<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 1996
REGISTRATION NO. 33-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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)
CALIFORNIA 3679 77-0059951
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
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:
EDWARD M. LEONARD, ESQ. MICHAEL C. PHILLIPS, ESQ.
BROBECK, PHLEGER & HARRISON LLP MORRISON & FOERSTER LLP
TWO EMBARCADERO PLACE 755 PAGE MILL ROAD
2200 GENG ROAD PALO ALTO, CALIFORNIA 94304
PALO ALTO, CALIFORNIA 94303 (415) 813-5600
(415) 424-0160
----------------
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 TGV SOFTWARE, 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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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE(1)(2)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par
value................... 2,432,907 $46.375 $112,826,062 $38,905.54
</TABLE>
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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 February 21,
1996 in accordance with Rule 457 under the Securities Act of 1933.
(2) Of this amount, $18,857.08 was paid in connection with the filing of the
Preliminary Proxy material of TGV Software, Inc. on February 5, 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>
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
<TABLE>
<CAPTION>
TITLE OF FORM S-4 ITEM LOCATION IN PROXY STATEMENT/PROSPECTUS
---------------------- --------------------------------------
<C> <S>
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 TGV
Item 5. Pro Forma Financial
Information.................... Not Applicable
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>
<TABLE>
<CAPTION>
TITLE OF FORM S-4 ITEM LOCATION IN PROXY STATEMENT/PROSPECTUS
---------------------- --------------------------------------
<C> <S>
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
Item 15.Information With Respect to S-3
Companies....................... Not Applicable
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....................... Available Information; Summary; Market
Price and Dividend Information; Selected
Historical Financial Data and Comparative
Per Share Data; Principal Stockholders of
TGV; TGV Software, Inc.; Selected
Consolidated Financial Data of TGV; TGV's
Management's Discussion and Analysis of
Financial Conditions and Results of
Operations
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 TGV 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>
[TGV LOGO]
March 5, 1996
Dear Stockholder:
I am pleased to forward the enclosed Proxy Statement/Prospectus for the
Special Meeting (the "TGV Meeting") of Stockholders of TGV Software, Inc.
("TGV") to be held March 25, 1996 at 10:00 a.m. local time, at TGV's Scotts
Valley facilities located at 5617 Scotts Valley Drive, Suite 200, Scotts
Valley, California. The purpose of the TGV Meeting is to consider and vote
upon the combination of TGV with Cisco Systems, Inc. ("Cisco") through the
merger (the "Merger") of Big Sky Acquisition Corporation ("Merger Sub"), a
wholly-owned subsidiary of Cisco, with and into TGV.
The Merger is subject to the terms and conditions of an Agreement and Plan
of Reorganization, dated as of January 23, 1996, as amended (the
"Reorganization Agreement"), by and among Cisco, Merger Sub and TGV. In the
Merger, Merger Sub will be merged with and into TGV; TGV 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 TGV ("TGV Common
Stock") will be converted, without any action on the part of the holder
thereof, into the right to receive two-fifths (0.40) of a share of newly-
issued Common Stock of Cisco ("Cisco Common Stock"). In addition, Cisco will
assume TGV's obligations with respect to outstanding options and warrants to
purchase TGV Common Stock. The shares of Cisco Common Stock held by Cisco
stockholders prior to the Merger will remain unchanged by the Merger. It is
expected that, as a result of the Merger, Cisco will increase its fully-
diluted shares outstanding by approximately 3.0 million shares, which will
represent approximately 0.54% of Cisco's outstanding Common Stock as of
January 23, 1996. THE FOREGOING EXCHANGE RATIO BETWEEN CISCO SECURITIES AND
TGV SECURITIES HAS BEEN ADJUSTED TO REFLECT A TWO-FOR-ONE STOCK SPLIT EFFECTED
BY CISCO ON FEBRUARY 16, 1996.
The accompanying Proxy Statement/Prospectus provides a detailed description
of the Reorganization Agreement, certain business and financial information of
Cisco and TGV 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. UNLESS
OTHERWISE INDICATED, ALL INFORMATION IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS RELATED TO CISCO COMMON STOCK AND THE EXCHANGE RATIO
BETWEEN CISCO SECURITIES AND TGV SECURITIES HAS BEEN ADJUSTED TO REFLECT A
TWO-FOR-ONE STOCK SPLIT EFFECTED BY CISCO ON FEBRUARY 16, 1996.
THE TGV 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 TGV STOCKHOLDERS. THE BOARD HAS UNANIMOUSLY APPROVED
THE TERMS AND CONDITIONS OF THE REORGANIZATION AGREEMENT AND THE MERGER, AND
UNANIMOUSLY RECOMMENDS THAT THE TGV STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
REORGANIZATION AGREEMENT AND CONSUMMATION OF THE MERGER.
TGV retained the investment banking firm of Wessels, Arnold & Henderson,
L.L.C. ("Wessels") to advise it with respect to the consideration to be paid
by Cisco to the TGV stockholders pursuant to the Merger. Wessels delivered to
the TGV Board its written opinion dated January 23, 1996 that, in its opinion,
the consideration to
<PAGE>
be received by the holders of TGV Common Stock pursuant to the Reorganization
Agreement is fair, from a financial point of view, to the holders of TGV
Common Stock, as of the date of such opinion. A copy of the opinion is
attached to the Proxy Statement/Prospectus as Appendix B. At the request of
the TGV Board, Wessels delivered an update to its written opinion to the TGV
Board on February 27, 1996. In connection with preparing such update, Wessels
reviewed the information and analysis identified in the January 23, 1996
opinion in addition to reviewing certain other information made publicly
available subsequent to that date. Based on such information and analysis and
subject to the same limitations as were contained in the January 23, 1996
opinion, Wessels opined that the consideration to be received by the holders
of TGV's Common Stock pursuant to the Reorganization Agreement is fair, from a
financial point of view, to the holders of TGV's Common Stock, as of the date
of such update. TGV stockholders are urged to read the January 23, 1996
opinion in its entirety.
The Reorganization Agreement and the consummation of the Merger must be
approved by the holders of TGV Common Stock representing a majority of the
total votes cast on such matters by holders of TGV Common Stock present in
person or represented by proxy at the meeting and 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 TGV 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 TGV 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 consummation of the Merger.
Sincerely,
/s/ Craig A. Conway
Craig A. Conway
President and Chief Executive
Officer
<PAGE>
TGV SOFTWARE, INC.
101 COOPER STREET
SANTA CRUZ, CA 95060
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 25, 1996
----------------
TO THE STOCKHOLDERS OF TGV SOFTWARE, INC.
NOTICE IS HEREBY GIVEN that a Special Meeting (the "TGV Meeting") of
Stockholders of TGV Software, Inc., a Delaware corporation ("TGV"), will be
held at 10:00 a.m., local time, on March 25, 1996 at TGV's Scotts Valley
facilities located at 5617 Scotts Valley Drive, Suite 200, Scotts Valley,
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 January 23, 1996, as amended (the
"Reorganization Agreement"), by and among Cisco Systems, Inc., a California
corporation ("Cisco"), Big Sky Acquisition Corporation, a Delaware
corporation and a newly formed, wholly-owned subsidiary of Cisco ("Merger
Sub"), and TGV, and (b) the merger of Merger Sub with and into TGV (the
"Merger") whereby, among other things, TGV will survive the Merger and
become a wholly-owned subsidiary of Cisco, each outstanding share of TGV
Common Stock, $.001 par value per share ("TGV Common Stock"), will be
converted into two-fifths (0.40) of a share of Cisco Common Stock, no par
value per share ("Cisco Common Stock"), each outstanding option to purchase
a share of TGV Common Stock will be assumed by Cisco and converted into an
option to purchase two-fifths (0.40) of a share of Cisco Common Stock, with
the exercise price adjusted accordingly, and each outstanding warrant to
purchase a share of TGV Common Stock will be assumed by Cisco and converted
into a warrant to purchase two-fifths (0.40) of a share of Cisco Common
Stock, with the exercise price adjusted accordingly. THE FOREGOING EXCHANGE
RATIO BETWEEN CISCO SECURITIES AND TGV SECURITIES HAS BEEN ADJUSTED TO
REFLECT A TWO-FOR-ONE STOCK SPLIT EFFECTED BY CISCO ON FEBRUARY 16, 1996.
2. To transact such other business as may properly come before the TGV
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 February 15, 1996
as the record date for determining stockholders entitled to notice of and to
vote at the TGV Meeting and any adjournment or postponement thereof. Approval
of the Reorganization Agreement and the Merger will require the affirmative
vote of the holders of TGV Common Stock representing a majority of the total
votes cast on such matters by holders of TGV Common Stock present in person or
represented by proxy at the TGV Meeting and entitled to vote.
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE TGV 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 TGV
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 TGV MEETING MAY VOTE IN
PERSON EVEN IF SUCH STOCKHOLDER HAS RETURNED A PROXY.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ CRAIG A. CONWAY
Craig A. Conway
President and Chief Executive
Officer
Santa Cruz, California
March 5, 1996
<PAGE>
TGV SOFTWARE, INC.
PROXY STATEMENT
----------------
CISCO SYSTEMS, INC.
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to the stockholders of
TGV Software, Inc., a Delaware corporation ("TGV"), in connection with the
solicitation of proxies by the TGV Board of Directors for use at the Special
Meeting of TGV stockholders (the "TGV Meeting") to be held at 10:00 a.m.,
local time, on March 25, 1996, at TGV's Scotts Valley facilities located at
5617 Scotts Valley Drive, Suite 200, Scotts Valley, California, and at any
adjournments or postponements of the TGV 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 Big Sky Acquisition Corporation, a Delaware
corporation and a newly formed, wholly-owned subsidiary of Cisco ("Merger
Sub"), with and into TGV under the terms of the Agreement and Plan of
Reorganization, as amended (the "Reorganization Agreement"), dated as of
January 23, 1996, by and among Cisco, Merger Sub and TGV. A copy of the
Reorganization Agreement is attached hereto as Appendix A. As a result of the
Merger, TGV will become a wholly-owned subsidiary of Cisco. UNLESS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS RELATED TO CISCO
COMMON STOCK AND THE EXCHANGE RATIO BETWEEN CISCO SECURITIES AND TGV
SECURITIES HAS BEEN ADJUSTED TO REFLECT A TWO-FOR-ONE STOCK SPLIT EFFECTED BY
CISCO ON FEBRUARY 16, 1996.
Upon the effectiveness of the Merger, (a) each outstanding share of Common
Stock of TGV, $.001 par value per share ("TGV Common Stock"), will be
converted into two-fifths (0.40) of a share of Cisco Common Stock, (b) each
outstanding option to purchase TGV Common Stock (a "TGV Option") will be
converted into an option to purchase a number of shares of Cisco Common Stock
determined by multiplying the number of shares subject to the TGV Option by
two-fifths (0.40), at an exercise price per share equal to the exercise price
per share of the TGV Option divided by two-fifths (0.40), and (c) each
outstanding warrant to purchase TGV Common Stock (a "TGV Warrant") will be
converted into a warrant to purchase a number of shares of Cisco Common Stock
determined by multiplying the number of shares subject to the TGV Warrant by
two-fifths (0.40), at an exercise price per share equal to the exercise price
per share of the TGV Warrant divided by two-fifths (0.40). An aggregate of
approximately 2.3 million shares of Cisco Common Stock (based on 5,832,267
shares of TGV Common Stock outstanding as of February 15, 1996) will be issued
by Cisco in the Merger, and options to purchase an aggregate of approximately
524,044 additional shares of Cisco Common Stock (based on 1,310,112 shares of
TGV Common Stock subject to outstanding TGV Options as of February 15, 1996)
and warrants to purchase an aggregate of approximately 100,000 additional
shares of Cisco Common Stock (based on 250,000 shares of TGV Common Stock
subject to outstanding TGV Warrants as of February 15, 1996) will be assumed
by Cisco in the Merger.
On January 23, 1996, the closing sales prices on the Nasdaq National Market
of Cisco Common Stock and TGV Common Stock were $38.94 and $11.00,
respectively.
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to stockholders of TGV on or about March 5, 1996.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT/
PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. TGV 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 14.
----------------
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 MARCH 5, 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION..................................................... iv
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... v
TRADEMARKS................................................................ v
SUMMARY................................................................... 1
The Companies........................................................... 1
The Merger; Conversion of Securities.................................... 2
The TGV Meeting......................................................... 3
Opinion of TGV's Financial Advisor...................................... 5
Recommendation of TGV'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.................................................... 8
Comparison of Stockholder Rights........................................ 9
MARKET PRICE AND DIVIDEND INFORMATION..................................... 10
Cisco Market Price Data................................................. 10
TGV Market Price Data................................................... 10
Dividend Information.................................................... 10
Recent Closing Prices................................................... 11
Number of Stockholders.................................................. 11
SELECTED HISTORICAL FINANCIAL DATA AND COMPARATIVE PER SHARE DATA......... 12
Selected Historical Financial Data...................................... 12
Comparative Per Share Data.............................................. 13
RISK FACTORS.............................................................. 14
Potential Fluctuations in Quarterly Results and Future Growth Rate...... 14
Acquisition Strategy.................................................... 15
Competition............................................................. 15
Dependence on New Product Development; Rapid Technological and Market
Change................................................................. 15
Patents, Intellectual Property and Licensing............................ 16
Manufacturing Risks..................................................... 16
Volatility of Stock Price............................................... 17
THE TGV MEETING........................................................... 18
Date, Time and Place of the TGV Meeting................................. 18
Record Date and Shares Entitled to Vote................................. 18
Voting of Proxies....................................................... 18
Vote Required........................................................... 18
Quorum; Abstentions and Broker Non-Votes................................ 18
Solicitation of Proxies and Expenses.................................... 19
Board Recommendation.................................................... 19
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PRINCIPAL STOCKHOLDERS OF TGV............................................ 20
THE MERGER AND RELATED TRANSACTIONS...................................... 21
General................................................................ 21
Conversion of Shares................................................... 21
Conversion of Options.................................................. 21
Conversion of Warrants................................................. 21
Exchange of Certificates............................................... 22
Notification Regarding Options and Warrants............................ 22
Background of the Merger............................................... 23
Reasons for the Merger................................................. 25
Operations Following the Merger........................................ 27
Opinion of Financial Advisor........................................... 27
Related Agreements..................................................... 30
The Agreement and Plan of Reorganization............................... 33
Regulatory Matters..................................................... 41
Certain Federal Income Tax Considerations.............................. 41
Accounting Treatment................................................... 43
No Appraisal Rights.................................................... 43
TGV SOFTWARE, INC........................................................ 44
Business............................................................... 44
Technology............................................................. 44
Products............................................................... 45
Other TGV Products..................................................... 46
Product Development.................................................... 47
Sales and Marketing.................................................... 47
Customers.............................................................. 48
Customer Support and Professional Services............................. 48
Competition............................................................ 49
Proprietary Rights..................................................... 50
Employees.............................................................. 50
Properties............................................................. 50
Legal Proceedings...................................................... 50
SELECTED CONSOLIDATED FINANCIAL DATA OF TGV.............................. 51
TGV'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 52
Liquidity and Capital Resources........................................ 56
Business Outlook....................................................... 57
COMPARISON OF RIGHTS OF STOCKHOLDERS OF CISCO AND TGV.................... 58
Vote Required for Extraordinary Transactions........................... 58
Director Nominations................................................... 58
Amendment to Governing Documents....................................... 59
Appraisal Rights....................................................... 59
Derivative Action...................................................... 60
Stockholder Consent in Lieu of Meeting................................. 60
Fiduciary Duties of Directors.......................................... 60
Stockholder Proposals.................................................. 60
Indemnification........................................................ 61
Director Liability..................................................... 61
Anti-Takeover Provisions and Interested Stockholder Transactions....... 62
Cumulative Voting...................................................... 62
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
STOCKHOLDER PROPOSALS..................................................... 63
EXPERTS................................................................... 63
LEGAL MATTERS............................................................. 63
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF TGV......................... F-1
APPENDICES
A - Agreement and Plan of Reorganization, as amended, and Certificate of
Merger................................................................. A-1
B - Opinion of Wessels, Arnold & Henderson.............................. B-1
C - Stock Option Agreement.............................................. C-1
</TABLE>
iii
<PAGE>
NO PERSON HAS BEEN AUTHORIZED BY CISCO OR TGV 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 TGV. 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 TGV 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 TGV 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 TGV 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. Statements made in this Proxy Statement/Prospectus as
to the contents of any contract, agreement or other document are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement or incorporated by
reference herein, reference is made to the exhibit for a more complete
description of the matters involved, and each such statement shall be deemed
qualified in its entirety by such reference. 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.
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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 Report on Form 10-Q for the three-month period ended
October 29, 1995.
3. Cisco's Current Report on Form 8-K filed on September 29, 1995 and
November 3, 1995.
4. 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.
All reports and definitive proxy or information statements filed by Cisco
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
TGV 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). 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 MARCH 18, 1996.
All information contained in this Proxy Statement/Prospectus relating to
Cisco has been supplied by Cisco, and all information relating to TGV has been
supplied by TGV.
TRADEMARKS
CiscoFusion and Cisco IOS are trademarks and Cisco, Cisco Systems,
EtherSwitch, Kalpana, Lightstream, and the Cisco Systems logo are registered
trademarks of Cisco Systems, Inc. TGV MultiNet, Phase/IP, Secure/IP and
TGV.COM are trademarks and TGV, MultiNet, MultiWare and the TGV logos are
registered trademarks of TGV Software, Inc. This Proxy Statement/Prospectus
also contains trademarks of companies other than Cisco, TGV 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. Unless otherwise indicated, all
information in this Proxy Statement/Prospectus related to Cisco Common Stock
and the exchange ratio between Cisco securities and TGV Common Stock, TGV
Options and TGV Warrants (collectively, "TGV Securities") has been adjusted to
reflect a two-for-one stock split effected by Cisco on February 16, 1996.
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SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement/Prospectus, the Appendices and Exhibits hereto 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 and Exhibits hereto. Stockholders are
urged to read this Proxy Statement/Prospectus and the Appendices and Exhibits
in their entirety. Unless otherwise indicated, all information in this Proxy
Statement/Prospectus related to Cisco Common Stock and the exchange ratio
between Cisco securities and TGV Securities has been adjusted to reflect a two-
for-one stock split effected by Cisco on February 16, 1996.
This Proxy Statement/Prospectus contains forward looking statements about
future results which are subject to risks and uncertainties. TGV'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 Corporation, 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
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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.
TGV.
TGV develops, markets and supports internetworking software products which
enable connectivity between disparate computer systems over local area,
enterprise-wide and global computing networks. TGV's MultiNet product line is
based on Transmission Control Protocol/Internet Protocol ("TCP/IP"), the most
widely used protocol for global interconnectivity. TGV's products consist of
its proprietary protocol stack and an integrated suite of applications,
including remote access, file and resource sharing, network management and
email. TGV's products have been designed to work with computer systems
utilizing the OpenVMS, UNIX and Microsoft Windows operating environments.
TGV initially targeted the OpenVMS market for its TCP/IP products. OpenVMS
systems have been widely accepted by large organizations to run mission
critical applications because of their high security and reliability and are
increasingly being integrated into enterprise-wide client/server networks. TGV
believes that it is the leading independent producer of TCP/IP solutions for
this market. TGV has subsequently targeted the Microsoft Windows market. In
June 1995, TGV released MultiNet for Windows, its first product designed for
the Microsoft Windows operating environment.
Unless otherwise indicated, "TGV" refers to TGV Software, Inc., a Delaware
corporation, and its wholly-owned and majority-owned subsidiaries. TGV was
incorporated in California in July 1988 and reincorporated in Delaware in
November 1994. TGV's principal executive offices are located at 101 Cooper
Street, Santa Cruz, California 95060. Its telephone number is (408) 457-5200.
Merger Sub.
"Merger Sub" refers to Big Sky 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 TGV have entered into the Reorganization Agreement,
whereby Merger Sub will be merged with and into TGV, resulting in TGV becoming
a wholly-owned subsidiary of Cisco. See "The Merger and Related Transactions."
Upon consummation of the Merger, each share of TGV Common Stock then
outstanding will be converted automatically into the right to receive two-
fifths (0.40) of a share of Cisco Common Stock. Cash will be paid in lieu of
fractional shares. Based upon the capitalization of TGV and Cisco as of the
date of the Reorganization Agreement, the stockholders of TGV will own Cisco
Common Stock representing approximately 0.42% of the Cisco Common Stock
outstanding immediately after consummation of the Merger. See "The Merger and
Related Transactions - Conversion of Shares."
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Also upon consummation of the Merger, each TGV Option then outstanding will
be assumed by Cisco and will be converted automatically into an option to
purchase a number of shares of Cisco Common Stock determined by multiplying the
number of shares of TGV Common Stock subject to the TGV Option by two-fifths
(0.40), at an exercise price per share equal to the exercise price per share of
the TGV Option at the time of the Merger divided by two-fifths (0.40), rounded
up to the nearest whole cent. To avoid fractional shares, the number of shares
of Cisco Common Stock subject to a converted TGV Option will be rounded down to
the nearest whole share. The other terms of the TGV 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 assumed TGV Options originally issued under each of
the TGV 1990 Stock Plan and the TGV 1995 Stock Option Plan. See "The Merger and
Related Transactions - Conversion of Options."
Also upon consummation of the Merger, each TGV Warrant then outstanding will
be assumed by Cisco and will be converted automatically into a warrant to
purchase a number of shares of Cisco Common Stock determined by multiplying the
number of shares of TGV Common Stock subject to the TGV Warrant by two-fifths
(0.40), at an exercise price per share equal to the exercise price per share of
the TGV Warrant at the time of the Merger divided by two-fifths (0.40), rounded
up to the nearest whole cent. To avoid fractional shares, the number of shares
of Cisco Common Stock subject to a converted TGV Warrant will be rounded down
to the nearest whole share. The other terms of the TGV Warrants will remain
unchanged. See "The Merger and Related Transactions - Conversion of Warrants."
The shares of Cisco Common Stock outstanding prior to the Merger will remain
unchanged by the Merger, except for dilution resulting from the Merger.
Exchange of Certificates; Notification Regarding Options and Warrants
Following effectiveness of the Merger, a letter of transmittal with
instructions will be mailed to each holder of record of TGV Common Stock for
use in exchanging TGV Common Stock certificates for Cisco Common Stock
Certificates. HOLDERS OF TGV 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 (a) each holder of
a TGV Option a document evidencing the assumption of such TGV Option by Cisco
and (b) each holder of a TGV Warrant a document evidencing the assumption of
such TGV Warrant by Cisco. See "The Merger and Related Transactions - Exchange
of Certificates" and " - Notification Regarding Options and Warrants."
Reasons for the Merger
Cisco and TGV have identified several potential benefits of the Merger that
they believe will contribute to the success of Cisco and TGV (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 TGV's proprietary internetworking
software. See "The Merger and Related Transactions - Background of the Merger"
and " - Reasons for the Merger."
Operations Following the Merger
Following the Merger, TGV will continue its operations as a wholly-owned
subsidiary of Cisco.
THE TGV MEETING
Date, Time and Place of the TGV Meeting
The TGV Meeting will be held on March 25, 1996, at 10:00 a.m., local time, at
TGV's Scotts Valley facilities located at 5617 Scotts Valley Drive, Suite 200,
Scotts Valley, California.
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Purpose of the TGV Meeting
At the TGV Meeting, stockholders of record of TGV will be asked to consider
and vote upon a proposal to approve the Reorganization Agreement and the
consummation of the Merger. Stockholders of TGV will also consider and vote
upon any other matter that may properly come before the TGV Meeting and any
adjournment or postponement thereof.
Record Date; Shares Entitled to Vote
Only holders of record of TGV Common Stock on February 15, 1996 (the "Record
Date") are entitled to notice of and to vote at the TGV Meeting. At the close
of business on the Record Date, there were outstanding and entitled to vote
5,832,267 shares of TGV 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 TGV 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 TGV.
As of the Record Date, TGV's directors and executive officers (and their
affiliates), as a group, beneficially owned 2,488,375 shares (exclusive of any
shares issuable upon the exercise of options or warrants unexercised as of such
date), or approximately 42.7% of the 5,832,267 shares of TGV Common Stock that
were issued and outstanding as of such date. Each of Craig A. Conway, David A.
Kashtan, L. Stuart Vance, Kenneth Adelman, Summit Ventures III, L.P. and Summit
Investors II, L.P., who in the aggregate own 2,523,372 shares (exclusive of any
shares issuable upon the exercise of options or warrants unexercised as of such
date), or approximately 43.3% of the shares of TGV 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 90 stockholders of record who held shares of
TGV Common Stock (although TGV has been informed that there are in excess of
1,500 beneficial owners), as shown on the records of TGV's transfer agent for
such shares.
Quorum; Abstentions and Broker Non-Votes
The required quorum for the transaction of business at the TGV Meeting is a
majority of the shares of 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 TGV 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 TGV 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."
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OPINION OF TGV'S FINANCIAL ADVISOR
Wessels, Arnold & Henderson, L.L.C. ("Wessels") has delivered to the TGV
Board of Directors its written opinion, dated January 23, 1996, that the
consideration to be received for the TGV Common Stock pursuant to the Merger is
fair, from a financial point of view, to the stockholders of TGV as of the date
of such opinion. The full text of the opinion of Wessels, dated January 23,
1996, is attached as Appendix B to this Proxy Statement/Prospectus. At the
request of the TGV Board of Directors, Wessels delivered an update to its
written opinion to the TGV Board of Directors on February 27, 1996. In
connection with preparing such update, Wessels reviewed the information and
analysis identified in the January 23, 1996 opinion in addition to reviewing
certain other information made publicly available subsequent to that date.
Based on such information and analysis and subject to the same limitations as
were contained in the January 23, 1996 opinion, Wessels opined that the
consideration to be received by the holders of TGV's Common Stock pursuant to
the Reorganization Agreement is fair, from a financial point of view, to the
holders of TGV's Common Stock, as of the date of such update. TGV stockholders
are urged to read the January 23, 1996 opinion in its entirety. See "The Merger
and Related Transactions - Opinion of TGV's Financial Advisor."
RECOMMENDATION OF TGV'S BOARD OF DIRECTORS
THE TGV 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, TGV STOCKHOLDERS, (II) HAS UNANIMOUSLY APPROVED THE TERMS OF
THE REORGANIZATION AGREEMENT AND THE MERGER AND (III) UNANIMOUSLY RECOMMENDS
THAT TGV STOCKHOLDERS VOTE FOR THE APPROVAL OF THE REORGANIZATION AGREEMENT AND
CONSUMMATION OF THE MERGER. THE PRIMARY FACTORS CONSIDERED AND RELIED UPON BY
THE TGV BOARD OF DIRECTORS IN REACHING ITS RECOMMENDATION ARE REFERRED TO IN
"THE MERGER AND RELATED TRANSACTIONS - REASONS FOR THE MERGER," " - BACKGROUND
FOR THE MERGER" AND " - INTERESTS OF CERTAIN PERSONS IN THE MERGER."
VOTING AGREEMENTS
In connection with the Merger, certain stockholders of TGV have entered into
voting agreements with Cisco. The terms of such voting agreements provide that
each of such stockholders will vote all shares of TGV 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 TGV provide to Cisco the right to vote
their shares on the proposals relating to the Reorganization Agreement and the
Merger at the TGV Meeting and any competing proposal at a TGV stockholder
meeting. Holders of approximately 43.3% (exclusive of any shares issuable upon
the exercise of options or warrants unexercised as of such date) of the shares
of TGV 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 TGV and Cisco have executed agreements which, with certain
limited exceptions, prohibit such persons from disposing of their TGV 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
TGV after the Merger (the "Affiliates Agreements"). See "The Merger and Related
Transactions - Related Agreements - Affiliates Agreements."
EMPLOYMENT AND NON-COMPETITION AGREEMENTS
Cisco has agreed to cause TGV, which will become a wholly-owned subsidiary of
Cisco upon consummation of the Merger, to enter into an employment and non-
competition agreement with each of Craig A. Conway, David L. Kashtan, Kenneth
A. Adelman, Russell Sandberg and L. Stuart Vance. 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."
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STOCK OPTION AGREEMENT
Cisco and TGV have entered into a Stock Option Agreement, dated as of January
23, 1996 (the "Stock Option Agreement"), pursuant to which Cisco has the right,
under certain circumstances, to acquire up to 871,667 shares of authorized and
unissued TGV Common Stock (or approximately 15% of the outstanding TGV Common
Stock prior to such issuance) at a price per share of $15.575. See "The Merger
and Related Transactions - Related Agreements - Stock Option Agreement."
THE AGREEMENT AND PLAN OF REORGANIZATION
Representations, Warranties and Covenants
Under the Reorganization Agreement, Cisco and TGV 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 TGV 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
TGV has agreed not to, directly or indirectly, solicit, initiate discussions,
encourage or engage in negotiations with, or disclose any nonpublic information
relating to TGV or any of its subsidiaries to, any person relating to a
possible acquisition of TGV, except that, if the Board of Directors of TGV
receives an unsolicited proposal that is financially more favorable to its
stockholders than the Merger (a "Superior Proposal"), and the Board of
Directors of TGV determines in good faith after consultation with outside legal
counsel that it is necessary for the Board of Directors of TGV to comply with
its fiduciary duties to stockholders of TGV under applicable law, then the
Board of Directors of TGV will not be prevented from taking such other actions
as are consistent with the fiduciary obligations of the Board of Directors of
TGV. However, should the TGV Board of Directors accept, approve or recommend to
the TGV stockholders such an offer, TGV must promptly pay to Cisco a $4,000,000
termination fee (the "Termination Fee"). 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 TGV
stockholders be received, 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 an opinion to the effect that the Merger
will be treated for federal income tax purposes as a tax-free reorganization),
the receipt of an opinion from Cisco's independent accountants and a letter
from TGV's independent accountants that the Merger will be treated as a pooling
of interests for accounting purposes and with respect to TGV's ability to
participate in a pooling-of-interests transaction, respectively, and the
absence of legal action preventing the consummation of 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 TGV 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 TGV 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
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occur and a closing will be held on or before March 29, 1996. See "The Merger
and Related Transactions - Agreement and Plan of Reorganization - Closing."
Amendments, Termination and Waivers
At any time prior to the Effective Time, the Reorganization Agreement may be
terminated by mutual agreement of Cisco and TGV, or by either Cisco or TGV (i)
if there is a breach by the other party of a representation, warranty or
obligation set forth in the Reorganization Agreement in any material respect
and such breach is not cured within 10 business days after written notice from
the other, (ii) if the required approval of the stockholders of TGV is not
obtained at the TGV Meeting, (iii) if the closing of the Merger has not
occurred on or before July 1, 1996, (iv) if there is a final, non-appealable
order of a court of competent jurisdiction in effect preventing consummation of
the Merger, or (v) if a Trigger Event or Takeover Proposal (each, as defined in
"The Merger and Related Transactions - Agreement and Plan of Reorganization -
No Solicitations of Transactions" and " - Amendments, Termination and
Waivers," respectively) shall have occurred and the TGV Board of Directors,
after consultation with its legal counsel, withdraws or modifies its approval
and recommendation of the Reorganization Agreement after determining that to
cause TGV to proceed with the Merger would not be consistent with the TGV Board
of Directors' fiduciary duty.
The Reorganization Agreement may be terminated by Cisco prior to the
Effective Time if (i) TGV's Board of Directors withdraws or modifies its
recommendation of the Reorganization Agreement or the Merger in a manner
adverse to Cisco or (ii) for any reason (other than as a result of the failure
to receive certain governmental approvals), TGV fails to call and hold a TGV
stockholders meeting to vote on and approve the Reorganization Agreement and
the consummation of the Merger by May 1, 1996.
The Reorganization Agreement may be terminated by TGV prior to the Effective
Time if (i) any person or group of persons (excluding certain specified persons
or groups of persons) acquires 30% or more of the outstanding shares of Cisco
Common Stock or (ii) the Cisco Board of Directors accepts 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.
The Reorganization Agreement may be amended by Cisco and TGV at any time
before or after approval by the TGV 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 TGV 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 TGV Common Stock.
See "The Merger and Related Transactions - Agreement and Plan of
Reorganization - Amendments, Termination and Waivers."
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 Cisco or TGV terminates
the Reorganization Agreement, the terminating party must promptly pay to the
other party all of the fees and out-of-pocket costs incurred by the non-
terminating party and in certain cases, the cash sum of $4,000,000. See "The
Merger and Related Transactions - Agreement and Plan of Reorganization - Fees
and Expenses; Termination Fee."
Indemnification and Insurance
Cisco has agreed that, from and after the Effective Time, Cisco will cause
TGV to indemnify the present and former officers, directors, employees and
agents of TGV against certain liabilities, including, without
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limitation, liabilities arising out of or pertaining to the transactions
contemplated by the Reorganization Agreement. As of the Effective Time, Cisco
shall also cause TGV to assume all obligations of TGV and its officers and
directors under any indemnification agreements in effect on January 23, 1996 to
which TGV is a party.
From and after the Effective Time, Cisco will cause TGV to use its best
efforts to maintain in effect for two years TGV's current policies for
directors and officers' liability insurance, or policies substantially
equivalent to the policies then maintained by TGV.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the TGV Board of Directors with respect
to the Reorganization Agreement and the Merger, the TGV stockholders should be
aware that certain directors and officers of TGV 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, TGV 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 TGV filed their respective Notification and Report
Forms required under the HSR Act with the FTC and the Antitrust Division on
February 1, 1996 and the applicable waiting period under the HSR Act expired on
March 2, 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 TGV on the exchange of their shares of TGV 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, although such condition could be waived by the parties. TGV
STOCKHOLDERS AND WARRANTHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS
TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER. See
"The Merger and Related Transactions - Certain Federal Income Tax
Considerations."
ACCOUNTING TREATMENT
The Merger is intended to be treated as a pooling of interests for accounting
purposes. As a condition to Cisco's and TGV's obligations to consummate the
Merger, Cisco will receive a letter to such effect from Coopers & Lybrand
L.L.P., independent accountants, and TGV will receive a letter with respect to
TGV's ability to participate in a pooling-of-interests transaction from Price
Waterhouse LLP, independent accountants. See "The Merger and Related
Transactions - Accounting Treatment."
