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Filed Pursuant to Rule 424(b)(4)
Registration No. 333-64689
SUMMA FOUR, INC.
PROXY STATEMENT
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CISCO SYSTEMS, INC.
PROSPECTUS
This Proxy Statement/Prospectus constitutes the Proxy Statement of Summa
Four, Inc., a Delaware corporation ("Summa Four"), in connection with the
solicitation of proxies by the Summa Four Board of Directors for use at the
Special Meeting of Summa Four stockholders (the "Special Meeting") to be held at
10:00 a.m., local time, on November 4, 1998, at Summa Four's facilities located
at 25 Sundial Avenue, Manchester, New Hampshire, and at any adjournments or
postponements of the Special Meeting.
This Proxy Statement/Prospectus also constitutes the Prospectus of Cisco
Systems, Inc. ("Cisco") for use in connection with the offer and issuance of
shares of Cisco Common Stock, $0.001 par value per share ("Cisco Common Stock"),
pursuant to the merger (the "Merger") of Agemo Acquisition Corporation, a
Delaware corporation and a wholly-owned subsidiary of Cisco ("Merger Sub"), with
and into Summa Four under the terms of the Agreement and Plan of Reorganization
(the "Reorganization Agreement"), dated as of July 27 1998, by and among Cisco,
Merger Sub and Summa Four. A copy of the Reorganization Agreement is attached
hereto as Appendix A. As a result of the Merger, Summa Four will become a
wholly-owned subsidiary of Cisco.
Upon the effectiveness of the Merger, each share of Summa Four Common Stock
together with the corresponding Right, as defined in the Rights Agreement dated
as of February 22, 1995 between Summa Four and State Street Bank and Trust
Company will be converted, without any action on the part of the holder thereof,
into the right to receive 0.268491 shares of Cisco Common Stock (the "Exchange
Ratio"); provided, however, that (i) in the event the average of the closing
prices of a share of Cisco Common Stock as quoted on the Nasdaq National Market
for the ten trading days immediately preceding and ending on the trading day
that is three calendar days prior to the close of the Merger (the "Cisco Market
Price") is less than $58.67, the Exchange Ratio shall be equal to $15.75 divided
by the Cisco Market Price but in no event greater than 0.2953395 shares of Cisco
Common Stock, and (ii) in the event the Cisco Market Price is more than $71.70,
the Exchange Ratio shall be equal to $19.25 divided by the Cisco Market Price
but in no event less than 0.241641 shares of Cisco Common Stock. Each share of
Cisco Common Stock to be issued shall include a corresponding right to purchase
shares of Cisco Series A Junior Participating Preferred Stock, no par value,
pursuant to the Cisco Rights Agreement dated as of June 10, 1998 between Cisco
and Bank Boston, N.A. An aggregate of between 1.4 and 1.7 million shares of
Cisco Common Stock (based on 5,822,460 shares of Summa Four Common Stock
outstanding as of September 17, 1998) will be issued by Cisco in the Merger and
options to purchase an aggregate of between approximately 216,000 and 265,000
additional shares of Cisco Common Stock (based on 894,222 shares of Summa Four
Common Stock subject to outstanding Summa Four Options as of September 17, 1998)
will be assumed by Cisco in the Merger.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to stockholders of Summa Four on or about October 5, 1998.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY
STATEMENT/PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. SUMMA FOUR
STOCKHOLDERS ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY, PARTICULARLY THE MATTERS REFERRED TO UNDER
"RISK FACTORS" STARTING ON PAGE 17.
------------------------
NEITHER THIS TRANSACTION NOR THE SECURITIES OF CISCO OFFERED HEREBY HAVE BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS OCTOBER 5, 1998.
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TABLE OF CONTENTS
<TABLE>
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AVAILABLE INFORMATION....................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 2
TRADEMARKS.................................................. 3
FORWARD-LOOKING STATEMENTS.................................. 3
SUMMARY..................................................... 4
MARKET PRICE AND DIVIDEND INFORMATION....................... 12
SELECTED HISTORICAL FINANCIAL DATA.......................... 14
COMPARATIVE PER SHARE DATA.................................. 16
RISK FACTORS................................................ 17
Financial Risk Management................................. 17
Potential Volatility in Operating Results................. 17
Acquisitions.............................................. 19
Competition............................................... 19
Patents, Intellectual Property and Licensing.............. 20
Regulation of the Internet................................ 20
Dependence on New Product Development..................... 20
Entering New or Developing Markets........................ 21
Availability of Product................................... 21
Natural Disasters......................................... 21
Potential Fluctuations in Quarterly Results............... 21
Dependence on New Product Development; Rapid Technological
and Market Change...................................... 21
Strategic Alliances....................................... 22
Industry Consolidation.................................... 22
Organizational Changes.................................... 22
Variability in Service Provider Sales..................... 22
Manufacturing Risks....................................... 22
Changes in Telecommunications Laws and Tariffs............ 22
International Operations.................................. 23
Risks Associated With Internet Infrastructure............. 23
Volatility of Stock Price................................. 23
THE SPECIAL MEETING......................................... 24
Date, Time and Place of the Special Meeting............... 24
Matters to be Considered at the Special Meeting........... 24
Record Date and Shares Entitled to Vote................... 24
Voting of Proxies......................................... 24
Vote Required............................................. 24
Quorum; Abstentions and Broker Non-Votes.................. 25
Solicitation of Proxies and Expenses...................... 25
Board Recommendation...................................... 25
THE MERGER AND RELATED TRANSACTIONS......................... 26
General................................................... 26
Conversion of Shares...................................... 26
Conversion of Options..................................... 26
Exchange of Certificates.................................. 27
Notification Regarding Options............................ 27
Background of the Merger.................................. 27
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<TABLE>
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Reasons for the Merger.................................... 28
Operations Following the Merger........................... 30
Opinion of Financial Advisor to Summa Four................ 30
Related Agreements........................................ 33
The Reorganization Agreement.............................. 36
Indemnification and Insurance............................. 41
Interests of Certain Persons in the Merger................ 41
Regulatory Matters........................................ 42
Certain Federal Income Tax Considerations................. 42
Accounting Treatment...................................... 43
No Appraisal Rights....................................... 43
COMPARISON OF RIGHTS OF STOCKHOLDERS OF CISCO AND SUMMA
FOUR...................................................... 44
Vote Required for Extraordinary Transactions.............. 44
Director Nominations...................................... 44
Amendment to Governing Documents.......................... 45
Appraisal Rights.......................................... 45
Derivative Action......................................... 46
Stockholder Consent in Lieu of Meeting.................... 46
Fiduciary Duties of Directors............................. 46
Stockholder Proposals..................................... 47
Indemnification........................................... 47
Director Liability........................................ 47
Anti-Takeover Provisions and Interested Stockholder
Transactions........................................... 48
Cumulative Voting......................................... 49
Advance Notice of Record Date............................. 49
Inspection of Books and Records........................... 49
Size of the Board of Directors............................ 49
Removal of Directors...................................... 49
Transactions Involving Directors.......................... 50
Filling Vacancies on the Board of Directors............... 50
EXPERTS..................................................... 50
LEGAL MATTERS............................................... 51
APPENDICES
A -- Agreement and Plan of Reorganization and Certificate
of Merger.............................................. A-1
B -- Opinion of Dain Rauscher Wessels.................... B-1
C -- Stock Option Agreement.............................. C-1
</TABLE>
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NO PERSON HAS BEEN AUTHORIZED BY CISCO OR SUMMA FOUR TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/
PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF
SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CISCO OR SUMMA FOUR. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS OR A SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE, OR
TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATES
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION CONTAINED HEREIN SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
Cisco and Summa Four are each subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith each files reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). These materials can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, New York, New York 10048. Copies of these materials can also be
obtained from the Commission at prescribed rates by writing to the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a World Wide Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding entities, including Cisco and Summa Four, that file electronically
with the Commission. In addition, material filed by Cisco and material filed by
Summa Four can be inspected at the offices of the Nasdaq Stock Market at 1735 K
Street, N.W., Washington, D.C. 20006. Cisco does not assume any responsibility
for the accuracy or completeness of the information concerning Summa Four
contained in such documents or for any failure by Summa Four to disclose events
which may have occurred or may affect the significance or accuracy of any such
information, and Summa Four does not assume any responsibility for the accuracy
or completeness of the information concerning Cisco contained in such documents
or for any failure by Cisco to disclose events which may have occurred or may
affect the significance or accuracy of any such information.
Cisco has filed with the Commission a registration statement on Form S-4
(the "Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Cisco Common Stock to be issued in
connection with the Merger. This Proxy Statement/Prospectus constitutes the
prospectus of Cisco that is filed as part of the Registration Statement. Other
parts of the Registration Statement are omitted from this Proxy
Statement/Prospectus in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement. Copies of the Registration Statement, including the
exhibits to the Registration Statement and other material that is not included
herein, may be inspected, without charge, at the offices of the Commission
referred to above, or obtained at prescribed rates from the Public Reference
Section of the Commission at the address set forth above.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents by Cisco filed with the Commission are incorporated
by reference in this Proxy Statement/Prospectus:
1. Cisco's Annual Report on Form 10-K for the fiscal year ended July
25, 1998, including certain information in Cisco's Definitive Proxy
Statement in connection with Cisco's 1998 Annual Meeting of Shareholders
and certain information in Cisco's Annual Report to Shareholders for the
fiscal year ended July 25, 1998;
2. The description of Cisco's capital stock contained in Cisco's
Registration Statement on Form 8-A dated January 8, 1990, including any
amendment or report filed for the purpose of updating such description.
The following documents filed by Summa Four with the Commission are
incorporated by reference in this Proxy Statement/Prospectus:
1. Summa Four's Annual Report on Form 10-K for the fiscal year ended
March 31, 1998, including certain information in Summa Four's Definitive
Proxy Statement dated June 26, 1998, in connection with Summa Four's 1998
Annual Meeting of Stockholders;
2. Summa Four's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1998;
3. Summa Four's Current Report on Form 8-K filed on June 2, 1998;
4. Summa Four's Current Report on Form 8-K filed on July 30, 1998;
5. The description of Summa Four's capital stock contained in Summa
Four's Registration Statements on Form 8-A dated August 10, 1993, including
any amendment or report filed for the purpose of updating such description.
All reports and definitive proxy or information statements filed by Cisco
and Summa Four pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act subsequent to the date of this Proxy Statement/ Prospectus and prior to the
date of the Special Meeting shall be deemed to be incorporated by reference into
this Proxy Statement/Prospectus from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THERE WILL BE PROVIDED WITHOUT
CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL HOLDER OF SUMMA FOUR COMMON
STOCK, TO WHOM A PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON ORAL OR WRITTEN
REQUEST OF ANY SUCH PERSON, A COPY OF ANY OR ALL DOCUMENTS INCORPORATED BY
REFERENCE HEREIN (EXCLUDING EXHIBITS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE HEREIN). WITH RESPECT TO CISCO'S DOCUMENTS, REQUESTS
SHOULD BE DIRECTED TO CISCO SYSTEMS, INC., INVESTOR RELATIONS OFFICE, 170 WEST
TASMAN DRIVE, SAN JOSE, CALIFORNIA 95134 (TELEPHONE (408) 526-4000). WITH
RESPECT TO SUMMA FOUR'S DOCUMENTS, REQUESTS SHOULD BE DIRECTED TO SUMMA FOUR,
INC., INVESTOR RELATIONS 25 SUNDIAL AVENUE, MANCHESTER, NEW HAMPSHIRE 03103-7251
(TELEPHONE (603) 625-4050). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS
IN ADVANCE OF THE SPECIAL MEETING TO WHICH THIS PROXY STATEMENT/PROSPECTUS
RELATES, ANY SUCH REQUEST SHOULD BE MADE AT LEAST TEN BUSINESS DAYS PRIOR TO THE
DATE OF THE SPECIAL MEETING.
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All information contained in this Proxy Statement/Prospectus relating to
Cisco has been supplied by Cisco, and all information relating to Summa Four has
been supplied by Summa Four.
TRADEMARKS
This Proxy Statement/Prospectus contains trademarks of Cisco and Summa Four
and may contain trademarks of others.
FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this Proxy
Statement/Prospectus, including, without limitation, statements containing the
words "believes," "anticipates," "estimates," "expects," and words of similar
import, constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Readers are referred to the Cisco's
and Summa Four's reports filed with the Commission, as well as the "Risk
Factors" section contained herein, which identify important risk factors that
could cause actual results to differ from those contained in the forward looking
statements.
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/ Prospectus, the Appendices hereto, the Exhibits to the
Registration Statement (the "Exhibits") and documents incorporated by reference
herein. The summary does not contain a complete statement of all material
information relating to the Reorganization Agreement, the Merger or the other
matters discussed herein and is subject to, and qualified in its entirety by,
the more detailed information and financial statements contained or incorporated
by reference in this Proxy Statement/Prospectus and the Appendices hereto and
the Exhibits. Stockholders are urged to read this Proxy Statement/Prospectus,
the Appendices and the Exhibits in their entirety.
THE COMPANIES
Cisco Systems, Inc.
Cisco is the worldwide leader in networking for the Internet. Cisco
provides networking solutions that connect computing devices and computer
networks. These allow people to access or transfer information without regard to
differences in time, place or type of computer system.
Cisco markets its products through its direct sales force, distributors,
value-added resellers and system integrators. This multiple-channel approach
allows customers to select the channel that addresses their specific needs and
provides Cisco with broad coverage of worldwide markets.
Cisco was incorporated in California in December 1984. Cisco's executive
offices are located at 170 West Tasman Drive, San Jose, California 95134, and
its telephone number at that location is (408)526-4000. Cisco can also be
reached by visiting its web site at www.cisco.com. Information contained at such
web site does not constitute a part of this Proxy Statement/Prospectus.
Summa Four, Inc.
Summa Four is a leading provider of open, programmable switches that enable
worldwide telecommunications service providers to build and deploy advanced
networks and applications. Examples of services offered by companies using Summa
Four's products include core transport switching for personal communications,
wireless local loop and wireless networks, enhanced service delivery for voice
and fax messaging, single number routing, intelligent 800 calling, voice
activated dialing, calling card applications, and automated operator services.
Summa Four's products are based on an open architecture and have a universal
application interface which supports the economical and rapid introduction of
these and other public telephone network applications. Summa Four sells its
products directly to end-users and through relationships with systems
integrators.
Unless otherwise indicated, "Summa Four" refers to Summa Four, Inc., a
Delaware corporation and its wholly-owned and majority-owned subsidiaries. Summa
Four was incorporated in Delaware in 1976. Summa Four's executive offices are
located at 25 Sundial Avenue, Manchester, New Hampshire 03103-7251. Its
telephone number is (603) 625-4050. Summa Four can also be reached by visiting
its web site at www.summa4.com. Information contained at such web site does not
constitute a part of this Proxy Statement/ Prospectus.
Merger Sub.
"Merger Sub" refers to Agemo Acquisition Corporation, a Delaware
corporation and wholly-owned subsidiary of Cisco formed solely for the purpose
of the Merger. Merger Sub's executive offices are located at 170 West Tasman
Drive, San Jose, California 95134. Its telephone number is (408) 526-4000.
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THE MERGER; CONVERSION OF SECURITIES
General
Cisco, Merger Sub and Summa Four have entered into the Reorganization
Agreement, whereby Merger Sub will be merged with and into Summa Four, resulting
in Summa Four becoming a wholly-owned subsidiary of Cisco. See "The Merger and
Related Transactions."
Upon consummation of the Merger each share of Summa Four Common Stock
together with the corresponding Right, as defined in the Rights Agreement dated
as of February 22, 1995 and amended as of July 27, 1998 between Summa Four and
State Street Bank and Trust Company will be converted, without any action on the
part of the holder thereof, into the right to receive 0.268491 shares of Cisco
Common Stock (the "Exchange Ratio"); provided, however, that (i) in the event
the average of the closing prices of a share of Cisco Common Stock as quoted on
the Nasdaq National Market for the ten trading days immediately preceding and
ending on the trading day that is three calendar days prior to the close of the
Merger (the "Cisco Market Price") is less than $58.67, the Exchange Ratio shall
be equal to $15.75 divided by the Cisco Market Price but in no event greater
than 0.2953395 shares of Cisco Common Stock, and (ii) in the event the Cisco
Market Price is more than $71.70, the Exchange Ratio shall be equal to $19.25
divided by the Cisco Market Price but in no event less than 0.241641 shares of
Cisco Common Stock. Each share of Cisco Common Stock to be issued shall include
a corresponding right to purchase shares of Cisco Series A Junior Participating
Preferred Stock, no par value, pursuant to the Cisco Rights Agreement dated as
of June 10, 1998 between Cisco and BankBoston, N.A.
