<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 13, 1996
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CISCO SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 77-0059951
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
255 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 AND CHIEF FINANCIAL OFFICER
CISCO SYSTEMS, INC.
255 WEST TASMAN DRIVE
SAN JOSE, CALIFORNIA 95134
(408) 526-4000
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
Copy to:
EDWARD M. LEONARD, ESQ.
BROBECK, PHLEGER & HARRISON LLP
TWO EMBARCADERO PLACE
2200 GENG ROAD
PALO ALTO, CALIFORNIA 94303
(415) 424-0160
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==================================================================================================================================
Title of Each Amount Proposed Maximum Proposed Maximum Amount
Class of Securities to Be Offering Aggregate of Registration
to be Registered Registered Price Per Share(1) Offering Price(1) Fee
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 1,088,784 Shares $64.25 $69,954,372 $21,199
no par value per share
==================================================================================================================================
</TABLE>
(1) The price of $64.25, which was the average of the high and low prices of
the Common Stock on the Nasdaq National Market System on December 6, 1996, is
set forth solely for the purpose of computing the registration fee pursuant to
Rule 457(c) based on the average of the high and low prices of the Registrant's
Common Stock as reported on the Nasdaq National Market on December 6, 1996.
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 THAT 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.
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 13, 1996
1,088,784 SHARES
CISCO SYSTEMS, INC.
COMMON STOCK
This Prospectus relates to the public offering, which is not being
underwritten, of 1,088,784 shares of Common Stock, no par value per share, of
Cisco Systems, Inc. ("Cisco", the "Company" or the "Registrant"). All 1,088,784
shares (the "Shares") may be offered by certain shareholders of the Company or
by pledgees, donees, transferees or other successors in interest that receive
such shares as a gift, partnership distribution or other non-sale related
transfer (the "Selling Shareholders"). All of the Shares were originally issued
by the Company in connection with the acquisition by statutory merger of NETSYS
Technologies, Inc. ("Netsys"), by and through a merger of Netsys with and into
the Company. The Shares were issued pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), provided by Section 4(2) thereof. The Shares are being
registered by the Company pursuant to section 1.10 of the Agreement and Plan of
Reorganization between Cisco and Netsys.
The Shares may be offered by the Selling Shareholders from time to time
in transactions in the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to prevailing
market prices or at negotiated prices. The Selling Shareholders may effect such
transactions by selling the Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Shareholders and/or the purchasers of the Shares
for whom such broker-dealers may act as agents or to whom they sell as
principals, or both (which compensation as to a particular broker-dealer might
be in excess of customary commissions). See "Plan of Distribution."
The Company will not receive any of the proceeds from the sale of the
Shares. The Company has agreed to bear certain expenses in connection with the
registration of the Shares being offered and sold by the Selling Shareholders.
The Company's Common Stock is quoted on the Nasdaq National Market
under the symbol "CSCO." On December 6, 1996 the average of the high and low
price for the Common Stock was $64.25.
The Selling Shareholders and any broker-dealers or agents that
participate with the Selling Shareholders in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any commissions received by them and any profit on the
resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
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
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is December ___, 1996
<PAGE> 3
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offering made hereby, and if given or made, such information or
representations must not be relied upon as having been authorized by the
Company, any Selling Shareholder or by any other person. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that information herein is correct as of any time
subsequent to the date hereof. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any security other than the securities
covered by this Prospectus, nor does it constitute an offer to or solicitation
of any person in any jurisdiction in which such offer or solicitation may not
lawfully be made.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements, information statements and
other information with the Securities and Exchange Commission (the
"Commission"). Reports, proxy statements and other information filed by the
Company may 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 located at 75 Park Place,
New York, New York 10007 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can be obtained by mail from the
Public Reference Branch of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Common Stock of the Company is
quoted on the Nasdaq National Market, and such material may also be inspected at
the offices of Nasdaq Operations, 1735 K Street N.W. Washington, D.C. 20006. The
Commission maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's web site is
http://www.sec.gov.
The Company has filed with the Commission a registration statement on
Form S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information regarding the Company and
the Common Stock offered hereby, reference is hereby made to the Registration
Statement and to the exhibits and schedules filed therewith. The Registration
Statement, including the exhibits and schedules thereto, may be inspected at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and copies of all or any part thereof may
be obtained from such office upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 0-18225)
pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
July 28, 1996;
2. The Company's Current Report on Form 8-K filed October 1, 1996, as
amended on Form 8-K/A filed on October 15, 1996;
3. Definitive Proxy Statement dated October 7, 1996, filed in
connection with the Company's 1996 Annual Meeting of Shareholders; and
4. The description of the Company's Common Stock, no par value per
share, contained in its Registration Statement on Form 8-A dated January 8,
1990, including any amendment or report filed for the purpose of updating such
description.
2.
<PAGE> 4
5. All reports and other documents filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering.
Any statement contained in a document incorporated by reference herein
shall be deemed to be incorporated by reference in this Prospectus and to be
part hereof from the date of filing of such documents. Any statement modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus. The Company will provide without charge to
each person to whom this Prospectus is delivered a copy of any or all of such
documents which are incorporated herein by reference (other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
into the documents that this Prospectus incorporates). Written requests for
copies should be directed to Larry R. Carter, Vice President and Chief Financial
Officer, at the principal executive offices of Cisco Systems, Inc., 255 West
Tasman Drive, San Jose, California 95134. The Company's telephone number is
(408) 526-4000.
3.
<PAGE> 5
THE COMPANY
The principal executive offices of Cisco are located at 255 West Tasman
Drive, San Jose, California, 95134. Cisco's telephone number is (408) 526-4000.
PLAN OF DISTRIBUTION
The Company will receive no proceeds from this offering. The Shares
offered hereby may be sold by the Selling Shareholders from time to time in
transactions in the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to prevailing
market prices or at negotiated prices. The Selling Shareholders may effect such
transactions by selling the Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Shareholders and/or the purchasers of the Shares
for whom such broker-dealers may act as agents or to whom they sell as
principals, or both (which compensation as to a particular broker-dealer might
be in excess of customary commissions).
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
The Selling Shareholders and any broker-dealers or agents that
participate with the Selling Shareholders in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of the Securities Act, and any
commissions received by them and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Shares may not simultaneously engage
in market making activities with respect to the Common Stock of the Company for
a period of two business days prior to the commencement of such distribution. In
addition and without limiting the foregoing, each Selling Shareholder will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Rules 10b-6 and 10b-7,
which provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by the Selling Shareholders.
4.
<PAGE> 6
SELLING SHAREHOLDERS
The following table sets forth the number of shares of Common Stock
owned by each of the Selling Shareholders. Except as indicated, none of the
Selling Shareholders has had a material relationship with the Company within the
past three years other than as a result of the ownership of the Shares or other
securities of the Company. Because the Selling Shareholders may offer all or
some of the Shares which they hold pursuant to the offering contemplated by this
Prospectus, and because there are currently no agreements, arrangements or
understandings with respect to the sale of any of the Shares, no estimate can be
given as to the amount of Shares that will be held by the Selling Shareholders
after completion of this offering. The Shares offered by this Prospectus may be
offered from time to time by the Selling Shareholders named below.
<TABLE>
<CAPTION>
Number of Number of
Shares Percent of Shares
Beneficially Outstanding Registered for
Name of Selling Shareholder Owned Shares Sale Hereby
- --------------------------- ----- ------ -----------
<S> <C> <C> <C>
Kamalesh A. Amin 4,922 * 4,922
Omar Baldonado 5,168 * 5,168
Michael I. Barach 444 * 444
Bessemer Venture Partners III, L.P. 98,712 * 98,712
William Gordon Braide 11,813 * 11,813
Steven M. and Patricia Brand 6,152 * 6,152
Brimstone Island Company, L.P. 2,510 * 2,510
Gary F. Brown & Deborah M. Brown 2,953 * 2,953
Family Trust,
Gary F. & Deborah M. Brown
TTEES dated 02/10/95
Neill H. Brownstein 889 * 889
Robert H. Buescher 622 * 622
William T. Burgin 2,359 * 2,359
BVP III Special Situations L.P. 3,768 * 3,768
Richard Cariaso 442 * 442
Chin-Chin Samantha Chen 265 * 265
Trustee, WSGR Retirement Plan FBO 222 222
Kenneth Clark
Rodney A. Cohen 266 * 266
David J. Cowan 590 * 590
Richard R. Davis 885 * 885
Georgia D. Dow and Marilyn Nyborg, 442 * 442
Trustees of the Nyborg-Dow Trust
dated January 8, 1996
Joel Evanier 17,719 * 17,719
Abdul F. Fakhoury Family Trust and 2,461 * 2,461
Olive Marian Fakhoury Family Trust
Jamal A. and Tamal Fakhoury 2,584 * 2,584
Emad A.F. and Muna M. Fakhoury 2,461 * 2,461
Riadh A. Fakhoury and Manal A. Fakhoury 46,760 * 46,760
</TABLE>
5.
<PAGE> 7
<TABLE>
<CAPTION>
Number of Number of
Shares Percent of Shares
Beneficially Outstanding Registered for
Name of Selling Shareholder Owned Shares Sale Hereby
- --------------------------- ----- ------ -----------
<S> <C> <C> <C>
Mark Fountaine 738 * 738
Christopher F.O. Gabrieli 4,299 * 4,299
Gabrieli Family Foundation 570 * 570
Stephen E. Garritano 3,691 * 3,691
Susan Girgis 2,953 * 2,953
Adam P. Godfrey 266 * 266
Richard Greenberg 738 * 738
G. Felda Hardymon 5,253 * 5,253
Bruce Hayek 1,771 * 1,771
Barbara M. Henagan 442 * 442
H. Joseph Horowitz and
Joele L. Horowitz, TTEES of the Horowitz 23,644 * 23,644
Family Trust UTD 11/06/89
Thomas G. Kluberton 12,587 * 12,587
Anna Lam 6,644 * 6,644
Robert P. Latta 222 * 222
Kim Lee-Thorp 2,953 * 2,953
James Lespasio 738 * 738
Michael Lloyd 2,953 * 2,953
Peter A. Luchetti and Emily W. Luchetti as 2,214 * 2,214
Co-Trustees of the Luchetti Living Trust
dated May 12, 1992
Herbert S. Madan 350,568 * 350,568
James McGuire 90,341 * 90,341
Network General Corporation 32,101 * 32,101
Ronald E. New and Mara Beltrami New 26,087 * 26,087
Kirsten Olney 1,107 * 1,107
Gautam A. Prakash 311 * 311
Ann H. Peden 1,033 * 1,033
Richard Pelavin 90,341 * 90,341
Chi Kim Pham 7,752 * 7,752
John T. and June L. Poppleton 10,165 * 10,165
Quentin Corporation 1,334 * 1,334
Margit Raboff 3,691 * 3,691
Elise Raphael 1,476 * 1,476
John Kosmas Rodakis 266 * 266
Annemarie Rudolf 7,383 * 7,383
Thomas F. Ruhm 177 * 177
Sequoia 1995(2) 1,244 * 1,244
</TABLE>
6.
<PAGE> 8
<TABLE>
<CAPTION>
Number of Number of
Shares Percent of Shares
Beneficially Outstanding Registered for
Name of Selling Shareholder Owned Shares Sale Hereby
- --------------------------- ----- ------ -----------
<S> <C> <C> <C>
Sequoia XXIV(2) 2,668 * 2,668
Sequoia Technology Partners VI(2) 4,891 * 4,891
Sequoia Capital VI(2) 89,021 * 89,021
Eric Siegel 4,872 * 4,872
Aspi Siganporia 3,691 * 3,691
Martha Smith 147 * 147
Rabrindra Lal Soni 295 * 295
Susan Spaan 1,107 * 1,107
Philip G. Speck 2,953 * 2,953
David Speicher 2,214 * 2,214
Anthony T. Su 2,953 * 2,953
John N. Tannebring 20,673 * 20,673
Heather Thatcher 73 * 73
Richard C. and Mary Jane 4,195 * 4,195
Thompson Trustees of the
Richard C. and Mary Jane
Thompson Revocable Trust
dated October 31, 1985
Ronald Vincent 2,953 * 2,953
Del White 2,953 * 2,953
Anne Wilson 11,813 * 11,813
David W. Wong 8,121 * 8,121
Roger G. Wood 2,584 * 2,584
WS Investments 95 2,223 * 2,223
Robert Zuckerman 4,922 * 4,922
Total 1,088,784 1,088,784
</TABLE>
- ----------------------------------
* Represents beneficial ownership of less than 1%.