8
<PAGE>
COMPARISON OF STOCKHOLDER RIGHTS
The rights of TGV stockholders are currently governed by the Delaware General
Corporation Law and by TGV's Certificate of Incorporation and Bylaws. Upon
consummation of the Merger, TGV 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 Articles of
Incorporation and Bylaws. See "Comparison of Rights of Holders of TGV Common
Stock and Cisco Common Stock" for a summary of the material differences between
the rights of holders of TGV Common Stock and Cisco Common Stock.
9
<PAGE>
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 split 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 February 26, 1996)...................... 50.00 42.25
</TABLE>
TGV MARKET PRICE DATA
TGV's Common Stock is traded on the Nasdaq National Market under the symbol
"TGVI." The following table sets forth the range of high and low closing prices
reported on the Nasdaq National Market for TGV Common Stock for the periods
indicated:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1995 *
Third Quarter.................................................. $22.50 $16.00
Fourth Quarter................................................. 23.00 16.75
Fiscal 1996
First Quarter.................................................. 22.75 14.25
Second Quarter................................................. 15.75 8.25
Third Quarter (through February 26, 1996)...................... 19.50 7.88
</TABLE>
- --------
* The Common Stock of TGV was not publicly traded prior to March 1, 1995.
DIVIDEND INFORMATION
Except for cash dividends in the amount of $0.883 per share paid on each
outstanding share of Series A Preferred Stock of TGV concurrent with TGV's
initial public offering in March 1995, neither Cisco nor TGV
10
<PAGE>
has ever paid any cash dividends on its stock, and both anticipate that for the
foreseeable future they will continue to retain any earnings 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 TGV Common Stock on the Nasdaq National Market on January 23, 1996,
the last trading day before announcement of the proposed Merger, and on
February 26, 1996, the latest practicable trading day before the printing of
this Proxy Statement/Prospectus, and the equivalent per share prices for TGV
Common Stock based on the Cisco Common Stock prices:
<TABLE>
<CAPTION>
TGV
CISCO STOCK TGV STOCK EQUIVALENT (1)
----------- --------- --------------
<S> <C> <C> <C>
January 23, 1996........................... $38.938 $11.00 $15.575
February 26, 1996.......................... 50.00 19.50 20.00
</TABLE>
- --------
(1) Represents the equivalent of one share of TGV Common Stock calculated by
multiplying the closing price per share of Cisco Common Stock by the
Exchange Ratio.
Although the Exchange Ratio is fixed at 0.40 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 TGV 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 TGV COMMON
STOCK. NO ASSURANCE CAN BE GIVEN AS TO THE FUTURE PRICES OR MARKETS FOR CISCO
COMMON STOCK OR TGV COMMON STOCK.
NUMBER OF STOCKHOLDERS
As of February 15, 1996, there were 90 stockholders of record who held shares
of TGV Common Stock (although TGV has been informed that there are in excess of
1,500 beneficial owners), as shown on the records of TGV's transfer agent for
such shares.
11
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
AND COMPARATIVE PER SHARE DATA
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data of Cisco and TGV has been
derived from their respective historical consolidated financial statements and
should be read in conjunction with such consolidated financial statements of
Cisco and the notes thereto that are incorporated herein by reference and the
consolidated financial statements of TGV and the notes thereto which appear
elsewhere herein. The selected historical financial information as of January
31, 1995 and 1996 and for the six months then ended for Cisco and as of
December 31, 1995 and for the six months then ended for TGV has been derived
from unaudited consolidated financial statements, but in the respective
companies' opinions reflect 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
YEAR ENDED JULY 31, JANUARY 31,
------------------------------------------------ -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- ---------- ---------- -------- ----------
(UNAUDITED)
<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)........ 500,640 508,144 516,266 530,102 554,596 548,142 579,138
<CAPTION>
JULY 31,
------------------------------------------------ JANUARY 31,
1991 1992 1993 1994 1995 1996
-------- -------- -------- ---------- ---------- -----------
(UNAUDITED)
<S> <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 1,757,274 2,365,832
Total stockholders'
equity................ 127,459 245,610 475,181 848,182 1,378,731 1,811,328
- --------
(1) Gives effect to the Cisco two-for-one stock split, effective February 16,
1996
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------------------------------ -------------------
1991 1992 1993 1994 1995 1994 1995
-------- -------- -------- ---------- ---------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
TGV
HISTORICAL CONSOLIDATED
STATEMENT OF INCOME
DATA:
Net revenues........... $ 7,003 $ 10,258 $ 14,720 $ 19,401 $ 24,242 $ 11,016 $ 11,045
Income from
operations............ 2,947 3,705 4,183 4,944 4,914 2,097 5
Net income............. 1,760 2,259 2,409 2,172 3,803 1,504 614
Net income per share... 0.66 0.61 0.66 0.49 0.72 0.33 0.10
Weighted average common
shares and
equivalents........... 2,670 3,683 3,664 4,554 5,331 4,786 6,332
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------- DECEMBER 31,
1991 1992 1993 1994 1995 1995
------ ------ ------ ------ ------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
BALANCE SHEET DATA:
Working capital.............. $2,066 $3,880 $4,675 $9,804 $32,496 $35,587
Total assets................. 3,902 6,204 9,587 19,778 51,834 50,887
Mandatory redeemable
convertible preferred
stock....................... -- -- -- 7,308 -- --
Total stockholders' equity... 1,878 4,137 6,555 5,465 39,907 40,129
</TABLE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Cisco and
TGV 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 two-fifths
(0.40) of a share of Cisco Common Stock is issued in exchange for each share of
TGV Common Stock in the Merger. This data should be read in conjunction with
the selected historical financial data, and the historical financial statements
of Cisco and the notes thereto that are incorporated herein by reference and
the historical financial statements of TGV and the notes thereto that appear
elsewhere herein. 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
-------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<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):
Net income........................ 0.34 0.60 0.76 0.28 0.63
Book value(1)..................... 3.27
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
-------------------------- ---------------
1993 1994 1995 1994 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
TGV Historical Per Common Share:
Net income........................ $ 0.66 $ 0.49 $ 0.72 $ 0.33 $ 0.10
Book value(1)..................... 1.95 3.25 7.12 7.12
Equivalent Pro Forma Combined - Per
TGV Share(3)(4):
Net income........................ $ 0.13 $ 0.24 $ 0.30 $ 0.11 $ 0.25
Book value(1)..................... 1.31
</TABLE>
- --------
(1) Historical book value per share is computed by dividing stockholders'
equity for Cisco and stockholders' equity and mandatory redeemable
convertible preferred stock, less accretion which was subsequently paid in
cash, for TGV by the number of shares of common stock outstanding at the
end of each period for Cisco and shares of common stock and mandatory
redeemable convertible preferred stock outstanding at the end of the period
for TGV. 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 information per Cisco share 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 TGV for the fiscal years ended June 30, 1993, 1994 and 1995
and the six months ended December 31, 1994 and 1995, respectively.
(3) The pro forma combined information per TGV share 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 TGV for the fiscal years ended June 30, 1993, 1994 and 1995
and the six months ended December 31, 1994 and 1995, respectively.
(4) The unaudited equivalent TGV pro forma per share amounts are calculated by
multiplying the Cisco combined pro forma per share amounts by the Merger
Exchange Ratio.
13
<PAGE>
RISK FACTORS
The following risk factors should be considered by holders of TGV 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 revenues. If revenue
levels are below expectations, operating results are likely to be adversely
affected. Net income may be disproportionately affected by a reduction in
revenues because a proportionately smaller amount of Cisco's expenses varies
with its revenues.
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. In this
regard, in May 1995 Cisco completed an internal reorganization, which it
believes will better enable it to address its markets. No assurance can be
given that this reorganization will achieve its objectives. 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 have stable supplies of parts from its
suppliers. Many of these parts, particularly semiconductor parts, have been
and may 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.
14
<PAGE>
ACQUISITION STRATEGY
In part, Cisco has addressed the need to develop new products through the
acquisition of other companies. Acquisitions, such as the Merger, involve
numerous risks 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 the acquisition
will require the dedication of management resources that may temporarily
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 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 formal 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,
15
<PAGE>
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 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
and results of operations.
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 operating results.
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. For example, recent shortages in the supply of semiconductors
has resulted in price increases and has limited Cisco's ability to obtain
price reductions with respect to such components. 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.
16
<PAGE>
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 fluctuations, as well as general economic and political conditions, may
adversely affect the market price of Cisco's Common Stock.
17
<PAGE>
THE TGV MEETING
DATE, TIME AND PLACE OF THE TGV MEETING
The TGV Meeting will be held on March 25, 1996 at 10:00 a.m., local time, at
TGV's Scotts Valley facilities located at 5617 Scotts Valley Drive, Suite 200,
Scotts Valley, California.
RECORD DATE AND SHARES ENTITLED TO VOTE
Only holders of record of TGV Common Stock at the close of business on the
Record Date are entitled to notice of and to vote at the TGV Meeting. As of
the close of business on the Record Date, there were 5,832,267 shares of TGV
Common Stock outstanding and entitled to vote, held of record by 90
stockholders (although TGV has been informed that there are in excess of 1,500
beneficial owners). A majority, or 2,916,134 of these shares, present in
person or represented by proxy, will constitute a quorum for the transaction
of business. Each TGV stockholder is entitled to one vote for each share of
TGV Common Stock held as of the Record Date.
VOTING OF PROXIES
The TGV proxy accompanying this Proxy Statement/Prospectus is solicited on
behalf of the Board of Directors of TGV for use at the TGV 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
TGV. All properly executed proxies received by TGV prior to the vote at the
TGV Meeting, and that are not revoked, will be voted at the TGV 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. TGV's Board of Directors does not presently intend to bring any
other business before the TGV Meeting and, so far as is known to TGV's Board
of Directors, no other matters are to be brought before the TGV Meeting. As to
any business that may properly come before the TGV 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 TGV
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 TGV Meeting by (i) delivering to the
Secretary of TGV 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 TGV Meeting or (iii) attending the
TGV Meeting and voting in person.
VOTE REQUIRED
Approval of the Reorganization Agreement and the consummation of the Merger
by TGV'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 TGV Common Stock outstanding and entitled to vote. Certain
stockholders of TGV, who beneficially own on the Record Date 2,523,372 shares
(exclusive of any shares issuable upon the exercise of options or warrants
unexercised as of such date) of TGV Common Stock (constituting approximately
43.3% of the shares of TGV Common Stock then outstanding), have entered into
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, all executive officers and directors of TGV and their
affiliates as a group beneficially owned 2,488,375 shares (exclusive of any
shares issuable upon the exercise of options or warrants unexercised as of
such date) of TGV Common Stock (constituting approximately 42.7% of the shares
of TGV Common Stock then outstanding). As of the Record Date and the date of
this Proxy Statement/Prospectus, Cisco owns no shares of TGV 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 TGV Meeting is a
majority of the shares of TGV Common Stock issued and outstanding on the
Record Date. Abstentions and broker non-votes each will be
18
<PAGE>
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 TGV 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 TGV COMMON STOCK ARE URGED TO RETURN THE ENCLOSED PROXY CARD MARKED TO
INDICATE THEIR VOTES.
SOLICITATION OF PROXIES AND EXPENSES
TGV will bear the cost of solicitation of proxies from its stockholders
estimated to be $7,500. In addition to solicitation by mail, the directors,
officers and employees of TGV may solicit proxies from stockholders by
telephone, facsimile or in person. Following the original mailing of the
proxies and other soliciting materials, TGV 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 TGV Common Stock
and to request authority for the exercise of proxies. In such cases, TGV, upon
the request of the record holders, will reimburse such holders for their
reasonable expenses.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS OF TGV UNANIMOUSLY BELIEVES THAT THE TERMS AND
CONDITIONS OF THE REORGANIZATION AGREEMENT AND THE MERGER ARE FAIR TO, AND IN
THE BEST INTERESTS OF, TGV AND ITS STOCKHOLDERS. THE BOARD HAS UNANIMOUSLY
APPROVED THE TERMS AND CONDITIONS OF THE REORGANIZATION AGREEMENT AND THE
MERGER AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF
THE REORGANIZATION AGREEMENT AND THE CONSUMMATION OF THE MERGER. In
considering such recommendation, TGV stockholders should be aware that Cisco
has agreed to provide certain employment, severance and indemnification
arrangements to certain directors and officers of TGV. See "The Merger and
Related Transactions - Related Agreements - Employment and Non-Competition
Agreements" and "- Indemnification and Insurance."
THE MATTERS TO BE CONSIDERED AT THE TGV MEETING ARE OF GREAT IMPORTANCE TO
THE STOCKHOLDERS OF TGV. ACCORDINGLY, TGV 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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<PAGE>
PRINCIPAL STOCKHOLDERS OF TGV
The following table sets forth certain information regarding the beneficial
ownership of TGV Common Stock as of the Record Date by (i) each person who is
known by TGV to beneficially own more than five percent of TGV Common Stock,
(ii) each director, (iii) each executive officer and (iv) all executive
officers and directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
--------------------
BENEFICIAL OWNER NUMBER PERCENT(2)
---------------- --------- ----------
<S> <C> <C>
Summit Partners(3)(+)..................................... 1,103,698 18.1%
Gregory M. Avis(3)........................................ 1,103,698 18.1%
David L. Kashtan(4)(+).................................... 911,763 15.6%
Kenneth A. Adelman(5)(+).................................. 689,000 11.8%
Craig A. Conway(6)(+)..................................... 219,375 3.6%
Gary Valenzuela(7)........................................ 36,155 *
Richard A. Marciano(8).................................... 25,094 *
Steven Goldby(9).......................................... 625 *
All executive officers and directors as a group (9
persons)(10)............................................. 2,991,219 47.2%
</TABLE>
- --------
* Less than 1%.
(+) The named person has granted Cisco an irrevocable proxy to vote his
shares with respect to the Merger and certain other transactions. See
"The Merger and Related Transactions - Related Agreements - Voting
Agreements."
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options held by that person
that are currently exercisable or exercisable within 60 days of February
15, 1996 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of
each other person. To TGV's knowledge, except as set forth in the
footnotes to this table and subject to applicable community property
laws, each person named in the table has sole voting and investment power
with respect to the shares set forth opposite such person's name.
(2) Percentage beneficially owned is based on 5,832,267 shares of Common
Stock outstanding as of February 15, 1996.
(3) Includes 841,554 shares and also 246,473 shares subject to a TGV warrant
held by Summit Ventures III, L.P. and 12,144 shares and also 3,527 shares
subject to a TGV warrant held by Summit Investors II, L.P. Mr. Avis, a
director of TGV is a general partner of Summit Investors II, L.P., which
is the general partner of Summit Ventures III, L.P. In addition to Mr.
Avis, E. Roe Stamps IV, Stephen G. Woodsum, John A. Genest, Martin J.
Mannion, Walter G. Kortschak, Bruce R. Evans, Thomas F. Roberts and
Ernest K. Jacquet are general partners of Stamps Woodsum & Co. III and of
Summit Investors II, L.P. Mr. Avis disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein arising
from his general partnership interest in Summit Ventures III, L.P. and
Summit Investors II, L.P. The address of Summit Partners is 499 Hamilton
Avenue, Suite 200, Palo Alto, California 94301.
(4) Includes 58,754 shares that will be transferred to Mary Kashtan pursuant
to a settlement agreement that has been entered into between David and
Mary Kashtan in connection with the dissolution of their marriage and the
pending division of their community property. The settlement agreement is
pending final approval from the court.
(5) Includes 3,000 shares held by Gabrielle A. Adelman, Mr. Adelman's wife.
(6) Represents 219,375 shares subject to a stock option exercisable within 60
days of February 15, 1996.
(7) Includes 28,625 shares subject to a stock option exercisable within 60
days of February 15, 1996.
(8) Includes 94 shares subject to a stock option exercisable within 60 days
of February 15, 1996.
(9) Includes 625 shares subject to a stock option exercisable within 60 days
of February 15, 1996.
(10) See notes (3) through (9) above. Includes options and warrants to
purchase 502,844 shares exercisable within 60 days of February 15, 1996.
20
<PAGE>
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 TGV, with TGV 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 TGV
Common Stock will automatically be converted into two-fifths (0.40) of a share
of Cisco Common Stock. No fractional shares of Cisco Common Stock will be
issued in the Merger. Instead, each TGV 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 TGV
and Cisco as of the date of the Reorganization Agreement, the stockholders of
TGV will own Cisco Common Stock representing approximately 0.42% of the Cisco
Common Stock outstanding immediately after consummation of the Merger.
CONVERSION OF OPTIONS
Upon consummation of the Merger, each then outstanding TGV 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 TGV Common Stock subject to the TGV Option by two-
fifths (0.40), at an exercise price per share equal to the exercise price per
share of the TGV Option at the time of the Merger divided by two-fifths
(0.40), rounded up to the nearest whole cent. To avoid fractional shares, the
number of shares of Cisco Common Stock subject to an assumed TGV Option will
be rounded down to the nearest whole share. The other terms of the TGV
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 TGV
Options.
As of the Record Date, 1,310,112 shares of TGV Common Stock were subject to
outstanding TGV Options. Upon the assumption of such options by Cisco upon
consummation of the Merger, approximately 524,000 shares of Cisco Common Stock
will be subject to such options.
CONVERSION OF WARRANTS
Upon consummation of the Merger, each then outstanding TGV Warrant will be
assumed by Cisco and will automatically be converted into a warrant to
purchase a number of shares of Cisco Common Stock determined by multiplying
the number of shares of TGV Common Stock subject to the TGV Warrant by two-
fifths (0.40), at an exercise price per share equal to the exercise price per
share of the TGV Warrant at the time of the Merger divided by two-fifths
(0.40), rounded up to the nearest whole cent. To avoid fractional shares, the
number of shares of Cisco Common Stock subject to an assumed TGV Warrant will
be rounded down to the nearest whole share. The other terms of the TGV
Warrants will remain unchanged.
21
<PAGE>
As of the Record Date, 250,000 shares of TGV Common Stock were subject to
outstanding TGV Warrants. Upon the assumption of such warrants by Cisco upon
consummation of the Merger, approximately 100,000 shares of Cisco Common Stock
will be subject to such warrants.
EXCHANGE OF CERTIFICATES
As soon as practicable after the Effective Time, a letter of transmittal
with instructions will be mailed to each TGV stockholder for use in exchanging
TGV Common Stock certificates for Cisco Common Stock certificates. Upon
surrender of a TGV 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 two-fifths (0.40) multiplied by the
number of shares subject to the TGV 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 TGV 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 TGV 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 TGV 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 TGV 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 TGV Common Stock certificate surrendered in
exchange therefor is registered, it will be a condition of the issuance
thereof that the TGV 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 TGV 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 TGV 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 AND WARRANTS
Following the Effective Time, Cisco will issue to each person who,
immediately prior thereto was a holder of an outstanding TGV 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 TGV Option into an option to purchase shares
of Cisco Common Stock.
22
<PAGE>
Following the Effective Time, Cisco will issue to each person who,
immediately prior thereto was a holder of an outstanding TGV Warrant, a
document evidencing the assumption of such warrant by Cisco. Such assumption
will be automatic and no action will be required on the part of the warrant
holder to convert such holder's TGV Warrant into a warrant 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 TGV has continually evaluated strategic
relationships of various forms, such as potential OEM arrangements, joint
marketing relationships, and potential acquisitions of technologies and
companies.
On November 27, 1995, in the course of a discussion with an existing
strategic partner, TGV was approached by such partner to consider the merits
of being acquired or otherwise expanding the existing relationship. As a
result, TGV solicited the counsel of Wessels in evaluating the strategic
impact of such an acquisition and the appropriate range of valuation.
On November 28, 1995, Craig Conway, President & Chief Executive Officer of
TGV, and representatives of Wessels met and discussed this indication of
interest, the merits of the strategic decision to seek an acquisition partner,
and the relative value to TGV stockholders. The parties also discussed other
potential candidates that might have a similar interest in a strategic
relationship with TGV and the relative values they may perceive in acquiring
TGV.
During the week of December 4, 1995, Mr. Conway and representatives of
Wessels contacted several companies to discuss their potential interest in a
strategic relationship with TGV. Such an interest was expressed by certain
candidate companies.
On December 18, 1995, Wessels was formally retained to act as the exclusive
financial advisor to TGV.
On December 19, 1995, TGV management, representatives of Wessels, the
management of the initial interested party and their investment bankers held a
meeting to discuss the process, timing and valuation framework for a potential
offer to acquire TGV.
On December 21, 1995, management of the initial interested party and their
representatives performed due diligence on TGV.
On December 21, 1995, Mr. Conway contacted Charles Giancarlo, Vice
President, Business Development of Cisco, regarding the possible strategic
combination of Cisco and TGV. Mr. Conway and Mr. Giancarlo discussed a number
of strategies involving the two companies, but no agreements or understandings
were reached with respect to any such strategies.
On December 27, 1995, Mr. Giancarlo and Mr. Conway met to discuss TGV's
current organization and product strategy, and the potential fit and
complement of TGV's products and sales channel with the current product
offering of Cisco.
During the weeks of January 1 and January 8, 1996, Cisco performed due
diligence on TGV through a series of formal meetings and informal telephone
conversations.
On January 3, 1996, John T. Chambers, President, Chief Executive Officer and
Director of Cisco, Edward R. Kozel, Chief Technical Officer of Cisco, and Mr.
Giancarlo met to discuss the possible acquisition of TGV.
On January 8, 1996, a meeting was held at the Palo Alto office of Morrison &
Foerster LLP to exchange information and discuss organizational, product,
technical, sales, legal and financial issues. Participating in these
discussions were, on behalf of Cisco: William Kelly, Director of Technical
Marketing, Michelangelo Volpi,
23
<PAGE>
Manager of Business Development, Mr. Giancarlo, Daniel Scheinman, Chief
Corporate Counsel, and Stephanie Joe, Cost Accounting Manager; on behalf of
Coopers and Lybrand L.L.P.: Dennis Powell and Jonathan Chadwick; on behalf of
TGV: Mr. Conway, Gary Valenzuela, Senior Vice President, Finance and
Administration, Chief Financial Officer and Secretary, David L. Kashtan,
Chairman of the Board and Chief Technology Officer, and Russell Sandberg, Vice
President of Engineering; and on behalf of Morrison & Forester LLP: Michael
Phillips. Following the meeting, the financial structure of the transaction
was discussed.
On January 9, 1996, representatives of Coopers & Lybrand L.L.P. and Robert
Gordon, Director of Corporate Finance, from Cisco met with representatives of
Price Waterhouse LLP to exchange further information regarding financial
matters.
On January 11, 1996, the TGV Board of Directors and representatives of
Wessels at a special Board of Directors meeting held discussions to review
TGV's strategic discussions and to review the progress with the various
interested parties.
On January 11, 1996, the initial interested party communicated an offer to
acquire TGV to representatives of Wessels.
On January 12, 1996, Stuart Philips, Vice President, Central Engineering,
David Rossetti, Director of IOS, Network Protocols and Software Development,
Mr. Kelly and Mr. Volpi from Cisco met with Mr. Kashtan and Mr. Sandberg to
further exchange technical information. Discussion also ensued regarding
current and future products, as well as potential future joint product
development. Also on January 12, 1996, Mr. Conway and Mr. Chambers met to
discuss the two companies' business strategies and prospects and the
preliminary terms and structure for a business combination.
On January 15, 1996, the TGV Board of Directors and representatives of
Wessels held discussions at a special Board of Directors meeting evaluating
the merits of a combination with the interested parties. The participants
discussed the proposed financial and structural terms of the offers and the
attractiveness of the various potential partners. The decision was made to
proceed with negotiations with the interested parties.
On January 15, 1996, following discussions with the TGV Board of Directors,
the offer from the initial interested party was rejected as inadequate.
On January 17, 1996, Mr. Conway met with Mr. Giancarlo to discuss the
financial terms and structure of the TGV acquisition.
On January 18, 1996, Mr. Conway and Mr. Giancarlo held a further telephone
conference regarding the financial terms and proposed structure of the
transaction.
At a special meeting of the TGV Board of Directors on January 18 and on
January 19, 1996, the TGV Board of Directors continued to discuss and
deliberate on the merits of the proposed business combination with Cisco and
authorized the TGV officers to proceed with negotiations with Cisco regarding
the terms and conditions of such transaction.
On January 20, 1996, Mr. Conway and Mr. Valenzuela met with representatives
of Wessels and TGV's legal counsel to review and discuss Cisco's proposal.
On January 20, 1996, representatives of Wessels spoke with representatives
of the initial interested party regarding a revised offer for TGV. This offer
was communicated to TGV management and discussed among management and members
of the TGV Board of Directors.
On January 21, 1996, a meeting was held at the Palo Alto office of Brobeck
Phleger & Harrison LLP to negotiate various definitive agreements, including
the Reorganization Agreement, Voting Agreements, Option Agreement, and
Affiliates Agreements (collectively, the "Merger Agreements"). Participating
in these
24
<PAGE>
negotiations were, on behalf of Cisco: Mr. Volpi and Mr. Scheinman; on behalf
of Brobeck Phleger & Harrison LLP: Edward M. Leonard, Michael J. Casey and
Jeffrey P. Higgins; on behalf of TGV: Mr. Conway and Mr. Valenzuela; on behalf
of Wessels: Bryson Hollimon; and on behalf of Morrison & Foerster LLP: Mr.
Phillips and Suzanne S. Graeser.
On January 22, 1996, negotiations between the parties continued regarding
specific terms of the definitive agreements and Mr. Volpi met with Mr. Conway
and Mr. Kashtan to negotiate employment and non-competition agreements
regarding certain officers of TGV. Also on January 22, 1996, representatives
of Wessels met with various members of Cisco management to perform due
diligence.
On January 22, 1996, the TGV Board of Directors and representatives of
Wessels concluded that the financial and other terms of the revised offer from
the initial interested party were less attractive than those of the Cisco
offer and declined it.
On January 23, 1996, the potential TGV acquisition was presented to Cisco's
Board of Directors, as part of a special Board of Directors meeting held at
the offices of Cisco and was approved.
On January 23, 1996, at a special meeting of the Board of Directors of TGV,
(i) the management of TGV reported the financial and structural terms of the
proposed merger with Cisco, (ii) TGV's legal counsel presented to the Board of
Directors the proposed terms of the Reorganization Agreement, (iii) TGV's
financial advisor, Wessels, delivered its opinion that, as of such date, the
financial terms of the proposed merger were fair, from a financial point of
view, to the stockholders of TGV, and (iv) the TGV Board of Directors
unanimously approved the Merger Agreements and the consummation of the Merger.
On January 23, 1996, following the meetings of their respective Boards of
Directors, the duly authorized representatives of the parties executed the
Merger Agreements.
On January 23, 1996, TGV 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 TGV customer base, (ii) combine the
network knowledge resident in Cisco products with TGV's client-server products
and technology to create value-added services in future products and (iii)
increase sales of TGV products by leveraging Cisco's extensive channels of
distribution.
In the course of its discussions and the formal meeting, held January 23,
1996, the Cisco Board of Directors reviewed with Cisco's management a number
of factors relevant to the Merger, including the strategic overview and
prospects for Cisco, its products and its finances. The Cisco Board of
Directors also considered, among other matters, (i) information concerning
Cisco's and TGV's respective businesses, prospects, financial performance and
condition, operations, technology, management and competitive position; (ii)
the financial condition, results of operations and businesses of Cisco and TGV
before and after giving effect to the Merger; (iii) current financial market
conditions and historical market prices, volatility and trading information
with respect to Cisco Common Stock and TGV Common Stock; (iv) the
consideration to be received by TGV stockholders in the Merger and the
relationship between the market value of Cisco Common Stock to be issued in
exchange for each share of TGV Common Stock and Cisco's per share reported
earnings, earnings before interest and taxes and certain other measures; (v) a
comparison of selected recent acquisition and merger transactions involving
high-technology companies; (vi) the belief that the terms of the
Reorganization Agreement, including the parties' respective representations,
warranties and covenants, and the conditions to their respective obligations,
are reasonable; (vii) the ability of Cisco to devote management time and
energy to the integration and assimilation of TGV's business and organization
should the Merger be consummated; (viii) the fact that the Merger is expected
to be accounted
25
<PAGE>
for as a pooling of interests and that no goodwill is expected to be created
on the financial statements of Cisco as a result thereof; and (ix) reports
from management, financial advisors and legal advisors as to the results of
their due diligence investigation of TGV. The Board of Directors of Cisco also
considered a number of potentially negative factors in its deliberations
concerning the Merger, including, but not limited to (i) the risk that the
benefits sought to be achieved in the Merger will not be so achieved, and (ii)
the other risks described above under "Risk Factors."
In view of the wide variety of factors considered by the Cisco Board of
Directors, the Cisco Board of Directors did not find it practicable to
quantify or otherwise assign relative weights to the specific factors
considered in approving the Reorganization Agreement and Merger. However,
after taking into account all of the factors set forth above, the Cisco Board
of Directors determined that the Reorganization Agreement and Merger were in
the best interests of Cisco and its stockholders and that Cisco should proceed
with the Reorganization Agreement and the Merger.
TGV's Reasons for the Merger.
The TGV Board of Directors believed that, despite its success to date, the
increasing competition and industry consolidation would make it difficult for
TGV to grow its business as a relatively small independent company competing
with larger companies with substantially greater resources. In such an
industry environment, the TGV Board of Directors identified several potential
benefits for the TGV stockholders, employees and customers that would result
from the merger with Cisco. These potential benefits include: (i) the
financial strength of Cisco would enable the Combined Company to dedicate
greater resources to both current and emerging product development efforts and
to fund the future growth of its business; (ii) the potential synergy and
compatibility between TGV and Cisco, based on the commonality in TGV's and
Cisco's product lines; (iii) the opportunity for TGV, as part of the Combined
Company, to compete more effectively in the increasingly competitive and
rapidly changing industry; and (iv) the ability of TGV to leverage Cisco's
extensive distribution network to increase the sales of its products and to
expand further TGV's own distribution base.
In the course of its deliberations during the TGV Board of Directors
meetings, held on January 11, January 15, January 18, January 19 and January
23, 1996, the TGV Board of Directors reviewed with TGV's management a number
of additional factors relevant to the Merger, including the strategic overview
and prospects for TGV, its products and its finances. The TGV Board of
Directors also considered, among other matters, (i) information concerning
Cisco's and TGV's respective businesses, prospects, financial performance and
condition, operations, technology, management and competitive position; (ii)
the financial condition, results of operations and businesses of Cisco and TGV
before and after giving effect to the Merger; (iii) current financial market
conditions and historical market prices, volatility and trading information
with respect to Cisco Common Stock and TGV Common Stock; (iv) the
consideration to be received by TGV stockholders in the Merger and the fact
that the market value of Cisco Common Stock to be issued in exchange for each
share of TGV Common Stock represented a significant premium over the recent
price range of the TGV Common Stock (the Merger consideration represented a
premium of approximately 45% over the closing sales price of $11.00 per share
of TGV Common Stock on January 23, 1996, the last trading day prior to the
announcement of the Merger); (v) a comparison of selected recent acquisition
and merger transactions in the industry; (vi) the belief that the terms of the
Reorganization Agreement, including the parties' mutual representations,
warranties and covenants, are reasonable and the fact that the Reorganization
Agreement did not contain any extraordinary closing conditions on Cisco's
obligations; (vii) the ability of TGV to consider and negotiate other
acquisition proposals and to terminate the Reorganization Agreement for a
Superior Proposal, subject to the payment of a fee to Cisco; (viii) the fact
that the Merger is expected to be accounted for as a pooling of interests and
that no goodwill is expected to be created on the financial statements of
Cisco as a result thereof and is intended to be tax-free for federal income
tax purposes; (ix) the opinion of Wessels rendered at the January 23, 1996
meeting of the TGV Board of Directors that the consideration to be received by
TGV stockholders pursuant to the Merger was fair to TGV stockholders from a
financial point of view as of January 23, 1996 based upon the closing price of
Cisco Common Stock on that date; (x) the impact of the Merger upon TGV's
customers and employees and (xi) reports from management, financial advisors
and legal advisors as to the results of their due diligence investigation of
Cisco.
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The Board of Directors of TGV also considered a number of potentially
negative factors in its deliberations concerning the Merger, including, but
not limited to, (i) the loss of control over the future operations of TGV
following the Merger; (ii) the risk that the benefits sought to be achieved in
the Merger will not be achieved and (iii) the other risks described above
under "Risk Factors." The Board of Directors of TGV discussed with management
the prospects for combinations with companies other than Cisco and the
possibility that the benefits described above could be achieved through any
such combination, as well as the risks and benefits of a stand-alone strategy.
In view of the wide variety of factors considered by the TGV Board of
Directors, the TGV Board 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 Board of Directors
of TGV unanimously agreed that the Reorganization Agreement and the
consummation of the Merger were fair to, and in the best interests of, TGV and
its stockholders and that TGV should proceed with the Merger and the
Reorganization Agreement.
OPERATIONS FOLLOWING THE MERGER
Following the Merger, TGV will continue its operations as a wholly-owned
subsidiary of Cisco. Upon consummation of the Merger, the members of TGV's
Board of Directors will be John T. Chambers and Larry R. Carter. The
membership of the Board of Directors of Cisco will remain unchanged as a
result of the Merger. The stockholders of TGV will become stockholders of
Cisco, and their rights as stockholders will be governed by Cisco's Articles
of Incorporation and Bylaws and the laws of the State of California. See
"Comparison of Rights of Stockholders of Cisco and TGV."
OPINION OF FINANCIAL ADVISOR
Wessels has acted as financial advisor to TGV in connection with the Merger.
Pursuant to an engagement letter dated December 18, 1995 (the "Engagement
Letter"), TGV retained Wessels to furnish financial advisory and investment
banking services with respect to a possible sale or merger of TGV and to
render an opinion as to the fairness, from a financial point of view, to the
TGV stockholders of the consideration offered in any proposed sale or merger.
The amount of consideration to be received by TGV stockholders in the Merger
was determined through negotiations between TGV management and Cisco and not
by Wessels, although Wessels did assist TGV management in these negotiations.