As of the Record Date, September 17, 1998, Summa Four had 5,822,460 shares
of Common Stock outstanding and 894,222 shares of Common Stock reserved for
issuance pursuant to outstanding stock options of which 281,294 options were
vested and exercisable as of September 17, 1998. Based on a closing price of
Cisco Common Stock of $61.50 on September 17, 1998, and assuming exercise of
vested stock options, the aggregate value of the Merger consideration to be
issued in the transaction would be approximately $101 million, giving pro forma
effect to the exercise of all such vested outstanding stock options. See "The
Merger and Related Transactions -- Conversion of Shares."
The shares of Cisco Common Stock outstanding prior to the Merger will
remain unchanged by the Merger, except for dilution of approximately 0.1%
resulting from the Merger.
Exchange of Certificates; Notification Regarding Options
Following effectiveness of the Merger, a letter of transmittal with
instructions will be mailed to each holder of record of Summa Four Common Stock
for use in exchanging Summa Four Common Stock certificates for Cisco Common
Stock Certificates. HOLDERS OF SUMMA FOUR COMMON STOCK SHOULD NOT SUBMIT THEIR
STOCK CERTIFICATES FOR EXCHANGE UNTIL THEY HAVE RECEIVED THE LETTER OF
TRANSMITTAL AND INSTRUCTIONS.
Following effectiveness of the Merger, Cisco will issue to each holder of a
Summa Four Option a document evidencing the assumption of such Summa Four Option
by Cisco. See "The Merger and Related Transactions -- Exchange of Certificates"
and "-- Notification Regarding Options."
Reasons for the Merger
Cisco and Summa Four have identified several potential benefits of the
Merger that they believe will contribute to the success of Cisco and Summa Four
(together, the "Combined Company"). The Merger is intended to enable the
Combined Company to, among other things, enhance its competitiveness in global
interconnectivity by leveraging Cisco's technology and financial resources with
Summa Four's products. See "The Merger and Related Transactions -- Background of
the Merger" and "-- Reasons for the Merger."
Operations Following the Merger
Following the Merger, Summa Four will continue its operations as a
wholly-owned subsidiary of Cisco.
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THE SPECIAL MEETING
Date, Time and Place of the Special Meeting
The Special Meeting will be held on November 4, 1998, at 10:00 a.m., local
time, at Summa Four's facilities located 25 Sundial Avenue, Manchester, New
Hampshire.
Purpose of the Special Meeting
At the Special Meeting, stockholders of record of Summa Four will be asked
to consider and vote upon a proposal to approve the Reorganization Agreement and
the consummation of the Merger. Stockholders of Summa Four will also consider
and vote upon any other matter that may properly come before the Special Meeting
and any adjournment or postponement thereof.
Record Date; Shares Entitled to Vote
Only holders of record of Summa Four Common Stock on September 17, 1998
(the "Record Date") are entitled to notice of and to vote at the Special
Meeting. At the close of business on the Record Date, there were outstanding and
entitled to vote 5,822,460 shares of Summa Four Common Stock, each of which will
be entitled to one vote on each matter to be acted upon.
Vote Required; Certain Voting Information
Approval of the Reorganization Agreement and the consummation of the Merger
will require the affirmative vote of the holders of a majority of the
outstanding shares of Summa Four Common Stock entitled to vote at the Special
Meeting. See "The Merger and Related Transactions -- Related
Agreements -- Voting Agreements" below for information with respect to voting
agreements entered into by certain stockholders of Summa Four. Approval of the
Merger by the stockholders of Summa Four and any abstentions from voting thereon
may be deemed a "ratification" of the Merger under Delaware law, which may
provide either Cisco or Summa Four with a complete or partial defense to any
subsequent stockholder challenges to the Merger. Neither Cisco nor Summa Four
has a current intention to assert such vote as a defense to any subsequent
challenge to the transaction, but neither company intends to waive any rights
under Delaware law related thereto, and either company may in fact assert such a
vote as a defense to any legal claim which may be raised. Stockholders should
therefore recognize that their vote may be used as a defense to any such claim,
and that such a vote may eliminate or impair their legal right to challenge the
transaction following the closing.
As of the Record Date, Summa Four's directors and executive officers (and
their affiliates), as a group, beneficially owned 242,914 shares (exclusive of
any shares issuable upon the exercise of options unexercised as of such date),
or approximately 4.2% of the 5,822,460 shares of Summa Four Common Stock that
were issued and outstanding as of such date. Each of Barry R. Gorsun, Robert A.
Degan, Edgar L. Brown, Russell I. Pillar, Gordon T. Ray, John A. Shane, Phillip
T. Coates, Jeffrey A. Weber, Todd P. Hasselbeck, John H. Shaw and Richard S.
Swee, who, as of September 17, 1998, in the aggregate beneficially owned 242,914
shares (exclusive of any shares issuable upon the exercise of options), or
approximately 4.2% of the then outstanding shares of Summa Four Common Stock,
have agreed with Cisco to vote in favor of the Reorganization Agreement and
consummation of the Merger and have executed irrevocable proxies in connection
therewith. See "The Merger and Related Transactions -- Related
Agreements -- Voting Agreements." As of the Record Date, there were 73
stockholders of record who held shares of Summa Four Common Stock (although
Summa Four has been informed that there are in excess of 5,000 beneficial
owners), as shown on the records of Summa Four's transfer agent for such shares.
Based on the 5,822,460 shares of Common Stock outstanding and entitled to vote
on the Record Date, a total of 2,911,231 shares are required to be voted in
favor of the Merger in order for the Merger to be approved and consummated.
Accordingly, Summa Four's directors, executive officers and their affiliates
hold shares representing approximately 8.3% of the total number of shares
required for approval of the transaction.
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Quorum; Abstentions and Broker Non-Votes
The required quorum for the transaction of business at the Special Meeting
is a majority of the shares of Summa Four Common Stock issued and outstanding as
of the Record Date. Abstentions and broker non-votes each will be included in
determining the number of shares present and voting at the meeting for the
purpose of determining the presence of a quorum. Because approval of the
Reorganization Agreement and the consummation of the Merger requires the
affirmative vote of a majority of the outstanding shares of Summa Four Common
Stock entitled to vote thereon, abstentions and broker non-votes will have the
same effect as votes against the Reorganization Agreement and the consummation
of the Merger. The actions proposed in this Proxy Statement/Prospectus are not
matters that can be voted on by brokers holding shares for beneficial owners
without the owners' specific instructions. Accordingly, all beneficial owners of
Summa Four Common Stock are urged to return the enclosed proxy card marked to
indicate their votes.
Appraisal Rights
Stockholders who dissent from the Merger will not be entitled to rights of
appraisal under Section 262 of the Delaware General Corporation Law. See "The
Merger and Related Transactions -- No Appraisal Rights." Accordingly,
stockholders who do not wish to receive Cisco Common Stock in exchange for their
shares of Summa Four Common Stock must liquidate their investment by selling
their stock prior to consummation of the Merger.
OPINION OF SUMMA FOUR'S FINANCIAL ADVISOR
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated ("DRW")has
delivered to the Summa Four Board of Directors its written opinion, dated as of
July 27, 1998 (the "DRW Opinion"), that, as of such date, and based upon and
subject to the factors and assumptions set forth in such written opinion, the
consideration to be received by the Summa Four stockholders pursuant to the
Merger was fair, from a financial point of view. The full text of the DRW
Opinion is attached as Appendix B to this Proxy Statement/ Prospectus. Summa
Four stockholders should read the DRW Opinion in its entirety. See "The Merger
and Related Transactions -- Opinion of Financial Advisor to Summa Four."
RECOMMENDATION OF SUMMA FOUR'S BOARD OF DIRECTORS
The Summa Four Board of Directors (i) unanimously believes the terms and
conditions of the Reorganization Agreement and the proposed Merger are fair to,
and in the best interests of, Summa Four stockholders, (ii) has unanimously
approved the terms of the Reorganization Agreement and the Merger, and (iii)
unanimously recommends that Summa Four stockholders vote FOR the approval of the
Reorganization Agreement and the consummation of the Merger. The primary factors
considered and relied upon by the Summa Four Board of Directors in reaching its
recommendation are referred to in "The Merger and Related
Transactions -- Reasons for the Merger," "-- Background of the Merger" and
"-- Interests of Certain Persons in the Merger."
VOTING AGREEMENTS
In connection with the Merger, certain stockholders of Summa Four have
entered into voting agreements with Cisco. The terms of such voting agreements
provide that each of such stockholders will vote all shares of Summa Four Common
Stock beneficially owned by such stockholders in favor of the approval of the
Reorganization Agreement and consummation of the Merger and against any
competing proposals (the "Voting Agreements"). The Voting Agreements are
accompanied by irrevocable proxies whereby the stockholders of Summa Four
provide to Cisco the right to vote their shares on the proposals relating to the
Reorganization Agreement and the Merger at the Special Meeting and any competing
proposal at a Summa Four stockholder meeting. Holders of approximately 242,914,
or 4.2% (as of September 17, 1998, exclusive of any shares issuable upon the
exercise of options held by such holders), of the shares of Summa Four Common
Stock entitled to vote at the Special Meeting have entered into such Voting
Agreements and irrevocable proxies. See "The Merger and Related
Transactions -- Related Agreements -- Voting Agreements."
7
<PAGE> 11
EMPLOYMENT AND NON-COMPETITION AGREEMENTS
In connection with the Merger, Cisco has entered into employment and
non-competition agreements with certain employees of Summa Four (including
Robert A. Degan, John H. Shaw, Richard S. Swee, and Todd P. Hasselbeck) and
certain employees of Junction. The employment and non-competition agreements are
contingent upon the occurrence of the Merger and will become effective at the
effective time of the Merger. See "The Merger and Related
Transactions -- Related Agreements -- Employment and Non-Competition
Agreements."
ACQUISITION OF JUNCTION
It is a condition to the obligations of Cisco and Merger Sub under the
Merger Agreement that the Purchase Agreement dated July 27, 1998 between Summa
Four and Junction, Inc. ("Junction") shall have been consummated. The Purchase
Agreement provides for the purchase by Summa Four, for $6.4 million in cash, of
the 25% interest in Summation LLC currently owned by Junction. Russell I.
Pillar, a Director of Summa Four, is also a Director and owner of 40% of the
outstanding stock of Junction. Accordingly, Mr. Pillar has a significant
financial interest in the Merger. In addition, certain employees of Junction
have entered into employment and non-competition agreements with Cisco,
effective as of the effective time of the Merger.
STOCK OPTION AGREEMENT
Cisco and Summa Four have entered into a Stock Option Agreement, dated as
of July 27, 1998 (the "Stock Option Agreement"), pursuant to which Cisco has the
right, under certain circumstances, to acquire up to 1,148,500 shares of
authorized and unissued Summa Four Common Stock (or approximately 19.9% of the
outstanding Summa Four Common Stock prior to such issuance) at a price per share
of $17.50 (the "Cisco Option"). See "The Merger and Related
Transactions -- Related Agreements -- Stock Option Agreement."
THE AGREEMENT AND PLAN OF REORGANIZATION
Representations, Warranties and Covenants
Under the Reorganization Agreement, Cisco and Summa Four made a number of
representations and warranties regarding their respective capital structures,
operations, financial conditions and other matters, including their authority to
enter into the Reorganization Agreement and to consummate the Merger. Each of
Cisco and Summa Four covenanted that, until the consummation of the Merger or
the termination of the Reorganization Agreement, it will carry on its business
in the ordinary course and attempt to preserve its present business and
relationships with customers, suppliers and others, it will not take certain
actions without the other's consent, and it will use its reasonable best efforts
to consummate the Merger. See "The Merger and Related Transactions -- The
Reorganization Agreement -- Representations, Warranties and Covenants."
No Solicitation of Transactions
Summa Four has agreed not to, directly or indirectly, solicit, initiate
discussions, encourage or engage in negotiations with, or disclose any nonpublic
information relating to Summa Four or any of its subsidiaries to, any person
relating to a possible acquisition of Summa Four, except that, if the Summa Four
Board of Directors receives an unsolicited written proposal that the Summa Four
Board of Directors (after written advice from its financial advisor) believes in
good faith would, if consummated, result in a transaction more favorable to its
stockholders from a financial point of view than the Merger (a "Superior
Proposal"), and the Summa Four Board of Directors determines in good faith,
after advice from outside legal counsel, that it is necessary for the Summa Four
Board of Directors to comply with its fiduciary duties under applicable law,
then the Summa Four Board of Directors may furnish in connection with such
Superior Proposal information to the party making such Superior Proposal and
engage in negotiations with such party. Summa Four must, however, provide Cisco
with a copy of the Superior Proposal and all documents that are supplied to such
third
8
<PAGE> 12
party. However, the Summa Four Board of Directors may not withdraw or modify its
approval and recommendation of the Reorganization Agreement or endorse any other
proposal unless it has provided Cisco at least five days' prior notice of such
decision, has terminated the Reorganization Agreement and has paid to Cisco a
$3,500,000 termination fee (the "Termination Fee"). In addition, the Cisco
Option would then become exercisable. See "The Merger and Related
Transactions -- The Reorganization Agreement -- No Solicitation of
Transactions."
Conditions to the Merger
In addition to the requirement that the requisite approval of Summa Four
stockholders be received, the consummation of the Merger is subject to a number
of other conditions that, if not satisfied or waived, may cause the Merger not
to be consummated and the Reorganization Agreement to be terminated. Each
party's obligation to consummate the Merger is conditioned on, among other
things, continued effectiveness of the Registration Statement, receipt of all
requisite governmental approvals, including under the HSR Act (as defined
below), the accuracy of the other party's representations, the other party's
performance of its covenants, in the case of Summa Four, the absence of a
material adverse change, and the absence of legal action preventing the
consummation of the Merger. At any time prior to the Merger, either party may
waive compliance with any of the agreements or satisfaction of any of the
conditions in the Reorganization Agreement.
In the event that Summa Four determines to waive any condition contained in
the Reorganization Agreement it will re-solicit the approval of the Merger by
Summa Four's stockholders if such re-solicitation is required by applicable law
or if such condition is deemed to be of such materiality that Summa Four shall
determine, in consultation with its counsel, that a re-solicitation of
stockholder approval is appropriate. See "The Merger and Related
Transactions -- The Reorganization Agreement -- Conditions to the Merger."
Closing
As promptly as practicable after the satisfaction or waiver of the
conditions set forth in the Reorganization Agreement, Merger Sub and Summa Four
will file a Certificate of Merger with the Secretary of State of Delaware and
the Recorder of the County in which the registered office of Summa Four is
located. The Merger will become effective upon such filings (the "Effective
Time"). It is anticipated that, assuming all conditions are met, the Merger will
occur and a closing will be held on or before November 9, 1998. See "The Merger
and Related Transactions -- The Reorganization Agreement -- Closing."
Termination, Amendments and Waivers
At any time prior to the Effective Time, the Reorganization Agreement may
be terminated under certain circumstances, including, without limitation, by
mutual consent of Cisco and Summa Four, or by either Cisco or Summa Four if the
other party commits certain material breaches of any representation, warranty or
covenant made by the other party in the Reorganization Agreement. In addition,
the Reorganization Agreement may be terminated by either party if the Merger is
not consummated on or before January 27, 1999, by Cisco following certain
trigger events, or, under certain circumstances, by Summa Four, if a Superior
Proposal has occurred, Summa Four has provided Cisco notice of the terms thereof
and Summa Four has paid Cisco the Termination Fee.
The Reorganization Agreement may be amended by Cisco and Summa Four at any
time before or after approval by the Summa Four and Merger Sub stockholders,
except that, after such approval, no amendment may be made which (i) alters or
changes the amount or kind of consideration to be received upon conversion of
the Summa Four Common Stock, (ii) alters or changes any term of the Certificate
of Incorporation of the surviving corporation to be effected by the Merger, or
(iii) alters or changes any of the terms and conditions of the Reorganization
Agreement if such alteration or change would materially adversely affect the
holders of Summa Four or Merger Sub Common Stock. See "The Merger and Related
Transactions -- The Reorganization -- Termination, Amendments and Waivers."
9
<PAGE> 13
At any time prior to the Effective Time, either of Cisco or Summa Four may,
to the extent legally allowed, by execution of an instrument duly authorized in
writing signed on behalf of such party (i) extend the time for the performance
of any of the obligations or acts of the other party set forth in the
Reorganization Agreement; (ii) waive any inaccuracies in the representations and
warranties made to such party in the Reorganization Agreement or in any document
delivered pursuant to the Reorganization Agreement; and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party under the
Reorganization Agreement.