(1) This Registration Statement shall also cover any additional shares of Common
Stock which become issuable in connection with the shares registered for sale
hereby by reason of any stock divided, stock split, recapitalization or other
similar transaction effected without the receipt of consideration which results
in an increase in the number of the Registrant's outstanding shares of Common
Stock.
(2) Donald T. Valentine, a general partner of Sequoia Capital, is Vice Chairman
of the Board of the Company and may be deemed to share voting and investment
power with respect to such shares. Mr. Valentine disclaims beneficial ownership
of such shares except to the extent of his interest in such shares arising from
his interests in the Sequoia entities referred to above.
7.
<PAGE> 9
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, Palo Alto, California.
EXPERTS
The consolidated balance sheets as of July 28, 1996 and July 30, 1995 and the
consolidated statements of income, retained earnings, and cash flows for each of
the three years in the period ended July 28, 1996, incorporated by reference in
this 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.
8.
<PAGE> 10
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee.
<TABLE>
<S> <C>
SEC Registration fee $21,199
Legal fees and expenses 15,000
Accounting fees and expenses 5,000
Miscellaneous 3,801
-------
Total $45,000
=======
</TABLE>
ITEM 15. 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 Bylaws 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 16. EXHIBITS
2.1 Agreement and Plan of Reorganization.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Brobeck, Phleger & Harrison (included in the Opinion of
Counsel filed as Exhibit 5.1 hereto).
24.1 Power of Attorney (included on page II-3 of this Registration
Statement).
ITEM 17. 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 the
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; 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 the Registration Statement; provided, however, that (i) and (ii)
do not apply if the Registration Statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by (i) and
(ii) is contained in periodic reports filed with or furnished to the
II-1
<PAGE> 11
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the 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.
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 foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining 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
Exchange Act that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Jose,
State of California, on this day of , 1996.
CISCO SYSTEMS, INC.
By /s/ John T. Chambers
---------------------------------------
John T. Chambers
President and Chief Executive Officer
KNOW ALL MEN 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>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ John T. Chambers President, Chief Executive December 12, 1996
- ---------------------------------- Officer and Director (Principal
John T. Chambers Executive Officer)
/s/ Larry R. Carter Vice President, Finance and December 12, 1996
- ---------------------------------- Administration, Chief Financial
Larry R. Carter Officer and Secretary
(Principal Financial and Accounting
Officer)
/s/ John P. Morgridge Chairman of the Board December 12, 1996
- ---------------------------------- and Director
John P. Morgridge
</TABLE>
II-3
<PAGE> 13
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Donald T. Valentine Director December 12, 1996
- ----------------------------------
Donald T. Valentine
/s/ Michael S. Frankel Director December 12, 1996
- ----------------------------------
Michael S. Frankel
/s/ James F. Gibbons Director December 12, 1996
- ----------------------------------
James F. Gibbons
/s/ Robert L. Puette Director December 12, 1996
- ----------------------------------
Robert L. Puette
/s/ Masayoshi Son Director December 12, 1996
- ----------------------------------
Masayoshi Son
/s/ Steven M. West Director December 12, 1996
- ----------------------------------
Steven M. West
/s/ Richard M. Moley Director December 12, 1996
- ----------------------------------
Richard M. Moley
/s/ Edward R. Kozel Director December 12, 1996
- ----------------------------------
Edward R. Kozel
/s/ Carol Bartz Director December 12, 1996
- ----------------------------------
Carol Bartz
</TABLE>
II-4
<PAGE> 14
Index to Exhibits
Exhibit
Number Exhibit Title
2.1 Agreement and Plan of Reorganization
5.1 Opinion of Brobeck, Phleger & Harrison LLP
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in the Opinion of
Counsel filed as Exhibit 5.1)
24.1 Power of Attorney (included on page II-3 of this Registration
Statement)
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CISCO SYSTEMS, INC.
AND
NETSYS TECHNOLOGIES, INC.
OCTOBER 11, 1996
1.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
<S> <C>
THE MERGER...................................................................................................... 1
1.1 The Merger........................................................................... 1
1.2 Closing; Effective Time.............................................................. 1
1.3 Effect of the Merger................................................................. 2
1.4 Articles of Incorporation; Bylaws.................................................... 2
1.5 Effect on Capital Stock.............................................................. 2
1.6 Surrender of Certificates............................................................ 4
1.7 No Further Ownership Rights in Target Capital Stock.................................. 6
1.8 Lost, Stolen or Destroyed Certificates............................................... 6
1.9 Tax Consequences..................................................................... 6
1.10 Exemption from Registration; California Permit....................................... 6
1.11 Taking of Necessary Action; Further Action........................................... 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET........................................................................ 7
2.1 Organization, Standing and Power..................................................... 8
2.2 Capital Structure.................................................................... 8
2.3 Authority............................................................................ 9
2.4 Financial Statements................................................................. 10
2.5 Absence of Certain Changes........................................................... 10
2.6 Absence of Undisclosed Liabilities................................................... 11
2.7 Litigation........................................................................... 11
2.8 Restrictions on Business Activities.................................................. 11
2.9 Governmental Authorization........................................................... 11
2.10 Title to Property.................................................................... 11
2.11 Intellectual Property................................................................ 12
2.12 Environmental Matters................................................................ 13
2.13 Taxes................................................................................ 14
2.14 Employee Benefit Plans............................................................... 15
2.15 Employee Matters..................................................................... 17
2.16 Interested Party Transactions........................................................ 18
2.17 Insurance............................................................................ 18
2.18 Compliance With Laws................................................................. 18
2.19 Minute Books......................................................................... 18
2.20 Complete Copies of Materials......................................................... 18
</TABLE>
i.
<PAGE> 3
<TABLE>
<S> <C>
2.21 Brokers' and Finders' Fees........................................................... 18
2.22 Permit Application; Information Statement............................................ 18
2.23 Affiliate and Shareholder Agreement; Irrevocable Proxies............................. 19
2.24 Vote Required........................................................................ 19
2.25 Board Approval....................................................................... 19
2.26 GNU General Public License Representation............................................ 19
2.27 Representations Complete............................................................. 20
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR...................................................................... 20
3.1 Organization, Standing and Power..................................................... 20
3.2 Capital Structure.................................................................... 21
3.3 Authority............................................................................ 22
3.4 SEC Documents; Financial Statements.................................................. 22
3.5 Absence of Certain Changes........................................................... 23
3.6 Absence of Undisclosed Liabilities................................................... 24
3.7 Litigation........................................................................... 24
3.8 Governmental Authorization........................................................... 24
3.9 Compliance With Laws................................................................. 24
3.10 Broker's and Finders' Fees........................................................... 25
3.11 Permit Application; Information Statement............................................ 25
3.12 Representations Complete............................................................. 25
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME............................................................................. 26
4.1 Conduct of Business of Target and Acquiror........................................... 26
4.2 Conduct of Business of Target........................................................ 27
4.3 No Solicitation...................................................................... 29
ARTICLE V
ADDITIONAL AGREEMENTS........................................................................................... 30
5.1 Preparation of Permit Application/Information Statement.............................. 30
5.2 Written Consent of Shareholders...................................................... 31
5.3 Access to Information................................................................ 31
5.4 Confidentiality...................................................................... 32
5.5 Public Disclosure.................................................................... 32
5.6 Consents; Cooperation................................................................ 32
5.7 Affiliate and Shareholder Agreements................................................. 33
5.8 Shareholder's Representation Agreements.............................................. 33
5.9 Irrevocable Proxies.................................................................. 34
5.10 FIRPTA............................................................................... 34
</TABLE>
ii.
<PAGE> 4
<TABLE>
<S> <C>
5.11 Legal Requirements................................................................... 34
5.12 Blue Sky Laws........................................................................ 34
5.13 Employee Benefit Plans............................................................... 34
5.14 Escrow Agreement..................................................................... 35
5.15 Form S-8............................................................................. 35
5.16 Listing of Additional Shares......................................................... 35
5.17 Employees............................................................................ 36
5.18 Reorganization....................................................................... 36
5.19 Expenses............................................................................. 36
5.20 Termination of Registration Rights................................................... 36
5.21 Employment Policy.................................................................... 36
5.22 Reasonable Commercial Efforts and Further Assurances................................. 36
ARTICLE VI
CONDITIONS TO THE MERGER........................................................................................ 37
6.1 Conditions to Obligations of Each Party to Effect the Merger......................... 37
6.2 Additional Conditions to Obligations of Target....................................... 38
6.3 Additional Conditions to the Obligations of Acquiror................................. 38
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER............................................................................... 40
7.1 Termination.......................................................................... 40
7.2 Effect of Termination................................................................ 42
7.3 Expenses and Termination Fees........................................................ 42
7.4 Amendment............................................................................ 43
7.5 Extension; Waiver.................................................................... 44
ARTICLE VIII
ESCROW AND INDEMNIFICATION...................................................................................... 44
8.1 Escrow Fund.......................................................................... 44
8.2 Indemnification...................................................................... 44
8.3 Damage Threshold..................................................................... 45
8.4 Escrow Period........................................................................ 45
8.5 Claims upon Escrow Fund.............................................................. 46
8.6 Objections to Claims................................................................. 46
8.7 Resolution of Conflicts; Arbitration................................................. 47
8.8 Shareholders' Agent.................................................................. 48
8.9 Actions of the Shareholders' Agent................................................... 48
8.10 Third-Party Claims................................................................... 49
</TABLE>
iii.
<PAGE> 5
<TABLE>
<CAPTION>
ARTICLE IX
<S> <C>
GENERAL PROVISIONS.............................................................................................. 49
9.1 Non-Survival at Effective Time....................................................... 49
9.2 Notices.............................................................................. 49
9.3 Interpretation....................................................................... 50
9.4 Counterparts......................................................................... 51
9.5 Entire Agreement; Nonassignability; Parties in Interest.............................. 51
9.6 Severability......................................................................... 51
9.7 Remedies Cumulative.................................................................. 51
9.8 Governing Law........................................................................ 51
9.9 Rules of Construction................................................................ 51
</TABLE>
iv.
<PAGE> 6
SCHEDULES
Schedule 2.10 - Real Property
Schedule 2.11 - Intellectual Property
Schedule 2.14 - Employee Benefit Plans
Schedule 2.20 - Material Agreements
Schedule 5.7 - Target Affiliates
Schedule 5.13 - Outstanding Target Options
Schedule 5.17 - Employees
Schedule 6.3(c) - Consents
EXHIBITS
Exhibit A - Agreement of Merger
Exhibit B - Exchange Ratio
Exhibit C - Affiliate and Shareholder Agreement
Exhibit D - Irrevocable Proxies
Exhibit E - Shareholder's Representation Agreement
Exhibit F - FIRPTA Notice
Exhibit G - Escrow Agreement
Exhibit H-1, et seq. - Form of Employment Agreement
Exhibit I - Form of Tax Opinions
Exhibit J - Acquiror's Legal Opinion
Exhibit K - Target's Legal Opinion
v.
<PAGE> 7
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is
made and entered into as of October 11, 1996, by and among Acquiror, a
California corporation ("Acquiror") and Target, a California corporation
("Target").
RECITALS
A. The Boards of Directors of Target and Acquiror believe it
is in the best interests of their respective companies and the shareholders of
their respective companies that Target and Acquiror combine into a single
company through the statutory merger of Target with and into Acquiror (the
"Merger") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, all of the
outstanding shares of Target Capital Stock, ("Target Capital Stock") shall be
converted into shares of Acquiror Common Stock ("Acquiror Common Stock"), at the
rate set forth herein.
C. Target and Acquiror 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 Section 368(a)(1)(A) of the Code.
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
Agreement of Merger attached hereto as Exhibit A (the "Agreement of Merger") and
the applicable provisions of the California Corporations Code ("California
Law"), Target shall be merged with and into Acquiror, the separate corporate
existence of Target shall cease and Acquiror shall continue as the surviving
corporation. Acquiror, 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
1.
<PAGE> 8
of each of the conditions set forth in Article VI hereof or at such other time
as the parties hereto agree (the "Closing Date"). The Closing shall take place
at the offices of Brobeck, Phleger & Harrison LLP, Two Embarcadero Place, 2200
Geng Road, Palo Alto, California, or at such other location as the parties
hereto agree. In connection with the Closing, the parties hereto shall cause the
Merger to be consummated by filing the Agreement of Merger with the Secretary of
State of the State of California, in accordance with the relevant provisions of
California 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 Agreement of Merger and
the applicable provisions of California 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 shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Target shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 Articles of Incorporation; Bylaws.