Wessels rendered its opinion on January 23, 1996 to the TGV Board of Directors
that, as of such date and based on the procedures followed, the factors
considered and assumptions made by Wessels as set forth therein, the
consideration to be received by the holders of TGV Common Stock pursuant to
the Merger Agreement is fair from a financial point of view to the holders of
TGV Common Stock. A copy of Wessels' opinion dated January 23, 1996 (the
"Wessels Opinion"), which sets forth the assumptions made, matters considered,
the scope and limitations of the review undertaken and the procedures followed
by Wessels, is attached as Appendix B to this Proxy Statement/Prospectus. TGV
stockholders are urged to read the Wessels Opinion in its entirety. At the
request of the TGV Board of Directors, Wessels delivered an update to its
written opinion to the TGV Board of Directors on February 27, 1996. In
connection with preparing such update, Wessels reviewed the information and
analysis identified in the January 23, 1996 opinion in addition to reviewing
certain other information made publicly available subsequent to that date.
Based on such information and analysis and subject to the same limitations as
were contained in the January 23, 1996 opinion, Wessels opined that the
consideration to be received by the holders of TGV's Common Stock pursuant to
the Reorganization Agreement is fair, from a financial point of view, to the
holders of TGV's Common Stock, as of the date of such update. The summary of
the Wessels Opinion set forth herein is qualified in its entirety by reference
to the Wessels Opinion.
The Wessels Opinion applies only to the fairness from a financial point of
view of the consideration to be received by the TGV stockholders as provided
by the terms of the Reorganization Agreement and should not be deemed to
constitute a recommendation by Wessels to TGV stockholders to vote in favor of
any matter presented in this Proxy Statement/Prospectus. The Wessels Opinion
does not constitute an opinion as to the price at any time at which Cisco
Common Stock will trade. TGV stockholders should note that the opinion
expressed by Wessels was directed to the TGV Board of Directors in its
evaluation of the Merger and was not on behalf of, and was not intended to
confer rights or remedies upon, Cisco, any security holder of Cisco or TGV, or
any person other than TGV's Board of Directors. The TGV Board did not impose
any limitations on the scope of the investigation of Wessels with respect to
rendering its opinion.
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In connection with its review of the Merger, and in arriving at its opinion,
Wessels has: (i) reviewed and analyzed the financial terms of the
Reorganization Agreement; (ii) reviewed and analyzed certain publicly
available financial statements and other information of TGV and Cisco; (iii)
reviewed and analyzed certain internal financial statements and other
historical financial and operating data concerning TGV prepared by the
management of TGV; (iv) reviewed and analyzed certain internal financial
statements and other financial and operating data concerning Cisco prepared by
the management of Cisco; (v) reviewed and analyzed certain financial
projections prepared by the management of TGV; (vi) reviewed and analyzed
certain earnings per share estimates for Cisco prepared by various equity
research analysts; (vii) conducted discussions with members of the senior
management of TGV with respect to the business and prospects of TGV; (viii)
conducted discussions with members of the senior management of Cisco with
respect to the business and prospects of Cisco; (ix) reviewed the reported
prices and trading activity for the TGV Common Stock and the Cisco Common
Stock; (x) compared the financial performance of TGV and Cisco and the prices
of the TGV Common Stock and the Cisco Common Stock with that of certain other
comparable publicly traded companies and their securities; (xi) reviewed the
financial terms, to the extent publicly available, of certain comparable
merger transactions; and (xii) participated in discussions and negotiations
among representatives of TGV and Cisco and their respective financial and
legal advisors.
Based on this information, Wessels performed a variety of analyses and
examinations of the Merger and considered such financial, economic and market
criteria as it deemed necessary in arriving at its opinion. The following is a
summary of the financial analyses performed by Wessels in connection with the
delivery of the Wessels Opinion.
Comparable Company Analysis. Wessels used a comparable company analysis to
analyze TGV's operating performance relative to a group of publicly traded
companies that Wessels deemed for purposes of its analysis to be comparable to
TGV. In such analysis, Wessels compared the value to be achieved by the TGV
stockholders in the Merger, expressed as a multiple of certain operating
results, to the market trading values achieved by the stockholders of the
comparable companies, expressed as a multiple of the same operating results.
Wessels compared multiples of selected financial data for TGV with those of
the following publicly traded companies in the networking software industry:
NetManage, Inc. and FTP Software Inc. (collectively referred to as the
"Comparable Companies"). Although such companies were considered comparable to
TGV for the purpose of this analysis based on certain characteristics of their
respective businesses, neither of such companies possessed characteristics
identical to those of TGV. Wessels calculated the following valuation
multiples based on, as to TGV, a market price of $15.56 per share for the
Cisco Common Stock to be offered as consideration in the Merger, and, as to
the Comparable Companies, on market prices and other information available as
of the date of the Wessels Opinion. Multiples of future earnings were based on
projected earnings as estimated publicly by recognized securities analysts.
The mean and median stock price as a multiple of each of the indicated
statistics for TGV and the Comparable Companies is as follows: (i) projected
calendar year 1995 earnings per share, 32.1x for TGV, as compared to a mean
and median of 16.5x for the Comparable Companies and (ii) projected calendar
year 1996 earnings per share, 25.5x for TGV, as compared to a mean and median
of 12.8x for the Comparable Companies. In each of the comparisons of the value
to be achieved by the TGV stockholders in the Merger as compared with the mean
and median of the market values realized by the stockholders of the Comparable
Companies, the multiples of operating results achieved by the TGV stockholders
was greater than that realized by the stockholders of the Comparable
Companies.
Comparable Transactions. Wessels compared multiples of selected financial
data and other financial data relating to the proposed Merger with multiples
paid in, and other financial data from, 33 acquisitions since January 1, 1993
of public high-technology companies (i.e., companies in the markets for
computer equipment, electronics, communications (including networking) and
other advanced technologies) with aggregate transaction values between $10
million and $250 million. These transactions were selected based primarily on
the aggregate transaction value of the business acquired, the public company
status of the target and the target company's involvement in a high-technology
industry. Wessels also compared the premium of the equity value per share over
the target stock price one day and four weeks prior to the announcement of the
transaction. This analysis
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produced multiples of transaction value to latest 12-month revenues for the
comparable acquisitions ranging from 0.4x to 6.5x with a mean and median of
1.9x and 1.4x, respectively, as compared to 2.6x for TGV. The multiple of
transaction value to latest 12-month operating income for comparable
acquisitions ranged from 8.0x to 47.8x with a mean and median of 24.4x and
20.7x, respectively, as compared to 22.3x for TGV. The multiple of transaction
value of the acquisition to latest 12-month net income ranged from 9.5x to
79.7x, with a mean and median of 35.x and 29.0x, respectively, as compared to
21.4x for TGV. The premium of the equity value per share over the stock price
of the target one day prior to the announcement of the transaction ranged from
- -7% to 460% with a mean and median of 47% and 31%, respectively, as compared
to 45% for TGV. The premium of the equity value per share over the stock price
of the target four weeks prior to the announcement of the transaction ranged
from -7% to 314% with a mean and median of 53% and 41%, respectively, as
compared to 78% for TGV.
Discounted Cash Flow Analysis. Wessels estimated the present value of TGV
using a discounted cash flow analysis based on projections of future
operations prepared by TGV's management. Wessels calculated present value of
projected operating cash flows after net changes to working capital over the
period between January 22, 1996 and December 31, 1996 and the three years 1997
to 1999 using a discount rate of 25%. Wessels calculated approximate terminal
values of TGV as of December 31, 1999 of 11.0 x TGV's calendar year 1999
operating income. Wessels determined this multiple based on the current
multiples of the Comparable Companies. The terminal value was discounted to
present value using the same discount rates as the cash flows. Wessels
calculated an implied valuation of TGV by adding the present value of the cash
flows and the terminal values to the Company's cash balance as of December 31,
1995. The implied value of shares of TGV Common Stock based on this analysis
was $14.61 per share. Wessels determined that, at the time of the Wessels
Opinion, the value of the consideration to be received by the TGV stockholders
in the Merger of $15.56 per share based on the market price of Cisco Common
Stock was greater than the present value of TGV's cash flows under the range
of discounted cash flow valuations discussed above.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Wessels
believes that its analyses must be considered as whole and that selecting
portions of its analyses and of the factors considered by it, without
considering all factors and analyses, could create an incomplete or misleading
view of the processes underlying its opinion. In arriving at its fairness
determination, Wessels considered the results of all such analyses. In view of
the wide variety of factors considered in connection with its evaluation of
the fairness of the merger consideration, Wessels did not find it practicable
to assign relative weights to the factors considered in reaching its opinion.
No company or transaction used in the above analyses as a comparison is
identical to TGV or Cisco or the proposed Merger. Accordingly, an analysis of
the results of the foregoing was not simply mathematical nor necessarily
precise; rather, it involved complex considerations and judgments concerning
differences in financial and operating characteristics of companies and other
factors that could affect public trading values. The analyses were prepared
solely for purposes of Wessels providing its opinion as to the fairness from a
financial point of view of the Merger consideration pursuant to the
Reorganization Agreement to TGV stockholders and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly
more or less favorable than suggested by such analyses. See "Risk Factors -
Volatility of Stock Price." As described above, the Wessels Opinion and
presentation to the TGV Board was one of many factors taken into consideration
by the TGV Board in making its determination to approve the Reorganization
Agreement.
Wessels assumed and relied upon the accuracy and completeness of the
financial, legal, tax, operating and other information that was available to
it from public sources, or that was provided to it by TGV and Cisco and did
not independently verify such information. Further, Wessels assumed that the
Merger will qualify as a tax-free reorganization and will be accounted for as
a pooling-of-interests. Wessels did not perform an independent evaluation or
appraisal of any of the respective assets or liabilities of TGV or Cisco, nor
was Wessels furnished with any such evaluations or appraisals. With respect to
financial forecasts, Wessels assumed that these forecasts were reasonably
prepared based on the best currently available estimates and judgments of the
management of
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TGV as to the future financial performance of TGV and that the assumptions
underlying such forecasts were reasonable. The Wessels Opinion was necessarily
based on the economic, market, financial and other conditions as they existed
and the information made available to Wessels on the date of the opinion.
Further, the Wessels Opinion speaks only as of the date thereof and is based
on the conditions as they existed and information with which Wessels was
supplied as of the date thereof. It should be understood that, although
subsequent developments may have affected or may hereafter affect the Wessels
Opinion, Wessels was not requested to and does not have any obligation to
update, revise or reaffirm the Wessels Opinion.
Wessels is a nationally recognized investment banking firm and is regularly
engaged in the valuation of businesses and securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for
corporations. Wessels is familiar with TGV, having provided certain investment
banking and financial advisory services to TGV from time to time, including
having acted as a managing underwriter of the initial public offering of TGV
Common Stock in February 1995. TGV selected Wessels as its financial advisor
based on Wessels's familiarity with TGV and Wessels's experience in mergers
and acquisitions and in securities valuation generally.
In the ordinary course of business, Wessels acts as a market maker and
broker in the publicly traded securities of Cisco and TGV and receives
customary compensation in connection therewith, and also provides research
coverage for Cisco and TGV. In the ordinary course of business, Wessels
actively trades in the publicly traded securities of Cisco and TGV for its own
account and for the accounts of its customers and, accordingly, may at any
time hold a long or short position in such securities.
Pursuant to the Engagement Letter, TGV paid Wessels a non-refundable
retainer fee (the "Retainer Fee") of $25,000 upon execution of the Engagement
Letter and a non-refundable opinion fee (the "Opinion Fee") of $300,000 upon
the rendering of the Wessels Opinion. Pursuant to the Engagement Letter, TGV
has agreed to pay Wessels, upon consummation of the Merger pursuant to the
Reorganization Agreement, a transaction fee (the "Transaction Fee") of
approximately $1.32 million based upon Cisco's closing price of $38.91 as of
January 22, 1996. The Retainer Fee and the Opinion Fee will be credited
against the Transaction Fee. Payment of the Transaction Fee is contingent upon
consummation of the Merger. TGV has also agreed to reimburse Wessels for its
reasonable out-of-pocket expenses, up to $25,000, and to indemnify Wessels
against certain liabilities relating to or arising out of services performed
by Wessels as financial advisor to TGV. The terms of the Engagement Letter,
which are customary in transactions of this nature, were negotiated at arm's
length between TGV and Wessels, and the TGV Board, at the time of its approval
of the Reorganization Agreement, was aware of such fee arrangement, including
the fact that a significant portion of the aggregate fee payable to Wessels is
contingent upon consummation of the Merger.
RELATED AGREEMENTS
Voting Agreements
In connection with the Merger, certain stockholders of TGV 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), sell, exchange, pledge (except in connection with a bona fide
loan transaction) or otherwise dispose of or encumber their shares of TGV
Common Stock beneficially owned by them, or any new shares of such stock they
may acquire, at any time prior to the Expiration Date, and (ii) that such
stockholders will vote all shares of TGV 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 TGV 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 TGV under the Reorganization Agreement or
which could result in any of the conditions to TGV's obligations under the
Reorganization Agreement not being fulfilled. 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 TGV
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Meeting and any competing proposal at a TGV stockholder meeting. Holders of
approximately 43.3% of the shares of TGV 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 TGV or Cisco who
are deemed to control or be under common control with TGV or Cisco,
respectively ("Affiliates"). Affiliates of TGV 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 TGV 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 TGV 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 TGV have been
published. In addition, the Affiliates Agreements executed by TGV Affiliates
provides that, as of the date of the 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.
Thereafter, it is expected that Affiliates of TGV and Cisco will be able to
sell shares of Cisco Common Stock without registration subject to the volume,
manner of sale and other applicable limitations of the Securities Act and the
rules and regulations of the Commission thereunder.
Employment and Non-Competition Agreements
Cisco has agreed to enter into employment and non-competition agreements
with each of Craig A. Conway, David L. Kashtan, Kenneth A. Adelman, Russell
Sandberg and L. Stuart Vance (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 terms of the employment agreements are two years
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 Employee's employment is terminated without cause or if Employee resigns
from employment for good cause prior to two years after the Effective Time,
then Cisco will pay Employee a lump sum payment equal to one year of base
salary plus other consideration as severance. If Employee resigns without good
cause or the employment is terminated for cause within two years of the
Effective Time, then Employee will be paid all salary and benefits through the
date of termination of employment, but nothing else.
The employment and non-competition agreements require, until the later of
termination of employment or the second anniversary of the Effective Time,
that 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, networked
applications software or networking software (the "Business") or be employed
by certain enumerated competitive companies, and (ii) will not permit
Employee's name to be used in connection with the Business; provided that the
term of the non-competition clause will expire one year from the date of
termination if Cisco terminates Employee "Without Cause" within one year of
the Closing or if Employee resigns for "Good Cause" within one year of the
closing. Additionally, during Employee's
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employment with Cisco and for one year after termination of such employment,
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
California law.
Cisco has agreed that, after the Effective Time, Cisco will indemnify each
officer and director of TGV serving as such on the date of the Reorganization
Agreement as provided in the Delaware General Corporation Law, the TGV
Certificate of Incorporation and Bylaws, and existing indemnification
agreements between TGV 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, the Stock Option Agreement allows Cisco, under certain
circumstances, to acquire up to 871,667 shares (the "Cisco Option") of
authorized but unissued shares of TGV Common Stock (the "TGV Shares")
(constituting approximately 15% of the outstanding shares of TGV Common Stock)
at a price, payable in cash, of $15.575 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 TGV Common Stock by reason of certain
events, including recapitalizations, combinations, exchange of shares or the
like. Furthermore, in the event TGV enters into certain types of agreements
involving the merger of TGV, or sale of substantially all of TGV's assets,
such agreements must provide that upon consummation of any such merger or sale
that Cisco shall receive consideration for each share of TGV Common Stock with
respect to which the Cisco Option has not been exercised, equal to the amount
of consideration a holder of TGV Common Stock would receive less the Exercise
Price. The Stock Option Agreement could have the effect of making an
acquisition of TGV by a third party more costly because of the need to acquire
the TGV Shares in any such transaction.
The Stock Option Agreement is exercisable by Cisco, in whole or in part
(however, in no event shall the initial exercise of the Cisco Option be for
less than 25% of the TGV Shares), at any time or from time to time after any
event occurs which would permit Cisco to terminate the Reorganization
Agreement and recover the $4,000,000 termination fee and out-of-pocket costs
and expenses described in "The Merger and Related Transactions - Amendments,
Termination 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 the $4,000,000 termination fee and out-of-pocket
costs and expenses); or (iii) 180 days following any termination of the
Reorganization Agreement in connection with which Cisco is entitled to the
payment of the $4,000,000 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 January 22, 1998. Notwithstanding the foregoing, 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.
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 TGV (or any successor entity thereof) to repurchase from Cisco all or
any part of the Cisco Option, and TGV (or any successor entity thereof) has
the right to require Cisco to sell to TGV (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 January 22, 1998, Cisco has the right to
require TGV (or any successor entity thereof) to repurchase from Cisco, and
TGV (or any successor entity thereof) has the right to require Cisco to sell
to TGV (or such successor entity), all or any part of the TGV 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 TGV Common Stock as of the date the requesting party
gives notice ("Notice Date") of its intent to exercise its
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rights and the Exercise Price, multiplied by the number of TGV 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 Price") or (ii)
the average of the closing sale price of shares of TGV Common Stock on the
Nasdaq National Market for the ten trading days immediately preceding the
Notice Date (the "Market Price").
(b) The Exercise Price paid by Cisco for TGV 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 TGV 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, the right of TGV or any successor thereof to
require Cisco to sell the Cisco Option or the TGV Shares shall not be
exercisable unless TGV shall have consummated the transaction provided by a
Takeover Proposal or TGV's stockholders shall have transferred their shares of
TGV 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 TGV to register under the
Securities Act all or any part of the Restricted Shares (as defined in Section
8 of the Stock Option Agreement). TGV may, at its option, purchase these
shares ("Registrable Shares") at their market price (the per share average of
the closing sale price of TGV's Common Stock on the Nasdaq National Market for
the ten trading days immediately preceding the Registration Notice) within ten
business days after the receipt of the Registration Notice. If TGV 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) TGV will not be required to file any
such registration statement for a certain period of time when (i) TGV 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 TGV, such information would have to be disclosed if a
registration statement were filed at such time; (ii) TGV 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) TGV determines, in its
reasonable judgment, that such registration would interfere with any
financing, acquisition or other material transaction involving TGV 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, TGV 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(c)
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 TGV
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,
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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 (i) to good faith
disputes over such debts or taxes and (ii) in the case of taxes of TGV or any
of its subsidiaries, to Cisco's consent to the filing of material tax returns
if applicable, 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, 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 TGV and Cisco has also agreed 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 could have a material adverse
effect on it and its subsidiaries. In addition, each of Cisco and TGV 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 of Incorporation or
Bylaws; (b) issue, deliver, sell, authorize or propose the issuance, delivery,
sale of, 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 Cisco may, in the ordinary
course of business consistent with past practice, grant options for the
purchase of Cisco Common Stock under its stock option plans); (c) 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; (d) 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; (e) take any action
which would interfere with Cisco's ability to account for the Merger as a
pooling of interests; or (f) take, or agree in writing or otherwise to take,
any of the actions described in (a) through (e) 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, TGV 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, and 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) enter into any
material contract or commitment, or violate, amend or otherwise modify or
waive any of the terms of any of its material contracts, other than in the
ordinary course of business consistent with past practice; (b) transfer to any
person or entity any rights to its intellectual property other than in the
ordinary course of business consistent with past practice; (c) enter into or
amend any agreements pursuant to which any other party is granted exclusive
marketing or other exclusive rights of any type or scope with respect to any
of its products or technology; (d) 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 parent's/subsidiaries'
business, taken as a whole, except in the ordinary course of business
consistent with past practice; (e) 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; (f) enter into any operating lease in
excess of $10,000; (g) pay, discharge or satisfy in an amount in excess of
$10,000 in any one case or $100,000 in the aggregate, any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise) arising other
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than in the ordinary course of business, other than the payment, discharge or
satisfaction of liabilities reflected or reserved against in TGV's financial
statements; (h) make any capital expenditures, capital additions or capital
improvements except in the ordinary course of business and consistent with
past practice; (i) materially reduce the amount of any material insurance
coverage provided by existing insurance policies; (j) adopt or amend any
employee benefit or stock purchase or option plan, or hire any new director
level or officer level employee (except that it may hire a replacement for any
current director level or officer level employee if it first provides Cisco
advance notice regarding such hiring decision), pay any special bonus or
special remuneration to any employee or director, or increase the salaries or
wage rates of its employees; (k) grant any severance or termination pay (x) to
any director or officer or (y) 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; (l) 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; (m) 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 parent's/subsidiaries' business, taken as a
whole; (n) 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, file any material tax return or any amendment to a
material tax return, 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;
(o) 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 (p) take, or agree in writing or otherwise
to take, any of the actions described in (a) through (o) 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. In addition, TGV shall give
all notices and other information required to be given to the employees of
TGV, any collective bargaining unit representing any group of employees of
TGV, 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 the Reorganization Agreement.
No Solicitation of Transactions
TGV has further agreed that TGV and its subsidiaries and the officers,
directors, employees or other agents of TGV 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 TGV or any of it subsidiaries to, or afford
access to the properties, books or records of TGV or any of its subsidiaries
to, any person that has advised TGV that it may be considering making, or that
has made, a Takeover Proposal; provided, nothing herein shall prohibit TGV's
Board of Directors from taking and disclosing to TGV'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 can reasonably be expected to lead to a Takeover Proposal, shall
be received by the Board of Directors of TGV, then, to the extent the Board of
Directors of TGV believes in good faith (after consultation with its financial
advisor) that such Takeover Proposal would, if consummated, result in a
Superior Proposal and the Board of Directors of TGV determines in good faith
after consultation with outside legal counsel that it is necessary for the
Board of Directors of TGV to comply with its fiduciary duties to stockholders
under applicable law, TGV 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 TGV's Board
of Directors, and such actions shall not be considered a breach of the
Reorganization Agreement, provided that in each such event TGV notifies Cisco
of such
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determination by the TGV Board of Directors and provides Cisco 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 Cisco with all documents containing or
referring to non-public information of TGV that are supplied to such third
party; provided, further, that (A) the Board of Directors of TGV has
determined, with the advice of TGV'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 TGV, (B) the third party
has stated that it intends to make a Superior Proposal, (C) TGV 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 Cisco or Cisco's
representatives, (D) TGV notifies Cisco in advance of any disclosure of non-
public information to any such third party, with a description of the
information proposed to be disclosed, and (E) TGV provides such non-public
information pursuant to a non-disclosure agreement at least as restrictive as
that certain non-disclosure agreement between Cisco and TGV, dated January 3,
1996; provided, however, that TGV shall not, and shall not permit any of its
officers, directors, employees or other representatives to agree to or endorse
any Takeover Proposal unless TGV shall have terminated the Reorganization
Agreement and paid to Cisco all amounts payable to Cisco pursuant to the
Reorganization Agreement. TGV 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 TGV or
any of its subsidiaries or for access to the properties, books or records of
TGV or any of its subsidiaries by any person that has advised TGV 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 or request and shall provide Cisco with a true and complete copy of
such Takeover Proposal notice or request, if it is in writing, or a complete
written summary thereof, if it is not in writing. 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 TGV or any of its subsidiaries or the acquisition of any significant
equity interest in, or a significant portion of the assets of, TGV or any of
its subsidiaries, other than the transactions contemplated by the
Reorganization Agreement.
Conditions to the Merger
Each party's respective obligation to 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 TGV, 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
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) the receipt
of/obtaining all approvals, waivers and consents, if any, necessary for
consummation of or in connection with the Merger and the several transactions
contemplated thereby, including such approvals, waivers and consents as may be
required under the Securities Act, under state Blue Sky laws, and under HSR
having been received; (c) Cisco and TGV 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; and (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.
The obligations of TGV 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 TGV: (a) the representations
and warranties of Cisco and Merger Sub in the Reorganization Agreement shall
be true and correct in all material respects (except for such representations
and warranties that are qualified by their terms by a reference to materiality
which representations and warranties as so qualified shall be true in all
respects) on and as of the Effective Time as though such representations and
warranties were made on and as of such time; (b) Cisco and Merger Sub shall
have performed and complied in all material respects with all covenants,
obligations and conditions of the Reorganization Agreement required to be
performed and complied with by them
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as of the Effective Time; (c) TGV shall have received a certificate executed
on behalf of Cisco by its President and Chief Financial Officer to the effect
as of the Effective Time, that (i) all representations and warranties made by
Cisco and Merger Sub under the Reorganization Agreement are true and complete
in all material respects, and (ii) all covenants, obligations and conditions
of the Reorganization Agreement to be performed by Cisco and Merger Sub on or
before such date have been so performed in all material respects; (d) TGV
shall have received a legal opinion as to certain matters from Brobeck,
Phleger & Harrison LLP, counsel to Cisco; (e) there shall not have occurred
any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Cisco and its subsidiaries,
taken as a whole; (f) TGV shall have received a letter of Price Waterhouse
LLP, independent accountants, with respect to TGV's ability to participate in
a pooling-of-interests transaction; (g) TGV shall have received from each of
the Affiliates of Cisco an executed Affiliates Agreement; (h) TGV 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; and (i) 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.
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 TGV in the Reorganization Agreement shall be
true and correct in all material respects (except for such representations and
warranties that are qualified by their terms by a reference to materiality
which representations and warranties as so qualified shall be true in all
respects) on and as of the Effective Time as though such representations and
warranties were made on and as of such time; (b) TGV shall have performed and
complied in all material respects with all covenants, obligations and
conditions of the Reorganization Agreement required to be performed and
complied with by it as of the Effective Time; (c) TGV shall have received a
certificate executed on behalf of Cisco by its President and Chief Financial
Officer to the effect as of the Effective Time, that (i) all representations
and warranties made by Cisco and Merger Sub under the Reorganization Agreement
are true and complete in all material respects, and (ii) all covenants,
obligations and conditions of the Reorganization Agreement to be performed by
Cisco and Merger Sub on or before such date have been so performed in all
material respects; (d) Cisco shall have received a legal opinion as to certain
matters from Morrison & Foerster LLP, counsel to TGV; (e) 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 TGV or any of its subsidiaries or
otherwise; (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
conduct or operation of the business of TGV 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; (g) there shall not have occurred
any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of TGV and its subsidiaries,
taken as a whole; (h) Cisco shall have received an opinion of Coopers &
Lybrand L.L.P., independent accountants, acceptable to Cisco, to the effect
that the Merger qualifies for pooling-of-interests accounting treatment if
consummated in accordance with the Reorganization Agreement; (i) Cisco shall
have received from each of the Affiliates of TGV an executed Affiliate
Agreement; (j) Cisco shall have received a letter from Coopers & Lybrand
L.L.P., independent accountants, acceptable to Cisco and TGV, respectively,
and customary in scope and substance for letters delivered by independent
public accountants in connection with registration statements similar to the
Registration Statement; and (k) certain employees of TGV shall have accepted
employment with Cisco and shall have entered into an employment and non-
competition agreement as described in the Reorganization Agreement.
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Closing
As promptly as practicable after the satisfaction or waiver of the
conditions set forth in the Reorganization Agreement, Merger Sub and TGV 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 TGV 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 March 29, 1996.
Amendments, Termination and Waivers
The Reorganization Agreement may be amended by the parties at any time by
execution of an instrument in writing signed on behalf of each of the parties
thereto; provided that an amendment made subsequent to adoption of the
Reorganization Agreement by the stockholders of TGV or Merger Sub shall not
(i) alter or change the amount or kind of consideration to be received on
conversion of the TGV 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
Reorganization Agreement if such alteration or change would adversely affect
the holders of TGV Common Stock or Merger Sub Common Stock.
The Reorganization Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval by the TGV stockholders, (a)
by the mutual consent of Cisco and TGV; (b) by either Cisco or TGV if, without
fault of the terminating party, the Merger is not consummated on or before
July 1, 1996 (or such later date that the parties may agree to in writing);
(c) by Cisco, if (i) TGV breaches any of its representations, warranties or
obligations in any material respect under the Reorganization Agreement and
such breach is not cured within ten business days of receipt by TGV of written
notice of such breach; (ii) the TGV 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 any of the foregoing; or
(iii) TGV fails to call and hold the TGV Stockholder Meeting by May 1, 1996,
subject to certain exceptions; (d) by TGV, if Cisco breaches any of its
respective representations, warranties or obligations in any material respect
under the Reorganization Agreement and such breach is not cured within ten
business days of receipt by Cisco of written notice of such breach; (e) by
either Cisco or TGV if a Trigger Event (as defined below) or Takeover Proposal
occurs and the TGV 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 transactions
contemplated thereby after determining that to cause TGV to proceed with the
transactions contemplated by the Reorganization Agreement would not be
consistent with the TGV Board of Directors' fiduciary duty to the stockholders
of TGV; (f) by either Cisco or TGV if (i) any permanent injunction or other
order of a court or other competent authority preventing the consummation of
the Merger becomes final and nonappealable or (ii) any required approval of
the stockholders of TGV is not 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; or (g) by TGV, 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 Cisco Common Stock pursuant to any merger of Cisco in
which Cisco was the surviving corporation 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 (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), or (ii)
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. For purposes of the
Reorganization Agreement, a "Trigger Event" shall occur if any person acquires
securities representing 10% 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 25% or more, of the voting
power of TGV.
At any time prior to the Effective Time, either of Cisco or TGV 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
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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
Subject to the provisions described below regarding reimbursement of
expenses and payment of termination fees, whether or not the Merger is
consummated, 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.
In the event either TGV or Cisco shall terminate the Reorganization
Agreement on account of a material breach of the representations, warranties,
or obligations, the breaching party shall reimburse the nonbreaching party for
all of the out-of-pocket costs and expenses incurred by such nonbreaching
party in connection with the Reorganization Agreement and the transactions
contemplated thereby (including without limitation the fees and expenses of
its advisors, accountants and legal counsel). Additionally, if Cisco
terminates the Reorganization Agreement because the TGV Board of Directors
withdrew or modified its recommendation of the Reorganization Agreement or the
Merger in a manner adverse to Cisco or shall have resolved to any of the
foregoing or TGV failed to call and hold the TGV stockholders meeting by May
1, 1996, subject to certain exceptions, and there has not occurred a Trigger
Event or a Takeover Proposal, then TGV shall reimburse Cisco for all of the
out-of-pocket costs and expenses incurred by Cisco in connection with the
Reorganization Agreement and the transactions contemplated thereby (including
without limitation the fees and expenses of its advisors, accountants, and
legal counsel).
In the event that (a) either Cisco or TGV terminates the Reorganization
Agreement following the occurrence of a Trigger Event or a Takeover Proposal
and either (i) the TGV Board of Directors has withdrawn or modified its
approval of the Reorganization Agreement or (ii) the failure of TGV to obtain
the requisite stockholder vote to approve the Reorganization Agreement, or (b)
Cisco terminates the Reorganization Agreement because (i) TGV breached its
representations, warranties or obligations under the Reorganization Agreement
in any material respect; (ii) the TGV Board of Directors withdrew or modified
its recommendation of the Reorganization Agreement or the Merger in a manner
adverse to Cisco or shall have resolved to any of the foregoing; or (iii) TGV
failed to call and hold the TGV stockholders meeting by May 1, 1996, subject
to certain exceptions, due, in whole or in part, to TGV's failure to perform
and comply with all agreements and conditions required to be performed or
complied with by TGV prior to or on the Closing Date or any failure by TGV's
Affiliates to take any actions required to be taken pursuant to the
Reorganization Agreement and prior thereto there shall have occurred a Trigger
Event or a Takeover Proposal, TGV will be required to pay to Cisco $4,000,000
plus reimbursement of out-of-pocket costs and expenses incurred by Cisco in
connection with the Reorganization Agreement and the transactions contemplated
thereby (including, without limitation, the fees and expenses of its advisors,
accountants and legal counsel).
In the event TGV terminates the Reorganization Agreement following the Cisco
Board of Directors accepting or publicly recommending 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, Cisco will be required to pay
to TGV $4,000,000 plus reimbursement of out-of-pocket fees and expenses
incurred by TGV in connection with the Reorganization Agreement and the
transactions contemplated thereby (including, without limitation, the fees and
expenses of its advisors, accountants and legal counsel).
Pursuant to a letter agreement dated December 18, 1995, TGV engaged Wessels
to provide financial advice and assistance in connection with a sale or merger
of TGV, and to render a fairness opinion in connection with the proposed
merger with a subsidiary of Cisco. TGV has agreed to pay Wessels a Transaction
Fee of 1.15% 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 Wessels for its reasonable out-of-pocket
expenses.
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Indemnification and Insurance
The Reorganization Agreement provides that Cisco will, from and after the
Effective Time, cause TGV 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 TGV 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 TGV Certificate of
Incorporation or Bylaws or any indemnification agreement to which TGV is a
party, in each case as in effect on the date of the Reorganization Agreement.
The Reorganization Agreement also provides that, from and after the
Effective Time, Cisco will cause TGV to use its best efforts to cause to be
maintained in effect for two years for the benefit of TGV's directors and
officers and other persons covered by TGV's current directors' and officers'
liability insurance with respect to all matters occurring on or prior to the
Effective Time, TGV's current policies of directors' and officers' liability
insurance or substantially similar policies. Cisco and TGV will also, as of
the Effective Time, assume all of TGV's obligations to its directors, officers
and employees under any indemnification agreements in effect on the date of
the Reorganization Agreement to which TGV is a party.
Interests of Certain Persons in the Merger
In considering the recommendation of the TGV Board with respect to the
Merger, stockholders of TGV should be aware that certain officers and
directors of TGV have interests in the Merger, including those referred to
below, that presented them with potential conflicts of interests. The TGV
Board was aware of these potential conflicts and considered them along with
the other matters described in "The TGV Meeting - Board Recommendation" and
"The Merger and Related Transactions - Reasons for the Merger."
In November 1993, TGV entered into an employment agreement with Craig A.
Conway which provided him with options to purchase 470,000 shares of TGV
Common Stock at an exercise price of $3.50 per share. Of the shares subject to
these options, 67,500 shares became exercisable upon the closing of TGV's
initial public offering in March 1995 and 202,500 shares vest over a three-
year period such that they become fully vested on November 10, 1996. The
remaining 200,000 shares vest on November 17, 2003; provided, however, that
the option to acquire such shares may be accelerated and exercisable from time
to time upon the attainment of certain net revenue and pre-tax profit
milestones. The employment agreement further provided that upon a sale of TGV
or a merger of TGV with another business entity, that the vesting of the
options will be accelerated.
