount to the implied enterprise values arrived at using these
multiples. Based upon historical studies, AH&H utilized illiquidity discounts
ranging between 30 - 40% to arrive at the following adjusted implied range of
enterprise values for Enterasys:
<TABLE>
<CAPTION>
(ILLIQUIDITY DISCOUNT)
--------------------------------
MULTIPLE 40% 35% 30%
-------- -------- -------- --------
<S> <C> <C> <C>
EV/2001E Revenue multiple ($ in millions).......... $ $ $
Forward 2001 P/E multiple ($ in millions).......... $ $ $
</TABLE>
Discounted Cash Flow Analysis
AH&H performed a discounted cash flow analysis to estimate the present
value of the stand-alone unlevered (i.e. before interest expense) after-tax cash
flows of Enterasys. To perform the discounted cash flow analysis, AH&H used the
following data sources and assumptions:
- Management projections for revenue, gross margin, and operating margin;
- Projections by equity analysts as to 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 5.7%
and a market risk premium of 7.0%.
To determine a range of net present values for Enterasys, AH&H 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%.
SUMMARY CHART OF DISCOUNTED CASH FLOW RANGE AND RESULTING IMPLIED VALUE
<TABLE>
<CAPTION>
LOW MIDPOINT HIGH
-------- -------- --------
<S> <C> <C> <C>
Enterprise Value ($ in millions)................... $ $ $
</TABLE>
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<PAGE> 42
Conclusion
To arrive at an appraised value for the shares of Cabletron Series C
preferred stock to be received by the Indus River stockholders in the merger,
AH&H undertook the following:
- Identified the high, low and midpoint valuations derived 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;
- Multiplied the resulting value by 1%.
Taken together, the information and analyses employed by AH&H lead to
AH&H's overall conclusion that the aggregate value of the 50,000 shares of
Cabletron Series C preferred stock to be issued in the transaction is $ , or
$ 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 as specified in the
merger agreement that are different from, or in addition to, the interests of
stockholders of Indus River generally. These interests relate to or arise from,
among other things:
- the continued indemnification of current directors and officers and
certain employees of Indus River;
- the retention of certain current officers as employees of Cabletron or
Enterasys;
- accelerated vesting of certain 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 associated with 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 in
all respects all rights to indemnification or exculpation now existing in favor
of the employees, directors or officers of Indus River, pursuant to any
indemnification provision of the Indus River certificate of incorporation, or
the Indus River by-laws as in effect on the date of the merger agreement.
Cabletron will maintain for six years after the merger executive risk liability
insurance with respect to employees, directors and officers for acts or
omissions of each person who is or was a director or officer of Indus River
which occur prior to 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.
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. In addition, Cabletron has agreed that:
- the eligibility of each employee of Indus River (and his or her spouse
and dependents) to participate in Cabletron's welfare plans (as defined
in the Employee Retirement Income Security Act of 1974, as amended) after
the effective time of the merger 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 Indus
River prior to 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 effective time occurs under the applicable
welfare plans of Indus River; and
- after the effective time of 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 prior to the effective time of the merger.
Furthermore, if Cabletron so requests, Indus River will cause its 401(k)
plan to be terminated no later than the date immediately preceding the
consummation 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 current President and Chief
Executive Officer of Indus River and Julian W. West, the current Chief
Technology Officer of Indus River, have entered into employment terms with the
surviving corporation pursuant to which each party will, among other things
receive options to purchase 200,000 shares of Enterasys stock, which options
will vest 25 percent after one year and monthly thereafter for a period of three
years.
STOCK OPTIONS AND RESTRICTED STOCK AGREEMENTS
Under the merger agreement, at the effective time of the merger, 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 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 prior to the closing date of the merger.
The number of shares of Cabletron common stock to be issued in respect of
an Indus River stock option will be equal to:
- the number of shares of Indus River common stock that would be issued in
respect of that option multiplied by
- the number of shares of Cabletron common stock issuable in exchange for
each share of Indus River common stock in connection with the merger,
rounded down to the nearest whole share.
The number of shares of Cabletron Series C preferred stock to be issued in
respect of an Indus River stock option will be equal to:
- the number of shares of Indus River common stock that would be issued in
respect of 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 connection with
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 prior to the effective time of the merger divided by the
number of shares of Cabletron common stock issuable in exchange for each
share of Indus River common stock in connection with 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 prior to the
closing date of the merger, of the Cabletron common stock issuable in
connection with the merger to the total fair market value of all
Cabletron stock issued in connection with the merger; and
- the product of:
- the exercise price per share of Indus River common stock for that option
immediately prior to the effective time of 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 connection with
the merger; multiplied by
- the ratio of the total fair market value, determined as of the fifth
trading day prior to the closing date of the merger, of the Cabletron
Series C preferred stock issuable in connection with the merger to the
total fair market value of all Cabletron stock issued in connection with
the merger,
rounded up to the nearest cent.
Based on an average closing price of $ per share of Cabletron
common stock for the ten trading days ending on and including October
, 2000 and an appraised value of $ per share of Cabletron
Series C preferred stock as of October , 2000, as determined by
Adams, Harkness & Hill, and assuming that the closing of the merger occurs on
November , 2000 and a warrant to purchase 60,847 shares of Indus
River Series D preferred stock is not exercised prior to the consummation of the
merger, each Indus River stock option would convert into an option to purchase
shares of Cabletron common stock and shares of Cabletron
Series C preferred stock at an aggregate exercise price of $ . As of
the record date, the number of shares of Indus River common stock reserved for
issuance pursuant to outstanding Indus River stock options under the plan was
.
In addition, following 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 each such
agreement may be amended prior to 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 with respect to 50% of the shares subject to such options, which
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
thereafter, so long as the employee remains employed by the surviving company 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 the current status of the prospectus required by the Securities
and Exchange Commission will be maintained in accordance with the requirements
of the Securities Act of 1933 and the Securities Exchange Act of 1934) for so
long as any assumed Indus River options remain outstanding.
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<PAGE> 45
ACCOUNTING TREATMENT
The merger will be accounted for under the "purchase" method of accounting
in accordance with 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, the acquiring company
determines the fair value of assets acquired on liabilities assumed; any premium
paid over fair value is reflected on the acquiror's balance sheet as an
intangible asset.
FORM OF THE MERGER
Subject to the terms and conditions of the merger agreement and in
accordance with Delaware law, at the effective time of the merger, 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
At (and with respect to options and warrants after) the effective time of
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 (except for those
additional options granted in connection with the forfeiting of acceleration
rights described above and some additional options granted to some employees
hired by Indus River after August 18, 2000 with Cabletron's consent). The exact
exchange rate will not be known until five trading days prior to the closing
date of the merger. Based on an average price of $ per share of
Cabletron common stock for the ten trading days ending on and including October
, 2000 and an appraised value of $ per share of Cabletron Series C
preferred stock as of October , 2000, as determined by Adams, Harkness & Hill,
this represents an aggregate of approximately $ million in total
consideration to be paid by Cabletron in connection with the merger.
At the effective time of the merger, each holder of Indus River preferred
stock will receive a liquidation preference as specified in the Indus River
certificate of incorporation as follows:
- 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 in respect of the
liquidation preference will be determined by reference to 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 prior to the closing
date of the merger, and the fair market value of the Series C Preferred stock
will be determined as of the fifth trading day prior to the closing date of the
merger by an appraisal conducted by Adams, Harkness & Hill. Cabletron will issue
cash in respect of any fractional shares of Cabletron common stock or Cabletron
Series C preferred stock issuable in respect of the liquidation preference.
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 such holder, shares of
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<PAGE> 46
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 prior to the closing
date of the merger because it is dependent upon the average closing price of
Cabletron common stock for the ten trading days ending on and including the
fifth trading day prior to the closing date of the merger, and the fair market
value of Cabletron Series C preferred stock determined as of the fifth trading
day prior to the closing date of the merger by an appraisal conducted by Adams,
Harkness & Hill, both of which are subject to fluctuation. 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 in respect of the liquidation preference described above, 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 in
respect of any fractional shares that they would otherwise receive in the
merger.
Based on an average closing price of $ per share of Cabletron
common stock for the ten trading days ending on and including October , 2000,
and an appraised value of $ per share of Cabletron Series C preferred
stock as of October , 2000, as determined by Adams, Harkness & Hill, and
assuming that the closing of the merger occurs on November , 2000 and a
warrant to purchase 60,847 shares of Indus River Series D preferred stock is not
exercised prior to consummation of the merger, shares of Cabletron
Series C preferred stock and shares of Cabletron common stock will
be payable in respect of the liquidation preference. Accordingly:
- each holder of Indus River Series A Preferred stock would receive
shares of Cabletron Series C preferred stock and
shares of Cabletron common stock for each share of Indus River Series A
preferred stock held by such holder;
- each holder of Indus River Series B Preferred stock would receive
shares of Cabletron Series C preferred stock and
shares of Cabletron common stock for each share of Indus River Series B
preferred stock held by such holder;
- each holder of Indus River Series C Preferred stock would receive
shares of Cabletron Series C preferred stock and
shares of Cabletron common stock for each share of Indus River Series C
preferred stock held by such holder;
- each holder of Indus River Series D Preferred stock issued on June 30,
1999 would receive shares of Cabletron Series C preferred
stock and shares of Cabletron common stock for each share of
Indus River Series D preferred stock held by such holder;
- each holder of Indus River Series D Preferred stock issued on July 8,
1999 would receive shares of Cabletron Series C preferred
stock and shares of Cabletron common stock for each share of
Indus River Series D preferred stock held by such holder; and
- each holder of Indus River common stock would receive shares
of Cabletron Series C preferred stock and shares of Cabletron
common stock for each share of Indus River common stock held by such
holder.
As of the effective time of the merger, all shares of Indus River stock
will no longer be outstanding, will automatically be canceled and will cease to
exist. At that time, each holder of a certificate representing shares of Indus
River stock (other than shares as to which appraisal rights have been properly
exercised) will cease to have any rights as a stockholder except the right to
receive Cabletron common stock and Cabletron Series C preferred stock, and the
right to receive cash for any fractional share of Cabletron common stock or
Series C preferred stock that such holder would otherwise 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
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<PAGE> 47
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 pursuant to 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. As soon as practicable after the merger, Cabletron will deposit all
of the shares of Cabletron Series C preferred stock to be issued pursuant to the
merger agreement into a separate escrow account. The Cabletron Series C
preferred stock will be held in the escrow account until the earliest to occur
of the thirty (30) month anniversary of the closing date of the merger or any
conversion or redemption of such shares in accordance with the terms of the
certificate of designation related to the Cabletron Series C preferred stock.