(a) At the Effective Time, the Articles of
Incorporation of Acquiror, as in effect immediately prior to the Effective Time,
shall be the Articles of Incorporation of the Surviving Corporation until
thereafter amended as provided by California Law and such Articles of
Incorporation.
(b) The Bylaws of Acquiror, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving Corporation
until thereafter amended.
1.5 Effect on Capital Stock. By virtue of the Merger and
without any action on the part of Acquiror or Target or the holders of any of
the following securities:
(a) Conversion of Target Capital Stock. The maximum
number of shares of Acquiror Common Stock to be issued (including Acquiror
Common Stock to be reserved for issuance upon exercise of options to purchase
shares of Target Common Stock ("Target Options") assumed by Acquiror) in
exchange for the acquisition by Acquiror of all outstanding Target Capital Stock
and all unexpired and unexercised options to acquire Target Capital Stock shall
be 1,340,958 shares of Acquiror Common Stock (which includes shares that would
be issued to Acquiror but for the effect of section 1.5(b)), reduced as a result
of any Dissenting Shares (as defined below). No other adjustment shall be made
in the number of shares of Acquiror Common Stock issued in the Merger as a
result of (x) any increase or decrease in the market price of Acquiror Common
Stock prior to the Effective Time, or (y) any cash proceeds received by Target
from the date hereof to the Closing Date pursuant to the exercise of currently
outstanding options or warrants to acquire Target Capital Stock. Subject to the
terms and conditions of this Agreement and the Agreement of Merger, by virtue of
the Merger and without any action on the part of the holder of any shares of
Target Capital Stock, at the Effective Time, each share of Target Common Stock
issued and outstanding immediately prior to the Effective Time as set forth in
Section 2.2 hereof (other
2.
<PAGE> 9
than shares to be cancelled pursuant to Section 1.5(b) and shares, if any, held
by persons who have not voted such shares for approval of the Merger and with
respect to which such persons shall become entitled to exercise dissenters'
rights in accordance with Chapter 13 of California Law ("Dissenting Shares"))
shall be converted and exchanged for such number of shares of Acquiror Common
Stock as shall be determined in accordance with Exhibit B hereof (the "Exchange
Ratio"); and any repurchase rights held by Target with respect to any such
shares of Target Common Stock shall be assigned to Acquiror.
Based upon Target's capitalization as set forth in Section 2.2
hereof, all shares of Target Common Stock (assuming conversion of all Target
Preferred Stock into Target Common Stock) issued and outstanding at the
Effective Time (other than shares to be cancelled pursuant to Section 1.5(b) and
Dissenting Shares, if any) shall be converted and exchanged, without any action
on the part of the holders thereof, for an aggregate of 1,340,958 shares of
Acquiror Common Stock less:
(1) such number of shares of Acquiror Common Stock as shall be
issued or reserved for issuance by Acquiror with respect to Target Options which
are assumed by Acquiror pursuant to Section 5.13 below; and
(2) such number of shares of Acquiror Common Stock as would be
otherwise issuable upon the conversion and exchange of Dissenting Shares; and
(3) any adjustment required pursuant to Article VIII hereof.
(b) Cancellation of Target Capital Stock Owned by
Acquiror or Target. At the Effective Time, all shares of Target Capital Stock
that are owned by Target as treasury stock, each share of Target Capital 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's 1995 Stock Option Plan (the "Target Stock Option Plan") and all
options to purchase Target Common Stock then outstanding under the Target Stock
Option Plan shall be assumed by Acquiror in accordance with Section 5.13.
(d) 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 Capital Stock), reorganization,
recapitalization or other like change with respect to Acquiror Common Stock or
Target Capital Stock occurring after the date hereof and prior to the Effective
Time.
(e) Fractional Shares. No fraction of a share of
Acquiror Common Stock shall be issued, but in lieu thereof each holder of shares
of Target Capital Stock who
3.
<PAGE> 10
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
fifteen 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 (the "Closing Price").
(f) Dissenters' Rights. Any Dissenting Shares shall
not be converted into Acquiror Common Stock but shall instead be converted into
the right to receive such consideration as may be determined to be due with
respect to such Dissenting Shares pursuant to California Law. Target agrees
that, except with the prior written consent of Acquiror, or as required under
California Law, it will not voluntarily make any payment with respect to, or
settle or offer to settle, any such purchase demand. Each holder of Dissenting
Shares ("Dissenting Shareholder") who, pursuant to the provisions of California
law, becomes entitled to payment for shares of Target Capital Stock shall
receive payment therefor (but only after the value therefor shall have been
agreed upon or finally determined pursuant to such provisions). If, after the
Effective Time, any Dissenting Shares shall lose their status as Dissenting
Shares, Acquiror shall issue and deliver, upon surrender by such shareholder of
certificate or certificates representing shares of Target Capital Stock, the
number of shares of Acquiror Common Stock to which such shareholder would
otherwise be entitled under this Section 1.5 and the Agreement of Merger less
the number of shares of Acquiror Common Stock allocable to such shareholder that
have been deposited in the Escrow Fund (as defined below) pursuant to Article
VIII hereof.
1.6 Surrender of Certificates.
(a) Exchange Agent. 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 procedures as
Acquiror may adopt, and which are reasonably acceptable to Target (i) the shares
of Acquiror Common Stock issuable pursuant to Section 1.5(a) in exchange for
shares of Target Capital Stock outstanding immediately prior to the Effective
Time less the number of shares of Acquiror Common Stock to be deposited into an
escrow fund (the "Escrow Fund") pursuant to the requirements of Article VIII and
(ii) cash in an amount sufficient to permit payment of cash in lieu of
fractional shares pursuant to Section 1.5(e).
(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 Capital
Stock, whose shares were converted into the right to
4.
<PAGE> 11
receive shares of Acquiror Common Stock (and cash in lieu of fractional shares)
pursuant to Section 1.5, (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 less the number
of shares of Acquiror Common Stock to be deposited in the Escrow Fund on such
holder's behalf pursuant to Article VIII hereof and payment in lieu of
fractional shares which such holder has the right to receive pursuant to Section
1.5, 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 Capital Stock will be deemed from and after the
Effective Time, for all corporate purposes, to evidence the ownership of the
number of full shares of Acquiror Common Stock into which such shares of Target
Capital 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
1.5. As soon as practicable after the Effective Time, and subject to and in
accordance with the provisions of Article VIII hereof, Acquiror shall cause to
be delivered to the Escrow Agent (as defined in Article VIII hereof) a
certificate or certificates representing 10% of the shares of Acquiror Common
Stock issued at the Closing which shall be registered in the name of the Escrow
Agent as nominee for the holders of Certificates cancelled pursuant to this
Section 1.6. Such shares shall be beneficially owned by such holders and shall
be held in escrow and shall be available to compensate Acquiror for certain
damages as provided in Article VIII. To the extent not used for such purposes,
such shares shall be released, all as provided in Article VIII hereof.
(d) Distributions With Respect to Unexchanged Shares.
No dividends or other distributions with respect to Acquiror Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Acquiror Common Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Acquiror Common Stock issued in
exchange therefor, without interest, at the time of such surrender, the amount
of any such dividends or other distributions with a record date after the
Effective Time theretofore payable (but for the provisions of this Section
1.6(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
5.
<PAGE> 12
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 1.6, 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.
(g) Dissenting Shares. The provisions of this Section
1.6 shall also apply to Dissenting Shares that lose their status as such, except
that the obligations of Acquiror under this Section 1.6 shall commence on the
date of loss of such status and the holder of such shares shall be entitled to
receive in exchange for such shares the number of shares of Acquiror Common
Stock to which such holder is entitled pursuant to Section 1.5 hereof.
1.7 No Further Ownership Rights in Target Capital Stock. All
shares of Acquiror Common Stock issued upon the surrender for exchange of shares
of Target Capital 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 Capital Stock and
there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Target Capital 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.
1.8 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 1.5; 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.
1.9 Tax Consequences. It is intended by the parties hereto
that the Merger shall constitute a reorganization within the meaning of Section
368 of the Code.
1.10 Exemption from Registration; California Permit. The
shares of
6.
<PAGE> 13
Acquiror Common Stock to be issued in connection with the Merger will be issued
in a transaction exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act"), by reason of Section 3(a)(10) thereof, if
available. The Acquiror and Target shall use their best efforts to cause the
shares of Acquiror Common Stock to be qualified under California Law, pursuant
to Section 25121 thereof, after a fairness hearing has been held pursuant to the
authority granted by Section 25142 of such law. Such fairness hearing shall also
address the assumption by Acquiror of all Target Options pursuant to Sections
1.5(c) and 5.13 hereof. Each of Acquiror and Target shall use its best efforts
to (i) file an application for issuance of a California permit to issue such
securities and assume such options within seven (7) business days from the date
of this Agreement and (ii) obtain such permit. If the shares of Acquiror Common
Stock to be issued in connection with the Merger cannot be issued in a
transaction exempt from registration under Section 3(a)(10) of the Securities
Act or cannot be qualified under Section 25121 of the California Law pursuant to
a fairness hearing, then such shares shall be issued in a transaction exempt
from registration under the Securities Act by reason of Section 4(2) thereof. In
such event Acquiror shall use its reasonable best efforts to file, within 90
days following the Closing, a registration statement with the Securities and
Exchange Commission covering the resale of such shares of Acquiror Common Stock
issued in connection with the Merger. Any such registration shall be subject to
the normal terms and conditions used in connection with prior Acquiror resale
prospectuses.
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, the officers and directors of
Target are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary action, so long
as such action is not inconsistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET
In this Agreement, any reference to any event, change,
condition or effect being "material" with respect to Target means any event,
change, condition or effect related to the financial condition, properties,
assets (including intangible assets), liabilities, business, operations or
results of operations of such entity or group of entities, the value of which
exceeds $50,000, respectively. In this Agreement, any reference to a "Material
Adverse Effect" with respect to Target means any event, change or effect in an
amount which exceeds $50,000, that adversely affects the financial condition,
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 reasonable inquiry of officers,
directors and other employees of such
7.
<PAGE> 14
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"), and any update thereto pursuant to Section
6.3(a), Target represents and warrants to Acquiror as follows:
2.1 Organization, Standing and Power. Target is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Target 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 Articles of Incorporation and Bylaws or other charter
documents, as applicable, of Target, each as amended to date, to Acquiror.
Target is not in violation of any of the provisions of its Articles of
Incorporation or Bylaws or equivalent organizational documents. 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 10,000,000 shares of Common Stock and 4,000,000 shares of Preferred
Stock, of which 990,000 shares have been designated Series A Preferred Stock,
2,050,000 shares have been designated Series B Preferred Stock and 462,151
shares have been designated Series C Preferred Stock. As of the close of
business on October 10, 1996, there were issued and outstanding 4,893,073 shares
of Common Stock, 904,760 shares of Series A Preferred Stock, 1,960,785 shares of
Series B Preferred Stock and 217,392 shares of Series C 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 October 10, 1996 other than pursuant to the exercise of options
outstanding as of such date under the Target Stock Option Plan. All outstanding
shares of Target Capital Stock are duly authorized, validly issued, fully paid
and non-assessable and are free of any liens or encumbrances created by Target
and, to Target's knowledge, free of any other 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 Articles of Incorporation or Bylaws of Target or any agreement to
which Target is a party or by which it is bound. As of the close of business on
October 10, 1996, Target has reserved (i) 2,025,000 shares of Common Stock for
issuance to employees, officers, directors and consultants pursuant to the
Target Stock Option Plan, of which 842,500 shares have been issued pursuant to
option exercises, 1,105,000 shares are subject to outstanding, unexercised
options, and no shares are subject to outstanding stock purchase rights. Since
October 10, 1996, Target has not (i) issued or granted additional options under
the Target Stock Option
8.
<PAGE> 15
Plan or (ii) granted additional warrants or options to acquire Target Capital
Stock. Except for (i) the rights created pursuant to this Agreement, (ii)
Target's right to repurchase shares issued upon the exercise of stock options
granted under the Target Stock Option Plan and (iii) options referred to in this
Section 2.2, 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 other contracts, commitments or
agreements relating to voting, purchase or sale of Target's capital stock (i)
between or among Target and any of its shareholders and (ii) to Target's
knowledge, between or among any of Target's shareholders, except for the
shareholders delivering Irrevocable Proxies (as defined below) and Affiliate and
Shareholder Agreements (as defined below.) The terms of the Target Stock Option
Plan permit the assumption or substitution of options or warrants, as
applicable, to purchase Acquiror Common Stock as provided in this Agreement,
without the consent or approval of the holders of such securities, the Target
shareholders, or otherwise and without any acceleration of the exercise schedule
or vesting provisions in effect for those options. True and complete copies of
all agreements and instruments relating to or issued under the Target Stock
Option Plan 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. All outstanding Target Capital
Stock was issued in compliance with all applicable federal and state securities
laws.
