<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CISCO SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
CALIFORNIA 3679 77-0059951
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
170 WEST TASMAN DRIVE
SAN JOSE, CALIFORNIA 95134
(408) 526-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
LARRY R. CARTER
VICE PRESIDENT, FINANCE AND ADMINISTRATION AND CHIEF FINANCIAL OFFICER
CISCO SYSTEMS, INC.
170 WEST TASMAN DRIVE
SAN JOSE, CALIFORNIA 95134
(408) 526-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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EDWARD M. LEONARD, ESQ. LARRY SONSINI, ESQ.
MICHAEL J. CASEY, ESQ. WILSON, SONSINI, GOODRICH & ROSATI
JEFFREY P. HIGGINS, ESQ. 650 PAGE MILL ROAD
CRAIG E. WALKER, ESQ. PALO ALTO, CALIFORNIA 94304
BROBECK, PHLEGER & HARRISON LLP (415) 493-9300
TWO EMBARCADERO PLACE
2200 GENG ROAD
PALO ALTO, CALIFORNIA 94303
(415) 424-0160
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------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: At the
effective time of the merger of a wholly-owned subsidiary of the Registrant with
and into Stratacom, Inc., which shall occur as soon as practicable after the
effective date of this Registration Statement and the satisfaction of all
conditions to closing of such merger.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE(1)(2)
<S> <C> <C> <C> <C>
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Common Stock, no par
value................. 78,688,366 $54.8125 $4,313,106,061 $1,487,277.95
- ------------------------------------------------------------------------------------------------
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(1) Estimated solely for the purpose of computing the amount of the registration
fee, based on the average of the high and low prices for the Common Stock as
reported on the Nasdaq National Market on May 31, 1996 in accordance with
Rule 457 under the Securities Act of 1933, as amended.
(2) Of this amount, $728,349.98 was paid in connection with the filing of the
Preliminary Proxy material of StrataCom, Inc. on April 29, 1996. In
accordance with Rule 0-11(a)(2) under the Securities Exchange Act of 1934
and Section 6(b) under the Securities Act of 1933, the balance of the filing
fee is being submitted herewith.
------------------------
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 THE 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
CISCO SYSTEMS, INC.
CROSS-REFERENCE SHEET PURSUANT TO RULE 404(A) OF THE SECURITIES ACT OF 1933,
AS AMENDED, AND ITEM 501(B) OF REGULATION S-K,
SHOWING THE LOCATION OR HEADING IN THE PROXY
STATEMENT/PROSPECTUS OF THE INFORMATION REQUIRED BY PART I OF FORM S-4
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<CAPTION>
TITLE OF FORM S-4 ITEM LOCATION IN PROXY STATEMENT/PROSPECTUS
------------------------------------------ ----------------------------------------
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A. INFORMATION ABOUT THE TRANSACTION
Item 1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus.............................. Outside Front Cover Page
Item 2. Inside Front and Outside Back Cover Pages
of Prospectus........................... Table of Contents; Available
Information; Incorporation of Certain
Documents by Reference
Item 3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information........... Summary; Selected Historical and Pro
Forma Financial Data and Comparative Per
Share Data; Risk Factors
Item 4. Terms of the Transaction.................. Summary; The Merger and Related
Transactions; Comparison of Rights of
Stockholders of Cisco and StrataCom
Item 5. Pro Forma Financial Information........... Unaudited Pro Forma Condensed Combined
Financial Statements
Item 6. Material Contracts with the Company Being
Acquired................................ The Merger and Related Transactions
Item 7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters...................... Not Applicable
Item 8. Interests of Named Experts and Counsel.... Not Applicable
Item 9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
Item 10. Information With Respect to S-3
Registrants............................. Available Information; Incorporation of
Certain Documents by Reference; Summary;
Market Price and Dividend Information;
Selected Historical Financial Data and
Comparative Per Share Data
Item 11. Incorporation of Certain Information by
Reference............................... Incorporation of Certain Documents by
Reference
Item 12. Information With Respect to S-2 or S-3
Registrants............................. Not Applicable
Item 13. Incorporation of Certain Information by
Reference............................... Not Applicable
Item 14. Information With Respect to Registrants
Other Than S-2 or S-3 Registrants....... Not Applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
TITLE OF FORM S-4 ITEM LOCATION IN PROXY STATEMENT/PROSPECTUS
------------------------------------------ ----------------------------------------
<S> <C> <C>
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
Item 15. Information With Respect to S-3
Companies............................... Available Information; Incorporation of
Certain Documents by Reference; Summary;
Market Price and Dividend Information;
Selected Historical Financial Data and
Comparative Per Share Data
Item 16. Information With Respect to S-2 or S-3
Companies............................... Not Applicable
Item 17. Information With Respect to Companies
Other Than S-2 or S-3 Companies......... Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
Item 18. Information if Proxies, Consents or
Authorizations Are to Be Solicited...... Incorporation of Certain Documents by
Reference; Summary; The StrataCom
Meeting; The Merger and Related
Transactions; Stockholder Proposals
Item 19. Information if Proxies, Consents or
Authorizations Are Not to Be Solicited,
or in an Exchange Offer................. Not Applicable
</TABLE>
<PAGE> 4
LOGO
June 7, 1996
Dear Stockholder:
I am pleased to forward the enclosed Proxy Statement/Prospectus for the
Special Meeting (the "StrataCom Meeting") of Stockholders of StrataCom, Inc.
("StrataCom") to be held July 9, 1996 at 10:00 a.m. local time, at StrataCom's
facilities located at 1400 Parkmoor Avenue, San Jose, California. The purpose of
the StrataCom Meeting is to consider and vote upon the combination of StrataCom
with Cisco Systems, Inc. ("Cisco") through the merger (the "Merger") of Jet
Acquisition Corporation ("Merger Sub"), a wholly-owned subsidiary of Cisco, with
and into StrataCom.
The Merger is subject to the terms and conditions of an Agreement and Plan
of Reorganization, dated as of April 21, 1996, (the "Reorganization Agreement"),
by and among Cisco, Merger Sub and StrataCom. In the Merger, Merger Sub will be
merged with and into StrataCom; StrataCom will be the surviving corporation and
will thus become a wholly-owned subsidiary of Cisco. Pursuant to the Merger,
each outstanding share of the Common Stock of StrataCom ("StrataCom Common
Stock") will be converted, without any action on the part of the holder thereof,
into the right to receive that number of shares of Cisco Common Stock obtained
by dividing $50.00 by the average of the closing prices of Cisco's Common Stock
as quoted on the Nasdaq National Market for the fifteen trading days immediately
preceding (and including) the fifth trading day prior to the StrataCom Meeting;
provided that, if the actual quotient obtained thereby is less than one, the
quotient shall be one, and if the actual quotient obtained thereby is more than
1.2195, the quotient shall be 1.2195 (the "Exchange Ratio") of a share of
newly-issued Common Stock of Cisco ("Cisco Common Stock"). The shares of Cisco
Common Stock held by Cisco stockholders prior to the Merger will remain
unchanged by the Merger. Based on the capitalization of StrataCom and Cisco as
of the date of the Reorganization Agreement and assuming an Exchange Ratio of
1.0, it is expected that, as a result of the Merger, Cisco will issue
approximately 76 million shares by virtue of the Merger, which would represent
approximately 11.8% of Cisco's outstanding Common Stock.
The accompanying Proxy Statement/Prospectus provides a detailed description
of the Reorganization Agreement, certain business and financial information of
Cisco and StrataCom and other important information, which you are urged to read
carefully. Copies of the Reorganization Agreement and the form of Certificate of
Merger are attached to the Proxy Statement/Prospectus as Appendix A.
THE STRATACOM BOARD OF DIRECTORS (THE "BOARD") HAS CAREFULLY REVIEWED AND
CONSIDERED THE TERMS AND CONDITIONS OF THE REORGANIZATION AGREEMENT AND THE
PROPOSED MERGER. THE BOARD UNANIMOUSLY BELIEVES THE TERMS AND CONDITIONS OF THE
REORGANIZATION AGREEMENT AND THE PROPOSED MERGER ARE FAIR TO, AND IN THE BEST
INTERESTS OF, THE STRATACOM STOCKHOLDERS. THE BOARD HAS UNANIMOUSLY APPROVED THE
TERMS AND CONDITIONS OF THE REORGANIZATION AGREEMENT AND THE MERGER, AND
UNANIMOUSLY RECOMMENDS THAT THE STRATACOM STOCKHOLDERS VOTE "FOR" APPROVAL OF
THE REORGANIZATION AGREEMENT AND THE CONSUMMATION OF THE MERGER.
StrataCom's Board of Directors has received a written opinion dated as of
April 21, 1996 (the "Montgomery Opinion") from Montgomery Securities
("Montgomery"), StrataCom's financial advisor, that, as of such date, and based
upon and subject to the factors and assumptions set forth in such written
opinion the consideration to be received by the holders of StrataCom Common
Stock pursuant to the Reorganization Agreement was fair, from a financial point
of view. A copy of the opinion is attached to the Proxy Statement/Prospectus as
Appendix B. StrataCom stockholders are urged to read the Montgomery Opinion in
its entirety.
<PAGE> 5
The Reorganization Agreement and the consummation of the Merger must be
approved by the holders of StrataCom Common Stock representing a majority of the
outstanding shares of StrataCom Common Stock entitled to vote. Your vote on this
matter is very important. We urge you to review carefully the enclosed material
and to return your proxy promptly.
WHETHER OR NOT YOU PLAN TO ATTEND THE STRATACOM MEETING, PLEASE MARK, SIGN,
DATE AND PROMPTLY RETURN YOUR PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN THOUGH YOU
HAVE PREVIOUSLY RETURNED YOUR PROXY. YOU SHOULD NOT SEND IN THE STOCK
CERTIFICATE(S) FOR YOUR STRATACOM COMMON STOCK AT THIS TIME.
On behalf of the Board, I thank you for your support and urge you to vote
FOR approval of the Reorganization Agreement and the consummation of the Merger.
Sincerely,
LOGO
RICHARD M. MOLEY
President and Chief Executive Officer
<PAGE> 6
STRATACOM, INC.
1400 PARKMOOR AVENUE
SAN JOSE, CA 95126
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 9, 1996
------------------------
To the Stockholders of StrataCom, Inc.
NOTICE IS HEREBY GIVEN that a Special Meeting (the "StrataCom Meeting") of
Stockholders of StrataCom, Inc., a Delaware corporation ("StrataCom"), will be
held at 10:00 a.m., local time, on July 9, 1996 at StrataCom's facilities
located at 1400 Parkmoor Avenue, San Jose, California for the following
purposes:
1. To consider and vote upon a proposal to approve (a) the Agreement
and Plan of Reorganization, dated as of April 21, 1996, (the
"Reorganization Agreement"), by and among Cisco Systems, Inc., a California
corporation ("Cisco"), Jet Acquisition Corporation, a Delaware corporation
and a newly formed, wholly-owned subsidiary of Cisco ("Merger Sub"), and
StrataCom, and (b) the merger of Merger Sub with and into StrataCom (the
"Merger") whereby, among other things, StrataCom will survive the Merger
and become a wholly-owned subsidiary of Cisco, each outstanding share of
StrataCom Common Stock, $.01 par value per share ("StrataCom Common
Stock"), will be converted into the right to receive that number of shares
of Common Stock of Cisco, no par value per share ("Cisco Common Stock")
obtained by dividing $50.00 by the average of the closing prices of Cisco's
Common Stock as quoted on the Nasdaq National Market for the fifteen
trading days immediately preceding (and including) the fifth trading day
prior to the StrataCom Meeting; provided that, if the actual quotient
obtained thereby is less than one, the quotient shall be one, and if the
actual quotient obtained thereby is more than 1.2195, the quotient shall be
1.2195 (the "Exchange Ratio") of a share of newly-issued Cisco Common
Stock, and each outstanding option to purchase a share of StrataCom Common
Stock will be assumed by Cisco and converted into an option to purchase
that number of whole shares of Cisco Common Stock equal to the product of
the number of shares of StrataCom Common Stock that were issuable upon
exercise of such option immediately prior to the Effective Time and the
Exchange Ratio and rounded down to the nearest whole number of shares of
Cisco Common Stock, with the exercise price adjusted accordingly.
2. To transact such other business as may properly come before the
StrataCom Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement/Prospectus, a copy of which is attached hereto and made a part hereof
and which you are urged to read carefully.
The Board of Directors has fixed the close of business on May 20, 1996 as
the record date for determining stockholders entitled to notice of and to vote
at the StrataCom Meeting and any adjournment or postponement thereof. Approval
of the Reorganization Agreement and the Merger will require the affirmative vote
of the holders of StrataCom Common Stock representing a majority of the
outstanding shares of StrataCom Common Stock entitled to vote.
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE STRATACOM MEETING, YOU
ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN
THE POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE
STRATACOM MEETING IN PERSON. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED
IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS AT ANY TIME BEFORE IT HAS BEEN
VOTED AT THE SPECIAL MEETING. ANY STOCKHOLDER ATTENDING THE STRATACOM MEETING
MAY VOTE IN PERSON EVEN IF SUCH STOCKHOLDER HAS RETURNED A PROXY.
BY ORDER OF THE BOARD OF DIRECTORS
LOGO
CRAIG W. JOHNSON
Secretary
San Jose, California
June 7, 1996
<PAGE> 7
STRATACOM, INC.
PROXY STATEMENT
------------------------
CISCO SYSTEMS, INC.
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to the stockholders of
StrataCom, Inc., a Delaware corporation ("StrataCom"), in connection with the
solicitation of proxies by the StrataCom Board of Directors for use at the
Special Meeting of StrataCom stockholders (the "StrataCom Meeting") to be held
at 10 a.m., local time, on July 9, 1996, at StrataCom's facilities located at
1400 Parkmoor Avenue, San Jose, California, and at any adjournments or
postponements of the StrataCom Meeting.
This Proxy Statement/Prospectus constitutes the Prospectus of Cisco
Systems, Inc. ("Cisco") for use in connection with the offer and issuance of
shares of Common Stock of Cisco, no par value per share ("Cisco Common Stock"),
pursuant to the merger (the "Merger") of Jet Acquisition Corporation, a Delaware
corporation and a newly formed, wholly-owned subsidiary of Cisco ("Merger Sub"),
with and into StrataCom under the terms of the Agreement and Plan of
Reorganization (the "Reorganization Agreement"), dated as of April 21, 1996, by
and among Cisco, Merger Sub and StrataCom. A copy of the Reorganization
Agreement is attached hereto as Appendix A. As a result of the Merger, StrataCom
will become a wholly-owned subsidiary of Cisco.
Upon the effectiveness of the Merger, (a) each outstanding share of Common
Stock of StrataCom, $.01 par value per share ("StrataCom Common Stock"), will be
converted into the right to receive that number of shares of Cisco Common Stock
obtained by dividing $50.00 by the average of the closing prices of Cisco's
Common Stock as quoted on the Nasdaq National Market for the fifteen trading
days immediately preceding (and including) the fifth trading day prior to the
StrataCom Stockholders Meeting; provided that, if the actual quotient obtained
thereby is less than one, the quotient shall be one, and if the actual quotient
obtained thereby is more than 1.2195, the quotient shall be 1.2195 (the
"Exchange Ratio") of a share of newly-issued Cisco Common Stock and (b) each
outstanding option to purchase a share of StrataCom Common Stock ("StrataCom
Option") will be assumed by Cisco and converted into an option to purchase that
number of whole shares of Cisco Common Stock equal to the product of the number
of shares of StrataCom Common Stock that were issuable upon exercise of such
option immediately prior to the Effective Time and the Exchange Ratio and
rounded down to the nearest whole number of shares of Cisco Common Stock, with
the exercise price adjusted accordingly. Based on the foregoing formula, if the
price of Cisco Common Stock at the time of effectiveness of the Merger is in
excess of $50.00 per share, the Exchange Ratio shall be 1.0; if the price of
Cisco Common Stock at the time of effectiveness of the Merger is $41.00 per
share or less, the Exchange Ratio shall be 1.2195; and if the price of Cisco
Common Stock is between $41.00 and $50.00, the Exchange Ratio shall be between
1.0 and 1.2195 in accordance with the foregoing formula. An aggregate of
approximately 76.1 million shares of Cisco Common Stock (based on 76,149,718
shares of StrataCom Common Stock outstanding as of May 20, 1996 and an assumed
Exchange Ratio of 1.0 (the "Assumed Exchange Ratio")) will be issued by Cisco in
the Merger and options to purchase an aggregate of approximately 11.7 million
additional shares of Cisco Common Stock (based on 11,733,897 shares of StrataCom
Common Stock subject to outstanding StrataCom Options as of May 20, 1996 and on
the Assumed Exchange Ratio) will be assumed by Cisco in the Merger.
On June 6, 1996, the closing sales prices on the Nasdaq National Market of
Cisco Common Stock and StrataCom Common Stock were $55.75 and $55.375
respectively.
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to stockholders of StrataCom on or about June 10, 1996.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT/
PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. STRATACOM STOCKHOLDERS
ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY, PARTICULARLY THE MATTERS REFERRED TO UNDER
"RISK FACTORS" STARTING ON PAGE 16.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS JUNE 7, 1996.
<PAGE> 8
TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION................................................................. iii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... iv
TRADEMARKS............................................................................ v
SUMMARY............................................................................... 1
The Companies....................................................................... 1
The Merger; Conversion of Securities................................................ 2
The StrataCom Meeting............................................................... 3
Opinion of StrataCom's Financial Advisor............................................ 4
Recommendation of StrataCom's Board of Directors.................................... 5
Voting Agreements................................................................... 5
Affiliates Agreements............................................................... 5
Employment and Non-Competition Agreements........................................... 5
Stock Option Agreement.............................................................. 5
The Agreement and Plan of Reorganization............................................ 6
Interests of Certain Persons in the Merger.......................................... 8
Risk Factors........................................................................ 8
Regulatory Matters.................................................................. 8
Certain Federal Income Tax Considerations........................................... 8
Accounting Treatment................................................................ 9
Comparison of Stockholder Rights.................................................... 9
MARKET PRICE AND DIVIDEND INFORMATION................................................. 10
Cisco Market Price Data............................................................. 10
StrataCom Market Price Data......................................................... 11
Dividend Information................................................................ 11
Recent Closing Prices............................................................... 11
Number of Stockholders.............................................................. 11
SELECTED HISTORICAL PRO FORMA FINANCIAL DATA AND COMPARATIVE
PER SHARE DATA...................................................................... 12
Selected Historical Financial Data.................................................. 12
Unaudited Selected Pro Forma Combined Financial Data................................ 13
Comparative Per Share Data.......................................................... 14
RISK FACTORS.......................................................................... 16
Potential Fluctuations in Quarterly Results and Future Growth Rate.................. 16
Acquisition Strategy................................................................ 16
Competition......................................................................... 17
Dependence on New Product Development; Rapid Technological and Market Change........ 17
Patents, Intellectual Property and Licensing........................................ 18
Manufacturing Risks................................................................. 18
Volatility of Stock Price........................................................... 18
THE STRATACOM MEETING................................................................. 19
Date, Time and Place of the StrataCom Meeting....................................... 19
Matters to be Considered at the StrataCom Meeting...................................
Record Date and Shares Entitled to Vote............................................. 19
Voting of Proxies................................................................... 19
Vote Required....................................................................... 19
Quorum; Abstentions and Broker Non-Votes............................................ 20
Solicitation of Proxies and Expenses................................................ 20
Board Recommendation................................................................ 20
</TABLE>
i
<PAGE> 9
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PAGE
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THE MERGER AND RELATED TRANSACTIONS................................................... 21
General............................................................................. 21
Conversion of Shares................................................................ 21
Conversion of Options............................................................... 21
Exchange of Certificates............................................................ 21
Notification Regarding Options...................................................... 22
Background of the Merger............................................................ 22
Reasons for the Merger.............................................................. 24
Certain Information Concerning Cisco and StrataCom.................................. 27
Operations Following the Merger..................................................... 28
Opinion of StrataCom's Financial Advisor............................................ 28
Related Agreements.................................................................. 32
The Agreement and Plan of Reorganization............................................ 36
Regulatory Matters.................................................................. 45
Certain Federal Income Tax Considerations........................................... 45
Accounting Treatment................................................................ 47
No Appraisal Rights................................................................. 47
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS........................... 48
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.................. 52
COMPARISON OF RIGHTS OF STOCKHOLDERS OF CISCO AND STRATACOM........................... 54
Vote Required for Extraordinary Transactions........................................ 54
Director Nominations................................................................ 54
Amendment to Governing Documents.................................................... 55
Appraisal Rights.................................................................... 55
Derivative Action................................................................... 56
Stockholder Consent in Lieu of Meeting.............................................. 56
Fiduciary Duties of Directors....................................................... 56
Stockholder Proposals............................................................... 56
Indemnification..................................................................... 57
Director Liability.................................................................. 57
Anti-Takeover Provisions and Interested Stockholder Transactions.................... 58
Cumulative Voting................................................................... 58
STOCKHOLDER PROPOSALS................................................................. 59
EXPERTS............................................................................... 59
LEGAL MATTERS......................................................................... 59
APPENDICES
A -- Agreement and Plan of Reorganization and Certificate of Merger................. A-1
B -- Opinion of Montgomery Securities............................................... B-1
C -- Stock Option Agreement......................................................... C-1
</TABLE>
ii
<PAGE> 10
NO PERSON HAS BEEN AUTHORIZED BY CISCO OR STRATACOM TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/ PROSPECTUS
IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES
MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CISCO OR STRATACOM. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS OR A
SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT
WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATES
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION CONTAINED HEREIN SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
Cisco and StrataCom are each subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). These materials can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices at Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New York,
New York 10048. Copies of these materials can also be obtained from the
Commission at prescribed rates by writing to the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. In addition,
material filed by Cisco and material filed by StrataCom can be inspected at the
offices of the National Association of Securities Dealers, Inc., Market Listing
Section, 1735 K Street, N.W., Washington, D.C. 20006.
Under the rules and regulations of the Commission, the solicitation of
proxies from stockholders of StrataCom to approve the Reorganization Agreement
and the consummation of the Merger constitutes an offering of the Cisco Common
Stock to be issued in connection with the Merger. Accordingly, Cisco has filed
with the Commission a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to such offering. This Proxy Statement/Prospectus constitutes the
prospectus of Cisco that is filed as part of the Registration Statement. Other
parts of the Registration Statement are omitted from this Proxy
Statement/Prospectus in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement. Copies of the Registration Statement, including the
exhibits to the Registration Statement and other material that is not included
herein, may be inspected, without charge, at the offices of the Commission
referred to above, or obtained at prescribed rates from the Public Reference
Section of the Commission at the address set forth above.
iii
<PAGE> 11
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following Cisco documents filed with the Commission are incorporated by
reference in this Proxy Statement/Prospectus:
1. Cisco's Annual Report on Form 10-K for the fiscal year ended July
30, 1995.
2. Cisco's Quarterly Reports on Form 10-Q for the three-month periods
ended October 29, 1995 and January 28, 1996.
3. Cisco's Current Reports on Form 8-K filed on September 29, 1995,
November 3, 1995, April 2, 1996 and April 25, 1996.
4. Cisco's Report on Form 10-C filed on February 21, 1996.
5. The description of Cisco's capital stock contained in Cisco's
Registration Statement on Form 8-A dated January 8, 1990, including any
amendment or report filed for the purpose of updating such description.
The following StrataCom documents were filed with the Commission are
incorporated by reference in this Proxy Statement/Prospectus:
1. StrataCom's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
2. StrataCom's Quarterly Report on Form 10-Q for the three-month
period ended March 30, 1996.
3. StrataCom's Report on Form 10-C filed on February 16, 1996.
4. The description of StrataCom's capital stock contained in
StrataCom's Registration Statements on Form 8-A dated June 9, 1992,
September 26, 1994 and February 22, 1996, including any amendment or report
filed for the purpose of updating such description.
All reports and definitive proxy or information statements filed by Cisco
and StrataCom pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Proxy Statement/Prospectus and prior to the date
of the StrataCom Meeting shall be deemed to be incorporated by reference into
this Proxy Statement/Prospectus from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THERE WILL BE PROVIDED WITHOUT
CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A PROXY
STATEMENT/PROSPECTUS IS DELIVERED, UPON ORAL OR WRITTEN REQUEST OF ANY SUCH
PERSON, A COPY OF ANY OR ALL DOCUMENTS INCORPORATED BY REFERENCE HEREIN
(EXCLUDING EXHIBITS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN). WITH RESPECT TO CISCO'S DOCUMENTS, REQUESTS SHOULD BE
DIRECTED TO CISCO SYSTEMS, INC., INVESTOR RELATIONS OFFICE, 170 WEST TASMAN
DRIVE, SAN JOSE, CALIFORNIA 95134 (TELEPHONE (408) 526-4000). WITH RESPECT TO
STRATACOM'S DOCUMENTS, REQUESTS SHOULD BE DIRECTED TO STRATACOM, INC., INVESTOR
RELATIONS, 1400 PARKMOOR AVENUE, SAN JOSE, CALIFORNIA 95126 (TELEPHONE (408)
294-7600). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE
SPECIAL MEETING TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATES, ANY SUCH
REQUEST SHOULD BE MADE BY JUNE 30, 1996.
All information contained in this Proxy Statement/Prospectus relating to
Cisco has been supplied by Cisco, and all information relating to StrataCom has
been supplied by StrataCom.
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TRADEMARKS
CiscoFusion and Cisco IOS are trademarks and Cisco, Cisco Systems, Kalpana,
Lightstream, and the Cisco Systems logo are registered trademarks of Cisco
Systems, Inc. FastPacket, StrataCom, and the StrataCom logo are registered
trademarks of StrataCom, Inc. This Proxy Statement/Prospectus also contains
trademarks of companies other than Cisco, StrataCom and their respective
subsidiaries.
Cisco's quarter and fiscal year ends fall on the last Sunday of the month.
For ease of presentation, quarters and fiscal years are shown in this Proxy
Statement/Prospectus as calendar month ends.
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SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement/ Prospectus, the Appendices hereto, the Exhibits to the
Registration Statement (the "Exhibits") and documents incorporated by reference
herein. The summary does not contain a complete statement of material
information relating to the Reorganization Agreement, the Merger or the other
matters discussed herein and is subject to, and qualified in its entirety by,
the more detailed information and financial statements contained or incorporated
by reference in this Proxy Statement/Prospectus and the Appendices hereto and
the Exhibits. Stockholders are urged to read this Proxy Statement/Prospectus and
the Appendices and the Exhibits in their entirety.
This Proxy Statement/Prospectus contains forward-looking statements about
future results which are subject to risks and uncertainties. StrataCom's and
Cisco's actual results may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in "Risk Factors."
THE COMPANIES
Cisco.
Cisco develops, manufactures, markets and supports high-performance,
multiprotocol internetworking systems that link geographically dispersed
local-area and wide-area networks ("LANs" and "WANs", respectively) to form a
single information infrastructure. Cisco products include a wide range of
routers, LAN and Asynchronous Transfer Mode ("ATM") switches, dial-up access
servers and network management software solutions. The common thread running
through these products is the Cisco Internetwork Operating System ("Cisco IOS")
software, which today provides the native intelligence for more than 450,000
installed Cisco units and is an integral part of the products of more than two
dozen global partners.
The Cisco IOS software is a sophisticated suite of networking capabilities
that provides network connectivity, security and interoperability for all of
today's standard data protocols, media access methods and products from leading
information service vendors. This software resides at the heart of Cisco's
internetworking products and within the hardware of more than two dozen vendor
partners including Alcatel, Cabletron Systems, Compaq Computers, LanOptics, NEC,
Northern Telecom and Sun Microsystems. Cisco's modular hardware and software
architecture allows products to be configured in a wide variety of ways to suit
customers' specific needs.
Cisco expanded the Cisco IOS feature set by addressing new markets and
technologies. These include a range of remote access products, as well as
switching products. In 1994, Cisco introduced the CiscoFusion architecture,
which blends the capabilities of today's routed internetworks with the emerging
technologies of ATM, LAN workgroup switches and virtual LANs.
Cisco sells its products in approximately 75 countries through a
combination of direct sales, distributors, and direct and indirect resellers.
Cisco's worldwide Original Equipment Manufacturer ("OEM") customers and
resellers include Alcatel, AT&T, British Telecom, Cabletron Systems, Digital
Equipment Corporation, Ericsson, Hewlett-Packard, MCI, NEC, Olivetti, Siemens,
Sprint, Unisys and US West. Cisco has established technology partnerships with a
number of companies to address specialized segments of the internetworking
marketplace, and has partnered with leading WAN technology and service providers
to offer flexible options to customers. Cisco offers customer service and
support through its technical assistance centers in California, North Carolina,
Australia and Belgium, and provides on-site hardware maintenance on a worldwide
basis through IBM, AT&T and Hewlett-Packard.
Unless otherwise indicated, "Cisco" refers to Cisco Systems, Inc., a
California corporation, and its wholly-owned and majority-owned subsidiaries.
Cisco was incorporated in California in December 1984. Cisco's principal
executive offices are located at 170 West Tasman Drive, San Jose, California
95134. Its telephone number is (408) 526-4000.
<PAGE> 14
StrataCom.
StrataCom is a leader in providing worldwide, high-speed WAN solutions.
StrataCom supplies both frame relay and ATM switching equipment to private
enterprises and telecommunications service providers enabling these providers to
offer frame relay and ATM services.
StrataCom markets a complete line of communications switches and network
access devices that support both narrowband and broadband communications. These
products integrate multimedia communications over high-speed transmission
facilities to allow users to build efficient, flexible, reliable and manageable
WANs. Because StrataCom believes that network reliability is one of the most
important characteristics of network equipment, StrataCom's products are
designed to maximize network reliability through a variety of features
including: automatic redundancy for critical components; remote access and
diagnosis; and automatic alternate routing around link failures.
StrataCom has over 450 users in the enterprise market, in a wide range of
industries including financial institutions, insurance companies, airlines,
government agencies and manufacturers. StrataCom's customers include the British
Post Office, NationsBank, AT&T, British Telecom, CompuServe, LDDS/WorldCom and
Pacific Bell.
Unless otherwise indicated, "StrataCom" refers to StrataCom, Inc., a
Delaware corporation and its wholly-owned and majority-owned subsidiaries.
StrataCom was incorporated in California in 1986 and was reincorporated in
Delaware in 1987. StrataCom's principal executive offices are located at 1400
Parkmoor Avenue, San Jose, California, 95126. Its telephone number is (408)
294-7600.
Merger Sub.
"Merger Sub" refers to Jet Acquisition Corporation, a Delaware corporation
and wholly-owned subsidiary of Cisco formed solely for the purpose of the
Merger. Merger Sub's principal executive offices are located at 170 West Tasman
Drive, San Jose, California 95134. Its telephone number is (408) 526-4000.
THE MERGER; CONVERSION OF SECURITIES
Cisco, Merger Sub and StrataCom have entered into the Reorganization
Agreement, whereby Merger Sub will be merged with and into StrataCom, resulting
in StrataCom becoming a wholly-owned subsidiary of Cisco. See "The Merger and
Related Transactions."
Upon consummation of the Merger, each share of StrataCom Common Stock then
outstanding will be converted automatically into the right to receive that
number of shares of Cisco Common Stock obtained by dividing $50.00 by the
average of the closing prices of Cisco Common Stock as quoted on the Nasdaq
National Market for the fifteen trading days immediately preceding (and
including) the fifth trading day prior to the StrataCom Meeting; provided that,
if the actual quotient obtained thereby is less than one, the quotient shall be
one, and if the actual quotient obtained thereby is more than 1.2195, the
quotient shall be 1.2195 of a share of newly-issued Cisco Common Stock. Cash
will be paid in lieu of fractional shares. Based upon the capitalization of
StrataCom and Cisco as of the date of the Reorganization Agreement and on the
Assumed Exchange Ratio, the stockholders of StrataCom will own Cisco Common
Stock representing approximately 11.8% of the Cisco Common Stock outstanding
immediately after consummation of the Merger.
As of the Record Date, May 20, 1996, StrataCom had 76,149,718 shares of
Common Stock outstanding and 11,733,897 shares of Common Stock reserved for
issuance pursuant to outstanding stock options of which 2,538,648 options will
be vested and exercisable as of July 9, 1996. Based on a closing price of Cisco
Common Stock of $55.75 on June 6, 1996, and assuming exercise of vested stock
options, the aggregate value of the Merger consideration to be issued in the
transaction would be approximately $4.39 billion, giving pro forma effect to the
exercise of all such outstanding stock options. See "The Merger and Related
Transactions -- Conversion of Shares."
The shares of Cisco Common Stock outstanding prior to the Merger will
remain unchanged by the Merger, except for dilution of approximately 11.8%
resulting from the Merger.
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<PAGE> 15
Exchange of Certificates; Notification Regarding Options
Following effectiveness of the Merger, a letter of transmittal with
instructions will be mailed to each holder of record of StrataCom Common Stock
for use in exchanging StrataCom Common Stock certificates for Cisco Common Stock
Certificates. HOLDERS OF STRATACOM COMMON STOCK SHOULD NOT SUBMIT THEIR STOCK
CERTIFICATES FOR EXCHANGE UNTIL THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL AND
INSTRUCTIONS.
Following effectiveness of the Merger, Cisco will issue to each holder of a
StrataCom Option a document evidencing the assumption of such StrataCom Option
by Cisco. See "The Merger and Related Transactions -- Exchange of Certificates"
and "-- Notification Regarding Options."
Reasons for the Merger
Cisco and StrataCom have identified several potential benefits of the
Merger that they believe will contribute to the success of Cisco and StrataCom
(together, the "Combined Company"). The Combined Company will be able to, among
other things, enhance its competitiveness in global interconnectivity by
leveraging Cisco's technology and financial resources with StrataCom's
networking hardware and software. See "The Merger and Related
Transactions -- Background of the Merger" and "-- Reasons for the Merger."
Operations Following the Merger
Following the Merger, StrataCom will continue its operations as a
wholly-owned subsidiary of Cisco.
THE STRATACOM MEETING
Date, Time and Place of the StrataCom Meeting
The StrataCom Meeting will be held on July 9, 1996, at 10 a.m., local time,
at StrataCom's facilities located at 1400 Parkmoor Avenue, San Jose, California.
Purpose of the StrataCom Meeting
At the StrataCom Meeting, stockholders of record of StrataCom will be asked
to consider and vote upon a proposal to approve the Reorganization Agreement and
the consummation of the Merger. Stockholders of StrataCom will also consider and
vote upon any other matter that may properly come before the StrataCom Meeting
and any adjournment or postponement thereof. Representatives of StrataCom's
principal accountants are expected to be present at the StrataCom Meeting; will
have the opportunity to make a statement if they desire to do so; and are
expected to be available to respond to appropriate questions.
Record Date; Shares Entitled to Vote
Only holders of record of StrataCom Common Stock on May 20, 1996 (the
"Record Date") are entitled to notice of and to vote at the StrataCom Meeting.
At the close of business on the Record Date, there were outstanding and entitled
to vote 76,149,718 shares of StrataCom Common Stock, each of which will be
entitled to one vote on each matter to be acted upon.
Vote Required; Certain Voting Information
Approval of the Reorganization Agreement and the consummation of the Merger
will require the affirmative vote of the holders of a majority of the
outstanding shares of StrataCom Common Stock entitled to vote. See "The Merger
and Related Transactions -- Related Agreements -- Voting Agreements" below for
information with respect to voting agreements entered into by certain
stockholders of StrataCom. Approval of the Merger by the stockholders of
StrataCom and any abstentions from voting thereon may be deemed a "ratification"
of the Merger under Delaware law, which may provide either Cisco or StrataCom
with a complete or partial defense to any subsequent stockholder challenges to
the Merger. Neither Cisco nor StrataCom has a current intention to assert such
vote as a defense to any subsequent challenge to the transaction, but neither
company intends to waive any rights under Delaware law related thereto, and
either
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<PAGE> 16
company may in fact assert such a vote as a defense to any legal claim which may
be raised. Stockholders should therefore recognize that their vote may be used
as a defense to any such claim, and that such a vote may eliminate or impair
their legal right to challenge the transaction following the closing.
As of the Record Date, StrataCom's directors and executive officers (and
their affiliates), as a group, beneficially owned 4,391,200 shares (exclusive of
any shares issuable upon the exercise of options unexercised as of such date),
or approximately 5.8% of the 76,149,718 shares of StrataCom Common Stock that
were issued and outstanding as of such date. Each of Richard M. Moley, Richard
W. Lowenthal, Sanjay Subhedar and M. Kenneth Oshman, who, as of April 21, 1996,
in the aggregate beneficially owned 4,001,850 shares (exclusive of any shares
issuable upon the exercise of options), or approximately 5.3% of the shares of
StrataCom Common Stock, have agreed with Cisco to vote in favor of the
Reorganization Agreement and consummation of the Merger and have executed
irrevocable proxies in connection therewith. See "The Merger and Related
Transactions -- Related Agreements -- Voting Agreements." As of the Record Date,
there were 666 stockholders of record who held shares of StrataCom Common Stock
(although StrataCom has been informed that there are in excess of 18,000
beneficial owners), as shown on the records of StrataCom's transfer agent for
such shares. Based on the 76,149,718 shares of Common Stock outstanding and
entitled to vote on the Record Date, a total of 38,074,860 shares are required
to be voted in favor of the Merger in order for the Merger to be approved and
consummated. Accordingly, StrataCom's directors, executive officers and their
affiliates hold shares representing approximately 11.5% of the total number of
shares required for approval of the transaction.
Quorum; Abstentions and Broker Non-Votes
The required quorum for the transaction of business at the StrataCom
Meeting is a majority of the shares of StrataCom Common Stock issued and
outstanding as of the Record Date. Abstentions and broker non-votes each will be
included in determining the number of shares present and voting at the meeting
for the purpose of determining the presence of a quorum. Because approval of the
Reorganization Agreement and the consummation of the Merger requires the
affirmative vote of a majority of the outstanding shares of StrataCom Common
Stock entitled to vote thereon, abstentions and broker non-votes will have the
same effect as votes against the Reorganization Agreement and the consummation
of the Merger. However, under applicable Delaware law, an abstention may have
the same effect as a vote for the Merger in determining whether the stockholders
have "ratified" the Merger, and, accordingly, abstentions may impair the ability
of stockholders to maintain a subsequent challenge to the Merger. THE ACTIONS
PROPOSED IN THIS PROXY STATEMENT/PROSPECTUS ARE NOT MATTERS THAT CAN BE VOTED ON
BY BROKERS HOLDING SHARES FOR BENEFICIAL OWNERS WITHOUT THE OWNERS' SPECIFIC
INSTRUCTIONS. ACCORDINGLY, ALL BENEFICIAL OWNERS OF STRATACOM COMMON STOCK ARE
URGED TO RETURN THE ENCLOSED PROXY CARD MARKED TO INDICATE THEIR VOTES.
Appraisal Rights
Stockholders who dissent from the Merger will not be entitled to rights of
appraisal under Section 262 of the Delaware General Corporation Law. See "The
Merger and Related Transactions -- No Appraisal Rights." Accordingly,
stockholders who do not wish to receive Cisco Common Stock in exchange for their
shares of StrataCom Common Stock must liquidate their investment by selling
their stock in the market prior to consummation of the Merger.
OPINION OF STRATACOM'S FINANCIAL ADVISOR
Montgomery Securities ("Montgomery") has delivered to the StrataCom Board
of Directors its written opinion, dated as of April 21, 1996 (the "Montgomery
Opinion"), that, as of such date, and based upon and subject to the factors and
assumptions set forth in such written opinion, the consideration to be received
by the StrataCom stockholders pursuant to the Merger was fair, from a financial
point of view. The full text of the Montgomery Opinion is attached as Appendix B
to this Proxy Statement/Prospectus. StrataCom stockholders should read the
Montgomery Opinion in its entirety. See "The Merger and Related
Transactions -- Opinion of StrataCom's Financial Advisor."
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<PAGE> 17
RECOMMENDATION OF STRATACOM'S BOARD OF DIRECTORS
THE STRATACOM BOARD OF DIRECTORS (I) UNANIMOUSLY BELIEVES THE TERMS AND
CONDITIONS OF THE REORGANIZATION AGREEMENT AND THE PROPOSED MERGER ARE FAIR TO,
AND IN THE BEST INTERESTS OF, STRATACOM STOCKHOLDERS, (II) HAS UNANIMOUSLY
APPROVED THE TERMS OF THE REORGANIZATION AGREEMENT AND THE MERGER, AND (III)
UNANIMOUSLY RECOMMENDS THAT STRATACOM STOCKHOLDERS VOTE FOR THE APPROVAL OF THE
REORGANIZATION AGREEMENT AND THE CONSUMMATION OF THE MERGER. THE PRIMARY FACTORS
CONSIDERED AND RELIED UPON BY THE STRATACOM BOARD OF DIRECTORS IN REACHING ITS
RECOMMENDATION ARE REFERRED TO IN "THE MERGER AND RELATED
TRANSACTIONS -- REASONS FOR THE MERGER," "-- BACKGROUND OF THE MERGER" AND
"-- INTERESTS OF CERTAIN PERSONS IN THE MERGER."
VOTING AGREEMENTS
In connection with the Merger, certain stockholders of StrataCom have
entered into voting agreements with Cisco. The terms of such voting agreements
provide that each of such stockholders will vote all shares of StrataCom Common
Stock beneficially owned by such stockholders in favor of the approval of the
Reorganization Agreement and consummation of the Merger and against any
competing proposals (the "Voting Agreements"). The Voting Agreements are
accompanied by irrevocable proxies whereby the stockholders of StrataCom provide
to Cisco the right to vote their shares on the proposals relating to the
Reorganization Agreement and the Merger at the StrataCom Meeting and any
competing proposal at a StrataCom stockholder meeting. Holders of approximately
5.3% (as of April 21, 1996, exclusive of any shares issuable upon the exercise
of options held by such holders) of the shares of StrataCom Common Stock
entitled to vote at the stockholder meeting have entered into such Voting
Agreements and irrevocable proxies. See "The Merger and Related
Transactions -- Related Agreements -- Voting Agreements."
AFFILIATES AGREEMENTS
To help ensure that the Merger will be accounted for as a pooling of
interests and to help ensure compliance with Rule 145 under the Securities Act,
the affiliates of StrataCom and Cisco have executed agreements which, with
certain limited exceptions, prohibit such persons from disposing of their
StrataCom Common Stock or Cisco Common Stock, as the case may be, until Cisco
publicly releases financial results covering at least 30 days of combined
operations of Cisco and StrataCom after the Merger (the "Affiliates
Agreements"). See "The Merger and Related Transactions -- Related
Agreements -- Affiliates Agreements."
EMPLOYMENT AND NON-COMPETITION AGREEMENTS
Cisco has entered into an employment and non-competition agreement with
each of Richard M. Moley, Sanjay Subhedar, M. Alex Mendez, Charles Corbalis,
John G. Kirsch, Richard W. Lowenthal, Mark Chandler, Anthony Crabb and Kenneth
Shevock, and StrataCom has agreed to use its best efforts to cause certain other
employees to enter into similar employment and non-competition agreements with
Cisco. The employment and non-competition agreements are contingent upon the
occurrence of the Merger and will become effective at the effective time of the
Merger. See "The Merger and Related Transactions -- Related
Agreements -- Employment and Non-Competition Agreements."
STOCK OPTION AGREEMENT
Cisco and StrataCom have entered into a Stock Option Agreement, dated as of
April 21, 1996 (the "Stock Option Agreement"), pursuant to which Cisco has the
right, under certain circumstances, to acquire up to 11,395,300 shares of
authorized and unissued StrataCom Common Stock (or approximately 15% of the
outstanding StrataCom Common Stock prior to such issuance) at a price per share
of $50.00 (the "Cisco Option"). See "The Merger and Related
Transactions -- Related Agreements -- Stock Option Agreement."
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THE AGREEMENT AND PLAN OF REORGANIZATION
Representations, Warranties and Covenants
Under the Reorganization Agreement, Cisco and StrataCom made a number of
representations and warranties regarding their respective capital structures,
operations, financial conditions and other matters, including their authority to
enter into the Reorganization Agreement and to consummate the Merger. Each of
Cisco and StrataCom covenanted that, until the consummation of the Merger or the
termination of the Reorganization Agreement, it will carry on its business in
the ordinary course and attempt to preserve its present business and
relationships with customers, suppliers and others, it will not take certain
actions without the other's consent, and it will use its best efforts to
consummate the Merger. See "The Merger and Related Transactions -- The Agreement
and Plan of Reorganization -- Representations, Warranties and Covenants."
No Solicitation of Transactions
StrataCom has agreed not to, directly or indirectly, solicit, initiate
discussions, encourage or engage in negotiations with, or disclose any nonpublic
information relating to StrataCom or any of its subsidiaries to, any person
relating to a possible acquisition of StrataCom, except that, if the StrataCom
Board of Directors receives an unsolicited proposal, or written expression of
interest that StrataCom expects to lead to a proposal, that the StrataCom Board
of Directors believes would, if consummated, result in a transaction more
favorable to its stockholders from a financial point of view than the Merger (a
"Superior Proposal"), and the StrataCom Board of Directors determines in good
faith, after consultation with outside legal counsel, that such actions are
necessary for the StrataCom Board of Directors to comply with its fiduciary
duties under applicable law, then the StrataCom Board of Directors will not be
prevented from taking such other actions as are consistent with the fiduciary
obligations of the StrataCom Board of Directors. However, if in connection with
such a proposal, should the StrataCom Board of Directors withdraw or modify its
approval and recommendation of the Reorganization Agreement, and if Cisco or
StrataCom shall thereafter terminate the Reorganization Agreement, StrataCom
must promptly pay to Cisco an $80,000,000 termination fee (the "Termination
Fee"). In addition, under certain circumstances, the Cisco Option would then
become exercisable. See "The Merger and Related Transactions -- The Agreement
and Plan of Reorganization -- No Solicitation of Transactions."
Conditions to the Merger
In addition to the requirement that the requisite approval of StrataCom
stockholders be received, the consummation of the Merger is subject to a number
of other conditions that, if not satisfied or waived, may cause the Merger not
to be consummated and the Reorganization Agreement to be terminated. Each
party's obligation to consummate the Merger is conditioned on, among other
things, continued effectiveness of the Registration Statement, the accuracy of
the other party's representations, the other party's performance of its
covenants, the absence of a material adverse change with respect to the other
party, favorable legal opinions (including opinions to the effect that the
Merger will be treated as a tax-free reorganization for federal income tax
purposes), the receipt of a letter from Cisco's independent accountants and a
letter from StrataCom's independent accountants that the Merger will be treated
as a pooling of interests for accounting purposes and with respect to
StrataCom's ability to participate in a pooling-of-interests transaction,
respectively, and the absence of legal action preventing the consummation of the
Merger. At any time prior to the Merger, either party may waive compliance with
any of the agreements or satisfaction of any of the conditions in the
Reorganization Agreement; provided, however, that in the event that letters from
Cisco's and StrataCom's accountants confirming the availability of pooling of
interests accounting are not provided, neither party intends to waive compliance
with this condition.
Moreover, both Cisco and StrataCom undertake that they will not waive
compliance with such condition without filing a post-effective amendment to the
Registration Statement and re-soliciting approval of the Merger by StrataCom's
stockholders pursuant to an amended Proxy Statement/Prospectus contained in such
an amendment. In the event that StrataCom determines to waive any other
condition contained in the Reorganization Agreement it will also re-solicit the
approval of the Merger by StrataCom's stockholders if such re-solicitation is
required by applicable law or if such condition is deemed to be of such
materiality that
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StrataCom shall determine, in consultation with its counsel, that a
re-solicitation of stockholder approval is appropriate. StrataCom and Cisco have
no current intention to waive any specific condition to the Merger. See "The
Merger and Related Transactions -- The Agreement and Plan of
Reorganization -- Conditions to the Merger."
Closing
As promptly as practicable after the satisfaction or waiver of the
conditions set forth in the Reorganization Agreement, Merger Sub and StrataCom
will file a Certificate of Merger with the Secretary of State of Delaware and
the Recorder of the County in which the registered office of StrataCom is
located. The Merger will become effective upon such filings (the "Effective
Time"). It is anticipated that, assuming all conditions are met, the Merger will
occur and a closing will be held on or before July 9, 1996. See "The Merger and
Related Transactions -- Agreement and Plan of Reorganization -- Closing."
Termination, Amendments and Waivers
At any time prior to the Effective Time, the Reorganization Agreement may
be terminated under certain circumstances, including, without limitation, by
mutual consent of Cisco and StrataCom, or by either Cisco or StrataCom if the
other party commits certain material breaches of any representation, warranty or
covenant made by that other party in the Reorganization Agreement. In addition,
the Reorganization Agreement may be terminated by either party if the Merger is
not consummated on or before November 15, 1996, or by Cisco or, under certain
circumstances, by StrataCom, if the StrataCom Board of Directors withdraws or
modifies its recommendation of the Reorganization Agreement or the Merger in a
manner adverse to Cisco.
The Reorganization Agreement may be amended by Cisco and StrataCom at any
time before or after approval by the StrataCom and Merger Sub stockholders,
except that, after such approval, no amendment may be made which (i) alters or
changes the amount or kind of consideration to be received upon conversion of
the StrataCom Common Stock, (ii) alters or changes any term of the Certificate
of Incorporation of the surviving corporation to be effected by the Merger, or
(iii) alters or changes any of the terms and conditions of the Reorganization
Agreement if such alteration or change would adversely affect the holders of
StrataCom or Merger Sub Common Stock. See "The Merger and Related
Transactions -- Agreement and Plan of Reorganization -- Termination, Amendments
and Waivers."
At any time prior to the Effective Time, either of Cisco or StrataCom may,
to the extent legally allowed, by execution of an instrument duly authorized in
writing signed on behalf of such party (a) extend the time for the performance
of any of the obligations or acts of the other party set forth in the
Reorganization Agreement; (b) waive any inaccuracies in the representations and
warranties made to such party in the Reorganization Agreement or in any document
delivered pursuant to the Reorganization Agreement; and (c) waive compliance
with any of the agreements or conditions for the benefit of such party under the
Reorganization Agreement.
Fees and Expenses; Termination Fee
Whether or not the Merger is consummated, all costs and expenses incurred
in connection with the Reorganization Agreement and the Merger will be paid by
the party incurring the expense.
Notwithstanding the foregoing, in certain events, if, under certain
circumstances, Cisco or StrataCom terminates the Reorganization Agreement,
StrataCom must promptly pay to Cisco all of the fees and out-of-pocket costs
incurred by Cisco in connection with the Reorganization Agreement and the
Merger, and in certain cases, a cash sum of up to $80,000,000 (in which cases
the Cisco Option could also become exercisable). See "The Merger and Related
Transactions -- Agreement and Plan of Reorganization -- Fees and Expenses;
Termination Fee."
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Indemnification and Insurance
Cisco has agreed that, from and after the Effective Time, Cisco will, and
will cause StrataCom to, indemnify the present and former officers, directors,
employees and agents of StrataCom against certain liabilities, including,
without limitation, liabilities arising out of or pertaining to the transactions
contemplated by the Reorganization Agreement. As of the Effective Time, Cisco
shall assume, and shall also cause StrataCom to maintain, all obligations of
StrataCom and its officers and directors under any indemnification agreements in
effect on April 21, 1996 to which StrataCom is a party.
For four years after the Effective Time, Cisco will either (i) at all times
maintain at least $500,000,000 in cash, marketable securities and unrestricted
lines of credit to be available to indemnify the present and former officers,
directors, employees and agents of StrataCom against certain liabilities, or
(ii) cause the Surviving Corporation to use its best efforts to provide
directors and officers' liability insurance on terms substantially equivalent to
the StrataCom directors and officers liability insurance policy in effect on the
date of the Reorganization Agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the StrataCom Board of Directors with
respect to the Reorganization Agreement and the Merger, the StrataCom
stockholders should be aware that certain directors and officers of StrataCom
have interests in the Merger that present them with potential conflicts of
interest. See "The Merger and Related Transactions -- Interests of Certain
Persons in the Merger."
RISK FACTORS
IN CONSIDERING WHETHER TO APPROVE THE REORGANIZATION AGREEMENT AND THE
CONSUMMATION OF THE MERGER, STRATACOM STOCKHOLDERS SHOULD CAREFULLY REVIEW AND
CONSIDER THE INFORMATION CONTAINED BELOW UNDER THE CAPTION "RISK FACTORS."
REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the United States
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the United States Justice Department (the
"Antitrust Division"), and specified waiting period requirements have been
satisfied. Each of Cisco and StrataCom originally filed their respective
Notification and Report Forms required under the HSR Act with the FTC and the
Antitrust Division on April 23, 1996 and the applicable waiting period under the
HSR Act terminated on May 31, 1996. See "The Merger and Related
Transactions -- Regulatory Matters."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Merger is intended to qualify as a "reorganization" under Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code") (a
"Reorganization"), in which case no gain or loss would generally be recognized
by the stockholders of StrataCom on the exchange of their shares of StrataCom
Common Stock for shares of Cisco Common Stock. If the Merger were not to so
qualify, the exchange of shares would be taxable. It is a condition to the
obligation of each of the parties to consummate the Merger that they receive an
opinion of their respective counsel to the effect that the Merger will qualify
as a Reorganization, and the parties do not intend to waive such condition.
STRATACOM STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES. See "The Merger and Related
Transactions -- Certain Federal Income Tax Considerations."
8
<PAGE> 21
ACCOUNTING TREATMENT
The Merger is intended to be treated as a pooling of interests for
accounting purposes. As a condition to Cisco's and StrataCom's obligations to
consummate the Merger, Cisco will receive a letter to such effect from Coopers &
Lybrand L.L.P., independent accountants, and StrataCom will receive a letter
with respect to StrataCom's ability to participate in a pooling-of-interests
transaction from Arthur Andersen LLP, independent accountants. See "The Merger
and Related Transactions -- Accounting Treatment."
COMPARISON OF STOCKHOLDER RIGHTS
The rights of StrataCom stockholders are currently governed by the Delaware
General Corporation Law and by StrataCom's Restated Certificate of Incorporation
(the "StrataCom Certificate") and Bylaws (the "StrataCom Bylaws"). Upon
consummation of the Merger, StrataCom stockholders will become stockholders of
Cisco, which is a California corporation, and their rights as stockholders of
Cisco will be governed by the California Corporations Code and by Cisco's
Restated Articles of Incorporation (the "Cisco Articles") and Amended and
Restated Bylaws (the "Cisco Bylaws"). See "Comparison of Rights of Holders of
StrataCom Common Stock and Cisco Common Stock" for a summary of the material
differences between the rights of holders of StrataCom Common Stock and Cisco
Common Stock.
9
<PAGE> 22
MARKET PRICE AND DIVIDEND INFORMATION
CISCO MARKET PRICE DATA
Cisco's Common Stock is traded on the Nasdaq National Market under the
symbol "CSCO." The following table sets forth the range of high and low closing
sales prices reported on the Nasdaq National Market for Cisco Common Stock for
the periods indicated, adjusted to reflect the two-for-one stock splits effected
in each of March 1993 and 1994 and February 1996.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1993
First Quarter........................................... $ 7.39 $ 5.63
Second Quarter.......................................... 11.56 7.31
Third Quarter........................................... 11.97 10.11
Fourth Quarter.......................................... 14.06 10.10
Fiscal 1994
First Quarter........................................... 14.69 10.44
Second Quarter.......................................... 17.69 12.38
Third Quarter........................................... 20.19 14.50
Fourth Quarter.......................................... 16.25 9.53
Fiscal 1995
First Quarter........................................... 15.00 10.44
Second Quarter.......................................... 18.31 15.06
Third Quarter........................................... 20.38 16.28
Fourth Quarter.......................................... 29.31 19.69
Fiscal 1996
First Quarter........................................... 38.63 26.13
Second Quarter.......................................... 43.94 32.69
Third Quarter (through June 6, 1996).................... $57.88 42.25
</TABLE>
10
<PAGE> 23
STRATACOM MARKET PRICE DATA
StrataCom's Common Stock is traded on the Nasdaq National Market under the
symbol "STRM." The following table sets forth the range of high and low closing
prices reported on the Nasdaq National Market for StrataCom Common Stock for the
periods indicated, adjusted to reflect the two-for-one stock splits effected in
December 1994 and February 1996:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1993
First Quarter........................................... $ 4.63 $ 2.56
Second Quarter.......................................... 3.81 2.63
Third Quarter........................................... 3.63 2.85
Fourth Quarter.......................................... 4.94 3.31
Fiscal 1994
First Quarter........................................... 4.75 3.25
Second Quarter.......................................... 5.94 4.32
Third Quarter........................................... 11.19 5.13
Fourth Quarter.......................................... 18.63 8.69
Fiscal 1995
First Quarter........................................... 23.50 16.13
Second Quarter.......................................... 25.13 16.00
Third Quarter........................................... 28.75 23.25
Fourth Quarter.......................................... 41.00 20.50
Fiscal 1996
First Quarter........................................... 42.25 28.88
Second Quarter (through June 6, 1996)................... 57.50 32.75
</TABLE>
DIVIDEND INFORMATION
Neither Cisco nor StrataCom has ever paid any cash dividends on its stock,
and both anticipate that they will continue to retain any earnings for the
foreseeable future for use in the operation of their respective businesses.