See "The Merger Agreement -- Indemnification and Escrow Agreement" on page 53
and "Description of Cabletron Capital Stock -- Preferred Stock -- Series C
Preferred Stock -- Escrow Agreement" on page 67. As soon as practicable 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 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 for
the purchase of such 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 otherwise 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 otherwise be entitled to receive without
interest.
Upon surrender of certificates previously representing Indus River stock,
together with the letter of transmittal described above duly executed and such
other documents as 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 regarding 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, that has been deposited into an escrow account on behalf
of the holder; and
- cash in lieu of any fractional share of Cabletron common stock or
Cabletron Series C preferred stock in accordance with the merger
agreement.
In the event of 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 otherwise is in proper form for
transfer; and
- the person requesting the issuance (1) 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 (2) establishes to the satisfaction of Cabletron or any agent
designated by it that such tax has been paid or is not payable.
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All shares of Cabletron common stock and 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.
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.
In lieu 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 prior to the closing
date of the merger by
- the fractional share to which the stockholder would otherwise be
entitled.
In lieu 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 prior to the closing date of the
merger, by an appraisal conducted by Adams, Harkness & Hill by
- the fractional share to which the stockholder would otherwise be
entitled.
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 such later time as
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 consummation of the merger that Per A. Suneby and
Julian W. West, the President and Chief Executive Officer and Chief Technology
Officer, respectively, of Indus River enter into employment agreements with the
surviving corporation and that such agreements be in full force and effect at
the effective time of the merger. For additional information, see "-- Interests
of Certain Directors, Management and Employees of Indus River in the Merger" on
page 32.
CERTAIN MATERIAL 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 certain 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 pursuant to the exercise of options or otherwise as compensation, holders
of options, warrants or similar rights to acquire Indus River capital stock,
stockholders who are subject to the alternative minimum tax provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), or stockholders who hold
their shares as part of a hedging, straddle, conversion or other risk reduction
or constructive sale transaction.
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This summary is based upon the Code, currently applicable Treasury
regulations (the "Regulations"), published administrative rulings and court
decisions all as of the date hereof. All of the foregoing are subject to change
either prospectively or retroactively, and any such change could affect the
continuing validity of the tax consequences described below. No information is
provided herein with respect to 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 discuss the
tax consequences of any other transaction that may occur prior or subsequent to,
or concurrently with the merger (whether or not any such transactions are
undertaken in connection with the merger).
No ruling from the Internal Revenue Service (the "IRS") concerning the
Federal income tax consequences of the merger will be requested. The tax
consequences set forth in this discussion are not binding on the IRS or the
courts and no assurance can be given that contrary positions will not be
successfully asserted by the IRS or adopted by a court.
INDUS RIVER STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO EACH OF 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 consummates 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, such spin-off or other disposition of Enterasys
should be combined with the merger. Although Cabletron has announced its desire
to establish each of its four operating subsidiaries (including Enterasys) as an
independent company, Cabletron is not obligated to consummate such intention and
continues to consider several possibilities for Enterasys, including the
possibility of retaining Enterasys as a subsidiary of Cabletron. However,
Cabletron might consummate its announced intention to spin off or otherwise
dispose of Enterasys. If the IRS were to successfully assert that, for Federal
income tax purposes, this merger should be combined with such spin-off or other
disposition, this merger would constitute a taxable purchase and sale of Indus
River capital 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:
- No gain or loss should be recognized by an Indus River stockholder on the
exchange of Indus River stock solely for Cabletron stock, except that an
Indus River stockholder who receives cash proceeds in lieu of a
fractional share interest in Cabletron stock will recognize gain or loss
equal to the difference between such proceeds and the tax basis allocated
to the fractional share interest. Such gain or loss will constitute
capital gain or loss if such 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 pursuant to the escrow agreement) received
by an Indus River stockholder who exchanges his or her Indus River stock
for Cabletron stock will be the same as such stockholder's aggregate tax
basis in the Indus River stock surrendered in exchange therefor.
- 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 therefor were held (provided that
such Indus River stock is held by such stockholder as a capital asset at
the effective time of the merger).
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- A portion of the aggregate shares of Cabletron common stock to be issued
in the merger will be held in escrow to satisfy claims of indemnity, if
any, from Cabletron, subject to limitations discussed in the merger
agreement and the escrow agreement. Each former Indus River stockholder
should be treated for Federal income tax purposes as the owner of the
escrow portion of such stockholder's merger consideration. A former Indus
River stockholder should recognize no gain or loss on the receipt of such
Cabletron stock upon the release of any shares of Cabletron stock from
escrow to such stockholder. However, if the escrow agent is required to
pay, on behalf of the former Indus River stockholders, any of the
escrowed shares of Cabletron common stock to Cabletron to indemnify
Cabletron, each former Indus River stockholder will recognize gain or
loss equal to the difference between (1) the fair market value of such
former stockholder's portion of the escrowed shares of Cabletron common
stock paid to Cabletron, and (2) such former stockholder's tax basis in
such escrowed shares. Each former Indus River stockholder will increase
the tax basis in such stockholder's remaining Cabletron stock by an
amount equal to any such indemnification payment.
- Indus River stockholders who exercise dissenters' rights with respect to
their shares of Indus River stock and who receive payment for their
shares of Indus River stock in cash should generally recognize gain or
loss measured by the difference between the amount of cash received and
the stockholder's basis in the shares surrendered, provided that the
payment is neither essentially equivalent to a dividend with the meaning
of Section 302 of the Code nor has the effect of a distribution of a
dividend within the meaning of Section 356(a)(2) of the Code
(collectively, a "Dividend Equivalent Transaction"). A sale of Indus
River stock pursuant to an exercise of dissenters' rights will generally
not be a Dividend Equivalent Transaction if, as a result of such
exercise, 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 Code) immediately after the
merger. If, however, a stockholder's sale for cash of Indus River stock
pursuant to an exercise of dissenters' rights is a Dividend Equivalent
Transaction, then such stockholder may recognize ordinary income for
Federal income tax purposes in an amount equal to the entire amount of
cash so 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 therefor.
The gain or loss recognized by such 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 such 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 that stockholder's fair market value at the
effective time of the merger and the holding period for such shares of 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 as such holders of Indus River stock should not
recognize gain or loss on the exchange of Indus River stock for Cabletron Series
C preferred stock provided that the merger is treated as a tax-free
reorganization under the Code. However, because under certain circumstances the
Cabletron Series C preferred stock is exchangeable for shares of Enterasys and
otherwise has economic rights that are determined by reference to 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 the
merger otherwise qualifies as a tax-free reorganization, holders of Indus River
stock would recognize gain at the effective time of the merger equal to the
lesser of (1) the fair market value of the Cabletron Series C preferred stock or
(2) 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 therefor.
(If the Cabletron Series C preferred stock were determined to be stock of
Enterasys and to constitute
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more than 20% of the aggregate consideration provided in the merger, then the
merger would be fully taxable and 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
therefor.) Cabletron and Indus River believe that the Cabletron Series C
preferred stock should not constitute nonqualified preferred stock or Enterasys
stock. To date, however, the IRS has not issued any administrative guidance
regarding the scope of the term "nonqualified preferred stock" or when stock of
a parent would be considered stock of the subsidiary and therefore there can be
no assurance that this interpretation is correct.
Provided that 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, so long as such redemption is part of
Cabletron's distribution of Enterasys stock to the Cabletron stockholders
and is governed by Section 355 of the Code (a "Spin-Off Redemption").
- If the redemption of Cabletron Series C Preferred Stock is not a Spin-Off
Redemption, holders of Cabletron Series C Preferred Stock should
recognize gain or loss on such redemption (a "Taxable Redemption"),
provided that the redemption is not essentially equivalent to a dividend
within the meaning of Section 302 of the Code, as described above with
respect to dissenters' rights. The amount of gain or loss recognized on 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, such 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 CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO. THUS,
INDUS RIVER STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO 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 with respect to 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
capital stock who does not wish to accept the merger consideration in respect of
his or her shares of Indus River common stock or Indus River preferred stock has
the right to dissent from the merger and to seek an appraisal of, and to be paid
the fair cash value (exclusive of any element of value arising from the
accomplishment or expectation of the merger) for, his or her shares of Indus
River preferred stock or Indus River common stock, as applicable, judicially
determined, and paid to the stockholder in cash, together with a fair rate of
interest, if any, provided that the stockholder fully complies with the
provisions of Section 262 of the Delaware General Corporation Law. A copy of
Section 262 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 in order to perfect your
appraisal right. Please review Section 262 for the complete procedure. Indus
River will not give you any notice other than as described in this proxy
statement/ prospectus and as required by the Delaware General Corporation Law.
APPRAISAL RIGHTS PROCEDURES
If you are a 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 the following:
- 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 capital 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 capital stock on the date the
written demand for appraisal is made but thereafter transfer the shares
prior to the merger, you will lose any right to appraisal in respect 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 such shares at the time
the demand is made. The demand must be signed as the stockholder's name appears
on their Indus River preferred stock or common stock certificates, as
applicable. If you are the beneficial owner of Indus River capital stock, but
not the stockholder of record, you must have the stockholder of record sign a
demand for appraisal.
If you own Indus River capital 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 capital 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; however, 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 capital
stock as a nominee for others, you may exercise a right of appraisal with
respect to the shares held for one or more beneficial owners, while not
exercising such right for other beneficial owners. In such a case, you should
specify in the written demand the number of shares as to which you wish to
demand appraisal. If you do not expressly specify the number of shares, we will
assume that your written demand covers all the shares of Indus River capital
stock that are in your name.
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If you are a 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 thereby demanding appraisal of that stockholder's
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 set forth the number of shares that have demanded
appraisal rights, and the number of stockholders who own those shares. In order
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 ten days after
receiving a request to mail you the statement.
CHANCERY COURT PROCEDURES: If you properly file a petition for appraisal
in the Delaware Court of Chancery 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 as to 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 of the Delaware General Corporation Law 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
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court determines that interest is appropriate. In order to receive payment for
your shares, you must then surrender your stock certificates to Indus River.
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. In other
words, 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, as the chancery court deems 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 with respect to
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 prior to 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. Consequently, 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 of 1933, except for
shares subject to 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
deemed to be an "affiliate" of Indus River for purposes of paragraphs (c) and
(d) of Rule 145 under the Securities Act. 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
regarding the resale of their securities. Accordingly, 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 connection with the merger,
unless the disposition is in compliance with the volume limitations imposed by
paragraph (e)(1) of Rule 144 under the Securities Act and accomplished by means
of a "brokers' transaction," as defined in Rule 144 of the Securities Act, or
until you are no longer an affiliate of Cabletron and at least one year has
elapsed since the date you acquired such 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 connection with any resale.