Fees and Expenses; Termination Fee
Whether or not the Merger is consummated, all costs and expenses incurred
in connection with the Reorganization Agreement and the Merger will be paid by
the party incurring the expense except that expenses incurred in connection with
printing the Proxy Statement/Prospectus, registration and filing fees incurred
in connection with the Statement/Prospectus and the listing of additional shares
and fees, costs and expenses, associated with compliance with applicable state
securities laws in connection with the Merger shall be shared equally.
Notwithstanding the foregoing, in certain events, if, under certain
circumstances, Cisco or Summa Four terminates the Reorganization Agreement,
Summa Four must promptly pay to Cisco all of the fees and out-of-pocket costs
incurred by Cisco in connection with the Reorganization Agreement and the
Merger, and in certain cases, a cash sum of $3,500,000 (in which cases the Cisco
Option could also become exercisable). See "The Merger and Related
Transactions -- The Reorganization Agreement -- Fees and Expenses; Termination
Fee."
Indemnification and Insurance
Cisco has agreed that, from and after the Effective Time, Cisco will, and
will cause Summa Four to, indemnify the present and former officers, directors,
employees and agents of Summa Four against certain liabilities, including,
without limitation, liabilities arising out of or pertaining to the transactions
contemplated by the Reorganization Agreement. As of the Effective Time, Cisco
shall assume, and shall also cause Summa Four to maintain, all obligations of
Summa Four and its officers and directors under any indemnification agreements
in effect on July 27, 1998 to which Summa Four is a party.
For four years after the Effective Time, Cisco will either (i) at all times
maintain at least $50,000,000 in cash, marketable securities and unrestricted
lines of credit to be available to indemnify the present and former officers,
directors, employees and agents of Summa Four against certain liabilities, or
(ii) cause the Surviving Corporation to use its best efforts to provide
directors and officers' liability insurance on terms substantially equivalent to
the Summa Four directors and officers liability insurance policy in effect on
the date of the Reorganization Agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Summa Four Board of Directors with
respect to the Reorganization Agreement and the Merger, the Summa Four
stockholders should be aware that certain directors and officers of Summa Four
have interests in the Merger that present them with potential conflicts of
interest. See "The Merger and Related Transactions -- Interests of Certain
Persons in the Merger."
RISK FACTORS
IN CONSIDERING WHETHER TO APPROVE THE REORGANIZATION AGREEMENT AND THE
CONSUMMATION OF THE MERGER, SUMMA FOUR STOCKHOLDERS SHOULD CAREFULLY REVIEW AND
CONSIDER THE INFORMATION CONTAINED BELOW UNDER THE CAPTION "RISK FACTORS."
10
<PAGE> 14
REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the United States
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the United States Justice Department (the
"Antitrust Division"), and specified waiting period requirements have been
satisfied. Each of Cisco and Summa Four originally filed their respective
Notification and Report Forms under the HSR Act with the FTC and the Antitrust
Division on August 5, 1998 and the applicable waiting period under the HSR Act
has terminated. See "The Merger and Related Transactions -- Regulatory Matters."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Merger is intended to qualify as a "reorganization" under Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code") (a
"Reorganization"), in which case no gain or loss would generally be recognized
by the stockholders of Summa Four on the exchange of their shares of Summa Four
Common Stock for shares of Cisco Common Stock. If the Merger were not to so
qualify, the exchange of shares would be taxable. It is a condition to the
obligation of each of the parties to consummate the Merger that it receives an
opinion of its respective counsel to the effect that the Merger will qualify as
a Reorganization, and the parties do not intend to waive such condition. SUMMA
FOUR STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC
TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES. See "The Merger and Related
Transactions -- Certain Federal Income Tax Considerations."
ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase" for financial accounting
purposes in accordance with generally accepted accounting principles, whereby
the purchase price will be allocated based on the fair values of the assets
acquired and the liabilities assumed. Any excess of such purchase price over the
amounts so allocated will be allocated to goodwill. See "The Merger and Related
Transactions -- Accounting Treatment."
COMPARISON OF STOCKHOLDER RIGHTS
The rights of Summa Four stockholders are currently governed by the
Delaware General Corporation Law and by Summa Four's Restated Certificate of
Incorporation (the "Summa Four Certificate") and Bylaws (the "Summa Four
Bylaws"). Upon consummation of the Merger, Summa Four stockholders will become
stockholders of Cisco, which is a California corporation, and their rights as
stockholders of Cisco will be governed by the California Corporations Code and
by Cisco's Restated Articles of Incorporation (the "Cisco Articles") and Amended
and Restated Bylaws (the "Cisco Bylaws"). See "Comparison of Rights of
Stockholders of Cisco and Summa Four" for a summary of the material differences
between the rights of holders of Summa Four Common Stock and Cisco Common Stock.
11
<PAGE> 15
MARKET PRICE AND DIVIDEND INFORMATION
CISCO MARKET PRICE DATA
Cisco's Common Stock is traded on the Nasdaq National Market under the
symbol "CSCO." The following table sets forth the range of high and low closing
sales prices reported on the Nasdaq National Market for Cisco Common Stock for
the periods indicated, adjusted to reflect the three-for-two splits effective in
September 1998 and December 1997 and the two-for-one split effective in February
1996.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1996
First Quarter............................................ $17.17 $11.61
Second Quarter........................................... 19.53 14.53
Third Quarter............................................ 23.28 18.03
Fourth Quarter........................................... 26.11 20.94
FISCAL 1997
First Quarter............................................ $29.78 $22.22
Second Quarter........................................... 33.28 25.61
Third Quarter............................................ 31.00 20.61
Fourth Quarter........................................... 35.72 20.67
FISCAL 1998
First Quarter............................................ $37.47 $31.00
Second Quarter........................................... 40.19 32.39
Third Quarter............................................ 49.25 37.75
Fourth Quarter........................................... 68.79 46.96
FISCAL 1999
First Quarter (through September 17, 1998)............... $69.29 $54.58
</TABLE>
SUMMA FOUR MARKET PRICE DATA
Summa Four's Common Stock is traded on the Nasdaq National Market under the
symbol "SUMA". The following table sets forth the range of high and low closing
prices reported on the Nasdaq National Market for Summa Four Common Stock for
the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1996
First Quarter............................................ $29.75 $19.25
Second Quarter........................................... 29.50 20.75
Third Quarter............................................ 23.75 11.87
Fourth Quarter........................................... 15.13 8.00
FISCAL 1997
First Quarter............................................ $20.00 $12.25
Second Quarter........................................... 15.87 11.37
Third Quarter............................................ 14.13 7.50
Fourth Quarter........................................... 11.75 7.37
FISCAL 1998
First Quarter............................................ $ 9.13 $ 7.00
Second Quarter........................................... 11.00 6.63
Third Quarter............................................ 13.37 8.87
Fourth Quarter........................................... 12.37 8.75
FISCAL 1999
First Quarter............................................ $13.00 $ 9.38
Second Quarter (through September 17, 1998).............. 18.13 10.50
</TABLE>
12
<PAGE> 16
DIVIDEND INFORMATION
Cisco has never paid any cash dividends on its stock, and anticipates that
it will continue to retain any earnings for the foreseeable future for use in
the operation of its business. Summa Four has not paid any cash dividends on its
stock since April 1991 when it made a special distribution of $630,000 to its
stockholders.
RECENT CLOSING PRICES
As of July 27, 1998, the last trading day before announcement of the
proposed Merger, the closing prices per share of Cisco Common Stock and Summa
Four Common Stock on the Nasdaq National Market were $65.00 (as adjusted to
reflect the Cisco Common Stock split effective in September 1998) and $13.375,
respectively. On September 28, 1998, the latest practicable trading day before
the printing of this Proxy Statement/Prospectus, the closing prices per share of
Cisco Common Stock and Summa Four Common Stock on the Nasdaq National Market
were $66.25 and $16.50, respectively.
Because the market price of Cisco Common Stock is subject to fluctuation,
the market value of the shares of Cisco Common Stock that holders of Summa Four
Common Stock will receive in the Merger may increase or decrease prior to and
following the Merger. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS
FOR CISCO COMMON STOCK AND SUMMA FOUR COMMON STOCK. NO ASSURANCE CAN BE GIVEN AS
TO THE FUTURE PRICES OR MARKETS FOR CISCO COMMON STOCK OR SUMMA FOUR COMMON
STOCK.
NUMBER OF STOCKHOLDERS
As of September 17, 1998, there were 73 stockholders of record who held
shares of Summa Four Common Stock (although Summa Four has been informed that
there are in excess of 5,000 beneficial owners), as shown on the records of
Summa Four's transfer agent for such shares.
13
<PAGE> 17
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data of Cisco and Summa Four is
unaudited and has been derived from their respective historical consolidated
financial statements and should be read in conjunction with such consolidated
financial statements and the notes thereto that are incorporated herein by
reference.
The selected historical financial information as of June 30, 1998 and for
the three months ended June 30, 1997 and 1998 for Summa Four has been derived
from unaudited consolidated financial statements, but in the opinion of Summa
Four, reflects all adjustments (consisting only of normal, recurring
adjustments) necessary for the fair presentation of its financial condition as
of that date and the results of operations for those unaudited interim periods.
The results of operations for those interim periods are not necessarily
indicative of the results to be expected for the entire year.
CISCO SYSTEMS, INC.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------
JULY 31, JULY 30, JULY 28, JULY 26, JULY 25,
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
Net sales...................... $1,334,436 $2,232,652 $4,096,007 $6,440,171 $8,458,777
Net income..................... $ 322,981 $ 456,489 $ 913,324 $1,048,679 $1,350,072
Net income per common share --
basic....................... $ 0.25 $ 0.33 $ 0.64 $ 0.71 $ 0.88
Net income per common share --
diluted..................... $ 0.24 $ 0.32 $ 0.61 $ 0.68 $ 0.84
Shares used in per-share
calculation -- basic(1)..... 1,296,023 1,367,453 1,437,030 1,485,986 1,533,869
Shares used in per-share
calculation -- diluted(1)... 1,342,213 1,425,247 1,490,078 1,551,039 1,608,173
</TABLE>
- ---------------
(1) Gives effect to the Cisco two-for-one stock splits effective March 1994,
February 1996 and the three-for-two stock splits effective December 1997 and
September 1998.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------
JULY 31, JULY 30, JULY 28, JULY 26, JULY 25,
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
BALANCE SHEET DATA:
Total assets................... $1,129,034 1,991,949 $3,630,232 $5,451,984 $8,916,705
</TABLE>
14
<PAGE> 18
SUMMA FOUR, INC.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
3 MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
----------------------------------------------- ---------------
1994 1995 1996 1997 1998 1997 1998
------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
BALANCE SHEET OPERATIONS DATA:
Net sales....................... $27,257 $37,136 $41,193 $44,316 $41,942 $9,276 $9,678
Net income (loss)............... 5,287 5,423 3,765 1,848 (2,731) (566) 2,287
Net income (loss) per common
share -- basic............... $ 0.92 $ 0.82 $ 0.61 $ 0.31 $ (0.48) $(0.10) $ 0.40
Net income (loss) per common
share -- diluted............. $ 0.82 $ 0.77 $ 0.59 $ 0.30 $ (0.48) $(0.10) $ 0.39
Shares used in per-share
calculation -- basic......... 5,738 6,605 6,175 5,951 5,704 5,571 5,771
Shares used in per-share
calculation -- diluted....... 6,418 7,013 6,417 6,095 5,704 5,571 5,891
</TABLE>
<TABLE>
<CAPTION>
3 MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
----------------------------------------------- ---------------
1994 1995 1996 1997 1998 1998
------- ------- ------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
BALANCE SHEET DATA:
Total assets.................... $46,635 $55,175 $57,699 $56,453 $56,596 $57,241
Long term liabilities........... $ 205 $ 1,250 $ 863 $ 676 $ 938 $ 873
</TABLE>
15
<PAGE> 19
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Cisco
and Summa Four and combined per share data on an unaudited pro forma basis after
giving effect to the Merger on a purchase basis assuming that 0.268491 shares of
Cisco Common Stock are issued in exchange for each share of Summa Four Common
Stock. This data should be read in conjunction with the selected historical
financial data set forth herein and the historical financial statements of Cisco
and Summa Four and the notes thereto that are incorporated herein by reference.
The pro forma information is presented for illustrative purposes only and is not
necessarily indicative of the combined financial position or results of
operations of future periods or the results that actually would have been
realized had the entities been a single entity during the periods presented.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JULY 25, 1998
-----------------
<S> <C> <C> <C>
CISCO HISTORICAL PER COMMON SHARE:
Net income per common share -- basic.......... $0.88
Net income per common share -- diluted........ $0.84
Book value.................................... $4.55
</TABLE>
<TABLE>
<CAPTION>
3 MONTHS ENDED
JUNE 30, 1998
FISCAL YEAR ENDED -----------------
MARCH 31, 1998
-----------------
<S> <C> <C> <C>
SUMMA FOUR HISTORICAL PER COMMON SHARE:
Net income (loss) per common share -- basic... $(0.48) $0.40
Net income (loss) per common
share -- diluted........................... $(0.48) $0.39
Book value.................................... $ 7.56 $7.94
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JULY 25, 1998
-----------------
<S> <C> <C> <C>
PRO FORMA COMBINED NET INCOME PER SHARE(1)(2):
Per Cisco common share -- basic................. $0.88
Per Cisco common share -- diluted............... $0.84
Equivalent per Summa Four share -- basic........ $0.24
Equivalent per Summa Four share -- diluted...... $0.23
</TABLE>
<TABLE>
<CAPTION>
AS OF
JULY 25, 1998
-----------------
<S> <C> <C> <C>
PRO FORMA COMBINED BOOK VALUE PER SHARE(2)(3):
Per Cisco share................................. $4.57
Equivalent per Summa Four share................. $1.23
</TABLE>
- ---------------
(1) The pro forma combined information per Cisco share combines financial
information of Cisco for the fiscal year ended July 25, 1998 with the
financial information of Summa Four for the twelve months ended June 30,
1998.
(2) The unaudited equivalent Summa Four pro forma per share amounts are
calculated by multiplying the Cisco combined pro forma per share amounts by
the Exchange Ratio.
(3) Historical book value per share is computed by dividing shareholders' equity
by the number of shares of common stock outstanding at the end of each
period. Pro forma book value per share is computed by dividing pro forma
shareholders' equity by the pro forma number of shares of common stock
outstanding at the end of each period.
16
<PAGE> 20
RISK FACTORS
The following risk factors should be considered by holders of Summa Four
Common Stock in evaluating whether to approve the Reorganization Agreement and
the consummation of the Merger and thereby become holders of Cisco Common Stock.
These factors should be considered in conjunction with the other information
contained in this Proxy Statement/Prospectus, the Appendices and Exhibits hereto
and the documents incorporated by reference herein.
FINANCIAL RISK MANAGEMENT
As a global concern, Cisco faces exposure to adverse movements in foreign
currency exchange rates. These exposures may change over time as business
practices evolve and could have a material adverse impact on Cisco's financial
results. Historically, Cisco's primary exposures related to
nondollar-denominated sales in Japan, Canada, and Australia and
nondollar-denominated operating expenses in Europe, Latin America, and Asia
where it sells primarily in U.S. dollars. The introduction of the Euro as a
common currency for members of the European Monetary Union is scheduled to take
place in fiscal year 1999. Cisco has not determined what impact, if any, the
Euro will have on foreign exchange exposure. Cisco is prepared to hedge against
fluctuations in the Euro if this exposure becomes material. At the present time,
Cisco hedges only those currency exposures associated with certain assets and
liabilities denominated in nonfunctional currencies and does not generally hedge
anticipated foreign currency cash flows. The hedging activity undertaken by
Cisco is intended to offset the impact of currency fluctuations on certain
nonfunctional currency assets and liabilities. The success of this activity
depends upon forecasts of transaction activity denominated in various
currencies, primarily the Japanese yen, Canadian dollar, Australian dollar, and
certain European currencies. To the extent that these forecasts are over- or
understated during periods of currency volatility, Cisco could experience
unanticipated currency gains or losses.
Cisco is experiencing a greater proportion of its sales activity through
its partners in two-tier distributor channels. These customers are generally
given privileges to return inventory, receive credits for changes in the Cisco's
selling prices, and participate in cooperative marketing programs. Cisco
maintains appropriate reserves and allowances for such exposures. However, such
partners tend to have access to more limited financial resources than other
resellers and end-user customers and therefore represent potential sources of
increased credit risk. Additionally, Cisco is experiencing increased demands for
customer financing and leasing solutions. Cisco also continues to monitor
increased credit exposures because of the weakened financial conditions in Asia
and the impact that such conditions may have on the worldwide economy. Although
Cisco has not experienced significant losses due to customers failing to meet
their obligations to date, such losses, if incurred, could have a material
adverse impact on Cisco's business, operating results, and financial position.