2.3 Authority. Target has 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 Target, subject only to the
approval of the Merger by Target's shareholders as contemplated by Section
6.1(a). This Agreement has been duly executed and delivered by Target and
constitutes the valid and binding obligation of Target enforceable against
Target in accordance with its terms, except that such enforceability may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting or
relating to creditors' rights generally, and is subject to general principles of
equity. The execution and delivery of this 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 material obligation or loss of any material benefit under
(i) any provision of the Articles of Incorporation or Bylaws of Target, 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 properties or assets. No consent, approval, order or authorization
of, or registration, declaration or filing with, any court, administrative
agency
9.
<PAGE> 16
or commission or other governmental authority or instrumentality ("Governmental
Entity") is required by or with respect to Target in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of the Agreement of Merger; (ii)
a fairness hearing held pursuant to the authority granted by Section 25142 of
California General Corporation Law and the issuance of a permit pursuant to
Section 25121 of California General Corporation law, if available; (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.
2.4 Financial Statements. Target has delivered to Acquiror its
audited financial statements for the fiscal year ended December 31, 1995 and its
unaudited financial statements for the eight-month period ended August 31, 1996
(collectively, the "Financial Statements"). The Financial Statements are
complete and correct in all material respects and have been prepared in
accordance with generally accepted accounting principles (except that the
unaudited financial statements do not have notes thereto) applied on a
consistent basis throughout the periods indicated. The Financial Statements
fairly present the consolidated financial condition and operating results of
Target at the dates and during the periods indicated therein (subject, in the
case of unaudited statements, to normal, recurring year-end adjustments). Target
maintains and will continue to maintain a standard system of accounting
established and administered in accordance with generally accepted accounting
principles.
2.5 Absence of Certain Changes. Since August 31, 1996, (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
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 assets; (iv) any declaration, setting aside, or payment of
a dividend or other distribution with respect to the shares of Target Capital
Stock, or any direct or indirect redemption, purchase or other acquisition by
Target of any shares of Target Capital Stock; (v) any material contract entered
into by Target, 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 is a party or by which it is bound; (vi) any
amendment or change to the Articles of Incorporation or Bylaws of Target; (vii)
any increase in or modification of the compensation or benefits payable or to
become payable by Target to any of its directors or employees or (viii) any
negotiation or agreement by Target to do any of the things described in the
10.
<PAGE> 17
preceding clauses (i) through (vii) (other than negotiations with Acquiror and
its representatives regarding the transactions contemplated by this Agreement).
2.6 Absence of Undisclosed Liabilities. Target has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in its
Balance Sheet for the period ended August 31, 1996 (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,
threatened against Target or any of its properties or any of its 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, to the knowledge of Target,
any of its directors or officers (in their capacities as such), that could
prevent, enjoin, materially alter or delay any of the transactions contemplated
by this Agreement, or that could reasonably be expected to have a Material
Adverse Effect on Target. All litigation to which Target is a party (or, to the
knowledge of Target, threatened to become a party) is disclosed in the Target
Disclosure Schedule.
2.8 Restrictions on Business Activities. There is no
agreement, judgment, injunction, order or decree binding upon Target which has
or could reasonably be expected to have the effect of prohibiting or materially
impairing any current or future business practice of Target, any acquisition of
property by Target or the conduct of business by Target as currently conducted
or as proposed to be conducted by Target.
2.9 Governmental Authorization. Target has 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 currently operates or holds any interest in any of its properties or (ii)
that is required for the operation of Target's 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 such Target Authorizations could not
reasonably be expected to have a Material Adverse Effect on Target.
2.10 Title to Property. Target has good and marketable title
to all of its 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 with respect to leased properties and assets, valid leasehold
11.
<PAGE> 18
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 that are used in the operation of its business are in all
material respects in good operating condition and repair. All properties used in
the operations of Target 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.
2.11 Intellectual Property.
(a) Target owns, or is licensed or otherwise
possesses legally enforceable rights to use all patents, trademarks, trade
names, service marks, copyrights, and any applications therefor, maskworks, net
lists, schematics, technology, know-how, trade secrets, inventory, ideas,
algorithms, processes, computer software programs or applications (in both
source code and object code form), and tangible or intangible proprietary
information or material ("Intellectual Property") that are used or currently
proposed to be used in the business of Target as currently conducted or as
proposed to be conducted by Target, except to the extent that the failure to
have such rights has 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, included
in the Intellectual Property, including the jurisdictions in which each such
Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) all
licenses, sublicenses and other agreements to which Target is a party and
pursuant to which any person is authorized to use any Intellectual Property, and
(iii) all 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, any trade secret which is material to Target, or any Intellectual
Property right of any third party to the extent licensed by or through Target,
by any third party, including any employee or former employee of Target. Target
has not entered into any agreement to indemnify any person against any charge of
infringement of any Intellectual Property, other than indemnification provisions
contained in sales invoices arising in the ordinary course of business.
12.
<PAGE> 19
(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 manufacturing, 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, where such infringement
would 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, the absence of which would have a Material
Adverse Effect on Target.
(g) All use, disclosure or appropriation of
Intellectual Property not otherwise protected by patents, patent applications or
copyright ("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. Except in all cases as, in the
aggregate, have not had and would not have a Material Adverse Effect on Target,
Target (i) has obtained all applicable permits, licenses and other
authorizations that are required under Federal, state or local laws relating to
pollution or protection of the environment, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants or hazardous or toxic materials or wastes into ambient air, surface
water, ground water or land or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or hazardous or toxic materials or wastes
by Target (or its agents); (ii) is in compliance with all terms and conditions
of such required permits, licenses and authorizations, and also are in
compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
such laws or contained in any regulation, code, plan, order, decree, judgment,
notice or demand letter issued, entered, promulgated or approved thereunder;
(iii) as of the date hereof, is not aware of and has not received notice of any
event, condition, circumstance, activity, practice, incident, action or plan
that is reasonably
13.
<PAGE> 20
likely to interfere with or prevent continued compliance or that would give rise
to any common law or statutory liability, or otherwise form the basis of any
claim, action, suit or proceeding, based on or resulting from Target's (or any
of its agents) manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge or release into the
environment of any pollutant, contaminant or hazardous or toxic material or
waste; (iv) has not disposed of any pollutants, contaminants or hazardous or
toxic materials or wastes into the soil or groundwater at any properties owned
or leased by Target, either now or in the past, or at any other property that
would result in any assessment or remedial action; and (v) has taken all actions
necessary under applicable requirements of Federal, state or local laws, rules
or regulations to register any products or materials required to be registered
by Target or its subsidiaries (or any of its agents) thereunder.
2.13 Taxes. Target, and any consolidated, combined or unitary
group for Tax purposes of which Target is or has been a member have timely filed
all Tax Returns required to be filed by them and have paid all Taxes shown
thereon to be due. The Financial Statements (i) fully accrue all actual and
contingent liabilities for Taxes with respect to all periods through August 31,
1996 and Target has not and will not incur any Tax liability in excess of the
amount reflected on the Financial Statements with respect to such periods, and
(ii) properly accrue in accordance with generally accepted accounting principles
all liabilities for Taxes payable after August 31, 1996 with respect to all
transactions and events occurring on or prior to such date. No material Tax
liability since August 31, 1996 has been incurred by Target other than in the
ordinary course of business and adequate provision has been made in the
Financial Statements for all Taxes since that date in accordance with generally
accepted accounting principles on at least a quarterly basis. Target has
withheld and paid to the applicable financial institution or Tax Authority all
amounts required to be withheld. No notice of deficiency or similar document of
any Tax Authority has been received by Target, and there are no liabilities for
Taxes with respect to the issues that have been raised (and are currently
pending) by any Tax Authority that could, if determined adversely to Target,
materially and adversely affect the liability of Target for Taxes. There is (i)
no material claim for Taxes that is a lien against the property of Target other
than liens for Taxes not yet due and payable, (ii) no notification that Target
has received of any audit of any Tax Return of Target being conducted, pending
or threatened by a Tax authority, (iii) no extension or waiver of the statute of
limitations on the assessment of any Taxes granted by Target and currently in
effect, and (iv) no agreement, contract or arrangement to which Target is a
party that may result in the payment of any material amount that would not be
deductible by reason of Sections 280G or 404 of the Code. Target 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. Target
is not a party to any tax sharing or tax allocation agreement nor does Target
owe any amount under any such agreement. For purposes of this Agreement, "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,
14.
<PAGE> 21
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, environmental or windfall profit tax, custody 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 is in full compliance
with all terms and conditions of any Tax exemptions or other Tax-sparing
agreement or order of a foreign government applicable to them 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 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
$10,000, 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 $10,000 remain for the
benefit of, or relating to, any present or former employee, consultant or
director of Target (collectively, the "Target Employee Plans").
(b) Target has made available 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, or for the number of years any such Target Employee Plan has been in
15.
<PAGE> 22
effect, if fewer. 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, or has been established under a
standardized prototype plan for which an Internal Revenue Service opinion letter
has been obtained by the plan sponsor and is valid as to the adopting employer.
Target has also furnished Acquiror with the most recent Internal Revenue Service
determination or opinion 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 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 ERISA Affiliate have performed all material obligations required
to be performed by them under, are not in any material respect in default under
or violation of, and have no knowledge of any material default or violation by
any other party to, any of the Target Employee Plans; (iv) neither Target nor
any 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 except as would not, in the aggregate, have a Material Adverse
Effect; (v) all material contributions required to be made by Target or any
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 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(l) of
ERISA, Target has prepared in good faith and timely filed all requisite
governmental reports (which were true and correct in all material respects 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
16.
<PAGE> 23
each such Target Employee Plan except as would not have, in the aggregate, a
Material Adverse Effect. No suit, administrative proceeding, action or other
litigation has been brought, or to the 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
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
has 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) Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated by this
Agreement will (i) entitle any current or former employee, director, or other
service provider of Target or any ERISA Affiliate to severance benefits or any
other payment (including, without limitation, unemployment compensation, golden
parachute or bonus), except as expressly provided in this Agreement, or (ii)
accelerate the time of payment or vesting of any such benefits, or materially
increase the amount of compensation due any such employee, director, or service
provider, or (iii) materially increase any benefits otherwise payable by Target.
(f) There has been no amendment to, written
interpretation or announcement (whether or not written) by Target or any 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 Employee Matters. To Target's knowledge, Target is in
compliance in all material respects with all currently applicable laws and
regulations respecting employment, discrimination in employment, terms and
conditions of employment, wages, hours and occupational safety and health and
employment practices, and are not engaged in any unfair labor practice. There
are no pending claims against Target under any workers compensation plan or
policy or for long term disability. Target has no material obligations under
COBRA with respect to any former employees or qualifying beneficiaries
thereunder. There are no proceedings pending or, to the knowledge of Target,
threatened, between Target and its employees, which proceedings have or could
reasonably be expected to have a Material Adverse Effect on Target. Target is
not a party to any collective bargaining agreement or other labor unions
contract nor does Target know of any activities or proceedings of any labor
union to organize any such employees. In addition, Target has provided all
employees with all relocation benefits, stock options, bonuses and incentives,
and all other compensation that such employee has earned up through the date of
this
17.
<PAGE> 24
Agreement or that such employee was otherwise promised in their employment
agreements with Target.
2.16 Interested Party Transactions. Target is not indebted to
any director, officer, employee or agent of Target (except for amounts due as
normal salaries and bonuses and in reimbursement of ordinary expenses), and no
such person is indebted to Target.
2.17 Insurance. Target has 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. There is no material claim pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and Target is
otherwise in compliance 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.
2.18 Compliance With Laws. Target has complied with, is not in
violation of, and has 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.
2.19 Minute Books. The minute books of Target made available
to Acquiror contain a complete and accurate summary of all meetings of directors
and shareholders or actions by written consent since the time of incorporation
of Target through the date of this Agreement, and reflect all transactions
referred to in such minutes accurately in all material respects.
2.20 Complete Copies of Materials. Target has delivered or
made available true and complete copies of each document which has been
requested by Acquiror or its counsel in connection with their legal and
accounting review of Target. All the material contracts and agreements (as such
terms are defined in Regulation S-K promulgated under the Securities Act) to
which Target is a party are listed in Schedule 2.20 hereto.
2.21 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.