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Cabletron Series C preferred stock issued in the merger will be subject to
restrictions on transfer and will bear a legend to such effect. The shares will
not be listed for trading on the New York Stock Exchange or any other exchange.
Furthermore, the shares of Cabletron Series C preferred stock issued in the
merger will be held in escrow until the earliest to occur of the thirty (30)
month anniversary of the closing date of the merger or any conversion or
redemption of such shares in accordance with the terms of the certificate of
designation related to the Cabletron Series C Preferred Stock. For more
information, see "The Merger Agreement -- Indemnification and Escrow Agreement"
on page 53.
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THE MERGER AGREEMENT
The following description summarizes the material provisions of the merger
agreement and the escrow agreement. We urge stockholders to read carefully the
merger agreement and the form of escrow agreement which are attached as Annexes
A and C to this proxy statement/prospectus, respectively.
CONDITIONS TO THE COMPLETION OF THE MERGER
Each party's obligation to effect the merger is subject to the satisfaction
or waiver of various conditions that include, in addition to other customary
closing conditions, the following:
- 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 forms 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 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 may be
in effect, nor may 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 may 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;
- there must 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 may 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 Cabletron from exercising all material rights and
privileges pertaining to its ownership of Indus River or the ownership or
operation by Cabletron or any of its subsidiaries of all or a material
portion of the business or assets of Cabletron or any of its
subsidiaries, or seeking to compel Cabletron or any of its subsidiaries
to dispose of or hold separate all or any material portion of the
business or assets of Cabletron or any of its subsidiaries (including
Indus River), as a result of the merger or the transactions contemplated
by the merger agreement;
- all approvals, waivers and consents of any governmental or regulatory
authority necessary for consummation of or in connection with the merger
and the transactions contemplated by the merger agreement must have been
obtained, including such approvals, waivers and consents as may be
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 respective agreements
and covenants in all material respects; and
- the respective representations and warranties of Cabletron and Indus
River contained in the merger agreement must be true and correct in all
material respects, in accordance with the applicable standards set forth
in the merger agreement.
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<PAGE> 57
In addition, Cabletron's obligation to effect the merger is subject to the
satisfaction or waiver of various conditions that include, in addition to other
customary closing conditions, the following:
- 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 prior to
August 18, 2000 must have been terminated either in accordance with their
terms or by Indus River and each of the other parties to the agreements;
- 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 as set
forth in the merger agreement and the schedules to 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 change, effect or circumstance shall have occurred that, individually
or when taken together with all other such changes, effects or
circumstances is or is 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 consummation of the merger or the transactions contemplated
by the merger agreement.
In addition, Indus River's obligation to effect the merger is subject to
the satisfaction or waiver of various conditions that include, in addition to
other customary closing conditions, the following:
- Cabletron common stock to be issued in accordance with 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
consummation of the merger, the terms of which will be comparable in the
aggregate to the current employment arrangements between such 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 capital 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 the Indus River in connection with an Acquisition
Proposal or for access to
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<PAGE> 58
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.
The merger agreement further provides that Indus River shall immediately
cease and cause to be terminated any existing discussions or negotiations with
any persons, other than Cabletron, conducted prior to August 18, 2000 with
respect to any of the matters set forth 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. In addition, Indus River must
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 prior to 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 January 15, 2001, so long as 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 permanently restraining,
enjoining or otherwise prohibiting the merger, so long as the party
terminating the merger agreement did not fail to comply with its
obligations under the merger agreement with respect to any court or
governmental regulatory or administrative agency or commission in a way
that materially contributed to the issuance of such order, decree, ruling
or the taking of such action;
- by Cabletron, if the stockholders of Indus River have not approved the
merger by January 15, 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, in accordance with the
applicable standards set forth in the merger agreement;
- by Cabletron or Indus River, if the other party has materially breached
its obligations under the merger agreement, unless the breach is curable
before January 15, 2001 through the exercise of the breaching party's
reasonable best efforts and the breaching party continues to exercise 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
any of:
- a transaction pursuant to 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 pursuant to
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 such merger or business combination;
or
- any other transaction pursuant to 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
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<PAGE> 59
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 prior to such transaction.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the merger agreement, Indus River has agreed that, prior to the
merger, it will, subject to those exceptions set forth in the merger agreement,
or unless otherwise 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.
In addition, Indus River has agreed that, prior to the merger and unless
approved by Cabletron in writing, it will not:
- amend or otherwise change its certificate of incorporation or by-laws,
except as contemplated by the merger agreement;
- 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 Indus River, except for the issuance of stock options contemplated by
the merger agreement to be issued in connection with 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 or any combination thereof) in
respect of any of its capital stock;
- 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 those options contemplated by the merger agreement to be
issued in connection with 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 otherwise acquire any of its
securities, or propose to do any of the foregoing, for the amendment of
some stock option agreements in connection with the forfeiting of
acceleration rights;
- acquire (by merger, consolidation, or acquisition of stock or assets) any
corporation, partnership or other business organization or division
thereof or enter into or amend any contract, agreement, commitment or
arrangement to do the same;
- incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse or otherwise as an accommodation become
responsible for, the obligations of any person or, except in the ordinary
course of business consistent with past practice, make any loans or
advances, or enter into or amend any contract, agreement, commitment or
arrangement to do the same, 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;
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<PAGE> 60
- 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 the same;
- 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 Indus River 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 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 (including,
without limitation, procedures with respect to revenue recognition,
payments of accounts payable and collection of accounts receivable);
- 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
(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 its financial statements or incurred in the ordinary
course of business and consistent with past practice; or
- take, or agree in writing or otherwise to take, any of the foregoing or
any 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 prior to
the effective time of the merger, provided that once the stockholders of
Indus River have approved the merger, no amendments may be made which by
law require further approval of the stockholders of Indus River unless
such further approval is obtained; and
- waiver of compliance or consent with respect to 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 their own expenses incurred in
connection with the merger and the preparation of the merger agreement, whether
or not the merger occurs, except that Cabletron will pay all fees and expenses
incurred in connection with the printing of this proxy statement/prospectus and
all SEC filing fees.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties
relating to, among other things, in the case of Cabletron and Indus River:
- corporate organization and qualification;
- charter documents and by-laws;
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<PAGE> 61
- 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 connection with this proxy
statement/prospectus and the registration statement of which it is a
part;
- absence of conflicts;
- required consents;
in the case of Indus River only:
- 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 in connection with the merger agreement and merger;
- product warranties and defects;
- absence of illegal payments;
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<PAGE> 62
- distributors, customers and suppliers; and
- the execution of stockholder agreements by the principal stockholders and
founders of Indus River;
and in the case of Cabletron only:
- documents filed by Cabletron with the Securities and Exchange Commission,
the accuracy of information contained in those documents and the absence
of undisclosed liabilities of Cabletron expected to have material adverse
effect on Cabletron and its subsidiaries;
- 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 connection with the
merger;
- validity of shares of Enterasys stock payable in connection with an
Enterasys Spinoff (as defined below);
- 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, among
other things:
- 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 certain employees
of Indus River and maintenance of Cabletron of executive risk liability
insurance as described below under the caption "-- Indemnification and
Insurance;"
- indemnification of Cabletron by Indus River pursuant to an escrow
agreement described below under the caption "-- Indemnification and
Escrow Agreement;" and
- working capital financing to be provided to Indus River by Cabletron
pursuant to a promissory note issued by Cabletron to Indus River.
INDEMNIFICATION AND INSURANCE
The merger agreement provides that 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, pursuant to 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 six years after the effective time of the
merger executive risk liability insurance with respect to those directors,
officers and employees for their acts or omissions which occur prior to 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 prior to the merger, will be amended to be
the same as the certificate of incorporation of Action Acquisition Co., except
that the name of the surviving corporation will be INDUS RIVER NETWORKS,
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<PAGE> 63
INC. For a summary of certain provisions of the current Indus River certificate
of incorporation and the associated rights of Indus River stockholders, see
"Comparison of Rights of Series C Preferred and Common Stockholders of Cabletron
and Stockholders of Indus River" on page 68.
AMENDMENT'S TO INDUS RIVER'S BY-LAWS
The merger agreement provides that the by-laws of Action Acquisition Co.,
as in effect immediately prior to the merger, will be the by-laws of the
surviving corporation following the merger. For a summary of certain provisions
of the of the current Indus River by-laws and the associated rights of Indus
River stockholders, see "Comparison of Rights of Series C Preferred and Common
Stockholders of Cabletron and Stockholders of Indus River" on page 68.
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 an escrow agent as
soon as practicable after the merger is completed. Those shares of Cabletron
common stock held in escrow will be subject to an escrow agreement by and among
State Street Bank & Trust, 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 approximately 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 each of their respective subsidiaries and affiliates from and against all
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including reasonable legal fees) as a result of or incident
to (1) any breach of any representation or warranty made by Indus River in the
merger agreement or in any certificate or other document delivered to Cabletron
in connection with the merger agreement, (2) any breach or nonfulfillment by
Indus River of any of the covenants, agreements or obligations contained in the
merger agreement or any certificate or other document delivered to Cabletron in
connection with the merger agreement, or (3) any claim by a holder or former
holder of Indus River stock or options, warrants or other securities convertible
into or exercisable for shares of Indus River stock, or any other person or
entity, seeking to assert, or based upon, ownership or rights of ownership to
any shares of Indus River stock, any rights of an Indus River stockholder,
including any option, preemptive rights, or rights to notice or to vote, any
rights under the Indus River certificate of incorporation or Indus River by-laws
or any claim that his, her or its Indus River stock or options, warrants or
other securities convertible into or exercisable for shares of Indus River stock
were wrongfully repurchased, canceled, terminated or otherwise limited by Indus
River, regardless of whether an action, suit or proceeding can or has been made
against Indus River. Cabletron may not seek indemnification for any of the above
claims until the aggregate amount of all damages for which Cabletron is seeking
indemnification is at least $300,000, in which case Cabletron may 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
such shares 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 prior to the date of determination.
The escrow fund will terminate with respect to the Cabletron common stock
on the first anniversary of the closing date of the merger. At that time, the
remaining Cabletron common stock in the escrow fund will be distributed by the
escrow agent to the stockholders on whose behalf the shares are being held in
accordance with each stockholder's percentage of the escrow fund, except that
escrowed shares as to which Cabletron has made a claim before the first
anniversary of the closing date of the merger, and which claim is unresolved,
will not be released until the claim is resolved.
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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 not less than 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 of the Indus River stockholders who have 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 pursuant
to the advice of counsel will be conclusive evidence of such 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 severally 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 or in connection with 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 of these stockholders, 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 in accordance with such decision,
act, consent or instruction of the stockholder representative.