Cisco maintains investment portfolio holdings of various issuers, types,
and maturities. These securities are generally classified as available for sale,
and consequently, are recorded on the balance sheet at fair value with
unrealized gains or losses reported as a separate component of shareholders'
equity, net of tax. Part of this portfolio includes minority equity investments
in several publicly-traded companies, the value of which are subject to market
price volatility. Cisco also has certain real estate lease commitments with
payments tied to short-term interest rates. At any time, a sharp rise in
interest rates could have a material adverse impact on the fair value of Cisco's
investment portfolio while increasing the costs associated with its lease
commitments. Conversely, declines in interest rates could have a material impact
on interest earnings for Cisco's investment portfolio. Cisco does not currently
hedge these interest rate exposures. Readers are referred to pages 24 and 25 of
Cisco's 1998 Annual Report to Shareholders for further discussion of Cisco's
interest rate exposures.
POTENTIAL VOLATILITY IN OPERATING RESULTS
Cisco expects that in the future, its net sales may grow at a slower rate
than was experienced in previous periods, and that on a quarter-to-quarter
basis, Cisco's growth in net sales may be significantly lower than its
historical quarterly growth rate. As a consequence, operating results for a
particular quarter are extremely difficult to predict. Cisco's ability to meet
financial expectations could be hampered if the nonlinear sales pattern seen in
past quarters continues in future periods. Cisco generally has had one quarter
of the fiscal year
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<PAGE> 21
when backlog has been reduced. Although such reductions have not occurred
consistently in recent years, they are difficult to predict and may occur in the
future. In addition, in response to customer demand, Cisco continues to attempt
to reduce its product manufacturing lead times, which may result in
corresponding reductions in order backlog. A decline in backlog levels could
result in more variability and less predictability in Cisco's quarter-to-quarter
net sales and operating results going forward. On the other hand, for certain
products, lead times are longer than Cisco's goal. If Cisco cannot reduce
manufacturing lead times for such products, Cisco's customers may cancel orders
or not place further orders if shorter lead times are available from other
manufacturers, thus creating additional variability.
As a result of recent unfavorable economic conditions, sales to certain
countries in Asia and the Pacific Rim have declined as a percentage of Cisco's
total revenue. If the economic conditions in these markets worsen, or if these
unfavorable conditions result in a wider regional or global economic slowdown,
this decline may have a material adverse impact on Cisco's business, operations
and financial condition.
Many computer systems were not designed to handle any dates beyond the year
1999, and therefore computer hardware and software will need to be modified
prior to the Year 2000 in order to remain functional. Cisco is concerned that
many enterprises will be devoting a substantial portion of their information
systems spending to resolving this upcoming Year 2000 problem. This expense may
result in spending being diverted from networking solutions in the near future.
Cisco is still assessing the impact of the Year 2000 issue on its products and
internal information systems and has begun, and in many cases completed,
corrective efforts in these areas. Cisco does not anticipate that addressing the
Year 2000 problem for its internal information systems and current and future
products will have a material impact on its operations or financial results.
However, there can be no assurance that these costs will not be greater than
anticipated, or that corrective actions undertaken will be completed before any
Year 2000 problems could occur. The Year 2000 issue could lower demand for
Cisco's products while increasing Cisco's costs. These combining factors, while
not quantified, could have a material adverse impact on Cisco's financial
results.
Cisco has certain key relationships with suppliers. If these suppliers fail
to adequately address the Year 2000 issue for the products they provide to
Cisco, this could have a material adverse impact on Cisco's operations and
financial results. Cisco is still assessing the effect the Year 2000 issue will
have on its suppliers and, at this time, cannot determine the impact it will
have. Contingency plans will be developed if it appears Cisco or its key
suppliers will not be Year 2000 compliant, and such noncompliance is expected to
have a material adverse impact on Cisco.
Cisco also expects that gross margins may be adversely affected by
increases in material or labor costs, heightened price competition, and changes
in channels of distribution or in the mix of products sold. For example, Cisco
believes that gross margins may decline over time, because the markets for
lower-margin access products targeted toward small to medium-sized customers
have continued to grow at a faster rate than the markets for Cisco's
higher-margin router and high-performance switching products targeted toward
enterprise and service provider customers. Cisco has recently introduced new
products, and several additional new products are scheduled to be released in
the near future. If warranty costs associated with these new products are
greater than Cisco has experienced historically, gross margins may be adversely
affected. Cisco's gross margins may also be impacted by geographic mix, as well
as the mix of configurations within each product group. Cisco continues to
expand into third-party or indirect distribution channels, which generally
results in lower gross margins. In addition, increasing third-party and indirect
distribution channels generally results in greater difficulty in forecasting the
mix of Cisco's products, and to a certain degree, the timing of its orders.
Cisco also expects that its operating margins may decrease as it continues
to hire additional personnel and increases other operating expenses to support
its business. Cisco plans its operating expense levels based primarily on
forecasted revenue levels. Because these expenses are relatively fixed in the
short term, a shortfall in revenue could lead to operating results being below
expectations.
The results of operations for 1998 are not necessarily indicative of
results to be expected in future periods, and the Company's operating results
may be subject to quarterly fluctuations as a result of several factors. These
factors include the integration of people, operations, and products from
acquired businesses and
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technologies; increased competition in the networking industry; the overall
trend toward industry consolidation; the introduction and marked acceptance of
new technologies and standards, including switch routers; Gigabit Ethernet
switching, Tag Switching (currently also known as multiprotocol label switching
[MPLS]), and voice, video and data capabilities; variations in sales channels,
product costs, or mix of products sold; the timing of orders and manufacturing
lead times; and changes in general economic conditions, any of which could have
a material adverse impact on operations and financial results.
ACQUISITIONS
The end-to-end strategy pursued by Cisco requires a wide variety of
technologies, products and capabilities. Additionally, the pace of change in the
industry is very rapid. The combination of complexity and rapid change make it
difficult for one company, no matter how large, to develop all technological
solutions alone. Acquisitions, investments and alliances are tools used by Cisco
to fill gaps in its offerings and enable it to deliver complete solutions to its
customers and prospects in target markets. Satisfying customers' networking
needs requires a constant monitoring of market and technology trends, plus an
ability to act quickly. Cisco has a four-part approach to satisfy the need for
new or enhanced networking products and solutions. In order of preference, this
approach is to: develop new technologies and products internally; enter into
joint-development efforts with other companies; resell another company's
product; and acquire all or part of another company. Acquisitions involve
numerous risks, including difficulties in integration of the operations,
technologies, and products of the acquired companies; the risk of diverting
management's attention from normal daily operations of the business; risks of
entering markets in which Cisco has no or limited direct prior experience and
where competitors in such markets have stronger market positions; and the
potential loss of key employees of the acquired company. Cisco must also
maintain its ability to manage any such growth effectively. Failure to manage
growth effectively and successfully integrate acquisitions made by Cisco could
materially adversely affect Cisco's business and operating results.
Since 1993, Cisco has acquired a number of companies. Cisco expects to make
future acquisitions where it believes that it can acquire new products and
channels of distribution or otherwise rapidly enter new or emerging markets.
Mergers and acquisitions of high-technology companies are inherently risky, and
no assurance can be given that Cisco's previous or future acquisitions will be
successful and will not adversely affect Cisco's financial condition or results
of operations.
COMPETITION
Cisco competes in the telecommunications equipment market, providing
solutions for transporting data, voice and video traffic across intranets,
extranets, and the Internet. The market is characterized by rapid growth,
converging technologies, and a conversion to new solutions that offer superior
advantages. These market factors represent both an opportunity and a competitive
threat to Cisco. Cisco competes with numerous vendors in each product category.
Cisco expects that the overall number of competitors providing niche product
solutions will increase due to the market's attractive growth. On the other
hand, the Company expects the number of vendors supplying end-to-end
telecommunications solutions will decrease, due to the rapid pace of
acquisitions in the industry. Ultimately the Company believes only a few larger
suppliers of end-to-end telecommunication equipment solutions will become its
primary competitors.
Cisco's competitors include Lucent, Nortel, Ericsson, 3Com, Ascend,
Cabletron, Fore and IBM. Some of the Company's competitors compete across many
of Cisco's product lines, while others do not offer as wide a breadth of
solutions. Several of the Company's current and potential competitors have
greater financial, marketing and technical resources than the Company.
The principal competitive factors in the markets in which Cisco presently
competes and may compete in the future are: price; performance; the ability to
provide end-to-end solutions and support; conformance to standards; the ability
to provide added value features such as security, reliability, and investment
protection; and market presence.
Cisco also faces competition from customers it licenses technology to and
suppliers from whom it transfers technology. Networking's inherent nature
requires interoperability. As such, Cisco must cooperate,
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and at the same time compete, with these companies. Cisco's inability to
effectively manage these complicated relationships with customers and suppliers
could have a material adverse effect on Cisco's business, operating results, and
financial condition.
PATENTS, INTELLECTUAL PROPERTY AND LICENSING
Cisco's success is dependent upon its proprietary technology. Cisco
generally relies upon patents, copyrights, trademarks and trade secret laws to
establish and maintain its proprietary rights in its technology and products.
Cisco has a program to file applications for and obtain patents in the United
States and in selected foreign countries where a potential market for Cisco's
products exists. Cisco has been issued a number of patents; other patent
applications are currently pending. There can be no assurance that any of these
patents will not be challenged, invalidated or circumvented, or that any rights
granted thereunder will provide competitive advantages to Cisco. In addition,
there can be no assurance that patents will be issued from pending applications,
or that claims allowed on any future patents will be sufficiently broad to
protect Cisco's technology. In addition, the laws of some foreign countries may
not permit the protection of Cisco's proprietary rights to the same extent as do
the laws of the United States. Although Cisco believes the protection afforded
by its patents, patent applications, copyrights and trademarks has value, the
rapidly changing technology in the networking industry makes Cisco's future
success dependent primarily on the innovative skills, technological expertise
and management abilities of its employees rather than on patent, copyright and
trademark protection.
Many of Cisco's products are designed to include software or other
intellectual property licensed from third parties. While it may be necessary in
the future to seek or renew licenses relating to various aspects of its
products, Cisco believes that based upon past experience and standard industry
practice, such licenses generally could be obtained on commercially reasonable
terms. Because of the existence of a large number of patents in the networking
field and the rapid rate of issuance of new patents, it is not economically
practical to determine in advance whether a product or any of its components
infringe patent rights of others. From time to time, Cisco receives notices from
or is sued by third parties regarding patent claims. If infringement is alleged,
Cisco believes that, based upon industry practice, any necessary license or
rights under such patents may be obtained on terms that would not have a
material adverse effect on Cisco's business, operating results and financial
condition. Nevertheless, there can be no assurance that the necessary licenses
would be available on acceptable terms, if at all, or that Cisco would prevail
in any such challenge. The inability to obtain certain licenses or other rights
or to obtain such licenses or rights on favorable terms, or the need to engage
in litigation could have a material adverse effect on Cisco's business,
operating results and financial condition.
REGULATION OF THE INTERNET
There are currently few laws or regulations that apply directly to access
or commerce on the Internet. Cisco could be materially adversely affected by
proposed regulation on voice over the Internet, encryption technology and access
charges for Internet service providers, as well as the continuing deregulation
of the telecommunication industry. The adoption of such measures could decrease
demand for Cisco's products, and at the same time increase Cisco's cost of
selling its products. Changes in laws or regulations governing the Internet and
Internet commerce could have a material adverse effect on Cisco's business,
operating results and financial condition.
DEPENDENCE ON NEW PRODUCT DEVELOPMENT
The markets for the Company's products are characterized by rapidly
changing technology, evolving industry standards, frequent new product
introductions, and evolving methods of building and operating networks. There
can be no assurance that the Company will successfully identify new product
opportunities and develop and bring new products to market in a timely manner,
or that products and technologies developed by others will not render the
Company's products or technologies obsolete or noncompetitive.
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ENTERING NEW OR DEVELOPING MARKETS
As Cisco focuses on new market opportunities, such as transporting data,
voice and video traffic across the same network, it will increasingly compete
with a number of large telecommunications equipment suppliers, such as Lucent,
Ericsson, and Nortel, among others, and well funded start-up companies. Many of
these companies have substantially greater financial, marketing and technical
resources than Cisco. If Cisco cannot successfully compete with these and other
potential competitors, it could have a material adverse effect on Cisco's
business, operating results and financial condition. Additionally, as customers
in these markets complete infrastructure deployment, they may require greater
levels of service, support and financing than Cisco has experienced in the past.
There can be no assurance that Cisco can provide products, service, support and
financing to effectively compete for these market opportunities. Further,
provision of greater levels of services by Cisco may result in less favorable
revenue recognition treatment than has historically been experienced.
AVAILABILITY OF PRODUCT
Cisco's growth and ability to meet customer demands also depend in part on
its ability to obtain timely deliveries of parts from its suppliers. Cisco has
experienced component shortages in the past that have adversely affected its
operations. Although the Company works closely with its suppliers to avoid these
types of shortages, there can be no assurances that Cisco will not encounter
these problems in the future.
NATURAL DISASTERS
Cisco's corporate headquarters, including most of its research and
development operations and its manufacturing facilities, are located in the
Silicon Valley area of Northern California, a region known for seismic activity.
Additionally, one of Cisco's manufacturing facilities is located near a river
that has experienced flooding in the past. A significant natural disaster, such
as an earthquake or a flood, could have a material adverse impact on Cisco's
business, financial condition and operating results.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
Cisco's operating results have in the past been, and may continue to be,
subject to quarterly fluctuations as a result of a number of factors. These
factors include: the introduction and market acceptance of new technologies,
including Gigabit Switch Routing and Tag Switching (currently known as
multiprotocol label switching [MPLS]); the timing of orders and manufacturing
lead times; variations in sales channels, product costs or mix of products sold;
increased competition in the networking industry; the overall trend toward
industry consolidation; the integration of people, operations and products from
acquired businesses and technologies; and changes in general economic conditions
and specific economic conditions in the computer and networking industries, any
of which could have a material adverse impact on operations and financial
results. For example, Cisco from time to time has made acquisitions that result
in purchased research and development expenses being charged in an individual
quarter. These charges may occur in any particular quarter resulting in
variability in Cisco's quarterly earnings. Additionally, the dollar amounts of
large orders for Cisco's products have been increasing, and therefore the
operating results for a quarter could be materially adversely affected if a
number of large orders are either not received or are delayed, due for example,
to cancellations, delays or deferrals by customers.
DEPENDENCE ON NEW PRODUCT DEVELOPMENT; RAPID TECHNOLOGICAL AND MARKET CHANGE
Cisco's operating results will depend to a significant extent on its
ability to reduce the costs to produce existing products. In particular, Cisco
broadened its product line by introducing network access products. Sales of
these products, which are generally lower priced and carry lower margins than
Cisco's core products, have increased more rapidly than sales of Cisco's core
products. The success of these and other new products is dependent on several
factors, including proper new product definition, product cost, timely
completion and introduction of new products, differentiation of new products
from those of Cisco's competitors and market acceptance of these products. Cisco
has addressed the need to develop new products through its internal
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development effort, joint development with other companies and acquisitions.
There can be no assurance that Cisco will successfully identify new product
opportunities, develop and bring new products to market in a timely manner, and
achieve market acceptance of its products or that products and technologies
developed by others will not render Cisco's products or technologies obsolete or
noncompetitive.
STRATEGIC ALLIANCES
Cisco has a number of strategic alliances with companies including
Microsoft, Hewlett-Packard, EDS, and Sprint, among others. These arrangements
are generally limited to specific projects, the goal of which is generally to
facilitate product compatibility and adoption of industry standards. If
successful, these relationships will be mutually beneficial and result in
industry growth. However, these alliances carry an element of risk because, in
most cases, Cisco must compete in some business areas with a company with which
it has strategic alliances and, at the same time, cooperate with such company in
other business areas. Also, if these companies fail to perform, or if these
relationships fail to materialize as expected, Cisco could suffer delays in
product development or other operational difficulties.