RECENT CLOSING PRICES
The following table sets forth the closing prices per share of Cisco Common
Stock and StrataCom Common Stock on the Nasdaq National Market on April 19,
1996, the last trading day before announcement of the proposed Merger, and on
June 6, 1996, the latest practicable trading day before the printing of this
Proxy Statement/Prospectus, and the equivalent per share prices for StrataCom
Common Stock based on the Cisco Common Stock prices:
<TABLE>
<CAPTION>
STRATACOM
CISCO STOCK STRATACOM STOCK EQUIVALENT(1)
----------- --------------- -------------
<S> <C> <C> <C>
April 19, 1996.............................. $ 47.75 $ 38.75 $ 50.00
June 6, 1996................................ 55.75 55.38 55.75
</TABLE>
- ---------------
(1) Represents the equivalent of one share of StrataCom Common Stock calculated
by multiplying the closing price per share of Cisco Common Stock by the
Assumed Exchange Ratio.
Because the market price of Cisco Common Stock is subject to fluctuation,
the market value of the shares of Cisco Common Stock that holders of StrataCom
Common Stock will receive in the Merger may increase or decrease prior to and
following the Merger. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS
FOR CISCO COMMON STOCK AND STRATACOM COMMON STOCK. NO ASSURANCE CAN BE GIVEN AS
TO THE FUTURE PRICES OR MARKETS FOR CISCO COMMON STOCK OR STRATACOM COMMON
STOCK.
NUMBER OF STOCKHOLDERS
As of May 20, 1996, there were 666 stockholders of record who held shares
of StrataCom Common Stock (although StrataCom has been informed that there are
in excess of 18,000 beneficial owners), as shown on the records of StrataCom's
transfer agent for such shares.
11
<PAGE> 24
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA AND
COMPARATIVE PER SHARE DATA
The following selected historical financial data of Cisco and StrataCom is
unaudited and has been derived from their respective historical consolidated
financial statements and should be read in conjunction with such consolidated
financial statements and the notes thereto that are incorporated herein by
reference. The selected pro forma combined financial information of Cisco and
StrataCom is derived from the unaudited pro forma condensed combined financial
statements and should be read in conjunction with such pro forma statements and
notes thereto included elsewhere in this Proxy Statement/Prospectus.
The pro forma financial information does not purport to represent what
Cisco's financial position or results of operations would have actually been had
the Merger occurred at the beginning of the earliest period presented or to
project Cisco's financial position or results of operations for any future date
or period. In addition, it does not incorporate any benefits from cost savings
or synergies of operations of the Combined Company.
The selected historical financial information as of January 31, 1996 and
for the six months ended January 31, 1995 and 1996 for Cisco and as of March 31,
1996 and for the three months ended March 31, 1995 and 1996 for StrataCom has
been derived from unaudited consolidated financial statements, but in the
respective companies' opinions reflects all adjustments (consisting only of
normal, recurring adjustments) necessary for the fair presentation of their
financial conditions as of that date and the results of operations for those
unaudited interim periods. The results of operations for those interim periods
are not necessarily indicative of the results to be expected for the entire
year.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEAR ENDED JULY 31, JANUARY 31,
-------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CISCO
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
Net sales.................... $183,184 $339,623 $649,035 $1,242,975 $1,978,916 $847,822 $1,536,673
Operating income............. 66,189 129,387 263,571 488,116 642,939 229,987 558,078
Net income................... 43,189 84,386 171,955 314,867 421,008 152,255 365,097
Net income per share(1)...... $ 0.09 $ 0.17 $ 0.33 $ 0.59 $ 0.76 $ 0.28 $ 0.63
Common and common equivalent
shares used in computing
per share
calculation.(1)............ 500,640 508,144 516,266 530,102 554,596 548,284 579,137
</TABLE>
- ---------------
(1) Gives effect to the Cisco two-for-one stock split effective February 16,
1996.
<TABLE>
<CAPTION>
JULY 31,
-------------------------------------------------------- JANUARY 31,
1991 1992 1993 1994 1995 1996
-------- -------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE
SHEET DATA:
Working capital.............. $114,711 $168,753 $148,264 $ 302,165 $ 658,213 $ 822,127
Total assets................. 154,145 323,933 595,213 1,053,694 1,757,279 2,365,832
Total stockholders' equity... 127,459 245,610 475,181 848,182 1,378,731 1,811,328
</TABLE>
12
<PAGE> 25
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------- ------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STRATACOM
HISTORICAL CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenues......................... $39,516 $55,576 $74,364 $154,244 $331,744 $71,587 $101,909
Income from operations............... (223) 4,519 7,779 28,032 77,015 16,189 24,187
Net income........................... 53 4,502 7,528 19,772 52,474 11,146 15,969
Net income per share(1).............. $ -- $ 0.08 $ 0.11 $ 0.27 $ 0.66 $ 0.14 $ 0.20
Weighted average common shares and
equivalents(1)..................... 52,372 59,448 65,688 72,224 79,814 78,890 81,344
</TABLE>
- ------------------------------
(1) Gives effect to the StrataCom two-for-one stock split effective February 15,
1996.
<TABLE>
<CAPTION>
DECEMBER 31, MARCH
------------------------------------------------- 31,
1991 1992 1993 1994 1995 1996
------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE SHEET DATA:
Working capital............................... $13,505 $30,402 $37,025 $111,284 $165,272 $175,623
Total assets.................................. 28,293 46,816 60,356 187,361 295,403 323,965
Total stockholders' equity.................... 15,354 34,694 44,794 149,516 232,075 264,240
</TABLE>
UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JULY 31, JANUARY 31,
---------------------------------- ---------------------
1993 1994 1995 1995 1996
-------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS DATA:
Net sales......................................... $714,533 $1,334,436 $2,232,652 $949,942 $1,716,801
Operating income.................................. 269,960 500,170 697,963 250,280 600,362
Net income(1)..................................... 176,201 322,981 456,489 165,991 391,124
Net income per share(1)........................... $ 0.30 $ 0.54 $ 0.72 $ 0.27 $ 0.59
Common and common equivalent shares used in
computing per share calculation................. 580,623 596,539 630,711 621,372 659,625
</TABLE>
<TABLE>
<CAPTION>
JANUARY
31,
1996
----------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Cash, cash equivalents and short term
investments..................................... $ 613,283
Working capital(2)................................ 972,399
Total assets...................................... 2,661,235
Long-term liabilities............................. 1,539
Total stockholders' equity(2)..................... 2,028,403
Book value per share(2)........................... $ 3.18
</TABLE>
- ---------------
(1) The pro forma financial information includes pro forma adjustments which
increase income tax expense by $236,000, $2,546,000, $2,241,000, $1,704,000
and 2,392,000 for the six months ended January 31, 1995 and 1996 and the
years ended July 31, 1993, 1994 and 1995, respectively. These amounts
reflect the impact of the reversal of valuation allowances realized in the
historical financial statements of StrataCom which would not have been
present had the companies always been combined historically.
(2) Net of estimated expenses of $15.0 million expected to be incurred by the
Combined Company in connection with the Merger.
13
<PAGE> 26
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Cisco
and StrataCom and combined per share data on an unaudited pro forma basis after
giving effect to the Merger on a pooling-of-interests basis assuming that one
share of Cisco Common Stock is issued in exchange for each share of StrataCom
Common Stock. This data should be read in conjunction with the selected
historical financial data and the historical financial statements of Cisco and
StrataCom and the notes thereto that are incorporated herein by reference. The
selected pro forma combined financial information of Cisco and StrataCom is
derived from the unaudited pro forma condensed combined financial statements and
should be read in conjunction with such pro forma statements and notes thereto
included elsewhere in this Proxy Statement/Prospectus. The pro forma information
is presented for illustrative purposes only and is not necessarily indicative of
the combined financial position or results of operations of future periods or
the results that actually would have been realized had the entities been a
single entity during the periods presented.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JULY 31, JANUARY 31,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Cisco Historical Per Common Share:
Net income....................................... $0.33 $0.59 $0.76 $0.28 $0.63
Book value(1).................................... 0.96 1.65 2.53 3.21
Pro Forma Combined -- Per Cisco Share(2)(3):
Net income....................................... 0.30 0.54 0.72 0.27 0.59
Book value(1).................................... 3.18
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
TWELVE MONTHS ENDED JUNE ENDED
30, DECEMBER 31,
------------------------- ---------------
1993 1994 1995 1994 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
StrataCom Historical Per Common Share:
Net income....................................... $0.10 $0.15 $0.50 $0.19 $0.35
Book value(1).................................... 0.64 0.81 2.49 3.12
Pro Forma Combined -- Per StrataCom Share(2)(3)(4):
Net income....................................... 0.30 0.54 0.72 0.27 0.59
Book value(1).................................... 3.18
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
StrataCom Historical Per Common Share:
Net income....................................... $0.11 $0.27 $0.66 $0.14 $0.20
Book value(1).................................... 0.72 2.11 3.12 3.48
</TABLE>
- ---------------
(1) Historical book value per share is computed by dividing stockholders' equity
for Cisco and StrataCom by the number of shares of common stock outstanding
at the end of each period for Cisco and StrataCom. Pro forma book value per
share is computed by dividing pro forma stockholders' equity by the pro
forma number of shares of common stock outstanding at the end of the period.
(2) The pro forma combined per share information combines financial information
of Cisco for the fiscal years ended July 31, 1993, 1994 and 1995 and the six
months ended January 31, 1995 and 1996 with the financial information of
StrataCom for the twelve months ended June 30, 1993, 1994 and 1995 and the
six months ended December 31, 1994 and 1995, respectively.
(3) Cisco and StrataCom estimate that they will incur merger-related expenses,
consisting primarily of transaction costs for investment bankers fees,
attorneys, accountants, financial printing and other related charges of
approximately $15.0 million. The pro forma combined balance sheet data gives
effect to such
14
<PAGE> 27
expenses as if they had been incurred as of January 28, 1996, but the pro
forma combined condensed statements of operations do not give effect to such
expenses.
The pro forma financial information includes pro forma adjustments which
increase income tax expense by $236,000, $2,546,000, $2,241,000, $1,704,000
and $2,392,000 for the six months ended January 31, 1995 and 1996 and the
years ended July 31, 1993, 1994 and 1995, respectively. These amounts
reflect the impact of the reversal of valuation allowances realized in the
historical financial statements of StrataCom which would not have been
present had the companies always been combined historically.
(4) The unaudited equivalent StrataCom pro forma per share amounts are
calculated by multiplying the Cisco combined pro forma per share amounts by
the Exchange Ratio.
15
<PAGE> 28
RISK FACTORS
The following risk factors should be considered by holders of StrataCom
Common Stock in evaluating whether to approve the Reorganization Agreement and
the consummation of the Merger and thereby become holders of Cisco Common Stock.
These factors should be considered in conjunction with the other information
contained in this Proxy Statement/Prospectus, the Appendices and Exhibits hereto
and the documents incorporated by reference herein.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS AND FUTURE GROWTH RATE
Cisco's operating results have in the past been, and may continue to be,
subject to quarterly fluctuations as a result of a number of factors. These
factors include the integration of people, operations and products from acquired
businesses and technologies; increased competition, which Cisco expects; the
introduction and market acceptance of new products, including high-speed
switching and ATM technologies; variations in sales channels, product costs or
mix of products sold; the timing of orders and manufacturing lead times; and
changes in general economic conditions and specific economic conditions in the
computer and networking industries, any of which could have an adverse impact on
operations and financial results. For example, in the second quarter of fiscal
1995, Cisco acquired substantially all of the assets of LightStream and incurred
an expense of approximately $95 million associated with purchased research and
development, which resulted in net income being significantly lower than in the
prior quarter. Additionally, the dollar amount of large orders for Cisco's
products have been increasing, and therefore the operating results for a quarter
could be materially adversely affected if a number of large orders are either
not received or are delayed, due for example, to cancellations, delays or
deferrals by customers. Further, Cisco's expense levels are required, in part,
to generate future net sales. If net sales are below expectations, operating
results are likely to be adversely affected. Net income may be
disproportionately affected by a reduction in net sales because a
proportionately smaller amount of Cisco's expenses varies with its net sales.
Cisco expects that in the future, its net sales will grow at a slower rate
than was experienced in previous periods and that on a quarter-to-quarter basis,
Cisco's growth in net sales may be significantly lower than its historical
quarterly growth rate. Cisco has been experiencing longer sales cycles for its
core products resulting from larger order sizes and believes that some customers
may be deferring purchases in order to complete detailed reviews of their
overall network plans. In addition, in response to customer demand, Cisco has,
from time to time, reduced its product manufacturing lead times and its backlog
of orders. To the extent that backlog is reduced during any particular period,
it would result in more variability and less predictability in Cisco's
quarter-to-quarter net sales and operating results.
Cisco's growth is dependent upon market growth and its ability to enhance
its existing products and introduce new products on a timely basis. Cisco must
also maintain its ability to manage any such growth effectively. Failure to
manage growth effectively could materially and adversely affect Cisco's business
and operating results. Cisco's growth and ability to meet customer demand also
depend, in part, on its ability to obtain timely supplies of parts from its
vendors. While lead times for commodity components have improved recently, some
components, particularly proprietary ASIC's and other networking specific
components, continue to be in short supply. An inability to obtain these parts
could have a material and adverse affect on Cisco's growth.
Cisco also expects that gross margins may be adversely affected by
increases in material or labor costs and decreases in average selling prices
resulting from a number of factors, including heightened price competition, and
by changes in channels of distribution or in the mix of products sold. In
addition, Cisco expects its operating margins may decrease as it continues to
hire additional personnel and to increase other operating expenses to support
its business. The results of operations for the first two quarters of fiscal
1996 are not necessarily indicative of results to be expected in future periods.
ACQUISITION STRATEGY
In part, Cisco has addressed, and expects to continue to address, the need
to develop new products through the acquisition of other companies.
Acquisitions, such as the Merger, involve numerous risks
16
<PAGE> 29
including difficulties in the assimilation of the operations, technologies and
products of the acquired companies, the diversion of management's attention from
other business concerns, risks of entering markets in which Cisco has no or
limited direct prior experience and where competitors in such markets have
stronger market positions, and the potential loss of key employees of the
acquired company. Achieving the anticipated benefits of an acquisition will
depend in part upon whether the integration of the two companies' businesses is
accomplished in an efficient and effective manner, and there can be no assurance
that this will occur. The successful combination of companies in the high
technology industry may be more difficult to accomplish than in other
industries. The combination of the two companies will require, among other
things, integration of the companies' respective product offerings and
coordination of their sales and marketing and research and development efforts.
There can be no assurance that such integration will be accomplished smoothly or
successfully. The difficulties of such integration may be increased by the
necessity of coordinating geographically separated organizations. The
integration of certain operations following an acquisition, including the
Merger, will require the dedication of management resources that may distract
attention from the day-to-day business of the Combined Company. The inability of
management to successfully integrate the operations of the two companies or any
other company which Cisco may acquire, could have a material adverse effect on
the business and results of operations of Cisco. In addition, as commonly occurs
with mergers of technology companies, during the pre-merger and integration
phases, aggressive competitors may undertake initiatives to attract customers
and to recruit key employees through various incentives.
COMPETITION
The computer networking industry is intensely competitive and subject to
rapid technological change. Cisco expects competition to increase significantly
in the future from existing competitors and a number of companies that may enter
Cisco's existing or future markets. Increased competition could result in price
reductions, reduced margins and loss of market share, any or all of which would
materially and adversely affect Cisco's business and operating results. Current
competitors or new market entrants may develop new products with features that
could adversely affect the competitive position of Cisco's products. There can
be no assurance that Cisco will be successful in selecting, developing,
manufacturing and marketing new products or enhancing its existing products or
that Cisco will be able to respond effectively to technological changes, new
standards or product announcements by competitors. Cisco's competitors include
many large domestic and foreign companies as well as emerging companies
attempting to sell products to specialized markets such as those addressed by
Cisco. Several of Cisco's competitors have recently been acquired by major
networking companies. These acquisitions are likely to permit Cisco's
competitors to devote significantly greater resources to the development and
marketing of new competitive products and the marketing of existing competitive
products to their larger installed bases. Cisco expects that competition will
increase substantially as a result of these and other industry consolidations,
as well as the emergence of new competitors. There can be no assurance that
Cisco will be able to compete successfully with its existing or new competitors
or that competitive pressures faced by Cisco will not materially and adversely
affect its business, operating results and financial condition.
DEPENDENCE ON NEW PRODUCT DEVELOPMENT; RAPID TECHNOLOGICAL AND MARKET CHANGE
The markets for Cisco's products are characterized by rapidly changing
technology, evolving industry standards, frequent new product introductions and
evolving methods of building and operating networks. Cisco's operating results
will depend to a significant extent on its ability to reduce costs of existing
products. In particular, in August 1992 Cisco broadened its product line by
introducing its first network access products. Since that time, sales of these
products, which are generally lower priced and carry lower margins than Cisco's
core products, have increased more rapidly than sales of the core products. In
addition, in 1994 Cisco announced its CiscoFusion architecture that provides a
method of merging router-based networks with emerging technologies such as ATM
and LAN switches. While some elements of the CiscoFusion architecture have been
introduced, others are still in development. The success of these and other new
products is dependent on several factors, including proper new product
definition, product cost, timely completion and introduction of new products,
differentiation of new products from those of Cisco's competitors and market
acceptance of these products. Cisco has addressed the need to develop new
products through its internal development effort, joint developments with other
companies and acquisitions. There can
17
<PAGE> 30
be no assurance that Cisco will successfully identify new product opportunities
and develop and bring new products to market in a timely manner, or that
products and technologies developed by others will not render Cisco's products
or technologies obsolete or noncompetitive. The failure of Cisco's new product
development efforts could have a material adverse effect on Cisco's business
operating results and financial condition.
PATENTS, INTELLECTUAL PROPERTY AND LICENSING
Cisco's success is dependent upon its proprietary technology. Cisco
generally relies upon patents, copyright, trademark and trade secret laws to
establish and maintain its proprietary rights in its technology and products.
Cisco has a program to file applications for and obtain patents in the United
States and in selected foreign countries where a potential market for Cisco's
products exists. Cisco has been issued several patents; other patent
applications are currently pending. There can be no assurance that any of these
patents will not be challenged, invalidated or circumvented or that any rights
granted thereunder will provide competitive advantages to Cisco. In addition,
there can be no assurance that patents will issue from pending applications, or
that claims allowed on any future patents will be sufficiently broad to protect
Cisco's technology. In addition, the laws of some foreign countries may not
permit the protection of Cisco's proprietary rights to the same extent as do the
laws of the United States. Although Cisco believes the protection afforded by
its patents, patent applications, copyrights and trademarks has value, the
rapidly changing technology in the networking industry makes Cisco's future
success dependent primarily on the innovative skills, technological expertise
and management abilities of its employees rather than on patent, copyright and
trademark protection.
Many of Cisco's products are designed to include software or other
intellectual property licensed from third parties. From time to time, Cisco
receives notices from third parties regarding patent claims. While it may be
necessary in the future to seek or renew licenses relating to various aspects of
its products, Cisco believes that based upon past experience and standard
industry practice, such licenses generally could be obtained on commercially
reasonable terms. Because of the existence of a large number of patents in the
networking field and the rapid rate of issuance of new patents, it is not
economically practical to determine in advance whether a product or any of its
components infringe patent rights of others. If infringement is alleged, Cisco
believes that based upon industry practice, any necessary license or rights
under such patents may be obtained on terms that would not have a material
adverse effect on Cisco's financial condition or its results of operations.
Nevertheless, there can be no assurance that the necessary licenses would be
available on acceptable terms, if at all, or that Cisco would prevail in any
such challenge. The inability to obtain certain licenses or other rights or to
obtain such licenses or rights on favorable terms, or litigation arising out of
such other parties' assertion, could have a material adverse effect on Cisco's
business, operating results and financial condition.
MANUFACTURING RISKS
Although Cisco generally uses standard parts and components for its
products, certain components are presently available only from a single source
or limited sources. Cisco has generally been able to obtain adequate supplies of
all components in a timely manner from existing sources, or where necessary,
from alternative sources of supply. A reduction or interruption in supply or a
significant increase in the price of one or more components would adversely
affect Cisco's operating results and could damage customer relationships. These
developments could result in lower gross margins. Cisco expects that it will
continue to be dependent on single or limited source supplier relationships in
the future.
VOLATILITY OF STOCK PRICE
Cisco's Common Stock has experienced substantial price volatility,
particularly as a result of variations between Cisco's actual or anticipated
financial results and the published expectations of analysts and as a result of
announcements by Cisco and its competitors. In addition, the stock market has
experienced extreme price and volume fluctuations that have affected the market
price of many technology companies in particular and that have often been
unrelated to the operating performance of these companies. These broad market
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fluctuations, as well as general economic and political conditions, may
adversely affect the market price of Cisco's Common Stock.
THE STRATACOM MEETING
DATE, TIME AND PLACE OF THE STRATACOM MEETING
The StrataCom Meeting will be held on July 9, 1996 at 10:00 a.m., local
time, at StrataCom's facilities located at 1400 Parkmoor Avenue, San Jose,
California.
MATTERS TO BE CONSIDERED AT THE STRATACOM MEETING
At the StrataCom Meeting stockholders of StrataCom will be asked to
consider and vote upon proposals (i) to approve and adopt the Reorganization
Agreement and to approve the consummation of the Merger and (ii) to transact
such other business as may properly come before the StrataCom Meeting or any
postponements or adjournments thereof.
RECORD DATE AND SHARES ENTITLED TO VOTE
Only holders of record of StrataCom Common Stock at the close of business
on the Record Date are entitled to notice of and to vote at the StrataCom
Meeting. As of the close of business on the Record Date, there were 76,149,718
shares of StrataCom Common Stock outstanding and entitled to vote, held of
record by 666 stockholders (although StrataCom has been informed that there are
in excess of 18,000 beneficial owners). A majority, or 38,074,860 of these
shares, present in person or represented by proxy, will constitute a quorum for
the transaction of business. Each StrataCom stockholder is entitled to one vote
for each share of StrataCom Common Stock held as of the Record Date.
VOTING OF PROXIES
The StrataCom proxy accompanying this Proxy Statement/Prospectus is
solicited on behalf of the StrataCom Board of Directors for use at the StrataCom
Meeting. Stockholders are requested to complete, date and sign the accompanying
proxy and promptly return it in the accompanying envelope or otherwise mail it
to StrataCom. All properly executed proxies received by StrataCom prior to the
vote at the StrataCom Meeting, and that are not revoked, will be voted at the
StrataCom Meeting in accordance with the instructions indicated on the proxies
or, if no direction is indicated, to approve the Reorganization Agreement and
the consummation of the Merger. StrataCom's Board of Directors does not
presently intend to bring any other business before the StrataCom Meeting and,
so far as is known to StrataCom's Board of Directors, no other matters are to be
brought before the StrataCom Meeting. As to any business that may properly come
before the StrataCom Meeting, however, it is intended that proxies, in the form
enclosed, will be voted in respect thereof in accordance with the judgment of
the persons voting such proxies. A StrataCom stockholder who has given a proxy
(other than an irrevocable proxy delivered pursuant to a Voting Agreement
referred to in "The Merger and Related Transactions -- Related
Agreements -- Voting Agreements") may revoke it at any time before it is
exercised at the StrataCom Meeting by (i) delivering to the Secretary of
StrataCom a written notice, bearing a date later than the date of the proxy,
stating that the proxy is revoked, (ii) signing and so delivering a proxy
relating to the same shares and bearing a later date than the date of the
previous proxy prior to the vote at the StrataCom Meeting or (iii) attending the
StrataCom Meeting and voting in person.
VOTE REQUIRED
Approval of the Reorganization Agreement and the consummation of the Merger
by StrataCom's stockholders is required by the Delaware General Corporation Law.
Such approval requires the affirmative vote of the holders of a majority of the
shares of StrataCom Common Stock outstanding and entitled to vote. Certain
stockholders of StrataCom have entered into Voting Agreements and have delivered
irrevocable proxies obligating them to vote in favor of the Reorganization
Agreement and the consummation of the Merger. As of the Record Date, such
stockholders, constituting all executive officers and directors of
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StrataCom and their affiliates, as a group beneficially owned 4,391,200 shares
(exclusive of any shares issuable upon the exercise of options) of StrataCom
Common Stock (constituting approximately 5.8% of the shares of StrataCom Common
Stock then outstanding). As of the Record Date and the date of this Proxy
Statement/Prospectus, Cisco owns no shares of StrataCom Common Stock. See "The
Merger and Related Transactions -- Related Agreements -- Voting Agreements."
QUORUM; ABSTENTIONS AND BROKER NON-VOTES
The required quorum for the transaction of business at the StrataCom
Meeting is a majority of the shares of StrataCom Common Stock issued and
outstanding on the Record Date. Abstentions and broker non-votes each will be
included in determining the number of shares present and voting at the meeting
for the purpose of determining the presence of a quorum. Because approval of the
Reorganization Agreement and the consummation of the Merger requires the
affirmative vote of a majority of the outstanding shares of StrataCom Common
Stock entitled to vote thereon, abstentions and broker non-votes will have the
same effect as votes against the Reorganization Agreement and the consummation
of the Merger. THE ACTIONS PROPOSED IN THIS PROXY STATEMENT/PROSPECTUS ARE NOT
MATTERS THAT CAN BE VOTED ON BY BROKERS HOLDING SHARES FOR BENEFICIAL OWNERS
WITHOUT THE OWNERS' SPECIFIC INSTRUCTIONS. ACCORDINGLY, ALL BENEFICIAL OWNERS OF
STRATACOM COMMON STOCK ARE URGED TO RETURN THE ENCLOSED PROXY CARD MARKED TO
INDICATE THEIR VOTES.
SOLICITATION OF PROXIES AND EXPENSES
StrataCom will bear the cost of solicitation of proxies from its
stockholders estimated to be $20,000. In addition to solicitation by mail, the
directors, officers and employees of StrataCom may solicit proxies from
stockholders by telephone, facsimile or in person. Following the original
mailing of the proxies and other soliciting materials, StrataCom will request
brokers, custodians, nominees and other record holders to forward copies of the
proxy and other soliciting materials to persons for whom they hold shares of
StrataCom Common Stock and to request authority for the exercise of proxies. In
such cases, StrataCom, upon the request of the record holders, will reimburse
such holders for their reasonable expenses.
BOARD RECOMMENDATION
THE STRATACOM BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER AND BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT ARE
FAIR TO, AND THAT THE MERGER IS IN THE BEST INTERESTS OF, STRATACOM AND ITS
STOCKHOLDERS AND THEREFORE RECOMMENDS THAT THE HOLDERS OF STRATACOM COMMON STOCK
VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT AND THE
CONSUMMATION OF THE MERGER. In considering such recommendation, StrataCom
stockholders should be aware that Cisco has agreed to provide certain
employment, severance and indemnification arrangements to certain directors and
officers of StrataCom. See "The Merger and Related Transactions -- Related
Agreements -- Employment and Non-Competition Agreements" and "-- The Agreement
and Plan of Reorganization -- Indemnification and Insurance."
THE MATTERS TO BE CONSIDERED AT THE STRATACOM MEETING ARE OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF STRATACOM. ACCORDINGLY, STRATACOM STOCKHOLDERS
ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY
STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK
CERTIFICATES WITH THEIR PROXY CARDS
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THE MERGER AND RELATED TRANSACTIONS
GENERAL
The Reorganization Agreement provides for the merger of a newly formed,
wholly-owned subsidiary of Cisco with and into StrataCom, with StrataCom to be
the surviving corporation of the Merger and thus to become a wholly-owned
subsidiary of Cisco. The discussion in this Proxy Statement/Prospectus of the
Merger and the description of the principal terms and conditions of the
Reorganization Agreement are subject to and qualified in their entirety by
reference to the Reorganization Agreement, a copy of which is attached to this
Proxy Statement/Prospectus as Appendix A and is incorporated herein by
reference. You are urged to read the Reorganization Agreement in its entirety.
CONVERSION OF SHARES
Upon the consummation of the Merger, each then outstanding share of
StrataCom Common Stock will automatically be converted into the right to receive
that number of shares of Cisco Common Stock obtained by dividing $50.00 by the
average of the closing prices of Cisco Common Stock as quoted on the Nasdaq
National Market for the fifteen trading days immediately preceding (and
including) the fifth trading day prior to the StrataCom Meeting; provided that,
if the actual quotient obtained thereby is less than one, the quotient shall be
one, and if the actual quotient obtained thereby is more than 1.2195, the
quotient shall be 1.2195 (the "Exchange Ratio") of a share newly-issued Cisco
Common Stock. No fractional shares of Cisco Common Stock will be issued in the
Merger. Instead, each StrataCom stockholder who would otherwise be entitled to
receive a fraction of a share of Cisco Common Stock will receive an amount of
cash equal to the per share market value of Cisco Common Stock (based on the
average closing price of Cisco Common Stock as quoted on the Nasdaq National
Market for the ten most recent days that Cisco Common Stock was traded ending on
the trading day immediately prior to the Effective Time) multiplied by the
fraction of a share of Cisco Common Stock to which the stockholder would
otherwise be entitled. Based upon the capitalization of StrataCom and Cisco as
of the date of the Reorganization Agreement, the stockholders of StrataCom will
own Cisco Common Stock representing approximately 11.8% of the Cisco Common
Stock outstanding immediately after consummation of the Merger.
CONVERSION OF OPTIONS
Upon consummation of the Merger, each then outstanding StrataCom Option
will be assumed by Cisco and will automatically be converted into an option to
purchase a number of shares of Cisco Common Stock determined by multiplying the
number of shares of StrataCom Common Stock subject to the StrataCom Option by
the Exchange Ratio, at an exercise price per share equal to the exercise price
per share of the StrataCom Option at the time of the Merger divided by the
Exchange Ratio, rounded up to the nearest whole cent. To avoid fractional
shares, the number of shares of Cisco Common Stock subject to an assumed
StrataCom Option will be rounded down to the nearest whole share. The other
terms of the StrataCom Options, including vesting schedules, will remain
unchanged. Cisco will file a Registration Statement on Form S-8 with the
Commission with respect to the shares of Cisco Common Stock issuable upon
exercise of the assumed StrataCom Options.
As of the Record Date, 11,733,897 shares of StrataCom Common Stock were
subject to outstanding StrataCom Options. Upon the assumption of such options by
Cisco upon consummation of the Merger, based on the Assumed Exchange Ratio,
approximately 11,733,897 shares of Cisco Common Stock will be subject to such
options.
EXCHANGE OF CERTIFICATES
As soon as practicable after the Effective Time, a letter of transmittal
with instructions will be mailed to each StrataCom stockholder for use in
exchanging StrataCom Common Stock certificates for Cisco Common Stock
certificates. Upon surrender of a StrataCom Common Stock certificate for
cancellation to the exchange agent in connection with the Merger, The First
National Bank of Boston, or to such other agent or agents as may be appointed by
Cisco, together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the holder of such
certificate will be entitled to receive in exchange therefor a certificate
representing the number of whole shares of Cisco Common Stock equal to the
Exchange
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Ratio multiplied by the number of shares subject to the StrataCom Common Stock
certificate being exchanged. No fraction of a share of Cisco Common Stock will
be issued, but in lieu thereof each holder of shares of StrataCom Common Stock
who would otherwise be entitled to a fraction of a share of Cisco Common Stock
(after aggregating all fractional shares of Cisco Common Stock to be received by
such holder) will receive from Cisco an amount of cash, rounded up to the
nearest whole cent, equal to the product of (i) such fraction, multiplied by
(ii) the average closing price of a share of Cisco Common Stock for the ten most
recent days that Cisco Common Stock has traded ending on the trading day
immediately prior to the Effective Time, as reported on the Nasdaq National
Market.
Immediately after the Effective Time, each outstanding StrataCom Common
Stock certificate will be deemed for all corporate purposes, other than the
payment of dividends, to evidence the ownership of the number of full shares of
Cisco Common Stock into which such shares of StrataCom Common Stock shall have
been so converted as a result of the Merger and the right to receive an amount
in cash in lieu of the issuance of any fractional shares. No dividends or other
distributions with respect to Cisco Common Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered StrataCom Common
Stock certificate with respect to the shares of Cisco Common Stock represented
thereby until the holder of record of such certificate surrenders such
certificate. Subject to applicable law, following surrender of any such
certificate, there will be paid to the record holder of the certificates
representing whole shares of Cisco Common Stock issued in exchange therefor,
without interest, at the time of such surrender, the amount of any such
dividends or other distributions with a record date after the Effective Time
theretofore payable with respect to such shares of Cisco Common Stock.
If any certificate for shares of Cisco Common Stock is to be issued in a
name other than that in which the StrataCom Common Stock certificate surrendered
in exchange therefor is registered, it will be a condition of the issuance
thereof that the StrataCom Common Stock certificate so surrendered be properly
endorsed and otherwise in proper form for transfer and that the person
requesting such exchange have paid to Cisco or any agent designated by it any
transfer or other taxes required by reason of the issuance of a certificate for
shares of Cisco Common Stock in any name other than that of the registered
holder of the StrataCom Common Stock certificate surrendered, or established to
the satisfaction of Cisco or any agent designated by it that such tax has been
paid or is not payable.
HOLDERS OF STRATACOM COMMON STOCK CERTIFICATES SHOULD NOT
SUBMIT THEIR CERTIFICATES FOR EXCHANGE UNTIL THEY HAVE RECEIVED
THE LETTER OF TRANSMITTAL AND INSTRUCTIONS REFERRED TO ABOVE.
NOTIFICATION REGARDING OPTIONS
Following the Effective Time, Cisco will issue to each person who,
immediately prior thereto was a holder of an outstanding StrataCom Option, a
document evidencing the assumption of such option by Cisco. Such assumption will
be automatic and no action will be required on the part of the option holder to
convert such holder's StrataCom Option into an option to purchase shares of
Cisco Common Stock.
BACKGROUND OF THE MERGER
The market for networking and communications products and software became
increasingly competitive throughout 1995. In their efforts to enhance their
market positions and grow their businesses in an increasingly competitive
environment, each of Cisco and StrataCom has continually evaluated strategic
relationships of various forms, such as potential OEM arrangements, joint
marketing relationships, and potential acquisitions of technologies and
companies.
In early November 1995, a member of senior management of Cisco contacted a
StrataCom executive to discuss a possible strategic relationship. The two met
for lunch on November 7, and the discussion included Cisco's interest in a
possible acquisition of StrataCom. As a consequence, a dinner was scheduled for
December 7 between John Chambers, Cisco's President and Chief Executive Officer,
and Richard M. Moley, StrataCom's Chairman, President and Chief Executive
Officer. The executives discussed the merits of a possible merger and the
strategic outlook for the industry.
At the dinner on December 7, which included senior management
representatives of the two companies as well as Mr. Moley and Mr. Chambers, Mr.
Moley indicated that because of the potentially synergistic
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nature of the relationship, he would consider a combination. Within several days
thereafter, representatives of each company spoke by telephone and scheduled a
private dinner for Mr. Moley and Mr. Chambers on December 13. They also
tentatively scheduled a broader business meeting for December 14.
At the December 13 dinner, each party discussed preliminary expectations as
to a possible transaction. The two companies found each other far apart as to
possible terms of a transaction. These discussions included a general discussion
of a possible range of exchange ratios. However, neither party made an offer
regarding a specific exchange ratio or indicated that it was willing to enter
into a transaction at any specific exchange ratio or price level. Nonetheless,
the parties decided to proceed with the meeting which had been planned for the
following day.
On December 14, management representatives of both companies met to review
StrataCom's and Cisco's current businesses in greater detail and to further
review potential strategic benefits which might result from a combination.
Several conversations and one meeting between senior management representatives
ensued in the following days to discuss the relative merits of a combination.
However, the parties' expectations regarding the relative valuations of the
companies in any potential transaction were so substantially different that
discussions of the potential transaction were terminated. Cisco did not make any
offer regarding the acquisition during these discussions.
Mr. Chambers subsequently met with Mr. Moley for dinner on January 25, and
reviewed the discussions which had occurred in December. During February and
March, senior management representatives spoke informally by telephone on
several occasions but no discussions of the terms of a possible combination
occurred. On March 31, a senior management representative of Cisco suggested in
a discussion with a senior management representative of StrataCom that a
transaction meeting StrataCom's expectations as to valuation could be discussed
more seriously.
Mr. Chambers arranged a dinner with Mr. Moley for April 10, which included
senior management representatives, at which he outlined a possible merger under
which StrataCom's outstanding stock would be exchanged on a 1:1 share exchange
basis. At the time, StrataCom's stock was trading at approximately $35 per
share, and Cisco's at approximately $46 per share. The following morning, a
StrataCom senior management representative indicated that the proposal did not
provide adequate protection to StrataCom stockholders against possible
volatility in Cisco's stock price. Mr. Chambers called Mr. Moley later in the
morning and discussed a potential 1:1 exchange ratio with a guaranteed price of
$50 per share, with a limit on the ratio of shares exchanged based on a minimum
price for Cisco stock of $41.00 per share. However, Mr. Chambers indicated that
Cisco's ability to offer any such transaction would depend on a review of the
business condition of StrataCom following an in-depth due diligence review, as
well as the input of Cisco's financial advisors. Mr. Moley also indicated that
StrataCom's ability to consider such a transaction or recommend such a
transaction to its Board of Directors would also be subject to StrataCom's
completion of a due diligence investigation concerning Cisco and input of its
financial advisors.
The Stratacom Board of Directors met together with StrataCom's legal
advisors and with senior management representatives on April 11 to review the
discussions. After evaluating the possible transaction and conferring with legal
counsel as to various aspects and terms of a possibly acceptable transaction,
the Board of Directors directed StrataCom's management to continue discussions
and to determine the principal financial and other terms upon which a merger
might be structured.
On April 14, senior management representatives of the two companies met
together with each party's legal advisors and with Cisco's financial advisors,
and a mutual non-disclosure agreement was entered into between the parties. In
addition, the two companies discussed information and procedures required for
each company to conduct due diligence. The parties also discussed additional
structural terms by which a merger of the companies could be accomplished,
subject to completion of a comprehensive investigation by Cisco of the
operations of StrataCom, the negotiation and preparation of a definitive
agreement and approval of each company's board of directors of such an agreement
following presentations concerning the due diligence investigations.
From April 15 to April 21, representatives of the two companies and their
respective technical, legal and financial advisors met to conduct due diligence
and negotiate the definitive agreement providing for the merger. The StrataCom
Board of Directors met on April 17 to review the status of the negotiations. On
the
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evening of April 21, following final approval by the StrataCom Board of
Directors and the Cisco Board of Directors, the Reorganization Agreement was
executed by both companies. At various times during the negotiations described
above, the management of StrataCom consulted with its legal counsel and its
financial advisor, Montgomery Securities. Although Montgomery was not directly
involved in the negotiations of the consideration to be received by StrataCom
stockholders, its advice as to the financial aspects of the transaction and its
input on financial due diligence and related matters provided guidance to the
Board of Directors and Management of StrataCom in their direct negotiations with
the management of Cisco.
On April 22, 1996, StrataCom and Cisco issued a joint news release
announcing the Merger.
REASONS FOR THE MERGER
Cisco's Reasons for the Merger
Cisco's Board of Directors has identified several potential benefits of the
Merger that it believes will contribute to the success of the Combined Company.
These potential benefits include the ability to (i) provide end-to-end network
connectivity to the Cisco and StrataCom customer base, (ii) combine the routing
technology resident in Cisco products with StrataCom's ATM products and
technology to create an integrated solution in future products that will
incorporate both of these technologies, (iii) increase sales of StrataCom
products by leveraging Cisco's extensive channels of distribution and (iv)
assemble all of the components needed to build an internet access point of
presence product (consisting of a router, a dial-up aggregator and a WAN switch)
and to deliver an integrated point of presence product.
Additionally, in evaluating the proposed Merger, the Cisco Board of
Directors considered the pro forma contribution of StrataCom to net income both
historically and in the near term. Although based on such analyses the Cisco
Board concluded that the Merger would likely be dilutive in the near term, for
the strategic reasons set forth above, the Board determined that the
Reorganization Agreement and the Merger were in the best interests of Cisco and
its stockholders and that Cisco should proceed with the Reorganization Agreement
and the Merger. See "Certain Information Concerning Cisco and StrataCom."
StrataCom's Reasons for the Merger
The StrataCom Board of Directors has unanimously approved the
Reorganization Agreement and the Merger and has determined that the Merger is
advisable and fair to, and in the best interests of, StrataCom and its
stockholders. The StrataCom Board of Directors recommends that the holders of
shares of StrataCom Common Stock vote FOR approval and adoption of the
Reorganization Agreement and the consummation of the Merger.
The StrataCom Board of Directors' decision to approve the Reorganization
Agreement and the consummation of the Merger was based primarily on its
assessment that the networking industry is intensely competitive and that
companies who are able to provide a complete networking solution (including both
LANs and WANs) will be well positioned to compete in such an environment. In
particular, the StrataCom Board of Directors believes that StrataCom's long term
viability depends on its ability to offer customers integrated solutions that
address the customers' LAN needs, while simultaneously addressing the WAN
solutions in which StrataCom has developed expertise. StrataCom's Board of
Directors believes that the combination of StrataCom and Cisco is particularly
attractive because their respective technologies are complementary rather than
overlapping. The StrataCom Board of Directors has explored other strategic
directions, including continuing to execute on its business plan as an
independent company.
In light of the competitive direction of the marketplace and the
competitive positions of both Cisco and StrataCom, the StrataCom Board of
Directors has concluded that the Merger represents the best long-term strategy
for StrataCom. Despite the difficulties inherent in combining two large
organizations, the above strategic factors, together with the fact that the
exchange ratio for StrataCom Common Stock represents a premium over the trading
price of StrataCom Common Stock prior to the announcement of the Merger led the
StrataCom Board of Directors to conclude that the Merger is in the best
interests of StrataCom and its stockholders.
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In reaching its decision to approve the Reorganization Agreement and the
consummation of the Merger and to recommend that the StrataCom stockholders vote
to approve the Reorganization Agreement and the consummation of the Merger, the
StrataCom Board of Directors also considered, in addition to other matters, the
following factors:
(i) Historical information concerning Cisco's and StrataCom's
respective businesses, operations, properties, assets, financial condition
and operating results, including public reports concerning results of
operations during the most recent fiscal year and fiscal quarter of each
company, filed with the Securities and Exchange Commission;
(ii) Discussions with Cisco management reflecting the compatibility of
the respective business philosophies of Cisco and StrataCom. In particular,
the StrataCom Board of Directors considered (a) the similar commitment of
both companies to product quality and leading technology in the networking
industry (b) the close geographic location of the two companies (c) the
similarity of organizational structures which do not involve numerous
layers of management and (d) the similarity in compensation structures and
benefits of the two companies;
(iii) Internal projections as to possible results of operations as to
StrataCom and publicly available forecasts of securities analysts as to
possible future results of operations for Cisco. In particular, the
StrataCom Board of Directors considered various information discussed below
under "Certain Information Concerning Cisco and StrataCom;"
(iv) Detailed financial analyses and pro forma and other information
with respect to Cisco and StrataCom presented by Montgomery in its
presentations to the StrataCom Board of Directors on April 17 and April 21
as well as the oral opinion of Montgomery that, as of April 21, 1996, and
based upon and subject to certain factors and assumptions, the
consideration to be received by the stockholders of StrataCom pursuant to
the Reorganization Agreement was fair from a financial point of view. In
particular, such financial analyses and pro forma information included a
contribution analysis which indicated that, based on the assumptions set
forth in the Montgomery analysis, StrataCom's contribution to the Combined
Company's net income during 1996 would be less than the relative pro forma
ownership percentage of StrataCom's stockholders, based on certain
assumptions made by Montgomery. Accordingly, such analyses indicated that
the Merger would be dilutive in the near-term to the shareholders of Cisco.
In addition, such analyses included an evaluation of the consideration to
be received by the StrataCom stockholders pursuant to the Reorganization
Agreement based on (a) a comparable public company analysis; (b) a
comparable transaction analysis; (c) a discounted cash flow analysis and
(d) a premiums paid analysis, each of which are more fully described under
"Opinion of Stratacom's Financial Advisor" below;
(v) Oral summaries of the presentation of management of Cisco
concerning publicly available forecasts from securities analysts as to
possible financial results of Cisco in fiscal 1996 and fiscal 1997 and the
discussion by Cisco management of certain forward looking information
concerning Cisco, as more fully discussed under "Certain Information
Concerning Cisco and StrataCom" below;
(vi) The potential effect on stockholder value of (A) StrataCom
continuing as an independent entity, (B) combining with other networking
companies or (C) combining with Cisco. In particular, the Merger was
evaluated in light of (1) the evolution of trends in the networking
industry, (2) the potential for product line synergies, (3) the possibility
of operational synergies, (4) the potential for cost control through
control in the growth of headcount and expenses, (5) the stability and
potential stockholder return of a combined entity. In particular, the
StrataCom Board of Directors discussed the possibilities of potential
combinations with other companies in the networking industry and concluded
that no other networking company provided technology and market position as
complementary to StrataCom's business as Cisco and that any potential
combinations with other third parties would likely involve substantially
more risk than a combination with Cisco, including both financial risk and
operational risks. The StrataCom Board of Directors also concluded that the
business cultures of the two companies were
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highly compatible and this compatibility would increase the likelihood that
the benefits of the merger could be achieved;
(vii) The prices of Cisco and StrataCom Common Stock prior to the
announcement of the merger, as well as a review of historical trading
prices of Cisco and StrataCom, the implied premium reflected in the
proposed exchange ratio and premiums in similar transactions in the
networking and technology industries. In particular, the StrataCom Board of
Directors concluded that the implied premium reflected in the Merger of
29%, (based on the trading price of the two companies immediately prior to
announcement of the transactions) represented a very significant premium
over the recent trading price of StrataCom, particularly in light of the
contractual term which provided that StrataCom's stockholders would receive
the transaction value of not less than $50.00 per share unless Cisco stock
dropped below $41.00 per share;
(viii) The terms and conditions of the Reorganization Agreement and
the Stock Option Agreement including the break-up fees, non-solicitation
provisions, conditions to closing and termination provisions. In
particular, the StrataCom Board of Directors concluded that these
provisions provided reasonable flexibility for StrataCom to exercise its
fiduciary duties in the event of an unsolicited competing bid prior to
consummation of the Merger;
(ix) The risk of stock price fluctuations prior to and following the
consummation of the Merger and the effect of such fluctuations on the
Exchange Ratio. In particular, the StrataCom Board of Directors considered
the effect of the structure of the Agreement, which provided that StrataCom
stockholders would receive a Merger consideration of not less than $50.00
per share unless the trading price of Cisco's stock dropped below $41.00
per share. In light of this provision, the StrataCom Board of Directors
concluded that the structure of the transaction significantly reduced the
risk to StrataCom stockholders from stock price fluctuations in the trading
price of Cisco Common Stock prior to consummation of the Merger, and gave
reasonable assurance that StrataCom stockholders would receive a
significant premium for their shares even if the trading price of Cisco
Common Stock declined or experienced significant fluctuations;
(x) The requirement of stockholder approval of the Merger and process
involved in obtaining such approval. In particular, the StrataCom Board of
Directors discussed the possibility of substantial delays in completing the
merger due to regulatory requirements and the concern that such a delay
could have a significant adverse effect on StrataCom's employee base and
customer relationships if not managed properly;
(xi) The degree of governmental review that the Merger may require
with respect to anti-trust compliance and similar matters;
(xii) The potential effect of the Merger on StrataCom employees
including the compensation, benefits and responsibilities which may be
offered such employees and the potential effect on employee morale
associated with these matters;
(xiii) The potential effect of the Merger on StrataCom customers and
suppliers both in the near term and over an extended period of time;
(xiv) The risk that the Combined Company would be unable to retain all
of its key employees;
(xv) The risks of combining the distinct cultures of the two
organizations;
(xvi) The possible effect on sales and marketing efforts of StrataCom
during the period following announcement and prior to consummation of the
Merger; and
(xvii) The limitations on trading by affiliates imposed by pooling of
interest accounting requirements.
As part of the foregoing analysis, the StrataCom Board of Directors
considered the following specific negative factors concerning the Merger and the
risks inherent in the transaction: (i) the risks in mergers of technology
companies generally and, in particular, the fact that large technology merger
transactions have
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frequently resulted in high employee attrition rates, loss of management focus
and temporary or long-term employee morale problems; (ii) the possibility that
following announcement of the transaction, some customers may defer orders or
purchasing decisions pending the completion of the Merger; (iii) the risk that
some customers could seek to terminate their relationship with the Combined
Company or reduce their long-term dependence on the Combined Company following
the transaction; (iv) the risk that Cisco Common Stock could come under pressure
due to concerns about the possible dilution in near term earnings per share
associated with the Merger; and (v) the risks that the combination with Cisco
could make attractive partnerships with other companies in the communications
industries more complicated and difficult to complete.
In view of the wide variety of factors, both positive and negative,
considered by the StrataCom Board of Directors, the StrataCom Board of Directors
did not find it practicable to quantify or otherwise assign relative weight to
the specific factors considered. However, after taking into account all of the
factors set forth above, the StrataCom Board of Directors unanimously agreed
that the Reorganization Agreement and the consummation of the Merger were fair
to, and in the best interests of, StrataCom and its stockholders and that
StrataCom should proceed with the Reorganization Agreement and the consummation
of the Merger.
CERTAIN INFORMATION CONCERNING CISCO AND STRATACOM
The following sets forth a brief description of certain forward-looking
information presented to the StrataCom Board of Directors concerning the
potential future operating results of Cisco and StrataCom, on a stand alone
basis. Investors are cautioned that this information should not be regarded as
fact and should not be relied upon as an accurate representation of future
results. Further, the discussion of analysts estimates provided by Cisco's
management and the discussion of StrataCom internal targets were not undertaken
with a view to public disclosure or in compliance with the established
guidelines concerning financial projections promulgated by the American
Institute of Certified Public Accountants. Such information does not purport to
be in accordance with generally accepted accounting principles and has not been
audited, compiled or otherwise examined by Coopers & Lybrand, L.L.P., Cisco's
independent auditors, by Arthur Andersen, LLP, StrataCom's independent auditors,
or by any other independent auditor. Accordingly, neither Coopers & Lybrand,
L.L.P., Arthur Andersen LLP, nor any other independent auditor assumes any
responsibility for such statements. Such information is presented solely because
it was discussed with the StrataCom Board of Directors and its financial
advisors. None of Cisco, StrataCom or any of their financial advisors, directors
or officers assumes any responsibility as a result of the inclusion of such
information. Neither Cisco nor StrataCom intends publicly to update, revise or
otherwise publicly comment upon such information to reflect circumstances
existing after the date hereof including consummation of the Merger. Such
information constitutes forward looking information and is subject to
substantial risks, including the matters set forth under "Risk Factors" and the
other matters described herein or in the documents incorporated by reference.
In its presentation to management of StrataCom and StrataCom's financial
advisors, Cisco's management reviewed data from independent market analysts
which indicated that the various markets in which Cisco participated were
expected by the analysts to achieve annual growth through 1999 ranging from as
low as 15% in some product markets to in excess of 100% for certain other
product markets. Cisco's management indicated that it did not currently have
reason to believe that its level of participation in these markets would
decline, such that Cisco could not achieve a rate of growth equal to the market
growth during fiscal 1997.
Cisco's management also presented a summary of analyst expectations for the
third quarter ending April 30, 1996. Cisco indicated that such expectations
ranged from $875 million to $948 million in net sales and net income per share
in the range of $0.35 to $0.37. Cisco's management did not indicate that it had
information which suggested that it would fall below the range of analyst
expectations for the third quarter.
Cisco's management also presented a summary of analyst expectations for the
fourth quarter of fiscal 1996, ending July 28, 1996. Cisco's management
indicated that analyst expectations ranged from $932 million to $1.07 billion
and the net income per share ranged from .37 to .41 for the quarter. Cisco's
management did not indicate that it had information that suggested that Cisco
would fall below the range of analyst expectations for the fourth quarter of
fiscal 1996. Cisco's management informed StrataCom and StrataCom's
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<PAGE> 40
financial advisors that it does not as a practice provide financial forecasts
and that the review of the status of analyst's expectations for the third and
fourth quarters of fiscal 1996 was not intended to be a financial forecast.
In its presentation to the StrataCom Board of Directors, management of
StrataCom presented a financial forecast that indicated that StrataCom could
potentially achieve growth in sales of approximately 55% in 1996 as compared to
1995 and approximately 40% for 1997 as compared with 1996 with growth in net
income approximately equal to such growth rates in each year.
OPERATIONS FOLLOWING THE MERGER
Following the Merger, StrataCom will continue its operations as a
wholly-owned subsidiary of Cisco. Upon consummation of the Merger, the members
of StrataCom's Board of Directors will be John T. Chambers and Larry R. Carter.
The membership of the Cisco Board of Directors will remain unchanged as a result
of the Merger except it is expected that Richard M. Moley, StrataCom's Chief
Executive Officer, will join the Cisco Board of Directors, however, Mr. Moley's
board membership is not required as a condition to closing the Merger. The
stockholders of StrataCom will become stockholders of Cisco, and their rights as
stockholders will be governed by the Cisco Articles and the Cisco Bylaws and the
laws of the State of California. See "Comparison of Rights of Stockholders of
Cisco and StrataCom."
OPINION OF STRATACOM'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated April 18, 1996, StrataCom retained
Montgomery to act as its financial advisor in connection with StrataCom's
consideration of the Merger. Montgomery is a nationally recognized firm and, as
part of its investment banking activities, is regularly engaged in the valuation
of businesses and their securities in connection with merger transactions and
other types of strategic combinations and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. StrataCom
retained Montgomery as its financial advisor on the basis of Montgomery's
experience and expertise in transactions similar to the Merger, its reputation
in the investment banking community and its existing investment banking
relationship with StrataCom. Although StrataCom considered using other financial
advisors for the transaction, StrataCom did not interview any other financial
advisor in the course of selecting its advisor.
At the April 21, 1996 meeting of the StrataCom Board of Directors,
Montgomery delivered its oral opinion, subsequently confirmed in writing in an
opinion dated as of April 21, 1996 (the "Montgomery Opinion"), that, as of such
date, and based upon and subject to the factors and assumptions set forth in
such written opinion, the consideration to be received by StrataCom's
stockholders in the Merger was fair to StrataCom's stockholders from a financial
point of view. The amount of such consideration was determined pursuant to
negotiations between Cisco and StrataCom and not pursuant to recommendations of
Montgomery. No limitations were imposed by StrataCom on Montgomery with respect
to the investigations made or procedures followed in rendering its opinion.
THE FULL TEXT OF THE MONTGOMERY OPINION TO THE STRATACOM BOARD OF DIRECTORS
DATED AS OF APRIL 21, 1996 IS ATTACHED HERETO AS APPENDIX B AND IS INCORPORATED
HEREIN BY REFERENCE AND SHOULD BE READ IN ITS ENTIRETY IN CONNECTION WITH THIS
PROXY STATEMENT/PROSPECTUS. THE FOLLOWING SUMMARY OF THE MONTGOMERY OPINION IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE MONTGOMERY
OPINION. THE MONTGOMERY OPINION WAS ADDRESSED TO THE STRATACOM BOARD OF
DIRECTORS FOR THE PURPOSES OF THEIR EVALUATION OF THE MERGER AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STRATACOM STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE STRATACOM MEETING.