Escrow of Shares of Cabletron Series C Preferred Stock.
In addition to the foregoing, the merger agreement 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 as soon as practicable
after the merger is 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 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 such 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 such redemption of 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.
Pursuant to the provisions of the escrow agreement, 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. For additional information about the conversion or redemption of
the Cabletron Series C preferred stock, see "Description of Cabletron Capital
Stock -- Preferred Stock -- Series C Preferred Stock."
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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 sets forth, 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 with respect to 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 (through October 11, 2000).................. 37.13 25.94
</TABLE>
The following table sets forth 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 , 2000, the last trading day before the
date of this proxy statement/prospectus. Because there is no established trading
market for shares of
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Cabletron Series C preferred stock or Indus River stock, information with
respect to 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
, 2000..........................................
</TABLE>
Because the market price of Cabletron common stock is subject to
fluctuation, the market value of the shares of Cabletron common stock that Indus
River stockholders will receive in the merger, may increase or decrease
following the receipt of such shares. In addition, 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
such market value, if determinable, may increase or decrease following the
receipt of such shares. NO ASSURANCE CAN BE GIVEN AS TO THE FUTURE PRICES OR
MARKETS FOR CABLETRON COMMON STOCK OR CABLETRON SERIES C PREFERRED STOCK.
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<PAGE> 67
DESCRIPTION OF CABLETRON CAPITAL STOCK
The following is a description of the material terms of Cabletron's capital
stock. You should also read Cabletron's Restated Certificate of Incorporation,
as amended, 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 related to
the Cabletron Series C preferred stock with the SEC and has incorporated by
reference such 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, par value $1.00 per share,
designated as follows:
- 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 with respect to any of Cabletron's
operating subsidiaries, Enterasys, Riverstone Networks, Inc., Aprisma
Management Technologies, Inc. or Global Network Technology Services,
Inc. (collectively, the "Operating Subsidiaries");
- As of February 29, 2000, an aggregate of 15,998,256 options to purchase
Cabletron common stock of which, as of such date, 2,916,651 options were
currently 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 from time to time 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 sets forth
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. Prior to issuing the shares in a series, and
subject to the express 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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<PAGE> 68
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 the applicable fiscal
quarter with respect to 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, as applicable, on the first day of the applicable
fiscal quarter.
- divided by $1,000, plus accrued and unpaid dividends on the share of
Cabletron Series A or Cabletron Series B preferred stock, as applicable.
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, 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 or distributions Cabletron makes
except in the event of a liquidation, as discussed below, or following
conversion 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,
following the distribution of any of Cabletron's assets to the holders of any
other series or class of Cabletron's capital stock ranking senior to the
Cabletron Series A and Cabletron Series B preferred stock with respect to
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 prior to 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, as applicable, with
respect to the liquidation, dissolution or winding up if the holder
converted such share into Cabletron common stock immediately prior to the
effectiveness of the liquidation, dissolution or winding up.
If after distribution of any of Cabletron's assets to the holders of stock
senior to the Cabletron Series A and Cabletron Series B preferred stock,
Cabletron's assets are insufficient to permit the payment to the holders of
Cabletron Series A and Cabletron Series B preferred stock of the full
liquidation amount described above and the payment to the holders of any series
of preferred stock ranking pari passu with the Cabletron Series A and Cabletron
Series B preferred stock of the full liquidation amount to which they are
entitled, then Cabletron's remaining assets that are legally available for
distribution will be distributed ratably among the holders of Cabletron Series A
and Cabletron Series B preferred stock and any other series of preferred stock
ranking pari passu with the Cabletron Series A and Cabletron Series B preferred
stock, and the holders of stock ranking junior to the Cabletron Series A and
Cabletron Series B preferred stock, including the holders of
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<PAGE> 69
Cabletron common stock and Cabletron Series C preferred stock, will not be
entitled to participate in such liquidation.
VOTING RIGHTS. Except as otherwise 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
Cabletron common stock, voting together with the holders of Cabletron common
stock as a single class (and any other shares of Cabletron's capital stock
which, by their terms, are entitled to vote together 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 in respect of
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, as applicable, may be
converted on the record date for holders entitled to participate in the vote. In
addition, any holders of Cabletron Series A and Cabletron Series B preferred
stock will have the following 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 related to 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 related to 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 related to 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, with all of the same rights of Cabletron common stock as
described below. 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 such holder
being converted. 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 in the case of Cabletron Series A
preferred stock and $30.00 in the case of Cabletron Series B preferred stock, in
each case as adjusted for stock splits, stock dividends, recapitalizations and
otherwise. In addition, 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 effect a
redemption, as applicable. 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 date.
Prior to the consummation of 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 such holder's preferred stock into Cabletron common stock, the
stock, securities or assets that the holder would have been entitled to receive
in connection with the Corporate Change if such holder had converted its
preferred stock into Cabletron common stock prior to the record date related to
such Corporate Change. In addition, Cabletron will not effect any Corporate
Change unless, prior to the consummation of 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
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<PAGE> 70
such 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" shall mean any capital
reorganization, reclassification, consolidation, merger or sale of all or
substantially all of Cabletron's assets to another person which is effected in
such a way that holders of Cabletron common stock are entitled to receive
(either directly or upon Cabletron's subsequent liquidation) securities or
assets in respect of or 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 such 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.
In addition, 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 such 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 consummation of 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 at a redemption price per share 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 such rights at any time
prior to 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 such 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 or
otherwise, and as 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, without limitation,
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), pursuant to which Cabletron no longer
controls Enterasys.
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<PAGE> 71
CONVERSION RIGHTS. Generally, 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.
In addition, if Cabletron establishes a record date with respect to an
Enterasys Spinoff prior to the first anniversary of the date the Cabletron
Series C preferred stock is issued, which spin-off is to be completed prior to
such first anniversary, then the Cabletron Series C preferred stock will be
convertible into Cabletron common stock at the option of the holder immediately
prior to the Enterasys Spinoff. There can be no assurance that Cabletron will
ever conduct an Enterasys Spinoff or an Enterasys Transaction. Accordingly, 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 such 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. However, 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 and Combinations," the Applicable
Conversion Rate will never be adjusted to exceed 65. In addition, the Applicable
Conversion Rate will generally be determined based on the value of the capital
stock of Cabletron's subsidiary, Enterasys, which 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 accordingly.
ENTERASYS SPINOFF WITHIN ONE YEAR OF THE DATE OF ISSUANCE OF THE CABLETRON
SERIES C PREFERRED STOCK. If Cabletron establishes a record date with respect
to an Enterasys Spinoff prior to the first anniversary of the date the Cabletron
Series C preferred stock is issued, which spin-off is to be completed prior to
such first anniversary, then the Cabletron Series C preferred stock will be
convertible into Cabletron common stock at the option of the holder immediately
prior to the Enterasys Spinoff. In such an instance, 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 capital stock of Enterasys, determined as of the day the
merger transaction closes, adjusted for stock splits, stock dividends,
recapitalizations, extraordinary distributions and other similar events
with respect to the capital stock of Enterasys;
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<PAGE> 72
- P(E) is the market price of the Enterasys capital stock, determined as of
the close of business on the applicable record date; and
- 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 capital stock will
generally 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 capital stock will generally be the price at which Enterasys
capital 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 following the first anniversary of the date the Cabletron
Series C preferred stock is issued and prior to the second anniversary of such
date, or if Cabletron conducts an Enterasys Transaction prior to 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 following the earlier to occur of any such
event. Following any such 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 capital stock of Enterasys, determined as of the day the
merger transaction closes, adjusted for stock splits, stock dividends,
recapitalizations, extraordinary distributions and other similar events
with respect to the capital stock of Enterasys;
- P(E) is the market price of the Enterasys capital stock distributed in
the Enterasys Spinoff or the Enterasys Transaction, as applicable,
determined as of the close of business on the first trading day after the
Enterasys Spinoff or Enterasys Transaction, as applicable; 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 capital stock will
generally 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 capital stock will generally be the price at which Enterasys
capital 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.
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 prior to 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 following the second
anniversary of the date the Cabletron Series C preferred stock is issued.
Following 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 capital stock of Enterasys, determined as of the day the
merger transaction closes, adjusted for stock splits, stock dividends,
recapitalizations, extraordinary distributions and other similar events
with respect to the capital stock of Enterasys;
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<PAGE> 73
- P(E) is the market price of the Enterasys capital 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.
Cabletron's board of directors will determine the market price of Enterasys
capital stock. However, 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 capital stock. 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 second anniversary of the date the
Cabletron Series C preferred stock is issued.
Corporate Change. Prior to the consummation of any "Corporate Change,"
Cabletron will make appropriate provisions to ensure that each holder of
Cabletron Series C preferred stock will have the right to receive, upon
conversion of such holder's preferred stock into Cabletron common stock, the
stock, securities or assets that the holder would have been entitled to receive
in connection with the Corporate Change if such holder had converted its
preferred stock into Cabletron common stock prior to the record date related to
such Corporate Change. In addition, Cabletron will not effect any Corporate
Change unless, prior to the consummation of 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 such 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 effected in such a way that holders of Cabletron common stock
are entitled to receive (either directly or upon Cabletron's subsequent
liquidation) securities or assets in respect of or in exchange for Cabletron
common stock.
CORPORATE CHANGE PRIOR TO 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 prior to 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 and 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 capital stock of Enterasys, determined as of the day the
merger transaction closes, adjusted for stock splits, stock dividends,
recapitalizations, extraordinary distributions and other similar
events with respect to the capital stock of Enterasys;
- P(E) is the market price of the Enterasys capital stock, determined as
of the effective date of such 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
capital stock. However, 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 capital stock. Generally, the market
price of the Cabletron common stock will be equal to the price at which
Cabletron common stock is sold in the Corporate Change.
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<PAGE> 74
CORPORATE CHANGE FOLLOWING 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 following 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 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," as applicable.
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 consummate an Enterasys Transaction. Cabletron's
notice will also advise each holder of Cabletron Series C preferred stock of its
conversion rights with respect to its Cabletron Series C preferred stock.
Following receipt of this notice, each holder of Cabletron Series C preferred
stock will have 15 days to deliver a written notice to Cabletron advising
Cabletron as to its intention to require Cabletron to convert all (but not less
than all) of the shares of Cabletron Series C preferred stock held by such
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, together with this written notice. Each conversion
of Cabletron Series C preferred stock shall be deemed to have been effected as
of the close of business on the effective date of such 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 deemed 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 set forth in the conversion notice:
- a certificate or certificates representing, in the aggregate, 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
such other name or names as the converting holder tells Cabletron
(subject to any applicable legal, contractual or other restrictions on
transfer) and in such denomination or denominations as the converting
holder tells Cabletron;
- a check for cash with respect to 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 in connection with 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. However, 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 such
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 such holder's having a fractional
interest in a share of Cabletron common stock, Cabletron will pay to the holder
of such shares a cash amount based on the current market price of the Cabletron
common stock on the trading day immediately prior to the conversion, instead of
issuing a fractional share of Cabletron common stock.