2.22 Permit Application; Information Statement. The
information supplied by Target for inclusion in the application for issuance of
a permit pursuant to Section 25121 of California Law pursuant to which the
shares of Acquiror Common Stock to be issued in the Merger and the options to be
assumed in the Merger will be qualified under California Law (the "Permit
Application") shall not at the time the fairness hearing is held pursuant to
18.
<PAGE> 25
Section 25142 of California Law and the time the qualification of such
securities is effective under Section 25122 of California Law 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 information statement to be sent to the
shareholders of Target in connection with the Action by Written Consent of
Target's shareholders to consider the Merger (the "Written Consent") (such
information statement as amended or supplemented is referred to herein as the
"Information Statement") shall not, on the date the Information Statement is
first mailed to Target's shareholders, at the time of the Written Consent 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 the Target Written Consent
which has become false or misleading. Notwithstanding the foregoing, Target
makes no representation, warranty or covenant with respect to any information
supplied by Acquiror which is contained in any of the foregoing documents.
2.23 Affiliate and Shareholder Agreement; Irrevocable Proxies.
All of the persons and/or entities deemed "Affiliates" of Target within the
meaning of Rule 145 promulgated under the Securities Act and holders of more
than 51% of each of (i) the shares of Target Common Stock issued and outstanding
and (ii) the shares of Target Preferred Stock issued and outstanding, have
agreed in writing to vote for approval of the Merger pursuant to shareholder
agreements attached hereto as Exhibit C ("Affiliate and Shareholder
Agreements"), and pursuant to Irrevocable Proxies attached hereto as Exhibit D
("Irrevocable Proxies").
2.24 Vote Required. The affirmative vote of the holders of a
majority of each of (i) the shares of Target's Common Stock issued and
outstanding and (ii) the shares of Target's Preferred Stock issued and
outstanding are the only votes of the holders of any of Target's Capital Stock
necessary under California law, Target's Articles of Incorporation and Bylaws,
or any agreement to which Target or any of its shareholders is a party, to
approve this Agreement and the transactions contemplated hereby.
2.25 Board Approval. The Board of Directors of Target has (i)
unanimously approved this Agreement and the Merger, (ii) determined that in its
opinion the Merger is in the best interests of the shareholders of Target and is
on terms that are fair to such shareholders and (iii) recommended that the
shareholders of Target approve this Agreement and the Merger.
2.26 GNU General Public License Representation. Target
represents and warrants that it has not modified certain software known as PERL
and GZIP, or any portion of it, provided to Target by the Free Software
Foundation, Inc. pursuant to the GNU General
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Public License. Target further represents and warrants that its use of the PERL
and GZIP software is a mere aggregation of Target's independent proprietary
software with the PERL and GZIP software (or its derivative) such that Target's
independent proprietary software is not brought under the scope of the terms of
Section 3 of the GNU General Public License.
2.27 Representations Complete. None of the representations or
warranties made by Target herein or in any Schedule or Exhibit hereto, including
the Target Disclosure Schedule, or certificate furnished by Target pursuant to
this Agreement or any written statement furnished to Acquiror pursuant hereto or
in connection with the transactions contemplated hereby, 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; provided, however, that (a) for purposes of this
representation, any document attached hereto and any document specifically
referenced in the Target Disclosure Schedule as a "Superseding Document" (even
if not attached hereto) that provides information inconsistent with or in
addition to any other written statement furnished to Acquiror in connection with
the transaction contemplated hereby, shall be deemed to supersede any other
document or written statement furnished to Acquiror with respect to such
inconsistent or additional information, and (b) it is understood that the
financial projections delivered by Target represent only Target's best estimate
under the circumstances of what it reasonably believes (although it is not aware
of any fact or information that would lead it to believe that such projections
are misleading in any material respect) and are based upon assumptions set forth
in such projections that Target believes were reasonable as of the time such
projections were made. Target does not make any other representation or warranty
regarding such projections or Target's possible or anticipated operating
performance other than as set forth in this Section 2.27.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
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 represents and warrants to Target
as follows:
3.1 Organization, Standing and Power. Each of Acquiror and its
subsidiaries 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
20.
<PAGE> 27
Articles of Incorporation and Bylaws or other charter documents, as applicable,
of Acquiror, 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 1,200,000,000 shares of Common Stock, no par value, and
5,000,000 shares of Preferred Stock, no par value, of which there were issued
and outstanding as of the close of business on October 10, 1996, 653,625,290
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 October 20, 1996 upon the exercise
of options issued under the Acquiror Amended and Restated 1987 Stock Option
Plan, Crescendo Communications, Inc. 1990 Stock Option Plan, Newport Systems
Solution, Inc. 1990 Stock Option Plan, Combinet, Inc. Incentive and
Non-Qualified Stock Option Plan, Grand Junction Networks, Inc. 1992 Stock Plan,
Kalpana, Inc. 1989 Stock Option Plan, TGV Software, Inc. 1990 Stock Option Plan
and TGV Software, Inc. 1995 Stock Option Plan, the StrataCom, Inc. Stock Option
Plan, the Nashoba Networks, Inc. 1992 Stock Option Plan and the 1995 Granite
Systems Stock Option Plan (collectively, the "Acquiror Stock Option Plans"). All
outstanding shares of Acquiror have been duly authorized, validly issued, fully
paid and are nonassessable and free of any liens or encumbrances other than any
liens or encumbrances created by or imposed upon the holders thereof. As of the
close of business on October 10, 1996, Acquiror has reserved 239,922,216 shares
of Common Stock for issuance to employees, directors and independent contractors
pursuant to the Acquiror Stock Option Plans and the Acquiror's 1989 Employee
Stock Purchase Plan, of which 78,186,816 shares are subject to outstanding,
unexercised options. Other than pursuant to this Agreement, the Acquiror Stock
Option Plans and the Acquiror 1989 Employee Stock Purchase Plan there are no
other options, warrants, calls, rights, commitments or agreements of any
character to which Acquiror is a party or by which it is bound obligating
Acquiror 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 obligating Acquiror 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
21.
<PAGE> 28
authorized, validly issued, fully paid, and non-assessable.
3.3 Authority. Acquiror has 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. This Agreement has
been duly executed and delivered by Acquiror and constitutes the valid and
binding obligation of Acquiror enforceable against Acquiror in accordance with
its terms, except that such enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to creditors'
rights generally, and is subject to general principles of equity. 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 material
obligation or loss of a material 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. 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 or the
consummation by Acquiror of the transactions contemplated hereby, except for (i)
the filing of the Agreement of Merger, as provided in Section 1.2, (ii) a
fairness hearing held pursuant to the authority granted by Section 25142 of
California General Corporation Law and the issuance of a permit pursuant to
Section 25121 of the California General Corporation Law, if applicable, or the
filing of a registered statement on Form S-3 or other applicable form if the
shares issued in the Merger are not issued pursuant to a fairness hearing, (iii)
the filing of a Form 8-K with the Securities and Exchange Commission ("SEC") and
National Association of Securities Dealers ("NASD") within 15 days after the
Closing Date, (iv) any filings as may be required under applicable state
securities laws and the securities laws of any foreign country, (v) such filings
as may be required under HSR, (vi) the filing with the Nasdaq National Market of
a Notification Form for Listing of Additional Shares with respect to the shares
of Acquiror Common Stock issuable upon conversion of the Target Common Stock in
the Merger and upon exercise of the options under the Target Stock Option Plans
assumed by Acquiror, and (vii) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not have a
Material Adverse Effect on Acquiror and would not prevent, materially alter or
delay any of the transactions contemplated by this Agreement.
3.4 SEC Documents; Financial Statements. Acquiror has made
available to Target a true and complete copy of each statement, report,
registration statement (with the prospectus in the form filed pursuant to Rule
424(b) of the Securities Act), definitive proxy statement, and other filing
filed with the SEC by Acquiror since June 30, 1993, and, prior to
22.
<PAGE> 29
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 Acquiror 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 Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the Securities Act,
and none of the Acquiror SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
in which they were made, not misleading, except to the extent corrected by a
subsequently filed Acquiror SEC Document prior to the date hereof. 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-Qs,
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. Acquiror has filed
in a timely manner all reports required to be filed with the Securities and
Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act
during the 12 calendar months prior to the date hereof.
3.5 Absence of Certain Changes. Since August 31, 1996 (the
"Acquiror Balance Sheet Date"), Acquiror has conducted its business in the
ordinary course consistent with past practice and there has not occurred: (i)
any change, event or condition (whether or not covered by insurance) that has
resulted in, or might reasonably be expected to result in, a Material Adverse
Effect to Acquiror; (ii) any acquisition, sale or transfer of any material asset
of Acquiror or any of its subsidiaries other than in the ordinary course of
business and consistent with past practice; (iii) any 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;
23.
<PAGE> 30
(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; (vi) any amendment or change to Acquiror's
Articles of Incorporation or Bylaws; or (vii) any negotiation or agreement by
Acquiror or any of its subsidiaries to do any of the things described in the
preceding clauses (i) through (vi) (other than negotiations with Target and its
representatives regarding the transactions contemplated by this Agreement).
3.6 Absence of Undisclosed Liabilities. Acquiror has no
material obligations or liabilities of any nature (matured or unmatured, fixed
or contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet included in Acquiror's Quarterly Report on Form 10-Q for the
period ended April 30, 1996 (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, or materially alter or 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 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.
3.9 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
24.
<PAGE> 31
Adverse Effect on Acquiror.
3.10 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.
3.11 Permit Application; Information Statement. The
information supplied by Acquiror for inclusion in the Permit Application shall
not, at the time the fairness hearing is held pursuant to Section 25142 of
California Law and the time the qualification of such securities is effective
under Section 25122 of California Law, 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
Information Statement shall not, on the date the Information Statement is first
mailed to Target's shareholders, at the time of the Written Consent 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 the Written Consent which has become false or
misleading. Notwithstanding the foregoing, Acquiror makes no representation,
warranty or covenant with respect to any information supplied by Target which is
contained in any of the foregoing documents.
3.12 Representations Complete. None of the representations or
warranties made by Acquiror herein or in any Schedule or Exhibit hereto,
including the Acquiror Disclosure Schedule, or certificate furnished by Acquiror
pursuant to this Agreement, or the Acquiror SEC Documents, or any written
statement furnished to Target pursuant hereto or in connection with the
transactions contemplated hereby, 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; provided, however, that for purposes of this representation, any
document attached hereto and any document specifically referenced in the
Acquiror Disclosure Schedule as a "Superseding Document" (even if not attached
hereto) that provides information inconsistent with or in addition to any other
written statement furnished to Target in connection with the transaction
contemplated hereby, shall be deemed to supersede any other document or written
statement furnished to Target with respect to such inconsistent or additional
information.
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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 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 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 Target and Acquiror agrees to promptly notify the other
of (x) any event or occurrence not in the ordinary course of its or its
subsidiaries' business, and of any event which would have a Material Adverse
Effect and (y) any material change in its capitalization as set forth in
Sections 2.2 and 3.2, respectively. Without limiting the foregoing, except as
expressly contemplated by this Agreement or the Target Disclosure Schedule or
the Acquiror Disclosure Schedule, neither Target nor Acquiror, respectively,
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 Articles of Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock. Except as
set forth in the Acquiror Disclosure Schedule, declare or pay any dividends on
or make any other distributions (whether in cash, stock or property) in respect
of any of its capital stock, or split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock, or repurchase or
otherwise acquire, directly or indirectly, any shares of its capital stock
except from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service to it or its subsidiaries;
(c) Stock Option Plan. Accelerate, amend or change
the period of exercisability or vesting of options or other rights granted under
its stock option plans or authorize cash payments in exchange for any options or
other rights granted under any of
26.
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such plans; or
(d) Other. Take, or agree in writing or otherwise to
take, any of the actions described in Sections 4.1(a) through (c) above, or any
action which would cause a material breach of its representations or warranties
contained in this Agreement or prevent it from materially performing or cause it
not to materially 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 or the Target Disclosure Schedule, Target shall not do, cause or
permit any of the following, without the prior written consent of Acquiror which
shall not be unreasonably withheld:
(a) Material Contracts. Enter into any material
contract or commitment not in the ordinary course of business, 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) 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, including the grant of options pursuant to the Target
Stock Option Plan, 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 this Agreement;
(c) Intellectual Property. Transfer to any person or
entity any rights to its Intellectual Property other than in the ordinary course
of business consistent with past practice;
(d) Exclusive Rights. Enter into or amend any
agreements pursuant to which any other party is granted exclusive marketing or
other exclusive rights of any type or scope with respect to any of its products
or technology;
(e) Dispositions. Sell, lease, license or otherwise
dispose of or encumber any of its properties or assets which are material,
individually or in the aggregate, to its business, except in the ordinary course
of business consistent with past practice;
(f) Indebtedness. Incur any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(g) Leases. Enter into any operating lease in excess
of $10,000;
27.