INDUSTRY CONSOLIDATION
There has been a trend toward industry consolidation for several years,
which has continued during fiscal 1998. In September 1998, Northern Telecom
completed its acquisition of Bay Networks. In fiscal 1997, 3Com completed its
acquisition of U.S. Robotics; and Ascend Communications, Inc. completed its
acquisition of Cascade Communications Corporation. Cisco expects this trend
toward industry consolidation to continue as companies attempt to strengthen or
hold their market positions in an evolving industry. Cisco believes that
industry consolidation may provide stronger competitors that are better able to
compete as sole-source vendors for customers. This could lead to more
variability in operating results as Cisco competes to be a single vendor
solution and could have a material adverse effect on Cisco's business, operating
results and financial condition.
ORGANIZATIONAL CHANGES
Cisco has realigned its business around three key customer groups or lines
of business. Cisco believes this realignment of resources enables it to better
meet the needs of its customers. There are risks inherent in any business
realignment or reorganization, and Cisco can give no assurance that these
organizational changes will meet their intended objectives.
VARIABILITY IN SERVICE PROVIDER SALES
Although sales to the service provider market have continued to grow, this
market is characterized by large, and often sporadic purchases. Sales activity
in this industry depends upon the stage of completion of expanding network
infrastructures, the availability of funding, and the extent that service
providers are affected by regulatory and business conditions in the country of
operations. A decline or delay in sales orders from this industry could have a
material adverse effect on Cisco's business, operating results and financial
condition.
MANUFACTURING RISKS
Although Cisco generally uses standard parts and components for its
products, certain components are presently available only from a single source
or limited sources. A reduction or interruption in supply or a significant
increase in the price of one or more components would adversely affect Cisco's
business, operating results and financial condition and could damage customer
relationships.
CHANGES IN TELECOMMUNICATIONS LAWS AND TARIFFS
Changes in domestic and international telecommunication requirements could
affect Cisco's sales of its products. In particular, Cisco believes it is
possible that there may be significant changes in domestic telecommunications
regulations in the near future that could slow the expansion of the service
providers' network infrastructures and adversely affect Cisco's business,
operating results and financial condition. Future
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changes in tariffs by regulatory agencies or application of tariff requirements
to currently untariffed services could affect the sales of Cisco's products for
certain classes of customers. Additionally, in the U.S. Cisco's products must
comply with various Federal Communication Commission requirements and
regulations. In countries outside of the U.S., Cisco's products must meet
various requirements of local telecommunications authorities. Changes in
tariffs, or failure by Cisco to obtain timely approval of products could have a
material adverse effect on Cisco's business, operating results and financial
condition.
INTERNATIONAL OPERATIONS
Cisco conducts business globally. Accordingly, Cisco's future results could
be adversely affected by a variety of uncontrollable and changing factors
including foreign currency exchange rates; regulatory, political or economic
conditions in a specific country or region; trade protection measures and other
regulatory requirements; government spending patterns; and natural disasters,
among other factors. In fiscal 1998, Cisco experienced slower sales growth in
Japan, as well as in certain other parts of Asia. Any or all of these factors
could have a material adverse impact on Cisco's future international business in
these or other countries.
RISKS ASSOCIATED WITH INTERNET INFRASTRUCTURE
Cisco's management believes that there will be performance problems with
Internet communications in the future which could receive a high degree of
publicity and visibility. As Cisco is a large supplier of equipment for the
Internet infrastructure, customers' perceptions of Cisco's products and the
marketplace's perception of Cisco as a supplier of networking products, may be
materially adversely affected, regardless of whether or not these problems are
due to the performance of Cisco's products. Such an event could also result in a
material adverse effect on the market price of Cisco's Common Stock and could
materially adversely affect Cisco's business, operating results and financial
condition.
VOLATILITY OF STOCK PRICE
Cisco's Common Stock has experienced substantial price volatility,
particularly as a result of variations between Cisco's actual or anticipated
financial results and the published expectations of analysts and as a result of
announcements by Cisco and its competitors. In addition, the stock market has
experienced extreme price and volume fluctuations that have affected the market
price of many technology companies in particular and that have often been
unrelated to the operating performance of these companies. These factors, as
well as general economic and political conditions, may adversely affect the
market price of Cisco's Common Stock in the future.
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THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The Special Meeting will be held on November 4, 1998 at 10:00 a.m., local
time, at Summa Four's facilities located at 25 Sundial Avenue, Manchester, New
Hampshire.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, stockholders of Summa Four will be asked to
consider and vote upon proposals (i) to approve and adopt the Reorganization
Agreement and to approve the consummation of the Merger and (ii) to transact
such other business as may properly come before the Special Meeting or any
postponements or adjournments thereof.
RECORD DATE AND SHARES ENTITLED TO VOTE
Only holders of record of Summa Four Common Stock at the close of business
on the Record Date are entitled to notice of and to vote at the Special Meeting.
As of the close of business on the Record Date, there were 5,822,460 shares of
Summa Four Common Stock outstanding and entitled to vote, held of record by 73
stockholders (although Summa Four has been informed that there are in excess of
5,000 beneficial owners). A majority, or 2,911,231 of these shares, present in
person or represented by proxy, will constitute a quorum for the transaction of
business. Each Summa Four stockholder is entitled to one vote for each share of
Summa Four Common Stock held as of the Record Date.
VOTING OF PROXIES
The Summa Four proxy accompanying this Proxy Statement/Prospectus is
solicited on behalf of the Summa Four Board of Directors for use at the Special
Meeting. Stockholders are requested to complete, date and sign the accompanying
proxy and promptly return it in the accompanying envelope or otherwise mail it
to Summa Four. All properly executed proxies received by Summa Four prior to the
vote at the Special Meeting, and that are not revoked, will be voted at the
Special Meeting in accordance with the instructions indicated on the proxies or,
if no direction is indicated, to approve the Reorganization Agreement and the
consummation of the Merger. Summa Four's Board of Directors does not presently
intend to bring any other business before the Special Meeting and, so far as is
known to Summa Four's Board of Directors, no other matters are to be brought
before the Special Meeting. As to any business that may properly come before the
Special Meeting, however, it is intended that proxies, in the form enclosed,
will be voted in respect thereof in accordance with the judgment of the persons
voting such proxies. A Summa Four stockholder who has given a proxy (other than
an irrevocable proxy delivered pursuant to a Voting Agreement referred to in
"The Merger and Related Transactions -- Related Agreements -- Voting
Agreements") may revoke it at any time before it is exercised at the Special
Meeting by (i) delivering to the Secretary of Summa Four a written notice,
bearing a date later than the date of the proxy, stating that the proxy is
revoked, (ii) signing and so delivering a proxy relating to the same shares and
bearing a later date than the date of the previous proxy prior to the vote at
the Special Meeting or (iii) attending the Special Meeting and voting in person.
VOTE REQUIRED
Approval of the Reorganization Agreement and the consummation of the Merger
by Summa Four's stockholders is required by the Delaware General Corporation
Law. Such approval requires the affirmative vote of the holders of a majority of
the shares of Summa Four Common Stock outstanding and entitled to vote at the
Special Meeting. Certain stockholders of Summa Four have entered into Voting
Agreements and have delivered irrevocable proxies obligating them to vote in
favor of the Reorganization Agreement and the consummation of the Merger. As of
the Record Date, such stockholders, constituting all executive officers and
directors of Summa Four and their affiliates, as a group beneficially owned
242,914 shares (exclusive of any shares issuable upon the exercise of options)
of Summa Four Common Stock (constituting approximately 4.2% of the shares of
Summa Four Common Stock outstanding as of the Record Date). As of the Record
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Date and the date of this Proxy Statement/Prospectus, Cisco owns no shares of
Summa Four Common Stock. See "The Merger and Related Transactions -- Related
Agreements -- Voting Agreements."
QUORUM; ABSTENTIONS AND BROKER NON-VOTES
The required quorum for the transaction of business at the Special Meeting
is a majority of the shares of Summa Four Common Stock issued and outstanding on
the Record Date. Abstentions and broker non-votes each will be included in
determining the number of shares present and voting at the meeting for the
purpose of determining the presence of a quorum. Because approval of the
Reorganization Agreement and the consummation of the Merger requires the
affirmative vote of a majority of the outstanding shares of Summa Four Common
Stock entitled to vote thereon, abstentions and broker non-votes will have the
same effect as votes against the Reorganization Agreement and the consummation
of the Merger. THE ACTIONS PROPOSED IN THIS PROXY STATEMENT/PROSPECTUS ARE NOT
MATTERS THAT CAN BE VOTED ON BY BROKERS HOLDING SHARES FOR BENEFICIAL OWNERS
WITHOUT THE OWNERS' SPECIFIC INSTRUCTIONS. ACCORDINGLY, ALL BENEFICIAL OWNERS OF
SUMMA FOUR COMMON STOCK ARE URGED TO RETURN THE ENCLOSED PROXY CARD MARKED TO
INDICATE THEIR VOTES.
SOLICITATION OF PROXIES AND EXPENSES
Cisco and Summa Four will share the cost of solicitation of proxies from
its stockholders, by Corporate Investor Communications, Inc., estimated to be
$6,000.00 plus reasonable out-of-pocket expenses. In addition to solicitation by
mail, the directors, officers and employees of Summa Four may solicit proxies
from stockholders by telephone, facsimile or in person. Following the original
mailing of the proxies and other soliciting materials, Summa Four will request
brokers, custodians, nominees and other record holders to forward copies of the
proxy and other soliciting materials to persons for whom they hold shares of
Summa Four Common Stock and to request authority for the exercise of proxies. In
such cases, Summa Four, upon the request of the record holders, will reimburse
such holders for their reasonable expenses.
BOARD RECOMMENDATION
THE SUMMA FOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER AND BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT ARE
FAIR TO, AND THAT THE MERGER IS IN THE BEST INTERESTS OF, SUMMA FOUR AND ITS
STOCKHOLDERS AND THEREFORE RECOMMENDS THAT THE HOLDERS OF SUMMA FOUR COMMON
STOCK VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION AGREEMENT AND THE
CONSUMMATION OF THE MERGER. In considering such recommendation, Summa Four
stockholders should be aware that Cisco has agreed to provide certain
employment, severance and indemnification arrangements to certain directors and
officers of Summa Four. See "The Merger and Related Transactions -- Related
Agreements -- Employment and Non-Competition Agreements" and "-- The
Reorganization Agreement -- Indemnification and Insurance."
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE STOCKHOLDERS OF SUMMA FOUR. ACCORDINGLY, SUMMA FOUR STOCKHOLDERS ARE
URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY
STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK
CERTIFICATES WITH THEIR PROXY CARDS.
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THE MERGER AND RELATED TRANSACTIONS
GENERAL
The Reorganization Agreement provides for the merger of a newly formed,
wholly-owned subsidiary of Cisco with and into Summa Four, with Summa Four to be
the surviving corporation of the Merger and thus to become a wholly-owned
subsidiary of Cisco. The discussion in this Proxy Statement/Prospectus of the
Merger and the description of the principal terms and conditions of the
Reorganization Agreement are subject to and qualified in their entirety by
reference to the Reorganization Agreement, a copy of which is attached to this
Proxy Statement/Prospectus as Appendix A and is incorporated herein by
reference. You are urged to read the Reorganization Agreement in its entirety.
CONVERSION OF SHARES
Upon the consummation of the Merger each share of Summa Four Common Stock
together with the corresponding Right, as defined in the Rights Agreement dated
as of February 22, 1995 between Summa Four and State Street Bank and Trust
Company will be converted, without any action on the part of the holder thereof,
into the right to receive 0.268491 shares of Cisco Common Stock (the "Exchange
Ratio"); provided, however, that (i) in the event the average of the closing
prices of a share of Cisco Common Stock as quoted on the Nasdaq National Market
for the ten trading days immediately preceding and ending on the trading day
that is three calendar days prior to the close of the Merger (the "Cisco Market
Price") is less than $58.67, the Exchange Ratio shall be equal to $15.75 divided
by the Cisco Market Price but in no event greater than 0.2953395 shares of Cisco
Common Stock, and (ii) in the event the Cisco Market Price is more than $71.70,
the Exchange Ratio shall be equal to $19.25 divided by the Cisco Market Price
but in no event less than 0.241641 shares of Cisco Common Stock. Each share of
Cisco Common Stock to be issued shall include a corresponding right to purchase
shares of Cisco Series A Junior Participating Preferred Stock, no par value,
pursuant to the Cisco Rights Agreement dated as of June 10, 1998 between Cisco
and Bank Boston, N.A. No fractional shares of Cisco Common Stock will be issued
in the Merger. Instead, each Summa Four stockholder who would otherwise be
entitled to receive a fraction of a share of Cisco Common Stock will receive an
amount of cash equal to the Cisco Market Price multiplied by the fraction of a
share of Cisco Common Stock to which the stockholder would otherwise be
entitled. Based upon the capitalization of Summa Four and Cisco as of the date
of the Reorganization Agreement and the Exchange Ratio, the stockholders of
Summa Four will own Cisco Common Stock representing approximately 0.1% of the
Cisco Common Stock outstanding immediately after consummation of the Merger.
CONVERSION OF OPTIONS
Upon consummation of the Merger, each then outstanding Summa Four Option
will be assumed by Cisco and will automatically be converted into an option to
purchase a number of shares of Cisco Common Stock determined by multiplying the
number of shares of Summa Four Common Stock subject to the Summa Four Option by
the Exchange Ratio, at an exercise price per share equal to the exercise price
per share of the Summa Four Option at the time of the Merger divided by the
Exchange Ratio, rounded up to the nearest whole cent. To avoid fractional
shares, the number of shares of Cisco Common Stock subject to an assumed Summa
Four Option will be rounded down to the nearest whole share. The other terms of
the Summa Four Options, including vesting schedules, will remain unchanged.
Cisco will file a Registration Statement on Form S-8 with the Commission with
respect to the shares of Cisco Common Stock issuable upon exercise of the
assumed Summa Four Options.
As of the Record Date, 894,222 shares of Summa Four Common Stock were
subject to outstanding Summa Four Options. Upon the assumption of such options
by Cisco upon consummation of the Merger, based on the Exchange Ratio,
approximately 240,091 shares of Cisco Common Stock will be subject to such
options.
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EXCHANGE OF CERTIFICATES
As soon as practicable after the Effective Time, a letter of transmittal
with instructions will be mailed to each Summa Four stockholder for use in
exchanging Summa Four Common Stock certificates for Cisco Common Stock
certificates. Upon surrender of a Summa Four Common Stock certificate for
cancellation to the exchange agent in connection with the Merger, The First
National Bank of Boston, or to such other agent or agents as may be appointed by
Cisco, together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the holder of such
certificate will be entitled to receive in exchange therefor a certificate
representing the number of whole shares of Cisco Common Stock equal to the
Exchange Ratio multiplied by the number of shares subject to the Summa Four
Common Stock certificate being exchanged. No fraction of a share of Cisco Common
Stock will be issued, but in lieu thereof each holder of shares of Summa Four
Common Stock who would otherwise be entitled to a fraction of a share of Cisco
Common Stock (after aggregating all fractional shares of Cisco Common Stock to
be received by such holder) will receive from Cisco an amount of cash, rounded
up to the nearest whole cent, equal to the product of (i) such fraction,
multiplied by (ii) the Cisco Market Price.
Immediately after the Effective Time, each outstanding Summa Four Common
Stock certificate will be deemed for all corporate purposes, other than the
payment of dividends, to evidence the ownership of the number of full shares of
Cisco Common Stock into which such shares of Summa Four Common Stock shall have
been so converted as a result of the Merger and the right to receive an amount
in cash in lieu of the issuance of any fractional shares. No dividends or other
distributions with respect to Cisco Common Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered Summa Four Common
Stock certificate with respect to the shares of Cisco Common Stock represented
thereby until the holder of record of such certificate surrenders such
certificate. Subject to applicable law, following surrender of any such
certificate, there will be paid to the record holder of the certificates
representing whole shares of Cisco Common Stock issued in exchange therefor,
without interest, at the time of such surrender, the amount of any such
dividends or other distributions with a record date after the Effective Time
theretofore payable with respect to such shares of Cisco Common Stock.
If any certificate for shares of Cisco Common Stock is to be issued in a
name other than that in which the Summa Four Common Stock certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Summa Four Common Stock certificate so surrendered be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange have paid to Cisco or any agent designated by it any
transfer or other taxes required by reason of the issuance of a certificate for
shares of Cisco Common Stock in any name other than that of the registered
holder of the Summa Four Common Stock certificate surrendered, or established to
the satisfaction of Cisco or any agent designated by it that such tax has been
paid or is not payable.
HOLDERS OF SUMMA FOUR COMMON STOCK CERTIFICATES SHOULD NOT
SUBMIT THEIR CERTIFICATES FOR EXCHANGE UNTIL THEY HAVE RECEIVED
THE LETTER OF TRANSMITTAL AND INSTRUCTIONS REFERRED TO ABOVE.