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REDEMPTION. Each holder of Cabletron Series C preferred stock shall have
the right to require Cabletron to redeem all (but not less than all) of such
holder's shares of Cabletron Series C preferred stock immediately prior to 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 prior to the second
anniversary of the date of issuance of the Cabletron Series C preferred
stock; and
- an Enterasys Transaction.
If a holder of Cabletron Series C preferred stock seeks to redeem its
shares in connection with an Enterasys Spinoff, Cabletron will pay the
redemption price upon consummation 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 capital stock of Enterasys, determined
as of the day the merger transaction closes, adjusted for stock splits, stock
dividends, recapitalizations, extraordinary distributions and other similar
events with respect to the capital stock of Enterasys divided by 50,000.
If a holder of Cabletron Series C preferred stock seeks to redeem its
shares in connection with an Enterasys Transaction, Cabletron will pay the
redemption price on an after-tax basis immediately following such 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 following the Enterasys Transaction and will
be equal in value, on an after-tax basis, to the number of Enterasys shares
equal to 1% of the fully-diluted capital stock of Enterasys, determined as of
the day the merger transaction closes, adjusted for stock splits, stock
dividends, recapitalizations, extraordinary distributions and other similar
events with respect to the capital stock of Enterasys divided by 50,000.
If Cabletron intends to conduct an Enterasys Spinoff prior to 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 in connection with such spin-off.
However, they will be able to convert their shares into Cabletron common stock
prior to any such spin-off. On the other hand, if Cabletron consummates an
Enterasys Transaction prior to 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 connection with such transaction. There can be no assurance that Cabletron
will ever conduct an Enterasys Spinoff. Accordingly, 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 with respect to the Cabletron Series C preferred
stock will terminate immediately following 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 consummate an Enterasys Transaction. Cabletron's notice
will also advise each holder of Cabletron Series C preferred stock of its
redemption rights with respect to its Cabletron Series C preferred stock.
Following receipt of this notice, each holder of Cabletron Series C preferred
stock will have 15 days to deliver a written notice to Cabletron advising
Cabletron as to its intention to require Cabletron to redeem all (but not less
than all) of the Cabletron Series C preferred stock held by such holder. If a
holder of Cabletron Series C preferred stock seeks to redeem its shares in
connection with 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 seeks to redeem its shares in connection with
an Enterasys Transaction, Cabletron will be obligated on the redemption
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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 following such 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, following the
distribution of any of Cabletron's assets to the holders of any other series or
class of Cabletron's capital stock ranking senior to the Cabletron Series C
preferred stock with respect to liquidation, including the Cabletron Series A
and Cabletron Series B preferred stock.
If Cabletron's liquidation, dissolution or winding up occurs prior to 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 with respect to the liquidation, dissolution or
winding up if the holder converted such share into Cabletron common stock
immediately prior to the effectiveness of the liquidation, dissolution or
winding up in the manner described above; and
- the amount a holder would be entitled to receive on a share of Cabletron
Series C preferred stock with respect to the liquidation, dissolution or
winding up if the holder converted such share into Cabletron common stock
immediately prior to the effectiveness of the liquidation, dissolution or
winding up in the manner described above, 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 following 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 with respect to the liquidation, dissolution or
winding up if the holder converted such share into Cabletron common stock
immediately prior to the effectiveness of the liquidation, dissolution or
winding up in the manner described above, 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 permit the payment to the holders of Cabletron Series C
preferred stock of the full liquidation amount described above and the payment
to the holders of any series of preferred stock ranking pari passu with the
Cabletron Series C preferred stock of the full liquidation amount to which they
are entitled, then Cabletron's remaining assets that are legally available for
distribution will be distributed ratably among the holders of Cabletron Series C
preferred stock and any other series of preferred stock ranking pari passu with
the Cabletron Series C preferred stock, and 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 such liquidation.
VOTING RIGHTS. Except as otherwise 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, voting
together with the holders of Cabletron common stock as a single class (and any
other shares of Cabletron's capital stock which, by their terms, are entitled to
vote together with the Cabletron common stock as a single class). Each holder of
a Cabletron Series C preferred stock will be entitled to the number of votes in
respect of each share of Cabletron Series C preferred stock it holds equal to
product of the number of shares of Cabletron Series C preferred stock held by
such holder and the Applicable Conversion Rate on the record
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date for holders entitled to participate in the vote. In addition, the holders
of a majority of the then outstanding shares of Cabletron Series C preferred
stock must approve any amendment or restatement of Cabletron's certificate of
incorporation or of the certificate of designation related to 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 & Trust, 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 such 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 such
redemption of 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. Pursuant to the provisions of the escrow
agreement, 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
the other investors under the 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 the
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. In addition, Cabletron has agreed to issue additional warrants to Silver
Lake Partners and the other investors under the Securities Purchase Agreement to
purchase additional shares of Cabletron common stock if, prior to an initial
public offering of the capital stock of any of the Operating Subsidiaries to
Cabletron stockholders, or a sale of a majority of the assets or voting stock of
any of the 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 capital 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 capital
stock of Cabletron in consideration of the cancellation of substantially
all of the options to acquire capital stock of an Operating Subsidiary
held by employees; or
- is acquired by a third party.
In addition, each of the Operating Subsidiaries has granted to Silver Lake
Partners and other investors certain rights to purchase common stock of the
Operating Subsidiaries.
As of February 29, 2000, Cabletron had options outstanding to purchase
15,996,256 shares of Cabletron common stock, at a weighted-average exercise
price of $11.16, of which options to purchase 2,916,651 shares, at a
weighted-average exercise price of $10.26, were currently exercisable. In
addition, 3,100,558 shares of Cabletron common stock were subject to purchase by
Cabletron employees under employee stock purchase plans.
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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 currently governed
by the Delaware General Corporation Law, and the respective 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 related to 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 does not purport
to be a complete statement of all those differences, or a complete description
of the specific provisions referred to 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 related to
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 capital stock is described above under
"Description of Cabletron Capital Stock."
INDUS RIVER. The total authorized shares of capital stock of Indus River
consists of 30,000,000 shares of common stock, $.00001 par value per share, and
22,000,000 shares of preferred stock, $.00001 par value per share. 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 as follows:
- 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 subsequent to 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 such 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 related to the Cabletron Series C
preferred stock, holders of Cabletron Series C preferred stock will vote
together with
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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 in
lieu of meetings 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 certain situations described in Indus River's certificate of
incorporation, holders of Indus River preferred stock vote together 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 shall constitute a quorum for the
transaction of business at such meeting.
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 such 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 shall constitute a quorum for the transaction of
business at such 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 such 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, in which case a change in the number of directors
may be made only upon approval of such change 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 such other number as the stockholders may from
time to time 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 that Cabletron's directors shall
be divided into three equal classes with each class comprised of one-third of
the directors being elected to serve until the third succeeding annual meeting.
INDUS RIVER. Neither the Indus River certificate of incorporation nor the
Indus River by-laws provides for board classification.
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NOMINATION AND ELECTION OF DIRECTORS
CABLETRON. Cabletron's certificate of incorporation provides that
directors shall be elected at an annual meeting of stockholders held on a date
and at a time designated by or in the manner provided in the Cabletron by-laws.
Cabletron's certificate of incorporation provides that elections of directors
need not be by written ballot, unless otherwise provided in the by-laws. The
Cabletron by-laws state that no ballot shall 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 at
a meeting may nominate persons for the election as directors by giving timely
written notice thereof to the secretary accompanied by a petition signed by at
least 100 record holders of Cabletron's capital stock which shows the class and
number of shares held by each person and which represent in the aggregate 1% of
the outstanding shares entitled to vote in the election of directors. To be
timely, notice must be given to Cabletron's principal executive offices not less
than 60 days nor more than 90 days prior to the meeting. In the event that less
than 70 days notice or prior public disclosure of the date of the meeting is
given or made to the stockholders, to be timely, notice by the stockholder must
be received at Cabletron's principal executive offices not later than the close
of business on the 10th day following the day on which such notice of the date
of the meeting was mailed or such public disclosure was made. To be in proper
written form, a stockholder's notice shall set forth in writing: (1) as to each
person nominated by the stockholder to serve as director, all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Exchange Act, including, without
limitation, such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected and (2) as to the
stockholder giving the notice, the name and address of such stockholder, and the
class and number of shares of Cabletron capital stock which are beneficially
owned by such 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 regarding the nominee as is required of those stockholders
submitting notices of nomination.
INDUS RIVER. Indus River's by-laws provide that directors are elected at
the annual meeting of the stockholders in accordance with the provisions of 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 shall 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. In the event
Indus River fails to redeem the Indus River preferred stock as provided in its
certificate of incorporation, the holders of record of the shares of Indus River
preferred stock, voting together as a single class, shall be entitled to elect a
majority of the directors, and shall use their best efforts to cure the default
as soon as possible thereafter. A majority of the shares of Indus River
preferred stock then outstanding shall 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 by-laws provide for removal of directors at any
time, but only for cause and only by the affirmative vote of 85% of the total
number of votes of the then outstanding shares of Cabletron capital stock
entitled to vote generally in the election of directors, voting together as a
single class excluding shares
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beneficially owned by a Related Person (as defined below in the section under
"-- Vote Required for Mergers").
INDUS RIVER. Indus River's by-laws provide that, a director may be removed
at any time, either with or without cause, by the affirmative vote of a majority
of shares issued and outstanding and entitled to vote to elect such 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 such purpose.
INDUS RIVER. Indus River's by-laws provide that, subject to the Indus
River certificate of incorporation, any vacancies and newly created
directorships resulting from an increase in the number of directors may be
filled by a vote of the stockholders, or by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director.
The Indus River certificate of incorporation provides that a vacancy in any
directorship elected by the holders of the Indus River preferred stock shall 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 shall 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 capital 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 certain articles contained in Cabletron's certificate of incorporation.
INDUS RIVER. Indus River's certificate of incorporation provides that so
long as 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 further 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. 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, so as to 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 such 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 so
long as 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
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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
effected at a duly called annual or special meeting and may not be effected 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, setting forth the action so taken, is signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted.