In connection with its opinion, Montgomery: (i) reviewed certain publicly
available financial and other data with respect to StrataCom and Cisco,
including the consolidated financial statements for the three fiscal years ended
December 31, 1995 and July 31, 1995, respectively, and interim periods ended
March 31, 1996
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and January 28, 1996, respectively, and certain other relevant financial and
operating data relating to StrataCom and Cisco made available to Montgomery from
published sources and from the internal records of StrataCom and Cisco; (ii)
reviewed the form of the Reorganization Agreement and exhibits thereto,
including the form of Stock Option Agreement, to be entered into by Cisco and
StrataCom each as provided to Montgomery by StrataCom; (iii) reviewed certain
publicly available information concerning the trading of, and the trading market
for, StrataCom Common Stock and Cisco Common Stock; (iv) reviewed the relative
contributions of Cisco and StrataCom to the pro forma combined entity resulting
from the Merger on a variety of bases, including net sales, gross profits,
income from operations and net income; (v) compared StrataCom and Cisco from a
financial point of view with certain other companies in the networking industry
that Montgomery deemed to be relevant; (vi) considered the financial terms, to
the extent publicly available, of selected recent business combinations of
companies in the networking industry that Montgomery deemed to be comparable, in
whole or in part, to the Merger; (vii) performed discounted cash flow analyses
for Cisco and StrataCom; (viii) reviewed and discussed with representatives of
the management of StrataCom and Cisco certain information of a business and
financial nature regarding StrataCom and Cisco and their respective markets,
furnished to Montgomery by them, including financial forecasts and related
assumptions of StrataCom; (ix) made inquiries regarding and discussed the Merger
and the Reorganization Agreement and other matters related thereto with
StrataCom's counsel; and (x) performed such other analyses and examinations as
Montgomery deemed appropriate.
Montgomery noted in its opinion that it was not provided with any financial
forecasts for Cisco, having been informed by Cisco's senior management that it
is not the practice of Cisco to provide financial forecasts. However, in the
course of its discussions with Cisco's senior management, Montgomery reviewed
with them certain forward looking information including the most recent
published analyst earnings estimates for Cisco with respect to the third and
fourth quarters of Cisco's 1996 fiscal year and Cisco's 1997 fiscal year and
publicly available information regarding the size and forecasted growth rates
for the markets served by their respective products, and various trends
affecting or expected to affect Cisco's respective future operating results and
financial condition.
In connection with its review, Montgomery relied upon the accuracy and
completeness of the foregoing information and did not assume any obligation
independently to verify such information. With respect to the financial
forecasts for StrataCom and other forward looking information for StrataCom and
Cisco provided to Montgomery by their respective managements, Montgomery assumed
with StrataCom's consent for purposes of its opinion that such information was
reasonably prepared on bases reflecting the best available estimates and
judgments of their respective managements at the time of preparation as to the
future financial performance of StrataCom and Cisco. Neither StrataCom nor Cisco
publicly discloses internal management forecasts or other forward looking
information of the type provided to Montgomery in connection with Montgomery's
review of the Merger. Such forecasts and other forward looking information were
not prepared with a view toward public disclosure. Montgomery has assumed no
liability for such forecasts or other forward looking information. In addition,
forecasts and other forward looking information utilized by Montgomery in
performing its analyses described below for StrataCom and Cisco were based upon
numerous variables and assumptions that are inherently uncertain, including,
without limitation, factors related to general economic and competitive
conditions. Accordingly, actual results could vary significantly from those set
forth in such forecasts and other forward looking information. Among the factors
affecting future operations of StrataCom and Cisco are the integration of
people, operations and products from acquired businesses and technologies;
increased competition, which is expected; introduction and market acceptance of
new products, including high-speed switching and ATM technologies; variations in
sales channels, product costs or mix of products sold; the timing of orders and
manufacturing lead times; and changes in general economic conditions and
specific economic conditions in the computer and networking industries, any of
which could have an adverse impact on operations and financial results. See
"Risk Factors."
Montgomery also assumed that there were no material changes in StrataCom's
or Cisco's assets, financial condition, results of operations, business or
prospects since the date of the last financial statements made available to
Montgomery. Montgomery relied on advice of counsel and independent accountants
to StrataCom as to all legal and financial reporting matters with respect to
StrataCom, the Merger and the Reorganization
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Agreement. Montgomery also assumed that the Merger will be consummated in a
manner that complies in all respects with the applicable provisions of the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, and all other applicable federal and state statutes, rules and
regulations and that the Merger will be recorded as a pooling of interests under
generally accepted accounting principles. Montgomery did not assume any
responsibility for making an independent evaluation, appraisal or physical
inspection of any of the assets or liabilities (contingent or otherwise) of
StrataCom or Cisco, nor was Montgomery furnished with any such appraisals.
Further, the Montgomery Opinion was directed only to the fairness of the
consideration to be received by the stockholders of StrataCom pursuant to the
Merger and did not address any other aspect of the Merger.
Montgomery further assumed, with StrataCom's consent, that the Merger will
be consummated in accordance with the terms described in the form of
Reorganization Agreement provided to it, without any amendments thereto, and
without waiver by StrataCom of any of the conditions to its obligations
thereunder.
The Montgomery Opinion was based on economic, monetary and market
conditions existing on, and the information made available to it, as of April
21, 1996. Accordingly, although subsequent developments may alter its opinion,
Montgomery did not assume any obligation to update, revise or reaffirm its
opinion.
Set forth below is a brief summary of the analyses and reports which were
reviewed by Montgomery with the StrataCom Board of Directors on April 21, 1996
in connection with the rendering of its opinion.
Contribution Analysis. Montgomery determined the ownership interest of
holders of StrataCom Common Stock in the equity value (defined as the
consideration paid in the Merger) and in the enterprise value (defined as the
consideration paid in the Merger plus StrataCom's net debt) of the pro forma
Combined Company based on a range of stock prices of Cisco Common Stock of
between $41.00 and $50.00 per share and a corresponding range of exchange ratios
of shares of Cisco Common Stock to be received for each share of StrataCom
Common Stock in the Merger of 1.2195 to 1.00. This resulted in a range of
ownership interests of holders of StrataCom Common Stock in the equity and
enterprise values of the Combined Company of between 12.7% and 15.1% and between
12.5% and 14.9%, respectively. To compare these ranges of ownership interests to
the relative contributions made by Cisco and StrataCom to the Combined Company,
Montgomery analyzed the contribution of each company to certain statement of
operations items for the Combined Company on a pro forma basis. This analysis
showed, among other things, that, assuming no revenue enhancements or cost
savings arising from the combination of the two companies, StrataCom would
contribute: 12.0%, 11.0% and 11.4%, respectively, to latest twelve months
("LTM"), estimated 1996 and estimated 1997 revenues; 8.1%, 7.8% and 8.0%,
respectively, to LTM, estimated 1996 and estimated 1997 earnings before interest
and taxes ("EBIT"); and 8.3%, 7.8% and 7.7%, respectively, to LTM, estimated
1996 and estimated 1997 net income. Based on such analysis, Montgomery concluded
that the Merger would be dilutive to Cisco's 1996 estimated net income by 5.2%,
and dilutive to Cisco's 1997 estimated net income by 4.7% (based on a trading
price of Cisco Common Stock of $47.75 on April 19, 1996).
Comparable Public Company Analysis. Using public and other available
information, Montgomery determined a range of implied equity values for
StrataCom based on the multiples of LTM and estimated 1996 and 1997 revenues,
EBIT and net income at which the following selected networking companies traded
on April 19, 1996: 3Com Corp., Bay Networks, Cascade Communications, Cisco
Systems, Inc., Network Equipment Technologies, Newbridge Networks and Shiva
Corporation (the "Comparable Companies"). The April 19, 1996 stock prices of the
Comparable Companies reflected the following median multiples: 7.2x LTM
revenues; 6.1x estimated 1996 revenues; 4.7x estimated 1997 revenues; 23.7x LTM
EBIT; 18.1x estimated 1996 EBIT; 13.6x estimated 1997 EBIT; 36.4x LTM net
income; 30.1x estimated 1996 net income and 21.0x estimated 1997 net income.
Montgomery applied the foregoing median multiples to the applicable statistics
for StrataCom. This analysis indicated a range of implied equity values for
StrataCom of between $2.087 billion and $3.543 billion. Montgomery made
adjustments to such implied equity values to exclude values that, in their
judgment, did not adequately reflect StrataCom's 1996 forecasted operating
results and longer term growth prospects. The result was a range of assessed
equity values for StrataCom of between $2.458 billion and $3.543 billion, or
between $29.83 and $43.00 per share of StrataCom Common Stock.
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Comparable Transactions Analysis. Montgomery reviewed the consideration
paid in the following acquisitions involving networking companies
(acquiror/target): Bay Networks/Xylogics, Inc.; 3Com Corp./Chipcom Corp.; Madge
Networks/Lannet Data Communications; Bay Networks/Centillion Networks; 3Com
Corp./Primary Access Corporation; Cisco/Lightstream; Cisco/Kalpana; Raytheon
Company/Xyplex Inc.; Storage Technology Corporation/Network Systems Corporation;
Cisco/Newport Systems Solutions, Inc. and Wellfleet Communications,
Inc./SynOptics Communications, Inc. Montgomery analyzed the consideration paid
in such transactions as a multiple of the target companies' LTM revenues and net
income. Such analysis yielded median multiples for LTM revenues and net income
of 4.2x and 27.6x, respectively. Montgomery then applied the foregoing multiples
for the networking company transactions to StrataCom's LTM and estimated 1996
revenues and net income, resulting in a range of implied equity values for
StrataCom of between $1.580 billion and $2.355 billion. Montgomery made
adjustments to such range of implied equity values to exclude values that, in
their judgment, did not adequately reflect StrataCom's 1996 forecasted operating
results and longer term growth prospects. The result was a range of assessed
equity values for StrataCom of between $2.251 billion to $2.355 billion or
between $27.32 and $28.59 per share of StrataCom Common Stock.
Premiums Paid Analysis. Montgomery also examined the consideration paid in
a number of acquisitions of publicly-traded technology companies. The
transactions reviewed for this analysis included 44 acquisitions completed or
pending since January 1994 in which the consideration paid consisted in whole or
in part of stock of the acquiring company. Montgomery compared, among other
things, the percentage premiums represented by the consideration paid in such
transactions over the market price for the target company's stock at one, seven
and thirty days prior to announcement of the transaction. This analysis yielded
median premiums of 36.1%, 43.7% and 47.6%, respectively, for such time periods
for 31 transactions accounted for as a pooling of interests. A comparable
analysis of transactions involving the acquisitions of companies accounted for
as a purchase instead of as a pooling of interests yielded lower median
percentage premiums. Because of the difference in transaction structure,
accounting consequences to the acquiror and, in some cases, consideration paid
in these acquisitions, Montgomery determined that a comparison of these premiums
would be less meaningful. Montgomery then applied the median premiums so derived
from the 31 pooling-of-interests transactions to StrataCom's closing stock
prices on April 19, 1996, April 15, 1996 and March 22, 1996, one day, seven days
and thirty days prior to the announcement of the Merger, respectively. This
analysis indicated a range of implied equity values for StrataCom of between
$4.166 billion and $4.346 billion, or between $50.56 and $52.75 per share of
StrataCom Common Stock.
No company or transaction used in the analyses described under the headings
"Comparable Public Company Analysis," "Comparable Transactions Analysis" or
"Premiums Paid Analysis" above as a comparison is identical to StrataCom or the
Merger. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and transactions and other factors that could affect the public
trading value of the companies and transactions with which StrataCom and the
Merger were compared.
Discounted Cash Flow Analysis. Montgomery performed discounted cash flow
analyses for StrataCom and Cisco. The analyses aggregated for each company (a)
the present value of the projected free cash flow (defined as tax-affected EBIT
plus depreciation and amortization, less capital expenditures, minus increases
in working capital) through 2000, (b) the present value of a range of terminal
values for the year 2000, and (c) net cash as of March 31, 1996.
In the case of StrataCom, the terminal values were determined by applying
multiples ranging from 17.7x to 25.7x to StrataCom's estimated EBIT for 2000.
StrataCom's cash flow streams and terminal values were discounted to present
value using discount rates ranging from 17.5% to 27.5%, chosen to reflect
different assumptions regarding StrataCom's cost of capital. Such analysis
indicated a range of implied equity values for StrataCom of between $2.439
billion and $5.016 billion, or between $29.60 and $60.88 per share of StrataCom
Common Stock.
In the case of Cisco, the terminal values were determined by applying
multiples ranging from 17.7x to 25.7x to Cisco's estimated EBIT for 2000.
Cisco's cash flow streams and terminal values were discounted to present value
using discount rates ranging from 15% to 25%, chosen to reflect Cisco's lower
cost of capital than
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StrataCom's. Such analysis indicated a range of implied equity values for Cisco
of between $23.632 billion to $49.156 billion, or between $39.37 and $81.89 per
share of Cisco Common Stock.
The summary set forth above does not purport to be a complete description
of the presentation by Montgomery to the StrataCom Board of Directors or of the
analyses performed by Montgomery in connection with the rendering of the
Montgomery Opinion. The preparation of a fairness opinion is not necessarily
susceptible to partial analysis or summary description. Montgomery believes that
its analyses and the summary set forth above must be considered as a whole and
that selecting portions of its analyses or of the factors considered, without
considering all analyses and factors, would create an incomplete view of the
process underlying the analyses set forth in its presentation to the StrataCom
Board of Directors. In addition, Montgomery may have given various analyses more
or less weight than other analyses, and valuations resulting from any particular
analysis described above should not be taken to be Montgomery's view of the
actual value of StrataCom, Cisco or the Combined Company. The fact that any
specific analysis has been referred to in the summary above is not meant to
indicate that such analysis was given greater weight than any other analysis.
In performing its analyses, Montgomery made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of StrataCom or Cisco. The
analyses performed by Montgomery are not necessarily indicative of actual values
or actual future results, which may be significantly more or less favorable than
those suggested by such analyses. Such analyses were prepared solely as part of
Montgomery's analysis of the fairness of the consideration to be paid to
stockholders of StrataCom in the Merger and were provided to the StrataCom Board
in connection with the delivery of the Montgomery Opinion. The analyses do not
purport to be appraisals or to reflect prices at which a company might actually
be sold or the prices at which any securities may trade at the present time or
at any time in the future.
As described above, the Montgomery Opinion and presentation to the
StrataCom Board of Directors were among the many factors taken into
consideration by the StrataCom Board of Directors in making its determination to
approve the Merger.
StrataCom has agreed to pay Montgomery a fee for its services pursuant to
the terms of the engagement letter equal to $3,500,000, contingent upon the
closing of the Merger. StrataCom has also agreed to reimburse Montgomery for its
reasonable out-of-pocket expenses. Pursuant to a separate letter agreement,
StrataCom has agreed to indemnify Montgomery, its affiliates, and each of their
respective partners, directors, officers, agents, consultants, employees and
controlling persons against certain liabilities, including liabilities under the
federal securities laws. The amount of compensation to be paid to Montgomery in
connection with its engagement has been determined by negotiation between
StrataCom and Montgomery.
In the ordinary course of its business, Montgomery actively trades equity
securities of StrataCom and Cisco for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. Montgomery has also acted as an underwriter in connection with
offerings of securities of StrataCom and performed various investment banking
services for StrataCom.
RELATED AGREEMENTS
Voting Agreements
In connection with the Merger, certain stockholders of StrataCom have
entered into Voting Agreements. The terms of the Voting Agreements provide (i)
that such stockholders will not transfer (except as may be specifically required
by court order or by operation of law), sell, exchange, pledge (except in
connection with a bona fide loan transaction) or otherwise dispose of or
encumber any shares of StrataCom Common Stock beneficially owned by them, or any
new shares of such stock they may acquire, at any time prior to the Expiration
Date (as defined below), and (ii) that such stockholders will vote all shares of
StrataCom Common Stock beneficially owned by them in favor of the approval of
the Reorganization Agreement and approval of the Merger and against any proposal
for any recapitalization, merger, sale of assets or other business combination
(other than the Merger) between StrataCom and any person or entity other than
Cisco or any other action or agreement that would result in a breach of any
covenant, representation or warranty or any other obligation or agreement of
StrataCom under the Reorganization Agreement or which would result in any of the
conditions to StrataCom's obligations under the Reorganization Agreement not
being fulfilled.
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Such voting agreements are accompanied by irrevocable proxies whereby such
stockholders provide to Cisco the right to vote their shares on the proposals
relating to the Reorganization Agreement and the Merger at the StrataCom Meeting
and any competing proposal at a StrataCom stockholder meeting. Holders of
approximately 5.8% (as of the Record Date, exclusive of any shares issuable upon
the exercise of options held by such holders) of the shares of StrataCom Common
Stock entitled to vote at the stockholder meeting have entered into Voting
Agreements and irrevocable proxies. The Voting Agreements and proxies shall
terminate on the Expiration Date. 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
Reorganization Agreement and (ii) six months after the date of termination of
the Reorganization Agreement.
Affiliates Agreements
The Cisco Common Stock issuable in the Merger has been registered under the
Securities Act, thereby allowing those shares to be traded without restriction,
except for those shares held by stockholders of StrataCom or Cisco who are
deemed to control or be under common control with StrataCom or Cisco,
respectively ("Affiliates"). Affiliates of StrataCom may not sell their shares
of Cisco Common Stock acquired in the Merger except pursuant to (i) an effective
registration statement under the Securities Act covering such shares, (ii) the
resale provisions of Rule 145 promulgated under the Securities Act or (iii)
another applicable exemption from the registration requirements of the
Securities Act. Affiliates of Cisco may not sell any shares of Cisco Common
Stock except pursuant to an effective registration statement under the
Securities Act covering such shares or an applicable exemption from the
registration requirements of the Securities Act. It is a condition to the
obligations of StrataCom and Cisco to effect the Merger that in accordance with
the requirements of the Commission's accounting rules for pooling of interests,
each person who is identified as an Affiliate (as such term is defined for
purposes of Rule 145 under the Securities Act) of each party execute and
deliver, at or prior to the closing of the Merger, an agreement that such
persons will not offer to sell, sell or otherwise dispose of Cisco Common Stock
or StrataCom Common Stock during the thirty (30) day period prior to the
Effective Time or after the Effective Time until financial results covering at
least thirty (30) days of the combined operations of Cisco and StrataCom have
been published. In addition, the Affiliates Agreements executed by StrataCom
Affiliates provides that, as of the date of the Affiliates Agreement and as of
the Effective Time, such Affiliate has no present plan or intent to engage in
any transaction that results in a reduction in the risk of ownership with
respect to more than 50% of the shares of Cisco Common Stock acquired by such
Affiliate in the Merger.
Employment and Non-Competition Agreements
Cisco has entered into employment and non-competition agreements with each
of Richard M. Moley, Sanjay Subhedar, M. Alex Mendez, Charles Corbalis, John G.
Kirsch, Richard W. Lowenthal, Mark Chandler, Anthony Crabb and Kenneth Shevock,
and StrataCom has agreed to use its best efforts to cause certain other
employees to enter into similar employment and non-competition agreements with
Cisco (each, an "Employee", and collectively, the "Employees"). The employment
and non-competition agreements are contingent upon the occurrence of the closing
of the Merger and will become effective upon the Effective Time. The term of the
employment agreements are one year from the Effective Time unless terminated
earlier by either party for any reason, with or without cause, by giving written
notice of such termination. If the Employee's employment is terminated without
cause or if the Employee resigns from employment for good cause prior to one
year after the Effective Time, then Cisco will pay the Employee a lump sum
payment equal to the product of the number of whole months remaining under the
one year term of the employment and non-competition agreement and the monthly
base salary, less applicable deductions as severance. An Employee may not be
terminated without cause without the prior consent of Richard Moley (except in
the case of Messrs. Moley and Subhedar, who may not be terminated without cause
without the prior consent of the President of Cisco). If the Employee resigns
without good cause or the employment is terminated for cause within one year of
the Effective Time, then the Employee will be paid all salary and benefits
through the date of termination of employment, but nothing else.
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The employment and non-competition agreements require, until the later of
termination of employment or the first anniversary of the Effective Time, the
Employee (i) will not participate or engage in the design, development,
manufacture, production, marketing, sale or servicing of any product, or the
provision of any service, that directly relates to routing, WAN or LAN
switching, dial-up access servers, network management, or internetworking or
networking software (the "Business") or be employed by certain enumerated
competitive companies; (ii) will not permit the Employee's name to be used in
connection with the Business; and (iii) that the Employee will not solicit,
encourage or take any other action intended to induce any non-terminating
employee to perform work or services for any other person or entity other than
Cisco. There can be no assurance that such non-competition and non-solicitation
provisions will be enforceable under applicable law.
Cisco has agreed that, after the Effective Time, Cisco will indemnify each
officer and director of StrataCom serving as such on the date of the
Reorganization Agreement as provided in the Delaware General Corporation Law,
the StrataCom Certificate and the StrataCom Bylaws, and existing indemnification
agreements between StrataCom and such officers and directors.
Stock Option Agreement
Pursuant to the Stock Option Agreement, a copy of which is attached as
Appendix C to this Proxy Statement/Prospectus and is incorporated herein by
reference, Cisco was granted the right, under certain circumstances, to acquire
up to 11,733,897 shares (the "Cisco Option") of authorized but unissued shares
of StrataCom Common Stock (the "StrataCom Shares") (constituting approximately
15% of the outstanding shares of StrataCom Common Stock) at a price, payable in
cash, of $50.00 per share (the "Exercise Price"). Pursuant to the terms of the
Stock Option Agreement, the type and number of securities subject to the Cisco
Option, and the price per share, shall be adjusted in the event of any change in
StrataCom Common Stock by reason of certain events, including recapitalizations,
combinations, exchange of shares or the like. Furthermore, in the event
StrataCom enters into certain types of agreements (other than the Reorganization
Agreement) involving the merger of StrataCom, or sale of substantially all of
StrataCom's assets, such agreements must provide that upon consummation of any
such merger or sale that Cisco shall receive consideration for each share of
StrataCom Common Stock with respect to which the Cisco Option has not been
exercised, equal to the amount of consideration a holder of StrataCom Common
Stock would receive less the Exercise Price. The Stock Option Agreement could
have the effect of making an acquisition of StrataCom by a third party more
costly because of the need to acquire the StrataCom Shares in any such
transaction.
The Stock Option Agreement is exercisable by Cisco, in whole or in part, at
any time or from time to time after any event occurs which would permit
termination of the Reorganization Agreement and payment to Cisco of the
termination fee (up to $80,000,000) and out-of-pocket costs and expenses
described in "The Merger and Related Transactions -- Fees and Expenses,
Termination Fee and Termination Amendments, and Waivers." The Cisco Option will
terminate upon the earlier of: (i) the Effective Time; (ii) the termination of
the Reorganization Agreement pursuant to its terms (other than a termination in
connection with which Cisco is entitled to the payment of a termination fee and
out-of-pocket costs and expenses); (iii) subject to Section (iv) below, 180 days
following any termination of the Reorganization Agreement in connection with
which Cisco is entitled to the payment of a termination fee and out-of-pocket
costs and expenses (or, if at the expiration of such 180-day period, the Cisco
Option cannot be exercised by reason of any applicable judgment, decree, order,
law or regulation, ten (10) business days after such impediment to exercise
shall have been removed or shall have become final and not subject to appeal),
but in no event later than May 15, 1997; or (iv) 210 days following any
termination of the Reorganization Agreement in connection with which the
stockholders of StrataCom have not approved the proposed Merger and the
StrataCom Board of Directors has not changed its recommendation and all
competing takeover proposals have been withdrawn (or, if at the expiration of
such 210-day period, the Cisco Option cannot be exercised by reason of any
applicable judgment, decree, order, law or regulation, ten (10) business days
after such impediment to exercise shall have been removed or shall have become
final and not subject to appeal, but in no event later than May 15, 1997).
Notwithstanding the foregoing, (i) the Cisco Option may not be exercised if
Cisco is in material breach of any of its representations, warranties, covenants
or agreements contained in the Stock Option Agreement or in the Reorganization
Agreement, and (ii) in the event Cisco receives more than the sum of (x)
$40,000,000 and
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(y) the Exercise Price multiplied by the number of StrataCom Shares purchased by
Cisco pursuant to the Cisco Option, in connection with a sale of such StrataCom
Shares, all proceeds in excess of such amount shall be remitted to StrataCom.
Under the terms of the Stock Option Agreement, at any time during which the
Cisco Option is exercisable (the "Repurchase Period"), Cisco has the right to
require StrataCom (or any successor entity thereof) to repurchase from Cisco all
or any part of the Cisco Option, and StrataCom (or any successor entity thereof)
has the right to require Cisco to sell to StrataCom (or such successor entity)
all or any part of the Cisco Option, at the price set forth in subparagraph (a)
below. Also, at any time prior to May 15, 1997, Cisco has the right to require
StrataCom (or any successor entity thereof) to repurchase from Cisco, and
StrataCom (or any successor entity thereof) has the right to require Cisco to
sell to StrataCom (or such successor entity), all or any part of the StrataCom
Shares purchased by Cisco pursuant to the Cisco Option at the price set forth in
subparagraph (b) below:
(a) The difference between the Market/Tender Offer Price (as defined
below) for shares of StrataCom Common Stock as of the date the requesting
party gives notice ("Notice Date") of its intent to exercise its rights and
the Exercise Price, multiplied by the number of StrataCom Shares
purchasable pursuant to the Cisco Option, or portion thereof, but only if
the Market/Tender Offer Price exceeds the Exercise Price. The
"Market/Tender Offer Price" means the higher of (i) the price per share
offered as of the Notice Date pursuant to any tender or exchange offer or
other Takeover Proposal that was made prior to the Notice Date and not
terminated or withdrawn as of the Notice Date (the "Tender Offer Price") or
(ii) the average of the closing sale price of shares of StrataCom Common
Stock on the Nasdaq National Market for the ten (10) trading days
immediately preceding the Notice Date (the "Market Price").
(b) The Exercise Price paid by Cisco for StrataCom Shares acquired
pursuant to the Cisco Option plus the difference between the Market/Tender
Offer Price and the Exercise Price, but only if the Market/Tender Offer
Price is greater than the Exercise Price, multiplied by the number of
StrataCom Shares so purchased. For purposes of this clause (b), the Tender
Offer Price shall be the highest price per share offered pursuant to a
tender or exchange offer or other Takeover Proposal during the Repurchase
Period.
Notwithstanding the foregoing, (i) in no event shall the proceeds payable
to Cisco pursuant to the Cisco Option exceed the sum of (x) $40,000,000 and (y)
the Exercise Price multiplied by the number of shares of StrataCom Common Stock
purchased, and (ii) the right of StrataCom or any successor thereof to require
Cisco to sell the Cisco Option or the StrataCom Shares shall not be exercisable
unless StrataCom shall have consummated the transaction provided by a Takeover
Proposal or StrataCom's stockholders shall have transferred their shares of
StrataCom Common Stock pursuant to a tender or exchange offer or other Takeover
Proposal.
Subsequent to the termination of the Reorganization Agreement, Cisco may by
written notice ("Registration Notice") request StrataCom to register under the
Securities Act all or any part of the shares of StrataCom Common Stock acquired
pursuant to the Stock Option Agreement. StrataCom may, at its option, purchase
these shares ("Registrable Shares") at their market price (the per share average
of the closing sale price of StrataCom's Common Stock on the Nasdaq National
Market for the ten (10) trading days immediately preceding the Registration
Notice) within ten (10) business days after the receipt of the Registration
Notice. If StrataCom does not elect to exercise its option to purchase the
Registrable Shares, it shall use its best efforts to register the unpurchased
Registrable Shares; provided, however, (a) Cisco shall not be entitled to more
than an aggregate of two effective registration statements and (b) StrataCom
will not be required to file any such registration statement for a certain
period of time when (i) StrataCom is in possession of material non-public
information which it reasonably believes would be detrimental to be disclosed at
such time and, in the written opinion of counsel to StrataCom, such information
would have to be disclosed if a registration statement were filed at such time;
(ii) StrataCom is required under the Securities Act to include audited financial
statements for any period in such registration statement and such financial
statements are not yet available for inclusion in such registration statement;
or (iii) StrataCom determines, in
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its reasonable judgment, that such registration would interfere with any
financing, acquisition or other material transaction involving StrataCom or any
of its affiliates.
THE AGREEMENT AND PLAN OF REORGANIZATION
Representations, Warranties and Covenants
The Reorganization Agreement contains various representations and
warranties of the parties, including representations by Cisco, StrataCom and
Merger Sub as to their organization and capitalization, their authority to enter
into the Reorganization Agreement and to consummate the transactions
contemplated thereby, the existence of certain liabilities and the absence of
certain material undisclosed liabilities and changes in their businesses. Such
representations and warranties will not survive consummation of the Merger,
except for a representation by Cisco to support compliance with Section 368 of
the Code.
Under the terms of the Reorganization Agreement, for the period from the
date of the Reorganization Agreement and continuing until the earlier of the
termination of the Reorganization Agreement or the Effective Time, each of
StrataCom and Cisco has agreed (except to the extent expressly contemplated by
the Reorganization Agreement or as consented to in writing by the other), to
carry on its and its subsidiaries' business in the usual, regular and ordinary
course in substantially the same manner as conducted prior to execution of the
Reorganization Agreement, to pay and to cause its subsidiaries to pay debts and
taxes when due subject to good faith disputes over such debts or taxes and to
pay or perform other obligations when due, and to use its reasonable efforts
consistent with past practice and policies to preserve intact its and its
subsidiaries' present business organizations, keep available the services of its
and its subsidiaries' present officers and key employees and preserve its and
its subsidiaries' relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it or its
subsidiaries, to the end that its and its subsidiaries' goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Each of StrataCom and
Cisco has also agreed to use its best efforts promptly notify the other of any
event or occurrence not in the ordinary course of its or its subsidiaries'
business, and of any event which would have a material adverse effect on it and
its subsidiaries. In addition, each of Cisco and StrataCom has agreed that it
will not, among other things, do, cause or permit any of the following, or
allow, cause or permit any of its subsidiaries to do, cause or permit any of the
following, without the prior written consent of the other: (a) cause or permit
any amendments to its Certificate/Articles of Incorporation or Bylaws; (b)
declare or pay any dividends on or make any other distributions (whether in
cash, stock or property) in respect of any of its capital stock, or split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or repurchase or otherwise acquire, directly or
indirectly, any shares of its capital stock except from former employees,
directors and consultants in accordance with agreements providing for the
repurchase of shares in connection with any termination of service to it or its
subsidiaries; (c) accelerate, amend or change the period of exercisability or
vesting of options, warrants or other rights granted under its employee stock
plans or director stock plans or authorize cash payments in exchange for any
options or other rights granted under any of such plans; (d) take any action
which to the knowledge of such party would prevent Cisco from accounting for the
Merger as a pooling of interests; or (e) take, or agree in writing or otherwise
to take, any of the actions described in (a) through (d) above, or any action
which would make any of its representations or warranties contained in the
Reorganization Agreement untrue or incorrect or prevent it from performing or
cause it not to perform its covenants thereunder.
Moreover, under the terms of the Reorganization Agreement, StrataCom has
agreed that, during the period from the date of the Reorganization Agreement and
continuing until the earlier of the termination of the Reorganization Agreement
or the Effective Time, except as expressly contemplated by the Reorganization
Agreement, it will not, among other things, do, cause or permit any of the
following, or allow, cause or permit any of its subsidiaries to do, cause or
permit any of the following, without the prior written consent of Cisco which
consent shall not be unreasonably withheld: (a) except for contracts or
commitments entered into, and violations, amendments, modifications and waivers
of contracts in the ordinary course of business consistent with past practice in
an amount less than $10,000,000 in any one case, and except for contracts or
commitments entered into, and violations, amendments, modifications and waivers
of contracts not in the
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ordinary course of business consistent with past practice in an amount less than
$3,500,000 in any one case, enter into any contract or commitment, or violate,
amend or otherwise modify or waive any of the terms of any of its contracts,
other than in the ordinary course of business consistent with past practice; (b)
issue, deliver, sell, authorize or propose the issuance, delivery, sale of, or
purchase or propose the purchase of, any shares of its capital stock or
securities convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities, other than the issuance
of shares of its Common Stock pursuant to the exercise of stock options,
warrants or other rights therefor outstanding as of the date of the
Reorganization Agreement; provided, however, that StrataCom may, in the ordinary
course of business consistent with past practice, grant options for the purchase
of StrataCom Common Stock under its stock option plans (not to exceed an
aggregate of 750,000 options to purchase shares of StrataCom Common Stock
granted after April 21, 1996; provided not more than 150,000 of such options may
be granted in any one-month period); (c) transfer to any person or entity any
rights to its intellectual property other than in the ordinary course of
business consistent with past practice; (d) enter into or amend any agreements
pursuant to which any other party is granted exclusive marketing or distribution
rights with respect to any of its products or technology; (e) sell, lease,
license or otherwise dispose of or encumber any of its properties or assets
which are material, individually or in the aggregate, to its and its
subsidiaries' business, taken as a whole, except in the ordinary course of
business consistent with past practice; (f) incur any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others except in the ordinary course of
business consistent with past practice; (g) enter into any operating lease,
except in the ordinary course of business consistent with past practice; (h)
pay, discharge or satisfy in an amount in excess of $50,000 in any one case, any
claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of business,
other than the payment, discharge or satisfaction of liabilities reflected or
reserved against in StrataCom's financial statements; (i) make any material
capital expenditures, capital additions or capital improvements except in the
ordinary course of business and consistent with past practice; (j) materially
reduce the amount of any material insurance coverage provided by existing
insurance policies; (k) adopt or amend any material employee benefit or stock
purchase or option plan, or hire any new officer level employee (except that it
may hire a replacement for any current officer level employee if it first
provides Cisco five days prior written notice regarding such hiring decision),
hire any director level employee in departments other than sales, marketing or
engineering without first providing Cisco five days prior written notice of such
hire, pay any special bonus or special remuneration to any employee or director,
or increase the salaries or wage rates of its employees; (l) grant any severance
or termination pay (y) to any director or officer or (z) to any other employee
except (A) payments made pursuant to standard written agreements outstanding on
the date hereof or (B) grants which are made in the ordinary course of business
in accordance with its standard past practice; (m) commence a lawsuit other than
(x) for the routine collection of bills, (y) in such cases where it in good
faith determines that failure to commence suit would result in the material
impairment of a valuable aspect of its business, provided that it consults with
Cisco prior to the filing of such a suit, or (z) for a breach of the
Reorganization Agreement; (n) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to its and its subsidiaries' business, taken as a whole or acquire or
agree to acquire any equity securities of any corporation, partnership,
association or business organization; (o) other than in the ordinary course of
business, make or change any material election in respect of taxes, adopt or
change any accounting method in respect of taxes, enter into any closing
agreement, settle any claim or assessment in respect of taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of taxes; (p) StrataCom shall give all notices and other
information required to be given to the employees of StrataCom, any collective
bargaining unit representing any group of employees of StrataCom, and any
applicable government authority under the WARN Act, the National Labor Relations
Act, the Internal Revenue Code, the Consolidated Omnibus Budget Reconciliation
Act, and other applicable law in connection with the transactions provided for
in this agreement; (q) revalue 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; or (r) take, or agree in writing
or otherwise to take, any of the actions
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described in (a) through (q) above, or any action which would make any of its
representations or warranties contained in the Reorganization Agreement untrue
or incorrect or prevent it from performing or cause it not to perform its
covenants thereunder.
No Solicitation of Transactions
StrataCom has further agreed that StrataCom and its subsidiaries and the
officers, directors, employees or other agents of StrataCom and its subsidiaries
will not, directly or indirectly, (i) take any action to solicit, initiate or
encourage any Takeover Proposal (defined below) or (ii) subject to the terms of
the immediately following sentence, engage in negotiations with, or disclose any
nonpublic information relating to StrataCom or any of its subsidiaries to, or
afford access to the properties, books or records of StrataCom or any of its
subsidiaries to, any person that has advised StrataCom that it may be
considering making, or that has made, a Takeover Proposal; provided, nothing
herein shall prohibit StrataCom's Board of Directors from taking and disclosing
to StrataCom's stockholders a position with respect to a tender offer pursuant
to Rules 14d-9 and 14e-2 promulgated under the Exchange Act.
Notwithstanding the foregoing, if an unsolicited Takeover Proposal, or an
unsolicited written expression of interest that StrataCom reasonably expects to
lead to a Takeover Proposal, shall be received by the StrataCom Board of
Directors, then, to the extent the StrataCom Board of Directors believes in good
faith (after consultation with its financial advisor) that such Takeover
Proposal would, if consummated, result in a Superior Proposal and the StrataCom
Board of Directors determines in good faith after consultation with outside
legal counsel that it is necessary for the StrataCom Board of Directors to
comply with its fiduciary duties to stockholders under applicable law, StrataCom
and its officers, directors, employees, investment bankers, financial advisors,
attorneys, accountants and other representatives retained by it may furnish in
connection therewith information and take such other actions as are consistent
with the fiduciary obligations of StrataCom's Board of Directors, and such
actions shall not be considered a breach of the Reorganization Agreement in each
such event StrataCom is required to notify Cisco of such determination by the
StrataCom Board of Directors and provides Cisco with a true and complete copy or
summary of the Superior Proposal received from such third party, and provide
Cisco with all documents containing or referring to non-public information of
StrataCom that are supplied to such third party. In addition, StrataCom is only
permitted to take the foregoing actions if (a) the StrataCom Board of Directors
has determined, with the advice of StrataCom's investment bankers, that such
third party is capable of making a Superior Proposal upon satisfactory
completion of such third party's review of the information supplied by
StrataCom, (b) the third party has stated that it intends to make a Superior
Proposal, (c) StrataCom has not provided any non-public information to any such
third party if it has not prior to the date thereof provided such information to
Cisco or Cisco's representatives, and (d) StrataCom provides such non-public
information pursuant to a non-disclosure agreement at least as restrictive as to
confidential information as that certain non-disclosure agreement between Cisco
and StrataCom, entered into in contemplation of the Merger. Further, StrataCom
has agreed that it shall not, and shall not permit any of its officers,
directors, employees (acting on behalf of StrataCom) or other representatives to
agree to or endorse any Takeover Proposal unless StrataCom shall have terminated
the Reorganization Agreement and paid to Cisco all amounts payable to Cisco
pursuant to the Reorganization Agreement. StrataCom will promptly notify Cisco
after receipt of any Takeover Proposal or any notice that any person is
considering making a Takeover Proposal or any request for non-public information
relating to StrataCom or any of its subsidiaries or for access to the
properties, books or records of StrataCom or any of its subsidiaries by any
person that has advised StrataCom that it may be considering making, or that has
made, a Takeover Proposal and will keep Cisco fully informed of the status and
details of any such Takeover Proposal notice, request or any correspondence or
communications related thereto and shall provide Cisco with a true and complete
copy of such Takeover Proposal notice or request or any correspondence or
communications related thereto. For purposes of the Reorganization Agreement,
"Takeover Proposal" means any offer or proposal for, or any indication of
interest in, a merger or other business combination involving StrataCom or the
acquisition of 20% or more of the outstanding shares of capital stock of
StrataCom, or the sale or transfer of any material assets (excluding the sale or
disposition of assets in the ordinary course of business) of StrataCom, other
than the transactions contemplated by the Reorganization Agreement.
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Conditions to the Merger
Each party's respective obligation to consummate and effect the Merger is
subject to, among other things, the approval of the Reorganization Agreement and
the Merger by the requisite votes of the stockholders of StrataCom, the
Commission having declared the Proxy Statement/Prospectus effective, and the
satisfaction prior to the Effective Time of the additional following conditions:
(a) the absence of any temporary restraining order injunction or other legal
action or regulatory restraint or prohibition preventing the consummation of the
Merger or rendering the consummation of the Merger illegal, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentability, foreign or domestic, seeking any of
the foregoing be pending; (b) all material authorizations, consents, orders or
approvals of, or declarations or filings with, or expiration of waiting periods
imposed by, any Governmental Entity necessary for the consummation of the
transactions contemplated by the Reorganization Agreement, and the Certificate
of Merger shall have been filed, expired or been obtained, other than those
that, individually or in the aggregate, the failure to be filed, expired or
obtained would not, in the reasonable opinion of Cisco after consultation with
StrataCom, have a material adverse effect on Cisco or StrataCom; (c) Cisco and
StrataCom having received substantially identical written opinions of their
respective counsel to the effect that, based upon certain representations and
assumptions and subject to certain qualifications, the Merger will constitute a
tax-free Reorganization; (d) the filing with the Nasdaq National Market of a
Notification Form for Listing of Additional Shares with respect to the shares of
Cisco Common Stock issuable in connection with the Merger; and (e) Cisco and
StrataCom having received a letter from each of their respective independent
auditors, confirming that the Merger qualifies for pooling of interest
accounting treatment if consummated in accordance with the Reorganization
Agreement.
The obligations of StrataCom to effect the Merger are subject to, among
other things, the satisfaction at or prior to the Effective Time of each of the
following conditions, unless waived in writing by StrataCom: (a) the
representations and warranties of Cisco and Merger Sub in the Reorganization
Agreement shall be true and correct as of the Effective Time as though such
representations and warranties were made on and as of such time, except for such
inaccuracies as individually or in the aggregate would not have a material
adverse effect on Cisco and StrataCom shall have received a certificate to such
effect signed on behalf of Cisco by its President and Chief Financial Officer;
(b) Cisco and Merger Sub shall have performed or complied in all material
respects with all covenants, obligations, conditions and agreements required by
them as of the Effective Time and StrataCom shall have received a certificate
executed on behalf of Cisco by its President and Chief Financial Officer to such
effect; (c) StrataCom shall have received a legal opinion as to certain matters
from Brobeck, Phleger & Harrison LLP, counsel to Cisco; (d) there shall not have
occurred any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, or results of operations of Cisco and its subsidiaries, taken as a
whole; (e) StrataCom shall have been furnished with evidence satisfactory to it
of the consent or approval of those persons whose consent or approval shall be
required in connection with the Merger under any material contract of Cisco or
any of its subsidiaries or otherwise except where the failure to obtain such
consent or approval would not have a material adverse effect on Cisco; and (f)
no temporary restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Cisco's business following the
Merger shall be in effect, nor shall any proceeding brought by an administrative
agency or commission or other governmental entity, domestic or foreign, seeking
the foregoing be pending except where the existence of any of the foregoing
items would not have a material adverse effect on Cisco.
The obligations of Cisco and Merger Sub to effect the Merger are subject
to, among other things, the satisfaction at or prior to the Effective Time of
each of the following conditions, unless waived in writing by Cisco: (a) the
representations and warranties of StrataCom in the Reorganization Agreement
shall be true and correct as of the Effective Time as though such
representations and warranties were made on and as of such time, except for such
inaccuracies as individually or in the aggregate would not have a material
adverse effect on StrataCom; and Cisco and Merger Sub shall have received a
certificate to such effect signed on behalf of StrataCom by its President and
Chief Financial Officer; (b) StrataCom shall have performed or complied in all
material respects with all covenants, obligations and agreements required by
them as of the
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Effective Time and Cisco and Merger Sub shall have received a certificate
executed on behalf of StrataCom by its President and Chief Financial Officer to
such effect; (c) Cisco shall have received a legal opinion as to certain matters
from Wilson, Sonsini, Goodrich & Rosati, counsel to StrataCom; (d) Cisco shall
have been furnished with evidence satisfactory to it of the consent or approval
of those persons whose consent or approval shall be required in connection with
the Merger under any material contract of StrataCom or any of its subsidiaries
or otherwise; (e) no temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal or regulatory restraint provision limiting or restricting Cisco's conduct
or operation of the business of StrataCom and its subsidiaries, following the
Merger shall be in effect, nor shall any proceeding brought by an administrative
agency or commission or other Governmental Entity, domestic or foreign, seeking
the foregoing be pending except where the existence of any of the foregoing
items would not have a material adverse effect on StrataCom; (f) there shall not
have occurred any material adverse change in the condition (financial or
otherwise), properties, assets (including intangible assets), liabilities,
business, operations, or results of operations of StrataCom and its
subsidiaries, taken as a whole provided, however, that any adverse effect on
revenues or gross margins of StrataCom (or the direct consequences thereof)
following the date of the Reorganization Agreement which is attributable to a
delay of, reduction in or cancellation or change in the terms of product orders
by customers of StrataCom shall not be deemed a material adverse change; (g)
Cisco shall have received from each of the Affiliates of StrataCom an executed
Affiliate Agreement; and (h) certain employees of StrataCom shall have accepted
employment with Cisco and shall have entered into an employment and
non-competition agreement as described in the Reorganization Agreement.
Closing
As promptly as practicable after the satisfaction or waiver of the
conditions set forth in the Reorganization Agreement, Merger Sub and StrataCom
will file certificates of merger with the Secretary of State of Delaware and the
Recorder of the County in which the registered office of each of StrataCom and
Merger Sub is located. The Merger will become effective upon such filings. It is
anticipated that, assuming all conditions are met, the Merger will occur and a
closing will be held on or before July 9, 1996.
Termination, Amendments and Waivers
At any time prior to the Effective Time, the Reorganization Agreement may
be terminated:
(a) by mutual written consent duly authorized by the Board of
Directors of Cisco and StrataCom;
(b) by either Cisco or StrataCom, if (i) without fault of the
terminating party, the Merger shall not have occurred on or before November
15, 1996 (provided, a later date may be agreed upon in writing by the
parties and provided further that the right to terminate the Reorganization
Agreement shall not be available to any party whose action or failure to
act has been the cause of or resulted in the failure of the Merger to occur
on or before such date and such action or failure to act constitutes a
breach of the Reorganization Agreement); (ii) a Trigger Event or Takeover
Proposal (each as defined under "The Merger and Related Transactions -- The
Agreement and Plan to Reorganization -- Fees and Expenses; Termination
Fee") shall have occurred and the StrataCom Board of Directors in
connection therewith, after consultation with its legal counsel, withdraws
or modifies its approval and recommendation of the Reorganization Agreement
and the Merger after determining that to cause StrataCom to proceed with
the Merger would not be consistent with the StrataCom Board of Directors'
fiduciary duty to the stockholders of StrataCom; or (iii) (x) any permanent
injunction or other order of a court or other competent authority
preventing the consummation of the Merger shall have become final and
nonappealable or (y) if any required approval of the stockholders of
StrataCom shall not have been obtained by reason of the failure to obtain
the required vote upon a vote held at a duly held meeting of stockholders
or at any adjournment thereof;
(c) by Cisco (if not in willful breach of the Reorganization
Agreement), if (i) upon a breach of any representation, warranty, covenant
or agreement on the part of StrataCom set forth in the Reorganization
Agreement, or if any representation or warranty of StrataCom shall have
become untrue, in either case such that the closing conditions pertaining
thereto would not be satisfied as of the time of such breach or
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<PAGE> 53
as of the time such representation or warranty shall have become untrue and
such inaccuracy in StrataCom's representations and warranties or breach by
StrataCom shall not have been cured within five business days of receipt by
StrataCom of written notice thereof; (ii) the StrataCom Board of Directors
shall have withdrawn or modified its recommendation of the Reorganization
Agreement or the Merger in a manner adverse to Cisco or shall have resolved
to do so, or (iii) for any reason StrataCom fails to call and hold the
StrataCom Meeting by September 1, 1996 and StrataCom is at that time in
willful breach of the Reorganization Agreement; or
(d) by StrataCom (i) (if not in willful breach of the Reorganization
Agreement) upon a breach of any representation, warranty, covenant or
agreement on the part of Cisco set forth in the Reorganization Agreement or
if any representation or warranty or Cisco shall have become untrue, in
either case such that the closing conditions pertaining thereto would not
be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue and such inaccuracy in
Cisco's representations and warranties or breach by Cisco shall not have
been cured within five business days of receipt by Cisco of written notice
thereof, or (ii) in the event (x) of the acquisition, by any person or
group of persons (other than persons or groups of persons who (A) acquired
shares of Cisco Common Stock pursuant to any Merger of Cisco in which Cisco
was the surviving corporation and stockholders of Cisco represent less than
70% of the outstanding shares of the surviving corporation following such
transaction or any acquisition by Cisco of all or substantially all of the
capital stock or assets of another person or (B) disclose their beneficial
ownership of shares of Cisco Common Stock on Schedule 13G under the
Exchange Act), of beneficial ownership of 30% or more of the outstanding
shares of Cisco Common Stock, (y) the Cisco Board of Directors accepts or
publicly recommends acceptance of an offer from a third party to acquire
50% or more of the outstanding shares of Cisco Common Stock or of Cisco's
consolidated assets, or (z) Cisco acquires or agrees to acquire by merging
or consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof and such
acquisition requires the approval of the stockholders of Cisco in
accordance with applicable law.
In the event of termination of the Reorganization Agreement, the
Reorganization Agreement shall forthwith become void and there shall be no
liability or obligation on the part of Cisco, Merger Sub or StrataCom or their
respective officers, directors, stockholders or affiliates, except to the extent
that such termination results from the willful breach by a party hereto of any
of its representations, warranties or covenants set forth in this Agreement;
provided that, the provisions of the Reorganization Agreement pertaining to
confidentiality and expenses and fees shall remain in full force and effect and
survive any such termination.
The Reorganization Agreement may be amended by Cisco and StrataCom at any
time before or after approval by the StrataCom and Merger Sub stockholders,
except that, after such approval, no amendment may be made which (i) alters or
changes the amount or kind of consideration to be received on conversion of the
StrataCom Common Stock, (ii) alters or changes any term of the Certificate of
Incorporation of the surviving corporation to be effected by the Merger, or
(iii) alters or changes any of the terms and conditions of the Reorganization
Agreement if such alteration or change would adversely affect the holders of
StrataCom or Merger Sub Common Stock. See "The Merger and Related
Transactions -- Agreement and Plan of Reorganization -- Amendments, Termination
and Waivers."
At any time prior to the Effective Time, either of Cisco or StrataCom may,
to the extent legally allowed, by execution of an instrument in writing signed
on behalf of such party (a) extend the time for the performance of any of the
obligations or acts of the other party set forth in the Reorganization
Agreement; (b) waive any inaccuracies in the representations and warranties made
to such party in the Reorganization Agreement or in any document delivered
pursuant to the Reorganization Agreement; and (c) waive compliance with any of
the agreements or conditions for the benefit of such party under the
Reorganization Agreement.
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Fees and Expenses; Termination Fee
Subject to the provisions described below regarding reimbursement of
expenses and payment of termination fees, whether or not the Merger is
consummated, in general, all costs and expenses incurred in connection with the
Reorganization Agreement and the transactions contemplated thereby are to be
paid by the party incurring such expense.
Whether or not a termination fee is payable by StrataCom to Cisco as
described below, StrataCom has agreed to reimburse Cisco for its out-of-pocket
expenses incurred in connection with the Reorganization Agreement and the Merger
in the event that Cisco terminates the Reorganization Agreement as a result of a
breach by StrataCom of the Reorganization Agreement, a withdrawal or
modification StrataCom Board of Directors' recommendation of the Reorganization
Agreement and the Merger, the failure of StrataCom to hold a meeting of
stockholders to vote on the Merger by September 1, 1996 (if StrataCom is then in
willful breach of the Reorganization Agreement), or if the stockholders of
StrataCom fail to vote in favor of the Reorganization Agreement and the Merger.
StrataCom has agreed to pay to Cisco a termination fee of $80,000,000 upon
the occurrence of any of the following events:
a. If Cisco or StrataCom shall have terminated the Reorganization
Agreement as a result of a Trigger Event or Takeover Proposal (as defined
below) having occurred and the StrataCom Board of Directors in connection
therewith, after consultation with its legal counsel, withdraws or modifies
its approval and recommendation of the Reorganization Agreement and the
Merger after determining that to cause StrataCom to proceed with the Merger
would not be consistent with the StrataCom Board of Directors' fiduciary
duty to the stockholders of StrataCom;
b. If either Cisco or StrataCom shall have terminated the
Reorganization Agreement upon the failure of StrataCom stockholders to vote
in favor of the Reorganization Agreement and the Merger at a duly held
meeting of StrataCom stockholders or at any adjournment thereof, and prior
to the time of the stockholder meeting there shall have been (x) a Trigger
Event or (y) a Takeover Proposal, which at the time of the stockholder
meeting shall not have been rejected by StrataCom;
c. If Cisco shall have terminated the Reorganization Agreement because
StrataCom fails to call and hold a stockholders meeting to vote on the
Reorganization Agreement and the Merger by September 1, 1996 and StrataCom
is at the time of termination in willful breach of the Reorganization
Agreement, and prior to the time of such termination there shall have been
(x) a Trigger Event or (y) a Takeover Proposal, which shall not have been
rejected by StrataCom; or
d. If (i) either Cisco or StrataCom shall have terminated the
Reorganization Agreement upon the failure of StrataCom stockholders to vote
in favor of the Reorganization Agreement and the Merger at a duly held
meeting of StrataCom stockholders or at any adjournment thereof, and prior
to the time of the stockholder meeting there shall have been (x) a Trigger
Event or (y) a Takeover Proposal (which for these purposes includes the
acquisition of 40% or more of the outstanding StrataCom voting stock,
rather than 20%), which at the time of the stockholder meeting shall have
been (A) rejected by StrataCom and (B) withdrawn by the third party; and ,
(ii) within seven months following such termination StrataCom (a) enters
into an agreement with respect to a Takeover Proposal (which for these
purposes includes the acquisition of 40% or more of the outstanding
StrataCom voting stock, rather than 20%) or (b) takes action to permit, or
recommends that StrataCom stockholders accept an offer by, any third party
(other than certain passive investors) to acquire 20% or more of
StrataCom's voting power;
and, in addition, upon the occurrence of the events specified in a, b, or c
above, StrataCom has agreed to reimburse Cisco for its out-of-pocket expenses
incurred in connection with the Reorganization Agreement and the Merger.
(StrataCom has also agreed to reimburse Cisco for such expenses upon the
occurrence of the event specified in d above, whether or not a subsequent
Takeover Proposal or Trigger Event shall occur within the seven-month period).
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<PAGE> 55
StrataCom has agreed to pay Cisco a termination fee of $40,000,000 upon the
occurrence of either of the following events:
a. If either Cisco or StrataCom shall have terminated the
Reorganization Agreement upon the failure of StrataCom stockholders to vote
in favor of the Reorganization Agreement and the Merger at a duly held
meeting of StrataCom stockholders or at any adjournment thereof, and prior
to the time of the stockholder meeting there shall have been (x) a Trigger
Event or (y) a Takeover Proposal, which at the time of the stockholder
meeting shall have been (i) rejected by StrataCom, and (ii) not withdrawn
by the third party; or
b. If Cisco shall have terminated the Reorganization Agreement because
StrataCom fails to call and hold a stockholders meeting to vote on the
Reorganization Agreement and the Merger by September 1, 1996, and StrataCom
is at the time of termination in willful breach of the Reorganization
Agreement, and prior to the time of such termination there shall have been
(x) a Trigger Event or (y) a Takeover Proposal, which shall have been
rejected by StrataCom;
and, if within six months following such termination StrataCom (x) enters into
an agreement with respect to a Takeover Proposal, or (y) takes action to permit
any third party (other than certain passive investors) to acquire 20% or more of
StrataCom voting power, then StrataCom has agreed to pay to Cisco an additional
$40,000,000. In addition, upon the occurrence of the events specified in a or b
above, StrataCom has agreed to reimburse Cisco for its out-of-pocket expenses
incurred in connection with the Reorganization Agreement and the Merger.
For purposes of defining the termination rights of Cisco and StrataCom, as
well as determining whether termination fees are payable by StrataCom to Cisco,
the following terms have the following meanings:
The term "Takeover Proposal" means an offer or proposal for, or any
indication of interest in (where such indication of interest has been
disclosed publicly), a merger or other business combination involving
StrataCom or the acquisition of 20% or more of the outstanding shares of
capital stock of StrataCom or the sale or transfer of any material assets
(excluding the sale or disposition of assets in the ordinary course of
business) of StrataCom, or any of its subsidiaries, other than transactions
contemplated by the Reorganization Agreement;
A "Trigger Event" would occur if any person acquires securities
representing 20% or more, or commences a tender or exchange offer following
the successful consummation of which the offeror and its affiliates would
beneficially own securities representing 20% or more, of the voting power
of StrataCom; provided, however, a Trigger Event would not be deemed to
include the acquisition by any Person of securities representing 20% or
more of StrataCom if such person has acquired such securities not with the
purpose nor with the effect of changing or influencing the control of
StrataCom, nor in connection with or as a participant in any transaction
having such purpose or effect, including without limitation not in
connection with such person (i) making any public announcement with respect
to the voting of such shares at any meeting to consider any merger,
consolidation, sale of substantial assets or other business combination or
extraordinary transaction involving StrataCom, (ii) making, or in any way
participating in, any "solicitation" of "proxies" (as such terms are
defined or used in Regulation 14A under the Exchange Act) to vote any
voting securities of StrataCom (including, without limitation, any such
solicitation subject to Rule 14a-11 under the Exchange Act) or seeking to
advise or influence any person with respect to the voting of any voting
securities of StrataCom, directly or indirectly, relating to a merger or
other business combination involving StrataCom or the sale or transfer of
any material assets (excluding the sale or disposition of assets in the
ordinary course of business) of StrataCom, (iii) forming, joining or in any
way participating in any "group" within the meaning of Section 13(d)(3) of
the Exchange Act with respect to any voting securities of StrataCom,
directly or indirectly, relating to a merger or other business combination
involving StrataCom or the sale or transfer of any material assets
(excluding the sale or disposition of assets in the ordinary course of
business) of StrataCom, or (iv) otherwise acting, alone or in concert with
others, to seek control of StrataCom or to seek to control or influence the
management or policies of StrataCom.