NOTIFICATION REGARDING OPTIONS
Following the Effective Time, Cisco will issue to each person who,
immediately prior thereto was a holder of an outstanding Summa Four Option, a
document evidencing the assumption of such option by Cisco. Such assumption will
be automatic and no action will be required on the part of the option holder to
convert such holder's Summa Four Option into an option to purchase shares of
Cisco Common Stock.
BACKGROUND OF THE MERGER
On May 26, 1998, Robert Degan, President and Chief Executive Officer of
Summa Four and another member of Summa Four's senior management met in San Jose,
California with Kevin J. Kennedy, Senior Vice President, Network-to-User
Business Unit, Michael Volpi, Vice President, Business Development and other
members of Cisco's senior management to discuss a possible strategic
relationship between the two
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companies. Prior to that time, there had been several discussions between
various marketing and technical representatives of Cisco and Summa Four to
explore the prospect of Summa Four becoming an OEM supplier to Cisco. At the May
26th meeting, the parties also discussed a possible business combination.
Engineering and manufacturing reviews with Cisco representatives were held at
Summa Four on June 2, 1998. At a meeting of the Board of Directors of Summa Four
on June 3, 1998, Mr. Degan reported on the May 26, 1998 meeting with
representatives of Cisco.
On June 17, 1998, Mr. Degan and other members of Summa Four senior
management met with Mr. Kennedy, Mr. Volpi and other members of Cisco's senior
management in Denver, Colorado. At that meeting Mr. Kennedy and Mr. Volpi
indicated that Cisco was interested in a strategic business combination with
Summa Four. The participants reviewed Summa Four's and Cisco's current
businesses in greater detail, considered the strategic benefits that might
result from a combination of the two companies and discussed how such a
combination might best be implemented, but no specific transaction terms, price
ranges or exchange ratios were discussed.
At a meeting of the Summa Four Board on June 26, 1998, Mr. Degan reported
on the June 17, 1998 meeting in Denver, and the Board was supportive of
continuing with further discussions with Cisco. Thereafter, Summa Four's
financial advisors participated in a number of telephone calls and meetings with
members of Cisco's management to develop the specific terms of a possible
strategic business combination. At a meeting of the Summa Four Board on July 8,
1998, Summa Four's financial advisors reported to the Board on the status of
these discussions.
From July 10 to July 27, 1998, representatives of the two companies and
their respective technical, legal and financial advisors met to conduct due
diligence and negotiate the definitive agreement providing for the merger. The
Summa Four Board of Directors met on July 13 and July 20, 1998 to review the
status of the negotiations. On July 20, 1998, the Summa Four Board formed a
special committee (the "Special Committee"), comprised of all Summa Four Board
members other than a director who is also a director and significant stockholder
of Junction, Inc. ("Junction") to consider a proposal to enter into an agreement
with Junction (the "Junction Agreement") whereby Summa Four would purchase
Junction's 25% interest in Summation LLC (see "Interests of Certain Persons in
the Merger" below). The Special Committee (together with Summa Four's financial
and legal advisors) met on July 20 and 22, 1998 to review the terms of the
Junction Agreement and, at the July 22 meeting, concluded, after consultation
with Summa Four's financial advisor that the Junction Agreement was fair to the
Summa Four stockholders. At meetings of the Summa Four Board held on July 26 and
27 the Summa Four Board, with the participation of Summa Four's financial and
legal advisers (including delivery by Summa Four's financial advisers of their
oral opinion, subsequently confirmed in writing, that the consideration to be
received by Summa Four's stockholders was fair from a financial point of view),
considered, and at the July 27 meeting approved and authorized, the
Reorganization Agreement and the Stock Option Agreement between Summa Four and
Cisco, and the transactions contemplated thereby.
On the evening of July 27, 1998, following final approval by the Summa Four
Board of Directors and the Cisco Board of Directors, the Reorganization
Agreement was executed by both companies.
On July 28, 1998, Summa Four and Cisco issued a joint press release
announcing the Merger.
REASONS FOR THE MERGER
Cisco's Reasons for the Merger
Cisco's Board of Directors has identified several potential benefits of the
Merger that it believes will contribute to the success of the Combined Company.
These potential benefits include the ability to: (i) provide integrated voice
and data solutions to Summa Four and Cisco customers; (ii) utilize Summa Four's
existing application and integration partners to offer service providers
value-added voice services in both traditional and packet-based voice networks;
(iii) increase sales of Summa Four's products by selling through Cisco's
extensive channels of distribution; and (iv) add employees experienced with
voice technologies.
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Additionally, in evaluating the proposed Merger, the Cisco Board of
Directors considered the pro forma contribution of Summa Four to net income both
historically and in the near term. Although based on such analyses the Cisco
Board concluded that the Merger would not be accretive in the near term, for the
strategic reasons set forth above, the Board determined that the Reorganization
Agreement and the Merger were in the best interests of Cisco and its
stockholders and that Cisco should proceed with the Reorganization Agreement and
the Merger.
Summa Four's Reasons for the Merger
The Summa Four Board of Directors has unanimously approved the
Reorganization Agreement and the Merger and has determined that the Merger is
advisable and fair to, and in the best interests of, Summa Four and its
stockholders. The Summa Four Board of Directors recommends that the holders of
shares of Summa Four Common Stock vote FOR the approval and adoption of the
Reorganization Agreement and the consummation of the Merger.
The Summa Four Board of Directors' decision to approve the Reorganization
Agreement and the consummation of the Merger was based primarily on the rapid
expansion of the telecommunication industry in recent years, including the
establishment of new wireline and wireless networks and the Internet. This
expansion has created major new markets for Summa Four's switching products. The
Board of Directors concluded that the best way for Summa Four to capitalize on
these opportunities was to enter into a strategic combination with a much larger
telecommunications company already well established in these new markets and
with which Summa Four's products and technology would be synergistic. The Summa
Four Board also believed that increasing competition in the expanding
communications market would make it difficult for Summa Four to succeed as a
relatively small independent company.
The Summa Four Board of Directors identified a number of potential benefits
for the Summa Four stockholders, employees and customers that would result from
the merger with Cisco. These potential benefits include: (i) the ability of
Summa Four to leverage Cisco's extensive distribution network to increase the
sales of its products and to expand further Summa Four's own distribution base;
(ii) the financial strength of Cisco would enable the combined company to
dedicate greater resources to both current and emerging product development
efforts and to fund the future growth of its business; (iii) the potential
synergy and compatibility between Summa Four and Cisco, based on their
complementary product lines; and (iv) the opportunity for Summa Four, as part of
the Combined Company, to compete more effectively in the increasingly
competitive and rapidly changing industry.
In light of the size and diversity of the marketplace and the competitive
positions of both Cisco and Summa Four, the Summa Four Board of Directors has
concluded that the Merger represents the best long-term strategy for Summa Four.
In reaching its decision to approve the Reorganization Agreement and the
consummation of the Merger and to recommend that the Summa Four stockholders
vote to approve the Reorganization Agreement and the consummation of the Merger,
the Summa Four Board of Directors also considered, in addition to other matters,
the following factors: (i) information concerning Cisco's and Summa Four's
respective businesses, prospects, financial performance and condition,
operations, technology, management and competitive position; (ii) the financial
condition, results of operations and businesses of Cisco and Summa Four before
and after giving effect to the Merger; (iii) current financial market conditions
and historical market prices, volatility and trading information with respect to
Cisco Common Stock and Summa Four Common Stock; (iv) the consideration to be
received by Summa Four stockholders in the Merger and the fact that the market
value of Cisco Common Stock to be issued in exchange for each share of Summa
Four Common Stock represented a significant premium over the recent price range
of the Summa Four Common Stock (the Merger consideration represented a premium
of approximately 40% over the closing sales price of $12.50 per share of Summa
Four Common Stock on July 24, 1998, the last trading day prior to entering into
the Reorganization Agreement); (v) a comparison of selected recent acquisition
and merger transactions in the industry; (vi) the belief that the terms of the
Reorganization Agreement, including the parties' mutual representations,
warranties and covenants, are reasonable and the fact that the Reorganization
Agreement did not contain any
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extraordinary closing conditions on Cisco's obligations; (vii) the ability of
Summa Four to consider and negotiate other acquisition proposals and to
terminate the Reorganization Agreement for a Superior Proposal, subject to the
payment of a fee to Cisco; (viii) the fact that the Merger is expected to be
tax-free for federal income tax purposes; (ix) the opinion of Dain Rauscher
Wessels rendered at the July 27, 1998 meeting of the Summa Four Board of
Directors that the consideration to be received by Summa Four stockholders
pursuant to the Merger was fair to Summa Four stockholders from a financial
point of view as of July 27, 1998; (x) the impact of the Merger upon Summa
Four's customers and employees and (xi) reports from management and financial
advisors as to the results of their due diligence investigation of Cisco.
The Board of Directors of Summa Four also considered a number of
potentially negative factors in its deliberations concerning the Merger,
including, but not limited to, (i) the loss of control over the future
operations of Summa Four following the Merger; (ii) the risk that the benefits
sought to be achieved in the Merger will not be achieved and (iii) the other
risks described above under "Risk Factors." The Board of Directors of Summa Four
discussed with management the prospects for combinations with companies other
than Cisco and the possibility that the benefits described above could be
achieved through any such combination, as well as the risks and benefits of a
stand-alone strategy.
In view of the wide variety of factors considered by the Summa Four Board
of Directors, the Summa Four Board did not find it practicable to quantify or
otherwise assign relative weight to the specific factors considered. However,
after taking into account all of the factors set forth above, the Board of
Directors of Summa Four unanimously agreed that the Reorganization Agreement and
the consummation of the Merger were fair to, and in the best interests of, Summa
Four and its stockholders and that Summa Four should proceed with the Merger and
the Reorganization Agreement.
OPERATIONS FOLLOWING THE MERGER
Following the Merger, Summa Four will continue its operations as a
wholly-owned subsidiary of Cisco. Upon consummation of the Merger, the members
of Summa Four's Board of Directors will be John T. Chambers and Larry R. Carter.
The membership of the Cisco Board of Directors will remain unchanged as a result
of the Merger. The stockholders of Summa Four will become stockholders of Cisco,
and their rights as stockholders will be governed by the Cisco Articles and the
Cisco Bylaws and the laws of the State of California. See "Comparison of Rights
of Stockholders of Cisco and Summa Four."
OPINION OF FINANCIAL ADVISOR TO SUMMA FOUR
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated ("DRW") was
retained, pursuant to an engagement letter dated March 4, 1998 (the "DRW
Engagement Letter"), to furnish an opinion as to the fairness, from a financial
point of view, to Summa Four and the Summa Four stockholders of the
consideration to be paid in the Merger.
On July 27, 1998, DRW rendered its opinion (the "DRW Opinion") to the Summa
Four Board of Directors that, as of such date and based on the procedures
followed, factors considered and assumptions made by DRW and certain other
limitations, all as set forth therein, the consideration proposed to be paid to
the holders of Summa Four Common Stock upon completion of the Merger was fair
from a financial point of view.
THE FULL TEXT OF THE DRW OPINION TO THE SUMMA FOUR BOARD OF DIRECTORS DATED
AS OF JULY 27, 1998 IS ATTACHED HERETO AS APPENDIX B AND IS INCORPORATED HEREIN
BY REFERENCE AND SHOULD BE READ IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY
STATEMENT/PROSPECTUS. THE FOLLOWING SUMMARY OF THE DRW OPINION IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE DRW OPINION. THE DRW OPINION
WAS ADDRESSED TO THE SUMMA FOUR BOARD OF DIRECTORS FOR THE PURPOSES OF ITS
EVALUATION OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SUMMA
FOUR STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE SUMMA FOUR
MEETING.
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In connection with its review of the Merger, and in arriving at its
opinion, DRW has: (i) reviewed and analyzed the financial terms of the
Reorganization Agreement; (ii) reviewed and analyzed certain publicly available
financial and other data with respect to Summa Four and Cisco and certain other
historical relevant operating data relating to Summa Four and Cisco made
available to DRW from published sources and from the internal records of Summa
Four and Cisco; (iii) conducted discussions with members of the senior
management of Summa Four with respect to the business and prospects of Summa
Four; (iv) conducted discussions with members of the senior management of Cisco
with respect to the business and prospects of Cisco; (v) reviewed the reported
prices and trading activity for Cisco Common Stock and Summa Four Common Stock;
(vi) compared the financial performance of Cisco and Summa Four and the prices
of Cisco Common Stock and Summa Four Common Stock with that of certain other
comparable publicly traded companies and their securities; and (vii) reviewed
the financial terms, to the extent publicly available, of certain comparable
merger transactions. In addition, DRW has conducted such other analyses and
examinations and considered such other financial, economic and market criteria
as it has deemed necessary in arriving at its opinion.
The DRW Opinion applies only to the fairness, from a financial point of
view, of the consideration to be paid to the Summa Four stockholders as provided
by the terms of the Reorganization Agreement and should not be understood to be
a recommendation by DRW to vote in favor of any matter presented in this Proxy
Statement/Prospectus. Summa Four stockholders should note that the opinion
expressed by DRW was provided solely for the information of the Summa Four Board
in its evaluation of the Merger and was not prepared on behalf of, and was not
intended to confer rights or remedies upon, Cisco, Summa Four or any stockholder
of Summa Four or Cisco, or any persons other than the Summa Four Board. The
Summa Four Board did not impose any limitations on the scope of the
investigation of DRW with respect to rendering its opinion.
DRW assumed and relied upon the accuracy and completeness of the financial,
legal, tax, operating and other information provided by Summa Four and Cisco
(including without limitation the financial statements and related notes of
Summa Four and Cisco) and certain other publicly available information and did
not independently verify such information. Additionally, DRW was not asked and
did not consider the possible effects of any litigation, other legal claims or
any other contingent matters. DRW did not perform any independent evaluation or
appraisal of any of the respective assets or liabilities of Summa Four or Cisco,
nor was DRW furnished with any such evaluations or appraisals. The DRW Opinion
is based on the conditions as they existed and the information available to DRW
on the date of the DRW Opinion. Events occurring after the date of the DRW
Opinion may materially affect the assumptions used in preparing the DRW Opinion.
The following is a summary of the financial analyses performed by DRW in
connection with the delivery of the DRW Opinion and made available to the Summa
Four Board:
Comparable Company Analysis. DRW used a comparable company analysis to
analyze Summa Four's operating performance relative to a group of publicly
traded companies that DRW deemed for purposes of its analysis to be comparable
to Summa Four. In such analysis, DRW compared the value to be achieved by the
Summa Four stockholders in the Merger, expressed as a multiple of certain
operating data, to the market trading values of the comparable companies
expressed as a multiple of the same operating results. DRW compared multiples of
selected financial data for Summa Four with those of the following publicly
traded companies: Dialogic Corporation, Excel Switching Corporation, Natural
MicroSystems Corporation and Tekelec, Inc. (collectively referred to as the
"Comparable Companies"). Although such companies were considered comparable to
Summa Four for the purpose of this analysis based on certain characteristics of
their respective businesses, none of such companies possesses characteristics
identical to those of Summa Four. DRW calculated the following valuation
multiples based on an implied value of $17.50 per share of Summa Four Common
Stock based on Cisco's closing price on July 24, 1998 and, as to the Comparable
Companies, on market prices and other information available as of the same date.
Multiples of future earnings were based on projected earnings as estimated
publicly by First Call Consensus. The median price per share as a multiple of
the indicated statistic for Summa Four as compared to those of the Comparable
Companies was as follows: (a) projected calendar year 1999 earnings per share,
44.9x for Summa Four, compared to a median of 22.1x for the Comparable
Companies. The median market capitalization as a multiple of each of the
indicated
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statistics for Summa Four as compared to those of the Comparable Companies were
as follows: (b) projected calendar year 1998 revenue, 2.6x for Summa Four, as
compared to a median of 2.6x for the Comparable Companies; and (c) projected
calendar year 1999 revenue, 2.2x for Summa Four, as compared to a median of 2.0x
for the Comparable Companies. In each of the comparisons of the value to be
achieved by the Summa Four stockholders in the Merger as compared to the median
of the multiples of operating results realized by the stockholders of the
Comparable Companies, the multiples of operating results achieved by the Summa
Four stockholders was equal or superior to those realized by the Comparable
Companies.