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. In
addition, a special meeting may 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: (1) the chairman of the
board, (2) the president, (3) any two directors, (4) the holders of at least 35%
of the outstanding shares of Indus River Series A preferred stock, (5) the
holders of at least 45% of the outstanding shares of Indus River Series B
preferred stock, or (6) the holders of at least 45% of the outstanding shares of
Indus River Series D preferred stock. Such request shall state the purpose of
the proposed meeting. Notice of the special meeting shall 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 breach of fiduciary duty as a director, except, to the
extent that exculpation from liabilities is not permitted under the Delaware
General Corporation Law. The Delaware General Corporation Law prohibits
exculpation for:
- for any breach of the director's duty of loyalty to Cabletron or its
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law regarding
unlawful payment of dividends or unlawful stock purchases or redemptions;
or
- for any transaction from which the director derived an improper personal
benefit.
Cabletron's certificate of incorporation further provides that no amendment
to, or repeal of, the provisions related to such liability will apply to or have
any effect on the liability or alleged liability of any director for, or with
respect to, any acts or omissions of such director prior to such 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 breach of fiduciary duty as a director,
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<PAGE> 83
except, to the extent that exculpation from liabilities is not permitted under
the Delaware General Corporation Law.
Indus River's certificate of incorporation further provides that no
amendment to, or repeal of, the provisions related to such liability will apply
to or have any effect on the liability or alleged liability of any director for,
or with respect to, any acts or omissions of such director prior to such
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.
DIVIDENDS
CABLETRON. Cabletron's certificate of designation related to 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 and as declared by Cabletron's board of directors,
cumulative cash dividends per share equal to a minimum of $40.00 per year and
such holders may receive a greater amount as provided in such 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 related to 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
and if 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 and if 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 and if
declared by the Indus River board of directors, quarterly dividends at the rate
of $0.29 per share; and the holders of Indus River Series D preferred stock are
entitled to receive, when and if declared by the Indus River board of directors,
quarterly dividends at the rate of $0.374 per share. Dividends accrue from day
to day, whether or not earned or declared, and are cumulative. Dividends may
also be declared and paid on the common stock when and as determined 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, so long as
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, except for dividends payable on the Indus River common stock solely in
the form of additional shares of Indus River common 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.
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<PAGE> 84
LIQUIDATION
CABLETRON. Holders of Cabletron common stock have no preferential rights
with respect to liquidation. Holders of Cabletron Series C preferred stock have
preferential rights over holders of Cabletron common stock with respect to
liquidation. 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. In the event of 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."
INDUS RIVER. Indus River's certificate of incorporation provides that in
the event of any voluntary or involuntary liquidation, dissolution or winding up
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, as follows:
- 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 in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such preferred shares, plus any accrued dividends, whether or not declared, and
any dividends declared but unpaid on such preferred shares. If upon the
liquidation, dissolution or winding up 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 to which they are entitled, 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 respective holdings. Indus River's
certificate of incorporation further 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 also 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 such 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 deemed 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 set forth in the certificate of designation related
to 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
following 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.
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<PAGE> 85
In addition, if Cabletron establishes a record date with respect to an
Enterasys Spinoff prior to 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 prior to 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 as is determined by the formula set forth in the
certificate of designation related to the Cabletron Series C preferred stock and
as 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. In lieu of any fractional shares to which the holder would
otherwise be entitled, Cabletron will pay cash equal to such fraction multiplied
by the then applicable conversion rate.
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 set forth 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 such shares into the number of fully
paid and nonassessable shares of Indus River common stock as is determined by
the formula set forth in the certificate of incorporation. Based on the formula
and taking into consideration several previous stock splits, the current rates
of conversion are as follows:
- 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. In lieu of any fractional shares to which the holder
would otherwise be entitled, Indus River will pay cash equal to such fraction
multiplied by the then effective applicable conversion price.
The Indus River certificate of incorporation also provides that if Indus
River shall effect a firm commitment underwritten public offering of shares of
Indus River common stock in which the aggregate price paid for such 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 set forth 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 such holder's shares of
Series C preferred stock immediately prior to 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 prior to the second anniversary of
the date of issuance of the Series C preferred stock; and
- an Enterasys Spinoff.
The redemption price to be paid will be equal in value to 1% of the
fully-diluted capital stock of Enterasys, determined as of the day the merger
transaction closes, adjusted for stock splits, stock dividends,
recapitalizations, extraordinary distributions and other similar events with
respect to the capital stock of Enterasys divided by 50,000. If the redemption
right is exercised with respect to an Enterasys Spinoff, the redemption price
will be paid in shares of Enterasys stock upon consummation of the spin-off. If
the
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<PAGE> 86
redemption right is exercised with respect to an Enterasys Transaction, the
redemption price will be paid in securities or assets of the surviving
corporation immediately following the transaction.
The redemption rights with respect to the Cabletron Series C preferred
stock will terminate immediately following 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 Series C preferred stock at least 30
days notice of its intention to either conduct an Enterasys Spinoff or
consummate an Enterasys Transaction, advising each holder of Series C preferred
stock of its conversion and redemption rights with respect to its Series C
preferred stock. Following receipt of this notice, each holder of Series C
preferred stock will have 15 days to deliver a notice to Cabletron advising
Cabletron as to its intention to require Cabletron to redeem all (but not less
than all) of the Series C preferred stock held by such 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 from each
holder of shares of Indus River preferred stock, at a price equal to $1.00 per
share (in the case of Indus River Series A preferred stock), $2.72 per share (in
the case of Indus River Series B preferred stock), $4.08 per share (in the case
of Indus River Series C preferred stock) and $5.34 per share (in the case of
Indus River Series D preferred stock) (in each case subject to appropriate
adjustment in the event of any dividend, stock split, combination or other
similar recapitalization affecting such shares) plus, in each case, any declared
but unpaid dividend thereon, the following respective portion of the number of
shares of each series of Indus River preferred stock held by such holder on the
applicable redemption date: (1) 33 1/3% on June 30, 2004 (2) 50% of the
remaining outstanding shares of Indus River preferred stock on June 30, 2005 and
(3) 100% all remaining outstanding shares then held on June 30, 2006.
If the funds of Indus River legally available for redemption of Indus River
preferred stock on any mandatory date are not sufficient to redeem the number of
shares of Indus River preferred stock required to be redeemed, those funds that
are legally available for redemption will be used to redeem the maximum possible
number of shares of Indus River preferred stock ratably on the basis of the
number of shares of Indus River preferred stock which would be redeemed on such
date if the funds of Indus River legally available for redemption had been
sufficient to redeem all shares of Indus River preferred stock required to be
redeemed on such date. If at any time additional funds of Indus River become
legally available for redemption of Indus River preferred stock, such funds will
be used, at the end of the next succeeding fiscal quarter, to redeem, to the
extent of the available funds, the balance of the shares of 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 in the event
the holders of such preferred stock do not exercise certain rights to
participate in a subsequent equity financing. In such case, 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 in all respects
to the original preferred stock, except that the conversion price shall be fixed
and shall 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 connection with certain
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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.
(the "NASD") or
- held of record by more than 2,000 stockholders;
- provided that 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 in lieu 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 NASD or held of record by more
than 2,000 stockholders, plus cash in lieu of fractional shares.
Additionally, 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 connection with certain 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, except that unless required by its
charter, no authorizing stockholder vote is required of a corporation surviving
a merger if:
- such corporation's charter is not amended by the merger;
- each share of stock of such 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
such corporation's outstanding common stock immediately prior to 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 thereon.
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
such person or entity with respect to such transaction or has approved
the transaction which resulted in such party becoming a Related Person,
in either case prior to the time such party became a Related Person and
provided that a majority of the members of the board of directors voting
for the approval of such transaction were continuing directors; or
- 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, together with its affiliates and associates, beneficially
owns, or during the three-year period immediately prior to the date on which it
is sought to be
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determined whether such person is a Related Person, owned 5% or more of the
outstanding shares of voting stock of any class of Cabletron's securities.
However, the term Related Person will not include:
- Cabletron or any direct or indirect majority-owned subsidiary of
Cabletron;
- any person that together 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 such person or any person
that acquired said shares from any such 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 set
forth above is the result of action taken solely by Cabletron,
provided that such person will be a Related Person if thereafter such person
acquires additional shares of voting stock of Cabletron, except as a result of
further corporate action not caused, directly or indirectly by such person.
Additionally, for the purpose of determining whether a person is a Related
Person, the voting stock of Cabletron deemed to be outstanding shall include
stock deemed to be beneficially owned by the person, but shall not include any
other unissued stock of Cabletron which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
INDUS RIVER. Indus River is a Delaware corporation and is therefore
subject to provisions of the Delaware General Corporation Law as described
above. In addition, Indus River's certificate of incorporation provides that so
long as 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 certain transactions between
a Delaware corporation and an "interested stockholder," which is defined as a
person that is directly or indirectly a beneficial owner of 15% or more of the
voting power of the outstanding voting stock of a Delaware corporation and such
persons, affiliates and associates. This provision prohibits some business
combinations (defined broadly to include mergers, consolidations, sales or other
dispositions of assets having an aggregate value in excess of 10% of the
consolidated assets of the corporation, and 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 prior to 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 certain 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 otherwise
provided in its certificate of incorporation or bylaws or if it has less than
2,000 stockholders of record and does not have voting stock listed on a national
securities exchange or listed for quotation with a registered national
securities association.
CABLETRON. Neither the Cabletron certificate of incorporation nor the
Cabletron by-laws exempts Cabletron from the provision of the Delaware General
Corporation Law regarding transactions with interested stockholders.
INDUS RIVER. Indus River is also a Delaware corporation and is therefore
subject to the same provisions of the Delaware General Corporation Law. Neither
the Indus River certificate of incorporation nor the Indus
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River by-laws exempts Indus River from the provision of the Delaware General
Corporation Law regarding 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
his or her stock thereafter devolved upon him or her by operation of law. A
stockholder must also first make demand on the corporation that it bring suit
and have such demand be refused, unless it is shown that such demand would have
been futile.