The Reorganization Agreement provides that Cisco will offer employment to
certain TGV executive officers and employees comparable to such employee's
current position with TGV. These offers will be made in the form of an
employment and non-competition agreement. These agreements provide that if the
contract were terminated by Cisco without cause, then Cisco would pay a lump
sum equal to one year's base salary, plus COBRA, less applicable deductions.
These agreements have been offered to Craig A. Conway, David L. Kashtan,
Kenneth A. Adelman, Russell Sandberg and L. Stuart Vance. See "The Merger and
Related Transactions - Related Agreements - Employment and Non-Competition
Agreements."
The Reorganization Agreement provides that, after the Effective Time, the
surviving corporation shall, to the fullest extent permitted under the laws of
the State of Delaware or the Certificate of Incorporation or Bylaws of the
surviving corporation, indemnify and hold harmless each director of the
surviving corporation made, or threatened to be made, a party to an action or
proceeding, whether criminal, civil, administrative or investigative, by
reason of being a director of the corporation or a predecessor corporation.
The Board of Directors in its discretion shall have the power on behalf of the
surviving corporation to indemnify any person, other than a director, made a
party to any action, suit or proceeding by reason of the fact that he is or
was an officer or employee of the surviving corporation.
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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
TGV filed their respective Notification and Report Forms required under the
HSR Act with the FTC and the Antitrust Division on February 1, 1996 and the
applicable waiting period under the HSR Act expired on March 2, 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 TGV.
Based on information available to them, Cisco and TGV 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 TGV
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 TGV Common Stock for
Cisco Common Stock pursuant the Merger that are generally applicable to
holders of TGV Common Stock and to the exchange of TGV Warrants for warrants
to purchase Cisco 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, TGV or TGV's stockholders as described
herein.
TGV stockholders and warrantholders should be aware that this discussion
does not deal with all federal income tax considerations that may be relevant
to particular TGV 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 TGV 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 TGV Common Stock are acquired or shares of
Cisco Common Stock are disposed of, or the tax consequences of the assumption
by Cisco of the TGV Options and the TGV Warrants. Accordingly, TGV
STOCKHOLDERS AND WARRANTHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS
TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER.
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 TGV Common Stock
solely upon their receipt in the Merger of Cisco Common Stock in exchange
therefor (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 TGV
stockholders in the Merger (including any fractional share of Cisco Common
Stock not actually received) will be the same as the aggregate tax basis of
the TGV Common Stock surrendered in exchange therefor.
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(c) The holding period of the Cisco Common Stock received by each TGV
stockholder in the Merger will include the period for which the TGV Common
Stock surrendered in exchange therefor was considered to be held, provided
that the TGV Common Stock so surrendered is held as a capital asset at the
time of the Merger.
(d) Cash payments received by holders of TGV 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
TGV 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 of Cisco, Merger Sub nor TGV will recognize material amounts
of gain solely as a result of the Merger.
Even if the Merger qualifies as a Reorganization, a recipient of shares of
Cisco Common Stock could recognize gain to the extent that such shares were
considered to be received in exchange for services or property (other than
solely Common Stock of TGV). All or a portion of such gain may be taxable as
ordinary income. Gain could also have to be recognized to the extent that a
TGV stockholder was treated as receiving (directly or indirectly)
consideration other than Cisco Common Stock in exchange for the stockholder's
Common Stock of TGV.
In addition, upon the effectiveness of the Merger, each TGV Warrant then
outstanding will be converted automatically into a warrant to purchase a
number of shares of Cisco Common Stock determined by multiplying the number of
shares subject to the TGV Warrant by two-fifths (0.40), with the exercise
price adjusted accordingly. Such conversion may constitute a taxable exchange
of TGV Warrants for warrants to purchase Cisco Common Stock. In such case,
each holder of TGV Warrants would recognize taxable gain or loss with respect
to each TGV Warrant (notwithstanding that the Merger will constitute a
Reorganization) equal to the difference between such warrantholder's basis in
such warrant and the fair market value as of the Effective Time of the Cisco
warrants received in exchange therefor.
The parties are not requesting and will not request a ruling from the
Internal Revenue Service (the "IRS") in connection with the Merger. Cisco and
TGV, however, have each received an opinion from their respective counsel to
the effect that the Merger will constitute a Reorganization (the "Tax
Opinions"). TGV 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, TGV, Merger Sub, and certain stockholders of
TGV, including representations in certain certificates to be delivered to
counsel by the respective managements of Cisco, TGV and Merger Sub and by
certain stockholders of TGV. Of particular importance are certain
representations relating to the Code's "continuity of interest" requirement.
To satisfy the continuity of interest requirement, TGV 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 TGV Common Stock in anticipation of
the Merger or (ii) the Cisco Common Stock to be received in the Merger
(collectively, "Planned Dispositions"), such that TGV stockholders, as a
group, would no longer have a significant equity interest in the TGV business
being conducted after the Merger. TGV 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 TGV 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.
A successful IRS challenge to the Reorganization status of the Merger (as a
result of a failure of the "continuity of interest" requirement or otherwise)
would result in TGV stockholders recognizing taxable gain or loss with respect
to each share of Common Stock of TGV 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
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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.
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 TGV 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 TGV 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
TGV'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 TGV receive a letter from Price Waterhouse LLP, the independent
accountants for TGV, with respect to TGV'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 TGV, (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 TGV's Common Stock is traded on
such a system, the Nasdaq National Market, and because the TGV 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 TGV 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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TGV SOFTWARE, INC.
BUSINESS
TGV develops, markets and supports internetworking software products which
enable connectivity between disparate computer systems over local area,
enterprise-wide and global computing networks. TGV's MultiNet product line is
based on TCP/IP, the most widely used protocol for global interconnectivity.
TGV's products consist of its proprietary protocol stack and an integrated
suite of applications, including remote access, file and resource sharing,
network management and email. TGV's products have been designed to work with
computer systems utilizing the OpenVMS, UNIX and Microsoft Windows operating
environments.
TGV initially targeted the OpenVMS market for its TCP/IP products. OpenVMS
systems have been widely accepted by large organizations to run mission
critical applications because of their high security and reliability and are
increasingly being integrated into enterprise-wide client/server networks. TGV
believes that it is the leading independent producer of TCP/IP solutions for
this market. TGV has subsequently targeted the Microsoft Windows market. In
June 1995, TGV released MultiNet for Windows, its first product designed for
the Microsoft Windows operating environment.
TGV also believes that the trend toward distributed client/server computing
will drive a need for scaleable, industrial strength TCP/IP software across
multiple platforms. TGV's strategy is to capitalize on this need with products
that emphasize functionality, reliability, security, performance and ease of
use across multiple computing environments.
TECHNOLOGY
TGV's products utilize its proprietary "MultiNet Architecture," which is
both flexible and reliable. The MultiNet Architecture has been designed to
facilitate porting to new operating systems. As a result, TGV believes that
its MultiNet Architecture provides design advantages in developing new
products for different computing environments. The portability of the MultiNet
Architecture provides TGV with the ability to develop new products that are
highly interoperable and offer the full functionality of previous products.
Two key elements of TGV's technology are its protocol stack and applications
architecture.
Protocol Stack
At the core of every TCP/IP internetworking product is the protocol stack.
TGV's protocol stack has been highly optimized for performance, functionality
and reliability.
. Performance - One measure of performance is throughput (measured in
kilobytes or megabytes per second). In independent benchmarking tests
on both OpenVMS and Windows, TGV's protocol stack has received superior
ratings on this measure.
. Functionality - TGV's protocol stack was originally developed in a 32-
bit environment on the OpenVMS operating system. In contrast, many
Windows TCP/IP stacks were ports of 16-bit DOS stacks. As a result,
TGV's protocol stack offers a breadth of functionality which is not
constrained by the design architecture originally developed for desktop
machines.
. Reliability - OpenVMS systems have traditionally been deployed in
mission critical environments, potentially supporting hundreds of
users. As a result, delivery of TGV's protocol stack on OpenVMS
required that the implementation be highly reliable. TGV's MultiNet for
OpenVMS product has demonstrated its high reliability through sustained
use by TGV's diverse customer base since 1988. MultiNet for Windows
brings this reputation for reliability to the desktop computer market.
Applications Architecture
TGV applications technology is built using TGV's Deferred Procedure Call
("DPC") mechanism. The DPC provides a platform independent network programming
interface which enables all application libraries and
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services to be portable across operating systems. This provides common
functionality, enables interoperability of networking applications across
these platforms and allows TGV to concentrate its development efforts on
enhancing the power and functionality of its "core" technology.
Application user interfaces are written to provide the standard "look and
feel" of the native operating system. This provides an application environment
familiar to users of that operating environment, enabling greater ease-of-use.
PRODUCTS
TGV develops and markets software products that consist of TGV's proprietary
TCP/IP protocol stack and a number of applications. These software products
are modular, which permits flexibility in development and packaging to meet
evolving market requirements. The individual applications are independent
programs that exhibit a look and feel that is specific to the target operating
system. These application programs utilize the TCP/IP standard via clearly-
defined program interfaces. The TCP/IP protocol stack itself runs on top of
the physical network and is independent of hardware interfaces that implement
the network.
MultiNet for OpenVMS
TGV's principal product line is marketed under the name "MultiNet for
OpenVMS" and consists of a suite of integrated applications combined with
TGV's proprietary implementation of the TCP/IP standard. Since TGV's
inception, revenues from the sale of MultiNet for OpenVMS has represented
substantially all of TGV's net revenues, and TGV expects that revenues from
this product will continue to account for the majority of TGV's net revenues
for the foreseeable future. Key features of the MultiNet for OpenVMS products
include:
Remote Login Access - The TELNET and RLOGIN virtual terminal utilities
provide login access between a MultiNet system and any other node on the
TCP/IP network. The TELNET client supports the TN3270 protocol, allowing
users to access IBM mainframes as a 3270 block-mode terminal.
File Transfer - The File Transfer Protocol ("FTP") utility provides high-
speed, reliable transportation of files between network hosts. The FTP
Server supports the full variety of security features on each operating
system, including Access Control Lists ("ACLs"), accounting, auditing, and
break-in detection and evasion. The FTP Server supports a high degree of
user customization for Anonymous FTP, including customized greeting
messages, access restriction to sets of directories, access restriction
based on time of day and allowing or disallowing writing of files.
Electronic Mail - MultiNet products include a Simple Mail Transfer
Protocol ("SMTP") subsystem. On OpenVMS, interfaces to both the VMS Mail
utility and the DEC's ALL-IN-1 office automation environment are supported.
Printing - MultiNet products support both client and server printing. An
LPD server allows remote users to print to locally connected printers. An
LPD client allows users to print to a remote computer system. MultiNet
products also contain support for accessing printers attached to terminal
servers.
Security - MultiNet products include Kerberos V4 support for the TELNET,
RLOGIN, RSHELL and RCP clients and servers, as well as the Key Distribution
Center ("KDC"). Kerberos defines a protocol for user authentication,
eliminating the transmission of user passwords in clear-text over the
network.
Network Utilities - MultiNet products provide the FINGER and WHOIS remote
user lookup utilities, as well as client and server implementations of the
TALK interactive conversation protocol.
Remote Device Access - Access to remote magnetic tapes and CD-ROM drives
is provided by the RMT and RCD software for installation on clients and
servers.
Naming and Routing - A Domain Name System ("DNS") nameserver, based on
the Berkeley Internet Name Daemon ("BIND"), supports the Internet's
distributed hierarchical naming system. Routing support is provided through
the Gateway Daemon ("GATED").
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Remote Booting Services - MultiNet products provide a variety of services
for the diskless booting and configuration of UNIX workstations, PCs,
terminal servers, routers and X Windows terminals. A BOOTP server provides
remote configuration information to requesting systems. The TFTP server
downloads boot images, configuration files and font files. Client systems
needing to report errors to operators can use the MultiNet SYSLOG server.
An XDM server and font server are provided to support X Windows
workstations (terminals and PCs).
Network Management - MultiNet products have support for a MIB-II
compliant Simple Network Management Protocol ("SNMP") agent, which answers
queries for information such as interface status, protocol statistics and
routing information.
Diagnostic Utilities - To resolve network or application problems, a
variety of diagnostic utilities are provided, including CHECK, PING,
TRACEROUTE, X11DEBUG, TCPDUMP and TCPVIEW.
MultiNet for Windows
TGV introduced in June 1995 its first TCP/IP product for the Windows
market - "MultiNet for Windows". MultiNet for Windows, in a manner similar to
MultiNet for OpenVMS, consists of a suite of integrated applications combined
with TGV's proprietary implementation of the TCP/IP standard. Key features of
the MultiNet for Windows products include:
Remote Login Access - The TELNET and RLOGIN virtual terminal utilities
provide login access between a MultiNet system and any other node on the
TCP/IP network. The TELNET client supports the TN3270 and VT100-320
protocols, allowing users to access IBM mainframes as a 3270 block-mode
terminal or other mainframes as a VT100-320 terminal, respectively.
File Transfer - The FTP utility provides high-speed, reliable
transportation of files between network hosts. The FTP Server supports a
high degree of user customization, including access restriction to sets of
directories and allowing or disallowing writing of files.
Electronic Mail - MultiNet for Windows includes Pronto IP electronic mail
provided by Commtouch, Inc. Pronto IP includes a SMTP subsystem and
includes POP3, MIME as well as other related features.
Printing - MultiNet for Windows supports several protocols allowing users
to print to network attached printers. LPD and PCNFS printing support
printing to UNIX and Open VMS systems. Stream supports printing to
standalone printers.
Security - MultiNet for Windows include Kerberos V4 support for the
TELNET application.
Diagnostic Utilities - To resolve network or application problems, a
variety of diagnostic utilities are provided, including MONITOR, PING,
TRACEROUTE and TCPDUMP.
World Wide Web Browser - MultiNet for Windows includes the Mosaic web
browser developed by Spyglass, Inc. The web browser includes HTTP, multiple
asynchronous connections, built-in viewers and secure transaction support.
NFS Client - MultiNet for Windows provides an NFS client for remote file
access to UNIX, Open VMS, Windows NT and other operating systems supporting
an NFS server. The NFS client provides transparent access to remote files,
making them appear to be on a local disk drive.
OTHER TGV PRODUCTS
NFS Client and Server
MultiNet for OpenVMS NFS Client and Server product options provide file
system sharing, allowing the file systems on remote servers to appear directly
attached to the local system. This allows users to share
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information and to take advantage of storage capacity on remote systems. The
RPC/NFS Lock Manager and Status Monitor protocols are supported for file
locking, which coordinates data access and integrity.
MultiWare Server
MultiWare Server for OpenVMS provides NetWare file, print and terminal
emulation services. It also provides print client functionality for OpenVMS
users.
Phase/IP
Phase/IP for OpenVMS provides the complete DECnet programming and
applications environment running over TCP/IP. It allows DECnet users to easily
and transparently migrate to TCP/IP with no loss of functionality.
Secure/lP
Secure/IP for OpenVMS allows users with hand-held authentication devices
(like those available from Security Dynamics Technologies Inc. and Digital
Pathways Inc.) to access MultiNet for OpenVMS systems without exposing their
clear-text passwords to the network.
PRODUCT DEVELOPMENT
The most significant area of TGV's current development activity is the
continued development of its MultiNet for OpenVMS and MultiNet for Windows
products and the porting of its existing products to new computer platforms
and operating systems. These development activities involve extending the
availability of the MultiNet products to computer platforms beyond the
OpenVMS, UNIX and Microsoft Windows operating environments.
While TGV believes that its MultiNet Architecture facilitates the porting of
such products to other operating systems, differences between these other
operating systems and the OpenVMS and Microsoft Windows operating systems may
delay or prevent development of these new versions of TGV's products for other
operating systems. In order to achieve similar levels of performance,
functionality and reliability that TGV's products have achieved in the OpenVMS
marketplace, TGV believes that it must obtain substantial development
expertise in these targeted operating systems and their user interfaces as
part of any successful development effort to port MultiNet products to other
operating systems. TGV has previously experienced delays in developing
MultiNet for Windows; consequently, TGV added additional experienced Windows
user interface developers and organized its engineering staff into dedicated
teams for each targeted operating environment.
TGV's future business is dependent in large part on continued enhancements
to its MultiNet for OpenVMS and MultiNet for Windows products as well as the
development of additional MultiNet products for other operating systems. Any
failure of MultiNet for Windows to achieve market acceptance could have a
material adverse effect on TGV's business, financial condition and results of
operations.
As of June 30, 1995, TGV's research and development group consisted of 40
full-time employees. For the fiscal years ended June 30, 1995, 1994 and 1993,
research and development expenses were approximately $6.0 million, $4.6
million and $2.5 million, respectively. TGV anticipates that it will continue
to commit substantial resources to enhance and extend its product line. TGV
intends to continue to increase its internally funded product development and
may, if appropriate, enter into development and technology licensing
agreements with others.
SALES AND MARKETING
TGV seeks to be recognized as the premier supplier of TCP/IP internetworking
solutions for large computing environments performing mission critical
business functions and markets its products and services by
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distinguishing them as superior to the competition for such environments.
TGV's sales and distribution strategy is focused on obtaining greater
penetration into larger customer accounts through multi-user licenses and
broadening its domestic and international distribution channels. TGV has
historically marketed and sold its MultiNet product line directly to end-users
domestically through a telemarketing organization and has recently established
a reseller channel throughout the United States. TGV's international sales are
directed primarily through distributors. These sales and distribution channels
target commercial corporations, government organizations and educational
institutions. For the year ended June 30, 1995, United States and
international sales accounted for 84% and 16% of net revenues, respectively.
TGV believes that the broader and more diverse customer base of the Windows
marketplace as compared with its OpenVMS installed base may require TGV to
perform sales and marketing and customer support functions in a different
manner for MultiNet for Windows. In addition, as TGV introduces products for
other operating environments, the customer base may change, thus requiring TGV
to perform sales and marketing and customer support functions in a different
manner. There can be no assurance that TGV can successfully expand these sales
and marketing and customer support functions. All domestic sales channels are
managed from TGV's principal offices in Santa Cruz, California. As of June 30,
1995, the sales and marketing department of TGV consisted of 33 employees.
TGV's Business Partner Program is directed at value-added resellers, systems
integrators, OEMs and distributors. Through this program, TGV has qualified a
variety of business partners who sell TGV products as distributors or
commissioned agents and receive discounts based on volume. TGV supports each
of its business partners through a local territorial sales representative, 24-
hour phone assistance, an expert database system distributed to each partner
and access to TGV's development and technical staff through the Internet.
TGV has established a Major Accounts Program to target Fortune 500
companies. A key feature of TGV's strategy is to further penetrate its
existing customer base. As many larger businesses have adopted TCP/IP as their
internetworking standard, the opportunity for multi-user orders for TCP/IP
product solutions has increased. TGV attempts to leverage its existing
customer base by selling them additional copies of MultiNet for OpenVMS,
complementary products such as Phase/IP and Secure/IP, MultiNet for Windows
for their desktop systems, extended support contracts and consulting and
training services.
For international sales, TGV relies on a network of distributors located
throughout Europe, South America, and the Pacific Rim. European sales efforts
are directed and managed by TGV Europe. TGV Europe is TGV's first
international sales office and is located in Basingstoke, England. All other
international sales efforts are directed and managed from TGV's principal
location in Santa Cruz, California. International sales represented
approximately 16%, 20% and 22% of TGV's net revenues in fiscal 1995, 1994 and
1993, respectively. The decrease in international sales as a percentage of net
revenues in fiscal 1995 and 1994 was primarily the result of TGV's focus on
building a domestic sales organization during this period. As part of its
marketing and sales strategy, TGV is seeking to increase the relative
percentage of its international sales and is consequently focusing its efforts
on expansion of its distribution channels outside the United States,
particularly in Europe, Asia and South America. There can be no assurance,
however, that TGV will be able to maintain or increase international demand
for TGV's products.
CUSTOMERS
TGV's customers include a wide variety of large commercial corporations,
federal, state, and local government organizations and educational and
research institutions. To date, TGV has shipped products to over 5,000
customers worldwide. No customer accounted for more than 5% of TGV's net
revenues during fiscal 1995, 1994 or 1993.
CUSTOMER SUPPORT AND PROFESSIONAL SERVICES
TGV believes it has established a reputation as a provider of a high level
of customer support, which is critical to TGV's continuing success in
developing long-term relationships with its customer base and
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establishing itself as a provider of enterprise-wide TCP/IP solutions to large
organizations. Customer service and support has been a high priority of TGV
since it was founded in 1988. TGV believes that customer support will play an
increasing role in the selection of internetworking software vendors as
client/server applications are deployed throughout the enterprise. TGV offers
toll-free technical support from 7:00 a.m. to 6:00 p.m. (PST), which can be
extended at the customer's option to 24 hours a day, 7 days a week. Support is
provided via telephone consultation, remote login, email, and, if necessary,
on-site assistance. International customers are generally supported by local
distributors that have been trained by TGV, and, in certain cases, directly by
TGV.
TGV offers 12-month support contracts to its customers at a price generally
equal to 15% of the aggregate license price. The support contract entitles the
customer to unlimited telephone support and free updates of the product during
the support period.
To augment the sales efforts of its multiple channels, TGV offers commercial
consulting services on a fee basis. TGV believes that such services provide an
additional means to serve and support its customers and increase the use and
demand for its products. Training classes are also offered to customers,
distributors, value added resellers, systems integrators and OEMs on fee
basis.
COMPETITION
The internetworking software industry is intensely competitive. To maintain
or increase its position in the industry, TGV will need to continually enhance
the current product line, and introduce new products and services. TGV
currently competes on the basis of product features and functions, product
architecture, reliability, performance, ease of use, security and customer
technical support. TGV believes it competes favorably in all these areas.
In the OpenVMS market, TGV competes with DEC as well as several smaller
private internetworking software companies. In the Windows market, TGV
competes directly with products offered by FTP Software, IBM, Microsoft,
NetManage and Novell, as well as several other companies. TGV's future
products for other operating systems could compete with products offered by
many other companies. Many of these companies have substantially greater
financial, technical, sales, marketing and other resources, as well as greater
name recognition and a larger customer base, than TGV. There can be no
assurance that TGV will be able to compete successfully in the future, or that
competition will not have a material adverse effect on TGV's business,
financial condition and results of operations.
As the market for TCP/IP continues to grow, increased competition may lead
to increased price competition. In fact, in some markets in which TGV may
expand, it is common for its competitors to include a version of the TCP/IP
stack without additional cost with their products, although the performance of
such products may not match TGV's products. For example, Microsoft has bundled
a TCP/IP stack with its new operating system, Windows 95. The bundling of a
TCP/IP stack in the Windows 95 operating system requires TGV to compete in the
Windows TCP/IP stack marketplace based on the broader functionality of its
TCP/IP stack as compared with the Microsoft offering. If Microsoft
incorporates TCP/IP applications into Windows or separately offers TCP/IP
applications, TGV will need to differentiate its applications based on
functionality, performance and reliability. There is no assurance TGV will be
able to successfully market the MultiNet protocol suite to these markets.
Furthermore, if competitors in the future include TCP/IP applications and
services without an additional charge as part of their standard product
offerings, there is no assurance TGV will be able to effectively market its
MultiNet applications and services.
Demand for TGV's existing and future products will be based primarily upon
the functionality of its products, and there can be no assurance that
comparable functions to those contained or proposed to be contained in TGV's
products will not be incorporated into the operating environment on which such
products are designed
49
<PAGE>
to operate or separately offered by the developer of such operating
environment, or that any such action will not render TGV's products obsolete
or noncompetitive.
TCP/IP is generally recognized as a non-proprietary internetworking
standard; however, other protocols have been developed by organizations such
as ISO. Should any of these other protocols become widely accepted, the market
for TCP/IP internetworking software would be reduced.
PROPRIETARY RIGHTS
TGV protects its proprietary rights through a combination of copyright and
trademark laws, trade secrets, confidentiality agreements and contractual
provisions. TGV's software, documentation, and other written materials have
only limited protection under these copyright and trademark laws. To license
its products, TGV relies primarily on "shrink wrap" or break-the-seal
licenses, which are not signed by the end-user and, therefore may be
unenforceable in certain jurisdictions. In addition, the laws of some
countries do not protect TGV's proprietary rights to as great an extent as do
the laws of the United States. There can be no assurances that TGV's means of
protecting its proprietary rights will be adequate or that TGV's competitors
will not independently develop similar technology. In the future, TGV may
receive communications from third parties asserting that TGV's products
infringe, or may infringe, the proprietary rights of third parties, seeking
indemnification against such infringement or indicating that TGV may be
interested in obtaining a license from such third parties. There can be no
assurance that any such claims would not result in protracted and costly
litigation.
TGV believes that the rapid pace of innovation within its industry and the
skills of its personnel afford more protection of its proprietary rights than
the various legal means. TGV also believes that its products and technology do
not infringe any existing proprietary rights of others, although there can be
no assurance that third parties will not assert infringement claims in the
future.
EMPLOYEES
As of June 30, 1995, TGV had a total of 120 employees, of whom 33 were
engaged in sales and marketing, 40 in research and development, 26 in
professional services and technical support and 21 in administration, finance,
MIS and operations. TGV's future success depends in significant part upon the
continued service of its key technical and senior management personnel and its
continuing ability to attract and retain highly qualified technical and
managerial personnel. Competition for such personnel in the software industry
is intense and there can be no assurance that TGV can attract, assimilate or
retain other highly qualified technical and managerial personnel in the
future. None of TGV's employees is represented by a labor union. TGV has not
experienced any work stoppages and considers its relations with its employees
to be good.
PROPERTIES
TGV's principal development and administrative facility occupies an
aggregate of approximately 16,000 square feet in Santa Cruz, California, with
a lease that expires in August 2000. TGV's sales and marketing organization is
located in a 6,500 square foot facility, also located in Santa Cruz, with a
lease that expires in February 1997. TGV's management information systems
organization occupies an additional 4,000 square foot facility in Santa Cruz,
leased through May 1999. TGV's finance, customer support and professional
services organizations are located in a 20,000 square foot facility located in
Scotts Valley, California, with a lease that expires in 1998. TGV's European
operations, TGV Europe, occupies approximately 1,000 square feet in an office
park located in Basingstoke, England on a short-term lease. TGV believes that
its existing facilities are adequate for its current needs and that additional
space will be available at commercially reasonable terms as needed.
LEGAL PROCEEDINGS
TGV is not a party to any material litigation and is not aware of any
pending or threatened litigation that could have a material adverse effect
upon TGV's business, operating results or financial condition.
50
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF TGV
The following selected annual financial information of TGV has been derived
from its audited historical financial statements and should be read in
conjunction with such consolidated financial statements and notes thereto,
which are included elsewhere in this Joint Proxy Statement/Prospectus. The
selected financial information as of December 31, 1995 and for the six months
periods ended December 31, 1994 and 1995 has been derived from unaudited
consolidated financial statements, but in the opinion of management, 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.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEAR ENDED JUNE 30, DECEMBER 31,
--------------------------------------- ----------------
1991 1992 1993 1994 1995 1994 1995
------ ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net revenues:
License fees........... $6,023 $ 8,719 $12,395 $16,225 $19,019 $ 8,872 $ 7,615
Service fees........... 980 1,539 2,325 3,176 5,223 2,144 3,430
------ ------- ------- ------- ------- ------- -------
Total net revenues.... 7,003 10,258 14,720 19,401 24,242 11,016 11,045
------ ------- ------- ------- ------- ------- -------
Cost of revenues:
License fees........... 258 254 530 561 762 390 355
Service fees........... 204 420 738 1,644 2,651 1,088 1,819
------ ------- ------- ------- ------- ------- -------
Total cost of
revenues............. 462 674 1,268 2,205 3,413 1,478 2,174
------ ------- ------- ------- ------- ------- -------
Gross margin............ 6,541 9,584 13,452 17,196 20,829 9,538 8,871
------ ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing.... 1,248 2,259 3,519 6,740 8,647 4,063 4,868
Research and
development........... 752 1,455 2,479 4,640 5,960 2,750 3,434
General and
administrative........ 1,105 1,845 2,517 2,682 2,550 1,249 1,185
Other charges (income),
net................... 489 320 754 (1,810) (1,242) (621) (621)
------ ------- ------- ------- ------- ------- -------
Total operating
expenses............ 3,594 5,879 9,269 12,252 15,915 7,441 8,886
------ ------- ------- ------- ------- ------- -------
Income from operations.. 2,947 3,705 4,183 4,944 4,914 2,097 5
Interest income......... 36 128 118 206 1,029 253 881
------ ------- ------- ------- ------- ------- -------
Income before provision
for income taxes....... 2,983 3,833 4,301 5,150 5,943 2,350 886
Provision for income
taxes.................. 1,223 1,574 1,892 2,978 2,140 846 272
------ ------- ------- ------- ------- ------- -------
Net income.............. $1,760 $ 2,259 $ 2,409 $ 2,172 $ 3,803 $ 1,504 $ 614
====== ======= ======= ======= ======= ======= =======
Net income per share.... $ 0.66 $ 0.61 $ 0.66 $ 0.49 $ 0.72 $ 0.33 $ 0.10
Weighted average common
shares and
equivalents............ 2,670 3,683 3,664 4,554 5,331 4,786 6,332
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
------------------------------------ DECEMBER 31,
1991 1992 1993 1994 1995 1995
------ ------ ------ ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
marketable securities...... $2,120 $3,404 $5,059 $12,993 $43,119 $43,320
Working capital............. 2,066 3,880 4,675 9,804 32,496 35,587
Total assets................ 3,902 6,204 9,587 19,778 51,834 50,887
Mandatory redeemable
convertible preferred
stock...................... -- -- -- 7,308 -- --
Stockholders' equity........ $1,878 $4,137 $6,555 $ 5,465 $39,907 $40,129
</TABLE>
51
<PAGE>
TGV'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
TGV was founded in 1988 to develop, market and support internetworking
software for the DEC OpenVMS computing environment. In June 1995, TGV expanded
its product offerings to include MultiNet for Windows, TGV's first
internetworking software product for the Windows computing environment. Since
TGV shipped its first products in fiscal 1989, TGV's net revenues and
profitability, excluding a one-time Common Stock repurchase charge, have
increased in each fiscal year.
Since inception, license fees and, to a lesser extent, service fees
attributable to TGV's MultiNet for OpenVMS product line have accounted for
substantially all of TGV's net revenues. License fees consist of revenues
received by TGV on the initial license of its software products. Service fees
are comprised of revenues received by TGV for support contracts and consulting
and training services. License fees are recognized upon shipment of products.
Revenues from support contracts are recognized over the contract term, which
generally is one year. Consulting and training services revenues are
recognized as services are performed. See Note 2 of Notes to Consolidated
Financial Statements.
TGV's sales in the United States and Canada have primarily been achieved
through a direct sales organization. International sales, which for the year
ended June 30, 1995 represented 16% of TGV's net revenues, are predominantly
made through distributors in Europe, Asia and Australia. In fiscal 1995, TGV
expanded its direct sales organization, developed a reseller channel and is in
the process of enhancing its international distributor network.
Beginning in fiscal 1994 and continuing through fiscal 1995, TGV committed
increased resources to research and development and sales and marketing. These
commitments, which included a significant increase in engineers and
salespersons, were incurred in connection with TGV's strategy to become a
leading supplier of TCP/IP internetworking solutions and were essential in the
development of TGV's products and operations; including TGV's recently
introduced product, MultiNet for Windows.
The following table sets forth certain consolidated statements of income
data expressed as percentages of net revenues for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
----------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Net revenues:
License fees.................................... 84.2% 83.6% 78.5%
Service fees.................................... 15.8 16.4 21.5
-------- -------- --------
Total net revenues............................ 100.0 100.0 100.0
-------- -------- --------
Cost of revenues:
License fees.................................... 3.6 2.9 3.1
Service fees.................................... 5.0 8.5 10.9
-------- -------- --------
Total cost of revenues........................ 8.6 11.4 14.0
-------- -------- --------
Gross margin...................................... 91.4 88.6 86.0
-------- -------- --------
Operating expenses:
Sales and marketing............................. 23.9 34.7 35.7
Research and development........................ 16.9 24.0 24.6
General and administrative...................... 17.1 13.8 10.5
Other charges (income), net..................... 5.1 (9.3) (5.1)
-------- -------- --------
Total operating expenses...................... 63.0 63.2 65.7
-------- -------- --------
Income from operations............................ 28.4 25.4 20.3
Interest income................................... 0.8 1.1 4.2
-------- -------- --------
Income before provision for income taxes.......... 29.2 26.5 24.5
Provision for income taxes........................ 12.9 15.3 8.8
-------- -------- --------
Net income........................................ 16.3% 11.2% 15.7%
======== ======== ========
</TABLE>
52
<PAGE>
Net Revenues
TGV's net revenues are derived from license fees for TGV's internetworking
software products and service fees for support contracts and consulting and
training services. TGV's net revenues increased by 25% to $24.2 million in
fiscal 1995 from $19.4 million in fiscal 1994 and by 32% in fiscal 1994 from
$14.7 million in 1993.
License fees increased by 17% to $19.0 million fiscal 1995 from $16.2
million in fiscal 1994 and by 31% in fiscal 1994 from $12.4 million in fiscal
1993. These results were achieved through increased unit sales attributable to
increasing market acceptance of the MultiNet family of software products, the
expansion of TGV's direct sales organization and the development of a reseller
distribution channel.
Service fees have comprised an increasing percentage of net revenues for
each of the last three fiscal years. Service fees increased by 64% to $5.2
million in fiscal 1995 from $3.2 million in fiscal 1994 and 37% in fiscal 1994
from $2.3 million in fiscal 1993. These increases were primarily attributable
to support contracts associated with new license sales, the renewal of support
contracts by TGV's expanding customer base and by increased consulting and
training revenues due to the formation of a professional services
organization. TGV expects that service fees from such contracts and services
will continue to increase in absolute amounts as its customer base grows.
International revenues were $4.0 million, $3.8 million and $3.3 million in
fiscal 1995, 1994 and 1993, respectively. International revenues increased in
absolute amounts primarily due to the continuing expansion of TGV's
international distribution channel. International revenues as a percentage of
net revenues were 16%, 20% and 22% for fiscal 1995, 1994 and 1993,
respectively. The decrease in international revenues as a percentage of net
revenues for fiscal 1994 and 1995 was due to TGV's focus on building its
domestic sales organization while not investing any significant effort or
resources in its international operations. TGV is seeking to strengthen its
international sales ability in fiscal 1996, which will involve changes in its
distribution channels which could adversely impact international revenues in
the near term. International sales are denominated in U.S. dollars. See Note
11 of Notes to Consolidated Financial Statements.