Comparable Transactions. DRW compared multiples of selected financial data
and other financial data relating to the Merger with multiples paid in, and
other financial data from, selected mergers (the "Comparable Transactions")
since 1996 of publicly traded companies in the technology industry with
aggregate transaction values between $50 million and $500 million. The
Comparable Transactions were selected primarily on the aggregate transaction
value of the business acquired and the companies' involvement in the technology
industry. DRW noted that none of the companies involved in these transactions
had a business that was directly comparable to Summa Four. This analysis
produced multiples of transaction value to latest 12-month revenues for the
Comparable Transactions ranging from 0.2x to 68.4x, with a median of 2.9x,
compared with 2.8x for Summa Four. The multiple of transaction value to latest
12-month net income for the Comparable Transactions ranged from 9.4x to 507.4x,
for companies with net income, with a median of 18.7x, compared with 77.5x for
Summa Four. DRW also compared the premium of the equity value per share over the
Summa Four stock price four weeks and one day prior to the announcement of the
transaction. The premiums of the equity value per share over the stock price of
the Summa Four one day and one month prior to the announcement of the
transaction ranged from-70.4% to 92.0% and-86.3% to 146.7%, with medians of
28.7% and 39.8% respectively. This was compared with one day and one month
premiums of 40.0% and 59.1%, respectively for Summa Four. In each of the
comparisons of the value to be achieved by the Summa Four stockholders in the
Merger to the median of the multiples of operating results and premiums of the
equity value per share over the stock price realized by the stockholders of the
Comparable Transactions, the multiples of operating results and the premiums
achieved by the Summa Four stockholders were comparable to those realized in the
Comparable Transactions.
Discounted Cash Flow Analysis. DRW estimated present values of Summa Four
using a discounted cash flow analysis using projections of future operations
based on information provided by Summa Four's management. DRW calculated present
values of projected operating cash flows after net changes to working capital
over the period between March 31, 1998 and March 31, 2002 using a discount rate
of 23.1%. DRW calculated an approximate terminal value of Summa Four as of March
31, 1998 of 10.8x Summa Four's projected fiscal year 2002 operating income. DRW
determined this multiple by analyzing the median multiple of operating income
for the Comparable Transactions and applying this relationship to estimated
future operating income as of fiscal year 2002. The terminal value was
discounted to present value using the same discount rate as the cash flows. DRW
calculated an implied valuation of Summa Four by adding the present value of the
cash flows and the terminal value. The implied value of Summa Four based on this
analysis was $110.3 million. DRW determined that, at the time of the DRW
Opinion, the value of the consideration to be received by the Summa Four
stockholders in the Merger of approximately $117.0 million was greater than the
present value of Summa Four cash flows under the discounted cash flow valuation
discussed above.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. DRW believes
that its analyses must be considered as a whole and that selecting portions of
the analyses and of the factors considered by it, without considering all
factors and analyses, could create an incomplete or misleading view of the
processes underlying its opinion. In arriving at its fairness determination, DRW
considered the results of all such analyses. In view of the wide variety of
factors considered in connection with its evaluation of the fairness of the
Merger consideration, DRW did not find it practicable to assign relative weights
to the factors considered in reaching its opinion. No company or transaction
used in the above analyses as a comparison is identical to Summa Four or Cisco
or the proposed Merger. The analyses were prepared solely for purposes of DRW
providing its opinion as to the fairness of the Merger consideration pursuant to
the Reorganization Agreement to Summa Four stockholders and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold.
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Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable than
suggested by such analyses. As described above, the DRW Opinion and presentation
to the Summa Four Board was one of the many factors taken into consideration by
the Summa Four Board in making its determination to approve the Reorganization
Agreement.
DRW is a nationally recognized investment banking firm and is regularly
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements and valuations of corporations. DRW
is familiar with Summa Four, having acted as a managing underwriter of the
initial public offering of Summa Four Common Stock in September 1993. Summa Four
selected DRW to render the fairness opinion based on DRW's familiarity with
Summa Four, its knowledge of the technology industry and its experience in
mergers and acquisitions and in securities valuation generally.
In the ordinary course of business, DRW acts as a market maker and broker
in the publicly traded securities of Summa Four and Cisco and receives customary
compensation in connection therewith, and also provides research coverage of
Summa Four and Cisco. In the ordinary course of business, DRW actively trades in
the publicly traded securities of Summa Four and Cisco for its own account and
for the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities which positions, on occasion, may be
material in size or relative to the volume of trading activity.
Pursuant to the DRW Engagement Letter, Summa Four paid DRW a nonrefundable
opinion fee (the "Opinion Fee") of $375,000 upon the rendering of the DRW
Opinion; payment of the Opinion Fee to DRW is not contingent upon the closing of
the Merger. In addition, pursuant to the DRW Engagement Letter, Summa Four has
agreed to pay DRW, upon the closing of the Merger pursuant to the Reorganization
Agreement, a transaction fee (the "Transaction Fee") of approximately
$2,400,000. The Opinion Fee will be credited against the Transaction Fee.
Payment of the Transaction Fee is contingent upon the closing of the Merger.
Summa Four has also agreed to reimburse DRW for its reasonable out-of-pocket
expenses and to indemnify DRW against certain liabilities relating to or arising
out of services performed by DRW in connection with the Merger. The terms of the
DRW Engagement Letter, which are customary for transactions of this nature, were
negotiated at arm's length between Summa Four and DRW, and the Summa Four Board
was aware of such fee arrangement at the time of its approval of the
Reorganization Agreement.
RELATED AGREEMENTS
Voting Agreements
In connection with the Merger, certain stockholders of Summa Four have
entered into Voting Agreements. The terms of the Voting Agreements provide (i)
that such stockholders will not transfer (except as may be specifically required
by court order or by operation of law), sell, exchange, pledge (except in
connection with a pre-existing loan transaction) or otherwise dispose of or
encumber any shares of Summa Four Common Stock beneficially owned by them, or
any new shares of such stock they may acquire, at any time prior to the
Expiration Date (as defined below), and (ii) that such stockholders will vote
all shares of Summa Four Common Stock beneficially owned by them in favor of the
approval of the Reorganization Agreement and approval of the Merger and against
any proposal for any recapitalization, merger, sale of assets or other business
combination (other than the Merger) between Summa Four and any person or entity
other than Cisco. Such voting agreements are accompanied by irrevocable proxies
whereby such stockholders provide to Cisco the right to vote their shares on the
proposals relating to the Reorganization Agreement and the Merger at the Special
Meeting and against any other action or agreement that would result in a breach
of any covenant, representation or warranty or any other obligation or agreement
of Summa Four under the Reorganization Agreement or which would result in any of
the conditions to Summa Four's obligations under the Reorganization Agreement
not being fulfilled. Holders of approximately 4.2% (as of the Record Date,
exclusive of any shares issuable upon the exercise of options held by such
holders) of the shares of Summa Four Common Stock entitled to vote at the
Special Meeting have entered into Voting Agreements and executed irrevocable
proxies. The Voting Agreements and proxies shall terminate on the Expiration
Date. As used herein, the term "Expiration Date" means the earlier to occur of
(i) such date and time as the Merger
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shall become effective in accordance with the terms and provisions of the
Reorganization Agreement and (ii) three months after the date of termination of
the Reorganization Agreement unless Cisco terminates the Reorganization
Agreement as a result of a material adverse change in Summa Four, then upon
termination of the Reorganization Agreement.
Employment and Non-Competition Agreements
Cisco has entered into employment and non-competition agreements with
certain employees of Summa Four (including Robert A. Degan, John H. Shaw,
Richard S. Swee, and Todd P. Hasselbeck), and with certain employees of
Junction. The employment and non-competition agreements are contingent upon the
occurrence of the closing of the Merger and will become effective upon the
Effective Time. The terms of the employment agreements vary from one to two
years from the Effective Time unless terminated earlier by either party for any
reason, with or without cause, by giving written notice of such termination. If
the employee's employment is terminated without cause or if the employee resigns
from employment for good cause prior to the expiration of their employment
agreement, then Cisco will continue to pay employee's base salary for a certain
period as a severance payment. If the employee resigns without good cause or the
employment is terminated for cause prior to the expiration of their employment
agreement, then the employee will be paid all salary and benefits through the
date of termination of employment, but nothing else.
The employment and non-competition agreements require that the employee
will not (i) participate or engage in the design, development, manufacture,
production, marketing, sale or servicing of any product, or the provision of any
service, that directly relates to routing, WAN switching (including ATM and
Frame Relay switching), LAN switching (including Ethernet, Fast Ethernet and
Gigabit Ethernet switching) (the "Business"), or be employed by certain
competitive companies; (ii) induce or attempt to induce any person who at the
time of such inducement is an employee of Cisco to perform work or services for
any other person or entity or hire or attempt to hire any such person; (iii)
permit the employee's name to be used in connection with a business which is
competitive or substantially similar to the Business, in each case for a certain
period after the Merger. There can be no assurance that such non-competition and
non-solicitation provisions will be enforceable under applicable law.
Cisco has agreed that, after the Effective Time, Cisco will indemnify each
officer and director of Summa Four serving as such on the date of the
Reorganization Agreement as provided in the Delaware General Corporation Law,
the Summa Four Certificate and the Summa Four Bylaws, and existing
indemnification agreements between Summa Four and such officers and directors.
Stock Option Agreement
Pursuant to the Stock Option Agreement, a copy of which is attached as
Appendix C to this Proxy Statement/Prospectus and is incorporated herein by
reference, Cisco was granted the right, under certain circumstances, to acquire
up to 1,148,500 shares (the "Cisco Option") of authorized but unissued shares of
Summa Four Common Stock (the "Summa Four Shares") (constituting approximately
19.9% of the outstanding shares of Summa Four Common Stock) at a price, payable
in cash, of $17.50 per share (the "Exercise Price"). Pursuant to the terms of
the Stock Option Agreement, the type and number of securities subject to the
Cisco Option, and the price per share, shall be adjusted in the event of any
change in Summa Four Common Stock by reason of certain events, including
recapitalizations, combinations, exchange of shares or the like. The Stock
Option Agreement could have the effect of making an acquisition of Summa Four by
a third party more costly because of the need to acquire the Summa Four Shares
in any such transaction.
The Stock Option Agreement is exercisable by Cisco, in whole or in part, at
any time or from time to time after the occurrence of an event occurs which
would permit termination of the Reorganization Agreement and require payment to
Cisco of the Termination Fee (up to $3,500,000) and out-of-pocket costs and
expenses described in "The Merger and Related Transactions -- Fees and Expenses,
Termination Fee and Termination Amendments, and Waivers." The Cisco Option will
terminate upon the earlier of: (i) the Effective Time; (ii) the termination of
the Reorganization Agreement pursuant to its terms (other than a
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termination in connection with which Cisco is entitled to the payment of the
Termination Fee and out-of-pocket costs and expenses); (iii) 180 days following
any termination of the Reorganization Agreement in connection with which Cisco
is entitled to the payment of a Termination Fee and out-of-pocket costs and
expenses (or, if at the expiration of such 180-day period, the Cisco Option
cannot be exercised by reason of any applicable judgment, decree, order, law or
regulation, ten (10) business days after such impediment to exercise shall have
been removed or shall have become final and not subject to appeal), or (iv) 12
months following the termination of the Reorganization Agreement in connection
with which Cisco is entitled to a payment of the Termination Fee and
out-of-pocket expenses (or, if at the expiration of such 12 month period, the
Cisco Option cannot be exercised by reason of any applicable judgment, decree,
order, law or regulation, ten (10) business days after such impediment to
exercise shall have been removed or shall have become final and not subject to
appeal). Notwithstanding the foregoing, the Cisco Option may not be exercised if
Cisco is in material breach of any of its representations, warranties, covenants
or agreements contained in the Stock Option Agreement or in the Reorganization
Agreement.
Under the terms of the Stock Option Agreement, at any time during which the
Cisco Option is exercisable (the "Repurchase Period"), Cisco has the right to
require Summa Four (or any successor entity thereof) to repurchase from Cisco
all or any part of the Cisco Option, at the price set forth in subparagraph (a)
below. Also, at any time during which the Cisco Option is exercisable, Cisco has
the right to require Summa Four (or any successor entity thereof) to repurchase
from Cisco, all or any part of the Summa Four Shares purchased by Cisco pursuant
to the Cisco Option at the price set forth in subparagraph (b) below:
(a) The difference between the "Market/Tender Offer Price" for shares
of Summa Four Common Stock as of the date the Cisco gives notice (the
"Notice Date") of its intent to exercise its rights (defined as the higher
of (i) the price per share offered as of the Notice Date pursuant to any
tender or exchange offer or other Takeover Proposal (as defined in the
Reorganization Agreement) which was made prior to the Notice Date and not
terminated or withdrawn as of the Notice Date (the "Tender Price") or (ii)
the average of the closing prices of shares of Summa Four Common Stock on
the Nasdaq National Market for the ten (10) trading days immediately
preceding the Notice Date (the "Market Price")), and the Exercise Price,
multiplied by the number of Summa Four Shares purchasable pursuant to the
Stock Option Agreement (or portion thereof with respect to which Cisco is
exercising its rights under the Stock Option Agreement), but only if the
Market/Tender Offer Price is greater than the Exercise Price.
(b) The Exercise Price paid by Cisco for the Summa Four Shares
acquired pursuant to the Stock Option Agreement plus the difference between
the Market/Tender Offer Price and the Exercise Price, but only if the
Market/Tender Offer Price is greater than the Exercise Price, multiplied by
the number of Summa Four Shares so purchased.
Subsequent to the termination of the Reorganization Agreement, Cisco may by
written notice ("Registration Notice") request Summa Four to register under the
Securities Act all or any part of the shares of Summa Four Common Stock acquired
pursuant to the Stock Option Agreement. Summa Four may, at its option, purchase
these shares ("Registrable Shares") at their market price (the per share average
of the closing sale price of Summa Four's Common Stock on the Nasdaq National
Market for the ten (10) trading days immediately preceding the Registration
Notice) within ten (10) business days after the receipt of the Registration
Notice. If Summa Four does not elect to exercise its option to purchase the
Registrable Shares, it shall use its best efforts to register the unpurchased
Registrable Shares; provided, however, (a) Cisco shall not be entitled to more
than an aggregate of two effective registration statements and (b) Summa Four
will not be required to file any such registration statement for a certain
period of time when (i) Summa Four is in possession of material non-public
information which it reasonably believes would be detrimental to be disclosed at
such time and, after consultation with legal counsel to Summa Four, such
information would have to be disclosed if a registration statement were filed at
such time; (ii) Summa Four is required under the Securities Act to include
audited financial statements for any period in such registration statement and
such financial statements are not then available for inclusion in such
registration statement; or (iii) Summa Four determines, in its reasonable
judgment, that such registration would interfere with any financing, acquisition
or other material transaction involving Summa Four or any of its affiliates.
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THE REORGANIZATION AGREEMENT
Representations, Warranties and Covenants
The Reorganization Agreement contains various representations and
warranties of the parties, including representations by Cisco, Summa Four and
Merger Sub as to their organization and capitalization, their authority to enter
into the Reorganization Agreement and to consummate the transactions
contemplated thereby, the existence of certain liabilities and the absence of
certain material undisclosed liabilities and changes in their businesses. Such
representations and warranties will not survive consummation of the Merger.