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Pursuant to a letter agreement dated April 18, 1996, StrataCom engaged
Montgomery to provide financial advice and assistance in connection with a sale
or merger of StrataCom, and to render a fairness opinion in connection with the
proposed merger with a subsidiary of Cisco. StrataCom has agreed to pay
Montgomery a Transaction Fee of $3,500,000 of the Aggregate Transaction Value
(as defined in Section 4 of that letter agreement) for its services pursuant to
the terms of the letter agreement and has agreed to reimburse Montgomery for its
reasonable out-of-pocket expenses.
Indemnification and Insurance
The Reorganization Agreement provides that Cisco will, from and after the
Effective Time, and will cause StrataCom to indemnify, defend and hold harmless
each person who was as of the date of the Reorganization Agreement or has been
at any time prior to the date thereof, or who becomes prior to the Effective
Time, an officer, director, employee or agent of StrataCom in respect of acts or
omissions occurring on or prior to the Effective Time, in each case to the full
extent such corporation is permitted under Delaware law, the StrataCom
Certificate or the StrataCom Bylaws or any indemnification agreement to which
StrataCom is a party, in each case as in effect on the date of the
Reorganization Agreement.
The Reorganization Agreement also provides that, for four years after the
Effective Time, Cisco will either (i) at all times maintain at least
$500,000,000 in cash, marketable securities and unrestricted lines of credit to
be available to indemnify the present and former officers, directors, employees
and agents of StrataCom against certain liabilities, or (ii) cause the Surviving
Corporation to use its best efforts to cause to be maintained for the benefit of
StrataCom's directors and officers and other persons covered by StrataCom's
current directors' and officers' liability insurance with respect to all matters
occurring on or prior to the Effective Time, directors and officers liability
insurance on terms substantially equivalent to the StrataCom directors' and
officers' liability insurance policy in effect on the date of the Reorganization
Agreement. Cisco and StrataCom will also, as of the Effective Time, assume all
of StrataCom's obligations to its directors, officers and employees under any
indemnification agreements in effect on the date of the Reorganization Agreement
to which StrataCom is a party.
Interests of Certain Persons in the Merger
In considering the recommendation of the StrataCom Board of Directors with
respect to the Merger, stockholders of StrataCom should be aware that certain
officers and directors of StrataCom have interests in the Merger, including
those referred to below, that presented them with potential conflicts of
interests. The StrataCom Board of Directors was aware of these potential
conflicts and considered them along with the other matters described in "The
StrataCom Meeting -- Board Recommendation" and "The Merger and Related
Transactions -- Reasons for the Merger."
The Reorganization Agreement provides that Cisco will assume StrataCom's
outstanding stock options, whereafter such options will be exercisable for Cisco
Common Stock. In light of the premium reflected in the Exchange Ratio, the
Company's officers will thus receive a significant benefit from the merger in
the form of the higher value of shares issuable upon exercise of their options.
However, officers of StrataCom will not receive or be entitled to "golden
parachute"or other change of control payments particularly by virtue of the
merger.
Cisco has entered into employment and non-competition agreements with
certain StrataCom executive officers and employees in positions comparable to
such employee's current position with StrataCom. These agreements provide that
if the employment of the employees were terminated by Cisco without cause or if
the employee were to resign with good cause, then Cisco would pay a lump sum
equal to the product of the number of whole months remaining under the one year
term of the employment and non-competition agreement and the monthly base salary
less applicable deductions, plus COBRA, less applicable deductions. These
agreements have been entered into with Richard M. Moley, Sanjay Subhedar, M.
Alex Mendez, Charles Corbalis, John G. Kirsch, Richard W. Lowenthal, Mark
Chandler, Anthony Crabb and Kenneth Shevock, and StrataCom has agreed to use its
best efforts to cause certain other employees to enter into
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<PAGE> 57
similar employment and non-competition agreements with Cisco. See "The Merger
and Related Transactions -- Related Agreements -- Employment and Non-Competition
Agreements."
The Reorganization Agreement provides that Cisco will, from and after the
Effective Time, and will cause StrataCom to indemnify, defend and hold harmless
each person who was as of the date of the Reorganization Agreement or has been
at any time prior to the date thereof, or who becomes prior to the Effective
Time, an officer, director, employee or agent of StrataCom in respect of acts or
omissions occurring on or prior to the Effective Time, in each case to the full
extent such corporation is permitted under Delaware law, the StrataCom
Certificate or the StrataCom Bylaws or any indemnification agreement to which
StrataCom is a party, in each case as in effect on the date of the
Reorganization Agreement.
REGULATORY MATTERS
Under the HSR Act, and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division and
specified waiting period requirements have been satisfied. Each of Cisco and
StrataCom originally filed their respective Notification and Report Forms
required under the HSR Act with the FTC and the Antitrust Division on April 23,
1996 and the applicable waiting period under the HSR Act terminated on May 31,
1996. At any time before or after consummation of the Merger, the FTC, the
Antitrust Division, the state attorneys general or others could take action
under the antitrust laws with respect to the Merger, including seeking to enjoin
the consummation of the Merger or seeking divestiture of substantial assets of
Cisco or StrataCom.
Based on information available to them, Cisco and StrataCom believe that
the Merger will not violate federal or state antitrust laws. However, there can
be no assurance that a challenge to the consummation of the Merger on antitrust
grounds will not be made or that, if such a challenge were made, Cisco and
StrataCom would prevail or would not be required to accept certain conditions,
possibly including certain divestitures or hold-separate arrangements, in order
to consummate the Merger.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations relevant to the exchange of shares of StrataCom Common Stock for
Cisco Common Stock pursuant to the Merger that are generally applicable to
holders of StrataCom Common Stock. This discussion is based on currently
existing provisions of the Code, existing and proposed Treasury Regulations
thereunder and current administrative rulings and court decisions, all of which
are subject to change. Any such change, which may or may not be retroactive,
could alter the tax consequences to Cisco, StrataCom or StrataCom's stockholders
as described herein.
StrataCom stockholders should be aware that this discussion does not deal
with all federal income tax considerations that may be relevant to particular
StrataCom stockholders in light of their particular circumstances, such as
stockholders who are dealers in securities, who are subject to the alternative
minimum tax provisions of the Code, who are foreign persons, who do not hold
their StrataCom Common Stock as capital assets, or who acquired their shares in
connection with stock option or stock purchase plans or in other compensatory
transactions. In addition, the following discussion does not address the tax
consequences of the Merger under foreign, state or local tax laws, the tax
consequences of transactions effectuated prior or subsequent to, or concurrently
with, the Merger (whether or not any such transactions are undertaken in
connection with the Merger), including without limitation any transaction in
which shares of StrataCom Common Stock are acquired or shares of Cisco Common
Stock are disposed of, or the tax consequences of the assumption by Cisco of the
StrataCom Options. Accordingly, STRATACOM STOCKHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE
MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES.
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The Merger is intended to constitute a Reorganization. Provided that the
Merger does so qualify as a Reorganization, then, subject to the limitations and
qualifications referred to herein, the Merger will generally result in the
following federal income tax consequences:
(a) No gain or loss will be recognized by holders of StrataCom Common
Stock solely upon their receipt of Cisco Common Stock in exchange for
StrataCom Common Stock in the merger (except to the extent of cash received
in lieu of a fractional share of Cisco Common Stock).
(b) The aggregate tax basis of the Cisco Common Stock received by
StrataCom stockholders in the Merger (reduced by any tax bases attributable
to fractional shares deemed to be disposed of) will be the same as the
aggregate tax basis of the StrataCom Common Stock surrendered in exchange
therefor.
(c) The holding period of the Cisco Common Stock received by each
StrataCom stockholder in the Merger will include the period for which the
StrataCom Common Stock surrendered in exchange therefor was considered to
be held, provided that the StrataCom Common Stock so surrendered is held as
a capital asset at the time of the Merger.
(d) Cash payments received by holders of StrataCom Common Stock in
lieu of a fractional share will be treated as if such fractional share of
Cisco Common Stock had been issued in the Merger and then redeemed by
Cisco. A StrataCom stockholder receiving such cash will recognize gain or
loss, upon such payment, measured by the difference (if any) between the
amount of cash received and the basis in such fractional share.
(e) Neither Cisco, Merger Sub nor StrataCom will recognize material
amounts of gain solely as a result of the Merger.
The parties are not requesting and will not request a ruling from the
Internal Revenue Service (the "IRS") in connection with the Merger. Cisco has
received an opinion from Brobeck, Phleger & Harrison LLP to the effect that the
Merger will constitute a Reorganization and StrataCom has received an opinion
from Wilson, Sonsini, Goodrich & Rosati, a Professional Corporation, to the
effect that the Merger will constitute a Reorganization (the "Tax Opinions").
StrataCom stockholders should be aware that the Tax Opinions do not bind the IRS
and the IRS is therefore not precluded from successfully asserting a contrary
opinion. The Tax Opinions are subject to certain assumptions and qualifications,
including but not limited to the truth and accuracy of certain representations
made by Cisco, StrataCom, Merger Sub, and certain stockholders of StrataCom. Of
particular importance are certain representations relating to the so-called
"continuity of interest" requirement.
To satisfy the continuity of interest requirement, StrataCom stockholders
must not, pursuant to a plan or intent existing at or prior to the Merger,
dispose of or transfer so much of either (i) their StrataCom Common Stock in
anticipation of the Merger or (ii) the Cisco Common Stock to be received in the
Merger (collectively, "Planned Dispositions"), such that StrataCom stockholders,
as a group, would no longer have a significant equity interest in the StrataCom
business being conducted after the Merger. StrataCom stockholders will generally
be regarded as having a significant equity interest as long as the number of
shares of Cisco Common Stock received in the Merger less the number of shares
subject to Planned Dispositions (if any) represents, in the aggregate, a
substantial portion of the entire consideration received by the StrataCom
stockholders in the Merger. No assurance can be made that the "continuity of
interest" requirement will be satisfied, and if such requirement is not
satisfied, the Merger would not be treated as a Reorganization. The Tax Opinions
rely in part on representations from affiliates of both Cisco and StrataCom
relating to the "continuity of interest" requirements.
A successful IRS challenge to the Reorganization status of the Merger (as a
result of a failure to satisfy the "continuity of interest" requirement or
otherwise) would result in StrataCom stockholders recognizing taxable gain or
loss with respect to each share of Common Stock of StrataCom surrendered equal
to the difference between the stockholder's basis in such share and the fair
market value, as of the Effective Time, of the Cisco Common Stock received in
exchange therefor. In such event, a stockholder's aggregate basis in the Cisco
Common Stock so received would equal its fair market value, and the
stockholder's holding period for such stock would begin the day after the
Merger.
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ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
purposes. Under this accounting treatment, the recorded assets and liabilities
and the operating results of both Cisco and StrataCom are carried forward to the
combined operations of the Combined Company at their recorded amounts. No
recognition of goodwill in the combination is required of either party to the
Merger. To support the treatment of the Merger as a pooling of interests, the
affiliates of Cisco and StrataCom have entered into agreements imposing certain
resale limitations on their stock. See "The Merger and Related
Transactions -- Related Agreements -- Affiliate Agreements." It is a condition
to Cisco's and StrataCom's obligations to consummate the Merger that, among
other things, Cisco receive a letter from Coopers & Lybrand L.L.P., the
independent accountants for Cisco, and StrataCom receive a letter from Arthur
Andersen LLP, the independent accountants for StrataCom, with respect to
StrataCom's ability to participate in a pooling-of-interests transaction.
NO APPRAISAL RIGHTS
Section 262 of the Delaware General Corporation Law (the "DGCL") provides
appraisal rights (sometimes referred to as "dissenters' rights") to stockholders
of Delaware corporations in certain situations. However, Section 262 appraisal
rights are not available to stockholders of a corporation, such as StrataCom,
(a) whose securities are listed on a national securities exchange or are
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. ("NASD") and (b)
whose stockholders are not required to accept in exchange for their stock
anything other than stock of another corporation listed on a national securities
exchange or on an interdealer quotation system by the NASD and cash in lieu of
fractional shares. Because StrataCom's Common Stock is traded on such a system,
the Nasdaq National Market, and because the StrataCom stockholders are being
offered stock of Cisco, which is also traded on the Nasdaq National Market, and
cash in lieu of fraction shares, stockholders of StrataCom will not have
appraisal rights with respect to the Merger. The DGCL does not provide appraisal
rights to stockholders of a corporation, such as Cisco, which issues shares in
connection with a merger but is not itself a constituent corporation in the
Merger.
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UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements,
including the notes thereto, are qualified in their entirety by reference to,
and should be read in conjunction with, the historical consolidated financial
statements of Cisco and StrataCom, including the notes thereto, incorporated
herein by reference.
The unaudited pro forma condensed combined financial statements assume a
business combination between Cisco and StrataCom accounted for on a
pooling-of-interests basis and are based on each company's respective historical
consolidated financial statements and notes thereto, which are incorporated
herein by reference. The pro forma condensed combined balance sheet combines
Cisco's consolidated condensed balance sheet as of January 28, 1996 with
StrataCom's consolidated condensed balance sheet as of December 31, 1995, giving
effect to the Merger as if it had occurred on January 28, 1996. The unaudited
pro forma combined condensed statements of operations combine Cisco's historical
results for the six months ended January 29, 1995 and January 28, 1996 and the
years ended July 25, 1993, July 31, 1994 and July 30, 1995 with StrataCom's
historical results for the six months ended December 31, 1994 and 1995, the
twelve months ended July 2, 1993, July 1, 1994 and July 1, 1995, respectively,
giving effect to the Merger as if it had occurred at the beginning of the
earliest period presented.
The pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the operating results or financial position
that would have occurred if the Merger had been consummated at the beginning of
the earliest period presented, nor is it necessarily indicative of future
operating results or financial position.
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CISCO SYSTEMS, INC. AND STRATACOM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 1993, 1994 AND 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CISCO SYSTEMS, INC. STRATACOM, INC. PRO FORMA COMBINED
---------------------------------- ---------------------------- ----------------------------------
1993 1994 1995 1993 1994 1995 1993 1994 1995
-------- ---------- ---------- ------- ------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $649,035 $1,242,975 $1,978,916 $65,498 $91,461 $253,736 $714,533 $1,334,436 $2,232,652
Cost of sales............ 210,528 412,824 644,152 28,542 37,767 98,708 239,070 450,591 742,860
-------- ---------- ---------- ------- ------- ------- -------- ---------- ----------
Gross margin........... 438,507 830,151 1,334,764 36,956 53,694 155,028 475,463 883,845 1,489,792
Expenses:
Research and
development.......... 44,254 88,753 164,819 13,248 17,927 45,996 57,502 106,680 210,815
Sales and marketing.... 109,717 205,797 354,722 14,435 19,714 45,261 124,152 225,511 399,983
General and
administrative....... 20,965 47,485 76,524 2,884 3,999 8,747 23,849 51,484 85,271
Purchased research and
development.......... 0 0 95,760 0 0 0 0 0 95,760
-------- ---------- ---------- ------- ------- ------- -------- ---------- ----------
Total operating
expenses........... 174,936 342,035 691,825 30,567 41,640 100,004 205,503 383,675 791,829
Operating income......... 263,571 488,116 642,939 6,389 12,054 55,024 269,960 500,170 697,963
Interest and other
income, net............ 11,557 21,377 36,107 1,052 953 3,907 12,609 22,330 40,014
-------- ---------- ---------- ------- ------- ------- -------- ---------- ----------
Income before provision
for income taxes....... 275,128 509,493 679,046 7,441 13,007 58,931 282,569 522,500 737,977
Provision for income
taxes.................. 103,173 194,626 258,038 954 3,189 21,058 106,368 199,519 281,488
-------- ---------- ---------- ------- ------- ------- -------- ---------- ----------
Net income............... $171,955 $ 314,867 $ 421,008 $ 6,487 $ 9,818 $ 37,873 $176,201 $ 322,981 $ 456,489
======== ========== ========== ======= ======= ======= ======== ========== ==========
Net income per common
share.................. $ 0.33 $ 0.59 $ 0.76 $ 0.10 $ 0.15 $ 0.50 $ 0.30 $ 0.54 $ 0.72
======== ========== ========== ======= ======= ======= ======== ========== ==========
Shares used in per share
calculation............ 516,266 530,102 554,596 64,357 66,437 76,115 580,623 596,539 630,711
======== ========== ========== ======= ======= ======= ======== ========== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
49
<PAGE> 62
CISCO SYSTEMS, INC. AND STRATACOM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1995 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CISCO SYSTEMS, INC. STRATACOM, INC. PRO FORMA COMBINED
--------------------- ------------------- ---------------------
1995 1996 1995 1996 1995 1996
-------- ---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales................... $847,822 $1,536,673 $102,120 $180,128 $949,942 $1,716,801
Cost of sales............... 276,173 512,000 40,541 68,057 316,714 580,057
-------- ---------- -------- -------- -------- ----------
Gross margin.............. 571,649 1,024,673 61,579 112,071 633,228 1,136,744
Expenses:
Research and
development............ 68,166 136,127 19,505 31,748 87,671 167,875
Sales and marketing....... 146,776 275,906 18,100 32,872 164,876 308,778
General and
administrative......... 30,960 54,562 3,681 5,167 34,641 59,729
Purchased research and
development............ 95,760 0 0 0 95,760 0
-------- ---------- -------- -------- -------- ----------
Total operating
expenses............. 341,662 466,595 41,286 69,787 382,948 536,382
Operating income............ 229,987 558,078 20,293 42,284 250,280 600,362
Interest and other income,
net....................... 15,586 26,077 1,284 2,427 16,870 28,504
-------- ---------- -------- -------- -------- ----------
Income before provision for
income taxes.............. 245,573 584,155 21,577 44,711 267,150 628,866
Provision for income
taxes..................... 93,318 219,058 7,605 16,138 101,159 237,742
-------- ---------- -------- -------- -------- ----------
Net income.................. $152,255 $ 365,097 $ 13,972 $ 28,573 $165,991 $ 391,124
======== ========== ======== ======== ======== ==========
Net income per common
share..................... $ 0.28 $ 0.63 $ 0.19 $ 0.35 $ 0.27 $ 0.59
======== ========== ======== ======== ======== ==========
Shares used in per share
calculation............... 548,284 579,137 73,189 80,488 621,372 659,625
======== ========== ======== ======== ======== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
50
<PAGE> 63
CISCO SYSTEMS, INC. AND STRATACOM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JANUARY 28, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
CISCO PRO FORMA
SYSTEMS, INC. STRATACOM, INC. COMBINED
------------- --------------- ----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................... $ 123,823 $ 75,874 $ 199,697
Short-term investments............................. 356,482 57,104 413,586
Accounts receivable................................ 491,223 54,673 545,896
Inventories........................................ 221,579 17,583 239,162
Deferred income taxes.............................. 90,450 6,594 97,044
Prepaid expenses and other current assets.......... 52,141 15,230 67,371
---------- -------- ----------
Total current assets....................... 1,335,698 227,061 1,562,759
Investments.......................................... 601,215 20,857 622,072
Restricted investments............................... 189,473 189,473
Property and equipment, net.......................... 184,601 39,455 224,056
Other assets......................................... 54,845 8,030 62,875
---------- -------- ----------
Total assets............................... $ 2,365,832 $ 295,403 $2,661,235
========== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 117,513 $ 16,680 $ 134,193
Income taxes payable............................... 97,181 8,656 105,837
Accrued payroll and related expenses............... 113,354 10,975 124,329
Other accrued liabilities.......................... 185,523 25,478 226,001
---------- -------- ----------
Total current liabilities.................. 513,571 61,789 590,360
Long-term liabilities................................ 1,539 1,539
Minority interest.................................... 40,933 40,933
Stockholders' equity:
Common stock....................................... 517,454 168,805 686,259
Retained earnings.................................. 1,189,618 63,175 1,237,793
Unrealized gains on marketable securities.......... 107,831 95 107,926
Cumulative translation adjustments................. (3,575) (3,575)
---------- -------- ----------
Total stockholders' equity................. 1,811,328 232,075 2,028,403
---------- -------- ----------
Total liabilities and stockholders'
equity................................... $ 2,365,832 $ 295,403 $2,661,235
========== ======== ==========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements
51
<PAGE> 64
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The unaudited pro forma condensed combined statements of operations combine
the historical statements of operations of Cisco for the six months ended
January 29, 1995, and January 28, 1996, and the years ended July 25, 1993, July
31, 1994, and July 30, 1995 with the historical statements of operations of
StrataCom for the six months ended December 31, 1994 and 1995, the twelve months
ended July 2, 1993, July 1, 1994, and July 1, 1995, respectively.
No adjustments have been made in these pro forma financial statements to
conform the accounting policies of the combining companies. The nature and
extent of such adjustments, if any, are not expected to be significant.
NOTE 2. PRO FORMA NET INCOME PER SHARE
The number of Cisco common shares which will be issued in exchange for the
outstanding shares of StrataCom's common stock is based on the final exchange
ratio. The exchange ratio will be determined by using the formula of 50 divided
by the average daily close of Cisco's shares for the 15 trading days immediately
preceding (and including) the fifth trading day prior to StrataCom's
stockholders meeting except that the final exchange ratio will be restricted to
the range of 1 to 1.2195 shares of Cisco common stock for each share of
StrataCom common stock. An assumed exchange ratio of 1.0 was used in preparing
the pro forma combined financial data and the following table which provides the
pro forma number of shares to be issued in connection with the Merger:
<TABLE>
<S> <C>
StrataCom common stock outstanding as of December 31, 1995...... 74,266,178
Common exchange ratio........................................... 1
-----------
Number of Cisco shares exchanged for StrataCom common stock..... 74,266,178
Total number of Cisco common shares as of January 28, 1996...... 563,713,326
-----------
Number of Cisco common shares outstanding after completion of
the Merger.................................................... 637,979,504
===========
</TABLE>
The pro forma combined net income per share is based on the combined
weighted average number of common and dilutive common equivalent common shares
of Cisco and StrataCom and assumes a Common Exchange Ratio as of January 28,
1996 of one share of Cisco Common Stock for each outstanding share of StrataCom
Common Stock. The actual number of shares of Cisco Common Stock to be exchanged
for all of the outstanding StrataCom Common Stock will be determined at the
Effective Time.
Share and per share information applicable to prior periods for Cisco have
been restated to reflect a two-for-one stock split which was effective on
February 16, 1996
NOTE 3. MERGER-RELATED EXPENSES
Cisco and StrataCom estimate that they will incur merger-related expenses,
consisting primarily of transaction costs for investment bankers fees,
attorneys, accountants, financial printing and other related charges, of
approximately $15.0 million. This estimate is preliminary and is therefore
subject to change. These nonrecurring expenses will be charged to operations as
incurred.
The pro forma condensed combined balance sheet gives effect to such
expenses as if they had been incurred as of January 28, 1996, but the pro forma
combined condensed statements of operations do not give effect to such expenses.
52
<PAGE> 65
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. PRO FORMA ADJUSTMENTS
StrataCom has previously provided valuation allowances for StrataCom's net
deferred tax assets related primarily to loss carryforwards generated in the
period since its inception until 1991. Cisco has determined that estimated
combined taxable income is sufficient to conclude that such net deferred tax
assets would be realized.
Since Cisco plans to file consolidated tax returns which will include
StrataCom's operations subsequent to the Effective Time, pro forma adjustments
have been made to eliminate the impact of the reversal of valuation allowances
realized in the historical financial statements of StrataCom in the six month
periods ended December 31, 1994 and 1995 and the 12 month periods ended July 2,
1993, July 1, 1994, and July 1, 1995.
As a result, the pro forma combined condensed financial statements include
pro forma adjustments which increase income tax expense by $236,000, $2,546,000,
$2,241,000, $1,704,000 and $2,392,000 for the six months ended January 29, 1995
and January 28, 1996 and the years ended July 25, 1993, July 31, 1994 and July
30, 1995, respectively.
53
<PAGE> 66
COMPARISON OF RIGHTS OF STOCKHOLDERS
OF CISCO AND STRATACOM
The rights of Cisco's shareholders are governed by its Articles of
Incorporation (the "Cisco Articles"), its Bylaws (the "Cisco Bylaws") and the
laws of the State of California. The rights of StrataCom's stockholders are
governed by its Certificate of Incorporation (the "StrataCom Certificate"), its
Bylaws (the "StrataCom Bylaws") and the laws of the State of Delaware. After the
Effective Time, the StrataCom stockholders will become Cisco shareholders and
will be governed by the Cisco Articles, Cisco Bylaws and the laws of the State
of California.
While the rights and privileges of stockholders of a Delaware corporation
such as StrataCom are, in many instances, comparable to those of shareholders of
a California corporation such as Cisco, there are certain differences. The
following is a summary of the material differences between the rights of holders
of StrataCom Common Stock and the rights of holders of Cisco Common Stock at the
date hereof. These differences arise from differences between the DGCL and the
California Corporations Code (the "CCC") and between the StrataCom Certificate
and the StrataCom Bylaws and the Cisco Articles and the Cisco Bylaws.
VOTE REQUIRED FOR EXTRAORDINARY TRANSACTIONS
The CCC requires that the principal terms of a merger be approved by the
affirmative vote of a majority of the outstanding shares of each class entitled
to vote thereon, except that, unless required by its articles of incorporation,
no authorizing shareholder vote is required of a corporation surviving a merger
if the shareholders of such corporation shall own, immediately after the merger,
more than five-sixths of the voting power of the surviving corporation. The
Cisco Articles do not require a greater percentage vote. The CCC further
requires the affirmative vote of a majority of the outstanding shares entitled
to vote thereon if (a) the surviving corporation's articles of incorporation
will be amended and would otherwise require shareholder approval or (b)
shareholders of such corporation will receive shares of the surviving
corporation having different rights, preferences, privileges or restrictions
(including shares in a foreign corporation) than the shares surrendered.
Shareholder approval is not required under the CCC for mergers or consolidations
in which a parent corporation merges or consolidates with a subsidiary of which
it owns at least 90% of the outstanding shares of each class of stock.
The DGCL requires the affirmative vote of a majority of the outstanding
stock entitled to vote thereon to authorize any merger or consolidation of a
corporation, except that, unless required by its certificate of incorporation,
no authorizing stockholder vote is required of a corporation surviving a merger
if (a) such corporation's certificate of incorporation is not amended in any
respect by the merger; (b) each share of stock of such corporation outstanding
immediately prior to the effective date of the merger will be an identical
outstanding or treasury share of the surviving corporation after the effective
date of the merger; and (c) 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. The StrataCom Certificate does not require
a greater percentage vote for such actions. Shareholder approval is also not
required under the DGCL for mergers or consolidations in which a parent
corporation merges or consolidates with a subsidiary of which it owns at least
90% of the outstanding shares of each class of stock.
DIRECTOR NOMINATIONS
The StrataCom Bylaws provide that no nominations for directors of StrataCom
by any person other than the StrataCom Board of Directors may be presented to
any meeting of stockholders unless the person making the nomination is a record
stockholder and has delivered a written notice to the secretary of StrataCom no
less than 20 days nor more than 60 days in advance of the stockholder meeting;
provided, however, that in the event that less than 30 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received 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. The Cisco
Articles and Cisco Bylaws do not impose comparable conditions on the submission
of director nominations by its stockholders.
54
<PAGE> 67
AMENDMENT TO GOVERNING DOCUMENTS
Unless otherwise specified in a California corporation's articles of
incorporation, an amendment to the articles of incorporation requires the
approval of the corporation's board of directors and the affirmative vote of a
majority of the outstanding shares entitled to vote thereon, either before or
after the board approval. The Cisco Articles do not require a greater level of
approval for an amendment thereto. Under the CCC, the holders of the outstanding
shares of a class are entitled to vote as a class if a proposed amendment to the
articles of incorporation would (i) increase or decrease the aggregate number of
authorized shares of such class; (ii) effect an exchange, reclassification or
cancellation of all or part of the shares of such class, other than a stock
split; (iii) effect an exchange, or create a right of exchange, of all or part
of the shares of another class into the shares of such class; (iv) change the
rights, preferences, privileges or restrictions of the shares of such class; (v)
create a new class of shares having rights, preferences or privileges prior to
the shares of such class, or increase the rights, preferences or privileges or
the number of authorized shares having rights, preference or privileges prior to
the shares of such class; (vi) in the case of preferred shares, divide the
shares of any class into series having different rights, preferences, privileges
or restrictions or authorize the board of directors to do so; or (vii) cancel or
otherwise affect dividends on the shares of such class which have accrued but
have not been paid. Under the CCC, a corporation's bylaws may be adopted,
amended or repealed either by the board of directors or the shareholders of the
corporation. The Cisco Bylaws provide that the Cisco Bylaws may be adopted,
amended or repealed either by the vote of the holders of a majority of the
outstanding shares entitled to vote or by the board of directors; provided,
however, that the Cisco Board of Directors may not amend the Cisco Bylaws in
order to change the authorized number of directors (except to alter the
authorized number of directors within the existing range of a minimum of five
and a maximum of nine directors).
The DGCL requires a vote of the corporation's board of directors followed
by the affirmative vote of a majority of the outstanding stock of each class
entitled to vote for any amendment to the certificate of incorporation, unless a
greater level of approval is required by the certificate of incorporation. The
StrataCom Certificate requires the approval of 80% of the total number of shares
entitled to vote for the amendment of provisions relating to (i) the rights of
the board of directors and the stockholders to amend the StrataCom Bylaws, (ii)
the removal of members of the board of directors, (iii) the inability of the
stockholders to take any action by written consent and (iv) the vote required to
amend the StrataCom Certificate. If an amendment would alter the powers,
preferences or special rights of a particular class or series of stock so as to
affect them adversely, the class or series shall be given the power to vote as a
class notwithstanding the absence of any specifically enumerated power in the
certificate of incorporation. The DGCL also states that the power to adopt,
amend or repeal the bylaws of a corporation shall be in the stockholders
entitled to vote, provided that the corporation in its certificate of
incorporation may confer such power on the board of directors in addition to the
stockholders. The StrataCom Certificate expressly authorizes the board of
directors to adopt, amend or repeal the StrataCom Bylaws. The StrataCom
Certificate requires the approval of 80% of the total number of shares entitled
to vote for the amendment of certain provisions of the StrataCom Bylaws relating
to (i) the calling of special meetings of stockholders, (ii) the advance notice
requirement for nominations of persons for election to the board of directors by
stockholders and (iii) the advance notice requirement for business brought
before the annual meeting of stockholders by a stockholder.
APPRAISAL RIGHTS
Under the DGCL, holders of shares of any class or series have the right, in
certain circumstances, to dissent from a merger or consolidation by demanding
payment in cash for their shares equal to the fair value (excluding any
appreciation or depreciation as a consequence or in expectation of the
transaction) of such shares, as determined by agreement with the corporation or
by an independent appraiser appointed by a court in an action timely brought by
the corporation or the dissenters. The DGCL grants dissenters' appraisal rights
only in the case of mergers or consolidations and not in the case of a sale or
transfer of assets or a purchase of assets for stock regardless of the number of
shares being issued. Further, no appraisal rights are available for shares of
any class or series listed on a national securities exchange or designated as a
national market system security on the Nasdaq National Market or held of record
by more than 2,000 stockholders, unless the
55
<PAGE> 68
agreement of merger or consolidation converts such shares into anything other
than (a) stock of the surviving corporation; (b) stock of another corporation
which is either listed on a national securities exchange or designated as a
national market system security on the Nasdaq National Market or held of record
by more than 2,000 stockholders; (c) cash in lieu of fractional shares; or (d)
some combination of the above. In addition, dissenters' rights are not available
for any shares of the surviving corporation if the merger did not require the
vote of the stockholders of the surviving corporation. See "The Merger and
Related Transactions -- No Appraisal Rights."
Generally, shareholders of a California corporation who dissent from a
merger or consolidation of the corporation are entitled to dissenters' rights.
DERIVATIVE ACTION
The CCC provides that a shareholder bringing a derivative action on behalf
of the corporation need not have been a shareholder at the time of the
transaction in question, provided that certain tests are met. The CCC also
provides that the corporation or the defendant in a derivative suit may make a
motion to the court for an order requiring the plaintiff shareholder to furnish
a security bond.
Derivative actions may be brought in Delaware by a stockholder on behalf
of, and for the benefit of, the corporation. The DGCL provides that a
stockholder must aver in the complaint that he or she was a stockholder of the
corporation at the time of the transaction of which he or she complains. A
stockholder may not sue derivatively unless he first makes demand on the
corporation that it bring suit and such demand has been refused, unless it is
shown that such demand would have been futile.
STOCKHOLDER CONSENT IN LIEU OF MEETING
Under the DGCL and the CCC, unless otherwise provided in the certificate or
articles of incorporation, any action required to be taken or which may be taken
at an annual or special meeting of stockholders may be taken without a meeting
if a consent in writing is signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize such
action at a meeting at which all shares entitled to vote were present and voted.
The Cisco Articles provide that directors may not be elected by written consent
except by unanimous written consent of all shares entitled to vote for the
election of directors. The StrataCom Certificate provides that any action by the
stockholders must be taken at an annual special meeting of stockholders and may
not be taken by written consent.
FIDUCIARY DUTIES OF DIRECTORS
Directors of corporations incorporated or organized under the DGCL and the
CCC have fiduciary obligations to the corporation and its shareholders. Pursuant
to these fiduciary obligations, the directors must act in accordance with the
so-called duties of "due care" and "loyalty." Under the DGCL, the duty of care
requires that the directors act in an informed and deliberative manner and to
inform themselves, prior to making a business decision, of all material
information reasonably available to them. The duty of loyalty may be summarized
as the duty to act in good faith, not out of self-interest and in a manner that
the directors reasonably believe to be in the best interests of the corporation.
Under the CCC, the duty of loyalty requires directors to perform their duties in
good faith in a manner that the directors reasonably believe to be in the best
interests of the corporation and its stockholders. The duty of care requires
that the directors act with such care, including reasonable inquiry, as an
ordinarily prudent person in a like position would exercise under similar
circumstances.
STOCKHOLDER PROPOSALS
The StrataCom Bylaws provide that no proposal by any person other than the
Board of Directors may be submitted for the approval of the StrataCom
stockholders at any regular or special meeting of stockholders unless the person
advancing the proposal is a record stockholder and has delivered a written
notice to the secretary of StrataCom no less than 20 days nor more than 60 days
in advance of the stockholder meeting; provided, however, that in the event that
less than 30 days' notice or prior public disclosure of the date of the
56
<PAGE> 69
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received 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. The Cisco Articles and Cisco Bylaws do not
impose comparable conditions on the submission of stockholder proposals.
INDEMNIFICATION
The DGCL provides that a corporation may indemnify its present and former
directors, officers, employees and agents (each, an "Indemnitee") against all
reasonable expenses (including attorneys' fees) and, except in actions initiated
by or in the right of the corporation, against all judgments, fines and amounts
paid in settlement in actions brought against them, if such individual acted in
good faith, and in a manner which he or she reasonably believed to be in, or not
opposed to, the best interests of the stockholders and, in the case of a
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The corporation shall indemnify an indemnitee to the extent that he or
she is successful on the merits or otherwise in the defense of any claim, issue
or matter associated with an action. The StrataCom Certificate provides for
indemnification of directors or officers to the fullest extent authorized by the
DGCL.
Under the CCC, (i) a corporation has the power to indemnify present and
former directors, officers, employees and agents against expenses, judgments,
fines and settlements (other than in connection with actions by or in the right
of the corporation) if that person acted in good faith and in a manner the
person reasonably believed to be in the best interests of the corporation and,
in the case of a criminal proceeding, had no reasonable cause to believe the
conduct of the person was unlawful, and (ii) a corporation has the power to
indemnify, with certain exceptions, any person who is a party to any action by
or in the right of the corporation, against expenses actually and reasonably
incurred by that person in connection with the defense or settlement of the
action if the person acted in good faith and in a manner the person believed to
be in the best interests of the corporation and its shareholders.
The indemnification authorized by the CCC is not exclusive, and a
corporation may grant its directors, officers, employees or other agents certain
additional rights to indemnification. The Cisco Articles and the Cisco Bylaws
provide for the indemnification of its agents (as defined under the CCC) to the
fullest extent permissible under the CCC, which may be in excess of the
indemnification expressly permitted by Section 317 of the CCC, subject to the
limits set forth in Section 204 of the CCC with respect to actions for breach of
duty to the corporation and its shareholders.
The DGCL and the CCC allow for the advance payment of an Indemnitee's
expenses prior to the final disposition of an action, provided that the
indemnitee undertakes to repay any such amount advanced if it is later
determined that the Indemnitee is not entitled to indemnification with regard to
the action for which the expenses were advanced.
DIRECTOR LIABILITY
The DGCL and the CCC each provide that the charter documents of the
corporation may include provisions which limit or eliminate the liability of
directors to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided such liability does not arise from
certain proscribed conduct, including, in the case of the DGCL, acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, breach of the duty of loyalty, the payment of unlawful
dividends or expenditure of funds for unlawful stock purchases or redemptions or
transactions from which such director derived an improper personal benefit, or,
in the case of the CCC, intentional misconduct or knowing and culpable violation
of law, acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders or that involve the absence of
good faith on the part of the director, the receipt of an improper personal
benefit, acts or omissions that show reckless disregard for the director's duty
to the corporation or its shareholders, where the director in the ordinary
course of performing a director's duties should be aware of a risk of serious
injury to the corporation or its shareholders, acts or omissions that constitute
an unexcused pattern of inattention that amounts to an abdication of the
director's duty to the corporation and its shareholders, interested transactions
between the corporation and a director in which a
57
<PAGE> 70
director has a material financial interest and liability for improper
distributions, loans or guarantees. The StrataCom Certificate contains a
provision limiting the liability of its directors to the fullest extent
permitted by the DGCL. The Cisco Articles contain a provision limiting the
liability of its directors to the fullest extent provided by the CCC.
ANTI-TAKEOVER PROVISIONS AND INTERESTED STOCKHOLDER TRANSACTIONS
The StrataCom Bylaws provide that a special meeting of the stockholders may
only be called by the board of directors, the chairman of the board or the
president. The Cisco Bylaws provide that in addition to the board of directors,
the chairman of the board and the president, one or more shareholders holding
not less than 10% of the voting power of the corporation may call a special
meeting of the shareholders.
The DGCL prohibits, in certain circumstances, a "business combination"
between the corporation and an "interested stockholder" within three years of
the stockholder becoming an "interested stockholder." An "interested
stockholder" is a holder who, directly or indirectly, controls 15% or more of
the outstanding voting stock or is an affiliate of the corporation and was the
owner of 15% or more of the outstanding voting stock at any time within the
prior year period. A "business combination" includes a merger or consolidation,
a sale or other disposition of assets having an aggregate market value equal to
10% or more of the consolidated assets of the corporation or the aggregate
market value of the outstanding stock of the corporation and certain
transactions that would increase the interested stockholder's proportionate
share ownership in the corporation. This provision does not apply where: (i)
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder is approved by the corporation's
board of directors prior to the date the interested stockholder acquired such
15% interest; (ii) upon the consummation of the transaction which resulted in
the stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the outstanding voting stock of the corporation excluding
for the purposes of determining the number of shares outstanding shares held by
persons who are directors and also officers and by employee stock plans in which
participants do not have the right to determine confidentiality whether shares
held subject to the plan will be tendered; (iii) the business combination is
approved by a majority of the board of directors and the affirmative vote of
two-thirds of the outstanding votes entitled to be cast by disinterested
stockholders at an annual or special meeting; (iv) the corporation does not have
a class of voting stock that is listed on a national securities exchange,
authorized for quotation on an inter-dealer quotation system of a registered
national securities association, or held of record by more than 2,000
stockholders unless any of the foregoing results from action taken, directly or
indirectly, by an interested stockholder or from a transaction in which a person
becomes an interested stockholder; or (v) the corporation has opted out of this
provision. StrataCom has not opted out of this provision.
Under the CCC, there is no comparable provision. However, the CCC does
provide that, except where the fairness of the terms and conditions of the
transaction has been approved by the California Commissioner of Corporations and
except in a "short-form" merger (the merger of a parent corporation with a
subsidiary in which the parent owns at least 90% of the outstanding shares of
each class of the subsidiary's stock), if the surviving corporation or its
parent corporation owns, directly or indirectly, shares of the target
corporation representing more than 50% of the voting power of the target
corporation prior to the merger, the nonredeemable common stock of a target
corporation may be converted only into nonredeemable common stock of the
surviving corporation or its parent corporation, unless all of the shareholders
of the class consent. The effect of this provision is to prohibit a cash-out
merger of minority shareholders, except where the majority shareholders already
own 90% or more of the voting power of the target corporation and could,
therefore, effect a short-form merger to accomplish such a cash-out of minority
shareholders.
CUMULATIVE VOTING
The StrataCom Certificate and the StrataCom Bylaws provide for cumulative
voting in elections of directors. Each holder of shares of stock is entitled to
a number of votes equal to the number of votes which (except for such provision
as to cumulative voting) such holder would be entitled to cast for the election
of directors with respect to such holder's shares multiplied by the number of
directors to be elected by such holder, and such holder may cast all of such
votes for a single director or may distribute them among the
58
<PAGE> 71
number to be voted for, or for any two or more of them as such holder may see
fit. The Cisco Articles provide for the elimination of cumulative voting in
elections of directors. Therefore, under California law, cumulative voting
rights are not available to Cisco shareholders.
The foregoing discussion of certain similarities and material differences
between the rights of Cisco stockholders and the rights of StrataCom
stockholders under the respective Articles/Certificate of Incorporation and
Bylaws is only a summary of certain provisions and does not purport to be a
complete description of such similarities and differences, and is qualified in
its entirety by reference to the CCC and the DGCL, the common law thereunder and
the full text of the Articles/Certificate of Incorporation and Bylaws of each of
Cisco and StrataCom.
STOCKHOLDER PROPOSALS
As described in Cisco's proxy statement relating to its 1995 Annual Meeting
of Stockholders, stockholder proposals for inclusion in the Cisco proxy
statement and form of proxy relating to the Cisco 1996 Annual Meeting of
Stockholders must be received by Cisco by June 4, 1996.
As described in StrataCom's proxy statement relating to its 1995 Annual
Meeting of Stockholders, proposals of stockholders of StrataCom which are
intended to be presented by such stockholders at StrataCom's 1996 Annual Meeting
of Stockholders (if the Merger is not consummated) must have been received by
StrataCom no later than December 2, 1996 in order that they may be considered
for inclusion in the proxy statement and form of proxy relating to that meeting.
EXPERTS
The consolidated balance sheets of Cisco as of July 30, 1995 and July 31,
1994 and the consolidated statements of income, retained earnings and cash flows
for each of the three years in the period ended July 30, 1995, incorporated by
reference in this Proxy Statement/Prospectus have been incorporated herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The consolidated balance sheets of StrataCom as of December 31, 1994 and
1995 and the consolidated statements of income, retained earnings and cash flows
for each of the three years in the period ended December 31, 1995, incorporated
by reference in this Prospectus have been incorporated herein in reliance on the
report of Arthur Andersen LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
Representatives of Arthur Andersen LLP are expected to be present at the
StrataCom Meeting.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby, the federal
income tax consequences in connection with the Merger and certain other matters
relating to the Merger and the transactions contemplated thereby will be passed
upon for Cisco by Brobeck, Phleger & Harrison LLP, Palo Alto, California.
Certain legal matters with respect to federal income tax consequences in
connection with the Merger and certain other legal matters relating to the
Merger and the transactions contemplated thereby will be passed upon for
StrataCom by Wilson, Sonsini, Goodrich & Rosati, Palo Alto, California. As of
the Record Date, a member of Brobeck, Phleger & Harrison LLP participating in
the consideration of legal matters relating to the Merger and the transactions
contemplated thereby owned 1,966 shares of Cisco Common Stock.
59
<PAGE> 72
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CISCO SYSTEMS, INC.,
JET ACQUISITION CORPORATION
AND
STRATACOM, INC.
April 21, 1996
<PAGE> 73
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
THE MERGER........................................................................ A-2
1.1 The Merger............................................. A-2
1.2 Closing; Effective Time................................ A-2
1.3 Effect of the Merger................................... A-2
1.4 Certificate of Incorporation; Bylaws................... A-2
1.5 Directors and Officers................................. A-3
1.6 Effect on Capital Stock................................ A-3
1.7 Surrender of Certificates.............................. A-4
1.8 No Further Ownership Rights in Target Common Stock..... A-6
1.9 Lost, Stolen or Destroyed Certificates................. A-6
1.10 Tax and Accounting Consequences........................ A-6
1.11 Taking of Necessary Action; Further Action............. A-6
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET.......................................... A-6
2.1 Organization, Standing and Power....................... A-7
2.2 Capital Structure...................................... A-8
2.3 Authority.............................................. A-9
2.4 SEC Documents; Financial Statements.................... A-10
2.5 Absence of Certain Changes............................. A-11
2.6 Absence of Undisclosed Liabilities..................... A-11
2.7 Litigation............................................. A-11
2.8 Restrictions on Business Activities.................... A-11
2.9 Governmental Authorization............................. A-12
2.10 Title to Property...................................... A-12
2.11 Intellectual Property.................................. A-12
2.12 Environmental Matters.................................. A-14
2.13 Taxes.................................................. A-15
2.14 Employee Benefit Plans................................. A-16
2.15 Certain Agreements Affected by the Merger.............. A-18
2.16 Employee Matters....................................... A-18
2.17 Interested Party Transactions.......................... A-19
2.18 Insurance.............................................. A-19
2.19 Compliance With Laws................................... A-19
2.20 Pooling of Interests................................... A-19
2.21 Brokers' and Finders' Fees............................. A-19
2.22 Registration Statement; Proxy Statement/Prospectus..... A-19
</TABLE>
i.
<PAGE> 74
<TABLE>
<S> <C>
2.23 Opinion of Financial Advisor......................... A-20
2.24 Vote Required........................................ A-20
2.25 Board Approval....................................... A-20
2.26 Section 203 of the DGCL Not Applicable............... A-20
2.27 Customers and Suppliers.............................. A-20
2.28 Product Specifications............................... A-21
2.29 Target Rights Agreement.............................. A-21
2.30 Representations Complete............................. A-21
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB....................... A-21
3.1 Organization, Standing and Power..................... A-21
3.2 Capital Structure.................................... A-22
3.3 Authority............................................ A-23
3.4 SEC Documents; Financial Statements.................. A-24
3.5 Absence of Certain Changes........................... A-24
3.6 Absence of Undisclosed Liabilities................... A-25
3.7 Litigation........................................... A-25
3.8 Restrictions on Business Activities.................. A-25
3.9 Governmental Authorization........................... A-25
3.10 Compliance With Laws................................. A-26
3.11 Pooling of Interests................................. A-26
3.12 Broker's and Finders' Fees........................... A-26
3.13 Registration Statement; Proxy Statement/Prospectus... A-26
3.14 Board Approval....................................... A-27
3.15 Opinion of Financial Advisor......................... A-27
3.16 Intellectual Property................................ A-27
3.17 Representations Complete............................. A-27
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME............................................. A-27
4.1 Conduct of Business of Target and Acquiror........... A-27
4.2 Conduct of Business of Target........................ A-29
4.3 No Solicitation...................................... A-31
ARTICLE V
ADDITIONAL AGREEMENTS........................................................... A-33
5.1 Proxy Statement/Prospectus; Registration Statement... A-33
5.2 Meeting of Stockholders.............................. A-33
5.3 Access to Information................................ A-34
5.4 Confidentiality...................................... A-34
</TABLE>
ii.
<PAGE> 75
<TABLE>
<S> <C>
5.5 Public Disclosure................................................... A-34
5.6 Consents; Cooperation............................................... A-35
5.7 Pooling Accounting.................................................. A-36
5.8 Affiliate Agreements................................................ A-36
5.9 Voting Agreement.................................................... A-37
5.10 Legal Requirements.................................................. A-37
5.11 Blue Sky Laws....................................................... A-37
5.12 Employee Benefit Plans.............................................. A-37
5.13 Letter of Acquiror's and Target's Accountants....................... A-39
5.14 Form S-8............................................................ A-39
5.15 Indemnification..................................................... A-40
5.16 Option Agreement.................................................... A-41
5.17 Listing of Additional Shares........................................ A-41
5.18 Nasdaq Quotation.................................................... A-41
5.19 Employees........................................................... A-41
5.20 Pooling Letters..................................................... A-41
5.21 Best Efforts and Further Assurances................................. A-42
5.22 Target Rights Agreement............................................. A-42
ARTICLE VI
CONDITIONS TO THE MERGER....................................................................... A-42
6.1 Conditions to Obligations of Each Party to Effect the Merger........ A-42
6.2 Additional Conditions to Obligations of Target...................... A-44
6.3 Additional Conditions to the Obligations of Acquiror and Merger
Sub................................................................. A-45
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER.............................................................. A-46
7.1 Termination......................................................... A-46
7.2 Effect of Termination............................................... A-48
7.3 Expenses and Termination Fees....................................... A-48
7.4 Amendment........................................................... A-52
7.5 Extension; Waiver................................................... A-52
</TABLE>
iii.
<PAGE> 76
<TABLE>
<S> <C>
ARTICLE VIII
GENERAL PROVISIONS....................................................................... A-52
8.1 Non-Survival at Effective Time................................ A-52
8.2 Notices....................................................... A-52
8.3 Interpretation................................................ A-53
8.4 Counterparts.................................................. A-54
8.5 Entire Agreement; Nonassignability; Parties in Interest....... A-54
8.6 Severability.................................................. A-54
8.7 Remedies Cumulative........................................... A-54
8.8 Governing Law................................................. A-54
8.9 Rules of Construction......................................... A-55
</TABLE>
iv.
<PAGE> 77
SCHEDULES
Target Disclosure Schedule
Acquiror Disclosure Schedule
Schedule 2.10 - Target Real Property
Schedule 2.11 - Target Intellectual Property
Schedule 2.14 - Target Employee Plans
Schedule 5.8(a) - Target Affiliates
Schedule 5.8(b) - Acquiror Affiliates
Schedule 5.9 - Target Voting Agreement Signatories
Schedule 5.12 - Outstanding Options
Schedule 5.12(b) - ESPP
Schedule 5.19 - List of Employees
EXHIBITS
Exhibit A - Certificate of Merger
Exhibit B-1 - Target Affiliate Agreement
Exhibit B-2 - Acquiror Affiliate Agreement
Exhibit C - Voting Agreement
Exhibit D - Option Agreement
Exhibit E-1,
et. seq. - Employment and Non-Competition Agreement
Exhibit F - Acquiror's Legal Opinion
Exhibit G - Target's Legal Opinion
v.
<PAGE> 78
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is
made and entered into as of April 21, 1996, by and among Cisco Systems, Inc., a
California corporation ("Acquiror"), Jet Acquisition Corporation, a Delaware
corporation ("Merger Sub") and wholly owned subsidiary of Acquiror, and
StrataCom, Inc., a Delaware corporation ("Target").
RECITALS
A. The Boards of Directors of Target, Acquiror and Merger Sub
believe it is in the best interests of their respective companies and the
stockholders of their respective companies that Target and Merger Sub combine
into a single company through the statutory merger of Merger Sub with and into
Target (the "Merger") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, the outstanding
shares of Target Common Stock, $.01 par value ("Target Common Stock"), shall be
converted into shares of Acquiror Common Stock, no par value ("Acquiror Common
Stock"), at the rate set forth herein.
C. Target, Acquiror and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
D. The parties intend, by executing this Agreement, to adopt a
plan of reorganization within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code.
E. The parties intend to cause the Merger to be accounted for
as a pooling of interests pursuant to APB Opinion No. 16, Staff Accounting
Series Releases 130, 135 and 146 and Staff Accounting Bulletins Topic Two.
F. Concurrent with the execution of this Agreement and as an
inducement to Acquiror and Merger Sub to enter into this Agreement, (a) Target
and Acquiror have entered into a stock option agreement dated the date hereof
(the "Option Agreement") providing for the purchase by Acquiror of newly-issued
shares of Target's Common Stock, and (b) certain of the affiliates of Target who
are stockholders, officers or directors have on the date hereof entered into an
agreement to vote the shares of Target's Common Stock owned by such person to
approve the Merger and against any competing proposals.
A-1
<PAGE> 79
NOW, THEREFORE, in consideration of the covenants and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section
1.2) and subject to and upon the terms and conditions of this Agreement, the
Certificate of Merger attached hereto as Exhibit A (the "Certificate of Merger")
and the applicable provisions of the Delaware General Corporation Law ("Delaware
Law"), Merger Sub shall be merged with and into Target, the separate corporate
existence of Merger Sub shall cease and Target shall continue as the surviving
corporation. Target as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "Surviving Corporation."
1.2 Closing; Effective Time. The closing of the transactions
contemplated hereby (the "Closing") shall take place as soon as practicable
after the satisfaction or waiver of each of the conditions set forth in Article
VI hereof or at such other time as the parties hereto agree (the "Closing
Date"). The Closing shall take place at the offices of Brobeck, Phleger &
Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo Alto, California, or
at such other location as the parties hereto agree. In connection with the
Closing, the parties hereto shall cause the Merger to be consummated by filing
the Certificate of Merger with the Secretary of State of the State of Delaware
and with the Recorder of the County in which the registered office of each of
Target and Merger Sub is located, in accordance with the relevant provisions of
Delaware Law (the time of such filing being the "Effective Time").
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 Delaware Law. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of Target and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of Target and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided by Delaware Law and such Certificate of
Incorporation; provided, however, that Article I of
A-2
<PAGE> 80
the Certificate of Incorporation of the Surviving Corporation shall be amended
to read as follows: "The name of the corporation is StrataCom, Inc."
(b) The Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 Directors and Officers. At the Effective Time, the
directors of the Surviving Corporation shall be John T. Chambers and Larry R.
Carter. The officers of the Surviving Corporation shall be the initial officers
of Merger Sub, until their respective successors are duly elected or appointed
and qualified.
1.6 Effect on Capital Stock. By virtue of the Merger and
without any action on the part of Merger Sub, Target or the holders of any of
the following securities:
(a) Conversion of Target Common Stock. At the
Effective Time, each share of Target Common Stock issued and outstanding
immediately prior to the Effective Time together with the corresponding Right
(as defined in the Rights Agreement dated as of January 25, 1996 (the "Target
Rights Agreement") between Target and The First National Bank of Boston (other
than any shares of Target Common Stock to be canceled pursuant to Section
1.6(b)) will be canceled and extinguished and be converted automatically into
the right to receive that number of shares of Acquiror Common Stock obtained by
dividing $50.00 by the average of the closing prices of Acquiror's Common Stock
as quoted on the Nasdaq National Market for the fifteen trading days immediately
preceding (and including) the fifth trading day prior to the Target Stockholders
Meeting (as defined in Section 2.22 of this Agreement); provided that, if the
actual quotient obtained thereby is less than one, the quotient shall be one,
and if the actual quotient obtained thereby is more than 1.2195, the quotient
shall be 1.2195 (the "Exchange Ratio").
(b) Cancellation of Target Common Stock Owned by
Acquiror or Target. At the Effective Time, all shares of Target Common Stock
that are owned by Target as treasury stock and each share of Target Common Stock
owned by Acquiror or any direct or indirect wholly owned subsidiary of Acquiror
or of Target immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(c) Target Stock Option Plans. At the Effective Time,
the Target 1986 Incentive Stock Option Plan, the Target 1992 Directors' Stock
Option Plan and the Target 1994 Stock Option Plan (collectively, the "Target
Stock Option Plans") and all options to purchase Target Common Stock then
outstanding under the Target Stock Option Plans shall be assumed by Acquiror in
accordance with Section 5.12.