Gross Margin
Cost of license fees includes documentation, software duplication, product
packaging costs, and royalties. Cost of service fees includes technical
support, consulting and training expenses. Gross margin as a percentage of net
revenues was 86%, 89% and 91% in fiscal 1995, 1994 and 1993, respectively. The
declines in gross margin were primarily due to the costs associated with
continued expansion of TGV's technical support staff in order to service an
increasing customer base and the formation of a consulting organization.
Gross margin as a percentage of net revenues may decline in the future
resulting from the introduction of new products with lower average sales
prices, increases in customer support associated with new product
introductions, competitive pressures, and increases in the proportion of net
revenues derived from indirect sales channels and professional services.
Sales and Marketing
Sales and marketing expenses increased 28% to $8.6 million in fiscal 1995
from $6.7 million in fiscal 1994 and by 92% in fiscal 1994 from fiscal 1993
expenses of $3.5 million. Sales and marketing expenses represent 36%, 35% and
24% of net revenues in fiscal 1995, 1994 and 1993, respectively. Sales and
marketing expenses increased in each year due to increased expansion of TGV's
sales and marketing organization, participation in domestic and international
trade shows, higher sales commissions associated with increased net revenues,
and advertising and public relations expenses. TGV plans to increase sales and
marketing expenses in absolute amounts in fiscal 1996 to further expand its
sales and marketing operations and aggressively promote its recently
introduced MultiNet for Windows product.
53
<PAGE>
In addition, included in fiscal 1994 was $540,000 in sales and marketing
expenses incurred by TGV's majority owned subsidiary, Empirical Tools and
Technologies, Inc. ("ET&T"). ET&T ceased operations in June 1994 and,
accordingly, did not incur any costs in fiscal 1995.
Research and Development
Research and development expenses increased by 28% to $6.0 in fiscal 1995
from $4.6 million in fiscal 1994 and by 87% in fiscal 1994 from fiscal 1993
expenses of $2.5 million. Research and development expenses represent 25%, 24%
and 17% of net revenues in fiscal 1995, 1994 and 1993, respectively. The
increase was primarily attributable to increased staffing necessary to develop
new products and enhance existing products.
In December 1993, TGV incurred a one-time charge, associated with the
repurchase of 649,693 shares of its Common Stock. This charge approximated
$975,000, of which $870,000 related to stock repurchased from research and
development personnel, and was expensed to research and development during
fiscal 1994. This repurchase was made in connection with TGV's sale of $7.0
million of its Mandatory Redeemable Convertible Preferred Stock. See Note 7 of
Notes to Consolidated Financial Statements.
TGV expects to continue to devote substantial resources to its research and
development efforts to continue to develop and support TGV's highly complex
software products. Accordingly, TGV believes that research and development
expenses will continue to increase in absolute amounts.
In accordance with Financial Accounting Standards Board Statement No. 86,
TGV is required to capitalize software development costs incurred after
technological feasibility of the product has been established and prior to the
first shipment of such product. To date, TGV's capitalized software
development costs have not been material. See Note 2 of Notes to Consolidated
Financial Statements.
General and Administrative
General and administrative expenses decreased by 5% to $2.6 million in
fiscal 1995 from $2.7 million in fiscal 1994 and increased by 7% in fiscal
1994 from fiscal 1993 expenses of $2.5 million. General and administrative
expenses represent 11%, 14% and 17%, respectively of net revenues in fiscal
1995, 1994 and 1993. TGV has held general and administrative expenses
relatively constant during the periods presented while revenues have grown.
However, TGV expects that general and administrative expenses will increase in
absolute amounts in future periods.
Other Charges (Income)
The amounts reported as other charges (income) in fiscal 1993 include legal
fees incurred with respect to a copyright infringement claim filed by TGV.
Other charges (income) for fiscal 1994 represents the net effect of an initial
payment to TGV of $2.6 million related to the settlement of the claim and
subsequent payments of $800,000 under a promissory note which was delivered in
connection with the settlement agreement, offset by $100,000 in additional
legal fees. Other charges (income) for fiscal 1995 represents continued
payments to TGV under the promissory note. At June 30, 1995, $1.9 million
remains outstanding under the promissory note and TGV is entitled to receive
quarterly payments of $311,000 against principal and interest. These payments
will be recorded by TGV in the period such payments are received due to the
uncertainty of their collection. See Note 10 of Notes to Consolidated
Financial Statements.
During the quarter ended September 30, 1993, TGV made advances to Berkeley
Software Design, Inc. ("BSDI"), an unrelated party, and certain shareholders
of BSDI. These advances were subsequently credited in such quarter against
TGV's purchases of 49% of BSDI. In addition, TGV loaned BSDI approximately
$450,000 pursuant to an unsecured promissory note. TGV made these advances to
BSDI primarily based on potential technological synergies that were believed
to exist and very limited pre-acquisition financial due diligence. Later
during 1993, the compiled June 30, 1993 financial statements for BSDI were
made available to TGV which
54
<PAGE>
indicated cumulative losses of approximately $1,300,000 and negative net worth
of approximately $1,200,000. Accordingly, TGV determined that its investment
in BSDI was permanently impaired. This assessment was based upon the absence
of estimated future net income or positive cash flows associated with this
investment. Accordingly TGV recorded a $1.5 million charge to write-off its
entire investment in BSDI. Subsequent to this investment, TGV has enhanced its
procedures to evaluate potential investment opportunities. See Note 10 of
Notes to Consolidated Financial Statements.
Provision for Income Taxes
TGV's provision for income taxes was $2.1 million, $3.0 million and $1.9
million in fiscal 1995, 1994 and 1993, respectively. The provision for income
taxes as a percentage of pre-tax income was 36%, 58% and 44% in fiscal 1995,
1994 and 1993, respectively. The fiscal 1994 tax rate was higher than the
statutory rate primarily due to the effect of a nondeductible compensation
expense related to the repurchase of Common Stock and capital losses
associated with BSDI. See Note 4 of Notes to Consolidated Financial
Statements.
Six Months Ended December 31, 1994 and December 31, 1995
Net Revenues. TGV's net revenues were $11.0 million for both the six months
ended December 31, 1995 and 1994.
License fees decreased by 14% to $7.6 million for the six months ended
December 31, 1995 from $8.9 million for the six months ended December 31,
1994. License fees decreased due to declines in license revenues attributable
to TGV's Digital VMS products, offset to a small extent by increases in
revenues attributable to TGV's MultiNet for Windows product which was recently
introduced in June 1995.
Service fees increased by 60% to $3.4 million for the six months ended
December 31, 1995 from $2.1 million for the six months ended December 31,
1994. This increase was primarily attributable to the renewal of support
contracts by TGV's expanding customer base, support contracts associated with
new license sales and increased consulting and training revenues.
Gross Margin. Gross margin as a percentage of net revenues was 80% for the
six months ended December 31, 1995 and was 87% for the six months ended
December 31, 1994. The decline in gross margin was primarily due to the
increased percentage of net revenues attributable to service fees which have a
higher associated cost of revenue.
Sales and Marketing. Sales and marketing expenses increased to $4.9 million
for the six months ended December 31, 1995 from $4.1 million for the six
months ended December 31, 1994. Sales and marketing expenses represented 44%
of net revenues for the six months ended December 31, 1995, as compared to 37%
of net revenues for the six months ended December 31, 1994. Sales and
marketing expenses increased during the six months ended December 31, 1995
primarily due to increases in advertising expenses relating to the TGV's
recently introduced product, MultiNet for Windows, and the expansion of TGV's
international sales organization.
Research and Development. Research and development expenses increased to
$3.4 million for the six months ended December 31, 1995, as compared to $2.8
million for the six months ended December 31, 1994. Research and development
expenses represented 31% of net revenues for the six months ended December 31,
1995, as compared to 25% for the six months ended December 31, 1994. Research
and development expenses increased during the six months ended December 31,
1995 due to additional staffing necessary to develop new products and enhance
existing products.
TGV expects to continue to devote substantial resources to its research and
development efforts to continue to develop and support TGV's highly complex
software products.
55
<PAGE>
In accordance with Financial Accounting Standards Board Statement No. 86,
TGV is required to capitalize software development costs incurred after
technological feasibility of the product has been established and prior to the
first shipment of such product. To date, TGV's capitalized software
development costs have not been material.
General and Administrative. General and administrative expenses were $1.2
million for the six months ended December 31, 1995, as compared to $1.2
million for the six months ended December 31, 1994. General and administrative
expenses represent 11% of revenues for the six months ended December 31, 1995,
as compared to 11% for the six months ended December 31, 1994.
Other Income. Other income was $621,000 for each of the six months ended
December 31, 1995 and 1994, respectively. The amounts reported as other income
are attributed to proceeds received from the settlement of a copyright
infringement claim filed by TGV. Settlement proceeds are recorded by TGV in
the period such payments are received due to the uncertainty of their
collection.
Provision for Income Taxes. The provision for income taxes was $272,000 for
the six months ended December 31, 1995, as compared to $846,000 for the six
months ended December 31, 1994. The provision for income taxes as a percentage
of pre-tax income was 30% for the six months ended December 31, 1995 as
compared to 36% for the six months ended December 31, 1994. The decrease in
income taxes as a percentage of pre-tax income in fiscal 1996 is due to an
increase in the proportion of income before income taxes attributable to tax
exempt interest income during fiscal 1996 when compared to fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, TGV has experienced positive cash flow from operations.
During fiscal 1995, TGV issued 1,644,000 shares of Common Stock in its initial
public offering. Total proceeds to TGV amounted to approximately $23.7
million, net of issuance costs. In fiscal 1994, TGV issued Mandatory
Redeemable Convertible Preferred Stock generating net proceeds to TGV of $7.0
million. In accordance with the terms of the Mandatory Redeemable Convertible
Preferred Stock transaction, in fiscal 1994, TGV repurchased 649,693 shares of
its Common Stock at a total cost to TGV of $4.5 million. At the time of TGV's
initial public offering, the Mandatory Redeemable Convertible Preferred Stock
was automatically converted into Common Stock and TGV paid cumulative
dividends thereon of $773,000. See Note 6 of Notes to Consolidated Financial
Statements.
Net cash provided by operating activities was $8.6 million, $7.5 million and
$3.6 million for fiscal 1995, 1994 and 1993, respectively. The increases in
net cash during these periods were primarily due to net income and increases
in deferred revenues and accrued liabilities, which were partially offset by
increases in accounts receivable. During the six months ended December 31,
1995, net cash provided by operating activities was $1.7 million as compared
to net cash provided by operations of $3.3 million during the six months ended
December 31, 1994. The decrease in net cash provided by operations during the
six months ended December 31, 1995 was primarily due to lower net income
during the period and a decrease in accrued employee costs.
Net cash used by TGV for investing activities amounted to $23.8 million,
$3.1 million and $2.0 million during fiscal 1995, 1994 and 1993, respectively.
Investing activities used $3.5 million and $6.6 million during the six months
ended December 31, 1995 and 1994, respectively. Investing activities during
fiscal 1995 and the six months ended December 31, 1995 relate primarily to the
purchase of short-term and long-term marketable securities. Investing
activities during fiscal 1994 and 1993 related primarily to purchases of
property and equipment. In addition to the acquisition of property and
equipment, during fiscal 1993, TGV used $1.1 million to purchase certain
residual rights in its existing technology from SRI International, Inc. and
invested $250,000 in BSDI. During fiscal 1994, TGV advanced an additional $1.2
million to BSDI. Although TGV has no material commitment for the purchase of
property and equipment, TGV will continue to invest in property and equipment
as TGV's employee base grows.
56
<PAGE>
In October 1995, TGV initiated a program to repurchase up to 250,000 shares
of its Common Stock. The purpose of the repurchase program was to satisfy
TGV's requirements to issue shares under its 1995 Stock Option Plan and 1995
Employee Stock Purchase Plan. In October, 150,000 shares of stock were
repurchased at a cost of approximately $1.4 million.
As of December 31, 1995, TGV had $43.3 million in cash, cash equivalents and
short-term and long-term marketable securities and $35.6 million in working
capital. TGV does not have a bank line of credit or an equipment lease
facility. TGV believes its current cash, cash equivalents and short-term and
long-term marketable security balances will be sufficient to meet its working
capital and capital expenditure requirements through at least the next twelve
months.
BUSINESS OUTLOOK
The following statements are based on current expectations. These statements
are forward-looking and actual results may differ materially from those
described in these forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed below.
TGV expects that gross margin as a percentage of net revenues may continue
to fluctuate in the future due to changes in the proportion of net revenues
derived from indirect sales channels and service fees, the introductions of
new products with lower average sales prices, increases in customer support
costs associated with new product introductions and competitive pressures.
TGV believes that sales and marketing expenses, research and development
expenses and general and administrative expenses will continue to increase in
absolute amounts in future periods.
TGV's quarterly operating results have in the past and may in the future
vary significantly depending on factors such as the introduction or
enhancement of products by TGV or its competitors; changes in computer
networking technologies or standards; changing demand for products used on
particular computer hardware platforms; changes in the price of products or
services offered by TGV or its competitors; the size and timing of individual
orders; market acceptance of new products; seasonality of revenues; customer
order deferrals in anticipation of new products; changes in TGV's operating
expenses; personnel changes; mix of products and services sold and the mix of
distribution channels through which products are sold; quality control of
products sold; and general economic conditions.
Because TGV generally ships software products within a short period after
receipt of an order, TGV typically does not have a material backlog of
unfilled orders, and net revenues in any quarter are substantially dependent
on orders booked in that quarter. Furthermore, TGV is focusing certain of its
sales and marketing resources on selling multi-user site licenses. These site
licenses typically involve higher net revenue amounts per order and require a
longer sales cycle and have resulted in more significant variability of TGV's
net revenues between fiscal quarters based on the timing of these orders. TGV
expects these conditions to persist in the future.
TGV's operating expense levels are based in part on its expectations as to
future revenues and to a large extent are fixed; therefore, TGV may be unable
to adjust spending in a timely manner to compensate for any unexpected net
revenue shortfall. For example, TGV has implemented plans to increase its
expenses to fund greater levels of research and development, increase its
advertising expenditures, develop new distribution and resale channels and
broaden its customer support capability. To the extent such expenses precede
or are not subsequently followed by increased revenues, TGV's profits will be
materially adversely affected.
Any significant shortfall of demand in relation to TGV's expectations or any
material delay of customer orders would have an almost immediate adverse
impact on TGV's operating results and profitability. Quarterly fluctuations in
operating results may also result in volatility in the price of TGV Common
Stock. TGV believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance. As a result, TGV believes that results of
operations for the interim periods are not necessarily indicative of the
results to be expected for any future period.
57
<PAGE>
COMPARISON OF RIGHTS OF STOCKHOLDERS
OF CISCO AND TGV
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 TGV's stockholders are governed
by its Certificate of Incorporation (the "TGV Certificate"), its Bylaws (the
"TGV Bylaws") and the laws of the State of Delaware. After the Effective Time,
the TGV 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 TGV 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 TGV 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 TGV Certificate
and the TGV 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 TGV 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 TGV Bylaws provide that no nominations for directors of TGV by any
person other than the TGV 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 TGV no less
than 30 days nor more than 60 days in advance of the stockholder meeting;
provided, however, that in the event that less than 40 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
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<PAGE>
Articles and Cisco Bylaws do not impose comparable conditions on the
submission of director nominations by its stockholders.
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 TGV Certificate does not require a greater level of approval for an
amendment thereto. 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 TGV Certificate expressly authorizes the board of
directors to adopt, amend or repeal the TGV Bylaws; provided, however, that
any provision for the classification of directors of TGV for staggered terms
pursuant to the provisions of subsection (d) of Section 141 of the DGCL shall
be set forth in an initial Bylaw adopted by the stockholders entitled to vote
unless provision for such classification was set forth in the TGV Certificate.
There is no such provision in the TGV Certificate.
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 agreement of merger or consolidation converts such shares into
anything other than (a) stock of the surviving corporation; (b) stock of
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<PAGE>
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 TGV Certificate does not
contain any special provision relating to action 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 TGV Bylaws provide that no proposal by any person other than the Board
of Directors may be submitted for the approval of the TGV 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 TGV no less than 30 days nor more than 60 days in advance of the
stockholder meeting; provided, however, that in the event that less than 40
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
60
<PAGE>
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 TGV
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,
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<PAGE>
interested transactions between the corporation and a director in which a
director has a material financial interest and liability for improper
distributions, loans or guarantees. The TGV 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 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. TGV 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
Neither the Cisco Articles, Cisco Bylaws, the TGV Certificate or TGV Bylaws
provide for cumulative voting in elections of directors. Therefore, under
California and Delaware law, cumulative voting rights are not available to
Cisco or TGV stockholders.
The foregoing discussion of certain similarities and material differences
between the rights of Cisco stockholders and the rights of TGV 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 TGV.
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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 TGV's proxy statement relating to its 1995 Annual Meeting of
Stockholders, proposals of stockholders of TGV which are intended to be
presented by such stockholders at TGV's 1996 Annual Meeting of Stockholders
(if the Merger is not consummated) must have been received by TGV no later
than June 22, 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 financial statements of TGV as of June 30, 1994 and 1995
and for each of the three years in the period ended June 30, 1995, included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
Representatives of Price Waterhouse LLP are expected to be present at the
TGV 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 TGV by Morrison & Foerster LLP, Palo Alto, California.
63
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TGV SOFTWARE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheet................................................. F-3
Consolidated Statement of Income........................................... F-4
Consolidated Statement of Stockholders' Equity............................. F-5
Consolidated Statement of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of TGV Software, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of TGV
Software, Inc. and its subsidiaries at June 30, 1994 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
San Jose, California
July 25, 1995
except as to Note 12,
which is as of
January 23, 1996
F-2
<PAGE>
TGV SOFTWARE, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30,
---------------- DECEMBER 31,
1994 1995 1995
------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $12,993 $20,721 $18,087
Short-term marketable securities.............. -- 18,317 24,177
Accounts receivable, less allowance for
doubtful accounts of $135, $312 and $332, at
June 30, 1994 and 1995 and December 31, 1995
(unaudited).................................. 3,224 4,087 2,970
Deferred income taxes......................... 459 767 767
Prepaid expenses and other.................... 133 531 344
------- ------- -------
Total current assets........................ 16,809 44,423 46,345
Property and equipment, net (Note 3)............ 2,068 2,905 3,105
Long-term marketable securities................. -- 4,081 1,056
Other assets.................................... 901 425 381
------- ------- -------
$19,778 $51,834 $50,887
======= ======= =======
LIABILITIES, MANDATORY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 1,174 $ 1,582 $ 1,609
Accrued employee costs........................ 1,462 2,770 1,955
Accrued liabilities........................... 579 1,043 1,070
Deferred revenue.............................. 2,889 4,710 4,976
Income taxes payable.......................... 901 1,822 1,148
------- ------- -------
Total current liabilities................... 7,005 11,927 10,758
------- ------- -------
Commitments and contingencies (Note 9)
Mandatory Redeemable Convertible Preferred Stock
(Note 6):
$.001 par value, 875,000 shares designated,
issued and outstanding at June 30, 1994....... 7,308 -- --
------- ------- -------
Stockholders' equity (Notes 5, 6 and 7):
Preferred Stock: $.001 par value; 5,000,000
shares authorized; none issued and
outstanding.................................. -- -- --
Common Stock: $0.001 par value; 20,000,000
shares authorized; shares issued and
outstanding; 2,965,507 at June 30, 1994,
5,605,545 at June 30, 1995 and 5,633,052 at
December 31, 1995 (unaudited)................ 2 5 5
Additional paid-in capital.................... 675 31,775 31,377
Notes receivable from stockholders............ (33) (32) (26)
Retained earnings............................. 4,821 8,159 8,773
------- ------- -------
Total stockholders' equity.................. 5,465 39,907 40,129
------- ------- -------
$19,778 $51,834 $50,887
======= ======= =======
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
TGV SOFTWARE, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------ ------------------
1993 1994 1995 1994 1995
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues:
License fees.................. $12,395 $16,225 $19,019 $ 8,872 $ 7,615
Service fees.................. 2,325 3,176 5,223 2,144 3,430
------- ------- ------- -------- --------
Net revenues................ 14,720 19,401 24,242 11,016 11,045
------- ------- ------- -------- --------
Cost of revenues:
License fees.................. 530 561 762 390 355
Service fees.................. 738 1,644 2,651 1,088 1,819
------- ------- ------- -------- --------
Total cost of revenues...... 1,268 2,205 3,413 1,478 2,174
------- ------- ------- -------- --------
Gross margin.................... 13,452 17,196 20,829 9,538 8,871
------- ------- ------- -------- --------
Operating expenses:
Sales and marketing........... 3,519 6,740 8,647 4,063 4,868
Research and development...... 2,479 4,640 5,960 2,750 3,434
General and administrative.... 2,517 2,682 2,550 1,249 1,185
Other charges (income), net... 754 (1,810) (1,242) (621) (621)
------- ------- ------- -------- --------
Total operating expenses.... 9,269 12,252 15,915 7,441 8,866
------- ------- ------- -------- --------
Income from operations.......... 4,183 4,944 4,914 2,097 5
Interest income................. 118 206 1,029 253 881
------- ------- ------- -------- --------
Income before provision for
income taxes................... 4,301 5,150 5,943 2,350 886
Provision for income taxes...... 1,892 2,978 2,140 846 272
------- ------- ------- -------- --------
Net income...................... $ 2,409 $ 2,172 $ 3,803 $ 1,504 $ 614
======= ======= ======= ======== ========
Net income per share............ $ 0.66 $ 0.49 $ 0.72 $ 0.33 $ 0.10
======= ======= ======= ======== ========
Weighted average common shares
and equivalents................ 3,664 4,554 5,331 4,786 6,332
======= ======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
TGV SOFTWARE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE
----------------- PAID- FROM RETAINED
SHARES AMOUNT IN CAPITAL STOCKHOLDERS EARNINGS TOTAL
--------- ------ ---------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1992................... 2,520,000 $ 1 $ -- $ -- $4,136 $ 4,137
Issuance of Common Stock
upon exercise of stock
options................ 837,500 1 96 (88) -- 9
Net income.............. -- -- -- -- 2,409 2,409
--------- ---- ------- ---- ------ -------
Balance at June 30,
1993................... 3,357,500 2 96 (88) 6,545 6,555
Issuance of Common Stock
upon exercise of stock
options including tax
benefit of $504........ 257,700 1 542 -- -- 543
Repurchase of Common
Stock, net of
compensation expense
(Notes 6 and 7)........ (649,693) (1) (31) -- (3,541) (3,573)
Payment on notes
receivable............. -- -- -- 55 -- 55
Amortization of
compensation costs
related to stock option
grants................. -- -- 68 -- -- 68
Accretion of Mandatory
Redeemable Convertible
Preferred Stock
redemption value....... -- -- -- -- (355) (355)
Net income.............. -- -- -- -- 2,172 2,172
--------- ---- ------- ---- ------ -------
Balance at June 30,
1994................... 2,965,507 2 675 (33) 4,821 5,465
Issuance of Common Stock
upon exercise of stock
options including tax
benefit of $263........ 121,038 -- 289 -- -- 289
Issuance of Common Stock
upon initial public
offering net of
issuance costs of
$2,558................. 1,644,000 2 23,746 -- -- 23,748
Conversion of Preferred
Stock to common stock
upon initial public
offering............... 875,000 1 6,999 -- -- 7,000
Payment on notes
receivable............. -- -- -- 1 -- 1
Amortization of
compensation costs
related to stock option
grants................. -- -- 66 -- -- 66
Accretion of Mandatory
Redeemable Convertible
Preferred Stock
redemption value....... -- -- -- -- (465) (465)
Net income.............. -- -- -- -- 3,803 3,803
--------- ---- ------- ---- ------ -------
Balance at June 30,
1995................... 5,605,545 5 31,775 (32) 8,159 39,907
Issuance of Common Stock
upon exercise of stock
options including tax
benefit of $397
(unaudited)............ 128,650 -- 540 -- -- 540
Repurchase of Common
Stock (unaudited)...... (150,000) -- (1,369) -- -- (1,369)
Issuance of Common Stock
pursuant to employee
stock purchase plan
(unaudited)............ 48,857 -- 395 -- -- 395
Payment on notes
receivable
(unaudited)............ -- -- -- 6 -- 6
Amortization of
compensation costs
related to stock option
grants (unaudited)..... -- -- 36 -- -- 36
Net income (unaudited).. -- -- -- -- 614 614
--------- ---- ------- ---- ------ -------
Balance at December 31,
1995 (unaudited)....... 5,633,052 $ 5 $31,377 $(26) $8,773 $40,129
========= ==== ======= ==== ====== =======
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
TGV SOFTWARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
-------------------------- -----------------
1993 1994 1995 1994 1995
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income..................... $ 2,409 $ 2,172 $ 3,803 $ 1,504 $ 614
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and
amortization................. 535 959 1,194 465 430
Stock compensation expense.... -- 68 66 37 36
Deferred income taxes......... (275) (459) (450) -- --
Write-off of investment in
BSDI......................... -- 1,465 -- -- --
Changes in assets and
liabilities: --
Accounts receivable.......... (157) (1,290) (863) 307 1,117
Income taxes refundable...... 58 308 -- -- --
Prepaid expenses and other... (31) 23 (398) (138) 187
Other assets................. (177) (193) 70 64 44
Accounts payable............. 75 1,018 408 (181) 27
Accrued liabilities.......... 687 1,208 1,772 732 (804)
Deferred revenue............. 302 1,215 1,821 627 266
Income taxes payable......... 176 1,036 1,151 (73) (261)
------- ------- -------- ------- --------
Net cash provided by
operating activities....... 3,602 7,530 8,574 3,344 1,656
------- ------- -------- ------- --------
Cash flows from investing
activities:
Purchase of property and
equipment..................... (568) (1,748) (1,450) (638) (630)
Investment in BSDI............. (250) (1,215) -- -- --
Purchase of marketable
securities.................... -- -- (24,720) (5,950) (15,140)
Sale of marketable securities.. -- -- 2,322 -- 12,305
Purchase of technology
license....................... (1,138) (107) -- -- --
------- ------- -------- ------- --------
Net cash used in investing
activities............... (1,956) (3,070) (23,848) (6,588) (3,465)
------- ------- -------- ------- --------
Cash flows from financing
activities:
Proceeds from sale of Common
Stock......................... 9 39 23,774 3 538
Proceeds from sale of Mandatory
Redeemable Convertible
Preferred Stock, net of
issuance costs................ -- 6,953 -- -- --
Receipt of payment under
stockholder notes receivable.. -- 55 1 -- 6
Repurchase of Common Stock..... -- (3,573) -- (1,369)
Payment of Preferred Stock
dividend...................... -- (773) -- --
------- ------- -------- ------- --------
Net cash provided by (used
in) financing activities.. 9 3,474 23,002 3 (825)
------- ------- -------- ------- --------
Net change in cash and cash
equivalents.................... 1,655 7,934 7,728 (3,241) (2,634)
Cash and cash equivalents at
beginning of period............ 3,404 5,059 12,993 12,993 20,721
------- ------- -------- ------- --------
Cash and cash equivalents at end
of period...................... $ 5,059 $12,993 $ 20,721 $ 9,752 $ 18,087
======= ======= ======== ======= ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Income taxes paid during the
period......................... $ 1,930 $ 1,937 $ 1,430 $ 919 $ 531
======= ======= ======== ======= ========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
TGV SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 IS UNAUDITED)
NOTE 1 - DESCRIPTION OF THE COMPANY:
TGV Software, Inc. (the "Company") develops, markets and supports
internetworking software products which enable connectivity between disparate
computer systems over local area, enterprise wide and global computing
networks. The Company operates in one business segment.
Delaware reincorporation
TGV, Inc. was incorporated in California in July 1988. In November 1994, the
Company's Board of Directors approved the reincorporation of the Company in
Delaware as TGV Software, Inc. and the related exchange of the Company's
Common and Preferred Stock into shares of the Delaware corporation's stock.
Initial public offering of common stock
On March 7, 1995, the Company issued 1,644,000 shares of Common Stock in its
initial public offering. Total net proceeds to the Company amounted to
approximately $23,748,000.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The consolidated financial statements of the Company include the accounts of
TGV Software, Inc. and its wholly and majority owned subsidiaries. All
significant intercompany transactions and accounts have been eliminated. The
Company has consolidated 100% of the operating losses of its majority owned
subsidiary, Empirical Tools and Technologies, Inc. ("ET&T"), inasmuch as the
minority shareholder's equity has been exhausted and the Company does not
expect such shareholders to provide additional investment. ET&T ceased
operations in June 1994.
Revenue recognition
Software license fees are recognized when the software has been shipped, the
Company has the right to invoice the customer, collection of the receivable is
probable and there are no significant obligations remaining. The Company does
not provide customers with product return or exchange rights in connection
with the sale of software licenses. The Company provides for future warranty
costs based upon historical experience.
Service fees received from the sales of software support contracts provide
customers access to technical support and minor enhancements to licensed
releases and are recognized over the life of such contracts. Revenues from
consulting and training services are recognized as services are performed.
Cash, cash equivalents and marketable securities
The Company invests certain of its excess cash in debt instruments of
financial institutions, corporations and governmental entities with strong
credit ratings. At June 30, 1995, the Company's marketable securities were
principally tax-exempt municipal debt with maturities of between one day and
sixteen months. All highly liquid investments purchased with an original
maturity of three months or less are considered to be cash equivalents, those
with original maturities greater than three months are considered short-term
marketable securities and those with maturities greater than twelve months
from the balance sheet date are considered long-term marketable securities.
Management believes they have established guidelines relative to
diversification and maturities that maintain safety and liquidity.
F-7
<PAGE>
TGV SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Effective July 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("FAS 115"). FAS 115 requires investment securities to be
classified as either Held to Maturity, Trading, or Available for Sale. The
adoption of FAS 115 did not have a material impact on the Company's financial
condition or results of operations.
The Company has classified all marketable securities as available-for-sale.
At December 31, 1995, estimated fair value approximated cost, and the amount
of gross unrealized gains and gross unrealized losses were not significant.
Concentration of credit risk
The Company's accounts receivable are derived from revenues earned from
customers primarily located in the U.S., Europe and Canada. The Company
performs ongoing credit evaluations of its customers and to date has not
experienced any material losses. No customer accounted for more than 5% of net
revenues in any period presented in the consolidated financial statements.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three to seven years. Amortization of leasehold improvements is
computed using the straight-line method over the lease term.
Capitalized software development costs
The Company capitalizes software development costs incurred after
technological feasibility has been demonstrated. Such capitalized amounts are
amortized, commencing with product introduction, on the straight-line basis
utilizing an estimated economic life of up to three years. To date,
capitalized software development costs and the related amortization have not
been material.
Technology licenses
Technology licenses, purchased primarily from SRI International, Inc. for
$1,200,000, are classified with other assets in the accompanying balance sheet
and are being amortized on the straight-line basis over three years, which
approximates their estimated useful lives. Accumulated amortization at June
30, 1994 and 1995 and December 31, 1995 was $664,000, $1,200,000 and
$1,200,000, respectively. Technology license costs are classified with other
assets in the accompanying balance sheet.
Research and development costs
Research and development costs are charged to expense as incurred.
Income taxes
The Company records income tax expense using the liability method pursuant
to Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("FAS 109") which was adopted effective July 1, 1993. The liability
approach requires that the expected future consequences of temporary
differences between the bases of assets and liabilities for financial
reporting and income tax purposes be recognized as deferred tax assets and
liabilities. The effect of adopting FAS 109 did not have a material impact on
the consolidated financial statements.
F-8
<PAGE>
TGV SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net income per share
Net income per share is based upon the weighted average number of
outstanding shares of Common Stock, Common Stock issuable upon conversion of
the Mandatory Redeemable Convertible Preferred Stock (using the if-converted
method) and common stock equivalent shares from the exercise of stock options
and warrants (using the modified treasury stock method). Pursuant to the
Securities and Exchange Commission's Staff Accounting Bulletin, stock options
issued during the 12-month period prior to the Company's initial public
offering are included in the calculations (using the treasury stock method and
the initial public offering price) as if they were outstanding for all periods
presented prior to the date of the initial public offering.
Interim results - unaudited
The consolidated balance sheet at December 31, 1995 and the consolidated
statements of income, and of cash flows for the six month periods ended
December 31, 1994 and 1995 and the consolidated statement of stockholders'
equity for the six months ended December 31, 1995 are unaudited. In the
opinion of management, these consolidated statements have been prepared on the
same basis as the audited consolidated financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for
the fair presentation of the Company's results of operations and cash flows
for the six months ended December 31, 1994 and 1995. The data disclosed in
these notes to financial statements for these periods are unaudited.
Stock-based compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation." TGV has decided to adopt this accounting standard through
disclosure only.
NOTE 3 - PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
---------------
1994 1995
------ -------
<S> <C> <C>
Equipment................................................... $1,392 $ 2,455
Furniture and fixtures...................................... 294 461
Leasehold improvements...................................... 1,042 1,253
------ -------
2,728 4,169
Less accumulated depreciation and amortization.............. (660) (1,264)
------ -------
$2,068 $ 2,905
====== =======
</TABLE>
F-9
<PAGE>
TGV SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 4 - INCOME TAXES:
The provision for income taxes is comprised of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Current:
Federal............................................ $1,727 $2,787 $1,995
State.............................................. 446 650 595
------ ------ ------
2,173 3,437 2,590
------ ------ ------
Deferred:
Federal............................................ (256) (392) (373)
State.............................................. (25) (67) (77)
------ ------ ------
(281) (459) (450)
------ ------ ------
$1,892 $2,978 $2,140
====== ====== ======
</TABLE>
The components of the net deferred tax asset are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30
--------------
1994 1995
------ ------
<S> <C> <C>
Accrued expenses............................................. $ 233 $ 570
Capital loss carryforwards and other......................... 662 662
State taxes, net of federal benefit.......................... 204 198
Depreciation................................................. 30 170
Other........................................................ (8) (29)
------ ------
Gross deferred tax asset..................................... 1,121 1,571
Deferred tax asset valuation allowance....................... (662) (662)
------ ------
Net deferred tax asset....................................... $ 459 $ 909
====== ======
</TABLE>
Capital loss carryforwards and other losses from equity investments resulted
primarily from the Company's write-off of its investment in BSDI during fiscal
1994. The write-off represents a capital loss for tax purposes which will only
be available to be used against future capital gains, if any. Such
carryforwards will expire in 1999. A valuation allowance has been established
for the deferred tax assets associated with these losses as their realization
is uncertain. See Note 10.