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CERTAIN INFORMATION CONCERNING INDUS RIVER
SECURITY OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS
OF INDUS RIVER
The following table sets forth certain information as to the number of
shares of Indus River stock that were beneficially owned as of September 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 following table, 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. Unless indicated otherwise, the address for each person is
to the care of Indus River.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP AS OF SEPTEMBER 30, 2000(1)
-------------------------------------------------------
NAME OF DIRECTORS, EXECUTIVE OFFICERS, PERCENT PERCENT
PRINCIPAL STOCKHOLDERS, AND OF CLASS OF CLASS
EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP CLASS OF STOCK SHARES (#) (PREFERRED) (COMMON)
------------------------------------------- -------------- ---------- ----------- --------
<S> <C> <C> <C> <C>
5% BENEFICIAL HOLDERS
New Enterprise Associates(2).................. Preferred 2,411,544 23.1% 36.4%
11951 Freedom Drive, Suite 1240
Reston, VA 20190
Canaan Ventures(3)............................ Preferred 2,411,543 23.1% 36.4%
105 Rowayton Avenue
Rowayton, CT 06853
One Liberty Fund.............................. Preferred 2,411,543 23.1% 36.4%
One Liberty Square Common 266,333 * 4.0%
Boston, MA 02109
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 152,812 * 3.6%
David Gamache(10)............................. Common 155,625 * 3.7%
William A. Harper(11)......................... Common 37,500 * 0.9%
Craig DeMunbrun(12)........................... Common 50,000 * 1.2%
Stephen J. Ricci.............................. Common 266,333 * 4.0%
Preferred 2,411,543 23.1% 36.4%
Arthur 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%
</TABLE>
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<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP AS OF SEPTEMBER 30, 2000(1)
-------------------------------------------------------
NAME OF DIRECTORS, EXECUTIVE OFFICERS, PERCENT PERCENT
PRINCIPAL STOCKHOLDERS, AND OF CLASS OF CLASS
EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP CLASS OF STOCK SHARES (#) (PREFERRED) (COMMON)
------------------------------------------- -------------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Benson P. Shapiro(14)......................... Common 75,000 * 1.8%
Preferred 50,955 * 1.2%
All executive officers and directors as a
group (13 individuals)...................... Common 3,349,268 * 29.0%
Preferred 7,329,329 70.2% 63.5%
</TABLE>
---------------
* Beneficial ownership does not exceed 1% of the outstanding Indus River
Common Stock.
(1) Includes restricted stock and/or shares subject to options which will vest
and/or will be exercisable within 60 days following September 30, 2000, as
applicable, and shares which become exercisable upon the completion of the
merger. All percentages assume that the restricted stock and/or options of
the particular person or group in question, and no others, have vested
and/or have been exercised, as applicable.
(2) Includes 2,374,466 held by NEA Associates VII, Limited Partnership, 32,078
shares held by NEA Presidents' Fund, L.P., and 5,000 shares held by NEA
Ventures 1997, L.P. Arthur J. Marks, a member of the board of directors of
Indus River, is the general partner of NEA Partners VII, Limited
Partnership, the general partners of NEA Associates VII, Limited
Partnership and of NEA General Partners, L.P., which is the general
partners of NEA President's Fund, L.P. Louis B Van Dyck, IV is the general
partner of NEA Ventures 1997, L.P. Mr. Marks and Mr. Van Dyck each disclaim
beneficial ownership of these shares, respectively, except to the extent of
their pecuniary interest therein. The following natural persons exercise
voting and/or dispositive powers for shares held by New Enterprise
Associates: Peter J. Barris, Nancy Dorman, Ronald H. Kase, C. Richard
Kramlich, Thomas C. McConnell, Arthur J. Marks, Peter T. Morris, John M,
Nebra, Charles W. Newhall, Louis B. Van Dyck, IV and Mark W. Perry.
(3) Includes 1,569,877 shares held by Canaan Equity L.P., 326,566 shares held
by Canaan Ventures II Limited Partnership and 515,100 shares held by Canaan
Ventures II Offshore C.V. James C. Furnivall is a manager member of Canaan
Equity Partners LLC, the general partner of Canaan Equity L.P. Mr.
Furnivall disclaims beneficial ownership of these shares, except to the
extent of his pecuniary interest therein.
(4) Includes 814,981 shares held by Ascent Venture Partners II, L.P. and
611,236 shares held by Ascent Venture Partners, L.P.
(5) Shares consist of restricted stock, 911,426 vested as of September 30,
2000, and 130,204 shares which vest in accordance with the accelerated
vesting provisions upon completion of the merger.
(6) Shares consist of restricted stock, 507,564 vested as of September 30,
2000, and 72,509 shares which vest in accordance with accelerated vesting
provisions upon completion of the merger.
(7) Shares consist of restricted stock, 678,384 vested as of September 30,
2000, and 96,912 shares which vest in accordance with accelerated vesting
provisions upon completion of the merger.
(8) Shares consist of restricted stock, 81,250 vested as of September 30, 2000,
and 18,750 shares which vest in accordance with accelerated vesting
provisions upon completion of the merger. Also includes stock options,
82,187 shares vested as of September 30, 2000, 3,750 shares to vest within
60 days of September 30, 2000, and 29,062 shares which vest in accordance
with accelerated vesting provisions upon completion of the merger.
(9) Shares consist of restricted stock, 110,625 vested as of September 30,
2000, 937 shares to vest within 60 days of September 30, 2000, and 41,250
shares which vest in accordance with accelerated vesting provisions upon
completion of the merger.
(10) Shares consist of restricted stock, 92,812 vested as of September 30, 2000,
10,313 shares to vest within 60 days of September 30, 2000, and 41,250
shares which vest in accordance with accelerated vesting provisions upon
completion of the merger. Also includes stock options, 5,000 shares vested
as of
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September 30, 2000, 1,250 shares to vest within 60 days of September 30,
2000, and 5,000 shares which vest in accordance with accelerated vesting
provisions upon completion of the merger.
(11) Shares consist of stock options, 37,500 shares which vest in accordance
with accelerated vesting provisions upon completion of the merger.
(12) Shares consist of stock options, 50,000 shares which vest in accordance
with 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 except to the extent of his pecuniary interest therein.
(14) Shares consist of restricted stock, 56,250 vested as of September 30, 2000,
and 18,750 shares which vest in accordance with accelerated vesting
provisions upon completion of the merger.
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<PAGE> 93
LEGAL MATTERS
Certain legal matters with respect to the validity of the securities
offered by this proxy statement/prospectus will be passed upon for Cabletron by
Ropes & Gray, Boston, Massachusetts.
Certain United States Federal income tax consequences of the merger will be
passed upon by Ropes & Gray, Boston, Massachusetts and McDermott, Will & Emery,
Boston, Massachusetts.
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 of the years 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,
which reports are also incorporated by reference herein, and upon the authority
of said 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's
public reference room at the following location:
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 , 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
the companies can disclose important information to you by referring you to
other documents filed separately 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.
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<PAGE> 94
This proxy statement/prospectus incorporates by reference the documents set
forth 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 Report on Form 10-Q Quarter ended June 3, 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 such 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 and
Current Reports on Form 8-K, as well as 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 such 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 as described 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
the Cabletron at the following address:
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. We have not authorized anyone to
provide you with information that is different from what is contained in this
proxy statement/prospectus. This proxy statement/prospectus is dated ,
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
creates any implication to the contrary.
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<PAGE> 95
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 with
respect to the financial condition, results of operations, future performance,
business strategies, operating efficiencies or synergies, competitive positions,
growth opportunities for existing products, plans and objectives of management,
markets for stock of Cabletron and Indus River and other matters. Statements
this proxy statement/prospectus that are not historical facts are hereby
identified as "forward-looking statements" for the purpose of the safe harbor
provided by Section 21E of the Exchange Act and Section 27A of the Securities
Act. These forward-looking statements, including, without limitation, those
relating to the future business prospects, revenues and income, in each case
relating to Cabletron and Indus River, wherever they occur in this proxy
statement/prospectus, are necessarily estimates reflecting the best judgment of
the senior management of Cabletron and Indus River and involve a number of risks
and uncertainties that could cause actual results to differ materially from
those suggested by the forward-looking statements. These forward-looking
statements should, therefore, be considered in light of various important
factors, including those set forth in this proxy statement/prospectus. Important
factors that could cause actual results to differ materially from estimates or
projections contained in the forward-looking statements include without
limitation:
- the ability to integrate the operations of Cabletron and Indus River,
including their respective product lines
- the effects of vigorous competition in the markets in which Cabletron and
Indus River operate
Words such as "estimate," "project," "plan," "intend," "expect," "believe"
and similar expressions are intended to identify forward-looking statements.
These forward-looking statements are found at various places throughout this
proxy statement/prospectus and the other documents incorporated by reference,
including, but not limited to, the Annual Report on Form 10-K for the year ended
February 29, 2000 of Cabletron, including any amendments. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date of this proxy statement/prospectus. Neither Cabletron nor
Indus River undertakes any obligation to publicly update or release any
revisions to these forward-looking statements to reflect events or circumstances
after the date of this proxy statement/prospectus or to reflect the occurrence
of unanticipated events.
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<PAGE> 96
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 , 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 97
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<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>
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<TABLE>
<CAPTION>
PAGE
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<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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<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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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August , 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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<PAGE> 101
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> 102
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> 103
(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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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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(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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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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(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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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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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:
----------------------------------
Name:
Title:
ACTON ACQUISITION CO.
By:
----------------------------------
Name:
Title:
INDUS RIVER NETWORKS, INC.
By:
----------------------------------
Name:
Title:
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<PAGE> 139
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> 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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(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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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.
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ANNEX C
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Agreement") is entered into as of October , 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 & Trust 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 the Escrow Funds and to
disburse the Escrow Shares and Parent Preferred Escrow Shares in accordance with
the terms of this Agreement. As of 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 the Escrow Agent as nominee for the stockholders of the Company entitled
to receive such Escrow Shares or Parent Preferred Escrow Shares under the Merger
Agreement. The Company shall provide the Escrow Agent with a list setting forth
the name 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.
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. 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
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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
concurrently to the stockholders to which such shares relate.
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 transfer
by a stockholder of Escrow Shares and/or Parent Preferred Escrow Shares shall be
effected by delivery to the Escrow Agent, of appropriate written transfer
instructions, together with a duly executed irrevocable stock power, in the form
attached hereto as Exhibit B. 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.
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), 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 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 replace the Stockholder Representative upon not
less than ten (10) days' prior written notice to Cabletron. 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. 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 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
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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, 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 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 Escrow Agent within such thirty (30)
day period 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 Stockholder Representative 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. All Escrow Shares subject to such claims shall remain in the Common
Shares Escrow Fund until the Damages are actually incurred or paid or until the
Escrow Agent determines in its reasonable 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 in accordance with Subsection 4(E) below).
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.
The Escrow 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 (out of the Common Shares Escrow Fund
to the extent available after all claims have been satisfied).
D. The Escrow Agent is also directed 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. Cabletron shall provide the Stockholder Representative a copy
of such court order. The Escrow Agent shall 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 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. As soon as all such claims have been resolved, the
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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. In determining the number of Escrow Shares which would be equal to the
amount of any claim for Damages for the purpose of compensating an Indemnitee
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 date of the final
determination of the amount of Damages to which the Indemnitee is entitled (the
"Determination Price"). 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.