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<PAGE> 81
(d) Capital Stock of Merger Sub. At the Effective
Time, each share of Common Stock, $.0001 par value, of Merger Sub ("Merger Sub
Common Stock") issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock, $.01 par value, of the Surviving
Corporation. Each stock certificate of Merger Sub evidencing ownership of any
such shares shall continue to evidence ownership of such shares of capital stock
of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio
shall be adjusted to reflect fully the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities convertible
into Acquiror Common Stock or Target Common Stock), reorganization,
recapitalization or other like change with respect to Acquiror Common Stock or
Target Common Stock occurring after the date hereof and prior to the Effective
Time.
(f) Fractional Shares. No fraction of a share of
Acquiror Common Stock will be issued, but in lieu thereof each holder of shares
of Target Common Stock who would otherwise be entitled to a fraction of a share
of Acquiror Common Stock (after aggregating all fractional shares of Acquiror
Common Stock to be received by such holder) shall receive from Acquiror an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction, multiplied by (ii) the average of the closing prices of a share
of Acquiror Common Stock for the ten most recent days that Acquiror Common Stock
has traded ending on the trading day immediately prior to the Effective Time, as
reported on the Nasdaq National Market.
1.7 Surrender of Certificates.
(a) Exchange Agent. The First National Bank of Boston
shall act as exchange agent (the "Exchange Agent") in the Merger.
(b) Acquiror to Provide Common Stock and Cash.
Promptly after the Effective Time, Acquiror shall make available to the Exchange
Agent for exchange in accordance with this Article I, through such reasonable
procedures as Acquiror may adopt, (i) the shares of Acquiror Common Stock
issuable pursuant to Section 1.6(a) in exchange for shares of Target Common
Stock outstanding immediately prior to the Effective Time and (ii) cash in an
amount sufficient to permit payment of cash in lieu of fractional shares
pursuant to Section 1.6(f).
(c) Exchange Procedures. Promptly after the Effective
Time, the Surviving Corporation shall cause to be mailed to each holder of
record of a certificate or certificates (the "Certificates") which immediately
prior to the Effective Time represented outstanding shares of Target Common
Stock, whose shares were converted into the right to receive shares of Acquiror
Common Stock (and cash in lieu of fractional shares) pursuant to Section 1.6,
(i) a letter of transmittal (which shall specify that
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<PAGE> 82
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon receipt of the Certificates by the Exchange Agent, and shall be
in such form and have such other provisions as Acquiror may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Acquiror Common Stock (and cash
in lieu of fractional shares). Upon surrender of a Certificate for cancellation
to the Exchange Agent or to such other agent or agents as may be appointed by
Acquiror, together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing the number of whole shares of Acquiror Common Stock and payment in
lieu of fractional shares which such holder has the right to receive pursuant to
Section 1.6, and the Certificate so surrendered shall forthwith be canceled.
Until so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented shares of Target Common Stock will be deemed from and after
the Effective Time, for all corporate purposes, other than the payment of
dividends, to evidence the ownership of the number of full shares of Acquiror
Common Stock into which such shares of Target Common Stock shall have been so
converted and the right to receive an amount in cash in lieu of the issuance of
any fractional shares in accordance with Section 1.6.
(d) Distributions With Respect to Unexchanged Shares.
No dividends or other distributions with respect to Acquiror Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Acquiror Common Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Acquiror Common Stock issued in
exchange therefor, without interest, at the time of such surrender, the amount
of any such dividends or other distributions with a record date after the
Effective Time theretofore payable (but for the provisions of this Section
1.7(d)) with respect to such shares of Acquiror Common Stock.
(e) Transfers of Ownership. If any certificate for
shares of Acquiror Common Stock is to be issued in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it will be
a condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Acquiror or any agent designated by
it any transfer or other taxes required by reason of the issuance of a
certificate for shares of Acquiror Common Stock in any name other than that of
the registered holder of the Certificate surrendered, or established to the
satisfaction of Acquiror or any agent designated by it that such tax has been
paid or is not payable.
(f) No Liability. Notwithstanding anything to the
contrary in this Section 1.7, none of the Exchange Agent, the Surviving
Corporation or any party hereto
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<PAGE> 83
shall be liable to any person for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
1.8 No Further Ownership Rights in Target Common Stock. All
shares of Acquiror Common Stock issued upon the surrender for exchange of shares
of Target Common Stock in accordance with the terms hereof (including any cash
paid in lieu of fractional shares) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Target Common Stock, and
there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Target Common Stock 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.
1.9 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of
Acquiror Common Stock (and cash in lieu of fractional shares) as may be required
pursuant to Section 1.6; provided, however, that Acquiror may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Acquiror, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.10 Tax and Accounting Consequences. It is intended by the
parties hereto that the Merger shall (i) constitute a reorganization within the
meaning of Section 368(a) of the Code and (ii) qualify for accounting treatment
as a pooling of interests.
1.11 Taking of Necessary Action; Further Action. If, at any
time after the Effective Time, any further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the Surviving Corporation
with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of Target and Merger Sub, the officers and
directors of Target and Merger Sub are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary action, so long as such action is not inconsistent with this
Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET
In this Agreement, any reference to any event, change,
condition or effect being "material" with respect to any entity or group of
entities means any material event, change, condition or effect related to the
condition (financial or otherwise), properties,
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<PAGE> 84
assets (including intangible assets), liabilities, business, operations or
results of operations of such entity or group of entities. In this Agreement,
any reference to a "Material Adverse Effect" with respect to any entity or group
of entities means any event, change or effect that is materially adverse to the
condition (financial or otherwise), properties, assets, liabilities, business,
operations or results of operations of such entity and its subsidiaries, taken
as a whole; provided, however, that a "Material Adverse Effect" with respect to
Target shall not include any adverse effect on the revenues or gross margins of
Target (or the direct consequences thereof) following the date of this Agreement
which is attributable to a delay of, reduction in or cancellation or change in
the terms of product orders by customers of Target. In the event of any
litigation regarding the foregoing provision, Target shall be required to
sustain the burden of reasonably demonstrating that any such delay, reduction,
cancellation or change is directly attributable to the transactions contemplated
by this Agreement.
In this Agreement, any reference to a party's "knowledge"
means such party's actual knowledge after reasonable inquiry of officers and
directors of such party.
Except as disclosed in a document of even date herewith and
delivered by Target to Acquiror prior to the execution and delivery of this
Agreement and referring to the representations and warranties in this Agreement
(the "Target Disclosure Schedule"), Target represents and warrants to Acquiror
and Merger Sub as follows:
2.1 Organization, Standing and Power. Each of Target and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Each of Target and
its subsidiaries has the corporate power to own its properties and to carry on
its business as now being conducted and as proposed to be conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the failure to be so qualified and in good standing would have a Material
Adverse Effect on Target. Target has delivered a true and correct copy of the
Amended and Restated Certificate of Incorporation, as amended (the "Certificate
of Incorporation"), and Bylaws, as amended, or other charter documents, as
applicable, of Target and each of its subsidiaries, each as amended to date, to
Acquiror. Neither Target nor any of its subsidiaries is in violation of any of
the provisions of its Certificate of Incorporation or Bylaws or equivalent
organizational documents. Target is the owner of all outstanding shares of
capital stock of each of its subsidiaries and all such shares are duly
authorized, validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock of each such subsidiary are owned by Target free and
clear of all liens, charges, claims or encumbrances or rights of others. There
are no outstanding subscriptions, options, warrants, puts, calls, rights,
exchangeable or convertible securities or other commitments or agreements of any
character relating to the issued or unissued capital stock or other securities
of any such subsidiary, or otherwise obligating Target or any such subsidiary to
issue, transfer, sell, purchase, redeem or otherwise acquire any such
securities. Except as disclosed in the Target SEC Documents (as defined in
Section 2.4), Target does not directly or indirectly
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own any equity or similar interest in, or any interest convertible or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
2.2 Capital Structure. The authorized capital stock of Target
consists of 200,000,000 shares of Common Stock, $.01 par value, and 2,000,000
shares of Preferred Stock, $.01 par value, of which there were issued and
outstanding as of the close of business on April 21, 1996, 75,968,707 shares of
Common Stock and no shares of Preferred Stock. As of April 21, 1996, there were
no other outstanding commitments to issue any shares of capital stock or voting
securities of Target other than pursuant to the Option Agreement, the exercise
of options outstanding as of such date under the Target Stock Option Plans or
pursuant to the Target 1992 Employee Stock Purchase Plan (the "Target ESPP").
All outstanding shares of Target Common Stock are duly authorized, validly
issued, fully paid and non-assessable and are free of any liens or encumbrances
other than any liens or encumbrances created by or imposed upon the holders
thereof, and are not subject to preemptive rights or rights of first refusal
created by statute, the Certificate of Incorporation or Bylaws of Target or any
agreement to which Target is a party or by which it is bound. As of the close of
business on April 21, 1996, Target has reserved (i) 34,160,000 shares of Common
Stock for issuance to employees, consultants and directors pursuant to the
Target Stock Option Plans, of which 20,721,831 shares have been issued pursuant
to option exercises or direct stock purchases, 11,897,101 shares are subject to
outstanding, unexercised options, and no shares are subject to outstanding stock
purchase rights, and (ii) 1,500,000 shares of Common Stock for issuance to
employees pursuant to the Target ESPP, of which 1,088,876 shares have been
issued. Except as expressly permitted by the terms of this Agreement, since
April 21, 1996, Target has not (i) issued or granted additional options under
the Target Stock Option Plans, or (ii) accepted contributions to or enrollments
in the Target ESPP. Except for (i) the rights created pursuant to this
Agreement, the Option Agreement, the Target Stock Option Plans and the Target
ESPP and (ii) Target's right to repurchase any unvested shares under the Target
Stock Option Plans, there are no other options, warrants, calls, rights,
commitments or agreements of any character to which Target is a party or by
which it is bound obligating Target to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of capital stock of Target or obligating Target to grant, extend,
accelerate the vesting of, change the price of, or otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. There are no
contracts, commitments or agreements relating to voting, purchase or sale of
Target's capital stock (i) between or among Target and any of its stockholders
and (ii) to Target's knowledge, between or among any of Target's stockholders,
except for the stockholders named in Schedule 5.9 of this Agreement. The terms
of the Target Stock Option Plans permit the assumption or substitution of
options to purchase Acquiror Common Stock as provided in this Agreement, without
the consent or approval of the holders of such securities, the Target
stockholders, or otherwise and without any acceleration of the exercise schedule
or vesting provisions in effect for those options. The current "Purchase Period"
(as defined
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in the Target ESPP) commenced under the Target ESPP on April 1, 1996 and will
end as provided in Section 5.12(b) of this Agreement, and except for the
purchase rights granted on such commencement date to participants in the current
Purchase Period, there are no other purchase rights or options outstanding under
the Target ESPP. True and complete copies of all agreements and instruments
relating to or issued under the Target Stock Option Plans or Target ESPP have
been made available to Acquiror and such agreements and instruments have not
been amended, modified or supplemented, and there are no agreements to amend,
modify or supplement such agreements or instruments in any case from the form
made available to Acquiror.
2.3 Authority. Target has all requisite corporate power and
authority to enter into this Agreement and the Option Agreement and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Option Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Target, subject only to the approval
of the Merger by Target's stockholders as contemplated by Section 6.1(a). Each
of this Agreement and the Option Agreement has been duly executed and delivered
by Target and constitutes the valid and binding obligation of Target enforceable
against Target in accordance with its terms, except as enforceability may be
limited by bankruptcy and other laws affecting the rights and remedies of
creditors generally and general principles of equity. The execution and delivery
of this Agreement and the Option Agreement by Target does not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (i) any provision of
the Certificate of Incorporation or Bylaws of Target or any of its subsidiaries,
as amended, or (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Target
or any of its subsidiaries or any of their properties or assets, except where
such conflict, violation, default, termination, cancellation or acceleration
with respect to the foregoing provisions of (ii) would not have had and would
not reasonably be expected to have a Material Adverse Effect on Target. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other
governmental authority or instrumentality ("Governmental Entity") is required by
or, to the knowledge of Target, with respect to, Target or any of its
subsidiaries in connection with the execution and delivery of this Agreement,
the Option Agreement, or the consummation of the transactions contemplated
hereby and thereby, except for (i) the filing of the Certificate of Merger as
provided in Section 1.2, (ii) the filing with the Securities and Exchange
Commission (the "SEC") and the National Association of Securities Dealers, Inc.
(the "NASD") of the Proxy Statement (as defined in Section 2.22) relating to the
Target Stockholders Meeting (as defined in Section 2.22), (iii) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable state securities laws and the securities laws
of any foreign
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country; (iv) such filings as may be required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended ("HSR"); and (v) such other
consents, authorizations, filings, approvals and registrations which, if not
obtained or made, would not have a Material Adverse Effect on Target and would
not prevent, or materially alter or delay any of the transactions contemplated
by this Agreement or the Option Agreement.
2.4 SEC Documents; Financial Statements. Target has furnished
to Acquiror a true and complete copy of each statement, report, registration
statement (with the prospectus in the form filed pursuant to Rule 424(b) of the
Securities Act of 1933, as amended (the "Securities Act")), definitive proxy
statement and other filing filed with the SEC by Target since June 30, 1993,
and, prior to the Effective Time, Target will have furnished Acquiror with true
and complete copies of any additional documents filed with the SEC by Target
prior to the Effective Time (collectively, the "Target SEC Documents"). In
addition, Target has made available to Acquiror all exhibits to the Target SEC
Documents filed prior to the date hereof, and will promptly make available to
Acquiror all exhibits to any additional Target SEC Documents filed prior to the
Effective Time. All documents required to be filed as exhibits to the Target SEC
Documents have been so filed, and all material contracts so filed as exhibits
are in full force and effect, except those which have expired in accordance with
their terms, and neither Target nor any of its subsidiaries is in default
thereunder, except where any such default has not resulted in and is not
reasonably expected to result in any Material Adverse Effect on Target. As of
their respective filing dates, the Target SEC Documents complied in all material
respects with the requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the Securities Act, and none of the Target SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, except to the extent corrected by a subsequently filed Target
SEC Document. The financial statements of Target, including the notes thereto,
included in the Target SEC Documents (the "Target Financial Statements") were
complete and correct in all material respects as of their respective dates,
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto as of their respective dates, and have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of unaudited
statements included in Quarterly Reports on Form 10-Q, as permitted by Form 10-Q
of the SEC). The Target Financial Statements fairly present the consolidated
financial condition and operating results of Target and its subsidiaries at the
dates and during the periods indicated therein (subject, in the case of
unaudited statements, to normal, recurring year-end adjustments) in all material
respects. There has been no material change in Target accounting policies except
as described in the notes to the Target Financial Statements.
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2.5 Absence of Certain Changes. Since December 31, 1995 (the
"Target Balance Sheet Date"), Target has conducted its business in the ordinary
course consistent with past practice and there has not occurred: (i) any change,
event or condition (whether or not covered by insurance) that would result in a
Material Adverse Effect to Target; (ii) any acquisition, sale or transfer of any
material asset of Target or any of its subsidiaries other than in the ordinary
course of business and consistent with past practice; (iii) any material change
in accounting methods or practices (including any change in depreciation or
amortization policies or rates) by Target or any material revaluation by Target
of any of its or any of its subsidiaries' assets; (iv) any declaration, setting
aside, or payment of a dividend or other distribution with respect to the shares
of Target, or any direct or indirect redemption, purchase or other acquisition
by Target of any of its shares of capital stock; (v) any material contract
entered into by Target or any of its subsidiaries, other than in the ordinary
course of business and as provided to Acquiror, or any material amendment or
termination of, or default under, any material contract to which Target or any
of its subsidiaries is a party or by which it is bound which would result in a
Material Adverse Effect on Target; or (vi) any negotiation or agreement by
Target or any of its subsidiaries to do any of the things described in the
preceding clauses (i) through (v) (other than negotiations with Acquiror and its
representatives regarding the transactions contemplated by this Agreement).
2.6 Absence of Undisclosed Liabilities. Target has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet included in Target's Annual Report on Form 10-K for the period
ended December 31, 1995 (the "Target Balance Sheet"), (ii) those not required to
be set forth in the Target Balance Sheet under generally accepted accounting
principles, (iii) those incurred in the ordinary course of business since the
Target Balance Sheet Date and consistent with past practice; and (iv) those
incurred in connection with the execution of this Agreement.
2.7 Litigation. There is no private or governmental action,
suit, proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of Target or any of
its subsidiaries, threatened against Target or any of its subsidiaries or any of
their respective properties or any of their respective officers or directors (in
their capacities as such) that, individually or in the aggregate, would have a
Material Adverse Effect on Target. There is no judgment, decree or order against
Target or any of its subsidiaries, or, to the knowledge of Target and its
subsidiaries, any of their respective directors or officers (in their capacities
as such), that would prevent, enjoin, materially alter or materially delay any
of the transactions contemplated by this Agreement, or that would have a
Material Adverse Effect on Target.
2.8 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon Target or any of
its subsidiaries which has the effect of prohibiting or materially impairing any
current or future business
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practice of Target or any of its subsidiaries, any acquisition of property by
Target or any of its subsidiaries or the conduct of business by Target or any of
its subsidiaries as currently conducted by Target or any of its subsidiaries.
2.9 Governmental Authorization. Target and each of its
subsidiaries have obtained each federal, state, county, local or foreign
governmental consent, license, permit, grant, or other authorization of a
Governmental Entity (i) pursuant to which Target or any of its subsidiaries
currently operates or holds any interest in any of its properties or (ii) that
is required for the operation of Target's or any of its subsidiaries' business
or the holding of any such interest ((i) and (ii) herein collectively called
"Target Authorizations"), and all of such Target Authorizations are in full
force and effect, except where the failure to obtain or have any of such Target
Authorizations would not have a Material Adverse Effect on Target.
2.10 Title to Property. Target and its subsidiaries have good
and valid title to all of their respective properties, interests in properties
and assets, real and personal, reflected in the Target Balance Sheet or acquired
after the Target Balance Sheet Date (except properties, interests in properties
and assets sold or otherwise disposed of since the Target Balance Sheet Date in
the ordinary course of business), or in the case of leased properties and
assets, valid leasehold interests in, free and clear of all mortgages, liens,
pledges, charges or encumbrances of any kind or character, except (i) the lien
of current taxes not yet due and payable, (ii) such imperfections of title,
liens and easements as do not and will not materially detract from or interfere
with the use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties, (iii) liens
securing debt which is reflected on the Target Balance Sheet or (iv) those which
would not have a Material Adverse Effect on Target. The plants, property and
equipment of Target and its subsidiaries that are used in the operations of
their businesses are in good operating condition and repair. All properties used
in the operations of Target and its subsidiaries are reflected in the Target
Balance Sheet to the extent generally accepted accounting principles require the
same to be reflected. Schedule 2.10 identifies each parcel of real property
owned or leased by Target or any of its subsidiaries.
2.11 Intellectual Property.
(a) Target and its subsidiaries own, or are licensed
or otherwise possess legally enforceable rights to use all patents, trademarks,
trade names, service marks, copyrights, and any applications therefor,
maskworks, net lists, schematics, technology, know-how, trade secrets,
inventory, ideas, algorithms, processes, computer software programs or
applications (in both source code and object code form), and tangible or
intangible proprietary information or material ("Intellectual Property") that
are used in the business of Target and its subsidiaries as currently conducted
or as proposed to be conducted by Target and its subsidiaries, except to the
extent that the
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failure to have such rights have not had and would not reasonably be expected to
have a Material Adverse Effect on Target.
(b) Schedule 2.11 lists (i) all patents and patent
applications and all registered and unregistered trademarks, trade names and
service marks, registered and unregistered copyrights, and maskworks, which
Target considers to be material to its business and included in the Intellectual
Property, including the jurisdictions in which each such Intellectual Property
right has been issued or registered or in which any application for such
issuance and registration has been filed, (ii) all licenses, sublicenses and
other agreements as to which Target is a party and pursuant to which any person
is authorized to use any Intellectual Property, and (iii) all material licenses,
sublicenses and other agreements as to which Target is a party and pursuant to
which Target is authorized to use any third party patents, trademarks or
copyrights, including software ("Third Party Intellectual Property Rights")
which are incorporated in, are, or form a part of any Target product that is
material to its business.
(c) There is no unauthorized use, disclosure,
infringement or misappropriation of any Intellectual Property rights of Target
or any of its subsidiaries, any trade secret material to Target or any of its
subsidiaries, or any Intellectual Property right of any third party to the
extent licensed by or through Target or any of its subsidiaries, by any third
party, including any employee or former employee of Target or any of its
subsidiaries. Neither Target nor any of its subsidiaries has entered into any
agreement to indemnify any other person against any charge of infringement of
any Intellectual Property, other than indemnification provisions contained in
purchase orders or customer agreements arising in the ordinary course of
business.
(d) Target is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
under this Agreement, in breach of any license, sublicense or other agreement
relating to the Intellectual Property or Third Party Intellectual Property
Rights, the breach of which would have a Material Adverse Effect on Target.
(e) All patents, registered trademarks, service marks
and copyrights held by Target are valid and subsisting. Target (i) is not a
party to any suit, action or proceeding which involves a claim of infringement
of any patents, trademarks, service marks, copyrights or violation of any trade
secret or other proprietary right of any third party and (ii) has not brought
any action, suit or proceeding for infringement of Intellectual Property or
breach of any license or agreement involving Intellectual Property against any
third party. The manufacture, marketing, licensing or sale of Target's products
does not infringe any patent, trademark, service mark, copyright, trade secret
or other proprietary right of any third party, except where such infringement
would not have a Material Adverse Effect on Target.
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(f) Target has a policy to secure valid written
assignments from all consultants and employees who contribute or have
contributed to the creation or development of Intellectual Property of the
rights to such contributions that Target does not already own by operation of
law.
(g) Target believes it has taken all reasonable and
appropriate steps to protect and preserve the confidentiality of all
Intellectual Property not otherwise protected by patents, or patent applications
or copyright ("Confidential Information"). To Target's knowledge, all use,
disclosure or appropriation of Confidential Information owned by Target by or to
a third party has been pursuant to the terms of a written agreement between
Target and such third party. To Target's knowledge, all use, disclosure or
appropriation of Confidential Information not owned by Target has been pursuant
to the terms of a written agreement between Target and the owner of such
Confidential Information, or is otherwise lawful.
2.12 Environmental Matters. Except in all cases as, in the
aggregate, have not had and would not have a Material Adverse Effect on Target,
Target and each of its subsidiaries (i) have obtained all applicable permits,
licenses and other authorizations that are required under Federal, state or
local laws 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 Target or its subsidiaries (or their respective agents);
(ii) are in compliance with all terms and conditions of such required permits,
licenses and authorizations, and also are in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in such laws or contained in any
regulation, code, plan, order, decree, judgment, notice or demand letter issued,
entered, promulgated or approved thereunder; (iii) as of the date hereof, are
not aware of and have not received notice of any event, condition, circumstance,
activity, practice, incident, action or plan that is reasonably likely to
interfere with or prevent continued compliance or that would give rise to any
common law or statutory liability, or otherwise form the basis of any claim,
action, suit or proceeding, based on or resulting from Target's or any of its
subsidiaries (or any of their respective agents) 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; (iv) has not disposed of
any pollutants, contaminants or hazardous or toxic materials or wastes into the
soil or groundwater at any properties owned or leased by Target, either now or
in the past, or at any other property that would result in any assessment or
remedial action; and (v) have taken all actions necessary under applicable
requirements of Federal, state or local laws, rules or regulations to register
any products or materials required to be registered by Target or its
subsidiaries (or any of their respective agents) thereunder.
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2.13 Taxes. Except to the extent the failure to do so would
not have a Material Adverse Effect, Target and each of its subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax purposes of which
Target or any of its subsidiaries is or has been a member have timely filed all
Tax Returns required to be filed by it, have paid all Taxes shown thereon to be
due and has provided adequate accruals in accordance with generally accepted
accounting principles in its financial statements for any Taxes that have not
been paid, whether or not shown as being due on any Tax returns. Except as
disclosed in the Target Disclosure Schedule, (i) no material claim for Taxes has
become a lien against the property of Target or any of its subsidiaries or is
being asserted against Target or any of its subsidiaries other than liens for
Taxes not yet due and payable, (ii) no audit of any Tax Return of Target or any
of its subsidiaries is being conducted by a Tax authority, (iii) no extension of
the statute of limitations on the assessment of any Taxes has been granted by
Target or any of its subsidiaries and is currently in effect, and (iv) there is
no agreement, contract or arrangement to which Target or any of its subsidiaries
is a party that may result in the payment of any amount that would not be
deductible by reason of Sections 280G or 404 of the Code. Target has not been
and will not be required to include any material adjustment in Taxable income
for any Tax period (or portion thereof) pursuant to Section 481 or 263A of the
Code or any comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Merger. Neither
Target nor any of its subsidiaries is a party to any tax sharing or tax
allocation agreement nor does Target or any of its subsidiaries owe any amount
under any such agreement. For purposes of this Agreement, the following terms
have the following meanings: "Tax" (and, with correlative meaning, "Taxes" and
"Taxable") means (i) any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, environmental or windfall profit tax, custom, duty or other
tax, governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any Governmental Entity (a "Tax authority") responsible for the
imposition of any such tax (domestic or foreign), (ii) any liability for the
payment of any amounts of the type described in (i) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any Taxable
period and (iii) any liability for the payment of any amounts of the type
described in (i) or (ii) as a result of any express or implied obligation to
indemnify any other person. As used herein, "Tax Return" shall mean any return,
statement, report or form (including, without limitation,) estimated Tax returns
and reports, withholding Tax returns and reports and information reports and
returns required to be filed with respect to Taxes. Target and each of its
subsidiaries are in full compliance with all terms and conditions of any Tax
exemptions or other Tax-sparing agreement or order of a foreign government and
the consummation of the Merger shall not have any adverse effect on the
continued validity and effectiveness of any such Tax exemptions or other
Tax-sparing agreement or order.
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2.14 Employee Benefit Plans.
(a) Schedule 2.14 lists, with respect to Target, any
subsidiary of Target and any trade or business (whether or not incorporated)
which is treated as a single employer with Target (an "ERISA Affiliate") within
the meaning of Section 414(b), (c), (m) or (o) of the Code, (i) all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) and subject to ERISA, (ii) each loan
to a non-officer employee in excess of $50,000, loans to officers and directors
and any stock option, stock purchase, phantom stock, stock appreciation right,
(iii) all supplemental retirement, severance, sabbatical, medical, dental,
vision care, disability, employee relocation, cafeteria benefit (Code Section
125) or dependent care (Code Section 129), life insurance or accident insurance,
bonus, pension, profit sharing, savings, deferred compensation or incentive
plans, programs or arrangements which are not employee benefit plans as
otherwise covered under clause (i) above, (iv) other fringe or employee benefit
plans, programs or arrangements that apply to senior management of Target and
that do not generally apply to all employees, and (v) any current or former
employment or executive compensation or severance agreements, written or
otherwise, as to which unsatisfied obligations of Target of greater than $50,000
remain for the benefit of, or relating to, any present or former employee,
consultant or director of Target (together, the "Target Employee Plans").
(b) Target has furnished to Acquiror a copy of each
of the Target Employee Plans and related plan documents (including trust
documents, insurance policies or contracts, employee booklets, summary plan
descriptions and other authorizing documents, and, to the extent still in its
possession, any material employee communications relating thereto) and has, with
respect to each Target Employee Plan which is subject to ERISA reporting
requirements, provided copies of the Form 5500 reports filed for the last three
plan years. Any Target Employee Plan intended to be qualified under Section
401(a) of the Code has either obtained from the Internal Revenue Service a
favorable determination letter as to its qualified status under the Code,
including all amendments to the Code effected by the Tax Reform Act of 1986 and
subsequent legislation, or has applied to the Internal Revenue Service for such
a determination letter prior to the expiration of the requisite period under
applicable Treasury Regulations or Internal Revenue Service pronouncements in
which to apply for such determination letter and to make any amendments
necessary to obtain a favorable determination. Target has also furnished
Acquiror with the most recent Internal Revenue Service determination letter
issued with respect to each such Target Employee Plan, and nothing has occurred
since the issuance of each such letter which could reasonably be expected to
cause the loss of the tax-qualified status of any Target Employee Plan subject
to Code Section 401(a).
(c) (i) Other than continued health care coverage
required under the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA"), none of the Target Employee Plans promises or provides
retiree medical or
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other retiree welfare benefits to any person; (ii) there has been no "prohibited
transaction," as such term is defined in Section 406 of ERISA and Section 4975
of the Code, with respect to any Target Employee Plan, which could reasonably be
expected to have, in the aggregate, a Material Adverse Effect; (iii) each Target
Employee Plan has been administered in accordance with its terms and in
compliance with the requirements prescribed by any and all statutes, rules and
regulations (including ERISA and the Code), except as would not have, in the
aggregate, a Material Adverse Effect, and Target and each subsidiary or ERISA
Affiliate have performed all obligations required to be performed by them under,
are not in any respect in default under or violation of, and have no knowledge
of any default or violation by any other party to, any of the Target Employee
Plans, which default or violation could reasonably be expected to have a
Material Adverse Effect on Target; (iv) neither Target nor any subsidiary or
ERISA Affiliate is subject to any liability or penalty under Sections 4976
through 4980 of the Code or Title I of ERISA with respect to any of the Target
Employee Plans and which individually or in the aggregate could reasonably be
expected to have a Material Adverse Effect on Target; (v) all material
contributions required to be made by Target or any subsidiary or ERISA Affiliate
to any Target Employee Plan have been made on or before their due dates and a
reasonable amount has been accrued for contributions to each Target Employee
Plan for the current plan years; (vi) with respect to each Target Employee Plan,
no "reportable event" within the meaning of Section 4043 of ERISA (excluding any
such event for which the thirty (30) day notice requirement has been waived
under the regulations to Section 4043 of ERISA) nor any event described in
Section 4062, 4063 or 4041 or ERISA has occurred; and (vii) no Target Employee
Plan is covered by, and neither Target nor any subsidiary or ERISA Affiliate has
incurred or expects to incur any liability under Title IV of ERISA or Section
412 of the Code. With respect to each Target Employee Plan subject to ERISA as
either an employee pension plan within the meaning of Section 3(2) of ERISA or
an employee welfare benefit plan within the meaning of Section 3(1) of ERISA and
Target has prepared in good faith and timely filed all requisite governmental
reports (which were true and correct as of the date filed) and, to Target's
knowledge, Target has properly and timely filed and distributed or posted all
notices and reports to employees required to be filed, distributed or posted
with respect to each such Target Employee Plan. No suit, administrative
proceeding, action or other litigation has been brought, or to the best
knowledge of Target is threatened, against or with respect to any such Target
Employee Plan, including any audit or inquiry by the IRS or United States
Department of Labor. Neither Target nor any Target subsidiary or other ERISA
Affiliate is a party to, or has made any contribution to or otherwise incurred
any obligation under, any "multiemployer plan" as defined in Section 3(37) of
ERISA.
(d) With respect to each Target Employee Plan, Target
and each of its United States subsidiaries have complied with (i) the applicable
health care continuation and notice provisions of the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA") and the proposed regulations
thereunder and (ii) the applicable requirements of the Family Leave Act of 1993
and the regulations thereunder, except to
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the extent that such failure to comply would not, in the aggregate, have a
Material Adverse Effect on Target.
(e) The consummation of the transactions contemplated
by this Agreement will not (i) entitle any current or former employee or other
service provider of Target, any Target subsidiary or any other ERISA Affiliate
to severance benefits or any other payment, except as expressly provided in this
Agreement, or (ii) accelerate the time of payment or vesting, or increase the
amount of compensation due any such employee or service provider.
(f) There has been no amendment to, written
interpretation or announcement (whether or not written) by Target, any Target
subsidiary or other ERISA Affiliate relating to, or change in participation or
coverage under, any Target Employee Plan which would materially increase the
expense of maintaining such Plan above the level of expense incurred with
respect to that Plan for the most recent fiscal year included in Target's
financial statements.
2.15 Certain Agreements Affected by the Merger. Neither the
execution and delivery of this Agreement nor the consummation of the transaction
contemplated hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any director or employee of Target or any of its
subsidiaries, (ii) materially increase any benefits otherwise payable by Target
or (iii) result in the acceleration of the time of payment or vesting of any
such benefits.
2.16 Employee Matters. Target and each of its subsidiaries are
in compliance in all respects with all currently applicable laws and regulations
respecting employment, discrimination in employment, terms and conditions of
employment, wages, hours and occupational safety and health and employment
practices, and is not engaged in any unfair labor practice, except where the
failure to be in compliance or the engagement in such unfair labor practices
would not have a Material Adverse Effect on Target. There are no pending claims
against Target or any of its subsidiaries under any workers compensation plan or
policy or for long term disability which would have a Material Adverse Effect on
Target. Neither Target nor any of its subsidiaries has any obligations under
COBRA with respect to any former employees or qualifying beneficiaries
thereunder, except for obligations that would not have a Material Adverse Effect
on Target. There are no controversies pending or, to the knowledge of Target or
any of its subsidiaries, threatened, between Target or any of its subsidiaries
and any of their respective employees, which controversies would have a Material
Adverse Effect on Target. Neither Target nor any of its subsidiaries is a party
to any collective bargaining agreement or other labor union contract nor does
Target nor any of its subsidiaries know of any activities or proceedings of any
labor union to organize any such employees.
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2.17 Interested Party Transactions. Except as disclosed in the
Target SEC Documents, neither Target nor any of its subsidiaries is indebted to
any director, officer, employee or agent of Target or any of its subsidiaries
(except for amounts due as normal salaries and bonuses and in reimbursement of
ordinary expenses), and no such person is indebted to Target or any of its
subsidiaries, and there have been no other transactions of the type required to
be disclosed pursuant to Items 402 and 404 of Regulation S-K under the
Securities Act and the Exchange Act since June 30, 1993.
2.18 Insurance. Target and each of its subsidiaries have
policies of insurance and bonds of the type and in amounts customarily carried
by persons conducting businesses or owning assets similar to those of Target and
its subsidiaries. There is no material claim pending under any of such policies
or bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and Target and its subsidiaries are
otherwise in compliance in all material respects with the terms of such policies
and bonds. Target has no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
2.19 Compliance With Laws. Each of Target and its subsidiaries
has complied with, are not in violation of, and have not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures to comply as
would not have a Material Adverse Effect on Target.
2.20 Pooling of Interests. To the knowledge of Target, neither
Target nor any of its subsidiaries nor, any of their respective directors,
officers or stockholders has taken any action that would prevent Acquiror from
accounting for the Merger as a pooling of interests.
2.21 Brokers' and Finders' Fees. Except for payment
obligations to Montgomery Securities disclosed to Acquiror, Target has not
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or investment bankers' fees or any
similar charges in connection with this Agreement or any transaction
contemplated hereby.
2.22 Registration Statement; Proxy Statement/Prospectus. The
information supplied by Target for inclusion in the registration statement on
Form S-4 (or such other or successor form as shall be appropriate) pursuant to
which the shares of Acquiror Common Stock to be issued in the Merger will be
registered with the SEC (the "Registration Statement") shall not at the time the
Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC contain any untrue statement of a material fact or
omit to state any material fact 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
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Target for inclusion in the proxy statement/prospectus to be sent to the
stockholders of Target in connection with the meeting of Target's stockholders
to consider the Merger (the "Target Stockholders Meeting") (such proxy
statement/prospectus as amended or supplemented is referred to herein as the
"Proxy Statement") shall not, on the date the Proxy Statement is first mailed to
Target's stockholders, at the time of the Target Stockholders Meeting and at the
Effective Time, contain any statement which, at such time, is false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Target
Stockholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any event or information should be discovered by Target
which should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, Target shall promptly inform Acquiror and
Merger Sub. Notwithstanding the foregoing, Target makes no representation,
warranty or covenant with respect to any information supplied by Acquiror or
Merger Sub which is contained in any of the foregoing documents.
2.23 Opinion of Financial Advisor. Target has been advised in
writing by its financial advisor, Montgomery Securities, that in such advisor's
opinion, as of the date hereof, the consideration to be received by the
stockholders of Target is fair, from a financial point of view, to the
stockholders of Target.
2.24 Vote Required. The affirmative vote of the holders of a
majority of the shares of Target Common Stock outstanding on the record date set
for the Target Stockholders Meeting is the only vote of the holders of any of
Target's capital stock necessary to approve this Agreement and the transactions
contemplated hereby.
2.25 Board Approval. The Board of Directors of Target has,
prior to the date hereof, unanimously (i) approved this Agreement and the
Merger, (ii) determined that the Merger is in the best interests of the
stockholders of Target and is on terms that are fair to such stockholders and
(iii) determined to recommend that the stockholders of Target approve this
Agreement and consummation of the Merger.
2.26 Section 203 of the DGCL Not Applicable. The Board of
Directors of Target has taken all actions so that the restrictions contained in
Section 203 of the Delaware Law applicable to a "business combination" (as
defined in Section 203) will not apply to the execution, delivery or performance
of this Agreement or the Option Agreement or the consummation of the Merger or
the other transactions contemplated by this Agreement or by the Option
Agreement.
2.27 Customers and Suppliers. As of the date hereof, no
customer which individually accounted for more than $3,500,000 of Target's gross
revenues during the 12 month period preceding the date hereof has indicated to
Target that it will stop, or
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materially decrease the rate of, buying services or products of Target, or has
at any time on or after December 31, 1995 decreased materially its usage of the
services or products of Target. As of the date hereof, no material supplier of
Target has indicated that it will stop, or materially decrease the rate of,
supplying materials, products or services to Target. Target has not knowingly
breached, so as to provide a benefit to Target that was not intended by the
parties, any agreement with, or engaged in any fraudulent conduct with respect
to, any customer or supplier of Target.
2.28 Product Specifications. Each of the IPX product family,
BPX/AXIS product families, IGX product family and FastPad product family are
manufactured and released in substantial conformance with Target's product
technical specifications and release test methods.
2.29 Target Rights Agreement. Neither the execution and
delivery of this Agreement, the Option Agreement or the Voting Agreement by the
parties hereto and thereto nor the consummation by Acquiror and Merger Sub of
the transactions contemplated hereby and thereby will cause Acquiror or any of
its affiliates or associates to be within the definition of "Acquiring Person"
(as defined in the Target Rights Agreement) for purposes of the Target Rights
Agreement.
2.30 Representations Complete. None of the representations or
warranties made by Target herein or in any Schedule hereto, including the Target
Disclosure Schedule, or certificate furnished by Target pursuant to this
Agreement, or the Target SEC Documents, when all such documents are read
together in their entirety, contains or will contain at the Effective Time any
untrue statement of a material fact, or omits or will omit at the Effective Time
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
Except as disclosed in a document of even date herewith and
delivered by Acquiror to Target prior to the execution and delivery of this
Agreement and referring to the representations and warranties in this Agreement
(the "Acquiror Disclosure Schedule"), Acquiror and Merger Sub represent and
warrant to Target as follows:
3.1 Organization, Standing and Power. Each of Acquiror and its
subsidiaries, including Merger Sub, is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization. Each of Acquiror and its subsidiaries has the corporate power to
own its properties and to carry on its business as now being conducted and as
proposed to be conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so
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qualified and in good standing would have a Material Adverse Effect on Acquiror.
Acquiror has delivered a true and correct copy of the Articles of Incorporation
and Bylaws or other charter documents, as applicable, of Acquiror to Target.
Neither Acquiror nor any of its subsidiaries is in violation of any of the
provisions of its Articles of Incorporation or Bylaws or equivalent
organizational documents. Acquiror is the owner of all outstanding shares of
capital stock of each of its subsidiaries and all such shares are duly
authorized, validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock of each such subsidiary are owned by Acquiror free and
clear of all liens, charges, claims or encumbrances or rights of others. There
are no outstanding subscriptions, options, warrants, puts, calls, rights,
exchangeable or convertible securities or other commitments or agreements of any
character relating to the issued or unissued capital stock or other securities
of any such subsidiary, or otherwise obligating Acquiror or any such subsidiary
to issue, transfer, sell, purchase, redeem or otherwise acquire any such
securities. Except as disclosed in the Acquiror SEC Documents (as defined in
Section 3.4), Acquiror does not directly or indirectly own any equity or similar
interest in, or any interest convertible or exchangeable or exercisable for, any
equity or similar interest in, any corporation, partnership, joint venture or
other business association or entity.
3.2 Capital Structure. The authorized capital stock of
Acquiror consists of 1,200,000,000 shares of Common Stock, no par value, and
5,000,000 shares of Preferred Stock, no par value, of which there were issued
and outstanding as of the close of business on April 19, 1996, 569,029,371
shares of Common Stock and no shares of Preferred Stock. There are no other
outstanding shares of capital stock or voting securities of Acquiror other than
shares of Acquiror Common Stock issued after April 19, 1996 upon the exercise of
options issued under the Acquiror Amended and Restated 1987 Stock Option Plan,
Crescendo Communications, Inc. 1990 Stock Option Plan, Newport Systems Solution,
Inc. 1990 Stock Option Plan, Combinet, Inc. Incentive and Non-Qualified Stock
Option Plan, Grand Junction Networks, Inc. 1992 Stock Plan, Kalpana, Inc. 1989
Stock Option Plan, TGV Software, Inc. 1990 Stock Option Plan and TGV Software,
Inc. 1995 Stock Option Plan (collectively, the "Acquiror Stock Option Plans").
The authorized capital stock of Merger Sub consists of 1,000 shares of Common
Stock, $.0001 par value, all of which are issued and outstanding and are held by
Acquiror. All outstanding shares of Acquiror and Merger Sub have been duly
authorized, validly issued, fully paid and are nonassessable and free of any
liens or encumbrances other than any liens or encumbrances created by or imposed
upon the holders thereof. As of the close of business on April 19, 1996,
Acquiror has reserved 228,347,598 shares of Common Stock for issuance to
employees, directors and independent contractors pursuant to the Acquiror Stock
Option Plans, of which 151,190,953 shares have been issued pursuant to option
exercises, and 54,302,954 shares are subject to outstanding, unexercised
options. Other than pursuant to this Agreement and the Acquiror 1989 Employee
Stock Purchase Plan, there are no other options, warrants, calls, rights,
commitments or agreements of any character to which Acquiror or Merger Sub is a
party or by which either of them is bound obligating Acquiror or Merger
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Sub to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock of
Acquiror or Merger Sub or obligating Acquiror or Merger Sub to grant, extend or
enter into any such option, warrant, call, right, commitment or agreement. The
shares of Acquiror Common Stock to be issued pursuant to the Merger will be duly
authorized, validly issued, fully paid, and non-assessable.
3.3 Authority. Acquiror and Merger Sub have all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Acquiror and Merger
Sub, and the approval of the shareholders of Acquiror is not required for
Acquiror to enter into this Agreement and consummate the Merger. This Agreement
has been duly executed and delivered by Acquiror and Merger Sub and constitutes
the valid and binding obligations of Acquiror and Merger Sub. The execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of a benefit under (i) any provision of the Articles of Incorporation or
Bylaws of Acquiror or any of its subsidiaries, as amended, or (ii) any material
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Acquiror or any of its subsidiaries
or their properties or assets, except where such conflict, violation, default,
termination, cancellation or acceleration with respect to the foregoing
provisions of (ii) would not have had and would not reasonably be expected to
have a Material Adverse Effect on Acquiror. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity, is required by or, to the knowledge of Acquiror with respect to,
Acquiror or any of its subsidiaries in connection with the execution and
delivery of this Agreement by Acquiror and Merger Sub or the consummation by
Acquiror and Merger Sub of the transactions contemplated hereby, except for (i)
the filing of the Certificate of Merger as provided in Section 1.2, (ii) the
filing with the SEC and NASD of the Registration Statement, (iii) the filing of
a Form 8-K with the SEC and NASD within 15 days after the Closing Date, (iv) any
filings as may be required under applicable state securities laws and the
securities laws of any foreign country, (v) such filings as may be required
under HSR, (vi) the filing with the Nasdaq National Market of a Notification
Form for Listing of Additional Shares with respect to the shares of Acquiror
Common Stock issuable upon conversion of the Target Common Stock in the Merger
and upon exercise of the options under the Target Stock Option Plans assumed by
Acquiror, and (vii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Acquiror and would not prevent or materially alter or delay any of the
transactions contemplated by this Agreement.
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3.4 SEC Documents; Financial Statements. Acquiror has made
available to Target a true and complete copy of each statement, report,
registration statement (with the prospectus in the form filed pursuant to Rule
424(b) of the Securities Act), definitive proxy statement, and other filing
filed with the SEC by Acquiror since June 30, 1993, and, prior to the Effective
Time, Acquiror will have furnished Target with true and complete copies of any
additional documents filed with the SEC by Acquiror prior to the Effective Time
(collectively, the "Acquiror SEC Documents"). In addition, Acquiror has made
available to Target all exhibits to the Acquiror SEC Documents filed prior to
the date hereof, and will promptly make available to Target all exhibits to any
additional Acquiror SEC Documents filed prior to the Effective Time. All
documents required to be filed as exhibits to the Target SEC Documents have been
so filed, and all material contracts so filed as exhibits are in full force and
effect, except those which have expired in accordance with their terms, and
neither Acquiror nor any of its subsidiaries is in default thereunder, except
where such default has not resulted in and is not reasonably expected to result
in any Material Adverse Effect on Acquiror. As of their respective filing dates,
the Acquiror SEC Documents complied in all material respects with the
requirements of the Exchange Act and the Securities Act, and none of the
Acquiror SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a subsequently
filed Acquiror SEC Document. The financial statements of Acquiror, including the
notes thereto, included in the Acquiror SEC Documents (the "Acquiror Financial
Statements") were complete and correct in all material respects as of their
respective dates, complied as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto as of their respective dates, and have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of unaudited
statements included in Quarterly Reports on Form 10-Q, as permitted by Form 10-Q
of the SEC). The Acquiror Financial Statements fairly present the consolidated
financial condition and operating results of Acquiror and its subsidiaries at
the dates and during the periods indicated therein (subject, in the case of
unaudited statements, to normal, recurring year-end adjustments) in all material
respects. There has been no material change in Acquiror accounting policies
except as described in the notes to the Acquiror Financial Statements.
3.5 Absence of Certain Changes. Since January 28, 1996 (the
"Acquiror Balance Sheet Date"), Acquiror has conducted its business in the
ordinary course consistent with past practice and there has not occurred: (i)
any change, event or condition (whether or not covered by insurance) that would
result in a Material Adverse Effect to Acquiror; (ii) any acquisition, sale or
transfer of any material asset of Acquiror or any of its subsidiaries other than
in the ordinary course of business and consistent with past practice; (iii) any
material change in accounting methods or practices (including
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any change in depreciation or amortization policies or rates) by Acquiror or any
material revaluation by Acquiror of any of its assets; (iv) any declaration,
setting aside, or payment of a dividend or other distribution with respect to
the shares of Acquiror, or any direct or indirect redemption, purchase or other
acquisition by Acquiror of any of its shares of capital stock; (v) any material
contract entered into by Acquiror, other than in the ordinary course of business
and as made available to Target, or any material amendment or termination of, or
default under, any material contract to which Acquiror is a party or by which it
is bound which would result in a Material Adverse Effect on Acquiror; or (vi)
any negotiation or agreement by Acquiror or any of its subsidiaries to do any of
the things described in the preceding clauses (i) through (v) (other than
negotiations with Target and its representatives regarding the transactions
contemplated by this Agreement).
3.6 Absence of Undisclosed Liabilities. Acquiror has no
material obligations or liabilities of any nature (matured or unmatured, fixed
or contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet included in Acquiror's Quarterly Report on Form 10-Q for the
period ended January 28, 1996 (the "Acquiror Balance Sheet"), (ii) those not
required to be set forth in the Acquiror Balance Sheet under generally accepted
accounting principles, and (iii) those incurred in the ordinary course of
business since the Acquiror Balance Sheet Date and consistent with past
practice.
3.7 Litigation. There is no private or governmental action,
suit, proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of Acquiror or any
of its subsidiaries, threatened against Acquiror or any of its subsidiaries or
any of their respective properties or any of their respective officers or
directors (in their capacities as such) that, individually or in the aggregate,
would have a Material Adverse Effect on Acquiror. There is no judgment, decree
or order against Acquiror or any of its subsidiaries or, to the knowledge of
Acquiror or any of its subsidiaries, any of their respective directors or
officers (in their capacities as such) that would prevent, enjoin, materially
alter or materially delay any of the transactions contemplated by this
Agreement, or that would have a Material Adverse Effect on Acquiror.
3.8 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon Acquiror or any of
its subsidiaries which has the effect of prohibiting or materially impairing any
current or future business practice of Acquiror or any of its subsidiaries, any
acquisition of property by Acquiror or any of its subsidiaries or the conduct of
business by Acquiror or any of its subsidiaries as currently conducted or as
proposed to be conducted by Acquiror or any of its subsidiaries.
3.9 Governmental Authorization. Acquiror and each of its
subsidiaries have obtained each federal, state, county, local or foreign
governmental consent, license,
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permit, grant, or other authorization of a Governmental Entity (i) pursuant to
which Acquiror or any of its subsidiaries currently operates or holds any
interest in any of its properties or (ii) that is required for the operation of
Acquiror's or any of its subsidiaries' business or the holding of any such
interest ((i) and (ii) herein collectively called "Acquiror Authorizations"),
and all of such Acquiror Authorizations are in full force and effect, except
where the failure to obtain or have any of such Acquiror Authorizations would
not have a Material Adverse Effect on Acquiror.
3.10 Compliance With Laws. Each of Acquiror and its
subsidiaries has complied with, are not in violation of, and have not received
any notices of violation with respect to, any federal, state, local or foreign
statute, law or regulation with respect to the conduct of its business, or the
ownership or operation of its business, except for such violations or failures
to comply as would not have a Material Adverse Effect on Acquiror.
3.11 Pooling of Interests. To the knowledge of Acquiror,
neither Acquiror nor any of its subsidiaries nor any of their respective
directors, officers or stockholders has taken any action that would prevent
Acquiror from accounting for the Merger as a pooling of interests.
3.12 Broker's and Finders' Fees. Acquiror has not incurred,
nor will it incur, directly or indirectly, any liability for brokerage or
finders' fees or agents' commissions or investment bankers' fees or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
3.13 Registration Statement; Proxy Statement/Prospectus. The
information supplied by Acquiror and Merger Sub for inclusion in the
Registration Statement shall not, at the time the Registration Statement
(including any amendments or supplements thereto) is declared effective by the
SEC, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The information
supplied by Acquiror for inclusion in the Proxy Statement shall not, on the date
the Proxy Statement is first mailed to Target's stockholders, at the time of the
Target Stockholders Meeting and at the Effective Time, contain any statement
which, at such time, is false or misleading with respect to any material fact,
or omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which it is made, not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Target Stockholders Meeting which has become false or
misleading. If at any time prior to the Effective Time any event or information
should be discovered by Acquiror or Merger Sub which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy Statement,
Acquiror or Merger Sub will promptly inform Target. Notwithstanding the
foregoing, Acquiror and Merger Sub make no representation, warranty or covenant
with respect to
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any information supplied by Target which is contained in any of the foregoing
documents.
3.14 Board Approval. The Boards of Directors of Acquiror and
Merger Sub have prior to the date hereof unanimously (i) approved this Agreement
and the Merger, (ii) determined that the Merger is in the best interests of
their respective stockholders and is on terms that are fair to such stockholders
and (iii) determined to recommend that the stockholder of Merger Sub approve
this Agreement and the consummation of the Merger.
3.15 Opinion of Financial Advisor. Acquiror has been advised
in writing by its financial advisor, Merrill Lynch & Co., that in such advisor's
opinion as of the date hereof, the consideration to be paid by Acquiror is fair
to Acquiror from a financial point of view.
3.16 Intellectual Property. Acquiror and its subsidiaries own,
or are licensed or otherwise possess legally enforceable rights to use all
patents, trademarks, trade names, service marks, copyrights, and any
applications therefor, maskworks, net lists, schematics, technology, know-how,
trade secrets, inventory, ideas, algorithms, processes, computer software
programs or applications (in both source code and object code form), and
tangible or intangible proprietary information or material ("Acquiror
Intellectual Property") that are used or proposed to be used in the business of
Acquiror and its subsidiaries as currently conducted or as proposed to be
conducted by Acquiror and its subsidiaries, except to the extent that the
failure to have such rights have not had and would not reasonably be expected to
have a Material Adverse Effect on Acquiror.
3.17 Representations Complete. None of the representations or
warranties made by Acquiror or Merger Sub herein or in any Schedule hereto,
including the Acquiror Disclosure Schedule, or certificate furnished by Acquiror
or Merger Sub pursuant to this Agreement, or the Acquiror SEC Documents, when
all such documents are read together in their entirety, contains or will contain
at the Effective Time any untrue statement of a material fact, or omits or will
omit at the Effective Time to state any material fact necessary in order to make
the statements contained herein or therein, in the light of the circumstances
under which made, not misleading.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of Target and Acquiror. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, each of Target and Acquiror
agrees (except to the extent expressly contemplated by this Agreement or as
consented to in writing by the other), to carry on its and its subsidiaries'
business in the usual, regular and ordinary
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course in substantially the same manner as heretofore conducted, to pay and to
cause its subsidiaries to pay debts and Taxes when due subject to good faith
disputes over such debts or taxes, to pay or perform other obligations when due,
and to use all reasonable efforts consistent with past practice and policies to
preserve intact its and its subsidiaries' present business organizations, use
its reasonable efforts consistent with past practice to keep available the
services of its and its subsidiaries' present officers and key employees and use
its reasonable efforts consistent with past practice to preserve its and its
subsidiaries' relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it or its subsidiaries, to
the end that its and its subsidiaries' goodwill and ongoing businesses shall be
unimpaired at the Effective Time. Each of Target and Acquiror agrees to use its
best efforts to promptly notify the other of any event or occurrence not in the
ordinary course of its or its subsidiaries' business, and of any event which
would have a Material Adverse Effect. Without limiting the foregoing, except as
expressly contemplated by this Agreement, neither Target nor Acquiror shall do,
cause or permit any of the following, or allow, cause or permit any of its
subsidiaries to do, cause or permit any of the following, without the prior
written consent of the other:
(a) Charter Documents. Cause or permit any amendments
to its Certificate of Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock. Except as
set forth in the Acquiror Disclosure Schedule, declare or pay any dividends on
or make any other distributions (whether in cash, stock or property) in respect
of any of its capital stock, or split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock, or repurchase or
otherwise acquire, directly or indirectly, any shares of its capital stock
except from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service to it or its subsidiaries;
(c) Stock Option Plans, Etc. Except as set forth in
the Target Disclosure Schedule, accelerate, amend or change the period of
exercisability or vesting of options or other rights granted under its employee
stock plans or director stock plans or authorize cash payments in exchange for
any options or other rights granted under any of such plans.
(d) Pooling. Take any action, which to the knowledge
of such party would prevent Acquiror from accounting for the Merger as a pooling
of interests; or
(e) Other. Take, or agree in writing or otherwise to
take, any of the actions described in Sections 4.1(a) through (d) above, or any
action which would make any of its representations or warranties contained in
this Agreement untrue or
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incorrect or prevent it from performing or cause it not to perform its covenants
hereunder.
4.2 Conduct of Business of Target. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, except as expressly contemplated by this
Agreement, Target shall not do, cause or permit any of the following, or allow,
cause or permit any of its subsidiaries to do, cause or permit any of the
following, without the prior written consent of Acquiror, which consent shall
not be unreasonably withheld:
(a) Material Contracts. Except for contracts or
commitments entered into, and violations, amendments, modifications and waivers
of contracts, in the ordinary course of business consistent with past practice
in an amount less than $10,000,000 in any one case, and except for contracts or
commitments entered into, and violations, amendments, modifications and waivers
of contracts, not in the ordinary course of business consistent with past
practice in an amount less than $3,500,000 in any one case, enter into any
contract or commitment, or violate, amend or otherwise modify or waive any of
the terms of any of its contracts;
(b) Issuance of Securities. Issue, deliver or sell or
authorize or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of its capital stock or securities convertible into,
or subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than the issuance of shares of its Common Stock
pursuant to the exercise of stock options, warrants or other rights therefor
outstanding as of April 21, 1996; provided, however, that Target may, in the
ordinary course of business consistent with past practice, grant options for the
purchase of Target Common Stock under the Target Option Plans (not to exceed an
aggregate of 750,000 options to purchase shares of Target Common Stock granted
after April 21, 1996; provided not more than 150,000 of such options may be
granted in any one month period).