A reconciliation of the provision for income taxes to the amount computed by
applying the statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Statutory rate....................................... 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit....... 6.1 6.1 5.8
Research and development credits..................... -- (4.6) (4.0)
Tax exempt interest.................................. -- -- (4.1)
Capital and other losses not given benefit........... 3.0 15.2 --
Nondeductible stock compensation..................... -- 9.2 --
Other, net........................................... (0.1) (3.1) 3.3
------ ------ ------
Effective tax rate................................... 44.0% 57.8% 36.0%
====== ====== ======
</TABLE>
F-10
<PAGE>
TGV SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
For the six months ended December 31, 1994 and 1995, income taxes were
provided based on the estimated annual effective tax rates for the respective
fiscal years.
NOTE 5 - STOCK OPTIONS:
Under the terms of the 1990 and 1995 Stock Option Plans, 3,250,000 shares of
Common Stock are reserved for issuance. Options are generally exercisable in
equal annual installments over four or five years from the grant date. Options
generally expire after ten years. Stock option activity under the 1990 and
1995 Stock Option Plans was as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION
OPTIONS PRICE
--------- --------------
<S> <C> <C>
Outstanding at June 30, 1992...................... 1,700,000 $0.04 - 0.25
Granted......................................... 45,000 $0.25
Exercised....................................... (837,500) $0.04 - 0.25
Canceled........................................ (75,000) $0.10 - 0.25
---------
Outstanding at June 30, 1993...................... 832,500 $0.04 - 0.25
Granted......................................... 782,750 $0.25 - 5.50
Exercised....................................... (257,700) $0.04 - 0.25
Canceled........................................ (26,000) $0.10 - 3.50
---------
Outstanding at June 30, 1994...................... 1,331,550 $0.04 - 5.50
Granted......................................... 179,050 $5.50 - 22.125
Exercised....................................... (121,038) $0.10 - 5.50
Canceled........................................ (76,550) $0.10 - 10.00
---------
Outstanding at June 30, 1995...................... 1,313,012 $0.04 - 22.125
Granted (unaudited)............................. 390,750 $8.75 - 14.25
Exercised (unaudited)........................... (128,650) $0.04 - 6.50
Canceled (unaudited)............................ (76,600) $5.50 - 22.125
---------
Outstanding at December 31, 1995 (unaudited)...... 1,498,512 $0.04 - 14.25
=========
</TABLE>
At December 31, 1995, there were 386,600 shares of Common Stock available
for future grants and options for 407,570 shares of Common Stock were
exercisable under the Company's 1990 and 1995 Stock Option Plans.
The Company recognized stock compensation expense of approximately $68,000,
$66,000 and $36,000 during the years ended June 30, 1994, 1995 and the six
months ended December 31, 1995, respectively. The Company will record
additional compensation expense of approximately $180,000 on a pro rata basis
if and when the remaining options vest.
In November 1993, the Company granted its Chief Executive Officer an option
to purchase 470,000 shares of the Company's Common Stock at an exercise price
of $3.50 per share. The options vest over various periods and a portion may be
accelerated upon the Company's achievement of certain milestones. At December
31, 1995, a total of 202,500, shares of Common Stock were exercisable under
this option agreement.
NOTE 6 - MANDATORY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND COMMON STOCK
WARRANTS:
In December 1993, the Company issued 875,000 shares of Series A Mandatory
Redeemable Convertible Preferred Stock (the "Series A Stock") for cash of
$7,000,000. In conjunction with the Series A Stock sale, the
F-11
<PAGE>
TGV SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Company issued warrants to purchase 250,000 shares of the Company's Common
Stock for $8.00 per share. The warrants, which expire thirty days after the
issuance of the Company's financial statements for the year ended June 30,
1996, may be exercised at any time at the option of the holder. A nominal
value was ascribed to the warrants. In accordance with the terms of the Series
A Stock sale, the Company used $4,548,000 of the proceeds to repurchase
649,693 shares of its Common Stock. See Note 7.
Holders of the Series A Stock were entitled to receive cumulative annual
dividends of $0.68 per share. At the time of the Company's initial public
offering, all outstanding shares of Mandatory Redeemable Convertible Preferred
Stock were automatically converted into 875,000 shares of common stock and
preferred stock dividends of $773,000 were paid to preferred stockholders.
After consideration of the accretion of the redemption value of Series A
Stock, net income available to common stockholders was $2,409,000, $1,817,000
and $3,338,000 for the fiscal years ended June 30, 1993, 1994 and 1995,
respectively.
NOTE 7 - STOCKHOLDERS' EQUITY:
In connection with the Company's Series A Stock sale, the Company
repurchased 649,693 shares of its Common Stock at $7.00 per share, for a total
of $4,548,000, in accordance with the terms of the Series A Stock purchase
agreement. The Company has determined that the Common Stock, which was
acquired from current employees and one former employee, was repurchased at a
premium to its deemed fair value. The Company recorded the excess of the
purchase price over deemed fair value, totalling $975,000, as compensation
expense during the year ended June 30, 1994.
NOTE 8 - EMPLOYEE BENEFIT PLANS:
On January 9, 1995, the Company's Board of Directors approved the TGV
Software, Inc. 1995 Employee Stock Purchase Plan (the "1995 Stock Purchase
Plan"). Under the terms of the 1995 Stock Purchase Plan, all employees of the
Company may contribute, through payroll deduction, up to 10% of their annual
compensation toward the purchase of the Company's Common Stock. The Company
has reserved 240,000 shares for issuance under the 1995 Stock Purchase Plan.
The purchase price per share is the lesser of (a) 85% of the fair market
value of the common stock on the date the purchase period begins or (b) 85% of
the fair market value of the Common Stock on the last day of the purchase
period. The 1995 Stock Purchase Plan will terminate on the day preceding the
tenth anniversary of its date of adoption, unless earlier terminated by the
Board of Directors. As of June 30, 1995 there have been no shares of stock
purchased pursuant to the 1995 Stock Purchase Plan.
Effective July 1, 1990, the Company adopted the TGV, Inc. Profit Sharing
Plan (the "Profit Sharing Plan"), a defined contribution plan which covers all
full-time eligible employees. Contributions to the Profit Sharing Plan are
determined by the Board of Directors as a percent of each participating
employee's salary and are funded on an annual basis. Total Profit Sharing Plan
expense for the fiscal years ended June 30, 1993, 1994 and 1995 was $460,000,
$594,000 and $0, respectively.
Effective July 1, 1994, the Company's Board of Directors amended the Profit
Sharing Plan to allow for participant contributions pursuant to Section 401(k)
of the Internal Revenue Code. Substantially all employees of the Company are
eligible to participate in the amended plan and may contribute up to 15% of
their annual compensation up to maximums allowed by law. The Company will
match 25% of participant contributions in addition to a discretionary profit
sharing contribution, if any, as may be determined by the Board of Directors.
Total Company matching contributions for the year ended June 30, 1995 was
$154,000.
F-12
<PAGE>
TGV SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 9 - COMMITMENTS AND CONTINGENCIES:
The Company leases its facilities under operating leases which expire
through August 2000 and require the Company to pay property taxes, insurance
and maintenance expenses. Future minimum lease payments at June 30, 1995 under
these leases are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------
<S> <C>
1996................................................................ $ 617
1997................................................................ 578
1998................................................................ 448
1999................................................................ 346
2000................................................................ 313
Thereafter.......................................................... 20
------
$2,322
======
</TABLE>
Total rent expense under operating leases for facilities was $169,000,
$356,000 and $553,000 for the years ended June 30, 1993, 1994 and 1995 and
$254,000 and $370,000 for the six months ended December 31, 1994 and 1995,
respectively.
The Company is not a party to any material litigation and is not aware of
any pending or threatened litigation that could have a material adverse effect
upon the Company's business, operating results or financial condition.
NOTE 10 - OTHER CHARGES (INCOME):
Other charges (income) consist of the following (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
--------------------- --------------
1993 1994 1995 1994 1995
---- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Expenses (settlement) of lawsuit.... $754 $(3,275) $(1,242) $(621) $(621)
Write-off of investment in Berkeley
Software Design, Inc............... -- 1,465 -- -- --
---- ------- ------- ------ ------
$754 $(1,810) $(1,242) $(621) $(621)
==== ======= ======= ====== ======
</TABLE>
The amounts reported as other charges (income) in fiscal 1993 include legal
fees incurred with respect to a copyright infringement claim filed by the
Company. Other charges (income) for fiscal 1994 represents the net effect of
an initial payment to the Company of $2.6 million related to the settlement of
the claim and subsequent payments under a promissory note delivered in
connection with the settlement agreement of $800,000, which were offset by
$100,000 in additional legal fees. Other charges (income) for fiscal 1995
represents additional payments to the Company of $1.2 million under the note.
At June 30, 1995, $1.9 million remains outstanding under this promissory note
and the Company is entitled to receive quarterly payments of $311,000,
consisting of principal and interest (at prime). These payments will be
recorded by the Company in the period the payments are received due to their
uncertainty of collection.
In July 1993, the Company entered into two agreements in principle to
purchase a forty-nine percent interest in Berkeley Software Design, Inc.
("BSDI"), which is engaged in the development and marketing of standards-based
networking and applications software for desktop computers. At June 30, 1994,
the Company had paid a total of $1,465,000 in exchange for 4,400,000 shares of
BSDI Series A convertible preferred stock, 1,000,000
F-13
<PAGE>
TGV SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
shares of BSDI common stock, a $450,000 promissory note from BSDI and warrants
to purchase 500,000 shares of BSDI common stock. In addition, the Company has
the option to purchase the remainder of all outstanding BSDI common stock over
the next one to four years.
In fiscal 1994, the Company determined that its investment in BSDI was
permanently impaired. This assessment was based upon the absence of estimated
future net income or positive cash flows associated with this investment.
Accordingly, the Company wrote-off its entire investment in BSDI.
NOTE 11 - EXPORT SALES:
Substantially all of the Company's operations are currently located in the
United States. The Company's export sales are denominated in U.S. currency and
consist of the following (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
-------------------- -----------------
1993 1994 1995 1994 1995
------ ------ ------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Canada................................ $ 641 $ 807 $ 937 $ 396 $ 575
Europe................................ 1,833 2,308 2,244 1,130 1,014
Other................................. 818 722 803 315 456
------ ------ ------ -------- --------
$3,292 $3,837 $3,984 $1,841 $2,045
====== ====== ====== ======== ========
</TABLE>
NOTE 12 - SUBSEQUENT EVENT
On January 23, 1996, the Company announced an agreement whereby Cisco
Systems, Inc. ("Cisco") will acquire the Company in a stock swap in which
shares of Cisco common stock will be exchanged for all outstanding shares, and
the shares underlying all of the outstanding options and warrants of the
Company (the "Merger"). Under the terms of the agreement, one share of Cisco
common stock will be exchanged for every 2.5 outstanding shares of the
Company's common stock. The transaction is expected to be completed on or
about March 29, 1996, and is subject to various conditions, including
clearance under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended; approval by the Company's stockholders, the effectiveness of the
Registration Statement on Form S-4 filed by Cisco and covering the shares of
Cisco common stock to be issued in the Merger and receipt of all necessary
approvals under state securities laws; the absence of any restraining order or
injunction prohibiting consummation of the Merger; receipt of all necessary
government and other consents and approvals, and the satisfaction of any
conditions with respect thereto; receipt of accountants' letters with respect
to the qualification of the Merger as a "pooling of interests;" receipt of
legal opinions with respect to the tax consequences of the Merger and other
matters; and the absence of any material adverse changes in the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations, results of operations on prospects of both
Cisco and the Company and their respective subsidiaries, taken as a whole.
F-14
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CISCO SYSTEMS, INC.,
BIG SKY ACQUISITION CORPORATION
AND
TGV SOFTWARE, INC.
JANUARY 23, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
<C> <S> <C>
THE MERGER............................................................... A-1
1.1 The Merger....................................................... A-1
1.2 Closing; Effective Time.......................................... A-1
1.3 Effect of the Merger............................................. A-2
1.4 Certificate of Incorporation; Bylaws............................. A-2
1.5 Directors and Officers........................................... A-2
1.6 Effect on Capital Stock.......................................... A-2
1.7 Surrender of Certificates........................................ A-3
1.8 No Further Ownership Rights in Target Common Stock............... A-4
1.9 Lost, Stolen or Destroyed Certificates........................... A-4
1.10 Tax and Accounting Consequences.................................. A-4
1.11 Taking of Necessary Action; Further Action....................... A-4
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET................................. A-5
2.1 Organization, Standing and Power................................. A-5
2.2 Capital Structure................................................ A-5
2.3 Authority........................................................ A-6
2.4 SEC Documents; Financial Statements.............................. A-7
2.5 Absence of Certain Changes....................................... A-7
2.6 Absence of Undisclosed Liabilities............................... A-8
2.7 Litigation....................................................... A-8
2.8 Restrictions on Business Activities.............................. A-8
2.9 Governmental Authorization....................................... A-8
2.10 Title to Property................................................ A-8
2.11 Intellectual Property............................................ A-8
2.12 Environmental Matters............................................ A-9
2.13 Taxes............................................................ A-10
2.14 Employee Benefit Plans........................................... A-11
2.15 Certain Agreements Affected by the Merger........................ A-12
2.16 Employee Matters................................................. A-12
2.17 Interested Party Transactions.................................... A-13
2.18 Insurance........................................................ A-13
2.19 Compliance With Laws............................................. A-13
2.20 Minute Books..................................................... A-13
2.21 Complete Copies of Materials..................................... A-13
2.22 Pooling of Interests............................................. A-13
2.23 Brokers' and Finders' Fees....................................... A-13
2.24 Registration Statement; Proxy Statement/Prospectus............... A-13
2.25 Opinion of Financial Advisor..................................... A-14
2.26 Vote Required.................................................... A-14
2.27 Board Approval................................................... A-14
2.28 Section 203 of the DGCL Not Applicable........................... A-14
2.29 Inventory........................................................ A-14
2.30 Accounts Receivable.............................................. A-14
2.31 Customers and Suppliers.......................................... A-14
2.32 Representations Complete......................................... A-15
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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ARTICLE III
<C> <S> <C>
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB................ A-15
3.1 Organization, Standing and Power................................. A-15
3.2 Capital Structure................................................ A-15
3.3 Authority........................................................ A-16
3.4 SEC Documents; Financial Statements.............................. A-16
3.5 Absence of Certain Changes....................................... A-17
3.6 Absence of Undisclosed Liabilities............................... A-17
3.7 Litigation....................................................... A-17
3.8 Restrictions on Business Activities.............................. A-17
3.9 Governmental Authorization....................................... A-18
3.10 Compliance With Laws............................................. A-18
3.11 Complete Copies of Materials..................................... A-18
3.12 Pooling of Interests............................................. A-18
3.13 Broker's and Finders' Fees....................................... A-18
3.14 Registration Statement; Proxy Statement/Prospectus............... A-18
3.15 Board Approval................................................... A-18
3.16 Title to Property................................................ A-18
3.17 Internal Revenue Code Section 368(c)............................. A-19
3.18 Representations Complete......................................... A-19
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME...................................... A-19
4.1 Conduct of Business of Target and Acquiror....................... A-19
4.2 Conduct of Business of Target.................................... A-20
4.3 No Solicitation.................................................. A-20
ARTICLE V
ADDITIONAL AGREEMENTS.................................................... A-22
5.1 Proxy Statement/Prospectus; Registration Statement............... A-22
5.2 Meeting of Stockholders.......................................... A-23
5.3 Access to Information............................................ A-23
5.4 Confidentiality.................................................. A-23
5.5 Public Disclosure................................................ A-23
5.6 Consents; Cooperation............................................ A-23
5.7 Pooling Accounting............................................... A-24
5.8 Affiliate Agreements............................................. A-24
5.9 Voting Agreement................................................. A-24
5.10 FIRPTA........................................................... A-25
5.11 Legal Requirements............................................... A-25
5.12 Blue Sky Laws.................................................... A-25
5.13 Employee Benefit Plans........................................... A-25
5.14 Letter of Acquiror's and Target's Accountants.................... A-26
5.15 Form S-8......................................................... A-26
5.16 Indemnification.................................................. A-26
5.17 Option Agreement................................................. A-27
5.18 Listing of Additional Shares..................................... A-27
5.19 Nasdaq Quotation................................................. A-27
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
5.20 Employees...................................................... A-27
5.21 Pooling Letters................................................ A-27
5.22 Warrants....................................................... A-27
5.23 Best Efforts and Further Assurances............................ A-28
ARTICLE VI
CONDITIONS TO THE MERGER............................................... A-28
6.1 Conditions to Obligations of Each Party to Effect the Merger... A-28
6.2 Additional Conditions to Obligations of Target................. A-29
6.3 Additional Conditions to the Obligations of Acquiror and
Merger Sub.................................................... A-29
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER...................................... A-31
7.1 Termination.................................................... A-31
7.2 Effect of Termination.......................................... A-31
7.3 Expenses and Termination Fees.................................. A-32
7.4 Amendment...................................................... A-33
7.5 Extension; Waiver.............................................. A-33
ARTICLE VIII
GENERAL PROVISIONS..................................................... A-33
8.1 Non-Survival at Effective Time................................. A-33
8.2 Notices........................................................ A-33
8.3 Interpretation................................................. A-34
8.4 Counterparts................................................... A-34
8.5 Entire Agreement; Nonassignability; Parties in Interest........ A-34
8.6 Severability................................................... A-34
8.7 Remedies Cumulative............................................ A-34
8.8 Governing Law.................................................. A-35
8.9 Rules of Construction.......................................... A-35
FIRST AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION................ A-36
</TABLE>
iii
<PAGE>
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 5.13--Outstanding Options
Schedule 5.20--List of Employees
Schedule 5.22--Outstanding Warrants
Schedule 6.3(f)--Material Adverse Change
EXHIBITS
Exhibit A--Certificate of Merger
Exhibit B-1--Target Affiliate Agreement
Exhibit B-2--Acquiror Affiliate Agreement
Exhibit C--Voting Agreement
Exhibit D--FIRPTA Notice
Exhibit E--Option Agreement
Exhibit F--Acquiror's Legal opinion
Exhibit G--Target's Legal opinion
Exhibit H-1, et. seq.--Employment and Non-Competition Agreement
iv
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of January 23, 1996, by and among Cisco Systems, Inc., a
California corporation ("Acquiror"), Big Sky Acquisition Corporation, a
Delaware corporation ("Merger Sub") and wholly owned subsidiary of Acquiror,
and TGV Software, 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, $.001 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.
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
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offices of Brobeck, Phleger & Harrison LLP, 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 the Certificate of Incorporation of
the Surviving Corporation shall be amended to read as follows: "The name of
the corporation is TGV Software, 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 (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 one-fifth (0.20) of a
share of Acquiror Common Stock (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 1990
Stock Option Plan and the Target 1995 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 5.13.
(d) Warrants. All the Effective Time, each warrant to purchase Target
Common Stock then outstanding ("Target Warrants") shall be assumed by
Acquiror in accordance with Section 5.22.
(e) 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, $.0001 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.
A-2
<PAGE>
(f) 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.
(g) 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 closing price 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(g).
(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 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
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<PAGE>
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 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 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.
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<PAGE>
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, 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.
In this Agreement, any reference to a party's "knowledge" means such party's
actual knowledge after due and diligent inquiry of officers, directors and
other employees of such party reasonably believed to have knowledge of such
matters.
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 Certificate of
Incorporation and Amended and Restated Bylaws 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 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
20,000,000 shares of Common Stock, $.001 par value, and 5,000,000 shares of
Preferred Stock, $.001 par value, of which there were issued and outstanding
as of the close of business on January 22, 1996, 5,811,117 shares of Common
Stock and no shares of Preferred Stock. There are no other outstanding shares
of capital stock or voting securities and no outstanding commitments to issue
any shares of capital stock or voting securities after January 22, 1996 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
1995 Employee Stock Purchase Plan (the "Target ESPP") or the exercise of the
Target Warrants. 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,
as amended, or Amended and Restated 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
January 22, 1996, Target has reserved (i) 3,250,000 shares of Common Stock for
issuance to employees and consultants pursuant
A-5
<PAGE>
to the Target Stock Option Plans, of which 1,542,388 shares have been issued
pursuant to option exercises or direct stock purchases, 1,321,012 shares are
subject to outstanding, unexercised options, and no shares are subject to
outstanding stock purchase rights, (ii) 240,000 shares of Common Stock for
issuance to employees pursuant to the Target ESPP, of which 49,422 shares have
been issued and (iii) 250,000 shares of Common Stock for issuance to holders
of Target Warrants, of which no shares have been issued pursuant to exercises
of Target Warrants and all of which are subject to outstanding, unexercised
Target Warrants. Since January 22, 1996, Target has not (i) issued or granted
additional options under the Target Stock Option Plans, or (ii) accepted
enrollments in the Target ESPP. Except for (i) the rights created pursuant to
this Agreement, the Option Agreement, the Target Stock Option Plans, the
Target ESPP and the Target Warrants and (ii) the 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 the best of 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 and Target Warrants 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 in the Target ESPP) commenced under the Target
ESPP on January 1, 1996 and will end prior to the Effective Time as provided
in 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. 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 Amended and Restated
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 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 2.24) relating to the Target
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Stockholders Meeting (as defined in Section 2.24), (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 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 or made
available 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
February 28, 1995, 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. 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). There has been no change in Target accounting policies except as
described in the notes to the Target Financial Statements.
2.5 Absence of Certain Changes. Since September 30, 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 has resulted in,
or might reasonably be expected to 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 change in accounting methods or
practices (including any change in depreciation or amortization policies or
rates) by Target or any 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; 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).
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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 Quarterly Report on Form 10-Q for the period ended
September 30, 1995 (the "Target Balance Sheet"), (ii) those incurred in the
ordinary course of business and 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, could reasonably be expected to 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
could prevent, enjoin, alter or materially delay any of the transactions
contemplated by this Agreement, or that could reasonably be expected to 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 or reasonably could be expected to have the effect of
prohibiting or materially impairing any current or future business 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 or as proposed to be 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 could not reasonably be expected to 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 and (iii) liens securing debt which is reflected on the Target
Balance Sheet. 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
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tangible or intangible proprietary information or material ("Intellectual
Property") that are used or proposed to be 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 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 material
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 material 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 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) has not been sued in 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.
(f) Target has secured valid written assignments from all consultants and
employees who 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 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"). 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. 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.
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any federal, state or
local laws, ordinances, codes, regulations, rules, policies and orders
that are intended to assure the protection of the environment, or that
classify, regulate, call for the remediation of, require reporting with
respect to, or
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list or define air, water, groundwater, solid waste, hazardous or toxic
substances, materials, wastes, pollutants or contaminants, or which are
intended to assure the safety of employees, workers or other persons,
including the public.
(ii) "Hazardous Materials" shall mean any toxic or hazardous
substance, material or waste or any pollutant or contaminant, or
infectious or radioactive substance or material, including without
limitation, those substances, materials and wastes defined in or
regulated under any Environmental and Safety Laws.
(iii) "Property" shall mean all real property leased or owned by
Target or its subsidiaries either currently or in the past.
(iv) "Facilities" shall mean all buildings and improvements on the
Property of Target or its subsidiaries.
(b) Target represents and warrants as follows: (i) to the best of
Target's knowledge, no methylene chloride or asbestos is contained in or
has been used at or released from the Facilities; (ii) all Hazardous
Materials and wastes have been disposed of in accordance with all
Environmental and Safety Laws; (iii) Target and its subsidiaries have
received no notice (verbal or written) of any noncompliance of the
Facilities or its past or present operations with Environmental and Safety
Laws; (iv) no notices, administrative actions or suits are pending or, to
the best of Target's knowledge, threatened relating to a violation of any
Environmental and Safety Laws; (v) to the best of Target's knowledge,
neither Target nor its subsidiaries are a potentially responsible party
under the federal Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA), or state analog statute, arising out of events
occurring prior to the Closing Date; (vi) to the best of Target's
knowledge, there have not been in the past, and are not now, any Hazardous
Materials on, under or migrating to or from the Facilities or Property;
(vii) there have not been in the past, and are not now, any underground
tanks or underground improvements at, on or under the Property including
without limitation, treatment or storage tanks, sumps, or water, gas or oil
wells; (viii) Target has not deposited, stored, disposed of or located
polychlorinated biphenyls (PCBs) on the Property or Facilities or any
equipment on the Property containing PCBs at levels in excess of 50 parts
per million; (ix) to the best of Target's knowledge, there is no
formaldehyde on the Property or in the Facilities, nor any insulating
material containing urea formaldehyde in the Facilities; (x) to the best of
Target's knowledge, the Facilities and Target's and its subsidiaries uses
and activities therein have at all times complied with all Environmental
and Safety Laws; and (xi) Target and its subsidiaries have all the permits
and licenses required to be issued and are in full compliance with the
terms and conditions of those permits.
2.13 Taxes. 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 SEC Documents, (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) Neither
Target nor any of its subsidiaries has entered into any compensatory
agreements with respect to the performance of services which payment
thereunder would result in a nondeductible expense pursuant to Sections 162(m)
or 280G of the Code. Neither Target nor any of its subsidiaries has entered
into any compensatory agreements with respect to the performance of services
which payment thereunder would result in a deductible expense that is
permanently disallowed under Section 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
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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.
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 material employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("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,
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
plans, programs or arrangements, (iii) all bonus, pension, profit sharing,
savings, deferred compensation or incentive plans, programs or
arrangements, (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) None of the Target Employee Plans promises or provides retiree
medical or 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
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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 which have a material
adverse effect on any such parties; (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, Target has prepared in good
faith and timely filed all requisite governmental reports (which were true
and correct as of the date filed) and 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 the extent that such failure
to comply would not, in the aggregate, have a Material Adverse Effect.
(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
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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. 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 have or could reasonably be
expected to 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 unions contract nor does Target nor any of its subsidiaries know of any
activities or proceedings of any labor union or organize any such employees.
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 February 28, 1995.
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 Target has received a denial, or to the best of Target's
knowledge, 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
could not be reasonably expected to have a Material Adverse Effect on Target.
2.20 Minute Books. The minute books of Target and its subsidiaries made
available to Acquiror contain a complete and accurate summary of all meetings
of directors and stockholders or actions by written consent since the time of
incorporation of Target and the respective subsidiaries through the date of
this Agreement, and reflect all transactions referred to in such minutes
accurately in all material respects.
2.21 Complete Copies of Materials. Target has delivered or made available
true and complete copies of each document that has been requested by Acquiror
or its counsel in connection with their legal and accounting review of Target
and its subsidiaries.
2.22 Pooling of Interests. Neither Target nor any of its subsidiaries nor,
to the knowledge of Target, any of their respective directors, officers or
stockholders has taken any action which would interfere with Acquiror's
ability to account for the Merger as a pooling of interests.
2.23 Brokers' and Finders' Fees. 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.
2.24 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
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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 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.
2.25 Opinion of Financial Advisor. Target has been advised in writing by its
financial advisor, Wessels, Arnold & Henderson, 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.
2.26 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.
2.27 Board Approval. The Board of Directors of Target has 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) recommended that the stockholders of Target
approve this Agreement and the Merger.
2.28 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.
2.29 Inventory. Target has no inventory.
2.30 Accounts Receivable. The accounts receivable disclosed in the Target
SEC Documents as of September 30, 1995, and, with respect to accounts
receivable created since such date, disclosed in any subsequently filed Target
SEC Documents, or as accrued on the books of Target in the ordinary course of
business consistent with past practices in accordance with generally accepted
accounting principles since the last filed Target SEC Documents represent and
will represent bona fide claims against debtors for sales and other charges,
are not subject to discount except for normal cash and immaterial trade
discounts, and the amount earned for doubtful accounts and allowances
disclosed in each of such Target SEC Documents or accrued on such books is
sufficient to provide for any losses that may be sustained on realization of
the receivables.
2.31 Customers and Suppliers. As of the date hereof, no customer which
individually accounted for more than 5% of Target's gross revenues during the
12 month period preceding the date hereof has indicated to Target that it will
stop, or decrease the rate of, buying services or products of Target, or has
at any time on or after September 30, 1995 decreased materially its usage of
the services or products of Target. As of the date hereof,
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no material supplier of Target has indicated to Target that it will stop, or
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.
2.32 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 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 and each of its subsidiaries,
each as amended to date, 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
600,000,000 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 January 22, 1996, 279,742,090 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 January 22, 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 (collectively, the "Acquiror Stock Option
Plan"). 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
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by or imposed upon the holders thereof. As of the close of business on January
22, 1996, Acquiror has reserved 112,554,707 shares of Common Stock for
issuance to employees, directors and independent contractors pursuant to the
Acquiror Stock Option Plan, of which 74,067,520 shares have been issued
pursuant to option exercises, and 26,645,874 shares are subject to
outstanding, unexercised options. Other than this Agreement and pursuant to
the Cisco 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 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. 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 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 Plan 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.
3.4 SEC Documents; Financial Statements. Acquiror has furnished 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 July 26, 1992, 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. 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
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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). There has been no change in Acquiror accounting policies except
as described in the notes to the Acquiror Financial Statements.
3.5 Absence of Certain Changes. Since October 29, 1995 (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 has
resulted in, or might reasonably be expected to result in, such 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
change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by Acquiror or any 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
provided 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; 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 Annual Report on Form 10-K for the period ended October
29, 1995 (the "Acquiror Balance Sheet"), (ii) those incurred in the ordinary
course of business and 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, could reasonably be expected to 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 could prevent, enjoin, alter or materially delay any of the transactions
contemplated by this Agreement, or that could reasonably be expected to 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 or reasonably could be expected to have 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.
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3.9 Governmental Authorization. Acquiror 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 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 could not reasonably be expected to 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
could not be reasonably expected to have a Material Adverse Effect on
Acquiror.
3.11 Complete Copies of Materials. Acquiror has delivered or made available
true and complete copies of each document which has been requested by Target
or its counsel in connection with their legal and accounting review of
Acquiror and its subsidiaries.
3.12 Pooling of Interests. Neither Acquiror nor any of its subsidiaries nor,
to the knowledge of Acquiror, any of their respective directors, officers or
stockholders has taken any action which would interfere with Acquiror's
ability to account for the Merger as a pooling of interests.
3.13 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.
3.14 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 any information supplied by Target which
is contained in any of the foregoing documents.
3.15 Board Approval. The Boards of Directors of Acquiror and Merger Sub have
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) recommended that the
stockholder of Merger Sub approve this Agreement and the Merger.
3.16 Title to Property. Acquiror 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 Acquiror Balance Sheet or acquired
after the Acquiror Balance Sheet Date (except properties, interests in
properties and assets sold or otherwise disposed of since the Acquiror 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
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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 and (iii) liens securing
debt which is reflected on the Acquiror Balance Sheet.
3.17 Internal Revenue Code Section 368(c). Acquiror does not have any plan
or intention to (i) reacquire any of its stock issued in the transaction, (ii)
cause Target to issue additional shares of its stock that would cause Acquiror
to lose control of Target within the meaning of Section 368(c) of the Code),
(iii) liquidate Target or merge Target with or into another corporation, (iv)
sell or otherwise dispose of any of the stock of Target, (v) cause Target to
sell or otherwise dispose of any of its assets, except for dispositions made
in the ordinary course of business or transfers of assets to a corporation
controlled (within the meaning of Section 368(c)) of the Code by Target or
(vi) cause Target to discontinue its historic business or discontinue use of a
significant portion of its historic business assets in a business.
3.18 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 course in substantially the same manner as
heretofore conducted, to pay and to cause its subsidiaries to pay debts and
Taxes when due subject (i) to good faith disputes over such debts or taxes and
(ii) in the case of Taxes of Target or any of its subsidiaries, to Acquiror's
consent to the filing of material Tax Returns if applicable, 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 best efforts consistent with past
practice to keep available the services of its and its subsidiaries' present
officers and key employees and use its best 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 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 could 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) 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
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the date of this Agreement; provided, however, that Acquiror may, in the
ordinary course of business consistent with past practice, grant options
for the purchase of Acquiror Common Stock under the Acquiror Option Plan.
(c) Dividends; Changes in Capital Stock. 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;
(d) Stock Option Plans, Etc. 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.
(e) Pooling. Take any action, which would interfere with Acquiror's
ability to account for the Merger as a pooling of interests; or
(f) Other. Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (e) 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.
4.2 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. Enter into any material contract or commitment,
or violate, amend or otherwise modify or waive any of the terms of any of
its material contracts, other than in the ordinary course of business
consistent with past practice;
(b) 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;
(c) Exclusive Rights. Enter into or amend any agreements pursuant to
which any other party is granted exclusive marketing or other exclusive
rights of any type or scope with respect to any of its products or
technology;
(d) 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 parent's/subsidiaries' business, taken
as a whole, except in the ordinary course of business consistent with past
practice;
(e) 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;
(f) Leases. Enter into any operating lease in excess of an aggregate of
$10,000;
(g) Payment of Obligations. Pay, discharge or satisfy in an amount in
excess of $10,000 in any one case or $100,000 in the aggregate, 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;
(h) Capital Expenditures. Make any capital expenditures, capital
additions or capital improvements except in the ordinary course of business
and consistent with past practice;
(i) Insurance. Materially reduce the amount of any material insurance
coverage provided by existing insurance policies;
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(j) Employee Benefit Plans; New Hires; Pay Increases. Adopt or amend any
employee benefit or stock purchase or option plan, or hire any new director
level or officer level employee (except that it may hire a replacement for
any current director level or officer level employee if it first provides
Acquiror advance notice regarding such hiring decision), pay any special
bonus or special remuneration to any employee or director, or increase the
salaries or wage rates of its employees;
(k) 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;
(l) 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;
(m) 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 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 parent's/subsidiaries' business, taken as a
whole;
(n) 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, file any material Tax Return or any amendment
to a material Tax Return, 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;
(o) 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;
(p) 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
(q) Other. Take or agree in writing or otherwise to take, any of the
actions described in Sections 4.2(a) through (p) 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 can reasonably be expected 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
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
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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, (D) Target notifies
Acquiror in advance of any disclosure of non-public information to any such
third party, with a description of the information proposed to be disclosed,
and (E) Target provides such non-public information pursuant to a non-
disclosure agreement at least as restrictive 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 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 or request and shall provide Acquiror with a true and complete
copy of such Takeover Proposal notice or request, 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 any of its subsidiaries or the acquisition of any significant equity
interest in, or a significant portion of the assets of, Target or any of its
subsidiaries, 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 use its best efforts to file with the SEC on or
before February 8, 1996, 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. 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 and, 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.