G. The rights of an Indemnitee to make claims upon the Escrow Fund shall be
the sole and exclusive remedy of such Indemnitee after the Effective Time 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 after the Effective Time 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 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 and of such holder's right, in the case of
an Enterasys Spinoff, to convert its shares of Series C Preferred Stock into
Cabletron Common Stock or, in the case of an Enterasys Transaction, to convert
or redeem its shares of Series C Convertible Preferred Stock in accordance with
Section 6 and Section 7 of the Series C Designation, as applicable. Following
receipt of such notice, each holder of Series C Preferred Stock shall have
fifteen (15) days to deliver a notice to Cabletron of its intention to convert
or redeem, or not to participate in any conversion or redemption of its shares
of Series C Preferred Stock, as applicable. Cabletron shall provide the Escrow
Agent with a copy of such notice received from any holder of Series C Preferred
Stock. With respect to an Enterasys Spinoff, if within such fifteen (15) day
period Cabletron shall not have received any objection in writing from such
holder as to the conversion of such holder's Series C Preferred Stock into
Cabletron Common Stock, or shall have received any notice from such holder
electing to convert its shares of Series C Preferred Stock into Cabletron Common
Stock or shall have received no notice, then not withstanding any contrary
provision contained in the Series C Designation, the Escrow Agent shall deliver
to Cabletron the certificate or certificates representing such holder's Parent
Preferred Escrow Shares, with directions to convert such holder's Parent
Preferred Escrow Shares into Cabletron Common Stock immediately prior to the
Enterasys Spinoff in the manner provided in the Series C Designation. With
respect to an Enterasys Transaction, if within such fifteen (15) day period
Cabletron shall not have received any objection
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in writing from such holder as to the redemption of such holder's shares of
Series C Preferred Stock, or shall have received no notice requesting conversion
of such holder's shares of Series C Preferred Stock into Cabletron Common Stock,
or shall have received any notice from such holder electing to redeem its shares
of Series C Preferred Stock or shall have received no notice, then not
withstanding any contrary provision contained in the Series C Designation, the
Escrow Agent shall deliver the certificate or certificates representing such
holder's Parent Preferred Escrow Shares to Cabletron with directions to redeem
such holder's Parent Preferred Escrow Shares immediately prior to the Enterasys
Transaction in the manner provided in the Series C Designation. 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 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 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, and of such holder's right to convert its shares of
Series C Preferred Stock into Cabletron Common Stock or to redeem its shares of
Series C Preferred Stock in accordance with Section 6 and Section 7 of the
Series C Designation, as applicable. Following receipt of such notice, each
holder of Series C Preferred Stock shall have fifteen (15) days to deliver a
notice to Cabletron of its intention to convert or redeem its shares of Series C
Preferred Stock. Cabletron shall provide the Escrow Agent with a copy of such
notice received from any holder of Series C Preferred Stock. If within such
fifteen (15) day period Cabletron shall not have received any objection in
writing from such holder as to the redemption of such holder's shares of Series
C Preferred Stock, or shall have received no notice requesting conversion of
such holder's shares of Series C Preferred Stock into Cabletron Common Stock, or
shall have received any notice from such holder electing to redeem its shares of
Series C Preferred Stock, or shall have received no notice, then notwithstanding
any contrary provision contained in the Series C Designation, the Escrow Agent
shall deliver the certificate or certificates representing such holder's Parent
Preferred Escrow Shares to Cabletron with directions to redeem such holder's
Parent Preferred Escrow Shares immediately following the Enterasys Transaction
or upon consummation of the Enterasys Spinoff, as applicable, in the manner
provided in the Series C Designation. 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, advising such holder of the termination of such
holder's redemption right and advising such holder of such holder's right to
convert its shares of Series C Preferred Stock into shares of Cabletron Common
Stock. Following receipt of such notice, each holder of Series C Preferred Stock
shall have fifteen (15) days to deliver a notice to Cabletron of its intention
to convert or not to participate in any conversion of its shares of Series C
Preferred Stock. Cabletron shall provide the Escrow Agent with a copy of such
notice received from any holder of Series C Preferred Stock. If within such
fifteen (15) day period Cabletron shall not have received any objection in
writing from such holder as to the conversion of such holder's Series C
Preferred Stock into Cabletron Common Stock, or shall have received any notice
from such holder electing to convert its shares of Series C Preferred Stock into
Cabletron Common Stock, or shall have received no notice, then notwithstanding
any contrary provision contained in the Series C Designation, the Escrow Agent
shall deliver to Cabletron the certificate or certificates representing such
holder's Parent Preferred Escrow Shares, with directions to convert such
holder's Parent Preferred Escrow Shares into Cabletron Common Stock in the
manner provided in the Series C Designation. 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.
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(iv) Promptly following the thirty (30) month anniversary of the Closing
Date, 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 Schedule 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 Schedule A are entitled as consideration
in connection with the Corporate Change, as provided in Section 6.4 of the
Series C Designation to the extent of each holder's beneficial interest in the
Preferred Shares Escrow Fund; 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 Schedule A, the amount of such stock,
securities or assets to which each holder is entitled as determined in the
manner provided in the Series C Designation to the extent of each holder's
beneficial interest in the Preferred Shares Escrow Fund.
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,
except as directed in this Agreement. Uninvested shares or funds held hereunder
shall not earn or accrue interest.
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 applicable, 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 applicable, 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(D) 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
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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 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 on the one hand and the Company on the other hand,
agree to indemnify the Escrow Agent against, and agree to 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.
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) five (5)
business days after posting, 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.:
</TABLE>
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<PAGE> 151
<TABLE>
<S> <C>
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
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: State Street Bank & Trust
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
Telephone No.: ----------------------------------
Facsimile No.: ----------------------------------
</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 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 ____________ Dollars ($____________) per annum,
which fee shall be paid in cash by Cabletron.
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 State
of Delaware, 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
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<PAGE> 152
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.
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 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.
C-9
<PAGE> 153
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-10
<PAGE> 154
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................................................
</TABLE>
C-11
<PAGE> 155
<TABLE>
<CAPTION>
PARENT
PREFERRED
ESCROW ESCROW
NAME SHARES SHARES
---- ------- ---------
<S> <C> <C>
Jeffrey M. Mullen...........................................
Kevin C. Quan...............................................
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-12
<PAGE> 156
EXHIBIT B
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 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 .
<TABLE>
<S> <C>
Witness:
----------------------------------------------------- -----------------------------------------------------
Name:
Signature(s) Guaranteed By:
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
C-13
<PAGE> 157
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 , 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> 158
(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> 159
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> 160
(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> 161
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> 162
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.
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<PAGE> 163
This Irrevocable Proxy is coupled with an interest as aforesaid and is
irrevocable.
Dated: August , 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> 164
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 , 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> 165
(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> 166
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.
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<PAGE> 167
(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> 168
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> 169
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> 170
This Irrevocable Proxy is coupled with an interest as aforesaid and is
irrevocable.
Dated: August , 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> 171
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.
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<PAGE> 172
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"), 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 Restated Certificate of Incorporation of Cabletron Systems,
Inc., a Delaware corporation, which is incorporated by
reference to Exhibit 3.1 of the registrant's registration
statement on Form S-1, No. 33-28055, (the "First Form S-1").
3.2 Certificate of Correction of the registrant's Restated
Certificate of Incorporation, which is incorporated by
reference to Exhibit 3.1.2 of the registrant's registration
statement on Form S-1, No. 33-42534 (the "Third Form S-1").
3.3 Certificate of Amendment of the Restated Certificate of
Incorporation of Cabletron Systems, Inc., which is
incorporated by reference to Exhibit 4.3 of the registrant's
registration statement on Form S-3, No. 33-54466, (the
"First Form S-3").
3.4 Certificate of Amendment of the Restated Certificate of
Incorporation of Cabletron Systems, Inc. filed with the
Secretary of State of the State of Delaware on July 7, 1995.
3.5 Certificate of Amendment of the Restated Certificate of
Incorporation of Cabletron Systems, Inc. filed with the
Secretary of State of the State of Delaware on August 4,
2000.
3.6 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.
3.7 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.
3.8 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 First
Form S-1.
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 Form of Opinion of Ropes & Gray as to the legality of the
securities to be issued.
8.1 Form of Opinion of Ropes & Gray as to certain United States
Federal income tax consequences of the merger.
8.2 Form of 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 the
Investors, which is incorporated by reference to Exhibit 2.2
of the registrant's Current Report on Form 8-K, filed on
September 11, 2000.
</TABLE>
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<PAGE> 173
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
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 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.
10.7 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.
10.8 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.
10.9 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.
10.10 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.
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>
---------------
* To be filed by amendment.
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
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<PAGE> 174
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, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy 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
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<PAGE> 175
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.
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<PAGE> 176
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the town of Rochester, State of New
Hampshire.
CABLETRON SYSTEMS, INC.
By: /s/ DAVID J. KIRKPATRICK
------------------------------------
David J. Kirkpatrick
Dated: October 12, 2000
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on October 12, 2000 by the
following persons in the capacities indicated. Each person whose signature
appears below hereby authorizes David J. Kirkpatrick with the full power of
substitution, to execute in the name and on behalf of such person any amendment
or any post-effective amendment to this Registration Statement and to file the
same, with exhibits thereto, and other documents in connection therewith, making
such changes in this Registration Statement as the Registrant deems appropriate,
and appoints David J. Kirkpatrick, with full power of substitution,
attorney-in-fact to sign any amendment and any post-effective amendment to this
Registration Statement and to file the same, with exhibits thereto, and other
documents in connection therewith.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ PIYUSH PATEL 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 (principal financial
David J. Kirkpatrick and accounting officer)
/s/ MICHAEL D. MYEROW Secretary and Director
---------------------------------------------------
Michael D. Myerow
/s/ CRAIG R. BENSON Director
---------------------------------------------------
Craig R. Benson
/s/ PAUL R. DUNCAN Director
---------------------------------------------------
Paul R. Duncan
</TABLE>
II-6
<PAGE> 177
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
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"), 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.
3.4 Certificate of Amendment of the Restated Certificate of
Incorporation of Cabletron Systems, Inc. filed with the
Secretary of State of the State of Delaware on July 7, 1995.
3.5 Certificate of Amendment of the Restated Certificate of
Incorporation of Cabletron Systems, Inc. filed with the
Secretary of State of the State of Delaware on August 4,
2000.
3.8 Form of Certificate of Designation, Preferences and Rights
of the Series C Convertible Preferred Stock of Cabletron
Systems, Inc.
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 Form of Opinion of Ropes & Gray as to the legality of the
securities to be issued.
8.1 Form of Opinion of Ropes & Gray as to certain United States
Federal income tax consequences of the merger.
8.2 Form of Opinion of McDermott, Will & Emery as to certain
United States Federal income tax consequences of the merger.
23.4 Consent of KPMG LLP.
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.
</TABLE>