(c) Intellectual Property. Transfer to any person or
entity any rights to its Intellectual Property other than in the ordinary course
of business consistent with past practice;
(d) Exclusive Rights. Enter into or amend any
agreements pursuant to which any other party is granted exclusive marketing or
distribution rights with respect to any of its products or technology;
(e) Dispositions. Sell, lease, license or otherwise
dispose of or encumber any of its properties or assets which are material,
individually or in the aggregate, to its and its subsidiaries' business, taken
as a whole, except in the ordinary course of business consistent with past
practice;
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(f) Indebtedness. Incur any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others, except in the ordinary course of
business consistent with past practice;
(g) Leases. Enter into any operating lease, except in
the ordinary course of business consistent with past practice;
(h) Payment of Obligations. Pay, discharge or satisfy
in an amount in excess of $50,000 in any one case, any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise)
arising other than in the ordinary course of business, other than the payment,
discharge or satisfaction of liabilities reflected or reserved against in the
Target Financial Statements;
(i) Capital Expenditures. Make any material capital
expenditures, capital additions or capital improvements except in the ordinary
course of business and consistent with past practice;
(j) Insurance. Materially reduce the amount of any
material insurance coverage provided by existing insurance policies;
(k) Employee Benefit Plans; New Hires; Pay Increases.
Adopt or amend any material employee benefit or stock purchase or option plan,
or hire any new officer level employee (except that it may hire a replacement
for any current officer level employee if it first provides Acquiror five days
prior written notice regarding such hiring decision), hire any director level
employee in departments other than sales, marketing or engineering without first
providing Acquiror five days prior written notice of such hire, pay any special
bonus or special remuneration to any employee or director, or increase the
salaries or wage rates of its employees;
(l) Severance Arrangements. Grant any severance or
termination pay (i) to any director or officer or (ii) to any other employee
except (A) payments made pursuant to standard written agreements outstanding on
the date hereof or (B) grants which are made in the ordinary course of business
in accordance with its standard past practice;
(m) Lawsuits. Commence a lawsuit other than (i) for
the routine collection of bills, (ii) in such cases where it in good faith
determines that failure to commence suit would result in the material impairment
of a valuable aspect of its business, provided that it consults with Acquiror
prior to the filing of such a suit, or (iii) for a breach of this Agreement;
(n) Acquisitions. Acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other
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manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets which are material, individually or in the aggregate, to its
and its subsidiaries' business, taken as a whole, or acquire or agree to acquire
any equity securities of any corporation, partnership, association or business
organization;
(o) Taxes. Other than in the ordinary course of
business, make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(p) Notices. Target shall give all notices and other
information required to be given to the employees of Target, any collective
bargaining unit representing any group of employees of Target, and any
applicable government authority under the WARN Act, the National Labor Relations
Act, the Internal Revenue Code, the Consolidated Omnibus Budget Reconciliation
Act, and other applicable law in connection with the transactions provided for
in this Agreement;
(q) Revaluation. Revalue 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; or
(r) Other. Take or agree in writing or otherwise to
take, any of the actions described in Sections 4.2(a) through (q) above, or any
action which would make any of its representations or warranties contained in
this Agreement untrue or incorrect or prevent it from performing or cause it not
to perform its covenants hereunder.
4.3 No Solicitation. Target and its subsidiaries and the
officers, directors, employees or other agents of Target and its subsidiaries
will not, directly or indirectly, (i) take any action to solicit, initiate or
encourage any Takeover Proposal (defined below) or (ii) subject to the terms of
the immediately following sentence, engage in negotiations with, or disclose any
nonpublic information relating to Target or any of it subsidiaries to, or afford
access to the properties, books or records of Target or any of its subsidiaries
to, any person that has advised Target that it may be considering making, or
that has made, a Takeover Proposal; provided, nothing herein shall prohibit
Target's Board of Directors from taking and disclosing to Target's stockholders
a position with respect to a tender offer pursuant to Rules 14d-9 and 14e-2
promulgated under the Exchange Act. Notwithstanding the immediately preceding
sentence, if an unsolicited Takeover Proposal, or an unsolicited written
expression of interest that Target reasonably expects to lead to a Takeover
Proposal, shall be received by the Board of Directors of Target, then, to the
extent the Board of Directors of Target believes in good faith (after
consultation with its financial advisor) that such Takeover Proposal
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would, if consummated, result in a transaction more favorable to Target's
stockholders from a financial point of view than the transaction contemplated by
the Agreement (any such more favorable Takeover Proposal being referred to in
this Agreement as a "Superior Proposal") and the Board of Directors of Target
determines in good faith after consultation with outside legal counsel that it
is necessary for the Board of Directors of Target to comply with its fiduciary
duties to stockholders under applicable law, Target and its officers, directors,
employees, investment bankers, financial advisors, attorneys, accountants and
other representatives retained by it may furnish in connection therewith
information and take such other actions as are consistent with the fiduciary
obligations of Target's Board of Directors, and such actions shall not be
considered a breach of this Section 4.3 or any other provisions of this
Agreement, provided that in each such event Target notifies Acquiror of such
determination by the Target Board of Directors and provides Acquiror with a true
and complete copy of the Superior Proposal received from such third party, if
the Superior Proposal is in writing, or a complete written summary thereof, if
it is not in writing, and provides Acquiror with all documents containing or
referring to non-public information of Target that are supplied to such third
party; provided, further, that (A) the Board of Directors of Target has
determined, with the advice of Target's investment bankers, that such third
party is capable of making a Superior Proposal upon satisfactory completion of
such third party's review of the information supplied by Target, (B) the third
party has stated that it intends to make a Superior Proposal, (C) Target may not
provide any non-public information to any such third party if it has not prior
to the date thereof provided such information to Acquiror or Acquiror's
representatives, and (D) Target provides such non-public information pursuant to
a non-disclosure agreement at least as restrictive as to confidential
information as the Confidentiality Agreement (as defined in Section 5.4);
provided, however, that Target shall not, and shall not permit any of its
officers, directors, employees (acting on behalf of Target) or other
representatives to agree to or endorse any Takeover Proposal unless Target shall
have terminated this Agreement pursuant to Section 7.1(e) and paid Acquiror all
amounts payable to Acquiror pursuant to Section 7.3(b). Target will promptly
notify Acquiror after receipt of any Takeover Proposal or any notice that any
person is considering making a Takeover Proposal or any request for non-public
information relating to Target or any of its subsidiaries or for access to the
properties, books or records of Target or any of its subsidiaries by any person
that has advised Target that it may be considering making, or that has made, a
Takeover Proposal and will keep Acquiror fully informed of the status and
details of any such Takeover Proposal notice, request or any correspondence or
communications related thereto and shall provide Acquiror with a true and
complete copy of such Takeover Proposal notice or request or correspondence or
communications related thereto, if it is in writing, or a complete written
summary thereof, if it is not in writing. For purposes of this Agreement,
"Takeover Proposal" means any offer or proposal for, or any indication of
interest in, a merger or other business combination involving Target or the
acquisition of 20% or more of the outstanding shares of capital stock of Target,
or the sale or transfer of any material assets (excluding the sale or
disposition of assets in the ordinary
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course of business) of Target, other than the transactions contemplated by this
Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement. As
promptly as practicable after the execution of this Agreement, Target and
Acquiror shall prepare, and Target shall file with the SEC, preliminary proxy
materials relating to the approval of the Merger and the transactions
contemplated hereby by the stockholders of Target and, as promptly as
practicable following receipt of SEC comments thereon, Acquiror shall file with
the SEC a Registration Statement on Form S-4 (or such other or successor form as
shall be appropriate), which complies in form with applicable SEC requirements
and shall use all reasonable efforts to cause the Registration Statement to
become effective as soon thereafter as practicable; provided, however, that
Acquiror shall have no obligation to agree to account for the Merger as a
"purchase" in order to cause the Registration Statement to become effective.
Each of Acquiror and Target will notify the other promptly of the receipt of any
comments from the SEC or its staff and of any request by the SEC or its staff or
any other government officials for amendments or supplements to the Registration
Statement or any other filing or for additional information and will supply the
other with copies of all correspondence between such company or any of its
representatives, on the one hand, and the SEC, or its staff or any other
government officials, on the other hand, with respect to the Registration
Statement or other filing. The Registration Statement and the other filings
shall comply in all material respects with all applicable requirements of law.
Whenever any event occurs which is required to be set forth in an amendment or
supplement to the Registration Statement or any other filing, Acquiror or
Target, as the case may be, shall promptly inform the other of such occurrence
and cooperate in filing with the SEC or its staff or any other government
officials, and/or mailing to stockholders of Acquiror, such amendment or
supplement. Subject to the provisions of Section 4.3, the Proxy Statement shall
include the recommendation of the Board of Directors of Target in favor of the
Merger; provided that such recommendation may not be included or may be
withdrawn if previously included if Target's Board of Directors believes in good
faith that a Superior Proposal has been made or, upon written advice of its
outside legal counsel, shall determine that to include such recommendation or
not withdraw such recommendation if previously included would constitute a
breach of the Board's fiduciary duty under applicable law.
5.2 Meeting of Stockholders. Target shall promptly after the
date hereof take all action necessary in accordance with Delaware Law and its
Certificate of Incorporation and Bylaws to convene the Target Stockholders
Meeting as promptly as practicable after the Registration Statement is declared
effective by the SEC. Target shall consult with Acquiror regarding the date of
the Target Stockholders Meeting and
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use all reasonable efforts not to postpone or adjourn (other than for the
absence of a quorum) the Target Stockholders Meeting without the consent of
Acquiror, which consent shall not be required where Target determines in good
faith, after consultation with outside legal counsel that it is necessary to
postpone or adjourn the Target Stockholders Meeting in order to comply with its
fiduciary duties to stockholders under applicable law. Subject to Section 5.1,
Target shall use its best efforts to solicit from stockholders of Target proxies
in favor of the Merger and shall take all other action necessary or advisable to
secure the vote or consent of stockholders required to effect the Merger.
5.3 Access to Information.
(a) Target shall afford Acquiror and its accountants,
counsel and other representatives, reasonable access during normal business
hours during the period prior to the Effective Time to (i) all of Target's and
its subsidiaries' properties, books, contracts, commitments and records, and
(ii) all other information concerning the business, properties and personnel of
Target and its subsidiaries as Acquiror may reasonably request. Target agrees to
provide to Acquiror and its accountants, counsel and other representatives
copies of internal financial statements promptly upon request. Acquiror shall
afford Target and its accountants, counsel and other representatives, reasonable
access during normal business hours during the period prior to the Effective
Time to (i) all of Acquiror's and its subsidiaries' properties, books,
contracts, commitments and records, and (ii) all other information concerning
the business, properties and personnel of Acquiror and its subsidiaries as
Target may reasonably request. Acquiror agrees to provide to Target and its
accountants, counsel and other representatives copies of internal financial
statements promptly upon request.
(b) Subject to compliance with applicable law, from
the date hereof until the Effective Time, each of Acquiror and Target shall
confer on a regular and frequent basis with one or more representatives of the
other party to report operational matters of materiality and the general status
of ongoing operations.
(c) No information or knowledge obtained in any
investigation pursuant to this Section 5.3 shall affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
5.4 Confidentiality. The parties acknowledge that each of
Acquiror and Target have previously executed a non-disclosure agreement dated
April 14, 1996 (the "Confidentiality Agreement"), which Confidentiality
Agreement shall continue in full force and effect in accordance with its terms.
5.5 Public Disclosure. Unless otherwise permitted by this
Agreement, Acquiror and Target shall consult with each other before issuing any
press release or
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otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law, or in exercise of the
fiduciary duties of the Board of Directors, or by obligations pursuant to any
listing agreement with any national securities exchange or with the NASD.
5.6 Consents; Cooperation.
(a) Each of Acquiror and Target shall promptly apply
for or otherwise seek, and use its best efforts to obtain, all consents and
approvals required to be obtained by it for the consummation of the Merger,
including those required under HSR, and shall use its reasonable efforts to
obtain all necessary consents, waivers and approvals under any of its material
contracts in connection with the Merger for the assignment thereof or otherwise,
except where the failure to obtain such consents under material contracts would
not have a Material Adverse Effect on Target. 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 HSR or any
other federal or state antitrust or fair trade law.
(b) Each of Acquiror and Target shall use all
reasonable efforts to resolve such objections, if any, as may be asserted by any
Governmental Entity with respect to the transactions contemplated by this
Agreement under HSR, 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
Acquiror and Target shall cooperate and use all best 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 Acquiror and Target 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 Acquiror shall have no obligation to litigate or contest any
administrative or judicial action or proceeding or any Order beyond the earlier
of (i) November 15, 1996 or (ii) the date of a ruling preliminary enjoining the
Merger issued by a court of competent
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jurisdiction. Each of Acquiror and Target shall use all reasonable efforts to
take such action as may be required to cause the expiration of the notice
periods under the HSR or other Antitrust Laws with respect to such transactions
as promptly as possible after the execution of this Agreement.
(c) Notwithstanding anything to the contrary in
Section 5.6(a) or (b), (i) neither Acquiror nor any of it subsidiaries shall be
required to divest any of their respective businesses, product lines or assets,
or to take or agree to take any other action or agree to any limitation, that
could reasonably be expected to have a Material Adverse Effect on Acquiror or of
Acquiror combined with the Surviving Corporation after the Effective Time or
(ii) neither Target nor its subsidiaries shall be required to divest any of
their respective businesses, product lines or assets, or to take or agree to
take any other action or agree to any limitation, that could reasonably be
expected to have a Material Adverse Effect on Target.
5.7 Pooling Accounting. Acquiror and Target shall each use its
best efforts to cause the business combination to be effected by the Merger to
be accounted for as a pooling of interests. Each of Acquiror and Target shall
use its best efforts to cause its "Affiliates" (as defined in Section 5.8) not
to take any action that would prevent Acquiror from accounting for the business
combination to be effected by the merger as a pooling of interest.
5.8 Affiliate Agreements.
(a) Schedule 5.8(a) sets forth those persons who may
be deemed "Affiliates" of Target within the meaning of Rule 145 promulgated
under the Securities Act ("Rule 145"). Target shall provide Acquiror such
information and documents as Acquiror shall reasonably request for purposes of
reviewing such list. Target shall use its best efforts to deliver or cause to be
delivered to Acquiror, concurrently with the execution of this Agreement (and in
each case at least thirty (30) days prior to the Effective Time) from each of
the Affiliates of Target, an executed Affiliate Agreement in the form attached
hereto as Exhibit B-1. Acquiror and Merger Sub shall be entitled to place
appropriate legends on the certificates evidencing any Acquiror Common Stock to
be received by such Affiliates of Target pursuant to the terms of this
Agreement, and to issue appropriate stop transfer instructions to the transfer
agent for Acquiror Common Stock, consistent with the terms of such Affiliates
Agreements.
(b) Schedule 5.8(b) sets forth those persons who may
be deemed "Affiliates" of Acquiror within the meaning of Rule 145. Acquiror
shall provide Target such information and documents as Target shall reasonably
request for purposes of reviewing such list. Acquiror shall use its best efforts
to deliver or cause to be delivered to Target, concurrently with the execution
of this Agreement (and in each case at least thirty (30) days prior to the
Effective Time) from each of the Affiliates of Acquiror, an executed Affiliate
Agreement in the form attached hereto as Exhibit B-2.
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5.9 Voting Agreement. Target shall use its best efforts, on
behalf of Acquiror and pursuant to the request of Acquiror, to cause each Target
stockholder named in Schedule 5.9 to execute and deliver to Acquiror a Voting
Agreement substantially in the form of Exhibit C attached hereto concurrent with
the execution of this Agreement.
5.10 Legal Requirements. Each of Acquiror, Merger Sub and
Target will, and will cause their respective subsidiaries to, take all
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on them with respect to the consummation of the
transactions contemplated by this Agreement and will promptly cooperate with and
furnish information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement. Each of Acquiror and Target further
agrees to notify the other promptly of the receipt of any comments from any
government officials for amendments or supplements to any filing or for
additional information and will supply the other with copies of all
correspondence between such company or any of its representatives, on the one
hand, and the government officials, on the other hand, with respect to such
filing. All filings shall comply in all material respects with all applicable
requirements of law. Whenever any event occurs which is required to be set forth
in an amendment or supplement to any such filing, Acquiror or Target, as the
case may be, shall promptly inform the other of such occurrence and cooperate in
filing with the government officials.
5.11 Blue Sky Laws. Acquiror shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the Acquiror Common Stock in connection
with the Merger. Target shall use its best efforts to assist Acquiror as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of Acquiror Common Stock in
connection with the Merger.
5.12 Employee Benefit Plans.
(a) At the Effective Time, the Target Stock Option Plans and
each outstanding option to purchase shares of Target Common Stock under the
Target Stock Option Plans, whether vested or unvested, will be assumed by
Acquiror. Schedule 5.12 hereto sets forth a true and complete list as of
the date hereof of all holders of outstanding options under the Target Stock
Option Plans, including the number of shares of Target capital stock subject to
each such option, the exercise or vesting schedule, the exercise price per share
and the term of each such option. On the Closing Date, Target
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shall deliver to Acquiror an updated Schedule 5.12 hereto current as of
such date. Each such option so assumed by Acquiror under this Agreement shall
continue to have, and be subject to, the same terms and conditions set forth in
the Target Stock Option Plans and the documents governing the outstanding
options under those Plans, immediately prior to the Effective Time, except that
(i) such option will be exercisable for that number of whole shares of Acquiror
Common Stock equal to the product of the number of shares of Target Common Stock
that were issuable upon exercise of such option immediately prior to the
Effective Time multiplied by the Exchange Ratio and rounded down to the nearest
whole number of shares of Acquiror Common Stock, and (ii) the per share exercise
price for the shares of Acquiror Common Stock issuable upon exercise of such
assumed option will be equal to the quotient determined by dividing the exercise
price per share of Target Common Stock at which such option was exercisable
immediately prior to the Effective Time by the Exchange Ratio, rounded up to the
nearest whole cent. Consistent with the terms of the Target Stock Option Plans
and the documents governing the outstanding options under those Plans and except
as set forth in the Target Disclosure Schedule, the Merger will not terminate
any of the outstanding options under such Plans or accelerate the exercisability
or vesting of such options or the shares of Acquiror Common Stock which will be
subject to those options upon the Acquiror's assumption of the options in the
Merger. It is the intention of the parties that the options so assumed by
Acquiror qualify following the Effective Time as incentive stock options as
defined in Section 422 of the Code to the extent such options qualified as
incentive stock options prior to the Effective Time. As soon as reasonably
practical but in no event more than 30 days after the Effective Time, Acquiror
will issue to each person who, immediately prior to the Effective Time was a
holder of an outstanding option under the Target Stock Option Plans a document
in form and substance satisfactory to Target evidencing the foregoing assumption
of such option by Acquiror.
(b) Outstanding purchase rights under the Target ESPP
shall be exercised or assumed, and the Target ESPP shall be terminated, as
follows:
(i) If it is determined on or before June 20,
1996 that the Effective Time shall occur before July 1, 1996, outstanding
purchase rights under the Target ESPP shall be exercised immediately prior to
the Effective Time, and each participant in the Target ESPP shall accordingly be
issued shares of Target Common Stock at that time which shall be converted into
shares of Acquiror Common Stock in the Merger. The Target ESPP, and all
outstanding purchase rights thereunder, shall terminate with such exercise date,
and no purchase rights shall be subsequently granted or exercised under the
Target ESPP.
(ii) If it is determined on or before June 20,
1996 that the Effective Time shall occur on or after July 1, 1996, the Target
ESPP and all outstanding purchase rights thereunder shall be assumed by Acquiror
at the Effective Time. Schedule 5.12(b) hereto sets forth a true and complete
list as of the date hereof of all holders of outstanding purchase rights under
the Target ESPP, including payroll
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deduction amount elected by each holder and the price per share of Target Stock
at the beginning of the current offering period. On the Closing Date, Target
shall deliver to Acquiror an updated Schedule 5.12(b) current as of such
date. Each such purchase right so assumed by Acquiror under this Agreement shall
continue to have, and be subject to, the same terms and conditions set forth in
the Target ESPP and the documents governing the outstanding purchase rights
under the Target ESPP, immediately prior to the Effective Time, except that the
purchase price of shares of Acquiror Common Stock and the number of shares of
Acquiror Common Stock to be issued upon the exercise of such purchase right
shall be adjusted in accordance with the Exchange Ratio. The assumed outstanding
purchase rights under the Target ESPP shall be exercised immediately prior to
the first offering period under the Acquiror Employee Stock Purchase Plan
occurring after the Effective Time, and each participant in the Target ESPP
shall accordingly be issued shares of Acquiror Common Stock at that time. The
Target ESPP, and all outstanding purchase rights thereunder, shall terminate
with such exercise date, and no purchase rights shall be subsequently granted or
exercised under the Target ESPP. Target employees who meet the eligibility
requirements for participation in the Acquiror Employee Stock Purchase Plan
shall be eligible to begin payroll deductions under that plan as of the start
date of the first offering period thereunder after the Effective Time.
5.13 Letter of Acquiror's and Target's Accountants.
(a) Acquiror shall use all reasonable efforts to cause
to be delivered to Target a Procedures Letter pursuant to SAS 76 of Acquiror's
independent auditors, dated a date within two business days before the date on
which the Registration Statement shall become effective and addressed to
Acquiror and Target, in form reasonably satisfactory to Target and customary in
scope and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
(b) Target shall use all reasonable efforts to cause
to be delivered to Acquiror a Procedures Letter pursuant to SAS 76 of Target's
independent auditors, dated a date within two business days before the date on
which the Registration Statement shall become effective and addressed to
Acquiror and Target, in form reasonably satisfactory to Acquiror and customary
in scope and substance for letters delivered by independent public accountants
in connection with registration statements similar to the Registration
Statement.
5.14 Form S-8. Acquiror agrees to file, no later than thirty
(30) days after the Closing, a registration statement on Form S-8 covering the
shares of Acquiror Common Stock issuable pursuant to outstanding options and
purchase rights under the Target Stock Option Plans and Target ESPP assumed by
Acquiror. Target shall cooperate with and assist Acquiror in the preparation of
such registration statement.
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5.15 Indemnification.
(a) After the Effective Time, Acquiror will, and will
cause the Surviving Corporation to, indemnify and hold harmless the present and
former officers, directors, employees and agents of Target (the "Indemnified
Parties") in respect of acts or omissions occurring on or prior to the Effective
Time to the extent permitted by law and to the extent provided under Target's
Certificate of Incorporation and Bylaws or any indemnification agreement with
Target officers and directors to which Target is a party, in each case in effect
on the date hereof; provided that such indemnification shall be subject to any
limitation imposed from time to time under applicable law. Without limitation of
the foregoing, in the event any such Indemnified Party is or becomes involved in
any capacity in any action, proceeding or investigation in connection with any
matter relating to this Agreement or the transactions contemplated hereby
occurring on or prior to the Effective Time, Acquiror shall, or shall cause the
Surviving Corporation to, pay as incurred such Indemnified Party's reasonable
legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith.
(b) For four years after the Effective Time, Acquiror
will either (i) at all times maintain at least $500,000,000 in cash, marketable
securities and unrestricted lines of credit to be available to indemnify the
Indemnified Parties in accordance with Section 5.15(a) above (but such amount
shall not be construed as a limitation of any such indemnification), or (ii)
cause the Surviving Corporation to use its best efforts to provide officers' and
directors' liability insurance in respect of acts or omissions occurring on or
prior to the Effective Time covering each such person currently covered by
Target's officers' and directors' liability insurance policy on terms
substantially similar to those of such policy in effect on the date hereof,
provided that in satisfying its obligation under this Section, Acquiror shall
not be obligated to cause the Surviving Corporation to pay premiums in excess of
150% of the amount per annum Target paid in its last full fiscal year, which
amount has been disclosed to Acquiror and if the Surviving Corporation is unable
to obtain the insurance required by this Section 5.15, it shall obtain as much
comparable insurance as possible for an annual premium equal to such maximum
amount.
(c) To the extent there is any claim, action, suit,
proceeding or investigation (whether arising before or after the Effective Time)
against an Indemnified Party that arises out of or pertains to any action or
omission in his or her capacity as a director, officer, employee, fiduciary or
agent of Target occurring prior to the Effective Time, or arises out of or
pertains to the transactions contemplated by this Agreement for a period of four
years after the Effective Time (whether arising before or after the Effective
Time), such Indemnified Party shall be entitled to be represented by counsel and
following the Effective Time (i) any counsel retained by the Indemnified Parties
shall be reasonably satisfactory to the Surviving Corporation and Acquiror, (ii)
the Surviving Corporation and Acquiror shall pay the reasonable fees and
expenses of such
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counsel, promptly after statements therefor are received and (iii) the Surviving
Corporation and Acquiror will cooperate in the defense of any such matter;
provided, however, that neither the Surviving Corporation nor
Acquiror shall be liable for any settlement effected without its written consent
(which consent shall not be unreasonably withheld); and provided,
further, that, in the event that any claim or claims for indemnification
are asserted or made within such four-year period, all rights to indemnification
in respect of any such claim or claims shall continue until the disposition of
any and all such claims. The Indemnified Parties as a group may retain only one
law firm (in addition to local counsel) to represent them with respect to any
single action unless there is, under applicable standards of professional
conduct, a conflict on any significant issue between the positions of any two or
more Indemnified Parties.
(d) The provisions of this Section 5.15 are intended
to be for the benefit of, and shall be enforceable by, each Indemnified Party,
his or her heirs and representatives.
5.16 Option Agreement. Concurrently with the execution of this
Agreement, Target shall deliver to Acquiror an executed Option Agreement in the
form of Exhibit D attached hereto. Target agrees to fully perform its
obligations under the Option Agreement.
5.17 Listing of Additional Shares. Prior to the Effective Time,
Acquiror shall file with the Nasdaq National Market a Notification Form for
Listing of Additional Shares with respect to the shares referred to in Section
6.1(f).
5.18 Nasdaq Quotation. Target and Acquiror agree to continue
the quotation of Target Common Stock and Acquiror Common Stock, respectively, on
the Nasdaq National Market during the term of the Agreement so that, to the
extent necessary, appraisal rights will not be available to stockholders of
Target under Section 262 of the Delaware Law.
5.19 Employees. Concurrently with the execution of this
Agreement, each of the individuals named in Parts I and II of Schedule 5.19
shall have delivered to Acquiror an executed Employment Agreement in the form of
Exhibit E-1, et. seq., and Target shall use its best efforts to cause each of
the individuals named in Part III of Schedule 5.19 to deliver to Acquiror an
executed Employment Agreement substantially in the form of Exhibit E-1, et. seq.
5.20 Pooling Letters.
(a) Target shall use all reasonable efforts to cause
to be delivered to Acquiror a letter of Target's independent auditors, dated on
or prior to the date of this Agreement and confirmed in writing two business
days before the date of the Proxy Statement to the effect that the Merger
qualifies for pooling of interest accounting
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treatment if consummated in accordance with this Agreement and in a form
reasonably satisfactory to Acquiror and customary in scope and substance for
letters delivered by independent public accountants in connection with
transactions of this type.
(b) Acquiror shall use all reasonable efforts to cause
to be delivered to Target a letter of Acquiror's independent auditors, dated on
or prior to the date of this Agreement and confirmed in writing two business
days before the date of the Proxy Statement to the effect that the Merger
qualifies for pooling of interest accounting treatment if consummated in
accordance with this Agreement and in a form reasonably satisfactory to Target
and customary in scope and substance for letters delivered by independent public
accountants in connection with transactions of this type.
5.21 Best Efforts and Further Assurances. Each of the parties
to this Agreement shall use its best efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
closing under this Agreement. Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
5.22 Target Rights Agreement. Target hereby agrees that it has
taken and will continue to take all necessary action to ensure that none of the
transactions contemplated by this Agreement, the Option Agreement or the Voting
Agreement will cause (i) Acquiror or any of its affiliates or associates to
become an Acquiring Person (as defined in the Target Rights Agreement) for
purposes of the Target Rights Agreement, or (ii) otherwise affect in any way the
Rights under the Target Rights Agreement, including by causing such Rights to
separate from the underlying shares or by giving such holders the right to
acquire securities of any party hereto.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the
Merger. The respective obligations of each party to this Agreement to consummate
and effect this Agreement and the transactions contemplated hereby shall be
subject to the satisfaction at or prior to the Effective Time of each of the
following conditions, any of which may be waived, in writing, by agreement of
all the parties hereto:
(a) Stockholder Approval. This Agreement and the
Merger shall have been approved and adopted by the requisite vote of the
stockholders of Target (as described in Section 2.24) under Delaware Law.
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(b) Registration Statement Effective. The SEC shall
have declared the Registration Statement effective. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose, and no similar proceeding in respect
of the Proxy Statement, shall have been initiated or threatened by the SEC.
(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 or regulatory
restraint or prohibition preventing the consummation of the Merger shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending; nor shall there 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 or prevents or prohibits the Merger. In the event an injunction or other
order shall have been issued, each party agrees to use its reasonable diligent
efforts to have such injunction or other order lifted.
(d) Governmental Approval. All material
authorizations, consents, orders or approvals of, or declarations or filings
with, or expiration of waiting periods imposed by, any Governmental Entity
necessary for the consummation of the transactions contemplated by this
Agreement and the Certificate of Merger shall have been filed, expired or been
obtained, other than those that, individually or in the aggregate, the failure
to be filed, expired or obtained would not, in the reasonable opinion of
Acquiror after consultation with Target, have a Material Adverse Effect on
Target or Acquiror.
(e) Tax Opinion. Acquiror and Target shall have
received substantially identical written opinions of Brobeck, Phleger & Harrison
LLP, legal counsel to Acquiror, and Wilson, Sonsini, Goodrich & Rosati, legal
counsel to Target, respectively, in form and substance reasonably satisfactory
to them, and shall be to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and such
opinions shall not have been withdrawn. In rendering such opinions, counsel
shall be entitled to rely upon, among other things, reasonable assumptions as
well as representations of Acquiror, Merger Sub and Target and certain
stockholders of Target.
(f) Listing of Additional Shares. The filing with the
Nasdaq National Market of a Notification Form for Listing of Additional Shares
with respect to the shares of Acquiror Common Stock issuable upon conversion of
the Target Common Stock in the Merger and upon exercise of the options under the
Target Stock Option Plans assumed by Acquiror shall have been made.
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(g) Letter from Accountants. Prior to the Effective
Time, each of Acquiror and Target shall have received a letter from each of
Arthur Andersen LLP, independent auditors, and Coopers & Lybrand LLP,
independent auditors, confirming that the Merger qualifies for pooling of
interests accounting treatment if consummated in accordance with this Agreement.
6.2 Additional Conditions to Obligations of Target. The
obligations of Target to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Target:
(a) Representations and Warranties. The
representations and warranties of Acquiror and Merger Sub contained in this
Agreement shall be true and correct as of the Effective Time, with the same
force and effect as if made on and as of the Effective Time, except for such
inaccuracies as individually or in the aggregate that would not have a Material
Adverse Effect on Acquiror and Target shall have received a certificate to such
effect signed on behalf of Acquiror by the President and Chief Financial Officer
of Acquiror;
(b) Agreements and Covenants. Acquiror and Merger Sub
shall have performed or complied in all material respects with all covenants,
obligations, conditions and agreements required by this Agreement to be
performed or complied with by them on or prior to the Effective Time; and,
Target shall have received a certificate to such effect signed by the President
and Chief Financial Officer of Acquiror;
(c) Legal Opinion. Target shall have received a legal
opinion from Brobeck, Phleger & Harrison LLP, counsel to Acquiror, substantially
in the form of Exhibit F hereto.
(d) No Material Adverse Changes. There shall not have
occurred any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations or results of operations of Acquiror and its subsidiaries, taken as a
whole.
(e) Third Party Consents. Target shall have been
furnished with evidence satisfactory to it of the consent or approval of those
persons whose consent or approval shall be required in connection with the
Merger under any material contract of Acquiror or any of its subsidiaries or
otherwise, except where the failure to obtain such consent or approval would not
have a Material Adverse Effect on Acquiror.
(f) Injunctions or Restraints on Conduct of Business.
No temporary restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Acquiror's business following the
Merger shall be in effect, nor
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shall any proceeding brought by an administrative agency or commission or other
Governmental Entity, domestic or foreign, seeking the foregoing be pending
except where the existence of any of the foregoing items would not have a
Material Adverse Effect on Acquiror.
6.3 Additional Conditions to the Obligations of Acquiror and
Merger Sub. The obligations of Acquiror and Merger Sub to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Acquiror:
(a) Representations and Warranties. The
representations and warranties of Target contained in this Agreement shall be
true and correct as of the Effective Time, with the same force and effect as if
made on and as of the Effective Time, except, for such inaccuracies as
individually or in the aggregate that would not have a Material Adverse Effect
on Target; and, Acquiror and Merger Sub shall have received a certificate to
such effect signed on behalf of Target by the President and Chief Financial
Officer of Target;
(b) Agreements and Covenants. Target shall have
performed or complied in all material respects with all agreements, covenants,
obligations and conditions required by this Agreement to be performed or
complied with by it on or prior to the Effective Time, and the Acquiror and
Merger Sub shall have received a certificate to such effect signed by the
President and Chief Financial Officer of Target;
(c) Legal Opinion. Acquiror shall have received a
legal opinion from Wilson, Sonsini, Goodrich & Rosati, legal counsel to Target,
in substantially the form of Exhibit G.
(d) Third Party Consents. Acquiror shall have been
furnished with evidence satisfactory to it of the consent or approval of those
persons whose consent or approval shall be required in connection with the
Merger under any material contract of Target or any of its subsidiaries or
otherwise, except where the failure to obtain such consent or approval would not
have a Material Adverse Effect on Target.
(e) Injunctions or Restraints on Conduct of Business.
No temporary restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Acquiror's conduct or operation of
the business of Target and its subsidiaries, following the Merger shall be in
effect, nor shall any proceeding brought by an administrative agency or
commission or other Governmental Entity, domestic or foreign, seeking the
foregoing be pending, except where the existence of any of the foregoing items
would not have a Material Adverse Effect on Target.
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(f) No Material Adverse Changes. There shall not have
occurred any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations or results of operations of Target and its subsidiaries, taken as a
whole provided, however, that a material adverse change for purposes of this
Section 6.3(f) with respect to Target shall not include any adverse effect on
the revenues or gross margins of Target (or the direct consequences thereof)
following the date of this Agreement which is attributable to a delay of,
reduction in or cancellation or change in the terms of product orders by
customers of Target. In the event of any litigation regarding the foregoing
provision Target shall be required to sustain the burden of reasonably
demonstrating that any such delay, reduction, cancellation or change is directly
attributable to the transactions contemplated by this Agreement
(g) Affiliate Agreements. Acquiror shall have received
from each of the Affiliates of Target an executed Affiliate Agreement in
substantially the form attached hereto as Exhibit B-1.
(h) Employment and Non-Competition Agreements. Each of
the employees of Target set forth on Part I of Schedule 5.19 shall not have
terminated the Employment and Non-Competition Agreements substantially in the
form attached hereto as Exhibits E-1, et. seq., entered into and delivered to
Acquiror on the date of this Agreement and three of the employees of Target set
forth on Part II of Schedule 5.19 shall not have terminated the Employment and
Non-Competition Agreements substantially in the form attached hereto as Exhibits
E-1, et. seq., entered into and delivered to Acquiror on the date of this
Agreement.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. At any time prior to the Effective Time,
whether before or after approval of the matters presented in connection with the
Merger by the stockholders of Target, this Agreement may be terminated:
(a) by mutual written consent duly authorized by the
Board of Directors of Acquiror and Target;
(b) by either Acquiror or Target, if, without fault of
the terminating party, the Closing shall not have occurred on or before November
15, 1996 (provided, a later date may be agreed upon in writing by the parties
hereto, and provided further that the right to terminate this Agreement under
this Section 7.1(b) shall not be available to any party whose action or failure
to act has been the cause of or resulted in the failure of the Merger to occur
on or before such date and such action or failure to act constitutes a breach of
this Agreement);
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(c) by Acquiror, if (i) upon a breach of any
representation, warranty, covenant or agreement on the part of Target set forth
in this Agreement, or if any representation or warranty of Target shall have
become untrue, in either case such that the conditions set forth in Section
6.3(a) or Section 6.3(b) would not be satisfied as of the time of such breach or
as of the time such representation or warranty shall have become untrue and such
inaccuracy in Target's representations and warranties or breach by Target shall
not have been cured within five business days of receipt by Target of written
notice thereof, provided that the right to terminate this Agreement by Acquiror
under this Section 7.1(c)(i) shall not be available to Acquiror where Acquiror
is at that time in willful breach of this Agreement; (ii) the Board of Directors
of Target shall have withdrawn or modified its recommendation of this Agreement
or the Merger in a manner adverse to Acquiror or shall have resolved to do any
of the foregoing, provided that the right to terminate this Agreement by
Acquiror under this Section 7.1(c)(ii) shall not be available to Acquiror where
Acquiror is at that time in willful breach of this Agreement, or (iii) for any
reason Target fails to call and hold the Target Stockholders Meeting by
September 1, 1996 and Target is at that time in willful breach of this
Agreement, provided that the right to terminate this Agreement by Acquiror under
this Section 7.1(c)(iii) shall not be available to Acquiror where Acquiror is at
that time in willful breach of this Agreement;
(d) by Target upon a breach of any representation,
warranty, covenant or agreement on the part of Acquiror set forth in this
Agreement, or if any representation or warranty of Acquiror shall have become
untrue, in either case such that the conditions set forth in Section 6.2(a) or
Section 6.2(b) would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall have become untrue and such
inaccuracy in Acquiror's representations and warranties or breach by Acquiror
shall not have been cured within five business days of receipt by Acquiror of
written notice thereof, provided that the right to terminate this Agreement by
Target under this Section 7.1(d) shall not be available to Target where Target
is at that time in willful breach of this Agreement;
(e) by either Acquiror or Target if a Trigger Event
(as defined in Section 7.3(f)) or Takeover Proposal shall have occurred and the
Board of Directors of Target in connection therewith, after consultation with
its legal counsel, withdraws or modifies its approval and recommendation of this
Agreement and the transactions contemplated hereby after, in the case of the
termination by Target, determining that to cause Target to proceed with the
transactions contemplated hereby would not be consistent with the Board of
Directors' fiduciary duty to the stockholders of Target;
(f) by either Acquiror or Target if (i) any permanent
injunction or other order of a court or other competent authority preventing the
consummation of the Merger shall have become final and nonappealable or (ii) if
any required approval of the stockholders of Target shall not have been obtained
by reason of the failure to
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obtain the required vote upon a vote held at a duly held meeting of stockholders
or at any adjournment thereof; or
(g) by Target, in the event (i) of the acquisition, by
any person or group of persons (other than persons or groups of persons who (A)
acquired shares of Acquiror Common Stock pursuant to any merger of Acquiror in
which Acquiror was the surviving corporation and stockholders of Acquiror
represent less than 70% of the outstanding shares of the surviving corporation
following such transaction or any acquisition by Acquiror of all or
substantially all of the capital stock or assets of another person or (B)
disclose their beneficial ownership of shares of Acquiror Common Stock on
Schedule 13G under the Exchange Act), of beneficial ownership of 30% or more of
the outstanding shares of Acquiror Common Stock (the terms "person," "group" and
"beneficial ownership" having the meanings ascribed thereto in Section 13(d) of
the Exchange Act and the regulations promulgated thereunder), (ii) the Board of
Directors of Acquiror accepts or publicly recommends acceptance of an offer from
a third party to acquire 50% or more of the outstanding shares of Acquiror
Common Stock or of Acquiror's consolidated assets; or (iii) Acquiror acquires or
agrees to acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof and such acquisition requires the approval of the stockholders
of Acquiror in accordance with California law.
7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Acquiror, Merger
Sub or Target or their respective officers, directors, stockholders or
affiliates, except to the extent that such termination results from the willful
breach by a party hereto of any of its representations, warranties or covenants
set forth in this Agreement; provided that, the provisions of Section 5.4
(Confidentiality), Section 7.3 (Expenses and Termination Fees) and this Section
7.2 shall remain in full force and effect and survive any termination of this
Agreement.
7.3 Expenses and Termination Fees.
(a) Subject to Sections 7.3(b), 7.3(c), 7.3(d) and
7.3(e), whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby (including, without limitation, the fees and expenses of its advisers,
accountants and legal counsel) shall be paid by the party incurring such
expense, except that expenses incurred in connection with printing the Proxy
Materials and the Registration Statement, registration and filing fees incurred
in connection with the Registration Statement, the Proxy Materials and the
listing of additional shares pursuant to Section 6.1(f) and fees, costs and
expenses associated with compliance with applicable state securities laws in
connection with the Merger shall be shared equally by Target and Acquiror.
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(b) In the event that (i) either Acquiror or Target
shall terminate this Agreement pursuant to Section 7.1(e), (ii) either Acquiror
or Target shall terminate this Agreement pursuant to Section 7.1(f)(ii)
following a failure of the stockholders of Target to approve this Agreement and,
prior to the time of the meeting of Target's stockholders, there shall have been
(A) a Trigger Event or (B) a Takeover Proposal, which at the time of the meeting
of Target's stockholders shall not have been rejected by Target, or (iii)
Acquiror shall terminate this Agreement pursuant to Section 7.1(c)(iii) and,
prior thereto, there shall have been (A) a Trigger Event or (B) a Takeover
Proposal, which shall not have been rejected by Target, then Target shall
immediately reimburse Acquiror for all of the out-of-pocket costs and expenses
incurred by Acquiror in connection with this Agreement and the transactions
contemplated hereby (including, without limitation, the fees and expenses of its
advisors, accountants and legal counsel), and, in addition, Target shall
promptly pay to Acquiror the sum of $80,000,000.
(c) In the event that (i) either Acquiror or Target
shall terminate this Agreement pursuant to Section 7.1(f)(ii) following a
failure of the stockholders of Target to approve this Agreement and, prior to
the time of the meeting of Target's stockholders, there shall have been (A) a
Trigger Event or (B) a Takeover Proposal, which at the time of the meeting of
Target's stockholders shall have been (x) rejected by Target and (y) not
withdrawn by the third party, or (ii) Acquiror shall terminate this Agreement
pursuant to Section 7.1(c)(iii) and, prior thereto, there shall have been (A) a
Trigger Event or (B) a Takeover Proposal, which shall have been rejected by
Target, Target shall immediately reimburse Acquiror for all of the out-of-pocket
costs and expenses incurred by Acquiror in connection with this Agreement and
the transactions contemplated hereby (including, without limitation, the fees
and expenses of its advisors, accountants and legal counsel), and, in addition,
Target shall promptly pay to Acquiror the sum of $40,000,000; and, in the event
any Takeover Proposal or Trigger Event is consummated (as defined in Section
7.3(h)(i)) within six months of the later of (x) such termination of this
Agreement and (y) the payment of the above-described expenses, Target shall
promptly pay to Acquiror the additional sum of $40,000,000.
(d) In the event that either Acquiror or Target shall
terminate this Agreement pursuant to Section 7.1(f)(ii) following a failure of
the stockholders of Target to approve this Agreement and, prior to the time of
the meeting of Target's stockholders, there shall have been (A) a Trigger Event
or (B) a Takeover Proposal (as defined in Section 7.3(g)(ii)), which at the time
of the meeting of Target's stockholders shall have been (x) rejected by Target
and (y) withdrawn by the third party, Target shall immediately reimburse
Acquiror for all of the out-of-pocket costs and expenses incurred by Acquiror in
connection with this Agreement and the transactions contemplated hereby
(including, without limitation, the fees and expenses of its advisors,
accountants and legal counsel), and, in addition, in the event any Takeover
Proposal or Trigger Event is consummated (as defined in Section 7.3(h)(ii))
within seven months of the later of (x) such termination of this Agreement and
(y) the payment of the above-described expenses, Target shall promptly pay to
Acquiror the additional sum of $80,000,000.
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(e) In the event that (i) Acquiror shall terminate
this Agreement pursuant to Section 7.1(c) or (ii) Acquiror shall terminate this
Agreement pursuant to Section 7.1(f)(ii), Target shall promptly reimburse
Acquiror for all of the out-of-pocket costs and expenses incurred by Acquiror in
connection with this Agreement and the transactions contemplated hereby
(including, without limitation, the fees and expenses of its advisors,
accountants and legal counsel).
(f) As used herein, a "Trigger Event" shall occur if
any Person acquires securities representing 20% or more, or commences a tender
or exchange offer following the successful consummation of which the offeror and
its affiliate would beneficially own securities representing 20% or more, of the
voting power of Target; provided, however, a Trigger Event shall not be deemed
to include the acquisition by any Person of securities representing 20% or more
of Target if such Person has acquired such securities not with the purpose nor
with the effect of changing or influencing the control of Target, nor in
connection with or as a participant in any transaction having such purpose or
effect, including without limitation not in connection with such Person (i)
making any public announcement with respect to the voting of such shares at any
meeting to consider any merger, consolidation, sale of substantial assets or
other business combination or extraordinary transaction involving Target, (ii)
making, or in any way participating in, any "solicitation" of "proxies" (as such
terms are defined or used in Regulation 14A under the Exchange Act) to vote any
voting securities of Target (including, without limitation, any such
solicitation subject to Rule 14a-11 under the Exchange Act) or seeking to advise
or influence any Person with respect to the voting of any voting securities of
Target, directly or indirectly, relating to a merger or other business
combination involving Target or the sale or transfer of any material assets
(excluding the sale or disposition of assets in the ordinary course of business)
of Target, (iii) forming, joining or in any way participating in any "group"
within the meaning of Section 13(d)(3) of the Exchange Act with respect to any
voting securities of Target, directly or indirectly, relating to a merger or
other business combination involving Target or the sale or transfer of any
material assets (excluding the sale or disposition of assets in the ordinary
course of business) of Target, or (iv) otherwise acting, alone or in concert
with others, to seek control of Target or to seek to control or influence the
management or policies of Target.
(g) (i) As used in Section 7.3(b) and 7.3(c),
"Takeover Proposal" shall occur if there is an offer or proposal for, or any
indication of interest in (where such indication of interest has been disclosed
publicly), a merger or other business combination involving Target or the
acquisition of 20% or more of the outstanding shares of capital stock of Target
or the sale or transfer of any material assets (excluding the sale or
disposition of assets in the ordinary course of business) of Target, or any of
its subsidiaries, other than transactions contemplated by this Agreement.
(ii) As used in Section 7.3(d), "Takeover
Proposal" shall occur if there is an offer or proposal for, or any indication of
interest in (where such
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indication of interest has been disclosed publicly), a merger or other business
combination involving Target or the acquisition of 40% or more of the
outstanding shares of capital stock of Target or the sale or transfer of any
material assets (excluding the sale or disposition of assets in the ordinary
course of business) of Target, or any of its subsidiaries, other than
transactions contemplated by this Agreement.
(h) (i) For purposes of Section 7.3(c) above, (A)
"consummation" of a Takeover Proposal shall occur on the date a written
agreement is entered into with respect to a merger or other business combination
involving Target or the acquisition of 20% or more of the outstanding shares of
capital stock of Target, or sale or transfer of any material assets (excluding
the sale or disposition of assets in the ordinary course of business) of Target
or any of its subsidiaries and (B) "consummation" of a Trigger Event shall occur
on the date (x) Target takes any action to (1) exclude any Person or any of its
affiliates or associates that beneficially owns securities representing 20% or
more of the voting power of Target from becoming an Acquiring Person (as defined
in the Target Rights Agreement) for purposes of the Target Rights Agreement or
(2) otherwise affect in any way the Rights under the Target Rights Agreement to
prevent such Rights from separating from the underlying shares of Target held by
any Person or any of its affiliates or associates that beneficially owns
securities representing 20% or more of the voting power of Target or otherwise
giving such holders the right to acquire securities of Target or (y) any Person
or any of its affiliates or associates would beneficially own securities
representing 20% or more of the voting power of Target following a tender or
exchange offer.
(ii) For purposes of Section 7.3(d) above, (A)
"consummation" of a Takeover Proposal shall occur on the date a written
agreement is entered into with respect to a merger or other business combination
involving Target or the public announcement of the initiation of such a merger
or business combination or the acquisition of 40% or more of the outstanding
shares of capital stock of Target, or any sale or transfer of any material
assets (excluding the sale or disposition of assets in the ordinary course of
business) of Target and (B) "consummation" of a Trigger Event shall occur on the
date (x) Target takes any action to (1) exclude any Person or any of its
affiliates or associates that beneficially owns securities representing 20% or
more of the voting power of Target from becoming an Acquiring Person (as defined
in the Target Rights Agreement) for purposes of the Target Rights Agreement or
(2) otherwise affect in any way the Rights under the Target Rights Agreement to
prevent such Rights from separating from the underlying shares of Target held by
any Person or any of its affiliates or associates that beneficially owns
securities representing 20% or more of the voting power of Target or otherwise
giving such holders the right to acquire securities of Target, (y) any Person or
any of its affiliates or associates would beneficially own securities
representing 20% or more of the voting power of Target following a tender or
exchange offer, or (z) Target files a Schedule 14D-9 with the SEC recommending
that the Target security holders accept the tender offer.
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7.4 Amendment. The boards of directors of the parties hereto
may cause this Agreement to be amended at any time by execution of an instrument
in writing signed on behalf of each of the parties hereto; provided that an
amendment made subsequent to adoption of the Agreement by the stockholders of
Target or Merger Sub shall not (i) alter or change the amount or kind of
consideration to be received on conversion of the Target Common Stock, (ii)
alter or change any term of the Certificate of Incorporation of the Surviving
Corporation to be effected by the Merger, or (iii) alter or change any of the
terms and conditions of the Agreement if such alteration or change would
adversely affect the holders of Target Common Stock or Merger Sub Common Stock.
7.5 Extension; Waiver. At any time prior to the Effective Time
any party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival at Effective Time. The representations,
warranties and agreements set forth in this Agreement shall terminate at the
Effective Time, except that the agreements set forth in Article I, Section 5.4
(Confidentiality) 5.7 (Pooling Accounting), 5.8 (Affiliates), 5.12 (Employee
Benefit Plans), 5.14 (Form S-8), 5.15 (Indemnification), 5.21 (Best Efforts and
Further Assurances), 7.3 (Expenses and Termination Fees), 7.4 (Amendment), and
this Article VIII shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or by
commercial delivery service, or mailed by registered or certified mail (return
receipt requested) or sent 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):
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(a) if to Acquiror or Merger Sub, to:
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, California 95134
Attention: President
Facsimile No.: (408) 526-4100
Telephone No.: (408) 526-4000
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94303
Attention: Edward M. Leonard, Esq.
Facsimile No.: (415) 496-2885
Telephone No.: (415) 424-0160
(b) if to Target, to:
StrataCom, Inc.
1400 Parkmoor Avenue
San Jose, California 95126
Attention: President
Facsimile No.: (408) 999-0836
Telephone No.: (408) 294-7600
with a copy to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry W. Sonsini, Esq.
Facsimile No.: (415) 493-6811
Telephone No.: (415) 493-9300
8.3 Interpretation. When a reference is made in this Agreement
to Exhibits or Schedules, such reference shall be to an Exhibit or Schedule to
this Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The phrase "made available" in this Agreement shall
mean that the information referred to has been made available if requested by
the party to whom such information is to be made available. The phrases "the
date of this Agreement", "the date
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hereof", and terms of similar import, unless the context otherwise requires,
shall be deemed to refer to April 21, 1996. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; Nonassignability; Parties in Interest.
This Agreement and the documents and instruments and other agreements
specifically referred to herein or delivered pursuant hereto, including the
Exhibits, the Schedules, including the Target Disclosure Schedule and the
Acquiror Disclosure Schedule (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, except for the Confidentiality Agreement,
which shall continue in full force and effect, and shall survive any termination
of this Agreement or the Closing, in accordance with its terms; (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as set forth in Sections 1.6(a)-(c) and (f), 1.7-1.9, 5.12, 5.14 and
5.15; and (c) shall not be assigned by operation of law or otherwise except as
otherwise specifically provided.
8.6 Severability. In the event that any provision of this
Agreement, or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
8.7 Remedies Cumulative. Except as otherwise provided herein,
any and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
8.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws that might otherwise govern under
applicable principles of conflicts of law. Each of the parties hereto
irrevocably consents to the exclusive jurisdiction of any court located within
the State of California in connection with any matter based upon or arising out
of this Agreement or the matters
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contemplated herein, agrees that process may be served upon them in any manner
authorized by the laws of the State of California for such persons and waives
and covenants not to assert or plead any objection which they might otherwise
have to such jurisdiction and such process.
8.9 Rules of Construction. The parties hereto agree that they
have been represented by counsel during the negotiation, preparation and
execution of this Agreement and, therefore, waive the application of any law,
regulation, holding or rule of construction providing that ambiguities in an
agreement or other document will be construed against the party drafting such
agreement or document.
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IN WITNESS WHEREOF, Target, Acquiror and Merger Sub have
caused this Agreement to be executed and delivered by their respective officers
thereunto duly authorized, all as of the date first written above.
TARGET
By: /s/ Richard M. Moley
-------------------------------
Name: Richard M. Moley
Title: President and CEO
ACQUIROR
By: /s/ John T. Chambers
-------------------------------
Name: John T. Chambers
Title: President and CEO
MERGER SUB
By: /s/ John T. Chambers
-------------------------------
Name: John T. Chambers
Title: President and CEO
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
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EXHIBIT A
CERTIFICATE OF MERGER
MERGING
JET ACQUISITION CORPORATION
WITH AND INTO
TARGET
-----------------------------------
Pursuant to Section 251 of the General Corporation Law of
the State of Delaware
------------------------------------
Jet Acquisition Corporation, a Delaware corporation ("Merger Sub") and
, a Delaware corporation ("Target"), DO HEREBY CERTIFY AS FOLLOWS:
FIRST: That Merger Sub was incorporated on April , 1996, pursuant to
the Delaware General Corporation Law (the "Delaware Law"), and that Target was
incorporated on January , 1986, pursuant to the Delaware Law.
SECOND: That an Agreement and Plan of Reorganization (the
"Reorganization Agreement"), dated as of April , 1996, as amended, among
Acquiror, a California corporation, Merger Sub and Target, setting forth the
terms and conditions of the merger of Merger Sub with and into Target (the
"Merger"), has been approved, adopted, certified, executed and acknowledged by
each of the constituent corporations in accordance with Section 251 of the
Delaware Law.
THIRD: That the name of the surviving corporation (the "Surviving
Corporation") shall be .
FOURTH: That pursuant to the Reorganization Agreement, the Restated
Certificate of Incorporation of the Surviving Corporation is amended to read in
its entirety as set forth in Exhibit A hereto.
FIFTH: That an executed copy of the Reorganization Agreement is on file
at the principal place of business of the Surviving Corporation at the following
address:
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<PAGE> 135
TARGET
[address]
SIXTH: That a copy of the Reorganization Agreement will be furnished by
the Surviving Corporation, on request and without cost, to any stockholder of
any constituent corporation.
SEVENTH: That the Merger shall become effective upon the filing of this
Certificate of Merger with the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, each of Merger Sub and Target has caused this
Certificate of Merger to be executed in its corporate name this ___ day of ___,
1996.
JET ACQUISITION CORPORATION
By:______________________________________________
___________, President and Chief Executive
Officer
ATTEST:
___________________________
__________, Secretary
TARGET
By:______________________________________________
________, President and Chief Executive
Officer
ATTEST:
___________________________
__________, Secretary
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<PAGE> 136
[Montgomery Securities Letterhead]
April 21, 1996
The Board of Directors of StrataCom, Inc.
1400 Parkmoor Avenue
San Jose, California 95126
Gentlemen:
We understand that StrataCom, Inc., a Delaware corporation (the
"Company"), Cisco Systems, Inc., a California corporation, ("Cisco") and Merger
Sub, Inc., a wholly owned subsidiary of Cisco, plan to enter into an Agreement
and Plan of Reorganization to be dated April 21, 1996 (the "Reorganization
Agreement"), pursuant to which each issued and outstanding share of the common
stock, $.01 par value per share, of the Company (the "Company Common Stock")
will be converted into shares of common stock, no par value, of Cisco ("Cisco
Common Stock") having a market value of $50.00 (determined over a specified
fifteen day period), provided that in no event shall a share of Company Common
Stock be converted into less than one or more than 1.2195 shares of Cisco Common
Stock (the "Consideration").