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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 within
45 days of the Registration Statement being declared effective by the SEC.
Target shall consult with Acquiror regarding the date of the Target
Stockholders Meeting and use all reasonable efforts and shall not postpone or
adjourn (other than for the absence of a quorum) the Target Stockholders
Meeting without the consent of Acquiror. 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 January 3,
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 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 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 best 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. 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
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Agreement under the 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 reasonable efforts vigorously to contest and resist any such
action or proceeding and to have vacated, lifted, reversed, or overturned
any decree, judgment, injunction or other order, whether temporary,
preliminary or permanent (each an "Order"), that is in effect and that
prohibits, prevents, or restricts consummation of the Merger or any such
other transactions, unless by mutual agreement 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 May 15, 1996. 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 adversely affect the ability of Acquiror to account 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 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 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.
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
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Agreement substantially in the form of Exhibit C attached hereto concurrent
with the execution of this Agreement.
5.10 FIRPTA. Target shall, prior to the Closing Date, provide Acquiror with
a properly executed Foreign Investment and Real Property Tax Act of 1980
("FIRPTA") Notification Letter, substantially in the form of Exhibit D
attached hereto, which states that shares of capital stock of Target do not
constitute "United States real property interests" under Section 897(c) of the
Code, for purposes of satisfying Acquiror's obligations under Treasury
Regulation Section 1.1445-2(c)(3). In addition, simultaneously with delivery
of such Notification Letter, Target shall have provided to Acquiror, as agent
for Target, a form of notice to the Internal Revenue Service in accordance
with the requirements of Treasury Regulation Section 1.897-2(h)(2) and
substantially in the form of Exhibit D attached hereto along with written
authorization for Acquiror to deliver such notice form to the Internal Revenue
Service on behalf of Target upon the Closing of the Merger.
5.11 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.
5.12 Blue Sky Laws. cquiror 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.
5.13 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 5.13 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 shall deliver to Acquiror an updated Schedule 5.13 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, 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, 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
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the Effective Time. Within 10 business 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) utstanding purchase rights under the Target ESPP shall be exercised
upon the earlier of (i) the next scheduled purchase date under the Target
ESPP or (ii) 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 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 beginning at least
thirty (30) days after the Effective Time.
5.14 Letter of Acquiror's and Target's Accountants.
(a) Acquiror shall use all reasonable efforts to cause to be delivered to
Target a letter of Coopers & Lybrand LLP, 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 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 letter of Price Waterhouse LLP, 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, 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.
5.15 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 under the
Target Stock Option Plans assumed by Acquiror. Target shall cooperate with and
assist Acquiror in the preparation of such registration statement.
5.16 Indemnification.
(a) After the Effective Time, Acquiror 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 provided under Target's Amended and Restated Certificate of
Incorporation and Amended and Restated 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 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 two years after the Effective Time, Acquiror will 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 105% 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
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unable to obtain the insurance required by this Section 5.16, it shall
obtain as much comparable insurance as possible for an annual premium equal
to such maximum amount.
(c) The provisions of this Section 5.16 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and representatives.
5.17 Option Agreement. Concurrently with the execution of this Agreement,
Target shall deliver to Acquiror an executed Option Agreement in the form of
Exhibit E attached hereto. Target agrees to fully perform its obligations
under the Option Agreement.
5.18 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).
5.19 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.
5.20 Employees. Set forth on Schedule 5.20 is a list of employees of Target
to whom Acquiror will make an offer of employment comparable to such
employee's current position, effective at the Closing. Acquiror will negotiate
in good faith to hire the employees on Schedule 5.20 and will incentivize such
employees consistent with its policies regarding other employees of Acquiror,
including the issuance of options to purchase the Common Stock of Acquiror in
such amounts and on such terms as determined by Acquiror in its sole
discretion. Target shall cooperate with Acquiror to assist Acquiror in
employing such employees.
5.21 Pooling Letters.
(a) Target shall use all reasonable effects to cause to be delivered to
Acquiror a letter of Price Waterhouse LLP, Target's independent auditors,
dated a date within two business days before the date of this Agreement 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 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 effects to cause to be delivered to
Target a letter of Coopers & Lybrand LLP, Acquiror's independent auditors,
dated a date within two business days before the date of this Agreement 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.
5.22 Warrants. At the Effective Time, each Target Warrant will be assumed by
Acquiror. Schedule 5.22 hereto sets forth a true and complete list as of the
date hereof of all holders of Target Warrants, including the number of shares
of Target capital stock subject to each such warrant, the exercise or vesting
schedule, the purchase price per share and the term of each such warrant. On
the Closing Date, Target shall deliver to Acquiror an updated Schedule 5.22
hereto current as of such date. Each such warrant 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 Warrant, immediately prior to the Effective
Time, except that (i) such warrant 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 warrant
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 warrant will be equal to the quotient
determined by dividing the exercise price per share of Target Common Stock at
which such warrant was exercisable immediately prior to the Effective Time by
the Exchange Ratio,
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rounded up to the nearest whole cent. Within 10 business days of the surrender
to Acquiror of a Target Warrant, Acquiror will issue to each holder of such
Target Warrant a document in form and substance satisfactory to Target
evidencing the foregoing assumption of such warrant by Acquiror.
5.23 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.
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 holders of a majority of the shares of Target
Common Stock outstanding as of the record date set for the Target
Stockholders Meeting.
(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; and all requests for additional information on the part of the
SEC shall have been complied with to the reasonable satisfaction of the
parties hereto.
(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, 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. 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. Acquiror, Target and Merger Sub and their
respective subsidiaries shall have timely obtained from each Governmental
Entity all approvals, waivers and consents, if any, necessary for
consummation of or in connection with the Merger and the several
transactions contemplated hereby, including such approvals, waivers and
consents as may be required under the Securities Act, under state Blue Sky
laws, and under HSR.
(e) Tax Opinion. Acquiror and Target shall have received substantially
identical written opinions of Brobeck, Phleger & Harrison LLP and Morrison
& Foerster LLP, respectively, in form and substance reasonably satisfactory
to them, and dated on or about the date of and referred to in the Proxy
Statement as first mailed to stockholders of Target 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
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conversion of the Target Common Stock in the Merger and upon exercise of
the options under the Target Stock Option Plans and Target Warrants assumed
by Acquiror shall have been made.
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, Warranties and Covenants. (i) The representations
and warranties of Acquiror and Merger Sub in this Agreement shall be true
and correct in all material respects (except for such representations and
warranties that are qualified by their terms by a reference to materiality
which representations and warranties as so qualified shall be true in all
respects) on and as of the Effective Time as though such representations
and warranties were made on and as of such time and (ii) Acquiror and
Merger Sub shall have performed and complied in all material respects with
all covenants, obligations and conditions of this Agreement required to be
performed and complied with by them as of the Effective Time.
(b) Certificate of Acquiror. Target shall have been provided with a
certificate executed on behalf of Acquiror by its President and its Chief
Financial Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by Acquiror and Merger
Sub under this Agreement are true and complete in all material
respects; and
(ii) all covenants, obligations and conditions of this Agreement to
be performed by Acquiror and Merger Sub on or before such date have
been so performed in all material respects.
(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, results of operations or prospects of Acquiror and its
subsidiaries, taken as a whole.
(e) Letter from Accountants. Target shall have received a letter from
Price Waterhouse LLP, independent auditors, to the effect that the Merger
qualifies for pooling of interests accounting treatment if consummated in
accordance with this Agreement.
(f) Affiliate Agreements. Target shall have received from each of the
Affiliates of Acquiror an executed Affiliate Agreement in substantially the
form attached hereto as Exhibit B-2.
(g) 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.
(h) 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 shall any proceeding brought by an
administrative agency or commission or other Governmental Entity, domestic
or foreign, seeking the foregoing be pending.
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, Warranties and Covenants. (i) The representations
and warranties of Target in this Agreement shall be true and correct in all
material respects (except for such representations and warranties that are
qualified by their terms by a reference to materiality, which
representations and warranties as so qualified shall be true in all
respects) on and as of the Effective Time as though such representations
and warranties were made on and as of such time and (ii) Target shall have
performed and complied in all material respects with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by it as of the Effective Time.
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(b) Certificate of Target. Acquiror shall have been provided with a
certificate executed on behalf of Target by its President and Chief
Financial Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by Target under this
Agreement are true and complete in all material respects; and
(ii) all covenants, obligations and conditions of this Agreement to
be performed by Target on or before such date have been so performed in
all material respects.
(c) Legal Opinion. Acquiror shall have received a legal opinion from
Morrison & Foerster LLP, 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 Acquiror or any of its subsidiaries or
otherwise.
(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.
(f) No Material Adverse Changes. Except as disclosed in Schedule 6.3(f)
there shall not have occurred any material adverse change in the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations, results of operations or prospects of
Target and its subsidiaries, taken as a whole.
(g) Letter from Accountants. Acquiror shall have received a letter from
Coopers & Lybrand LLP, independent auditors, acceptable to Acquiror, to the
effect that the Merger qualifies for pooling of interests accounting
treatment if consummated in accordance with this Agreement.
(h) 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.
(i) FIRPTA Certificate. Target shall, prior to the Closing Date, provide
Acquiror with a properly executed FIRPTA Notification Letter, substantially
in the form of Exhibit D attached hereto, which states that shares of
capital stock of Target do not constitute "United States real property
interests" under Section 897(c) of the Code, for purposes of satisfying
Acquiror's obligations under Treasury Regulation Section 1.1445-2(c)(3). In
addition, simultaneously with delivery of such Notification Letter, Target
shall have provided to Acquiror, as agent for Target, a form of notice to
the Internal Revenue Service in accordance with the requirements of
Treasury Regulation Section 1.897-2(h)(2) and substantially in the form of
Exhibit D attached hereto along with written authorization for Acquiror to
deliver such notice form to the Internal Revenue Service on behalf of
Target upon the Closing of the Merger.
(j) Comfort Letters of Accountants. Acquiror shall have received a letter
from Coopers & Lybrand LLP, independent auditors, acceptable to Acquiror
and Target, respectively, and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Registration Statement.
(k) Employment and Non-Competition Agreements. The employees of Target
set forth on Schedule 5.20 shall have accepted employment with Acquiror and
shall have entered into an Employment and Non-Competition Agreement
substantially in the form attached hereto as Exhibits H-1, et. seq.
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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 consent 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 July 1, 1996 (or
such later date as may be agreed upon in writing by the parties hereto);
(c) by Acquiror, if (i) Target shall breach any of its representations,
warranties or obligations hereunder in any material respect (except for
such representations, warranties and obligations that are qualified by
their terms by a reference to materiality, which representations,
warranties and obligations as so qualified shall not be breached in any
respect) and such breach shall not have been cured within ten business days
of receipt by Target of written notice of such breach, (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, or (iii) for any reason (other than as
the result of the failure to satisfy the conditions specified in Sections
6.3(b) or (d), Target fails to call and hold the Target Stockholders
Meeting by May 1, 1996;
(d) by Target, if Acquiror shall breach any of its representations,
warranties or obligations hereunder in any material respect (except for
such representations, warranties and obligations that are qualified by
their terms by a reference to materiality, which representations,
warranties and obligations as so qualified shall not be breached in any
respect) and such breach shall not have been cured within ten days
following receipt by Acquiror of written notice of such breach;
(e) by either Acquiror or Target if a Trigger Event (as defined in
Section 7.3(b)) 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 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 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 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), or (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.
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 breach by a party
hereto of any of its representations, warranties or covenants
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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 subsections (b), (c) and (d) of this Section 7.3, 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.
(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 with respect to Target or (B) a Takeover Proposal with
respect to Target which at the time of the meeting of Target's stockholders
shall not have been (x) rejected by Target and (y) withdrawn by the third
party, or (iii) Acquiror shall terminate this Agreement pursuant to Section
7.1(c), due in whole or in part to any failure by Target to use its best
efforts to perform and comply with all agreements and conditions required
by this Agreement to be performed or complied with by Target prior to or on
the Closing Date or any failure by Target's affiliates to take any actions
required to be taken hereby, and prior thereto there shall have been (A) a
Trigger Event with respect to Target or (B) a Takeover Proposal with
respect to Target which shall not have been (x) rejected by Target and (y)
withdrawn by the third party, then Target shall 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, the Target shall promptly pay to Acquiror
the sum of $4,000,000; provided, however, that with respect to Section
7.3(b)(ii)(A) and Section 7.3(b)(iii)(A), a Trigger Event shall not be
deemed to include the acquisition by any Person of securities representing
10% 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, (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 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. As used herein, a
"Trigger Event" shall occur if any Person acquires securities representing
10% 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 25% or more, of the voting power
of Target.
(c) 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).
(d) In the event that Target shall terminate this Agreement pursuant to
Section 7.1(d), Acquiror shall promptly reimburse Target for all of the
out-of-pocket costs and expenses incurred by Target in connection with this
Agreement and the transactions contemplated hereby (including without
limitation the fees and expenses of its advisors, accountants and legal
counsel).
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(e) In the event that Target shall terminate this Agreement pursuant to
Section 7.1(g)(ii), Acquiror shall reimburse Target for all of the out-of-
pocket costs and expenses incurred by Target 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, Acquiror shall promptly pay to Target the sum
of $4,000,000.
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 3.17 (Internal
Revenue Code Section 368(c)), Section 5.4 (Confidentiality) 5.7 (Pooling
Accounting), 5.8 (Affiliates), 5.10 (FIRPTA), 5.13 (Employee Benefit Plans),
5.15 (Form S-8), 5.16 (Indemnification), 5.22 (Warrants) and 5.23 (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):
(a) if to Acquiror or Merger Sub, to:
Cisco Systems, Inc.
170 W. 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
Attn: Edward M. Leonard, Esq.
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94303
Facsimile No.: (415) 496-2885
Telephone No.: (415) 424-0160
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(b) if to Target, to:
TGV Software, Inc.
101 Cooper Street
Santa Cruz, California 95060
Attention: President
Facsimile No.: (408) 457-5208
Telephone No.: (408) 457-5200
with a copy to:
Morrison & Foerster LLP
Attn: Michael Phillips, Esq.
755 Page Mill Road
Palo Alto, CA 94304-1018
Facsimile No.: (415) 494-0792
Telephone No.: (415) 813-5600
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 hereof", and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to
January 23, 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 (g), 1.7-1.9, 5.13, 5.16 and 5.22; 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,
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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 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.
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
/s/ Craig Conway
By: _________________________________
CRAIG CONWAY
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
ACQUIROR
/s/ John T. Chambers
By: _________________________________
JOHN T. CHAMBERS
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
MERGER SUB
/s/ Larry R. Carter
By: _________________________________
LARRY R. CARTER
VICE PRESIDENT AND CHIEF FINANCIAL
OFFICER
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
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AMENDMENT NO. 1 TO THE
AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDMENT NO. 1 TO THE AGREEMENT AND PLAN OF REORGANIZATION (the
"Amendment") is made as of this 27th day of February, 1996 by and among Cisco
Systems, Inc., a California corporation ("Cisco"), Big Sky Acquisition
Corporation, a Delaware corporation and wholly-owned subsidiary of Cisco
("Merger Sub"), and TGV Software, Inc., a Delaware corporation ("TGV").
RECITALS
WHEREAS, Cisco, Merger Sub, and TGV entered into an Agreement and Plan of
Reorganization dated January 23, 1996 (the "Reorganization Agreement"),
pursuant to which Merger Sub will merge with and into TGV, with TGV becoming a
wholly-owned subsidiary of Cisco;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, provisions and covenants herein contained, the parties, intending
to be legally bound, agree as follows:
1. Subsection (i) of the fourth sentence of Section 2.2 is hereby amended
to read as follows:
(i) 3,250,000 shares of Common Stock for issuance to employees and
consultants pursuant to the Target Stock Option Plans, of which
1,542,388 shares have been issued pursuant to option exercises or
direct stock purchases, 1,331,262 shares are subject to outstanding,
unexercised options, and no shares are subject to outstanding stock
purchase rights,
2. Section 6.3(d) is hereby amended to read in its entirety as follows:
(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.
3. Section 7.1(c) is hereby amended to read in its entirety as follows:
(c) by Acquiror, if (i) Target shall breach any of its
representations, warranties or obligations hereunder in any material
respect (except for such representations, warranties and obligations
that are qualified by their terms by a reference to materiality, which
representations, warranties and obligations as so qualified shall not
be breached in any respect) and such breach shall not have been cured
within ten business days of receipt by Target of written notice of such
breach, (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,
or (iii) for any reason (other than as the result of the failure to
satisfy the conditions specified in Sections 6.1(b) or (d)) Target
fails to call and hold the Target Stockholders Meeting by May 1, 1996;
4. Execution in Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed
to be an original and all of which taken together shall constitute but one
and the same instrument.
5. Governing Law. This Amendment shall be governed and construed by and
construed in accordance with the laws of the State of California.
6. Headings. Section headings in this Amendment are included herein for
the convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
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IN WITNESS WHEREOF, Cisco, TGV, and Merger Sub have caused this Amendment to
be executed as of the date first written above.
CISCO SYSTEMS, INC.
By: /s/ John T. Chambers
-----------------------------
Name: John T. Chambers
Title: President and C.E.O.
BIG SKY ACQUISITION CORPORATION
By: /s/ Larry R. Carter
-----------------------------
Name: Larry R. Carter
Title: Vice President and C.F.O.
TGV SOFTWARE, INC.
By: /s/ Gary Valenzuela
-----------------------------
Name: Gary Valenzuela
Title: Chief Financial Officer
[SIGNATURE PAGE TO AMENDMENT NO. 1]
A-37
<PAGE>
EXHIBIT A
---------
CERTIFICATE OF MERGER
MERGING
BIG SKY ACQUISITION CORPORATION
WITH AND INTO
TGV SOFTWARE, INC.
----------------
Pursuant to Section 251 of the General Corporation Law of
the State of Delaware
----------------
Big Sky Acquisition Corporation, a Delaware corporation ("Merger Sub"), and
TGV Software, Inc., a Delaware corporation ("Target"), DO HEREBY CERTIFY AS
FOLLOWS:
FIRST: That Merger Sub was incorporated on June 30, 1995, pursuant to the
Delaware General Corporation Law (the "Delaware Law"), and that Target was
incorporated on November , 1994, pursuant to the Delaware Law.
SECOND: That an Agreement and Plan of Reorganization (the "Reorganization
Agreement"), dated as of January 23, 1996, 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 TGV Software, Inc.
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:
TGV Software, Inc.
101 Cooper Street
Santa Cruz, California 95060
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.
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<PAGE>
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.
BIG SKY ACQUISITION CORPORATION
By:
----------------------------------
---------------------,
ATTEST:
- ---------------------------------
Secretary
TGV SOFTWARE, INC.
By:
----------------------------------
---------------------,
ATTEST:
- ---------------------------------
Secretary
A-39
<PAGE>
APPENDIX B
WESSELS, ARNOLD & HENDERSON FAIRNESS OPINION
<PAGE>
[LETTERHEAD OF WESSELS, ARNOLD & HENDERSON, L.L.C.]
January 23, 1996
The Board of Directors
TGV Software, Inc.
101 Cooper Street
Santa Cruz, CA 95060
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view and as of the date hereof, to the stockholders of TGV Software, Inc. (the
"Company"), of the consideration to be received by the stockholders pursuant
to the terms of the proposed Agreement and Plan of Reorganization (the
"Agreement") dated January 23, 1996 by and among the Company, Merger Sub, Inc.
and Cisco Systems, Inc. (the "Acquiror") (the "Merger"). Capitalized terms
used herein shall have the respective meanings ascribed to them in the
Agreement unless otherwise defined herein.
Pursuant to the Agreement, each outstanding share of common stock of the
Company is proposed to be converted into and represent the right to receive
such number of shares of the Acquiror's common stock as is equal to the
Exchange Ratio. The Exchange Ratio is .20 (subject to adjustment in the event
of a stock split or stock dividend effected between the date hereof and the
Effective Time). The Merger is intended to qualify as a tax-free
reorganization for U.S. Federal Income tax purposes and to be accounted for as
a pooling-of-interests under applicable accounting principles. The terms and
conditions of the Merger are set forth more fully in the Agreement.
Wessels, Arnold & Henderson, L.L.C. ("Wessels, Arnold & Henderson"), as part
of its investment banking services, is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for
corporate and other purposes. In the ordinary course of business, Wessels,
Arnold & Henderson acts as a market maker and broker in the publicly traded
securities of both the Company and the Acquiror and receives customary
compensation in connection therewith, and also provides research coverage for
the Company and the Acquiror. In the ordinary course of business, Wessels,
Arnold & Henderson actively trades in the publicly traded securities of both
the Company and the Acquiror for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities. We have acted as financial advisor to the Company's Board of
Directors in connection with the Merger and will receive fees for our
services, including the rendering of this opinion.
In connection with our review of the Merger, and in arriving at our opinion,
we have: (i) reviewed and analyzed the financial terms of the Agreement;
(ii) reviewed and analyzed certain publicly available financial statements and
other information of the Company and the Acquiror; (iii) reviewed and analyzed
certain internal financial statements and other financial and operating data
concerning the Company prepared by the management of the Company;
(iv) reviewed and analyzed certain internal financial statements and other
historical financial and operating data concerning the Acquiror prepared by
the management of the Acquiror; (v) reviewed and analyzed certain earnings per
share estimates for the Acquiror prepared by various equity research analysts;
(vii) conducted discussions with members of the senior management of the
Company with respect to the business and prospects of the Company;
(viii) conducted discussions with members of the senior management of the
Acquiror with respect to the business and prospects of the Acquiror;
(ix) reviewed the reported prices and trading activity for the Company's
Common Stock and the Acquiror's Common Stock; (x) compared the financial
performance of the Company and the Acquiror and the prices of the Company's
Common Stock and the Acquiror's Common Stock with that of certain other
comparable publicly-traded companies and their
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Cisco Systems, Inc./TGV Software, Inc. Merger
Fairness Opinion
January 23, 1996
Page 2
securities; (xi) reviewed the financial terms, to the extent publicly
available, of certain comparable merger transactions; and (xii) participated
in discussions and negotiations among representatives of the Company and the
Acquiror and their respective financial and legal advisors. In addition, we
have conducted such other analyses and examinations and considered such other
financial, economic and market criteria as we have deemed necessary in
arriving at our opinion.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of the foregoing information provided to us by the Company and
the Acquiror, and have not independently verified such information. Further,
our opinion is based on the assumption that the Merger will qualify as a tax-
free reorganization and be accounted for as pooling-of-interests. We have not
performed an independent evaluation or appraisal of any of the respective
assets or liabilities of the Company or the Acquiror, and we have not been
furnished with any such valuation or appraisal. With respect to the Company's
financial forecasts, we have assumed that they have been prepared based on the
best currently available estimates and judgments of the Company's management
as to the future financial performance of the Company and that the assumptions
underlying such forecasts are reasonable.
It is understood that this letter is for the information of the Board of
Directors of the Company only, and this letter shall not be published or
otherwise used and no public references to Wessels, Arnold & Henderson, L.L.C.
shall be made without our prior written consent, which consent shall not be
unreasonably withheld; provided, however, that this letter may be included in
its entirety in the proxy statement submitted to the stockholders of the
Company for the purpose of approving the Merger or disclosed as required by
applicable law. Further, our opinion speaks only as of the date hereof and is
based on the conditions as they exist and information that we have been
supplied as of the date hereof. It shall be understood that, although
subsequent developments may affect this opinion, we do not have any obligation
to update, revise or reaffirm this opinion.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date
hereof, the consideration to be received by the holders of the Company's
Common Stock pursuant to the Agreement is fair, from a financial point of
view, to the holders of the Company's Common Stock. Our opinion does not
constitute a recommendation to any Board member or stockholder of the Company
as to how any such Board member or stockholder should vote on the proposed
Merger or otherwise address the Company's decision to effect the Merger.
Very truly yours,
Wessels, Arnold & Henderson, L.L.C.
By: /s/ Bryson D. Hollimon
--------------------------
Bryson D. Hollimon
Managing Director
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<PAGE>
APPENDIX C
STOCK OPTION AGREEMENT
<PAGE>
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Agreement"), dated as of January 23, 1996, by
and between Cisco Systems, Inc., a California corporation ("Acquiror"), and
TGV Software, Inc., a Delaware corporation ("Target").
WHEREAS, concurrently with the execution and delivery of this Agreement,
Target, Acquiror and Big Sky 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 871,667 shares (the "Target Shares") of
common stock, par value $.001 per share, of Target (the "Target Common Stock")
in the manner set forth below at a price (the "Exercise Price") of $15.575 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 (however, in no event shall the initial exercise of the
Target Option be for less than 25% of the Target Shares), at any time or from
time to time after the occurrence of any of the events described in clauses
(i), (ii) and (iii) of Section 7.3(b) 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 Agreement pursuant to Section 7.1 thereof (other than a
termination in connection with which Acquiror is entitled to the payment
specified in Section 7.3(b) thereof); or (iii) 180 days following any
termination of the Reorganization Agreement in connection with which Acquiror
is entitled to the payment specified in Section 7.3(b) 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 January 22, 1998. Notwithstanding the foregoing, 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.
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
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<PAGE>
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 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, (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, 871,667 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, 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.
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, (d) except as described in Section 3.3 of the Reorganization Agreement,
the execution and delivery of this Agreement by
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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, 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 January 22, 1998, all or any portion of the Target Shares
purchased by Acquiror pursuant thereto, at a price set forth in subparagraph
(ii) below:
(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. For purposes of this clause (ii), 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
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<PAGE>
Shares") on each 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,
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 25% 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,
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
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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.
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 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-5
<PAGE>
(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 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
C-6
<PAGE>
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 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 JANUARY 23, 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.
16. Entire Agreement. This Agreement and the Reorganization Agreement
(including the Disclosure Memorandum 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
C-7
<PAGE>
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 W. 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
2200 Geng Road
Two Embarcadero Place
Palo Alto, CA 94303
Attn: Edward M. Leonard, Esq.
Facsimile No.: (415) 496-2885
Telephone No.: (415) 424-0160
(b)if to Target, to:
TGV Software, Inc.
101 Cooper Street
Santa Cruz, California 95060
Attention: President
Facsimile No.: (408) 457-5208
Telephone No.: (408) 457-5200
with a copy to:
Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, CA 94304-1018
Attn: Michael Phillips, Esq.
Facsimile No.: (415) 494-0792
Telephone No.: (415) 354-1500
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.
C-8
<PAGE>
23. Expenses. Except as otherwise expressly provided herein or in the
Reorganization Agreement, all costs and expenses incurred in connection with
the 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.
C-9
<PAGE>
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.
ACQUIROR
/s/ John T. Chambers
By: _________________________________
John T. Chambers
Name: _____________________________
President and Chief Executive
Officer
Title: ____________________________
TARGET
/s/ Craig Conway
By: _________________________________
Craig Conway
Name: _____________________________
President and Chief Executive
Officer
Title: ____________________________
[SIGNATURE PAGE TO OPTION AGREEMENT]
C-10
<PAGE>
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
------- -------------
<C> <S>
2.1 Agreement and Plan of Reorganization by and among the Registrant,
Big Sky Acquisition Corporation, and TGV Software, Inc., dated as
of January 23, 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 Form of opinion of Brobeck, Phleger & Harrison LLP regarding
certain tax matters.
8.2 Form of opinion of Morrison & Foerster LLP 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 Price Waterhouse LLP with respect to TGV's financial
statements.
23.4 Consent of Wessels, Arnold & Henderson, L.L.C.
23.5 Consent of Morrison & Foerster LLP (included in Exhibit 8.2).
24.1 Power of Attorney (see page II-3).
99.1 Form of proxy to be used in soliciting TGV's stockholders for its
special meeting.
</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,
II-1
<PAGE>
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;
(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>
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 THE 27TH DAY OF FEBRUARY 1996.
Cisco Systems, Inc.
/s/ John T. Chambers
By: _________________________________
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
--------- ----- ----
<S> <C> <C>
/s/ John T. Chambers President and Chief February 27, 1996
____________________________________ Executive Officer
John T. Chambers (Principal Executive
Officer) and Director
/s/ Larry R. Carter Vice President, Finance and February 27, 1996
____________________________________ Administration, Chief
Larry R. Carter Financial Officer and
Secretary (Principal
Financial Officer)
Chairman of the Board and February 27, 1996
____________________________________ Director
John P. Morgridge
/s/ Donald T. Valentine Vice Chairman of the Board February 27, 1996
____________________________________ and Director
Donald T. Valentine
/s/ Dr. Michael S. Frankel Director February 27, 1996
____________________________________
Dr. Michael S. Frankel
/s/ Dr. James F. Gibbons Director February 27, 1996
____________________________________
Dr. James F. Gibbons
/s/ Robert L. Puette Director February 27, 1996
____________________________________
Robert L. Puette
/s/ Masayoshi Son Director February 27, 1996
____________________________________
Masayoshi Son
</TABLE>
II-3
<PAGE>
TGV SOFTWARE, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT DEDUCTIONS BALANCE AT
BEGINNING (WRITE- END OF
OF PERIOD ADDITIONS OFFS) PERIOD
---------- --------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Fiscal year ended June 30, 1995..... $135 $195 $(18) $312
Fiscal year ended June 30, 1994..... 50 147 (62) 135
Fiscal year ended June 30, 1993..... 50 7 (7) 50
</TABLE>
S-1
<PAGE>
EXHIBIT 5.1
February 27, 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 From 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 your Common Stock (the
"Shares") to be issued to the stockholders of TGV Software, Inc. ("TGV") in
connection with a merger pursuant to which TGV would become a wholly-owned
subsidiary of Cisco Systems, Inc. (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,
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
EXHIBIT 8.1
[FORM OF OPINION OF BROBECK, PHLEGER & HARRISON LLP]
March __, 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, Big Sky
Acquisition, California corporation ("Sub"), and TGV Software, Inc., a
California corporation ("TGV"), dated January 23, 1996. Pursuant to the
Agreement and the related Agreement of Merger (collectively, the "Merger
Agreements"), Sub will merge with and into TGV (the "Merger"), and TGV will
become a wholly-owned subsidiary of Cisco.
Except as otherwise provided, capitalized terms referred to herein
have the meanings set forth in the Merger Agreements. 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 Merger Agreements;
2. Representations made to us by Cisco and Sub in a letter
reproduced as Exhibit A hereto;
3. Representations made to us by TGV in a letter reproduced as
Exhibit B hereto;
4. Representations made by certain shareholders of TGV in
"Shareholder Representation Agreements";
5. The Registration Statement;
6. An opinion of Morrison & Foerster substantially identical in form
and substance to this opinion (the "Morrison's Tax Opinion"); and
<PAGE>
Cisco Systems Inc.
March , 1996 Page 2
7. Such other instruments and documents related to the formation,
organization and operation of Cisco, TGV 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:
4. 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;
5. The Merger will be consummated in accordance with the Merger
Agreement and will be effective under the laws of the State of Delaware;
6. The shareholders of TGV 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 TGV capital stock in
anticipation of the Merger) such that the shareholders of TGV 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 Treas. Reg.
(S)1.368-1(b) and as interpreted in certain Internal Revenue Service rulings and
federal judicial decisions;
7. After the Merger, TGV 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;
8. To the extent any expenses relating to the Merger (or the "plan of
reorganization" within the meaning of Treas. Reg. (S)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;
9. No TGV shareholder guaranteed any TGV 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 TGV,
Cisco or Sub has or will represent equity for tax purposes; and (ii) no
outstanding equity of TGV, Cisco or Sub has or will represent indebtedness for
tax purposes; and
10. The Morrison 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.
<PAGE>
Cisco Systems Inc.
March , 1996 Page 3
11. 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.
12. 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 TGV shareholder who has provided or will
provide services to TGV, 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 the fact that the merger will be a
reorganization within the meaning 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 TGV, including without limitation
the recognition of any gain and the survival and/or availability, after the
Merger, of any of the federal income tax attributes or elections of TGV, after
application of any provision of the Code, as well as the regulations promulgated
thereunder and judicial interpretations thereof; (v) the basis of any equity
interest in TGV acquired by Cisco in the Merger; (vi) the tax consequences of
any transaction in which TGV stock or a right to acquire TGV stock was received;
and (vii) the tax consequences of the Merger (including the opinion set forth
above) as applied to stockholders of TGV and/or holders of options or warrants
for TGV stock or that may be relevant to particular classes of TGV stockholders
and/or holders of options or warrants for TGV stock 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.
13. No opinion is expressed as to any transaction other than the Merger
as described in the Merger Agreements or to any transaction whatsoever,
including the Merger, if all the transactions described in the Merger Agreements
are not consummated in accordance with the terms of such Merger Agreements 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.
14. 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
<PAGE>
Cisco Systems Inc.
March , 1996 Page 4
made available to any other person or entity without our prior written consent.
We do 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, the proxy statement/prospectus constituting a part
thereof and any further amendments thereto. In giving this consent, we do not
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the Rules and
Regulations of the Commission thereunder.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
Exhibit A
---------
March __, 1996
Brobeck, Phleger & Harrison Morrison & Foerster
Two Embarcadero Place Embarcadero Center West
2200 Geng Road 275 Battery Street
Palo Alto, California 94306 San Francisco, California 94306
Re: Merger pursuant to the Agreement and Plan of Reorganization (the
"Agreement"), dated January 23, 1996, among Big Sky Acquisition
Corporation, a Delaware corporation ("Sub"), Cisco Systems, Inc.,
a California corporation ("Cisco"), and TGV Software, Inc., a
Delaware corporation ("TGV").
----------------------------------------------------------------
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 (as defined in Section 1.1 of the
Agreement). Unless otherwise indicated, capitalized terms not defined herein
have the meanings set forth in the Agreement.