<PAGE> 34
(h) Payment of Obligations. Pay, discharge or satisfy
in an amount in excess of $10,000 in any one case or $50,000 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;
(i) Capital Expenditures. Make any capital
expenditures, capital additions or capital improvements except in the ordinary
course of business and consistent with past practice;
(j) Insurance. Materially reduce the amount of any
material insurance coverage provided by existing insurance policies;
(k) Termination or Waiver. Terminate or waive any
right of substantial value, other than in the ordinary course of business;
(l) Employee Benefit Plans; New Hires; Pay Increases.
Adopt or amend any employee benefit or stock purchase or option plan, or hire
any new officer level employee (except that it may hire a replacement for any
current 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 (except payments made pursuant to
written agreements outstanding on the date hereof), or increase the salaries or
wage rates of its employees except in the ordinary course of business in
accordance with its standard past practice;
(m) 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 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;
(n) 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;
(o) 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 business;
(p) 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
28.
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respect of Taxes, file any material Tax Return or any amendment to a material
Tax Return, enter into any closing agreement, settle any material claim or
assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any material claim or assessment in respect of
Taxes;
(q) Notices. Fail to 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;
(r) 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
(s) Other. Take or agree in writing or otherwise to
take, any of the actions described in Sections 4.2(a) through (r) above, or any
action which would cause a material breach of its representations or warranties
contained in this Agreement or prevent it from materially performing or cause it
not to materially perform its covenants hereunder.
4.3 No Solicitation. Target and its officers, directors,
employees or other agents will not, directly or indirectly, (i) take any action
to solicit, initiate or encourage any Takeover Proposal (defined below) or (ii)
engage in negotiations with, or disclose any nonpublic information relating to
Target to, or afford access to the properties, books or records of Target to,
any person that has advised Target that it may be considering making, or that
has made, a Takeover Proposal. 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 nonpublic information relating to
Target or for access to the properties, books or records of Target 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. For purposes of this
Agreement, "Takeover Proposal" means any offer or proposal for, or any
indication of interest in, a merger or other business combination involving
Target or the acquisition of any significant equity interest in, or a
significant portion of the assets of, Target, other than the transactions
contemplated by this Agreement.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Permit Application/Information Statement.
(a) As soon as practicable after the execution of
this Agreement, Target shall prepare, with the cooperation of Acquiror, an
Information Statement for the shareholders of Target to approve this Agreement,
the Agreement of Merger and the transactions contemplated hereby and thereby.
The Information Statement shall constitute a disclosure document for the offer
and issuance of the shares of Acquiror Common Stock to be received by the
holders of Target Capital Stock in the Merger. Acquiror and Target shall each
use reasonable commercial efforts to cause the Information Statement to comply
with applicable federal and state securities laws requirements. Each of Acquiror
and Target agrees to provide promptly to the other such information concerning
its business and financial statements and affairs as, in the reasonable judgment
of the providing party or its counsel, may be required or appropriate for
inclusion in the Information Statement, or in any amendments or supplements
thereto, and to cause its counsel and auditors to cooperate with the other's
counsel and auditors in the preparation of the Information Statement. Target
will promptly advise Acquiror, and Acquiror will promptly advise Target, in
writing if at any time prior to the Effective Time either Target or Acquiror
shall obtain knowledge of any facts that might make it necessary or appropriate
to amend or supplement the Information Statement in order to make the statements
contained or incorporated by reference therein not misleading or to comply with
applicable law. The Information Statement shall contain the recommendation of
the Board of Directors of Target that the Target shareholders approve the Merger
and this Agreement and the conclusion of the Board of Directors that the terms
and conditions of the Merger are fair and reasonable to the shareholders of
Target; 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. Anything to the
contrary contained herein notwithstanding, Target shall not include in the
Information Statement any information with respect to Acquiror or its affiliates
or associates, the form and content of which information shall not have been
approved by Acquiror prior to such inclusion.
(b) As soon as practicable after the execution of
this Agreement, Acquiror shall prepare, with the cooperation of Target, the
Permit Application. Acquiror and Target shall each use reasonable commercial
efforts to cause the Permit Application to comply with the requirements of
applicable federal and state laws. Each of Acquiror and Target agrees to provide
promptly to the other such information concerning its business and financial
statements and affairs as, in the reasonable judgment of the providing party or
its counsel, may be required or appropriate for inclusion in the Permit
Application, or in any
30.
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amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other's counsel and auditors in the preparation of the Permit
Application. Target will promptly advise Acquiror, and Acquiror will promptly
advise Target, in writing if at any time prior to the Effective Time either
Target or Acquiror shall obtain knowledge of any facts that might make it
necessary or appropriate to amend or supplement the Permit Application in order
to make the statements contained or incorporated by reference therein not
misleading or to comply with applicable law. Anything to the contrary contained
herein notwithstanding, Acquiror shall not include in the Permit Application any
information with respect to Target or its affiliates or associates, the form and
content of which information shall not have been approved by Target prior to
such inclusion.
5.2 Written Consent of Shareholders. Target shall promptly
after the date hereof take all action necessary in accordance with California
Law and its Articles of Incorporation and Bylaws to solicit Written Consents
within fifteen (15) days of the issuance of a permit pursuant to Section 25121
of California Law. Target shall consult with Acquiror regarding the date of
soliciting Written Consents. Target shall use its best efforts to solicit from
shareholders of Target proxies in favor of the Merger and shall take all other
action necessary or advisable to secure the vote or consent of shareholders
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
properties, books, contracts, commitments and records, and (ii) all other
information concerning the business, properties and personnel of Target 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
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the Merger.
5.4 Confidentiality. The parties acknowledge that Acquiror and
Target have previously executed a non-disclosure agreement on September ___,
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 reasonable best efforts to obtain, all consents
and approvals required to be obtained by it for the consummation of the Merger,
including any required under HSR, and shall use reasonable 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
except where the failure to obtain such consents would not have a Material
Adverse Effect on Target. The parties hereto will consult and cooperate with one
another, and consider in good faith the views of one another, in connection with
any analyses, appearances, presentations, memoranda, briefs, arguments, opinions
and proposals made or submitted by or on behalf of any party hereto in
connection with proceedings under or relating to HSR or any other federal or
state antitrust or fair trade law.
(b) Each of Acquiror and Target shall use all
reasonable best efforts to resolve such objections, if any, as may be asserted
by any Governmental Entity with respect to the transactions contemplated by this
Agreement under 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 best efforts
vigorously to contest and resist any such action or proceeding and to have
vacated, lifted, reversed, or overturned any decree, judgment, injunction or
other order, whether temporary, preliminary or permanent (each an "Order"), that
is in effect and that prohibits,
32.
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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 December 31,
1996. Each of Acquiror and Target shall use all reasonable best 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) Each of Acquiror and Target further agrees to
notify the other promptly of the receipt of any comments from any government
officials for amendments or supplements to any filing or for additional
information and will supply the other with copies of all correspondence between
such company or any of its representatives, on the one hand, and the government
officials, on the other hand, with respect to such filing in accordance with an
appropriate confidentiality agreement between the parties. Whenever any event
occurs which is required to be set forth in an amendment or supplement to any
such filing, Acquiror or Target, as the case may be, shall promptly inform the
other of such occurrence and cooperate in filing with the government.
(d) 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 and (ii)
Target shall not be required to divest any of its business, product lines or
assets, or to take or agree to take any other action or agree to any limitation.
5.7 Affiliate and Shareholder Agreements. Schedule 5.7 sets
forth those persons who are, in Target's reasonable judgment, "Affiliates" of
Target within the meaning of Rule 145 promulgated under the Securities Act
("Rule 145"). Target shall provide Acquiror such information and documents as
Acquiror shall reasonably request for purposes of reviewing such list. Target
shall use its best efforts to deliver or cause to be delivered to Acquiror,
concurrently with the execution of this Agreement (and in each case at least
fifteen (15) days prior to the Effective Time) from each of the Affiliates of
Target, an executed Affiliate and Shareholder Agreement in the form attached
hereto as Exhibit C. Acquiror 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 Affiliate and Shareholder Agreement.
5.8 Shareholder's Representation Agreements. Target will use
its best efforts to cause each Target shareholder to execute and deliver to
Acquiror a Shareholder's Representation Agreement in the form attached hereto as
Exhibit E ("Shareholder's Representation Agreement").
33.
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5.9 Irrevocable Proxies. Target shall use its best efforts, on
behalf of Acquiror and pursuant to the request of Acquiror, to cause holders of
more than 51% of each of: (i) the shares of Target Common Stock issued and
outstanding and (ii) the shares of Target Preferred Stock issued and
outstanding, to execute and deliver to Acquiror an Irrevocable Proxy in the form
of Exhibit D attached hereto concurrently with the execution of this Agreement
and in any event prior to the time that the Information Statement is mailed to
the shareholders of Target.
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 F
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 F 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 and Target will, and
will cause any 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. Acquiror shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the Acquiror Common Stock in connection
with the Merger. Target shall use its best efforts to assist Acquiror as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of Acquiror Common Stock in
connection with the Merger.
5.13 Employee Benefit Plans. At the Effective Time, the Target
Stock Option Plan and each outstanding option to purchase shares of Target
Common Stock under the Target Stock Option Plan, whether vested or unvested,
will be assumed by Acquiror and any outstanding repurchase right shall be
assigned to Acquiror. Schedule 5.13 hereto sets forth a true and complete list
as of the date hereof of all holders of outstanding options under
34.
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the Target Stock Option Plan 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 Plan 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 Plan and the documents governing the outstanding options under such
Plans, the Merger will not terminate any of the outstanding options under the
Target Stock Option Plan 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 except as
otherwise described in Schedule 5.13. It is the intention of the parties that
the options so assumed by Acquiror qualify following the Effective Time as
incentive stock options as defined in Section 422 of the Code to the extent such
options qualified as incentive stock options prior to the Effective Time. 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 Plan a document in form and substance
satisfactory to Target evidencing the foregoing assumption of such option by
Acquiror.
5.14 Escrow Agreement. On or before the Effective Time, the
Escrow Agent and the Shareholders' Agent (as defined in Article VIII hereto)
will execute the Escrow Agreement contemplated by Article VIII in the form
attached hereto as Exhibit G ("Escrow Agreement").
5.15 Form S-8. Acquiror agrees to use its best efforts to file
as soon as possible, and in no event later than 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 Plan
assumed by Acquiror. Target shall cooperate with and assist Acquiror in the
preparation of such registration statement. The shares of Acquiror Common Stock
to be issued upon exercise of such options will be duly authorized, validly
issued, fully paid and nonassessable.
5.16 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 of Acquiror Common
Stock issuable upon conversion of the
35.
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Target Common Stock in the Merger and upon exercise of the options under the
Target Stock Option Plan assumed by Acquiror.
5.17 Employees. Set forth on Schedule 5.17 is a list of
employees of Target to whom Acquiror will make an offer to enter into an
Employment and Non-Competition Agreement substantially in the form attached
hereto as Exhibit H-1 et seq., as applicable. Target shall cooperate with
Acquiror to assist Acquiror in employing such employees.
5.18 Reorganization. Acquiror and Target shall each use its
best efforts to cause the business combination to be effected by the Merger to
be qualified as a "reorganization" described in Section 368(a) of the Code.
5.19 Expenses. Whether or not the Merger is consummated, all
costs and expenses incurred in connection with this Agreement, the Agreement of
Merger and the transactions contemplated hereby and thereby shall be paid by the
party incurring such expense; provided, however, that any out-of-pocket expenses
incurred by Target (including, without limitation, fees and expenses of legal
counsel, financial advisors and accountants) in excess of $175,000 shall remain
an obligation of Target's shareholders.
5.20 Termination of Registration Rights. Target shall use
commercially reasonable efforts to terminate any and all rights granted by that
certain Registration Rights Agreement, dated June 7, 1996.
5.21 Employment Policy. Acquiror and Target shall adopt and
maintain in effect from the Closing for a minimum period of twenty-four (24)
months thereafter, an employment policy applicable to all employees of Target,
other than those who sign employment agreements, that shall provide: (i) no such
employee shall be required to relocate to a facility outside the San Francisco
Bay Area without the prior written approval of each of Herb Madan and John
Chambers, and (ii) that no such employee may be terminated unless such
termination is reviewed and approved in writing by each of Herb Madan and John
Chambers. Notwithstanding the foregoing, if Herb Madan is not employed by
Acquiror such relocation or termination shall require the approval of James
McGuire; if John Chambers is not employed by Acquiror such relocation or
termination shall require the approval of Larry Carter. Termination pursuant to
this policy shall be without prejudice to any other right or remedy to which the
employer may be entitled either at law or in equity.