You have asked for our opinion as investment bankers as to whether the
Consideration to be received by the stockholders of the Company pursuant to the
Merger is fair to such stockholders from a financial point of view. As you are
aware, we were not retained to nor did we advise the Company with respect to
alternatives to the Merger or the Company's underlying decision to engage in the
Merger. Further, we were not requested to nor did we solicit potential
purchasers of all or any part of the Company.
In connection with our opinion, we have: (i) reviewed certain publicly
available financial and other data with respect to the Company and Cisco,
including the consolidated financial statements for the three fiscal years ended
December 31, 1995 and July 31, 1995, respectively, and interim periods ended
March 31, 1996 and January 28, 1996, respectively, and certain other relevant
financial and operating data relating to the Company and Cisco made available to
us from published sources and from the internal records of the Company and
Cisco; (ii) reviewed the form of Reorganization Agreement and exhibits thereto,
including the form of Stock Option Agreement, to be entered into by Cisco and
the Company, each as provided to us by the Company; (iii) reviewed certain
publicly available information concerning the trading of, and the trading market
for, the Company Common Stock and Cisco Common Stock; (iv) reviewed the relative
contributions of the Company and Cisco to the pro forma combined entity
resulting from the Merger on a variety of bases, including net sales, gross
profits, income from operations and net income; (v) compared the Company and
Cisco from a
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[Montgomery Securities Letterhead]
StrataCom Board of Directors
April 21, 1996
Page 2
financial point of view with certain other companies in the networking industry
which we deemed to be relevant; (vi) considered the financial terms, to the
extent publicly available, of selected recent business combinations of companies
in the networking industry which we deemed to be comparable, in whole or in
part, to the Merger; (vii) performed discounted cash flow analyses for the
Company and Cisco; (viii) reviewed and discussed with representatives of the
management of the Company and Cisco certain information of a business and
financial nature regarding the Company and Cisco and their respective markets,
furnished to us by them, including financial forecasts and related assumptions
of the Company; (ix) made inquiries regarding and discussed the Merger and the
Reorganization Agreement and other matters related thereto with the Company's
counsel; and (x) performed such other analyses and examinations as we have
deemed appropriate.
We note that we were not provided with any financial forecasts for
Cisco, having been informed by Cisco's senior management that it is not the
practice of Cisco to provide financial forecasts. However, in the course of our
discussions with Cisco's senior management, we reviewed with them the most
recent published analyst earnings estimates for Cisco with respect to the third
and fourth quarters of Cisco's 1996 fiscal year and Cisco's 1997 fiscal year,
publicly available information regarding the size and forecasted growth rates
for the markets served by Cisco's products, and various trends affecting or
expected to affect Cisco's future operating results and financial condition.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts and other forward looking information for the Company and Cisco
provided to us by their respective managements, upon their advice and with your
consent we have assumed for purposes of our opinion that the forecasts and other
forward looking information (including the assumptions regarding industry growth
rates) have been reasonably prepared on bases reflecting the best available
estimates and judgments of their respective managements at the time of
preparation as to the future financial performance of the Company and Cisco. We
have also assumed that there have been no material changes in the Company's or
Cisco's assets, financial condition, results of operations, business or
prospects since the respective dates of their last financial statements made
available to us. We have relied on advice of counsel and independent accountants
to the Company as to all legal and financial reporting matters with respect to
the Company, the Merger and the Reorganization Agreement. We have assumed that
the Merger will be consummated in a manner that complies in all respects with
the applicable provisions of the Securities Act of 1933, as amended (the
"Securities Act"), the Securities Exchange Act of 1934 and all other applicable
federal and state statutes, rules and regulations. In addition, we have not
assumed responsibility for making an independent evaluation, appraisal or
physical inspection of any of the assets or liabilities (contingent or
otherwise) of the Company or Cisco, nor have we been furnished with any such
appraisals. Finally, you have informed us and we have assumed that the Merger
will be recorded as a pooling of interests under generally accepted accounting
principles.
We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the form of Reorganization
Agreement provided
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[Montgomery Securities Letterhead]
StrataCom Board of Directors
April 21, 1996
Page 3
to us, without any further amendments thereto, and without waiver by the Company
of any of the conditions to its obligations thereunder.
Our opinion is based on economic, monetary and market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Accordingly, although subsequent developments may affect this
opinion, we have not assumed any obligation to update, revise or reaffirm this
opinion.
We have acted as financial advisor to the Company in connection with
the Merger and will receive a fee for our services, including rendering this
opinion, contingent upon the consummation of the Merger. In the ordinary course
of our business, we actively trade the equity securities of the Company and
Cisco for our own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities. We have also
acted as an underwriter in connection with offerings of securities of the
Company and performed various investment banking services for the Company.
This opinion is directed to the Board of Directors of the Company for
the purposes of their evaluation of the Merger and does not constitute a
recommendation to any stockholder of the Company as to how such stockholder
should vote with respect to the Merger. Further, this opinion is only directed
to the fairness of the Consideration to the stockholders of the Company and does
not address any other aspect of the Merger.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that, as of the date hereof, the Consideration to be received
by the stockholders of the Company pursuant to the Merger is fair to such
stockholders from a financial point of view.
Very truly yours,
/s/ Montgomery Securities
MONTGOMERY SECURITIES
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STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Agreement"), dated as of April
21, 1996, by and between Cisco Systems, Inc., a California corporation
("Acquiror"), and StrataCom, Inc., a Delaware corporation ("Target").
WHEREAS, concurrently with the execution and delivery of this
Agreement, Target, Acquiror and Jet Acquisition Corporation, a Delaware
corporation ("Sub"), are entering into an Agreement and Plan of Reorganization,
dated as of the date hereof (the "Reorganization Agreement"), which provides
that, among other things, upon the terms and subject to the conditions thereof,
Sub will be merged with and into Target (the "Merger"), with Target continuing
as the surviving corporation; and
WHEREAS, as a condition and inducement to Acquiror's
willingness to enter into the Reorganization Agreement, Acquiror has required
that Target agree, and Target has so agreed, to grant to Acquiror an option with
respect to certain shares of Target's common stock on the terms and subject to
the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements set forth herein and in the Reorganization
Agreement, the parties hereto agree as follows:
1. Grant of Option. Target hereby grants Acquiror an
irrevocable option (the "Target Option") to purchase up to 11,395,300 shares
(the "Target Shares") of common stock, par value $.01 per share, of Target (the
"Target Common Stock") in the manner set forth below at a price (the "Exercise
Price") of $50.00 per Target Share, payable in cash. Capitalized terms used
herein but not defined herein shall have the meanings set forth in the
Reorganization Agreement.
2. Exercise of Option. The Target Option may be exercised by
Acquiror, in whole or in part at any time or from time to time after the
occurrence of any of the events described in Sections 7.3(b), 7.3(c)(i) and
7.3(c)(ii) of the Reorganization Agreement or if a Takeover Proposal or Trigger
Event is consummated as set forth in Section 7.3(d) of the Reorganization
Agreement. In the event Acquiror wishes to exercise the Target Option, Acquiror
shall deliver to Target a written notice (an "Exercise Notice") specifying the
total number of Target Shares it wishes to purchase. Each closing of a
purchase of Target Shares (a "Closing") shall occur at a place, on a date and at
a time designated by Acquiror in an Exercise Notice delivered at least two
business days prior to the date of the Closing. The Target Option shall
terminate upon the earlier of: (i) the Effective Time; (ii) the termination of
the Reorganization
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Agreement pursuant to Section 7.1 thereof (other than a termination in
connection with which Acquiror is entitled to any payments as specified in
Sections 7.3(b), (c) and (d) thereof); (iii) 180 days following any termination
of the Reorganization Agreement in connection with which Acquiror is entitled to
a payment as specified in Sections 7.3(b) and (c) thereof (or if, at the
expiration of such 180 day period, the Target Option cannot be exercised by
reason of any applicable judgment, decree, order, law or regulation, ten
business days after such impediment to exercise shall have been removed or shall
have become final and not subject to appeal), but in no event under this clause
(iii) later than May 15, 1997; or (iv) 210 days following any termination of the
Reorganization Agreement in connection with which Acquiror is entitled to a
payment as specified in Section 7.3(d) thereof (or if, at the expiration of such
210 day period, the Target Option cannot be exercised by reason of any
applicable judgment, decree, order, law or regulation, ten business days after
such impediment to exercise shall have been removed or shall have become final
and not subject to appeal), but in no event under this clause (iv) later than
May 15, 1997. Notwithstanding the foregoing, (i) the Target Option may not be
exercised if Acquiror is in material breach of any of its representations,
warranties, covenants or agreements contained in this Agreement or in the
Reorganization Agreement; and (ii) in the event Acquiror receives more than the
sum of (x) $40,000,000 and (y) the Exercise Price multiplied by the number of
Target Shares purchased by Acquiror pursuant to the Target Option, in connection
with a sale or other disposition of the Target Shares, all proceeds in excess of
such amount shall be remitted to Target.
3. Conditions to Closing. The obligation of Target to issue
the Target Shares to Acquiror hereunder is subject to the conditions that (i)
all waiting periods, if any, under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations promulgated thereunder
("HSR Act"), applicable to the issuance of the Target Shares hereunder shall
have expired or have been terminated; (ii) all consents, approvals, orders or
authorizations of, or registrations, declarations or filings with, any Federal,
state or local administrative agency or commission or other Federal state or
local governmental authority or instrumentality, if any, required in connection
with the issuance of the Target Shares hereunder shall have been obtained or
made, as the case may be; and (iii) no preliminary or permanent injunction or
other order by any court of competent jurisdiction prohibiting or otherwise
restraining such issuance shall be in effect.
4. Closing. At any Closing, (a) Target will deliver to
Acquiror a single certificate in definitive form representing the number of
Target Shares designated by Acquiror in its Exercise Notice, such certificate to
be registered in the name of Acquiror and to bear the legend set forth in
Section 13, and (b) Acquiror will deliver to Target the aggregate price for the
Target Shares so designated and being purchased by wire transfer of immediately
available funds or certified check or bank check. At any Closing at which
Acquiror is exercising the Target Option in part, Acquiror shall present and
surrender this Agreement to Target, and Target shall deliver to Acquiror an
executed
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new agreement with the same terms as this Agreement evidencing the right to
purchase the balance of the shares of Target Common Stock purchasable hereunder.
5. Representations and Warranties of Target. Target represents
and warrants to Acquiror that (a) Target is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the corporate power and authority to enter into this Agreement and to
carry out its obligations hereunder, (b) the execution and delivery of this
Agreement by Target and the consummation by Target of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Target and no other corporate proceedings on the part of Target
are necessary to authorize this Agreement or any of the transactions
contemplated hereby, (c) this Agreement has been duly executed and delivered by
Target and constitutes a valid and binding obligation of Target, and, assuming
this Agreement constitutes a valid and binding obligation of Acquiror, is
enforceable against Target in accordance with its terms, except as
enforceability may be limited by bankruptcy and other laws affecting the rights
and remedies of creditors generally and general principles of equity, (d) Target
has taken all necessary corporate action to authorize and reserve for issuance
and to permit it to issue, upon exercise of the Target Option, and at all times
from the date hereof through the expiration of the Target Option will have
reserved, 11,395,300 unissued Target Shares, all of which, upon their issuance
and delivery in accordance with the terms of this Agreement, will be validly
issued, fully paid and nonassessable, (e) upon delivery of the Target Shares to
Acquiror upon the exercise of the Target Option, Acquiror will acquire the
Target Shares free and clear of all claims, liens, charges, encumbrances and
security interests of any nature whatsoever, (f) except as described in Sections
2.2 and 2.3 of the Reorganization Agreement, and except as may be required under
the Securities Act of 1933, as amended (the "Securities Act"), the execution and
delivery of this Agreement by Target does not, and the performance of this
Agreement by Target will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or the
loss of a benefit under, or the creation of a lien, pledge, security interest or
other encumbrance on assets pursuant to (any such conflict, violation, default,
right of termination, cancellation or acceleration, loss or creation, a
"Violation"), (A) any provision of the Certificate of Incorporation, as amended,
or Amended and Restated By-laws, as amended, of Target or (B) any provisions of
any material mortgage, indenture, lease, contract or other agreement,
instrument, permit, concession, franchise, or license or (C) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Target
or its properties or assets, which Violation, in the case of each of clauses (B)
and (C), would have a Material Adverse Effect on Target and (g) except as
described in Sections 2.2 and 2.3 of the Reorganization Agreement, the execution
and delivery of this Agreement by Target does not, and the performance of this
Agreement by Target will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority.
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6. Representations and Warranties of Acquiror. Acquiror
represents and warrants to Target that (a) Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California and has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder, (b) the execution and
delivery of this Agreement by Acquiror and the consummation by Acquiror of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Acquiror and no other corporate proceedings on
the part of Acquiror are necessary to authorize this Agreement or any of the
transactions contemplated hereby, (c) this Agreement has been duly executed and
delivered by Acquiror and constitutes a valid and binding obligation of
Acquiror, and, assuming this Agreement constitutes a valid and binding
obligation of Target, is enforceable against Acquiror in accordance with its
terms, except as enforceability may be limited by bankruptcy and other laws
affecting the rights and remedies of creditors generally and general principles
of equity, (d) except as described in Section 3.3 of the Reorganization
Agreement, the execution and delivery of this Agreement by Acquiror does not,
and the performance of this Agreement by Acquiror will not, result in any
Violation pursuant to, (A) any provision of the Articles of Incorporation or
By-laws of Acquiror, (B) any provisions of any material mortgage, indenture,
lease, contract or other agreement, instrument, permit, concession, franchise,
or license or (C) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Acquiror or its properties or assets, which Violation,
in the case of each of clauses (B) and (C), would have a Material Adverse Effect
on Acquiror, (e) except as described in Section 3.3 of the Reorganization
Agreement and Section 3(i) of this Agreement, and except as may be required
under the Securities Act, the execution and delivery of this Agreement by
Acquiror does not, and the performance of this Agreement by Acquiror will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority and (f) any Target
Shares acquired upon exercise of the Target Option will not be, and the Target
Option is not being, acquired by Acquiror with a view to the public distribution
thereof.
7. Certain Repurchases.
(a) Put and Call. At any time during which the Target
Option is exercisable pursuant to Section 2 (the "Repurchase Period"), upon
demand by Acquiror, Acquiror shall have the right to sell to Target (or any
successor entity thereof) and Target (or such successor entity) shall be
obligated to repurchase from Acquiror (the "Put"), and upon demand by Target,
subject to Section 7(c) hereof, Target (or any successor entity thereof) shall
have the right to repurchase from Acquiror and Acquiror shall be obligated to
sell to Target (or such successor entity) (the "Call"), all or any portion of
the Target Option, at the price set forth in subparagraph (i) below, or, at any
time prior to May 15, 1997 all or any portion of the Target Shares purchased by
Acquiror pursuant thereto, at a price set forth in subparagraph (ii) below:
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(i) the difference between the "Market/Tender
Offer Price" for shares of Target Common Stock as of the date (the "Notice
Date") notice of exercise of the Put or Call, as the case may be, is given to
the other party (defined as the higher of (A) the price per share offered as of
the Notice Date pursuant to any tender or exchange offer or other Takeover
Proposal (as defined in the Reorganization Agreement) which was made prior to
the Notice Date and not terminated or withdrawn as of the Notice Date (the
"Tender Price") or (B) the average of the closing prices of shares of Target
Common Stock on the Nasdaq National Market for the ten trading days immediately
preceding the Notice Date, (the "Market Price")), and the Exercise Price,
multiplied by the number of Target Shares purchasable pursuant to the Target
Option (or portion thereof with respect to which Acquiror or Target is
exercising its rights under this Section 7), but only if the Market/Tender Offer
Price is greater than the Exercise Price;
(ii) the Exercise Price paid by Acquiror for
the Target Shares acquired pursuant to the Target Option plus the difference
between the Market/Tender Offer Price and the Exercise Price, but only if the
Market/Tender Offer Price is greater than the Exercise Price, multiplied by the
number of Target Shares so purchased;
(iii) provided further that in no event shall
the proceeds payable to Acquiror pursuant to Sections 7(a)(i) and (ii) exceed
the sum of (x) $40,000,000 and (y) the Exercise Price multiplied by the number
of Target Shares purchased. For purposes of clauses (i) and (ii) of this Section
7(a), the Tender Price shall be the highest price per share offered pursuant to
a tender or exchange offer or other Takeover Proposal during the Repurchase
Period.
(b) Payment and Redelivery of Target Option or
Shares. In the event Acquiror or Target exercises its rights under this Section
7, Target shall, within ten business days of the Notice Date, pay the required
amount to Acquiror in immediately available funds and Acquiror shall surrender
to Target the Target Option or the certificates evidencing the Target Shares
purchased by Acquiror pursuant thereto, and Acquiror shall warrant that it owns
such shares and that such shares are then free and clear of all liens, claims,
charges and encumbrances of any kind or nature whatsoever.
(c) Limitation on Call. The Call shall not be
exercisable by Target (or any successor entity thereof) unless substantially
concurrently therewith Target has consummated the transaction contemplated by a
Takeover Proposal or the stockholders of Target have transferred their shares of
Target Common Stock pursuant to a tender or exchange offer or other Takeover
Proposal.
8. Voting of Shares. Following the date hereof and prior to
the Expiration Date (as defined in Section 9(b)), Acquiror shall vote any shares
of Target Common Stock acquired pursuant to this Agreement ("Restricted Shares")
on each
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matter submitted to a vote of stockholders of Target for and against such matter
in the same proportion as the vote of all other stockholders of Target are voted
(whether by proxy or otherwise) for and against such matter.
9. Restrictions on Certain Actions.
(a) Restrictions. Other than pursuant to the
Reorganization Agreement, following the date hereof and prior to the Expiration
Date, without the prior written consent of Target, Acquiror shall not, nor shall
Acquiror permit its affiliates to, directly or indirectly, alone or in concert
or conjunction with any other Person or Group (as defined in Section 9(b)), (i)
in any manner acquire, agree to acquire or make any proposal to acquire, any
securities of, equity interest in, or any material property of, Target (other
than pursuant to this Agreement or the Reorganization Agreement), (ii) except at
the specific written request of Target, propose to enter into any merger or
business combination involving Target or to purchase a material portion of the
assets of Target, (iii) make or in any way participate in any "solicitation" of
"proxies" (as such terms are used in Regulation 14A promulgated under the
Exchange Act) to vote, or seek to advise or influence any Person with respect to
the voting of, any voting securities of Target, (iv) form, join or in any way
participate in a Group with respect to any voting securities of Target, (v) seek
to control or influence the management, Board of Directors or policies of
Target, (vi) disclose any intention, plan or arrangement inconsistent with the
foregoing, (vii) advise, assist or encourage any other Person in connection with
the foregoing or (viii) request Target (or its directors, officers, employees or
agents) to amend or waive any provisions of this Section 9, or take any action
which may require Target to make a public announcement regarding the possibility
of a business combination or merger with such party. Target shall not adopt any
Rights Agreement in any manner which would cause Acquiror, if Acquiror has
complied with its obligations under this Agreement, to become an "Acquiring
Person" under such Rights Agreement solely by reason of the beneficial ownership
of the shares purchasable hereunder.
(b) Certain Definitions. For purposes of this
Agreement, (i) the term "Person" shall mean any corporation, partnership,
individual, trust, unincorporated association or other entity or Group (within
the meaning of Section 13(d)(3) of the Exchange Act), (ii) the term "Expiration
Date" with respect to any obligation or restriction imposed on one party shall
mean the earlier to occur of (A) the third anniversary of the date hereof or (B)
such time as the other party shall have suffered a Change of Control and (iii) a
"Change of Control" with respect to one party shall be deemed to have occurred
whenever (A) there shall be consummated (1) any consolidation or merger of such
party in which such party is not the continuing or surviving corporation, or
pursuant to which shares of such party's common stock would be converted in
whole or in part into cash, other securities or other property, other than a
merger of such person in which the holders of such party's common stock
immediately prior to the merger have substantially the same proportionate
ownership of common stock of the surviving corporation immediately after the
merger, or (2) any sale, lease,
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exchange or transfer (in one transaction or a series of related transactions) of
all or substantially all the assets of such party, or (B) the stockholders of
such party shall approve any plan or proposal for the liquidation or dissolution
of such party, or (C) any party, other than such party or a subsidiary thereof
or any employee benefit plan sponsored by such party or a subsidiary thereof or
a corporation owned, directly or indirectly, by the stockholders of such party
in substantially the same proportions as their ownership of stock of such party,
shall become the beneficial owner of securities of such party representing 20%
or more, or commences a tender or exchange offer following the successful
consummation of which the offeror and its affiliates would beneficially own
securities representing 20% or more, of the combined voting power of then
outstanding securities ordinarily (and apart from rights accruing in special
circumstances) having the right to vote in the election of directors, as a
result of a tender or exchange offer, open market purchases, privately
negotiated purchases or otherwise; provided, however, that a Change in Control
shall not be deemed to include the acquisition by any party of securities
representing 20% or more of Target if such party has acquired such securities
not with the purpose nor with the effect of changing or influencing the control
of Target, nor in connection with or as a participant in any transaction having
such purpose or effect, including without limitation not in connection with such
party (i) making any public announcement with respect to the voting of such
shares at any meeting to consider any merger, consolidation, sale of substantial
assets or other business combination or extraordinary transaction involving
Target, (ii) making, or in any way participating in, any "solicitation" of
"proxies" (as such terms are defined or used in Regulation 14A under the
Exchange Act) to vote any voting securities of Target (including, without
limitation, any such solicitation subject to Rule 14a-11 under the Exchange Act)
or seeking to advise or influence any party with respect to the voting of any
voting securities of Target, directly or indirectly, relating to a merger or
other business combination involving Target or the sale or transfer of any
material assets (excluding the sale or disposition of assets in the ordinary
course of business) of Target, (iii) forming, joining or in any way
participating in any "group" within the meaning of Section 13(d)(3) of the
Exchange Act with respect to any voting securities of Target, directly or
indirectly, relating to a merger or other business combination involving Target
or the sale or transfer of any material assets (excluding the sale or
disposition of assets in the ordinary course of business) of Target, or (iv)
otherwise acting, alone or in concert with others, to seek control of Target or
to seek to control or influence the management or policies of Target, or (D) at
any time during the period commencing on the date of this Agreement and ending
on the Expiration Date, individuals who at the date hereof constituted the Board
of Directors of such party shall cease for any reason to constitute at least a
majority thereof, unless the election or the nomination for election by such
party's stockholders of each new director during the period commencing on the
date of this Agreement and ending on the Expiration Date was approved by a vote
of at least two-thirds of the directors then still in office who were directors
at the date hereof, or (E) any other event shall occur with respect to such
party that would be required to be reported in response to Item 6(e) (or any
successor provision) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act.
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10. Restrictions on Transfer.
(a) Restrictions on Transfer. Prior to the Expiration
Date, Acquiror shall not, directly or indirectly, by operation of law or
otherwise, sell, assign, pledge, or otherwise dispose of or transfer any
Restricted Shares beneficially owned by Acquiror, other than (i) pursuant to
Section 7, or (ii) in accordance with Section 10(b) or 11.
(b) Permitted Sales. Following the termination of the
Reorganization Agreement, Acquiror shall be permitted to sell any Restricted
Shares beneficially owned by it if such sale is made pursuant to a tender or
exchange offer that has been approved or recommended, or otherwise determined to
be fair and in the best interests of the stockholders of Target, by a majority
of the members of the Board of Directors of Target (which majority shall include
a majority of directors who were directors prior to the announcement of such
tender or exchange offer).
11. Registration Rights.
(a) Following the termination of the Reorganization
Agreement, Acquiror may by written notice (the "Registration Notice") to Target
request Target to register under the Securities Act all or any part of the
Restricted Shares beneficially owned by Acquiror (the "Registrable Securities")
pursuant to a bona fide firm commitment underwritten public offering in which
Acquiror and the underwriters shall effect as wide a distribution of such
Registrable Securities as is reasonably practicable and shall use their best
efforts to prevent any Person (including any Group) and its affiliates from
purchasing through such offering Restricted Shares representing more than 1% of
the outstanding shares of Common Stock of Target on a fully diluted basis (a
"Permitted Offering"). The Registration Notice shall include a certificate
executed by Acquiror and its proposed managing underwriter, which underwriter
shall be an investment banking firm of nationally recognized standing (the
"Manager"), stating that (i) they have a good faith intention to commence
promptly a Permitted Offering and (ii) the Manager in good faith believes that,
based on the then prevailing market conditions, it will be able to sell the
Registrable Securities at a per share price equal to at least 80% of the Fair
Market Value of such shares. For purposes of this Section 11, the term "Fair
Market Value" shall mean the per share average of the closing sale prices of
Target's Common Stock on the Nasdaq National Market for the ten trading days
immediately preceding the date of the Registration Notice. Target (and/or any
Person designated by Target) shall thereupon have the option exercisable by
written notice delivered to Acquiror within ten business days after the receipt
of the Registration Notice, irrevocably to agree to purchase all or any part of
the Registrable Securities for cash at a price (the "Option Price") equal to the
product of (i) the number of Registrable Securities and (ii) the Fair Market
Value of such shares. Any such purchase of Registrable Securities by Target
hereunder shall take place at a closing to be held at the principal executive
offices of Target or its counsel at any reasonable date and time designated by
Target
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and/or such designee in such notice within 10 business days after delivery of
such notice. Any payment for the shares to be purchased shall be made by
delivery at the time of such closing of the Option Price in immediately
available funds.
(b) If Target does not elect to exercise its option
to purchase pursuant to Section 11(a) with respect to all Registrable
Securities, it shall use its best efforts to effect, as promptly as practicable,
the registration under the Securities Act of the unpurchased Registrable
Securities; provided, however, that (i) Acquiror shall not be entitled to more
than an aggregate of two effective registration statements hereunder and (ii)
Target will not be required to file any such registration statement during any
period of time (not to exceed 40 days after such request in the case of clause
(A) below or 90 days in the case of clauses (B) and (C) below) when (A) Target
is in possession of material non-public information which it reasonably believes
would be detrimental to be disclosed at such time and, in the written opinion of
counsel to Target, such information would have to be disclosed if a registration
statement were filed at that time; (B) Target is required under the Securities
Act to include audited financial statements for any period in such registration
statement and such financial statements are not yet available for inclusion in
such registration statement; or (C) Target determines, in its reasonable
judgment, that such registration would interfere with any financing, acquisition
or other material transaction involving Target or any of its affiliates. If
consummation of the sale of any Registrable Securities pursuant to a
registration hereunder does not occur within 120 days after the filing with the
SEC of the initial registration statement, the provisions of this Section 11
shall again be applicable to any proposed registration; provided, however, that
Acquiror shall not be entitled to request more than two registrations pursuant
to this Section 11. Target shall use its best efforts to cause any Registrable
Securities registered pursuant to this Section 11 to be qualified for sale under
the securities or Blue Sky laws of such jurisdictions as Acquiror may reasonably
request and shall continue such registration or qualification in effect in such
jurisdiction; provided, however, that Target shall not be required to qualify to
do business in, or consent to general service of process in, any jurisdiction by
reason of this provision.
(c) The registration rights set forth in this Section
11 are subject to the condition that Acquiror shall provide Target with such
information with respect to Acquiror's Registrable Securities, the plans for the
distribution thereof, and such other information with respect to Acquiror as, in
the reasonable judgment of counsel for Target, is necessary to enable Target to
include in such registration statement all material facts required to be
disclosed with respect to a registration thereunder.
(d) If Target's securities of the same type as the
Registrable Securities are then authorized for quotation or trading or listing
on the New York Stock Exchange, Nasdaq National Market System, or any other
securities exchange or automated quotations system, Target, upon the request of
Acquiror, shall promptly file an application, if required, to authorize for
quotation, trading or listing the shares of
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Registrable Securities on such exchange or system and will use its reasonable
efforts to obtain approval, if required, of such quotation, trading or listing
as soon as practicable.
(e) A registration effected under this Section 11
shall be effected at Target's expense, except for underwriting discounts and
commissions and the fees and the expenses of counsel to Acquiror, and Target
shall provide to the underwriters such documentation (including certificates,
opinions of counsel and "comfort" letters from auditors) as are customary in
connection with underwritten public offerings as such underwriters may
reasonably require. In connection with any such registration, the parties agree
(i) to indemnify each other and the underwriters in the customary manner and
(ii) to enter into an underwriting agreement in form and substance customary to
transactions of this type with the Manager and the other underwriters
participating in such offering.
12. Adjustment Upon Changes in Capitalization.
(a) In the event of any change in Target Common Stock
by reason of stock dividends, splitups, mergers (other than the Merger),
recapitalizations, combinations, exchange of shares or the like, the type and
number of shares or securities subject to the Target Option, and the purchase
price per share provided in Section 1, shall be adjusted appropriately, and
proper provision shall be made in the agreements governing such transaction so
that Acquiror shall receive, upon exercise of the Target Option, the number and
class of shares or other securities or property that Acquiror would have
received in respect of the Target Common Stock if the Target Option had been
exercised immediately prior to such event or the record date therefor, as
applicable.
(b) In the event that Target shall enter in an
agreement: (i) to consolidate with or merge into any person, other than Acquiror
or one of its Subsidiaries, and shall not be the continuing or surviving
corporation of such consolidation or merger; (ii) to permit any person, other
than Acquiror or one of its Subsidiaries, to merge into Target and Target shall
be the continuing or surviving corporation, but, in connection with such merger,
in the then-outstanding shares of Target Common Stock shall be changed into or
exchanged for stock or other securities of Target or any other person or cash or
any other property or the outstanding shares of Target Common Stock immediately
prior to such merger shall after such merger represent less than 50% of the
outstanding shares and share equivalents of the merged company; or (iii) to sell
or otherwise transfer all or substantially all of its assets to any person,
other than Acquiror or one of its Subsidiaries, then, and in each such case, the
agreement governing such transaction shall make proper provisions so that upon
the consummation of any such transaction and upon the terms and conditions set
forth herein, Acquiror shall receive for each Target Share with respect to which
the Target Option has not been exercised an amount of consideration in the form
of and equal to the per share amount of consideration that would be received by
the holder of one share
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of Target Common Stock less the Exercise Price (and, in the event of an election
or similar arrangement with respect to the type of consideration to be received
by the holders of Target Common Stock, subject to the foregoing, proper
provision shall be made so that the holder of the Target Option would have the
same election or similar rights as would the holder of the number of shares of
Target Common Stock for which the Target Option is then exercisable).
13. Restrictive Legends. Each certificate representing shares
of Target Common Stock issued to Acquiror hereunder shall include a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR
SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT, DATED AS OF APRIL 21, 1996,
A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.
14. Binding Effect; No Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Except as expressly provided for in this
Agreement, neither this agreement nor the rights or the obligations of either
party hereto are assignable, except by operation of law, or with the written
consent of the other party. Nothing contained in this Agreement, express or
implied, is intended to confer upon any person other than the parties hereto and
their respective permitted assigns any rights or remedies of any nature
whatsoever by reason of this Agreement. Any Restricted Shares sold by Acquiror
in compliance with the provisions of Section 11 shall, upon consummation of such
sale, be free of the restrictions imposed with respect to such shares by this
Agreement, unless and until Acquiror shall repurchase or otherwise become the
beneficial owner of such shares, and any transferee of such shares shall not be
entitled to the rights of Acquiror. Certificates representing shares sold in a
registered public offering pursuant to Section 11 shall not be required to bear
the legend set forth in Section 13.
15. Specific Performance. The parties recognize and agree that
if for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party agrees that, in addition to other
remedies, the other party shall be entitled to an injunction restraining any
violation or threatened violation of the provisions of this Agreement. In the
event that any action should be brought in equity to enforce the provisions of
this Agreement, neither party will allege, and each party hereby waives the
defense, that there is adequate remedy at law.
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16. Entire Agreement. This Agreement and the Reorganization
Agreement (including the Target Disclosure Schedule and the Acquiror Disclosure
Schedule relating thereto) constitute the entire agreement among the parties
with respect to the subject matter hereof and supersede all other prior
agreements and understandings, both written and oral, among the parties or any
of them with respect to the subject matter hereof.
17. Further Assurance. Each party will execute and deliver all
such further documents and instruments and take all such further action as may
be necessary in order to consummate the transactions contemplated hereby.
18. Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the other provisions of this Agreement, which shall remain in full force and
effect. In the event any court or other competent authority holds any provision
of this Agreement to be null, void or unenforceable, the parties hereto shall
negotiate in good faith the execution and delivery of an amendment to this
Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision. Each party agrees that, should any court or other competent authority
hold any provision of this Agreement or part hereof to be null, void or
unenforceable, or order any party to take any action inconsistent herewith, or
not take any action required herein, the other party shall not be entitled to
specific performance of such provision or part hereof or to any other remedy,
including but not limited to money damages, for breach hereof or of any other
provision of this Agreement or part hereof as the result of such holding or
order.
19. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally, telegraphed or
telecopied or sent by certified or registered mail, postage prepaid, and shall
be deemed to be given, dated and received when so delivered personally,
telegraphed or telecopied or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such person may subsequently designate by notice given hereunder.
(a) if to Acquiror or Merger Sub, to:
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, California 95134
Attention: President
Facsimile No.: (408) 526-4100
Telephone No.: (408) 526-4000
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with a copy to:
Brobeck, Phleger & Harrison LLP
2200 Geng Road
Two Embarcadero Place
Palo Alto, CA 94303
Attention: Edward M. Leonard, Esq.
Facsimile No.: (415) 496-2885
Telephone No.: (415) 424-0160
(b) if to Target, to:
StrataCom, Inc.
1400 Parkmoor Avenue
San Jose, California 95126
Attention: President
Facsimile No.: (408) 999-0836
Telephone No.: (408) 294-7600
with a copy to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry W. Sonsini, Esq.
Facsimile No.: (415) 493-6811
Telephone No.: (415) 493-9300
20. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed entirely within such State without regard to
any applicable conflicts of law rules.
21. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
22. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which, taken together, shall constitute one and the same instrument.
23. Expenses. Except as otherwise expressly provided herein or
in the Reorganization Agreement, all costs and expenses incurred in connection
with the
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transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
24. Amendments; Waiver. This Agreement may be amended by the
parties hereto and the terms and conditions hereof may be waived only by an
instrument in writing signed on behalf of each of the parties hereto, or, in the
case of a waiver, by an instrument signed on behalf of the party waiving
compliance.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized officers as of the
date first above written.
CISCO SYSTEMS, INC.
By: s/s Larry R. Carter
-------------------
Name: Larry R. Carter
Title: Vice President and CFO
STRATACOM, INC.
By: s/s Richard M. Moley
--------------------
Name: Richard M. Moley
Title: CEO and President
[SIGNATURE PAGE TO OPTION AGREEMENT]
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 317 of the California Corporations Code authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit indemnification (including
reimbursement of expenses incurred) under certain circumstances for liabilities
arising under the Securities Act. The Registrant's Restated Articles of
Incorporation, as amended and Amended By-laws provide for indemnification of its
directors, officers, employees and other agents to the maximum extent permitted
by the California Corporations Code. In addition, the Company has entered into
Indemnification Agreements with each of its directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith or incorporated by reference
herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- --------- -------------------------------------------------------------------------------
<S> <C> <C>
2.1 -- Agreement and Plan of Reorganization by and among the Registrant, Jet
Acquisition Corporation, and StrataCom, Inc., dated as of April 21, 1996
(attached as Appendix A to the Proxy Statement/Prospectus contained in this
Registration Statement).
4.1 -- Registrant's Restated Articles of Incorporation as currently in effect
(incorporated by reference to the Registrant's registration statements (File
No. 33-32778)).
4.2 -- Registrant's Bylaws, as currently in effect (incorporated by reference to the
Registrant's registration statements (File No. 33-32778)).
4.3 -- Form of Specimen Certificate for Registrant's Common Stock (incorporated by
reference to Exhibit 28.01 of Registrant's Registration Statement on Form S-1
(File No. 33-32778)).
5.1 -- Opinion of Brobeck, Phleger & Harrison LLP regarding the legality of the
securities being issued.
8.1 -- Opinion of Brobeck, Phleger & Harrison LLP regarding certain tax matters.
8.2 -- Opinion of Wilson, Sonsini, Goodrich & Rosati regarding certain tax matters.
23.1 -- Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1 and Exhibit
8.1).
23.2 -- Consent of Coopers Lybrand L.L.P. with respect to Registrant's financial
statements.
23.3 -- Consent of Arthur Andersen LLP with respect to StrataCom's financial
statements.
23.4 -- Consent of Montgomery Securities.
23.5 -- Consent of Wilson, Sonsini, Goodrich & Rosati (included in Exhibit 8.2).
24.1 -- Power of Attorney (see page II-3).
99.1 -- Form of proxy to be used in soliciting StrataCom's stockholders for its special
meeting.
99.2 -- Form of Employment Agreement
</TABLE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) to reflect
in the prospectus any facts or events arising after the effective date of this
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement; and (iii) 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 this Registration Statement;
II-1
<PAGE> 155
(2) that, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
(3) 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;
(4) that, for purposes of deterring any liability under the Securities Act,
each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), that is incorporated by reference in this 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
a bona fide offering thereof;
(5) 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) of the Securities Act, such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by person who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form;
(6) that every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, 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 this
Registration Statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
(7) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of Form S-4,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
this Registration Statement through the date of responding to the request; and
(8) 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 this Registration Statement when it
became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-2
<PAGE> 156
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Jose,
State of California, on this 7th day of June, 1996.
CISCO SYSTEMS, INC.
By: /s/ John T. Chambers
----------------------------------------
John T. Chambers, President
and Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John T. Chambers and Larry R. Carter and
each of them acting individually, as such person's true and lawful
attorneys-in-fact and agents, each with full power of substitution, for such
person, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his or her substitutes, may do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------------------- --------------
<C> <S> <C>
/s/ John T. President and Chief Executive Officer June 7, 1996
Chambers (Principal Executive Officer) and Director
- ---------------------------------------------
John T. Chambers
</TABLE>
<TABLE>
<C> <S> <C>
/s/ Larry R. Vice President, Finance and Administration, June 7, 1996
Carter Chief Financial Officer and Secretary
- --------------------------------------------- (Principal Financial and Accounting
Larry R. Carter Officer)
/s/ John P. Chairman of the Board and Director June 7, 1996
Morgridge
- ---------------------------------------------
John P. Morgridge
/s/ Donald T. Vice Chairman of the Board and Director June 7, 1996
Valentine
- ---------------------------------------------
Donald T. Valentine
/s/ Dr. Michael S. Director June 7, 1996
Frankel
- ---------------------------------------------
Dr. Michael S. Frankel
/s/ Dr. James F. Director June 7, 1996
Gibbons
- ---------------------------------------------
Dr. James F. Gibbons
/s/ Robert L. Director June 7, 1996
Puette
- ---------------------------------------------
Robert L. Puette
/s/ Masayoshi Director June 7, 1996
Son
- ---------------------------------------------
Masayoshi Son
/s/ Steve M. Director June 7, 1996
West
- ---------------------------------------------
Steve M. West
</TABLE>
II-3
<PAGE> 1
EXHIBIT 5.1
[Brobeck Phleger & Harrison LLP Letterhead]
June 7, 1996
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, CA 95134
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4 to be filed by
you with the Securities and Exchange Commission on or about the date hereof
(the "Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of certain shares of Common Stock (the
"Shares") of Cisco Systems, Inc. (the "Company") to be issued to the
stockholders of StrataCom, Inc. ("StrataCom") in connection with a merger
pursuant to which StrataCom would become a wholly-owned subsidiary of the
Company. As your legal counsel, we have examined the proceedings taken and are
familiar with the proceedings proposed to be taken by you in connection with
the issuance of the Shares.
It is our opinion that, when issued in the manner referred to in the
Registration Statement and in accordance with resolutions adopted by the Board
of Directors of the Company, such Shares will be legally and validly issued,
fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name whenever appearing in the
Registration Statement and any amendment thereto.
Very truly yours,
/s/ Brobeck, Phleger & Harrison LLP
---------------------------------------
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 1
[BROBECK, PLEGER & HARRISON LLP LETTERHEAD]
Exhibit 8.1
June 4, 1996
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, CA 95134
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 6.1(e) of
the Agreement and Plan of Reorganization (the "Agreement") among Cisco Systems,
Inc., a California corporation ("Cisco"), its wholly owned subsidiary, Jet
Acquisition Corporation, Delaware corporation ("Sub"), and StrataCom, Inc., a
Delaware corporation ("StrataCom"), dated April 21, 1996. Pursuant to the
Agreement, Sub will merge with and into StrataCom (the "Merger"), and StrataCom
will become a wholly owned subsidiary of Cisco.
Except as otherwise provided, capitalized terms referred to herein have
the meanings set forth in the Agreement. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
We have acted as legal counsel to Cisco and Sub in connection with the
Merger. As such, and for the purpose of rendering this opinion, we have
examined (or will examine on or prior to the Effective Date) and are relying
(or will rely) upon (without any independent investigation or review thereof)
the truth and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in the following documents (including
all schedules and exhibits thereto):
1. The Agreement;
2. Representations made to us by Cisco and Sub in a letter
reproduced as Exhibit A hereto;
3. Representations made to us by StrataCom in a letter reproduced
as Exhibit B hereto;
4. Representations made by certain shareholders of StrataCom in
"Affiliates Agreements";
<PAGE> 2
[BROBECK, PHLEGER & HARRISON LLP LETTERHEAD]
Cisco Systems, Inc. June 4, 1996
Page 2
5. The Registration Statement;
6. An opinion of Wilson Sonsini Goodrich & Rosati substantially
identical in form and substance to this opinion (the "Wilson Sonsini Tax
Opinion"); and
7. Such other instruments and documents related to the formation,
organization and operation of Cisco, StrataCom and Sub or to the consummation
of the Merger and the transactions contemplated thereby as we have deemed
necessary or appropriate.
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:
1. Original documents (including signatures) are authentic,
documents submitted to us as copies conform to the original documents, and
there has been (or will be by the Effective Time) due execution and delivery of
all documents where due execution and delivery are prerequisites to
effectiveness thereof;
2. The Merger will be consummated in accordance with the Agreement
and will be effective under the laws of the State of Delaware;
3. The shareholders of StrataCom do not, and will not on or before
the Effective Date, have an existing plan or intent to dispose of an amount of
Cisco Common Stock to be received in the Merger (or to dispose of StrataCom
capital stock in anticipation of the Merger) such that the shareholders of
StrataCom will not receive and retain a meaningful continuing equity ownership
in Cisco that is sufficient to satisfy the continuity of interest requirement
as specified in Treasury Regulations Section 1.368-1(b) and as interpreted in
certain Internal Revenue Service rulings and federal judicial decisions;
4. After the Merger, StrataCom will hold "substantially all" of
its and Sub's properties within the meaning of Section 368(a)(2)(E)(i) of the
Code and the regulations promulgated thereunder;
5. To the extent any expenses relating to the Merger (or the "plan
of reorganization" within the meaning of Treasury Regulations Section
1.368-1(c) with respect to the Merger) are funded directly or indirectly by a
party other than the incurring party, such expenses will be within the
guidelines established in Revenue Ruling 73-54, 1973-1 C.B. 187;
<PAGE> 3
[BROBECK, PHLEGER & HARRISON LLP LETTERHEAD]
Cisco Systems, Inc. June 4, 1996
Page 3
6. No StrataCom Shareholder guaranteed any StrataCom indebtedness
outstanding during the period immediately prior to the Merger, and at all
relevant times, including as of the Effective Time, (i) no outstanding
indebtedness of StrataCom, Cisco or Sub has or will represent equity for tax
purposes; and (ii) no outstanding equity of StrataCom, Cisco or Sub has or will
represent indebtedness for tax purposes; and
7. The Wilson Sonsini Tax Opinion has been delivered and not
withdrawn.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we
are of the opinion that, for federal income tax purposes, the Merger will be a
"reorganization" as defined in Section 368(a) of the Code.
In addition to the assumptions set forth above, this opinion is subject
to the exceptions, limitations and qualifications set forth below.
1. This opinion represents and is based upon our best judgment
regarding the application of federal income tax laws arising under the Code,
existing judicial decisions, administrative regulations and published rulings
and procedures. Our opinion is not binding upon the Internal Revenue Service or
the courts, and there is no assurance that the Internal Revenue Service will
not successfully assert a contrary position. Furthermore, no assurance can be
given that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, would not adversely affect the accuracy of
the conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
2. This opinion addresses only the classification of the Merger as
a reorganization under Section 368(a) of the Code, and does not address any
other federal, state, local or foreign tax consequences that may result from
the Merger or any other transaction (including any transaction undertaken in
connection with the Merger). In particular, we express no opinion regarding (i)
whether and the extent to which any StrataCom shareholder who has provided or
will provide services to StrataCom, Cisco or Sub will have compensation income
under any provision of the Code; (ii) the effects of such compensation income,
including but not limited to the effect upon the basis and holding period of
the Cisco stock received by any such shareholder in the Merger; (iii) the
potential application of the "golden parachute" provisions (Sections 280G,
3121(v)(2) and 4999) of the Code, the alternative minimum tax provisions
(Sections 55, 56 and 57) of the Code or Sections 305, 306, 357, 424, and 708,
or the regulations promulgated thereunder; (iv) other than that the Merger will
be a reorganization within the meaning
<PAGE> 4
[Brobeck, Phleger & Harrison LLP Letterhead]
Cisco Systems, Inc. June 4, 1996
Page 4
of Code Section 368 and the consequences that follow directly and solely from
such characterization, the corporate level tax consequences of the Merger to
Cisco, Sub or StrataCom, including without limitation the survival and/or
availability, after the Merger, of any of the federal income tax attributes or
elections of StrataCom, after application of any provision of any Code, as well
as the regulations promulgated thereunder and judicial interpretations thereof;
(v) the basis of any equity interest in StrataCom acquired by Cisco in the
Merger; (vi) the tax consequences of any transaction in which StrataCom stock
or a right to acquire StrataCom stock was received; (vii) the tax consequences
of the Merger to holders of options or warrants for StrataCom stock; or (viii)
the tax consequences that may be relevant to particular classes of StrataCom
stockholders such as dealers in securities, corporate shareholders subject to
the alternative minimum tax, foreign persons, and holders of shares acquired
upon exercise of stock options or in other compensatory transactions.
3. No opinion is expressed as to any transaction other than the
Merger as described in the Agreement or to any transaction whatsoever,
including the Merger, if all the transactions described in the Agreement are
not consummated in accordance with the terms of such Agreement and without
waiver or breach of any material provision thereof or if all of the
representations, warranties, statements and assumptions upon which we relied
are not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have
relied to issue this opinion is incorrect, our opinion might be adversely
affected and may not be relied upon.
4. This opinion has been delivered to you for the purpose of
satisfying the conditions set forth in Section 6.1(e) of the Agreement and is
intended solely for your benefit; it may not be relied upon for any other
purpose or by any other person or entity, and may not be made available to any
other person or entity without prior written consent. We hereby consent to the
filing of this opinion as an exhibit to the Registration Statement and further
consent to all references to us in the Registration Statement.
Very truly yours,
s/s Brobeck, Phleger & Harrison LLP
BROBECK, PHLEGER & HARRISON LLP
Enclosures
<PAGE> 5
Exhibit A
June 6, 1996
Brobeck, Phleger & Harrison LLP Wilson Sonsini Goodrich & Rosati
Two Embarcadero Place 650 Page Mill Road
2200 Geng Road Palo Alto, CA 94303-1050
Palo Alto, California 94306
Re: Merger pursuant to the Agreement and Plan of
Reorganization (the "Agreement") dated April 21,
1996, among Jet Acquisition Corporation, a Delaware
corporation ("Sub"), Cisco Systems, Inc., a
California corporation ("Cisco"), and StrataCom,
Inc., a Delaware corporation ("StrataCom")
Gentlemen:
This letter is supplied to you in connection with your
rendering of opinions pursuant to Section 6.1(e) of the Agreement regarding
certain federal income tax consequences of the Merger. Unless otherwise
indicated, capitalized terms not defined herein have the meanings set forth in
the Agreement.
A. REPRESENTATIONS
After consulting with their counsel and auditors regarding the meaning
of and factual support for the following representations, the undersigned hereby
certify and represent that the following facts are now true and will continue to
be true as of the Effective Date of the Merger:
1. Pursuant to the Merger, Sub will merge with and into
StrataCom, and StrataCom will acquire all of the assets and liabilities of Sub.
At least ninety percent (90%) of the fair market value of the net assets and at
least seventy percent (70%) of the fair market value of the gross assets held by
StrataCom immediately prior
<PAGE> 6
Brobeck, Phleger & Harrison LLP June 6, 1996
Wilson Sonsini Goodrich & Rosati Page 2
to the Merger will continue to be held by StrataCom immediately after the
Merger. For the purpose of determining the percentage of StrataCom's net and
gross assets held by it immediately following the Merger, the following assets
will be treated as property held by StrataCom immediately prior but not
subsequent to the Merger: (i) assets disposed of by StrataCom prior to or
subsequent to the Merger and in contemplation thereof (including without
limitation any asset disposed of by StrataCom, other than in the ordinary course
of business, pursuant to a plan or intent existing during the period ending on
the Effective Date and beginning with the commencement of negotiations (whether
formal or informal) with Cisco regarding the Merger (the "Pre-Merger Period")),
(ii) assets used by StrataCom to pay other expenses or liabilities incurred in
connection with the Merger, and (iii) assets used to make distribution,
redemption or other payments in respect of StrataCom capital stock or rights to
acquire such stock (including payments treated as such for tax purposes) that
are made in contemplation of the Merger or related thereto;
2. Cisco is participating in the Merger for good and valid
business reasons and not for tax purposes;
3. Prior to the Merger, Cisco will be in "Control" of Sub. As
used herein, "Control" of a corporation shall consist of ownership of stock
possessing at least eighty percent (80%) of the total combined voting power of
all classes of stock entitled to vote and at least eighty percent (80%) of the
total number of shares of all other classes of stock of the corporation. For
purposes of determining Control, a person shall not be considered to own voting
stock if rights to vote such stock (or to restrict or otherwise control the
voting of such stock) are held by a third party (including a voting trust) other
than an agent of such person;
4. In the Merger, all shares of StrataCom capital stock will
be exchanged solely for voting stock of Cisco, except to the extent of cash paid
in lieu of fractional shares in accordance with the terms of the Merger
Agreement;
5. Cisco has no plan or intention to cause StrataCom to issue
addi- tional shares of stock after the Merger that would result in Cisco losing
Control of StrataCom;
6. Cisco has no plan or intention to reacquire any of its
stock issued pursuant to the Merger;
7. Except for transfers described in both Section 368(a)(2)(C)
of the Internal Revenue Code of 1986, as amended (the "Code"), and Treasury
Regulation Section 1.368-2(j)(4), Cisco has no current plan or intention to (i)
liquidate StrataCom;
<PAGE> 7
Brobeck, Phleger & Harrison LLP June 6, 1996
Wilson Sonsini Goodrich & Rosati Page 3
(ii) merge StrataCom with or into another corporation including Cisco or its
affiliates; (iii) sell, distribute or otherwise dispose of the capital stock of
StrataCom; or (iv) cause StrataCom to sell or otherwise dispose of any of its
assets (or any assets acquired from Sub) except for dispositions made in the
ordinary course of business or payment of expenses incurred by StrataCom
pursuant to the Merger (including payments made with respect to fractional
shares); provided, however, that nothing herein shall be understood to impose
any limitation on the right of Cisco to transfer assets or engage in any other
transaction which Cisco may determine to be necessary, appropriate or desirable
in the exercise of its business judgment after the Merger in response to the
circumstances then existing (as opposed to a plan or intention arising prior to
the Merger); and provided further that nothing herein shall be understood to
impose any limitation on Cisco to merge StrataCom into itself pursuant to a
ruling received from the Internal Revenue Service that the Merger and such
subsequent merger will, if considered part of an integrated transaction,
constitute a reorganization described in Section 368(a)(1)(A) of the Code;
8. In the Merger, Sub will have no liabilities assumed by
StrataCom and will not transfer to StrataCom any assets subject to liabilities;
9. Cisco intends that, following the Merger, the historic
business of StrataCom will be continued;
10. Neither Cisco nor any current or former subsidiary of
Cisco owns, or has owned during the past five (5) years, directly or indirectly,
any shares of StrataCom capital stock, or the right to acquire or vote any such
shares (except such rights as are granted in the Agreement);
11. Cisco is not an investment company within the meaning of
Sections 368(a)(2)(F)(iii) and (iv) of the Code;
12. No shareholder of StrataCom is acting as agent for Cisco
in connection with the Merger or approval thereof, and Cisco will not reimburse
any StrataCom shareholder for StrataCom capital stock such shareholder may have
purchased or for other obligations such shareholder may have incurred;
13. Neither Cisco nor Sub is under the jurisdiction of a court
in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Code;
14. Cisco has no knowledge of any plan or intention on the
part of StrataCom's shareholders (a "Plan") to engage in a sale, exchange,
transfer, distribution, pledge, disposition or any other transaction which
results in a reduction in the risk of
<PAGE> 8
Brobeck, Phleger & Harrison LLP June 6, 1996
Wilson Sonsini Goodrich & Rosati Page 4
ownership or a direct or indirect disposition (a "Sale") of shares of Cisco
Common Stock to be issued to such shareholders in the Merger, which shares would
have an aggregate fair market value, as of the Effective Date of the Merger, in
excess of fifty percent (50%) of the aggregate fair market value, immediately
prior to the Merger, of all outstanding shares of StrataCom capital stock. For
purposes of this paragraph, shares of StrataCom capital stock (or the portion
thereof) (i) with respect to which a StrataCom shareholder receives
consideration in the Merger other than Cisco Common Stock (including, without
limitation, cash received in lieu of fractional shares of Cisco Common Stock)
and/or (ii) with respect to which a Sale occurs prior to and in contemplation of
the Merger shall be considered shares of outstanding StrataCom capital stock
exchanged for Cisco Common Stock in the Merger and then disposed of pursuant to
a Plan;
15. The payment of cash in lieu of fractional shares of Cisco
is solely for the purpose of avoiding the expense and inconvenience to Cisco of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the Merger to
StrataCom shareholders in lieu of fractional shares of Cisco Common Stock will
not exceed one percent (1%) of the total consideration that will be issued in
the Merger to StrataCom shareholders in exchange for their shares of StrataCom
capital stock. The fractional share interests of each Strata-Com shareholder
will be aggregated and no StrataCom shareholder will receive cash in an amount
greater than the value of one full share of Cisco Common Stock;
16. Except with respect to payments of cash to StrataCom
shareholders in lieu of fractional shares of Cisco Common Stock, one hundred
percent (100%) of the StrataCom capital stock outstanding immediately prior to
the Merger will be exchanged solely for Cisco Common Stock. Thus, except as set
forth in the preceding sentence, Sub and Cisco intend that no consideration be
paid or received (directly or indirectly, actually or constructively) for
StrataCom capital stock other than Cisco Common Stock;
17. At the Effective Time of the Merger, the fair market value
of the Cisco Common Stock received by each StrataCom shareholder will be
approximately equal to the fair market value of the StrataCom capital stock
surrendered in exchange therefor, and the aggregate consideration received by
StrataCom shareholders in exchange for their StrataCom capital stock will be
approximately equal to the fair market value of all of the outstanding shares of
StrataCom capital stock immediately prior to the Merger;
18. No shares of Sub have been or will be used as
consideration or issued to shareholders of StrataCom pursuant to the Merger;
<PAGE> 9
Brobeck, Phleger & Harrison LLP June 6, 1996
Wilson Sonsini Goodrich & Rosati Page 5
19. Except as otherwise specifically provided in the
Agreement, Sub, Cisco, StrataCom and the shareholders of StrataCom will each pay
separately its or their own expenses in connection with the Merger;
20. There is no intercorporate indebtedness existing between
Cisco and StrataCom or between Sub and StrataCom that was issued, acquired or
will be settled at a discount as a result of the Merger, and Cisco will assume
no liabilities of StrataCom or any StrataCom shareholder in connection with the
Merger;
21. The terms of the Agreement and all other agreements
entered into in connection therewith are the product of arm's-length
negotiations;
22. None of the compensation received by any
shareholder-employees of StrataCom will be separate consideration for, or
allocable to, any of their shares of StrataCom capital stock; none of the shares
of Cisco Common Stock received by any shareholder-employees of StrataCom will be
separate consideration for, or allocable to, any employment agreement or any
covenants not to compete; and the compensation paid to any shareholder-employees
of StrataCom will be for services actually rendered and will be commensurate
with amounts paid to third parties bargaining at arm's length for similar
services;
23. No "poison pill" or similar rights will be associated with
the Cisco Common Stock on or prior to the date of the Merger;
24. With respect to each instance, if any, in which shares of
StrataCom capital stock have been purchased by a shareholder of Cisco (a
"Shareholder") during the Pre-Merger Period (a "Stock Purchase"): (i) the Stock
Purchase was made by such Shareholder on its own behalf and with its own funds
and not as a representative, or for the benefit, of Cisco; (ii) the purchase
price paid by such Shareholder pursuant to the Stock Purchase was the product of
arm's-length negotiations, was funded by such Shareholder's own assets, and was
not advanced, and will not be reimbursed, either directly or indirectly, by
Cisco; (iii) at no time was such Shareholder or any other party required or
obligated to surrender to Cisco the StrataCom capital stock acquired in the
Stock Purchase, and neither such Shareholder nor any other party will be
required to surrender to Cisco the Cisco Common Stock for which such shares of
StrataCom capital stock will be exchanged in the Merger; and (iv) the Stock
Purchase was not a formal or informal condition to consummation of the Merger
and was entered into solely to satisfy the separate interests of such
Shareholder and the seller;
25. Each of the representations made by Cisco and Sub in the
Agreement and any other documents associated therewith is true and accurate;
and
<PAGE> 10
Brobeck, Phleger & Harrison LLP June 6, 1996
Wilson Sonsini Goodrich & Rosati Page 6
26. Cisco and Sub are authorized to make all of the
representations set forth herein.