B. 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 (as
defined in Section 1.1 of the Agreement):
1. Pursuant to the Merger, Sub will merge with and into TGV, and TGV
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 TGV immediately prior
to the Merger will continue to be held by TGV immediately after the Merger. For
the purpose of determining the percentage of TGV's net and gross assets held by
it immediately following the Merger, the following assets will be treated as
property held by TGV immediately prior but not subsequent to the Merger: (i)
assets disposed of by TGV prior to or subsequent to the Merger and in
contemplation thereof (including without limitation any asset disposed of by
TGV, 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 TGV to pay
shareholders perfecting dissenters' rights or 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 TGV 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;
<PAGE>
March , 1996 Page 2
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 TGV capital stock (other than shares
with respect to which dissenters' rights are exercised) 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 TGV to issue additional
shares of stock after the Merger that would result in Cisco losing Control of
TGV;
6. Other than with respect to the possible repurchase in the ordinary
course of business of shares held by TGV employees pursuant to Cisco's
assumption of TGV's obligations under the TGV Stock Option Plan, 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
Code and Treasury Regulation Section 1.3682(j)(4), Cisco has no current plan or
intention to (i) liquidate TGV; (ii) merge TGV with or into another corporation
including Cisco or its affiliates; (iii) sell, distribute or otherwise dispose
of the capital stock of TGV; or (iv) cause TGV 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 TGV
pursuant to the Merger (including payments made with respect to dissenting and
fractional shares, if any); 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 judgement after the
Merger in response to the circumstances then existing;
8. In the Merger, Sub will have no liabilities assumed by TGV and
will not transfer to TGV any assets subject to liabilities, except to the extent
incurred in connection with the transactions contemplated by the Agreement;
9. Cisco intends that, following the Merger, either the historic
business of TGV will be continued or a significant portion of TGV's historic
business assets will be utilized in a business;
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 TGV capital stock, or the right to acquire or vote any such shares;
2
<PAGE>
March , 1996 Page 3
11. Cisco is not an investment company within the meaning of Section
368(a)(2)(F)(iii) and (iv) of the Code;
12. No shareholder of TGV is acting as agent for Cisco in connection
with the Merger or approval thereof, and Cisco will not reimburse any TGV
shareholder for TGV 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
TGV'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 ownership or a direct or indirect disposition (a
"Sale") of (a) 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
TGV capital stock or (b) more than fifty percent (50%) of the shares of Cisco
Common Stock to be received in exchange for TGV capital stock in the Merger. For
purposes of this paragraph, shares of TGV capital stock (or the portion thereof)
(i) with respect to which a TGV shareholder receives consideration in the Merger
other than Cisco Common Stock (including, without limitation, cash received
pursuant to the exercise of dissenters' rights or 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 (other than the conversion of TGV Preferred
Stock into TGV Common Stock) shall be considered shares of outstanding TGV
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
TGV 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 TGV shareholders in exchange for their shares of TGV capital stock.
The fractional share interests of each TGV shareholder will be aggregated and no
TGV shareholder will receive cash in an amount greater than the value of one
full share of Cisco Common Stock;
16. Except with respect to (i) payments of cash to TGV shareholders
in lieu of fractional shares of Cisco Common Stock and (ii) payments of cash to
TGV shareholders perfecting dissenters' rights, one hundred percent (100%) of
the TGV 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 TGV capital
stock other than Cisco Common Stock;
3
<PAGE>
March , 1996 Page 4
17. The total fair market value of all consideration other than Cisco
Common Stock received by TGV shareholders in the Merger (including, without
limitation, cash paid to TGV shareholders perfecting dissenters' rights or in
lieu of fractional shares of Cisco Common Stock) will be less than fifteen
percent (15%) of the aggregate fair market value of TGV shares outstanding
immediately prior to the Merger;
18. At the Effective Time of the Merger, the fair market value of the
Cisco Common Stock received by each TGV shareholder will be approximately equal
to the fair market value of the TGV capital stock surrendered in exchange
therefor, and the aggregate consideration received by TGV shareholders in
exchange for their TGV capital stock will be approximately equal to the fair
market value of all of the outstanding shares of TGV capital stock immediately
prior to the Merger;
19. No shares of Sub have been or will be used as consideration or
issued to shareholders of TGV pursuant to the Merger;
20. Sub, Cisco, TGV and the shareholders of TGV will each pay
separately its or their own expenses in connection with the Merger as
contemplated by the Agreement;
21. There is no intercorporate indebtedness existing between Cisco
and TGV or between Sub and TGV that was issued, acquired or will be settled at a
discount as a result of the Merger, and Cisco will assume no liabilities of TGV
or any TGV shareholder in connection with the Merger;
22. The terms of the Agreement and all other agreements entered into
in connection therewith are the product of arm's-length negotiations;
23. None of the compensation received by any shareholder-employees
of TGV will be separate consideration for, or allocable to, any of their shares
of TGV capital stock; none of the shares of Cisco Common Stock received by any
shareholder-employees of TGV 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 TGV will be for services
actually rendered and will be commensurate with amounts paid to third parties
bargaining at arm's length for similar services;
24. Any amounts paid to TGV shareholders that have perfected
dissenters' rights shall be paid by TGV, solely from TGV's assets, and without
reimbursement therefor by Cisco or Sub;
25. No "poison pill" or similar rights will be associated with the
Cisco Common Stock on or prior to the date of the Merger;
4
<PAGE>
March , 1996 Page 5
26. With respect to each instance, if any, in which shares of TGV
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 TGV 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 TGV 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;
27. Each of the representations made by Cisco and Sub in the
Agreement and any other documents associated therewith is true and accurate; and
28. Cisco and Sub are authorized to make all of the representations
set forth herein.
C. 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:
---------------------------------------------
Title:
------------------------------------------
BIG SKY ACQUISITION CORPORATION, a Delaware
corporation
By:
---------------------------------------------
Title:
------------------------------------------
5
<PAGE>
EXHIBIT B
___________, 1996
Brobeck, Phleger & Harrison, LLP Morrison & Foerster, LLP
Two Embarcadero Place 755 Page Mill Road
2200 Geng Road Palo Alto, California 94304
Palo Alto, California 94306
Re: Merger pursuant to the Agreement and Plan of Reorganization (the
"Agreement"), dated as of January 23, 1996, between Cisco
Systems, Inc., California corporation ("Cisco"), Big Sky
Acquisition Corporation, a Delaware Corporation ("Sub"), and TGV
Software, Inc., a Delaware corporation ("TGV")
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 (as defined in the first paragraph of the
Recitals set forth in the Agreement). 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 as
defined in Section 2.7 of the Agreement:
1. Pursuant to the Merger, Sub will merge with and into TGV, and TGV
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 TGV immediately prior
to the Merger will continue to be held by TGV immediately after the Merger. For
the purpose of determining the percentage of TGV's net and gross assets held by
it immediately following the Merger, the following assets will be treated as
property held by TGV immediately prior but not subsequent to the Merger: (i)
assets disposed of by TGV prior to or subsequent to the Merger and in
contemplation thereof (including, without limitation, any asset disposed of by
TGV, other than in the ordinary course of business, pursuant to a plan or intent
existing during the period ending on the Effective Date of the
<PAGE>
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 TGV to pay shareholders perfecting dissenters' rights or other
expenses or liabilities incurred in connection with the Merger and (iii) assets
used to make distribution, redemption or other payments in respect of TGV
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. TGV 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, (ii) cash paid to TGV shareholders perfecting
dissenters' rights and (iii) payments for expenses incurred in connection with
the Merger;
3. TGV is participating in the Merger for good and valid business
reasons and not for tax purposes;
4. At the time of the Merger, TGV will have no outstanding equity
interests other than shares of TGV capital stock, and rights to acquire shares
of TGV capital stock. At the time of the Merger, except as specified in, or
disclosed in the Agreement or in a schedule or exhibit to, the Agreement, TGV
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 TGV capital stock or any other equity interest in TGV;
5. In the Merger, shares of TGV capital stock representing "Control"
of TGV will be exchanged solely for voting stock of Cisco; at the time of the
Merger, there will exist no rights to acquire TGV capital stock or to vote (or
restrict or otherwise control the vote of) TGV capital stock which, if
exercised, could affect Cisco's acquisition and retention of Control of TGV.
For purposes of this paragraph, shares of TGV capital stock exchanged in the
Merger for cash and other property (including, without limitation, cash paid to
TGV shareholders perfecting dissenters' rights or in lieu of fractional shares
of Cisco Common Stock) will be treated as TGV 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 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. TGV has not declared any dividends on shares of TGV capital stock;
<PAGE>
7. The total fair market value of all consideration other than Cisco
Common Stock received by TGV shareholders in the Merger (including, without
limitation, cash paid to TGV shareholders perfecting dissenters' rights or in
lieu of fractional shares of Cisco Common Stock) will be less than nine percent
(9%) of the aggregate fair market value of TGV capital stock outstanding
immediately prior to the Merger;
8. TGV has no obligation, understanding, agreement or intention to
issue additional shares of stock after the Merger that would result in Cisco
losing Control of TGV;
9. TGV has no plan or intention to sell or otherwise dispose of any
of its assets or of any of the assets acquired from Sub in the Merger except for
dispositions made in the ordinary course of business or the payment of expenses
incurred by TGV pursuant to the Merger (including payments made with respect to
dissenting and fractional shares, if any);
10. TGV anticipates that Cisco will cause TGV to continue TGV's
historic business or use a significant portion of TGV's historic business assets
in a business following the Merger;
11. The liabilities of TGV have been incurred by TGV in the ordinary
course of its business;
12. The fair market value of TGV's assets will, on the Effective
Date, exceed the aggregate liabilities of TGV plus the amount of liabilities, if
any, to which such assets are subject;
13. Other than shares of TGV capital stock or options to acquire TGV
capital stock issued as compensation to present or former service providers
(including, without limitation, employees and directors) of TGV in the ordinary
course of business, no issuances of TGV capital stock or rights to acquire TGV
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;
14. Cash or other property paid to employees of TGV 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;
15. TGV 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;
16. TGV 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;
<PAGE>
17. TGV has no knowledge of any plan or intention on the part of
TGV'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 ownership or a direct or indirect disposition (a
"Sale") of (a) 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
TGV capital stock or (b) more than fifty percent (50%) of the shares of Cisco
Common Stock to be received in exchange for TGV capital stock in the Merger.
For purposes of this paragraph, shares of TGV capital stock (or the portion
thereof) (i) with respect to which a TGV shareholder receives consideration in
the Merger other than Cisco Common Stock (including, without limitation, cash
received pursuant to the exercise of dissenters' rights or 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 (other than the conversion of TGV
Preferred Stock into TGV Common Stock), shall be considered shares of
outstanding TGV capital stock exchanged for Cisco Common Stock in the Merger and
then disposed of pursuant to a Plan;
18. 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
TGV 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 TGV shareholders in exchange for their shares of TGV capital stock.
The fractional share interests of each TGV shareholder will be aggregated, and
no TGV shareholder will receive cash in an amount greater than the value of one
full share of Cisco Common Stock;
19. Except with respect to (i) payments of cash to TGV shareholders
in lieu of fractional shares of Cisco Common Stock and (ii) payments of cash to
TGV shareholders perfecting dissenters' rights, one hundred percent (100%) of
the TGV 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, TGV intends that no consideration be paid or received
(directly or indirectly, actually or constructively) for TGV capital stock other
than Cisco Common Stock;
20. At the Effective Date of the Merger, the fair market value of the
Cisco Common Stock received by each TGV shareholder will be approximately equal
to the fair market value of the TGV capital stock surrendered in exchange
therefor, and the aggregate consideration received by TGV shareholders in
exchange for their TGV capital stock will be approximately equal to the fair
market value of all of the outstanding shares of TGV capital stock immediately
prior to the Merger;
21. No shares of Sub have been or will be used as consideration or
issued to shareholders of TGV pursuant to the Merger;
<PAGE>
22. Sub, Cisco, TGV and the shareholders of TGV will each pay
separately its or their own expenses in connection with the Merger as
contemplated by the Agreement;
23. There is no intercorporate indebtedness existing between Cisco
and TGV or between Sub and TGV that was issued, acquired or will be settled at a
discount as a result of the Merger, and Cisco will assume no liabilities of TGV
or any TGV shareholder in connection with the Merger;
24. The terms of the Agreement and all other agreements entered into
in connection therewith are the product of arm's-length negotiations;
25. None of the compensation received by any shareholder-employees of
TGV will be separate consideration for, or allocable to, any of their shares of
TGV capital stock; none of the shares of Cisco Common Stock received by any
shareholder-employees of TGV 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 TGV will be for services
actually rendered and will be commensurate with amounts paid to third parties
bargaining at arm's length for similar services;
26. Any amounts paid to TGV shareholders that have perfected
dissenters' rights shall be paid by TGV, solely from TGV's assets, and without
reimbursement therefor by Cisco or Sub;
27. No direct or indirect subsidiary of TGV owns any shares of TGV
capital stock;
28. No "poison pill" or similar rights will be associated with shares
of TGV capital stock on or prior to the date of the Merger;
29. With respect to each instance, if any, in which shares of TGV
capital stock have been purchased by a shareholder of Cisco (a "Shareholder")
during the Pre-Merger Period (a "Stock Purchase"): (i) to the best knowledge of
TGV, (A) the Stock Purchase was made by such Shareholder 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 Shareholder and the seller and (C) the purchase price paid by
such Shareholder 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;
30. Each of the representations made by TGV in the Agreement and any
other documents associated therewith is true and accurate; and
31. TGV is authorized to make all of the representations set forth
herein.
<PAGE>
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 TGV pursuant to
Cisco's exercise of control over TGV 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,
TGV SOFTWARE, INC., a Delaware corporation
<PAGE>
EXHIBIT 8.2
[FORM OF OPINION OF MORRISON & FOERSTER LLP]
__________, 1996
TGV Software, Inc.
101 Cooper Street
Santa Cruz, California 95060
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, Big Sky
Acquisition, California corporation ("Sub"), and TGV Software, Inc., a
California corporation ("TGV"), dated January 23, 1996. Pursuant to the
Agreement and the related Agreement of Merger (collectively, the "Merger
Agreements"), Sub will merge with and into TGV (the "Merger"), and TGV will
become a wholly-owned subsidiary of Cisco.
Except as otherwise provided, capitalized terms referred to herein
have the meanings set forth in the Merger Agreements. 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 TGV 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 Merger Agreements;
2. Representations made to us by Cisco and Sub in a letter reproduced
as Exhibit A hereto;
3. Representations made to us by TGV in a letter reproduced as
Exhibit B hereto;
4. Representations made by certain shareholders of TGV in
"Shareholder Representation Agreements";
1
<PAGE>
TGV Software, Inc.
, 1996
Page 2
5. The Registration Statement;
6. An opinion of Brobeck, Phleger & Harrison substantially identical
in form and substance to this opinion (the "Brobeck Tax Opinion"); and
7. Such other instruments and documents related to the formation,
organization and operation of Cisco, TGV 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 Merger
Agreement and will be effective under the laws of the State of Delaware;
3. The shareholders of TGV 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 TGV capital stock in
anticipation of the Merger) such that the shareholders of TGV 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 Treas. Reg.
(S)1.368-1(b) and as interpreted in certain Internal Revenue Service rulings and
federal judicial decisions;
4. After the Merger, TGV 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 Treas. Reg. (S)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;
6. No TGV shareholder guaranteed any TGV 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 TGV,
Cisco or Sub has or will represent
2
<PAGE>
TGV Software, Inc.
, 1996
Page 3
equity for tax purposes; and (ii) no outstanding equity of TGV, Cisco or Sub has
or will represent indebtedness for tax purposes; and
7. The Brobeck 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 TGV shareholder who has provided or will
provide services to TGV, 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 the fact that the merger will be a
reorganization within the meaning 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 TGV, including without limitation
the recognition of any gain and the survival and/or availability, after the
Merger, of any of the federal income tax attributes or elections of TGV, after
application of any provision of the Code, as well as the regulations promulgated
thereunder and judicial
3
<PAGE>
TGV Software, Inc.
, 1996
Page 4
interpretations thereof; (v) the basis of any equity interest in TGV acquired by
Cisco in the Merger; (vi) the tax consequences of any transaction in which TGV
stock or a right to acquire TGV stock was received; and (vii) the tax
consequences of the Merger (including the opinion set forth above) as applied to
stockholders of TGV and/or holders of options or warrants for TGV stock or that
may be relevant to particular classes of TGV stockholders and/or holders of
options or warrants for TGV stock 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 Merger Agreements or to any transaction whatsoever,
including the Merger, if all the transactions described in the Merger Agreements
are not consummated in accordance with the terms of such Merger Agreements 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 our prior written consent. We do 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, the
prospectus constituting a part thereof and any further amendments thereto. In
giving this consent, we do not admit that we are in the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the Rules and Regulations of the Commission thereunder.
Very truly yours,
MORRISON & FOERSTER, LLP
4
<PAGE>
EXHIBIT A
____________, 1996
Brobeck, Phleger & Harrison, LLP Morrison & Foerster, LLP
Two Embarcadero Place 755 Page Mill Road
2200 Geng Road Palo Alto, California 94304
Palo Alto, California 94306
Re: Merger pursuant to the Agreement and Plan of Reorganization (the
"Agreement"), dated January 23, 1996, among Big Sky Acquisition
Corporation, a Delaware corporation ("Sub"), Cisco Systems, Inc.,
a California corporation ("Cisco"), and TGV Software, Inc., a
Delaware corporation ("TGV").
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 (as defined in Section 1.1 of the
Agreement). 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 (as
defined in Section 1.1 of the Agreement):
1. Pursuant to the Merger, Sub will merge with and into TGV, and TGV
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 TGV immediately prior
to the Merger will continue to be held by TGV immediately after the Merger. For
the purpose of determining the percentage of TGV's net and gross assets held by
it immediately following the Merger, the following assets will be treated as
property held by TGV immediately prior but not subsequent to the Merger: (i)
assets disposed of by TGV prior to or subsequent to the Merger and in
contemplation thereof (including without limitation any asset disposed of by
TGV, 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
<PAGE>
(the "Pre-Merger Period")), (ii) assets used by TGV to pay shareholders
perfecting dissenters' rights or 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 TGV 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 TGV capital stock (other than shares
with respect to which dissenters' rights are exercised) 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 TGV to issue additional
shares of stock after the Merger that would result in Cisco losing Control of
TGV;
6. Other than with respect to the possible repurchase in the ordinary
course of business of shares held by TGV employees pursuant to Cisco's
assumption of TGV's obligations under the TGV Stock Option Plan, 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
Code and Treasury Regulation Section 1.3682(j)(4), Cisco has no current plan or
intention to (i) liquidate TGV; (ii) merge TGV with or into another corporation
including Cisco or its affiliates; (iii) sell, distribute or otherwise dispose
of the capital stock of TGV; or (iv) cause TGV 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 TGV
pursuant to the Merger (including payments made with respect to dissenting and
fractional shares, if any); 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 judgement after the
Merger in response to the circumstances then existing;
<PAGE>
8. In the Merger, Sub will have no liabilities assumed by TGV and
will not transfer to TGV any assets subject to liabilities, except to the extent
incurred in connection with the transactions contemplated by the Agreement;
9. Cisco intends that, following the Merger, either the historic
business of TGV will be continued or a significant portion of TGV's historic
business assets will be utilized in a business;
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 TGV capital stock, or the right to acquire or vote any such shares;
11. Cisco is not an investment company within the meaning of Section
368(a)(2)(F)(iii) and (iv) of the Code;
12. No shareholder of TGV is acting as agent for Cisco in connection
with the Merger or approval thereof, and Cisco will not reimburse any TGV
shareholder for TGV 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
TGV'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 ownership or a direct or indirect disposition (a
"Sale") of (a) 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
TGV capital stock or (b) more than fifty percent (50%) of the shares of Cisco
Common Stock to be received in exchange for TGV capital stock in the Merger.
For purposes of this paragraph, shares of TGV capital stock (or the portion
thereof) (i) with respect to which a TGV shareholder receives consideration in
the Merger other than Cisco Common Stock (including, without limitation, cash
received pursuant to the exercise of dissenters' rights or 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 (other than the conversion of TGV
Preferred Stock into TGV Common Stock) shall be considered shares of outstanding
TGV 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
<PAGE>
paid in the Merger to TGV 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 TGV shareholders in exchange for their shares of
TGV capital stock. The fractional share interests of each TGV shareholder will
be aggregated and no TGV shareholder will receive cash in an amount greater than
the value of one full share of Cisco Common Stock;
16. Except with respect to (i) payments of cash to TGV shareholders
in lieu of fractional shares of Cisco Common Stock and (ii) payments of cash to
TGV shareholders perfecting dissenters' rights, one hundred percent (100%) of
the TGV 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 TGV capital
stock other than Cisco Common Stock;
17. The total fair market value of all consideration other than Cisco
Common Stock received by TGV shareholders in the Merger (including, without
limitation, cash paid to TGV shareholders perfecting dissenters' rights or in
lieu of fractional shares of Cisco Common Stock) will be less than fifteen
percent (15%) of the aggregate fair market value of TGV shares outstanding
immediately prior to the Merger;
18. At the Effective Time of the Merger, the fair market value of the
Cisco Common Stock received by each TGV shareholder will be approximately equal
to the fair market value of the TGV capital stock surrendered in exchange
therefor, and the aggregate consideration received by TGV shareholders in
exchange for their TGV capital stock will be approximately equal to the fair
market value of all of the outstanding shares of TGV capital stock immediately
prior to the Merger;
19. No shares of Sub have been or will be used as consideration or
issued to shareholders of TGV pursuant to the Merger;
20. Sub, Cisco, TGV and the shareholders of TGV will each pay
separately its or their own expenses in connection with the Merger as
contemplated by the Agreement;
21. There is no intercorporate indebtedness existing between Cisco
and TGV or between Sub and TGV that was issued, acquired or will be settled at a
discount as a result of the Merger, and Cisco will assume no liabilities of TGV
or any TGV shareholder in connection with the Merger;
22. The terms of the Agreement and all other agreements entered into
in connection therewith are the product of arm's-length negotiations;
23. None of the compensation received by any shareholder-employees of
TGV will be separate consideration for, or allocable to, any of their shares of
TGV capital stock; none
<PAGE>
of the shares of Cisco Common Stock received by any shareholder-employees of TGV
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 TGV will be for services actually rendered and will be commensurate
with amounts paid to third parties bargaining at arm's length for similar
services;
24. Any amounts paid to TGV shareholders that have perfected
dissenters' rights shall be paid by TGV, solely from TGV's assets, and without
reimbursement therefor by Cisco or Sub;
25. No "poison pill" or similar rights will be associated with the
Cisco Common Stock on or prior to the date of the Merger;
26. With respect to each instance, if any, in which shares of TGV
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 TGV 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 TGV 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;
27. Each of the representations made by Cisco and Sub in the
Agreement and any other documents associated therewith is true and accurate; and
28. 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.
<PAGE>
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:
---------------------------------------------
Title:
------------------------------------------
BIG SKY ACQUISITION CORPORATION, a Delaware
corporation
By:
---------------------------------------------
Title:
------------------------------------------
<PAGE>
EXHIBIT B
___________, 1996
Brobeck, Phleger & Harrison, LLP Morrison & Foerster, LLP
Two Embarcadero Place 755 Page Mill Road
2200 Geng Road Palo Alto, California 94304
Palo Alto, California 94306
Re: Merger pursuant to the Agreement and Plan of Reorganization (the
"Agreement"), dated as of January 23, 1996, between Cisco
Systems, Inc., California corporation ("Cisco"), Big Sky
Acquisition Corporation, a Delaware Corporation ("Sub"), and TGV
Software, Inc., a Delaware corporation ("TGV")
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 (as defined in the first paragraph of the
Recitals set forth in the Agreement). 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 as
defined in Section 2.7 of the Agreement:
1. Pursuant to the Merger, Sub will merge with and into TGV, and TGV
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 TGV immediately prior
to the Merger will continue to be held by TGV immediately after the Merger. For
the purpose of determining the percentage of TGV's net and gross assets held by
it immediately following the Merger, the following assets will be treated as
property held by TGV immediately prior but not subsequent to the Merger: (i)
assets disposed of by TGV prior to or subsequent to the Merger and in
contemplation thereof (including, without limitation, any asset disposed of by
TGV, other than in the ordinary course of business, pursuant to a plan or intent
existing during the period ending on the Effective Date of the
<PAGE>
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 TGV to pay shareholders perfecting dissenters' rights or other
expenses or liabilities incurred in connection with the Merger and (iii) assets
used to make distribution, redemption or other payments in respect of TGV
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. TGV 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, (ii) cash paid to TGV shareholders perfecting
dissenters' rights and (iii) payments for expenses incurred in connection with
the Merger;
3. TGV is participating in the Merger for good and valid business
reasons and not for tax purposes;
4. At the time of the Merger, TGV will have no outstanding equity
interests other than shares of TGV capital stock, and rights to acquire shares
of TGV capital stock. At the time of the Merger, except as specified in, or
disclosed in the Agreement or in a schedule or exhibit to, the Agreement, TGV
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 TGV capital stock or any other equity interest in TGV;
5. In the Merger, shares of TGV capital stock representing "Control"
of TGV will be exchanged solely for voting stock of Cisco; at the time of the
Merger, there will exist no rights to acquire TGV capital stock or to vote (or
restrict or otherwise control the vote of) TGV capital stock which, if
exercised, could affect Cisco's acquisition and retention of Control of TGV.
For purposes of this paragraph, shares of TGV capital stock exchanged in the
Merger for cash and other property (including, without limitation, cash paid to
TGV shareholders perfecting dissenters' rights or in lieu of fractional shares
of Cisco Common Stock) will be treated as TGV 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 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. TGV has not declared any dividends on shares of TGV capital stock;
<PAGE>
7. The total fair market value of all consideration other than Cisco
Common Stock received by TGV shareholders in the Merger (including, without
limitation, cash paid to TGV shareholders perfecting dissenters' rights or in
lieu of fractional shares of Cisco Common Stock) will be less than nine percent
(9%) of the aggregate fair market value of TGV capital stock outstanding
immediately prior to the Merger;
8. TGV has no obligation, understanding, agreement or intention to
issue additional shares of stock after the Merger that would result in Cisco
losing Control of TGV;
9. TGV has no plan or intention to sell or otherwise dispose of any
of its assets or of any of the assets acquired from Sub in the Merger except for
dispositions made in the ordinary course of business or the payment of expenses
incurred by TGV pursuant to the Merger (including payments made with respect to
dissenting and fractional shares, if any);
10. TGV anticipates that Cisco will cause TGV to continue TGV's
historic business or use a significant portion of TGV's historic business assets
in a business following the Merger;
11. The liabilities of TGV have been incurred by TGV in the ordinary
course of its business;
12. The fair market value of TGV's assets will, on the Effective
Date, exceed the aggregate liabilities of TGV plus the amount of liabilities, if
any, to which such assets are subject;
13. Other than shares of TGV capital stock or options to acquire TGV
capital stock issued as compensation to present or former service providers
(including, without limitation, employees and directors) of TGV in the ordinary
course of business, no issuances of TGV capital stock or rights to acquire TGV
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;
14. Cash or other property paid to employees of TGV 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;
15. TGV 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;
16. TGV 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;
<PAGE>
17. TGV has no knowledge of any plan or intention on the part of
TGV'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 ownership or a direct or indirect disposition (a
"Sale") of (a) 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
TGV capital stock or (b) more than fifty percent (50%) of the shares of Cisco
Common Stock to be received in exchange for TGV capital stock in the Merger.
For purposes of this paragraph, shares of TGV capital stock (or the portion
thereof) (i) with respect to which a TGV shareholder receives consideration in
the Merger other than Cisco Common Stock (including, without limitation, cash
received pursuant to the exercise of dissenters' rights or 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 (other than the conversion of TGV
Preferred Stock into TGV Common Stock), shall be considered shares of
outstanding TGV capital stock exchanged for Cisco Common Stock in the Merger and
then disposed of pursuant to a Plan;
18. 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
TGV 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 TGV shareholders in exchange for their shares of TGV capital stock.
The fractional share interests of each TGV shareholder will be aggregated, and
no TGV shareholder will receive cash in an amount greater than the value of one
full share of Cisco Common Stock;
19. Except with respect to (i) payments of cash to TGV shareholders
in lieu of fractional shares of Cisco Common Stock and (ii) payments of cash to
TGV shareholders perfecting dissenters' rights, one hundred percent (100%) of
the TGV 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, TGV intends that no consideration be paid or received
(directly or indirectly, actually or constructively) for TGV capital stock other
than Cisco Common Stock;
20. At the Effective Date of the Merger, the fair market value of the
Cisco Common Stock received by each TGV shareholder will be approximately equal
to the fair market value of the TGV capital stock surrendered in exchange
therefor, and the aggregate consideration received by TGV shareholders in
exchange for their TGV capital stock will be approximately equal to the fair
market value of all of the outstanding shares of TGV capital stock immediately
prior to the Merger;
21. No shares of Sub have been or will be used as consideration or
issued to shareholders of TGV pursuant to the Merger;
<PAGE>
22. Sub, Cisco, TGV and the shareholders of TGV will each pay
separately its or their own expenses in connection with the Merger as
contemplated by the Agreement;
23. There is no intercorporate indebtedness existing between Cisco
and TGV or between Sub and TGV that was issued, acquired or will be settled at a
discount as a result of the Merger, and Cisco will assume no liabilities of TGV
or any TGV shareholder in connection with the Merger;
24. The terms of the Agreement and all other agreements entered into
in connection therewith are the product of arm's-length negotiations;
25. None of the compensation received by any shareholder-employees of
TGV will be separate consideration for, or allocable to, any of their shares of
TGV capital stock; none of the shares of Cisco Common Stock received by any
shareholder-employees of TGV 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 TGV will be for services
actually rendered and will be commensurate with amounts paid to third parties
bargaining at arm's length for similar services;
26. Any amounts paid to TGV shareholders that have perfected
dissenters' rights shall be paid by TGV, solely from TGV's assets, and without
reimbursement therefor by Cisco or Sub;
27. No direct or indirect subsidiary of TGV owns any shares of TGV
capital stock;
28. No "poison pill" or similar rights will be associated with shares
of TGV capital stock on or prior to the date of the Merger;
29. With respect to each instance, if any, in which shares of TGV
capital stock have been purchased by a shareholder of Cisco (a "Shareholder")
during the Pre-Merger Period (a "Stock Purchase"): (i) to the best knowledge of
TGV, (A) the Stock Purchase was made by such Shareholder 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 Shareholder and the seller and (C) the purchase price paid by
such Shareholder 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;
30. Each of the representations made by TGV in the Agreement and any
other documents associated therewith is true and accurate; and
31. TGV is authorized to make all of the representations set forth
herein.
<PAGE>
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 TGV pursuant to
Cisco's exercise of control over TGV 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,
TGV SOFTWARE, INC., a Delaware corporation
<PAGE>
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
February 27, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Cisco Systems, Inc. of our report dated
July 25, 1995, except as to Note 12, which is as of January 23, 1996, relating
to the financial statements of TGV Software, Inc., which appears in such
Prospectus. We also consent to the application of such report to the Financial
Statement Schedule for the three years ended June 30, 1995 listed under Item
21 of this Registration Statement when such schedule is read in conjunction
with the financial statements referred to in our report. The audits referred
to in such report also included this schedule. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
San Jose, California
February 27, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF WESSELS, ARNOLD & HENDERSON, L.L.C.
We hereby consent to the reference in the Proxy Statement/Prospectus of
Cisco Systems, Inc. and TGV Software, Inc., forming part of this Registration
Statement on Form S-4, to our opinion dated February 27, 1996, to the Board of
Directors of TGV Software, Inc. under the captions "Summary-Opinion of TGV's
Financial Advisor" and "The Merger and Related Transactions-Opinion of Financial
Advisor." In giving such consent we do not admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder.
WESSELS, ARNOLD & HENDERSON, L.L.C.
By: /s/ Bryson D. Hollimon
-------------------------------
Bryson D. Hollimon
Managing Director
Dated: February 27, 1996
<PAGE>
EXHIBIT 99.1
PROXY
TGV SOFTWARE, INC.
Proxy for Special Meeting of Stockholders
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of TGV Software, Inc. ("TGV") hereby
acknowledges receipt of the Notice of Special Meeting of Stockholders and Proxy
Statement/Prospectus, each dated March 5, 1996 and hereby appoints Gary
Valenzuela proxy and attorney in fact with full power of substitution, on behalf
and in the name of the undersigned to represent the undersigned at the Special
Meeting of Stockholders of TGV Software, Inc. to be held on March 25, 1996 at
10:00 a.m. at TGV's Scotts Valley facility, located at 5617 Scotts Valley Drive,
Suite 200, Scotts Valley, California 95066, and any postponement or adjournments
thereof, and to vote all shares of Common Stock that the undersigned would be
entitled to vote if then and there personally present, on the matters set forth
on the reverse side.
------------------
SEE REVERSE SIDE
------------------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE>
[X] Please mark
votes as in
this example.
The Board of Directors unanimously recommends a vote FOR Proposal 1.
1. Approval of (a) the Agreement and Plan of FOR AGAINST ABSTAIN
Reorganization dated as of January 23, [ ] [ ] [ ]
1996, by and among Cisco Systems, Inc.
("Cisco"), a California corporation, Big
Sky Acquisition Corp. ("Merger Sub"), a
Delaware corporation and a wholly-owned
subsidiary of Cisco and TGV and (b) the
merger of Merger Sub with and into TGV,
whereby, among other things, TGV will
survive in the merger and become a
wholly-owned subsidiary of Cisco, each
outstanding share of TGV Common Stock will
be converted into two-fifths (0.40) of a
share of Cisco Common Stock, each
outstanding option to purchase one share of
TGV Common Stock will be converted into an
option to purchase two-fifths (0.40) of a
share of Cisco Common Stock, with the exercise
price adjusted accordingly, and each
outstanding warrant to purchase one share of
TGV Common Stock will be converted into a
warrant to purchase two-fifths (0.40) of a
share of Cisco Common Stock, with the exercise
price adjusted accordingly.
MARK HERE [ ]
FOR ADDRESS
CHANGE AND
NOTE AT LEFT
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. IF ACTING AS ATTORNEY,
EXECUTOR, TRUSTEE, OR IN REPRESENTATIVE CAPACITY, SIGN NAME AND TITLE.
Signature: _____________________________________________ Date: _________________
Signature: _____________________________________________ Date: _________________