5.22 Reasonable Commercial Efforts and Further Assurances.
Each of the parties to this Agreement shall use reasonable commercial 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.
36.
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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) Shareholder Approval. This Agreement and the
Merger shall have been approved and adopted by the holders of at least fifty-one
percent (51%) of each of: (i) the issued and outstanding shares of Target Common
Stock and (ii) the issued and outstanding shares of Target Preferred Stock.
(b) No Injunctions or Restraints; Illegality. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing the consummation of the Merger shall be and
remain in effect, nor shall any proceeding brought by an administrative agency
or commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending. Nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger, which makes the consummation of the Merger
illegal. 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.
(c) Governmental Approval. Acquiror and Target and
any 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 (other than those
filings, approvals, waivers and consents relating to the Merger or affecting
Acquiror's ownership of Target or any of its properties if failure to obtain
such approval, waiver or consent would not have a Material Adverse Effect to
either party).
(d) Escrow Agreement. Acquiror, Target, Escrow Agent
and the Shareholder's Agent (as defined in Article VIII hereto) shall have
entered into an Escrow Agreement substantially in the form attached hereto as
Exhibit G.
(e) Tax-Free Reorganization. Each of Acquiror and
Target shall have received substantially identical written opinions from their
respective counsel to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code. In rendering
such opinions, counsel shall be entitled to rely upon representations of
Acquiror and Target and certain shareholders of Target.
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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 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 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 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 on or before such date have been
so performed in all material respects.
(c) Legal Opinion. Target shall have received a legal
opinion from Acquiror's legal counsel substantially in the form of Exhibit J
hereto.
(d) No Material Adverse Changes. There shall not have
occurred any material adverse change in the financial condition, properties,
assets (including intangible assets), liabilities, business, operations or
results of operations of Acquiror and its subsidiaries, taken as a whole.
(e) Listing of Additional Shares. The filing with the
Nasdaq National Market of a Notification Form for Listing of Additional Shares
with respect to the shares of Acquiror Common Stock issuable upon conversion of
the Target Capital Stock in the Merger and upon exercise of the options under
the Target Stock Option Plan assumed by Acquiror shall have been made.
6.3 Additional Conditions to the Obligations of Acquiror. The
obligations of Acquiror 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:
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(a) Representations, Warranties and Covenants. (i)
Except as disclosed in Schedule 6.3(a) to be delivered immediately prior to the
Effective Time, 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.
(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) 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 the contracts of Target set forth on Schedule 6.3(c) hereto.
(d) 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.
(e) Legal Opinion. Acquiror shall have received a
legal opinion from Target's legal counsel, in substantially the form of Exhibit
K.
(f) No Material Adverse Changes. There shall not have
occurred any material adverse change in the financial condition, properties,
assets (including intangible assets), liabilities, business, operations or
results of operations of Target.
(g) Affiliate and Shareholder Agreements. Acquiror
shall have received from each of the Affiliates of Target an executed Affiliate
and Shareholder Agreement in substantially the form attached hereto as Exhibit
C.
39.
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(h) FIRPTA Certificate. Target shall, prior to the
Closing Date, provide Acquiror with a properly executed FIRPTA Notification
Letter, substantially in the form of Exhibit F 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 F 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.
(i) Resignation of Directors. The directors of Target
in office immediately prior to the Effective Time shall have resigned as
directors of the Surviving Corporation effective immediately following the
Effective Time.
(j) Employment and Non-Competition Agreements. The
employees of Target set forth on Schedule 5.17 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.
(k) Expense Statement. Acquiror shall have received
from Target a statement of all out-of-pocket expenses incurred by Target which
are subject to the limitation described in Section 5.19 hereto.
(l) Termination of Registration Rights. Acquiror
shall have received an agreement of termination of any and all rights granted by
that certain Registration Rights Agreement, dated ____________, 1996.
(m) Conversion of Preferred Stock. All of Target's
outstanding Preferred Stock shall have been converted into Common Stock in
accordance with Target's Articles of Incorporation.
(n) Due Diligence. Acquiror shall be satisfied in its
sole discretion that no material liabilities exist with respect to the items
disclosed under sections 2.1 and 2.13 of the Target Disclosure Schedule.
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 shareholders of Target, this Agreement may be terminated:
40.
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(a) by mutual consent of the Board of Directors of
Acquiror and Target;
(b) by either Acquiror or Target, if, without fault
of the terminating party, the Closing shall not have occurred on or before
December 31, 1996 (provided, a later date may be agreed upon in writing by the
parties hereto, and provided further that the right to terminate this Agreement
under this Section 7.1(b) shall not be available to any party whose action or
failure to act has been the cause of or resulted in the failure of the Merger to
occur on or before such date and such action or failure to act constitutes a
breach of this Agreement);
(c) by Acquiror (provided Acquiror is not otherwise
in material breach), if (i) Target shall materially breach any of its
representations, warranties or obligations hereunder 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 Target fails to call and hold the Target Shareholders Meeting or obtain
appropriate written consent of Target's shareholders by December 31, 1996;
(d) by Target (provided Target is not otherwise in
material breach), if Acquiror shall materially breach any of its
representations, warranties or obligations hereunder 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 Takeover
Proposal or a Trigger Event (as defined in Section 7.3(b)) 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 shareholders 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 shareholders 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 shareholders or at any adjournment thereof or by written
consent; or
(g) by Target, in the event (i) of the acquisition,
by any person or group of persons (other than persons or groups of persons who
(A) acquired shares of Acquiror Common Stock pursuant to any merger of Acquiror
in which Acquiror was the surviving corporation and shareholders of Acquiror
represent less than 70% of the
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outstanding shares of the surviving corporation following such transaction or
any acquisition by Acquiror of all or substantially all of the capital stock or
assets of another person or (B) disclose their beneficial ownership of shares of
Acquiror Common Stock on Schedule 13G under the Exchange Act), of beneficial
ownership of 30% or more of the outstanding shares of Acquiror Common Stock (the
terms "person," "group" and "beneficial ownership" having the meanings ascribed
thereto in Section 13(d) of the Exchange Act and the regulations promulgated
thereunder), 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 or Target
or their respective officers, directors, shareholders 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 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 shareholders of Target to approve this Agreement and,
prior to such failure, 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 shareholders shall not have been (x) rejected by Target
or (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 or (y)
withdrawn by the third party, then Target shall reimburse Acquiror for all of
the reasonable out-of-pocket costs and expenses incurred by Acquiror in
connection with this Agreement and the transactions contemplated hereby
(including, without limitation, the reasonable fees and expenses of its
advisors, accountants and legal counsel) and, in addition, Target shall promptly
pay to
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Acquiror the sum of $7,930,000; 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 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 it group to 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).
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 shareholders of
Target shall not (i) alter or change the amount or kind of consideration to be
received on conversion of the Target Capital Stock, (ii) alter or change any
term of the Articles 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.
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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
ESCROW AND INDEMNIFICATION
8.1 Escrow Fund. As soon as practicable after the Effective
Time, 10% of the shares of Acquiror Common Stock issued at the Closing pursuant
to Section 1.5(a) (the "Escrow Shares") shall be registered in the name of, and
be deposited with, State Street Bank and Trust Company of California, N.A. (or
other institution selected by Acquiror with the reasonable consent of Target) as
escrow agent (the "Escrow Agent"), such deposit to constitute the Escrow Fund
and to be governed by the terms set forth herein and in the Escrow Agreement
attached hereto as Exhibit G. The Escrow Fund (but only up to a maximum of 10%
of the shares of Acquiror Common Stock issued at the Closing) shall be available
to compensate Acquiror pursuant to the indemnification obligations of the
shareholders of Target.
8.2 Indemnification.
(a) Subject to the limitations set forth in this
Article VIII, the shareholders of Target will indemnify and hold harmless
Acquiror and the Surviving Corporation and its respective officers, directors,
agents and employees, and each person, if any, who controls or may control
Acquiror or the Surviving Corporation within the meaning of the Securities Act
(hereinafter referred to individually as an "Indemnified Person" and
collectively as "Indemnified Persons") from and against any and all losses,
costs, damages, liabilities and expenses arising from claims, demands, actions,
causes of action, including, without limitation, reasonable legal fees, net of
any recoveries under existing insurance policies, tax benefit received by
Acquiror or its affiliates as a result of such damages, indemnities from third
parties or in the case of third party claims, by any amount actually recovered
by Acquiror or its affiliates pursuant to counterclaims made by any of them
directly relating to the facts giving rise to such third party claims
(collectively, "Damages") arising out of (i) the Confidentiality Agreement and
(ii) any misrepresentation or breach of or default in connection with any of the
representations, warranties, covenants and agreements given or made by Target in
this Agreement, the Target Disclosure Schedules or any exhibit or schedule to
this Agreement. Acquiror and its affiliates shall act in good faith and in a
commercially reasonable manner to mitigate any Damages they may suffer. The
Escrow Fund shall be the sole and exclusive remedy for any claims, demands,
actions or other causes
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of action brought against Target or its shareholders, officers or directors.
(b) Nothing in this Article VIII shall limit the
liability (i) of Target for any breach of any representation, warranty or
covenant if the Merger does not close, or (ii) of any Target shareholder in
connection with any breach by such shareholder of the Affiliate and Shareholder
Agreement, Irrevocable Proxy or continuity of interest certificate(s) delivered
in connection with the tax opinions to be rendered pursuant to Section 6.2(g).
Resort to the Escrow Fund shall be the exclusive remedy of Acquiror for any such
breaches and misrepresentations following the Effective Time of the Merger.
8.3 Damage Threshold.
(a) Notwithstanding Section 8.2, Acquiror may not
receive any shares from the Escrow Fund with respect to the indemnification
obligations of the shareholders of Target set forth in Section 8.2(a)(i) unless
and until an Officer's Certificate or Certificates (as defined in Section 8.5
below) satisfying the requirements of Section 8.5(a)(ii) and identifying Damages
has been delivered to the Escrow Agent as provided in Section 8.5 below and such
amount is determined pursuant to this Article VIII to be payable, in which case
Acquiror shall receive shares equal in value to the full amount of Damages;
provided, however, that in no event shall Acquiror receive more than 10% of the
shares of Acquiror Common Stock issued at the Closing.
(b) Notwithstanding Section 8.2, Acquiror may not
receive any shares from the Escrow Fund with respect to the indemnification
obligations of the shareholders of Target set forth in Section 8.2(a)(ii) unless
and until an Officer's Certificate or Certificates (as defined in Section 8.5
below) satisfying the requirements of Section 8.5(a)(i) and (ii) and identifying
Damages the aggregate amount of which exceeds $150,000 (which aggregate amount
cannot include any individual Damage items of $5,000 or less) has been delivered
to the Escrow Agent as provided in Section 8.5 below and such amount is
determined pursuant to this Article VIII to be payable, in which case Acquiror
shall receive shares equal in value to the full amount of Damages in excess of
$150,000; provided, however, that in no event shall Acquiror receive more than
10% of the shares of Acquiror Common Stock issued at the Closing. For the
purposes of this Article VIII, in determining whether a misrepresentation,
breach or default has occurred in connection with any of the representations,
warranties, covenants and agreements given or made by Target in this Agreement,
the Target Disclosure Schedule or any exhibit on schedule to this Agreement, and
the amount of any Damages arising therefrom, any materiality standard contained
in any such representation, warranty, covenant, or agreement shall be
disregarded.
8.4 Escrow Period. The Escrow Period shall terminate with
respect to 50% of the Escrow Shares upon the expiration of the six month period
commencing at the Effective Time (the "First Escrow Period"), and with respect
to the remaining 50% of the Escrow Shares upon the expiration of the twelve
month period commencing at the Effective Time (the "Second Escrow Period");
provided, however, that a portion of the Escrow
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<PAGE> 52
Shares, which, in the reasonable judgment of Acquiror, subject to the objection
of the Shareholders' Agent and the subsequent arbitration of the matter in the
manner provided in Section 8.7 hereof, are necessary to satisfy any unsatisfied
claims specified in any Officer's Certificate theretofore delivered to the
Escrow Agent prior to termination of the Second Escrow Period with respect to
facts and circumstances existing prior to expiration of the Second Escrow
Period, shall remain in the Escrow Fund until such claims have been resolved;
and provided further that if in the reasonable judgment of Acquiror, subject to
the objection of the Shareholders' Agent and the subsequent arbitration of the
matter in the manner specified in Section 8.7 hereof, the Escrow Shares
remaining in the Escrow Fund during the Second Escrow Period will not be
sufficient to satisfy any unsatisfied claims specified in any Officer's
Certificate delivered to the Escrow Agent prior to the expiration of the First
Escrow Period with respect to facts and circumstances existing prior to the
expiration of the First Escrow Period, then a portion of the Escrow Shares which
would otherwise be released upon the expiration of the First Escrow Period shall
instead remain in the Escrow Fund until such claims have been resolved.