B. RELIANCE BY YOU IN RENDERING OPINIONS; LIMITATIONS ON YOUR
OPINIONS
1. The undersigned recognize that (i) your opinions will be
based on the representations set forth herein and on the statements contained in
the Agreement and the documents related thereto and (ii) your opinions will be
subject to certain limitations and qualifications including that they may not be
relied upon if any such representations are not accurate in all material
respects.
2. The undersigned recognize that your opinions will not
address any tax consequences of the Merger or any action taken in connection
therewith except as expressly set forth in such opinions.
Very truly yours,
CISCO SYSTEMS, INC., a California
corporation
By s/s Larry R. Carter
-------------------------------
Title CFO and Secretary
----------------------------
JET ACQUISITION CORPORATION,
a Delaware corporation
By s/s Larry R. Carter
-------------------------------
Title CFO and Secretary
----------------------------
<PAGE> 11
Exhibit B
May 28, 1996
Brobeck, Phleger & Harrison LLP Wilson Sonsini Goodrich & Rosati
Two Embarcadero Place 650 Page Mill Road
2200 Geng Road Palo Alto, CA 94303-1050
Palo Alto, California 94306
Re: Merger pursuant to the Agreement and Plan of Reorganization
(the "Agreement") dated April 21, 1996, among Jet Acquisition
Corporation, a Delaware corporation ("Sub"), Cisco Systems,
Inc., a California corporation ("Cisco"), and StrataCom,
Inc., a Delaware corporation ("StrataCom")
Gentlemen:
This letter is supplied to you in connection with your rendering
of opinions pursuant to Section 6.1(e) of the Agreement regarding certain
federal income tax consequences of the Merger. Unless otherwise indicated,
capitalized terms not defined herein have the meanings set forth in the
Agreement.
A. Representations
After consulting with its counsel and auditors regarding the
meaning of and factual support for the following representations, the
undersigned hereby certifies and represents that the following facts are now
true and will continue to be true through the Effective Date of the Merger:
1. Pursuant to the Merger, Sub will merge with and into
StrataCom, and StrataCom will acquire all of the assets and liabilities of Sub.
At least ninety percent (90%) of the fair market value of the net assets and at
least seventy percent (70%) of the fair market value of the gross assets held by
StrataCom immediately prior to the Merger will continue to be held by StrataCom
immediately after the Merger. For the purpose of determining the percentage of
StrataCom's net and gross assets held by it immediately following the Merger,
the following assets will be treated as property held by StrataCom
<PAGE> 12
Brobeck, Phleger & Harrison LLP May 28, 1996
Wilson Sonsini Goodrich & Rosati Page 2
immediately prior to but not subsequent to the Merger: (i) assets disposed of by
StrataCom prior to or subsequent to the Merger and in contemplation thereof
(including without limitation, any asset disposed of by StrataCom, other than
the ordinary course of business, pursuant to a plan or intent existing during
the period ending on the Effective Date of the Merger and beginning with the
commencement of negotiations (whether formal or informal) with Cisco regarding
the Merger (the "Pre-Merger Period")), (ii) assets used by StrataCom to pay
other expenses or liabilities incurred in connection with the Merger and (iii)
assets used to make distribution, redemption or other payments in respect of
StrataCom capital stock or rights to acquire such stock (including payments
treated as such for tax purposes) that are made in contemplation of the Merger
or related thereto;
2. StrataCom has made no transfer of any of its assets
(including any distribution of assets with respect to, or in redemption of,
stock) in contemplation of the Merger or during the Pre-Merger Period other than
(i) in the ordinary course of business and (ii) payments for expenses incurred
in connection with the Merger;
3. StrataCom is participating in the Merger for good and valid
business reasons and not for tax purposes;
4. At the time of the Merger, except as specified in, or
disclosed in the Agreement or in a schedule or exhibit to, the Agreement,
StrataCom will have no outstanding warrants, options or convertible securities
nor any other type of right outstanding pursuant to which any person could
acquire shares of StrataCom capital stock or any other equity interest in
StrataCom;
5. In the Merger, shares of StrataCom capital stock representing
"Control" of StrataCom will be exchanged solely for voting stock of Cisco; at
the time of the Merger, there will exist no rights to acquire StrataCom capital
stock or to vote (or restrict or otherwise control the vote of) StrataCom
capital stock which, if exercised, could affect Cisco's acquisition and
retention of Control of StrataCom. For purposes of this paragraph, shares of
StrataCom capital stock exchanged in the Merger for cash and other property
(including, without limitation, cash paid to StrataCom stockholders in lieu of
fractional shares of Cisco Common Stock) will be treated as StrataCom capital
stock outstanding on the date of the Merger but not exchanged for voting stock
of Cisco. As used herein, "Control" of a corporation shall consist of ownership
of stock possessing at least eighty percent (80%) of the total combined voting
power of all classes of stock entitled to vote and at least eighty percent (80%)
of the total number of shares of all other classes of stock of the corporation.
For purposes of determining Control, a person shall not be considered to own
voting stock if rights to vote such stock (or to restrict or
<PAGE> 13
Brobeck, Phleger & Harrison LLP May 28, 1996
Wilson Sonsini Goodrich & Rosati Page 3
otherwise control the voting of such stock) are held by a third party (including
a voting trust) other than an agent of such person;
6. StrataCom has no obligation, understanding, agreement or
intention to issue additional shares of stock after the Merger that would result
in Cisco losing Control of StrataCom;
7. The liabilities of StrataCom have been incurred by StrataCom
in the ordinary course of its business;
8. The fair market value of StrataCom's assets will, on the
Effective Date, exceed the aggregate liabilities of StrataCom;
9. Other than shares of StrataCom capital stock or options to
acquire StrataCom capital stock issued as compensation to present or former
service providers (including, without limitation, employees and directors) of
StrataCom in the ordinary course of business, no issuances of StrataCom capital
stock or rights to acquire StrataCom capital stock have occurred or will occur
during the Pre-Merger Period other than pursuant to options, warrants or
agreements, outstanding prior to the Pre-Merger Period or as otherwise
specifically identified in the Agreement;
10. Case or other property paid to employees of StrataCom during
the Pre-Merger Period has been or will be in the ordinary course of business or
pursuant to agreements entered into prior to the Pre-Merger Period;
11. StrataCom is not and will not be on the Effective Date an
"investment company" within the meaning of Section 368(a)(2)(F)(iii) and (iv) of
the Code;
12. StrataCom is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Code;
13. StrataCom has on knowledge of any plan or intention on the
part of StrataCom's stockholders (a "Plan") to engage in a sale, exchange,
transfer, distribution, pledge, disposition or any other transaction which
results in a reduction in the risk of ownership or a direct or indirect
disposition (a "Sale") of shares of Cisco Common Stock to be issued to such
stockholders in the Merger, which shares would have an aggregate fair market
value, as of the Effective Date of the Merger, in excess of fifty percent (50%)
of the aggregate fair market value, immediately prior to the Merger, of all
outstanding shares of StrataCom
<PAGE> 14
Brobeck, Phleger & Harrison LLP May 28, 1996
Wilson Sonsini Goodrich & Rosati Page 4
capital stock. For purposes of this paragraph, shares of StrataCom capital stock
(or the portion thereof) (i) with respect to which a StrataCom stockholder
receives consideration in the Merger other than Cisco Common Stock (including,
without limitation, cash received in lieu of fractional shares of Cisco Common
Stock) and/or (ii) with respect to which a Sale occurs prior to and in
contemplation of the Merger shall be considered shares of outstanding StrataCom
capital stock exchanged for Cisco Common Stock in the Merger and then disposed
of pursuant to a Plan;
14. The payment of cash in lieu of fractional shares of Cisco is
solely for the purpose of avoiding the expense and inconvenience to Cisco of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the Merger to
StrataCom stockholders in lieu of fractional shares of Cisco Common Stock will
not exceed one percent (1%) of the total consideration that will be issued in
the Merger to StrataCom stockholders in exchange for their shares of StrataCom
capital stock. The fractional share interests of each StrataCom stockholder will
be aggregated, and on StrataCom stockholder will receive cash to any amount
greater than the value of one full share of Cisco Common Stock;
15. Except with respect to payments of cash to StrataCom
stockholders in lieu of fractional shares of Cisco Common Stock, one hundred
percent (100%) of the StrataCom capital stock outstanding immediately prior to
the Merger will be exchanged solely for Cisco Common Stock. Thus, except as set
forth in the preceding sentence, StrataCom intends that no consideration be paid
or received (directly or indirectly, actually or constructively) for StrataCom
capital stock other than Cisco Common Stock;
16. At the Effective Date of the Merger, the fair market value of
the Cisco Common Stock received by each StrataCom stockholder will be
approximately equal to the fair market value of the StrataCom capital stock
surrendered in exchange therefor, and the aggregate consideration received by
StrataCom stockholders in exchange for their StrataCom capital stock will be
approximately equal to the fair market value of all of the outstanding shares of
StrataCom capital stock immediately prior to the Merger;
17. No shares of Sub have been or will be used as consideration
or issued to stockholders of StrataCom pursuant to the Merger;
18. Except as otherwise specifically provided in the Agreement,
Sub, Cisco, StrataCom and stockholders of StrataCom will each pay separately its
or their own expenses in connection with the Merger;
19. There is no intercorporate indebtedness existing between
Cisco and StrataCom or between Sub and StrataCom that was issued, acquired or
will be settled at a
<PAGE> 15
Brobeck, Phleger & Harrison LLP May 28, 1996
Wilson Sonsini Goodrich & Rosati Page 5
discount as a result of the Merger, and Cisco will assume no liabilities of
StrataCom or any StrataCom stockholder in connection with the Merger;
20. The terms of the Agreement and all other agreements entered
into in connection therewith are the product of arm's-length negotiations;
21. None of the compensation received by any stockholder-
employees of StrataCom will be separate consideration for, or allocable to, any
of their shares of StrataCom capital stock; none of the shares of Cisco Common
Stock received by any stockholder-employees of StrataCom will be separate
consideration for, or allocable to, any employment agreement or any covenants
not to compete; and the compensation paid to any stockholder-employees of
StrataCom will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services;
22. No direct or indirect subsidiary of StrataCom owns any shares
of StrataCom capital stock;
23. No "poison pill" or similar rights will be associated with
shares of StrataCom capital stock on or prior to the date of the Merger;
24. With respect to each instance, if any, in which shares of
StrataCom capital stock have been purchased by a stockholder of Cisco (a
"Stockholder") during the Pre-Merger Period (a "Stock Purchase"); (i) to the
best knowledge of StrataCom, (A) the Stock Purchase was made by such Stockholder
on its own behalf and with its own funds, rather than as a representative, or
for the benefit, of Cisco (B) the Stock Purchase was entered into solely to
satisfy the separate interests of such Stockholder and the seller and (C) the
purchase price paid by such Stockholder pursuant to the Stock Purchase was the
product of arm's length negotiations and (ii) the Stock Purchase was not a
formal or informal condition to consummation of the Merger;
25. Each of the representations made by StrataCom in the
Agreement and any other documents associated therewith is true and accurate; and
26. StrataCom is authorized to make all of the representations
set forth herein.
<PAGE> 16
Brobeck, Phleger & Harrison LLP May 28, 1996
Wilson Sonsini Goodrich & Rosati Page 6
B. RELIANCE BY YOU IN RENDERING OPINIONS;
LIMITATIONS ON YOUR OPINIONS
1. The undersigned recognizes that (i) your opinions will be
based on the representations set forth herein and on the statements contained in
the Agreement and documents related thereto and (ii) your opinions will be
subject to certain limitations and qualifications including that they may not be
relied upon if any such representations are not accurate in all material
respects.
2. Notwithstanding anything herein to the contrary, the
undersigned makes no representations regarding any actions or conduct of
StrataCom pursuant to Cisco's exercise of control over StrataCom after the
Merger.
3. The undersigned recognizes that your opinions will not
address any tax consequences of the Merger or any action taken in connection
therewith except as expressly set forth in such opinions.
Very truly yours,
STRATACOM, INC., a Delaware corporation
By: /s/ Dave Vellequette
-----------------------------------
Title: Controller
-------------------------------
<PAGE> 1
EXHIBIT 8.2
[WILSON, SONSINI, GOODRICH & ROSATI LETTERHEAD]
June 4, 1996
StrataCom, Inc.
1400 Parkmoor Avenue
San Jose, California 95126
Ladies and Gentlemen:
This opinion is delivered to you pursuant to Section 6.1(e) of the
Agreement and Plan of Reorganization (the "Agreement") among Cisco Systems,
Inc., a California corporation ("Cisco"), its wholly owned subsidiary, Jet
Acquisition Corporation, Delaware corporation ("Sub"), and StrataCom, Inc., a
Delaware corporation ("StrataCom"), dated April 21, 1996. Pursuant to the
Agreement, Sub will merge with and into StrataCom (the "Merger"), and StrataCom
will become a wholly owned subsidiary of Cisco.
Except as otherwise provided, capitalized terms referred to herein have
the meanings set forth in the Agreement. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
We have acted as legal counsel to StrataCom in connection with the
Merger. As such, and for the purpose of rendering this opinion, we have
examined (or will examine on or prior to the Effective Date) and are relying
(or will rely) upon (without any independent investigation or review thereof)
the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in the following documents
(including all schedules and exhibits thereto):
1. The Agreement;
2. Representations made to us by Cisco and Sub in a letter reproduced
as Exhibit A hereto;
3. Representations made to us by StrataCom in a letter reproduced as
Exhibit B hereto;
4. Representations made by certain shareholders of StrataCom in
"Affiliates Agreements."
5. The Registration Statement;
<PAGE> 2
[WILSON SONSINI GOODRICH & ROSATI LETTERHEAD]
WILSON SONSINI GOODRICH & ROSATI
StrataCom, Inc.
June 4, 1996
Page 2
6. An opinion of Brobeck, Phleger & Harrison substantially
identical in form and substance to this opinion (the "BP&H Tax Opinion"); and
7. Such other instruments and documents related to the formation,
organization and operation of Cisco, StrataCom and Sub or to the consummation
of the Merger and the transactions contemplated thereby as we have deemed
necessary or appropriate;
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:
1. Original documents (including signatures) are authentic,
documents submitted to us as copies conform to the original documents, and
there has been (or will be by the Effective Time) due execution and delivery of
all documents where due execution and delivery are prerequisites to
effectiveness thereof,
2. The Merger will be consummated in accordance with the Agreement
and will be effective under the laws of the State of Delaware;
3. The shareholders of StrataCom do not, and will not on or before
the Effective Date, have an existing plan or intent to dispose of an amount of
Cisco Common Stock to be received in the Merger (or to dispose of StrataCom
capital stock in anticipation of the Merger) such that the shareholders of
StrataCom will not receive and retain a meaningful continuing equity ownership
in Cisco that is sufficient to satisfy the continuity of interest requirement
as specified in Treasury Regulation Section 1.368-1(b) and as interpreted in
certain Internal Revenue Service rulings and federal judicial decisions;
4. After the Merger, StrataCom will hold "substantially all" of
its and Sub's properties within the meaning of Section 368(a)(2)(E)(i) of the
Code and the regulations promulgated thereunder;
5. To the extent any expenses relating to the Merger (or the "plan
of reorganization" within the meaning of Treasury Regulations Section
1.368-1(c) with respect to the Merger) are funded directly or indirectly by a
part other than the incurring party, such expenses will be within the
guidelines established in Revenue Ruling 73-54,1973-1 C.B. 187;
6. No StrataCom shareholder guaranteed any StrataCom indebtedness
outstanding during the period immediately prior to the Merger, and at all
relevant times, including as of the Effective Time, (i) no outstanding
indebtedness of StrataCom, Cisco or Sub has or will represent equity for tax
purposes; and (ii) no outstanding equity of StrataCom, Cisco or Sub has or will
represent indebtedness for tax purposes, and
<PAGE> 3
[WILSON SONSINI GOODRICH & ROSATI LETTERHEAD]
StrataCom, Inc.
June 4, 1996
Page 3
7. The BP&H Tax Opinion has been delivered and not withdrawn.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we
are of the opinion that, for federal income tax purposes, the Merger will be a
"reorganization" as defined in Section 368(a) of the Code.
In addition to the assumptions set forth above, this opinion is subject
to the exceptions, limitations and qualifications set forth below.
1. This opinion represents and is based upon our best judgment
regarding the application of federal income tax laws arising under the Code,
existing judicial decisions, administrative regulations and published rulings
and procedures. Our opinion is not binding upon the Internal Revenue Service or
the courts, and there is no assurance that the Internal Revenue Service will
not successfully assert a contrary position. Furthermore, no assurance can be
given that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, would not adversely affect the accuracy of
the conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
2. This opinion addresses only the classification of the Merger as a
reorganization under Section 368(a) of the Code, and does not address any
other federal, state, local or foreign tax consequences that may result from
the Merger or any other transaction (including any transaction undertaken in
connection with the Merger). In particular, we express no opinion regarding (i)
whether and the extent to which any StrataCom shareholder who has provided or
will provide services to StrataCom, Cisco or Sub will have compensation income
under any provision of the Code; (ii) if the effects of such compensation
income, including but not limited to the effect upon the basis and holding
period of Cisco stock received by any such shareholder in the Merger, (iii) the
potential application of the "golden parachute" provisions (Sections 280G,
3121(v)(2) and 4999) of the Code, the alternative minimum tax provisions
(Sections 55, 56 and 57) of the Code or Sections 305, 306, 357, 424 and 708, or
the regulations promulgated thereunder; (iv) other than that the Merger will be
a reorganization within the meaning of the Code Section 368 and the
consequences that follow directly and solely from such characterization, the
corporate level tax consequences of the Merger to Cisco, Sub or StrataCom,
including without limitation the survival and/or availability, after the Merger
of any of the federal income tax attributes or elections of StrataCom, after
application of any of provision of the Code, as well as the regulations
promulgated thereunder and judicial interpretations thereof; (v) the basis of
any equity interest in StrataCom acquired by Cisco in the Merger; (vi) the tax
consequences of any transaction in which StrataCom stock or a right to acquire
StrataCom stock was received; (vii) the tax consequences of the Merger to
holders of options or warrants for StrataCom; or (viii) the tax consequences
that may be relevant to particular classes of StrataCom stockholders
<PAGE> 4
[WILSON, SONSINI, GOODRICH & ROSATI LETTERHEAD]
StrataCom, Inc.
June 4, 1996
Page 4
such as dealers in securities, corporate shareholders subject to the alternative
minimum tax, foreign persons, and holders of shares acquired upon exercise of
stock options or in other compensatory transactions.
3. No opinion is expressed as to any transaction other than the
Merger as described in the Agreement or to any transaction whatsoever,
including the Merger, if all the transactions described in the Agreement are
not consummated in accordance with the terms of such Agreement and without
waiver or breach of any material provision thereof if all of the
representations, warranties, statements and assumptions upon which we relied
are not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have
relied to issue this opinion is incorrect, our opinion might be adversely
affected and may not be relied upon.
4. This opinion has been delivered to you for the purpose of
satisfying the conditions set forth in Section 6.1(e) of the Agreement and is
intended solely for your benefit; it may not be relied upon for any other
purpose or by any other person or entity, and may not be made available to any
other person or entity without our prior written consent. We hereby consent to
the filing of this opinion as an exhibit to the Registration Statement and
further consent to all references to us in the Registration Statement.
Very truly yours,
/s/ Wilson, Sonsini, Goodrich & Rosati
--------------------------------------
Wilson, Sonsini, Goodrich & Rosati
Enclosures
<PAGE> 5
Exhibit A
May 28, 1996
Brobeck, Phleger & Harrison LLP Wilson Sonsini Goodrich & Rosati
Two Embarcadero Place 650 Page Mill Road
2200 Geng Road Palo Alto, CA 94303-1050
Palo Alto, California 94306
Re: Merger pursuant to the Agreement and Plan of Reorganization
(the "Agreement") dated April 21, 1996, among Jet Acquisition
Corporation, a Delaware corporation ("Sub"), Cisco Systems,
Inc., a California corporation ("Cisco"), and StrataCom,
Inc., a Delaware corporation ("StrataCom")
Gentlemen:
This letter is supplied to you in connection with your rendering
of opinions pursuant to Section 6.1(e) of the Agreement regarding certain
federal income tax consequences of the Merger. Unless otherwise indicated,
capitalized terms not defined herein have the meanings set forth in the
Agreement.
A. Representations
After consulting with its counsel and auditors regarding the
meaning of and factual support for the following representations, the
undersigned hereby certifies and represents that the following facts are now
true and will continue to be true through the Effective Date of the Merger:
1. Pursuant to the Merger, Sub will merge with and into
StrataCom, and StrataCom will acquire all of the assets and liabilities of Sub.
At least ninety percent (90%) of the fair market value of the net assets and at
least seventy percent (70%) of the fair market value of the gross assets held by
StrataCom immediately prior to the Merger will continue to be held by StrataCom
<PAGE> 6
Brobeck, Phleger & Harrison, LLP May 28, 1996
Wilson Sonsini Goodrich & Rosati Page 2
immediately after the Merger. For the purpose of determining the percentage of
StrataCom's net and gross assets held by it immediately following the Merger,
the following assets will be treated as property held by StrataCom immediately
prior to but not subsequent to the Merger: (i) assets disposed of by StrataCom
prior to or subsequent to the Merger and in contemplation thereof (including
without limitation, any asset disposed of by StrataCom, other than the ordinary
course of business, pursuant to a plan or intent existing during the period
ending on the Effective Date of the Merger and beginning with the commencement
of negotiations (whether formal or informal) with Cisco regarding the Merger
(the "Pre-Merger Period")), (ii) assets used by StrataCom to pay other expenses
or liabilities incurred in connection with the Merger and (iii) assets used to
make distribution, redemption or other payments in respect of StrataCom capital
stock or rights to acquire such stock (including payments treated as such for
tax purposes) that are made in contemplation of the Merger or related thereto;
2. StrataCom has made no transfer of any of its assets
(including any distribution of assets with respect to, or in redemption of,
stock) in contemplation of the Merger or during the Pre-Merger Period other than
(i) in the ordinary course of business and (ii) payments for expenses incurred
in connection with the Merger;
3. StrataCom is participating in the Merger for good and valid
business reasons and not for tax purposes;
4. At the time of the Merger, except as specified in, or
disclosed in the Agreement or in a schedule or exhibit to, the Agreement,
StrataCom will have no outstanding warrants, options or convertible securities
nor any other type of right outstanding pursuant to which any person could
acquire shares of StrataCom capital stock or any other equity interest in
StrataCom;
5. In the Merger, shares of StrataCom capital stock representing
"Control" of StrataCom will be exchanged solely for voting stock of Cisco; at
the time of the Merger, there will exist no rights to acquire StrataCom capital
stock or to vote (or restrict or otherwise control the vote of) StrataCom
capital stock which, if exercised, could affect Cisco's acquisition and
retention of Control of StrataCom. For purposes of this paragraph, shares of
StrataCom capital stock exchanged in the Merger for cash and other property
(including, without limitation, cash paid to StrataCom stockholders in lieu of
fractional shares of Cisco Common Stock) will be treated as StrataCom capital
stock outstanding on the date of the Merger but not exchanged for voting stock
of Cisco. As used herein, "Control" of a corporation shall consist of ownership
of stock possessing at least eighty percent (80%) of the total combined voting
power of all classes of stock entitled to vote and at least eighty percent (80%)
of the total number of shares of all other classes of stock of the corporation.
For purposes of determining Control, a person shall not be considered to own
voting stock if rights to vote such stock (or to restrict or
<PAGE> 7
Brobeck, Phleger & Harrison, LLP May 28, 1996
Wilson Sonsini Goodrich & Rosati Page 3
otherwise control the voting of such stock) are held by a third party (including
a voting trust) other than an agent of such person;
6. StrataCom has no obligation, understanding, agreement or
intention to issue additional shares of stock after the Merger that would result
in Cisco losing Control of StrataCom;
7. The liabilities of StrataCom have been incurred by StrataCom
in the ordinary course of its business;
8. The fair market value of StrataCom's assets will, on the
Effective Date, exceed the aggregate liabilities of StrataCom;
9. Other than shares of StrataCom capital stock or options to
acquire StrataCom capital stock issued as compensation to present or former
service providers (including, without limitation, employees and directors) of
StrataCom in the ordinary course of business, no issuances of StrataCom capital
stock or rights to acquire StrataCom capital stock have occurred or will occur
during the Pre-Merger Period other than pursuant to options, warrants or
agreements, outstanding prior to the Pre-Merger Period or as otherwise
specifically identified in the Agreement;
10. Case or other property paid to employees of StrataCom during
the Pre-Merger Period has been or will be in the ordinary course of business or
pursuant to agreements entered into prior to the Pre-Merger Period;
11. StrataCom is not and will not be on the Effective Date an
"investment company" within the meaning of Section 368(a)(2)(F)(iii) and (iv) of
the Code;
12. StrataCom is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Code;
13. StrataCom has on knowledge of any plan or intention on the
part of StrataCom's stockholders (a "Plan") to engage in a sale, exchange,
transfer, distribution, pledge, disposition or any other transaction which
results in a reduction in the risk of ownership or a direct or indirect
disposition (a "Sale") of shares of Cisco Common Stock to be issued to such
stockholders in the Merger, which shares would have an aggregate fair market
value, as of the Effective Date of the Merger, in excess of fifty percent (50%)
of the aggregate fair market value, immediately prior to the Merger, of all
outstanding shares of StrataCom capital stock. For purposes of this paragraph,
shares of StrataCom
<PAGE> 8
Brobeck, Phleger & Harrison, LLP May 28, 1996
Wilson Sonsini Goodrich & Rosati Page 4
capital stock (or the portion thereof) (i) with respect to which a StrataCom
stockholder receives consideration in the Merger other than Cisco Common Stock
(including, without limitation, cash received in lieu of fractional shares of
Cisco Common Stock) and/or (ii) with respect to which a Sale occurs prior to and
in contemplation of the Merger shall be considered shares of outstanding
StrataCom capital stock exchanged for Cisco Common Stock in the Merger and then
disposed of pursuant to a Plan;
14. The payment of cash in lieu of fractional shares of Cisco is
solely for the purpose of avoiding the expense and inconvenience to Cisco of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the Merger to
StrataCom stockholders in lieu of fractional shares of Cisco Common Stock will
not exceed one percent (1%) of the total consideration that will be issued in
the Merger to StrataCom stockholders in exchange for their shares of StrataCom
capital stock. The fractional share interests of each StrataCom stockholder will
be aggregated, and on StrataCom stockholder will receive cash to any amount
greater than the value of one full share of Cisco Common Stock;
15. Except with respect to payments of cash to StrataCom
stockholders in lieu of fractional shares of Cisco Common Stock, one hundred
percent (100%) of the StrataCom capital stock outstanding immediately prior to
the Merger will be exchanged solely for Cisco Common Stock. Thus, except as set
forth in the preceding sentence, StrataCom intends that no consideration be paid
or received (directly or indirectly, actually or constructively) for StrataCom
capital stock other than Cisco Common Stock;
16. At the Effective Date of the Merger, the fair market value of
the Cisco Common Stock received by each StrataCom stockholder will be
approximately equal to the fair market value of the StrataCom capital stock
surrendered in exchange therefor, and the aggregate consideration received by
StrataCom stockholders in exchange for their StrataCom capital stock will be
approximately equal to the fair market value of all of the outstanding shares of
StrataCom capital stock immediately prior to the Merger;
17. No shares of Sub have been or will be used as consideration
or issued to stockholders of StrataCom pursuant to the Merger;
18. Except as otherwise specifically provided in the Agreement,
Sub, Cisco, StrataCom and stockholders of StrataCom will each pay separately its
or their own expenses in connection with the Merger;
19. There is no intercorporate indebtedness existing between
Cisco and StrataCom or between Sub and StrataCom that was issued, acquired or
will be settled at a
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Brobeck, Phleger & Harrison, LLP May 28, 1996
Wilson Sonsini Goodrich & Rosati Page 5
discount as a result of the Merger, and Cisco will assume no liabilities of
StrataCom or any StrataCom stockholder in connection with the Merger;
20. The terms of the Agreement and all other agreements entered
into in connection therewith are the product of arm's-length negotiations;
21. None of the compensation received by any stockholder-
employees of StrataCom will be separate consideration for, or allocable to, any
of their shares of StrataCom capital stock; none of the shares of Cisco Common
Stock received by any stockholder-employees of StrataCom will be separate
consideration for, or allocable to, any employment agreement or any covenants
not to compete; and the compensation paid to any stockholder-employees of
StrataCom will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services;
22. No direct or indirect subsidiary of StrataCom owns any shares
of StrataCom capital stock;
23. No "poison pill" or similar rights will be associated with
shares of StrataCom capital stock on or prior to the date of the Merger;
24. With respect to each instance, if any, in which shares of
StrataCom capital stock have been purchased by a stockholder of Cisco (a
"Stockholder") during the Pre-Merger Period (a "Stock Purchase"); (i) to the
best knowledge of StrataCom, (A) the Stock Purchase was made by such Stockholder
on its own behalf and with its own funds, rather than as a representative, or
for the benefit, of Cisco (B) the Stock Purchase was entered into solely to
satisfy the separate interests of such Stockholder and the seller and (C) the
purchase price paid by such Stockholder pursuant to the Stock Purchase was the
product of arm's length negotiations and (ii) the Stock Purchase was not a
formal or informal condition to consummation of the Merger;
25. Each of the representations made by StrataCom in the
Agreement and any other documents associated therewith is true and accurate; and
26. StrataCom is authorized to make all of the representations
set forth herein.
<PAGE> 10
Brobeck, Phleger & Harrison, LLP May 28, 1996
Wilson Sonsini Goodrich & Rosati Page 6
B. RELIANCE BY YOU IN RENDERING OPINIONS;
LIMITATIONS ON YOUR OPINIONS
1. The undersigned recognizes that (i) your opinions will be
based on the representations set forth herein and on the statements contained in
the Agreement and documents related thereto and (ii) your opinions will be
subject to certain limitations and qualifications including that they may not be
relied upon if any such representations are not accurate in all material
respects.
2. Notwithstanding anything herein to the contrary, the
undersigned makes no representations regarding any actions or conduct of
StrataCom pursuant to Cisco's exercise of control over StrataCom after the
Merger.
3. The undersigned recognizes that your opinions will not
address any tax consequences of the Merger or any action taken in connection
therewith except as expressly set forth in such opinions.
Very truly yours,
STRATACOM, INC., a Delaware corporation
By: s/s Dave Vellequette
-----------------------------------
Title: Controller
--------------------------------
<PAGE> 11
Exhibit A
June 6, 1996
Brobeck, Phleger & Harrison LLP Wilson Sonsini Goodrich & Rosati
Two Embarcadero Place 650 Page Mill Road
2200 Geng Road Palo Alto, CA 94303-1050
Palo Alto, California 94306
Re: Merger pursuant to the Agreement and Plan of
Reorganization (the "Agreement") dated April 21,
1996, among Jet Acquisition Corporation, a Delaware
corporation ("Sub"), Cisco Systems, Inc., a
California corporation ("Cisco"), and StrataCom,
Inc., a Delaware corporation ("StrataCom")
Gentlemen:
This letter is supplied to you in connection with your
rendering of opinions pursuant to Section 6.1(e) of the Agreement regarding
certain federal income tax consequences of the Merger. Unless otherwise
indicated, capitalized terms not defined herein have the meanings set forth in
the Agreement.
A. REPRESENTATIONS
After consulting with their counsel and auditors regarding the meaning
of and factual support for the following representations, the undersigned hereby
certify and represent that the following facts are now true and will continue to
be true as of the Effective Date of the Merger:
1. Pursuant to the Merger, Sub will merge with and into
StrataCom, and StrataCom will acquire all of the assets and liabilities of Sub.
At least ninety percent (90%) of the fair market value of the net assets and at
least seventy percent (70%) of the fair market value of the gross assets held by
StrataCom immediately prior
<PAGE> 12
Brobeck, Phleger & Harrison LLP June 6, 1996
Wilson Sonsini Goodrich & Rosati Page 2
to the Merger will continue to be held by StrataCom immediately after the
Merger. For the purpose of determining the percentage of StrataCom's net and
gross assets held by it immediately following the Merger, the following assets
will be treated as property held by StrataCom immediately prior but not
subsequent to the Merger: (i) assets disposed of by StrataCom prior to or
subsequent to the Merger and in contemplation thereof (including without
limitation any asset disposed of by StrataCom, other than in the ordinary course
of business, pursuant to a plan or intent existing during the period ending on
the Effective Date and beginning with the commencement of negotiations (whether
formal or informal) with Cisco regarding the Merger (the "Pre-Merger Period")),
(ii) assets used by StrataCom to pay other expenses or liabilities incurred in
connection with the Merger, and (iii) assets used to make distribution,
redemption or other payments in respect of StrataCom capital stock or rights to
acquire such stock (including payments treated as such for tax purposes) that
are made in contemplation of the Merger or related thereto;
2. Cisco is participating in the Merger for good and valid
business reasons and not for tax purposes;
3. Prior to the Merger, Cisco will be in "Control" of Sub. As
used herein, "Control" of a corporation shall consist of ownership of stock
possessing at least eighty percent (80%) of the total combined voting power of
all classes of stock entitled to vote and at least eighty percent (80%) of the
total number of shares of all other classes of stock of the corporation. For
purposes of determining Control, a person shall not be considered to own voting
stock if rights to vote such stock (or to restrict or otherwise control the
voting of such stock) are held by a third party (including a voting trust) other
than an agent of such person;
4. In the Merger, all shares of StrataCom capital stock will
be exchanged solely for voting stock of Cisco, except to the extent of cash paid
in lieu of fractional shares in accordance with the terms of the Merger
Agreement;
5. Cisco has no plan or intention to cause StrataCom to issue
addi- tional shares of stock after the Merger that would result in Cisco losing
Control of StrataCom;
6. Cisco has no plan or intention to reacquire any of its
stock issued pursuant to the Merger;
7. Except for transfers described in both Section 368(a)(2)(C)
of the Internal Revenue Code of 1986, as amended (the "Code"), and Treasury
Regulation Section 1.368-2(j)(4), Cisco has no current plan or intention to (i)
liquidate StrataCom;
<PAGE> 13
Brobeck, Phleger & Harrison LLP June 6, 1996
Wilson Sonsini Goodrich & Rosati Page 3
(ii) merge StrataCom with or into another corporation including Cisco or its
affiliates; (iii) sell, distribute or otherwise dispose of the capital stock of
StrataCom; or (iv) cause StrataCom to sell or otherwise dispose of any of its
assets (or any assets acquired from Sub) except for dispositions made in the
ordinary course of business or payment of expenses incurred by StrataCom
pursuant to the Merger (including payments made with respect to fractional
shares); provided, however, that nothing herein shall be understood to impose
any limitation on the right of Cisco to transfer assets or engage in any other
transaction which Cisco may determine to be necessary, appropriate or desirable
in the exercise of its business judgment after the Merger in response to the
circumstances then existing (as opposed to a plan or intention arising prior to
the Merger); and provided further that nothing herein shall be understood to
impose any limitation on Cisco to merge StrataCom into itself pursuant to a
ruling received from the Internal Revenue Service that the Merger and such
subsequent merger will, if considered part of an integrated transaction,
constitute a reorganization described in Section 368(a)(1)(A) of the Code;
8. In the Merger, Sub will have no liabilities assumed by
StrataCom and will not transfer to StrataCom any assets subject to liabilities;
9. Cisco intends that, following the Merger, the historic
business of StrataCom will be continued;
10. Neither Cisco nor any current or former subsidiary of
Cisco owns, or has owned during the past five (5) years, directly or indirectly,
any shares of StrataCom capital stock, or the right to acquire or vote any such
shares (except such rights as are granted in the Agreement);
11. Cisco is not an investment company within the meaning of
Sections 368(a)(2)(F)(iii) and (iv) of the Code;
12. No shareholder of StrataCom is acting as agent for Cisco
in connection with the Merger or approval thereof, and Cisco will not reimburse
any StrataCom shareholder for StrataCom capital stock such shareholder may have
purchased or for other obligations such shareholder may have incurred;
13. Neither Cisco nor Sub is under the jurisdiction of a court
in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Code;
14. Cisco has no knowledge of any plan or intention on the
part of StrataCom's shareholders (a "Plan") to engage in a sale, exchange,
transfer, distribution, pledge, disposition or any other transaction which
results in a reduction in the risk of
<PAGE> 14
Brobeck, Phleger & Harrison LLP June 6, 1996
Wilson Sonsini Goodrich & Rosati Page 4
ownership or a direct or indirect disposition (a "Sale") of shares of Cisco
Common Stock to be issued to such shareholders in the Merger, which shares would
have an aggregate fair market value, as of the Effective Date of the Merger, in
excess of fifty percent (50%) of the aggregate fair market value, immediately
prior to the Merger, of all outstanding shares of StrataCom capital stock. For
purposes of this paragraph, shares of StrataCom capital stock (or the portion
thereof) (i) with respect to which a StrataCom shareholder receives
consideration in the Merger other than Cisco Common Stock (including, without
limitation, cash received in lieu of fractional shares of Cisco Common Stock)
and/or (ii) with respect to which a Sale occurs prior to and in contemplation of
the Merger shall be considered shares of outstanding StrataCom capital stock
exchanged for Cisco Common Stock in the Merger and then disposed of pursuant to
a Plan;
15. The payment of cash in lieu of fractional shares of Cisco
is solely for the purpose of avoiding the expense and inconvenience to Cisco of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the Merger to
StrataCom shareholders in lieu of fractional shares of Cisco Common Stock will
not exceed one percent (1%) of the total consideration that will be issued in
the Merger to StrataCom shareholders in exchange for their shares of StrataCom
capital stock. The fractional share interests of each Strata-Com shareholder
will be aggregated and no StrataCom shareholder will receive cash in an amount
greater than the value of one full share of Cisco Common Stock;
16. Except with respect to payments of cash to StrataCom
shareholders in lieu of fractional shares of Cisco Common Stock, one hundred
percent (100%) of the StrataCom capital stock outstanding immediately prior to
the Merger will be exchanged solely for Cisco Common Stock. Thus, except as set
forth in the preceding sentence, Sub and Cisco intend that no consideration be
paid or received (directly or indirectly, actually or constructively) for
StrataCom capital stock other than Cisco Common Stock;
17. At the Effective Time of the Merger, the fair market value
of the Cisco Common Stock received by each StrataCom shareholder will be
approximately equal to the fair market value of the StrataCom capital stock
surrendered in exchange therefor, and the aggregate consideration received by
StrataCom shareholders in exchange for their StrataCom capital stock will be
approximately equal to the fair market value of all of the outstanding shares of
StrataCom capital stock immediately prior to the Merger;
18. No shares of Sub have been or will be used as
consideration or issued to shareholders of StrataCom pursuant to the Merger;
<PAGE> 15
Brobeck, Phleger & Harrison LLP June 6, 1996
Wilson Sonsini Goodrich & Rosati Page 5
19. Except as otherwise specifically provided in the
Agreement, Sub, Cisco, StrataCom and the shareholders of StrataCom will each pay
separately its or their own expenses in connection with the Merger;
20. There is no intercorporate indebtedness existing between
Cisco and StrataCom or between Sub and StrataCom that was issued, acquired or
will be settled at a discount as a result of the Merger, and Cisco will assume
no liabilities of StrataCom or any StrataCom shareholder in connection with the
Merger;
21. The terms of the Agreement and all other agreements
entered into in connection therewith are the product of arm's-length
negotiations;
22. None of the compensation received by any
shareholder-employees of StrataCom will be separate consideration for, or
allocable to, any of their shares of StrataCom capital stock; none of the shares
of Cisco Common Stock received by any shareholder-employees of StrataCom will be
separate consideration for, or allocable to, any employment agreement or any
covenants not to compete; and the compensation paid to any shareholder-employees
of StrataCom will be for services actually rendered and will be commensurate
with amounts paid to third parties bargaining at arm's length for similar
services;
23. No "poison pill" or similar rights will be associated with
the Cisco Common Stock on or prior to the date of the Merger;
24. With respect to each instance, if any, in which shares of
StrataCom capital stock have been purchased by a shareholder of Cisco (a
"Shareholder") during the Pre-Merger Period (a "Stock Purchase"): (i) the Stock
Purchase was made by such Shareholder on its own behalf and with its own funds
and not as a representative, or for the benefit, of Cisco; (ii) the purchase
price paid by such Shareholder pursuant to the Stock Purchase was the product of
arm's-length negotiations, was funded by such Shareholder's own assets, and was
not advanced, and will not be reimbursed, either directly or indirectly, by
Cisco; (iii) at no time was such Shareholder or any other party required or
obligated to surrender to Cisco the StrataCom capital stock acquired in the
Stock Purchase, and neither such Shareholder nor any other party will be
required to surrender to Cisco the Cisco Common Stock for which such shares of
StrataCom capital stock will be exchanged in the Merger; and (iv) the Stock
Purchase was not a formal or informal condition to consummation of the Merger
and was entered into solely to satisfy the separate interests of such
Shareholder and the seller;
25. Each of the representations made by Cisco and Sub in the
Agreement and any other documents associated therewith is true and accurate;
and
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Brobeck, Phleger & Harrison LLP June 6, 1996
Wilson Sonsini Goodrich & Rosati Page 6
26. Cisco and Sub are authorized to make all of the
representations set forth herein.
B. RELIANCE BY YOU IN RENDERING OPINIONS; LIMITATIONS ON YOUR
OPINIONS
1. The undersigned recognize that (i) your opinions will be
based on the representations set forth herein and on the statements contained in
the Agreement and the documents related thereto and (ii) your opinions will be
subject to certain limitations and qualifications including that they may not be
relied upon if any such representations are not accurate in all material
respects.
2. The undersigned recognize that your opinions will not
address any tax consequences of the Merger or any action taken in connection
therewith except as expressly set forth in such opinions.
Very truly yours,
CISCO SYSTEMS, INC., a California
corporation
By s/s Larry R. Carter
-------------------------------
Title CFO and Secretary
----------------------------
JET ACQUISITION CORPORATION,
a Delaware corporation
By s/s Larry R. Carter
-------------------------------
Title CFO and Secretary
----------------------------
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
Cisco Systems, Inc. on Form S-4 of our reports dated August 15, 1995, on our
audits of the consolidated financial statements and financial statement schedule
of Cisco Systems, Inc. as of July 30, 1995 and July 31, 1994 and for each of the
years in the period ended July 30, 1995. We also consent to the reference to our
firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
San Jose, California
June 7, 1996
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated January 18, 1996
incorporated by reference in StrataCom, Inc.'s Form 10-K for the year ended
December 31, 1995 and to all references to our Firm included in the
registration statement.
ARTHUR ANDERSEN LLP
San Jose, California
June 7, 1996
<PAGE> 1
Exhibit 23.4
[MONTGOMERY SECURITIES LETTERHEAD]
Members of the Board of Directors
StrataCom, Inc.
1400 Parkmoor Avenue
San Jose, CA 95126
Gentlemen:
We hereby consent to the inclusion of our opinion letter dated April
22, 1996 to the Board of Directors of StrataCom, Inc. (the "Company") regarding
the acquisition of StrataCom, Inc. by Cisco Systems, Inc., in StrataCom, Inc.
and Cisco Systems, Inc.'s Joint Proxy Statement/Prospectus on Form S-4 (the
"Registration Statement") and to the references therein to our firm and to our
opinion under the headings: Background of the Merger, StrataCom's Reason for
the Merger and Opinion of StrataCom's Financial Advisor. In giving the
foregoing consent, we do not admit and we hereby disclaim (i) that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of the 1933, as amended (the "Securities Act"), or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder,
and (ii) that we are experts with respect to any part of the Registration
Statement within the meaning of the term "experts" as used in the Securities Act
and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
/s/ Montgomery Securities
-----------------------------------
MONTGOMERY SECURITIES
<PAGE> 1
EXHIBIT 99.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DETACH HERE
PROXY
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 9, 1996
STRATACOM, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, having received the Notice of Special Meeting of
Stockholders and the Proxy Statement/Prospectus, hereby appoint(s)
Richard M. Moley, Sanjay Subhedar, and Craig W. Johnson, and each of
them, Proxies of the undersigned (with full power of substitution) to
attend the Special Meeting of Stockholders of StrataCom, Inc.
("StrataCom") to be held on July 9, 1996, and all postponements and
adjournments thereof (the "Meeting"), and to vote all shares of Common
Stock of StrataCom that the undersigned would be entitled to vote, if
personally present, in regard to all matters which may come before the
Meeting.
The undersigned hereby confer(s) the Proxies, and each of them,
discretionary authority to consider and act upon such business,
matters or proposals other than the business set forth below as may
properly come before the Meeting. THE PROXY WHEN PROPERLY EXECUTED
WILL BE VOTED IN THE MANNER SPECIFIED HEREIN. IF NO SPECIFICATION IS
MADE, THE PROXIES INTEND TO VOTE FOR THE PROPOSALS.
- --------------------------------------------------------------------------------
SEE REVERSE
Continued and to be signed on reverse side
SIDE
- --------------------------------------------------------------------------------
<PAGE> 2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DETACH HERE
/X/ PLEASE MARK VOTES AS IN THIS EXAMPLE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH PROPOSAL.
1. Adoption and approval of the Agreement and Plan of Reorganization
dated as of April 21, 1996 among StrataCom, Cisco Systems, Inc.,
and Jet Acquisition Corporation.
/ / FOR / / AGAINST / / ABSTAIN
2. Approval to adjourn the meeting in the event that the Board of
Directors wishes to continue to solicit votes to approve the
transaction. The subsequent meeting must be held prior to September
1, 1996.
/ / FOR / / AGAINST / / ABSTAIN
IN SIGNING, PLEASE WRITE NAME(S) EXACTLY AS APPEARING IN THE
IMPRINT ON THIS CARD. FOR SHARES HELD JOINTLY, EACH JOINT OWNER SHOULD
SIGN. IF SIGNING AS EXECUTOR, OR IN ANY OTHER REPRESENTATIVE CAPACITY,
OR AS AN OFFICER OF A CORPORATION, PLEASE INDICATE YOUR FULL TITLE AS
SUCH.
MARK HERE FOR ADDRESS CHANGE
AND NOTE AT LEFT. / /
Dated:
-------------------------------,
1996
-------------------------------
SIGNATURE
Dated:
-------------------------------,
1996
-------------------------------
SIGNATURE
<PAGE> 1
EXHIBIT 99.2
April 21, 1996
Dear 2-:
We are pleased to offer you the position of 3- with StrataCom, Inc.
("StrataCom"), a wholly-owned subsidiary of Cisco Systems, Inc. ("Cisco") at a
monthly salary not less than your current monthly salary as of the date hereof.
In addition, you would participate in all Cisco benefits for which you are
eligible. This would include the Cisco Incentive Plan. You would be eligible
for a bonus under that Plan for the current fiscal year that would be pro-rated
based on your tenure with Cisco this fiscal year. This offer is contingent on
the occurrence of the closing of Cisco's acquisition of StrataCom, and, if you
accept this offer, it would take effect as of that Closing Date. The remaining
terms of your employment would be a follows:
Term of Employment
You would be employed for a period of one (1) year from the Closing
Date unless either you or Cisco elect to terminate your employment before that
time. Either you or Cisco may terminate your employment at any time for any
reason with or without cause by giving written notice of such termination.
If Cisco terminates your employment "Without Cause" or if you resign
your employment for "Good Cause" prior to one (1) year after the Closing Date,
then Cisco will pay you a lump sum payment equal to the product of the number
of whole months remaining under the one year term of this Agreement and your
monthly base salary (prior to any reduction in salary that would constitute
"Good Cause" as defined herein), less applicable deductions, as severance. All
benefits and stock vesting would terminate as of the date of termination of
your employment. You would, of course, be paid your salary through your date of
termination, for the value of all unused vacation earned through that date,
and allowed to continue your medical coverage to the extent provided for by
COBRA, but you would not be entitled to any additional payments or benefits
except as set forth herein.
If you resigned "Without Good Cause" or your employment were
terminated for "Cause" within one (1) year of the Closing Date, then you would
be paid
<PAGE> 2
2
April 21, 1996 Page 2.
all salary and benefits through the date of termination of your employment, but
nothing else. A termination for "Cause" shall mean a termination for any of the
following reasons: (i) your failure to perform your duties (other than due to
accident, sickness or disability beyond your reasonable control) after receipt
of a written warning, (ii) engaging in misconduct which is demonstrably
injurious to Cisco; (iii) being convicted of a felony; (iv) committing an act
of fraud against, or the misappropriation of property belonging to, Cisco; or
(v) breach of this agreement or any confidentiality or proprietary information
agreement between you and Cisco. Cisco will provide written notice of the
reason for termination in the case of any termination for "Cause." A
termination for any other reason shall be a termination "Without Cause." It is
understood that during the term of this Agreement Cisco will not terminate you
"Without Cause" without the prior approval of Richard Moley, and if Richard
Moley is not then employed by Cisco then the current Chief Executive Officer of
Cisco. A resignation for "Good Cause" will occur if you resign your employment
within thirty (30) days of the occurrence of any of the following events: (1)
Any reduction in your base salary as specified herein, unless such reduction is
pursuant to a change in Cisco's compensation policies generally; (2) a material
reduction in your job duties which are inconsistent with the position initially
assigned to you by Cisco, or (3) notice that you must relocate to a facility
outside of the San Francisco Bay Area. A resignation by you in any other
circumstances will be considered a resignation "Without Good Cause."
If your employment with Cisco were to continue after one (1) year
beyond the Closing Date, then your employment would be on an "at-will" basis.
This means that either you or Cisco could terminate your employment at any time
for any reason with or without cause and without the obligation to pay you, or
your right to, any severance payment.
Your Position
You will initially have the title of 3-- of StrataCom, Inc. reporting
to Richard M. Moley. You will have whatever reasonable duties are assigned to
you. Cisco may change your title and duties as it sees fit. Cisco may not,
without your prior written consent, relocate you to a facility or require that
you perform substantial duties (to an extent greater than you were performing
prior to the Closing Date) outside of the San Francisco Bay Area.
Non-Competition
You understand and agree that this agreement is entered into in
connection with the acquisition by Cisco of all of the outstanding stock of
StrataCom.
<PAGE> 3
2-
April 21, 1996 Page 3.
You further understand and agree that you were a substantial shareholder of
StrataCom; a key and significant member of the management of StrataCom; and
that Cisco paid you substantial consideration in order to purchase your stock
interest in StrataCom. In addition, the parties agree that, prior to
acquisition by Cisco of the stock of StrataCom, StrataCom was engaged in its
business in each of the fifty states of the United States and in Canada. Cisco
represents and you understand that, following the acquisition by Cisco of the
stock of StrataCom, Cisco will continue conducting such business in all parts
of the United States and in Canada.
You agree that during your employment with Cisco you will not engage in
any other employment, business, or business related activity unless you receive
Cisco's prior written approval to hold such outside employment or engage in
such business or activity. Such written approval will not be unreasonably
withheld if such outside employment, business, or activity would not in any way
be competitive with the business or proposed business of Cisco or otherwise
conflict with or adversely affect in any way your performance of your
employment obligations to Cisco.
Commencing on the Closing Date and continuing until one (1) year after
the Closing Date, except as provided below, you will not, as an employee,
agent, consultant, advisor, independent contractor, general partner, officer,
director, stockholder, investor, lender or guarantor of any corporation,
partnership or other entity or in any other capacity directly or indirectly:
1. participate or engage in the design, development, manufacture,
production, marketing, sale or servicing of any product, or the
provision of any service, that directly relates to routing, WAN
or LAN switching, dial-up access servers, network management,
or internetworking or networking software (the "Business") in
the United States or Canada;
2. induce or attempt to induce any person who at the time of such
inducement is an employee of Cisco to perform work or services
for any other person or entity other than Cisco; or
3. permit your name to be used in connection with a competitive
Business. Notwithstanding the foregoing, you may own, directly
or indirectly, solely as an investment, up to one percent (1%)
of any class of "publicly traded securities" of any person or
entity which owns a competitive Business. The term "publicly
traded securities" shall mean securities that are traded on a
national securities
<PAGE> 4
2-
April 21, 1996 Page 4.
exchange or listed on the National Association of Securities
Dealers Automated Quotation System.
You will not be prohibited from competing with Cisco in the United States or
Canada, if Cisco, or any entity deriving title to its good will or shares,
ceases to carry on a like business therein.
If any restriction set forth in this non-competition section is found
by a court to be unreasonable, then you agree, and hereby submit, to the
reduction and limitation of such prohibition to such area or period as shall be
deemed reasonable.
You acknowledge that the services that you will provide to Cisco under
this agreement are unique and that irreparable harm will be suffered by Cisco
in the event of the breach by you of any of your obligations under this
agreement, and that Cisco will be entitled, in addition to its other rights, to
enforce by an injunction or decree of specific performance the obligation set
forth in this agreement.
Arbitration
We each agree that any and all disputes between us which arise out of
your employment, the termination of your employment, or under the terms of this
agreement (except for any claim arising out of or relating to the
non-competition clauses of this agreement) shall be resolved through final and
binding arbitration. This shall include, without limitation, disputes relating
to this agreement, any disputes regarding your employment by Cisco or the
termination thereof, claims for breach of contract or breach of the covenant of
good faith and fair dealing, and any claims of discrimination or other claims
under any federal, state or local law or regulation now in existence or
hereinafter enacted and as amended from time to time concerning in any way the
subject of your employment with Cisco or its termination. The only claims not
covered by this section are claims for benefits under the workers' compensation
laws or unemployment insurance laws or claims under the non-competition clauses
of this agreement. Binding arbitration will be conducted in Santa Clara,
California in accordance with the rules and regulations of the American
Arbitration Association. The parties will split the cost of the arbitration
filing and hearing fees, and the cost of the arbitrator; each side will bear
its own attorneys' fees, unless otherwise decided by the arbitrator. You
understand and agree that arbitration shall be instead of any civil litigation,
that each side waives its right to a jury trial, and that the arbitrator's
decision shall be final and binding to the fullest extent permitted by law and
enforceable by any court having jurisdiction thereof.
<PAGE> 5
2 --
April 21, 1996 Page 5
Miscellaneous Provisions
This agreement will be the entire agreement between you, Cisco and
StrataCom relating to your employment and the additional matters provided for
herein. This agreement supersedes and replaces any prior verbal or written
agreements between the parties except as provided for herein. This agreement
may be amended or altered only in a writing signed by you and the President of
Cisco.
This agreement shall be construed and interpreted in accordance with
the laws of the State of California. Each provision of this agreement is
severable from the others, and if any provision hereof shall be to any extent
unenforceable it and the other provisions shall continue to be enforceable to
the full extent allowable, as if such offending provision had not been a part
of this agreement.
This offer is also contingent on you executing the Cisco Proprietary
Information and Inventions Agreement, a copy of which is attached hereto.
If you have any questions about this offer, please contact me. If you
find this offer acceptable, please sign and date this letter below and return
it to me.
Sincerely,
Barbara Beck
I agree to the terms and conditions in this offer.
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Dated: April 21, 1996