8.5 Claims upon Escrow Fund.
(a) Upon receipt by the Escrow Agent on or before the
last day of the First Escrow Period, with respect to 100% of the Escrow Shares,
or on or before the last day of the Second Escrow Period, with respect to the
Escrow Shares then remaining in the Escrow Fund of a certificate signed by any
officer of Acquiror (an "Officer's Certificate"):
(i) stating that, with respect to the
indemnification obligations of the shareholders of
Target set forth in Section 8.2(a)(ii), Damages exist
in an aggregate amount greater than $150,000 (which
aggregate amount cannot include any individual Damage
items of $5,000 or less), and
(ii) specifying in reasonable detail the
individual items of such Damages included in the
amount so stated, the date each such item was paid,
or properly accrued or arose, and the nature of the
misrepresentation, breach of warranty or claim to
which such item is related,
the Escrow Agent shall, subject to the provisions of Section 8.6 and 8.7,
deliver to Acquiror out of the Escrow Fund, as promptly as practicable, Acquiror
Common Stock or other assets held in the Escrow Fund having a value equal to
such Damages in excess of $150,000.
(b) For the purpose of compensating Acquiror for its
Damages pursuant to this Agreement, the Acquiror Common Stock in the Escrow Fund
shall be valued at the Closing Price.
8.6 Objections to Claims. At the time of delivery of any
Officer's
46.
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Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to the Shareholders' Agent (defined in Section 8.8 below) by
Acquiror and for a period of forty-five (45) days after the receipt by the
Escrow Agent of the Officer's Certificate delivered to Escrow Agent (it being
understood that the Escrow Agent need not verify that an Officer's Certificate
was also delivered to the Shareholders' Agent), the Escrow Agent shall make no
delivery of Acquiror Common Stock or other property pursuant to Section 8.5
hereof unless the Escrow Agent shall have received written authorization from
the Shareholders' Agent to make such delivery. After the expiration of such
forty-five (45) day period, the Escrow Agent shall make delivery of the Acquiror
Common Stock or other property in the Escrow Fund in accordance with Section 8.5
hereof, provided that no such payment or delivery may be made if the
Shareholders' Agent shall object in a written statement to the claim made in the
Officer's Certificate, and such statement shall have been delivered to the
Escrow Agent and to Acquiror prior to the expiration of such forty-five (45) day
period.
8.7 Resolution of Conflicts; Arbitration.
(a) In case the Shareholders' Agent shall, pursuant
to Section 8.6, object in writing to any claim or claims by Acquiror made in any
Officer's Certificate, Acquiror shall have forty-five (45) days to respond in a
written statement to the objection of the Shareholders' Agent. If after such
forty-five (45) day period there remains a dispute as to any claims, the
Shareholders' Agent and Acquiror shall attempt in good faith for sixty (60) days
to agree upon the rights of the respective parties with respect to each of such
claims. If the Shareholders' Agent and Acquiror should so agree, a memorandum
setting forth such agreement shall be prepared and signed by both parties and
shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to
rely on any such memorandum and shall retain or distribute the Acquiror Common
Stock or other property from the Escrow Fund in accordance with the terms
thereof.
(b) If no such agreement can be reached after good
faith negotiation, either Acquiror or the Shareholders' Agent may, by written
notice to the other, demand arbitration of the matter unless the amount of the
damage or loss is at issue in pending litigation with a third party, in which
event arbitration shall not be commenced until such amount is ascertained or
both parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by three arbitrators. Within fifteen (15) days
after such written notice is sent, Acquiror and the Shareholders' Agent shall
each select one arbitrator, and the two arbitrators so selected shall select a
third arbitrator. The decision of the arbitrators as to the validity and amount
of any claim in such Officer's Certificate shall be binding and conclusive upon
the parties to this Agreement, and notwithstanding anything in Section 8.6
hereof, the Escrow Agent shall be entitled to act in accordance with such
decision and make or withhold payments out of the Escrow Fund in accordance
therewith.
(c) Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. Any such
arbitration shall be held in Santa Clara or
47.
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San Mateo County, California under the commercial rules then in effect of the
American Arbitration Association. For purposes of this Section 8.7(c), in any
arbitration hereunder in which any claim or the amount thereof stated in the
Officer's Certificate is at issue, Acquiror shall be deemed to be the
Non-Prevailing Party unless the arbitrators award Acquiror more than one-half
(1/2) of the amount in dispute, plus any amounts not in dispute; otherwise, the
Target shareholders for whom shares of Target Common Stock otherwise issuable to
them have been deposited in the Escrow Fund shall be deemed to be the
Non-Prevailing Party. The Non-Prevailing Party to an arbitration shall pay its
own expenses, the fees of each arbitrator, the administrative fee of the
American Arbitration Association, and the expenses, including without
limitation, attorneys' fees and costs, reasonably incurred by the other party to
the arbitration.
8.8 Shareholders' Agent.
(a) Herbert Madan shall be constituted and appointed
as agent ("Shareholders' Agent") for and on behalf of the Target shareholders to
give and receive notices and communications, to authorize delivery to Acquiror
of the Acquiror Common Stock or other property from the Escrow Fund in
satisfaction of claims by Acquiror, to object to such deliveries, to agree to,
negotiate, enter into settlements and compromises of, and demand arbitration and
comply with orders of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in the judgment of the
Shareholders' Agent for the accomplishment of the foregoing. Such agency may be
changed by the holders of a majority in interest of the Escrow Fund from time to
time upon not less than 10 days' prior written notice to Acquiror and the Escrow
Agent. No bond shall be required of the Shareholders' Agent, and the
Shareholders' Agent and Escrow Agent shall receive no compensation for his
services. Notices or communications to or from the Shareholders' Agent shall
constitute notice to or from each of the Target shareholders.
(b) The Shareholders' Agent shall not be liable for
any act done or omitted hereunder as Shareholders' Agent while acting in good
faith, and any act done or omitted pursuant to the advice of counsel shall be
conclusive evidence of such good faith. The Target shareholders shall severally
indemnify the Shareholders' Agent and hold him harmless against any loss,
liability or expense incurred without gross negligence or bad faith on the part
of the Shareholders' Agent and arising out of or in connection with the
acceptance or administration of his duties hereunder.
(c) The Shareholders' Agent shall have reasonable
access to information about Target and the reasonable assistance of Target's
officers and employees for purposes of performing his duties and exercising his
rights hereunder, provided that the Shareholders' Agent shall treat
confidentially and not disclose any nonpublic information from or about Target
to anyone (except on a need to know basis to individuals who agree to treat such
information confidentially).
8.9 Actions of the Shareholders' Agent. A decision, act,
consent or
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<PAGE> 55
instruction of the Shareholders' Agent shall constitute a decision of all Target
shareholders for whom shares of Acquiror Common Stock otherwise issuable to them
are deposited in the Escrow Fund and shall be final, binding and conclusive upon
each such Target shareholder, and the Escrow Agent and Acquiror may rely upon
any decision, act, consent or instruction of the Shareholders' Agent as being
the decision, act, consent or instruction of each and every such Target
shareholder. The Escrow Agent and Acquiror are hereby relieved from any
liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Shareholders' Agent.
8.10 Third-Party Claims. In the event Acquiror becomes aware
of a third-party claim which Acquiror believes may result in a demand against
the Escrow Fund, Acquiror shall notify the Shareholders' Agent of such claim,
and the Shareholders' Agent and the Target shareholders for whom shares of
Acquiror Common Stock otherwise issuable to them are deposited in the Escrow
Fund shall be entitled, at their expense, to participate in any defense of such
claim. Acquiror shall have the right in its sole discretion to settle any such
claim; provided, however, that Acquiror may not affect the settlement of any
such claim without the consent of the Shareholders' Agent, which consent shall
not be unreasonably withheld. In the event that the Shareholders' Agent has
consented to any such settlement, the Shareholders' Agent shall have no power or
authority to object under Section 8.6 or any other provision of this Article
VIII to the amount of any claim by Acquiror against the Escrow Fund for
indemnity with respect to such settlement.
ARTICLE IX
GENERAL PROVISIONS
9.1 Non-Survival at Effective Time. The representations,
warranties and agreements set forth in this Agreement shall terminate at the
Effective Time, except that the agreements set forth in Article I, Section 5.4
(Confidentiality), 5.7 (Affiliate and Shareholder Agreement), 5.10 (FIRPTA),
5.13 (Employee Benefit Plans), 5.15 (Form S-8), 5.18 (Reorganization), 5.21
(Reasonable Commercial Efforts and Further Assurances), 7.3 (Expenses and
Termination Fees), 7.4 (Amendment), Article VIII and this Article IX shall
survive the Effective Time.
9.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or by
commercial delivery service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with confirmation of receipt) to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
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(a) if to Acquiror, to:
Cisco Systems, Inc.
170 West Tasman
San Jose, CA 95134
Attention: President
Fax: 408-526-4000
Tel: 408-526-4100
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: Edward M. Leonard, Esq.
Fax: (415) 496-2885
Tel: (415) 424-0160
(b) if to Target, to
Netsys Technologies, Inc.
100 Hamilton Avenue, Suite 175
Palo Alto, CA 94301
Attention: President
Fax: 415-833-7599
Tel: 415-833-7525
with a copy to:
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attention: Robert B. Latta, Esq.
Fax: 415-493-6811
Tel: 415-493-9300
9.3 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 October 11, 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.
50.
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9.4 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.
9.5 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 specifically set forth herein; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided.
9.6 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.
9.7 Remedies Cumulative. Except as otherwise provided herein,
any and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
9.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of California, without giving effect to
principles of conflicts of law. Each of the parties hereto irrevocably consents
to the exclusive jurisdiction of any court located within Santa Clara or San
Mateo County, 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.
9.9 Rules of Construction. The parties hereto agree that they
have been represented by counsel during the negotiation, preparation and
execution of this Agreement
51.
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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.
52.
<PAGE> 59
IN WITNESS WHEREOF, Target and Acquiror have caused this
Agreement to be executed and delivered by their respective officers thereunto
duly authorized, all as of the date first written above.
TARGET
By: /s/ Herbert Madan
--------------------------------
Name: Herbert Madan
------------------------------
Title: President & CEO
------------------------------
ACQUIROR
By: /s/ Larry Carter
--------------------------------
Name: Larry Carter
------------------------------
Title: Chief Financial Officer
------------------------------
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
53.
<PAGE> 1
EXHIBIT 5.1
December 13, 1996
Cisco Systems, Inc.
255 West Tasman Drive
San Jose, CA 95134
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 to be
filed by you with the Securities and Exchange Commission on or about the date
hereof (the "Registration Statement"), in connection with the registration under
the Securities Act of 1933, as amended, of certain shares of Common Stock (the
"Shares") of Cisco Systems, Inc. (the "Company") to be issued to the
shareholders of Netsys Technologies, Inc. ("Netsys") in connection with the
merger of Netsys with and into the Company. As your legal counsel, we have
examined the proceedings taken and are familiar with the proceedings proposed to
be taken by you in connection with the issuance of the Shares.
It is our opinion that, when issued in the manner referred to
in the Registration Statement and in accordance with resolutions adopted by the
Board of Directors of the Company, such Shares will be legally and validly
issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to the use of our name whenever
appearing in the Registration Statement and any amendment thereto.
Very truly yours,
/s/ Brobeck, Phleger & Harrison LLP
-----------------------------------
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-3 of Cisco Systems, Inc. for the registration of 1,088,784 shares of its
common stock, of our reports dated August 13, 1996, except for Note 3 for which
the date is October 14, 1996, on our audits of the consolidated financial
statements and financial statement schedule of Cisco Systems, Inc. as of July
28, 1996 and July 30, 1995, and for the years ended July 28, 1996, July 30, 1995
and July 31, 1994 which reports are included in the Company's 1996 Annual Report
on Form 10K, filed with the Securities and Exchange Commission. We also consent
to the reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
San Jose, California
December 13, 1996