Under the terms of the Reorganization Agreement, for the period from the
date of the Reorganization Agreement and continuing until the earlier of the
termination of the Reorganization Agreement or the Effective Time, each of Summa
Four and Cisco has agreed (except to the extent expressly contemplated by the
Reorganization Agreement or as consented to in writing by the other), to carry
on its and its subsidiaries' business in the usual, regular and ordinary course
in substantially the same manner as conducted prior to execution of the
Reorganization Agreement, to pay and to cause its subsidiaries to pay debts and
taxes when due subject to good faith disputes over such debts or taxes and to
pay or perform other obligations when due, and to use its reasonable efforts
consistent with past practice and policies to preserve intact its and its
subsidiaries' present business organizations, keep available the services of its
and its subsidiaries' present officers and key employees and preserve its and
its subsidiaries' relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it or its
subsidiaries, to the end that its and its subsidiaries' goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Each of Summa Four and
Cisco has also agreed to promptly notify the other of any event or occurrence
not in the ordinary course of its or its subsidiaries' business, and of any
event which would have a material adverse effect on it and its subsidiaries. In
addition, Summa Four has agreed that it will not, among other things, do, cause
or permit any of the following, or allow, cause or permit any of its
subsidiaries to do, cause or permit any of the following, without the prior
written consent of Cisco: (a) cause or permit any amendments to its Certificate
of Incorporation, Bylaws or Summa Four Rights Agreement; (b) declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its subsidiaries; (c)
accelerate, amend or change the period of exercisability or vesting of options,
warrants or other rights granted under its stock plans or authorize cash
payments in exchange for any options or other rights granted under any of such
plans; (d) enter into any contract or commitment, other than in the ordinary
course of business consistent with past practice, but in no event in an amount
in excess of $100,000; (e) issue, deliver, sell, authorize or propose the
issuance, delivery, sale of, or purchase or propose the purchase of, any shares
of its capital stock or securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities, other than the issuance of shares of its Common Stock pursuant to
the exercise of stock options, warrants or other rights therefor outstanding as
of the date of the Reorganization Agreement; provided, however, that Summa Four
may, in the ordinary course of business consistent with past practice, grant
options for the purchase of Summa Four Common Stock under its stock option plans
(not to exceed an aggregate of 100,000 options to purchase shares of Summa Four
Common Stock); (f) transfer to any person or entity any rights to its
intellectual property other than in the ordinary course of business consistent
with past practice; (g) enter into or amend any agreements pursuant to which any
other party is granted exclusive marketing or other exclusive rights with
respect to any of its products or technology; (h) sell, lease, license or
otherwise dispose of or encumber any of its properties or assets which are
material, individually or in the aggregate, to its and its subsidiaries'
business, taken as a whole, except in the ordinary course of business consistent
with past practice; (i) 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, (j) enter into any operating lease in excess of $100,000,
(k) pay, discharge or satisfy in an amount in excess of $100,000 in any one
case, any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise)
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arising other than in the ordinary course of business, other than the payment,
discharge or satisfaction of liabilities reflected or reserved against in Summa
Four's financial statements; (l) make any capital expenditures, capital
additions or capital improvements except in the ordinary course of business and
consistent with past practice; (m) materially reduce the amount of any material
insurance coverage provided by existing insurance policies; (n) terminate or
waive any right of substantial value, other than in the ordinary course; (o)
adopt or amend any employee benefit or stock purchase or option plan (other than
plans described in Summa Four's proxy statement for the annual meeting of its
stockholders held on July 27, 1998, provided that no additional options are
granted under any such plans other than the 1993 Director Stock Option Plan, as
amended), or hire any new officer or hire any director level employee, pay any
special bonus or special remuneration to any employee or director, or increase
the salaries or wage rates of its employees; (p) grant any severance or
termination pay to any director or officer or to any other employee except
payments made pursuant to standard written agreements outstanding on the date of
the Reorganization Agreement; (q) commence a lawsuit other than (x) for the
routine collection of bills, (y) in such cases where it in good faith determines
that failure to commence suit would result in the material impairment of a
valuable aspect of its business, provided that it consults with Cisco prior to
the filing of such a suit, or (z) for a breach of the Reorganization Agreement;
(r) other than the Junction Agreement, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to its and its subsidiaries' business, taken as a whole, or acquire
or agree to acquire any equity securities of any corporation, partnership,
association or business organization; (s) other than in the ordinary course of
business, make or change any material election in respect of taxes, adopt or
change any accounting method in respect of taxes, file any material tax return
or any amendment to a material tax return enter into any closing agreement,
settle any claim or assessment in respect of taxes, or consent to any extension
or waiver of the limitation period applicable to any claim or assessment in
respect of taxes; (t) 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 (u) take, or agree in writing
or otherwise to take, any of the actions described in (a) through (t) above, or
any action which would make any of its representations or warranties contained
in the Reorganization Agreement untrue or incorrect or prevent it from
performing or cause it not to perform its covenants thereunder.
No Solicitation of Transactions
Summa Four has further agreed that Summa Four and its subsidiaries and the
officers, directors, employees or other agents of Summa Four and its
subsidiaries will not, directly or indirectly, (i) take any action to solicit,
initiate or encourage any Takeover Proposal (defined below) or (ii) subject to
the terms of the immediately following sentence, engage in negotiations with, or
disclose any nonpublic information relating to Summa Four or any of its
subsidiaries to, or afford access to the properties, books or records of Summa
Four or any of its subsidiaries to, any person that has advised Summa Four that
it may be considering making, or that has made, a Takeover Proposal; provided,
nothing herein shall prohibit Summa Four's Board of Directors from taking and
disclosing to Summa Four's stockholders a position with respect to a tender
offer pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act.
Notwithstanding the foregoing, if an unsolicited written Takeover Proposal
shall be received by the Summa Four Board of Directors, then, to the extent the
Summa Four Board of Directors believes in good faith (after written advice from
its financial advisor) that such Takeover Proposal would, if consummated, result
in a transaction more favorable to Summa Four's stockholders from a financial
point of view than the Merger (a "Superior Proposal") and the Summa Four Board
of Directors determines in good faith after advice from outside legal counsel
that it is necessary for the Summa Four Board of Directors to comply with its
fiduciary duties to stockholders under applicable law, Summa Four and its
officers, directors, employees, investment bankers, financial advisors,
attorneys, accountants and other representatives retained by it may furnish in
connection therewith information to the party making such Superior Proposal and
engage in negotiations with such party, and such actions shall not be considered
a breach of the Reorganization Agreement provided that in each such event Summa
Four is required to notify Cisco of such determination by
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the Summa Four Board of Directors and provide Cisco with a true and complete
copy or summary of the Superior Proposal received from such third party, and
with all documents containing or referring to non-public information of Summa
Four that are supplied to such third party. Further, Summa Four has agreed that
it shall not, and shall not permit any of its officers, directors, employees
(acting on behalf of Summa Four) or other representatives to agree to or endorse
any Takeover Proposal or withdraw its recommendation of the Merger unless Summa
Four has provided Cisco with at least five (5) days prior notice thereof, has
terminated the Reorganization Agreement and paid to Cisco all amounts payable to
Cisco pursuant to the Reorganization Agreement, including the Termination Fee.
Summa Four is required to promptly notify Cisco after receipt of any Takeover
Proposal or any notice that any person is considering making a Takeover Proposal
or any request for non-public information relating to Summa Four or any of its
subsidiaries or for access to the properties, books or records of Summa Four or
any of its subsidiaries by any person that has advised Summa Four that it may be
considering making, or that has made, a Takeover Proposal and to keep Cisco
fully informed of the status and details of any such Takeover Proposal notice,
and to provide Cisco with a true and complete copy of such Takeover Proposal
notice or any amendment thereto, if it is in writing, or a complete written
summary thereof, if it is not in writing. For purposes of the Reorganization
Agreement, "Takeover Proposal" means any offer or proposal for, or any
indication of interest in, a merger or other business combination involving
Summa Four or the acquisition of 20% or more of the outstanding shares of
capital stock of Summa Four, or the sale or transfer of any material significant
portion of the assets of Summa Four, other than the transactions contemplated by
the Reorganization Agreement.
Conditions to the Merger
Each party's respective obligation to consummate and effect the Merger is
subject to, among other things, the approval of the Reorganization Agreement and
the Merger by the requisite vote of the stockholders of Summa Four, the
Commission having declared the Proxy Statement/Prospectus effective, and the
satisfaction prior to the Effective Time of the additional following conditions:
(a) the absence of any temporary restraining order, injunction or other legal
action or regulatory restraint or prohibition preventing the consummation of the
Merger or rendering the consummation of the Merger illegal, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentability, foreign or domestic, seeking any of
the foregoing be pending; (b) all approvals, waivers and consents of any
governmental entity necessary for the consummation of the transactions
contemplated by the Reorganization Agreement shall have been obtained; (c) Cisco
and Summa Four having received substantially identical written opinions of their
respective counsel to the effect that, based upon certain representations and
assumptions and subject to certain qualifications, the Merger will constitute a
tax-free Reorganization; and (d) the filing with the Nasdaq National Market of a
Notification Form for Listing of Additional Shares with respect to the shares of
Cisco Common Stock issuable in connection with the Merger;
The obligations of Summa Four to effect the Merger are subject to, among
other things, the satisfaction at or prior to the Effective Time of each of the
following conditions, unless waived in writing by Summa Four: (a) the
representations and warranties of Cisco and Merger Sub in the Reorganization
Agreement shall be true and correct as of the Effective Time as though such
representations and warranties were made on and as of such time, and Summa Four
shall have received a certificate to such effect signed on behalf of Cisco by
its President and Chief Financial Officer; (b) Cisco and Merger Sub shall have
performed or complied in all material respects with all covenants, obligations,
conditions and agreements required by them as of the Effective Time and Summa
Four shall have received a certificate executed on behalf of Cisco by its
President and Chief Financial Officer to such effect.
The obligations of Cisco and Merger Sub to effect the Merger are subject
to, among other things, the satisfaction at or prior to the Effective Time of
each of the following conditions, unless waived in writing by Cisco: (a) the
representations and warranties of Summa Four in the Reorganization Agreement
shall be true and correct as of the Effective Time as though such
representations and warranties were made on and as of such time, and Cisco and
Merger Sub shall have received a certificate to such effect signed on behalf of
Summa Four by its President and Chief Financial Officer; (b) Summa Four shall
have performed or complied in all material respects with all covenants,
obligations and agreements required by them as of the Effective
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Time and Cisco and Merger Sub shall have received a certificate executed on
behalf of Summa Four by its President and Chief Financial Officer to such
effect; (c) Cisco shall have been furnished with evidence satisfactory to it of
the consent or approval of those persons whose consent or approval shall be
required in connection with the Merger under any material contract of Summa Four
or any of its subsidiaries or otherwise, except where the failure to obtain such
consent would not have a material adverse effect on Summa Four; (d) no temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint
provision limiting or restricting Cisco's conduct or operation of the business
of Summa Four 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)
there shall not have occurred any material adverse change in the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations, or results of operations of Summa Four and
its subsidiaries, taken as a whole (other than certain identified
non-controllable events); (f) Cisco shall have received from Summa Four a
properly executed FIRPTA Notification Letter stating that shares of capital
stock of Summa Four do not constitute "United States real property interests"
under Section 897(c) of the Code for purposes of satisfying Cisco's obligations
under Treasury Regulation Section 1.1445-2(c)(3); (g) certain persons shall have
accepted employment with Cisco and shall have entered into Employment and
Non-Competition Agreements and certain employees, holding approximately 80% of
the Summa Four options held by all employees, shall have waived their right to
have their vesting schedule accelerate upon consummation of the Merger; (h) the
Board of Directors of Summa Four shall have approved an amendment to the Summa
Four stock option plans so that the Merger will not accelerate the vesting of
the outstanding options under such plans; and (i) Summa Four shall have
consummated the Purchase Agreement, dated July 27, 1998 between Summa Four and
Junction.
Closing
As promptly as practicable after the satisfaction or waiver of the
conditions set forth in the Reorganization Agreement, Merger Sub and Summa Four
will file certificates of merger with the Secretary of State of Delaware and the
Recorder of the County in which the registered office of each of Summa Four and
Merger Sub is located. The Merger will become effective upon such filings. It is
anticipated that, assuming all conditions are met, the Merger will occur and a
closing will be held on or before November 6, 1998.
Termination, Amendments and Waivers
At any time prior to the Effective Time, the Reorganization Agreement may
be terminated:
(a) by mutual written consent of Cisco and Summa Four;
(b) by either Cisco or Summa Four, if, without fault of the
terminating party, the closing shall not have occurred on or before January
27, 1999 (provided a later date may be agreed upon in writing by Cisco and
Summa Four; and provided further that the right to terminate the
Reorganization Agreement shall not be available to any party whose action
or failure to act has been the cause of or resulted in the failure of the
Merger to occur on or before such date and such action or failure to act
constitutes a breach of the Reorganization Agreement);
(c) by Cisco, if (i) Summa Four shall breach any of its
representations, warranties or obligations and such breach shall not have
been cured within ten (10) business days of receipt by Summa Four of
written notice of such breach (and Cisco shall not have willfully breached
any of its covenants, which breach is not cured), (ii) the Board of
Directors of Summa Four shall have withdrawn or modified its recommendation
of the Reorganization Agreement or the Merger in a manner adverse to Cisco
or shall have resolved to do any of the foregoing, or (iii) for any reason
Summa Four fails to call and hold the Special Meeting by December 27, 1998;
(d) by Summa Four, if Cisco shall breach any of its representations,
warranties or obligations and such breach shall not have been cured within
ten (10) business days following receipt by Cisco of written
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notice of such breach (and Summa Four shall not have willfully breached any
of its covenants, which breach is not cured);
(e) by Cisco if a Trigger Event (as described below) or Takeover
Proposal shall have occurred and the Board of Directors of Summa Four in
connection therewith, does not within ten (10) business days of such
occurrence (i) reconfirm its approval and recommendation of the
Reorganization Agreement and the transactions contemplated thereby, and
(ii) reject such Takeover Proposal or Trigger Event (in the case of a
Trigger Event involving a tender or exchange offer);
(f) by Summa Four if a Superior Proposal shall have occurred, Summa
Four shall have provided Cisco at least five (5) business days prior notice
of the terms of the Superior Proposal and Summa Four shall have paid Cisco
the Termination Fee; or
(g) by either Cisco or Summa Four if (i) any permanent injunction or
other order of a court or other competent authority preventing the
consummation of the Merger shall have become final and nonappealable or
(ii) if any required approval of the stockholders of Summa Four shall not
have been obtained by reason of the failure to obtain the required vote
upon a vote held at a duly held meeting of stockholders or at any
adjournment thereof.
Fees and Expenses; Termination Fee
Whether or not the Merger is consummated, all costs and expenses incurred
in connection with the Reorganization Agreement and the Merger will be paid by
the party incurring the expense except that expenses incurred in connection with
printing the Proxy Statement/Prospectus, registration and filing fees incurred
in connection with the Statement/Prospectus and the listing of additional shares
and fees, costs and expenses, associated with compliance with applicable state
securities laws in connection with the Merger shall be shared equally.
Summa Four has agreed that if the Reorganization Agreement is terminated
because (i) the Board of Directors of Summa Four shall have withdrawn or
modified its recommendation of the Reorganization Agreement or the Merger in a
manner adverse to Cisco or shall have resolved to do any of the foregoing, (ii)
a Trigger Event or Takeover Proposal shall have occurred and the Board of
Directors of Summa Four, in connection therewith, does not within ten (10)
business days of such occurrence reconfirm its approval and recommendation of
the Reorganization Agreement and the transactions contemplated thereby, and
reject such Takeover Proposal or Trigger Event (in the case of a Trigger Event
involving a tender or exchange offer), (iii) a Superior Proposal shall have
occurred, (iv) any required approval of the stockholders of Summa Four shall not
have been obtained by reason of the failure to obtain the required vote upon a
vote held at a duly held meeting of stockholders or at any adjournment thereof
and prior to the meeting there shall have been a Trigger Event or a Takeover
Proposal which was not rejected by Summa Four; or (v) Summa Four has breached
its representations, warranties or obligations under the Reorganization
Agreement (subject to certain limitations) or has failed for any reason to hold
the Special Meeting by December 27, 1998 and prior thereto there shall have been
a Trigger Event or Takeover Proposal that has not been rejected by Summa Four,
then Summa Four will pay Cisco its out-of-pocket costs and expenses and pay
Cisco the Termination Fee of $3,500,000. In addition, Summa Four has agreed that
under certain circumstances it shall pay Cisco's out-of-pocket costs and
expenses and in the event any Takeover Proposal or Trigger Event is consummated
within 6 or 12 months (depending on the persons making such Takeover Proposal or
Trigger Event) of the later of the termination of the Reorganization Agreement
or payment of Cisco's fees and expenses, Summa Four will pay the additional sum
of $3,500,000 less any Termination Fee previously paid by Summa Four to Cisco.
Pursuant to a letter agreement dated July 27, 1998, Summa Four engaged DRW
to provide financial advice and assistance in connection with a sale or merger
of Summa Four, and to render a fairness opinion in connection with the proposed
merger with a subsidiary of Cisco. Summa Four has agreed to pay DRW a
Transaction Fee of approximately $2,400,000 for its services pursuant to the
terms of the letter agreement and has agreed to reimburse DRW for its reasonable
out-of-pocket expenses.
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INDEMNIFICATION AND INSURANCE
The Reorganization Agreement provides that Cisco will, from and after the
Effective Time, and will cause Summa Four to indemnify, defend and hold harmless
the present and former officers, directors employees and agents of Summa Four in
respect of acts or omissions occurring on or prior to the Effective Time, in
each case to the full extent such corporation is permitted under Delaware law,
the Summa Four Amended and Restated Certificate or the Summa Four Amended and
Restated Bylaws or any indemnification agreement to which Summa Four is a party,
in each case as in effect on the date of the Reorganization Agreement.
The Reorganization Agreement also provides that, for four years after the
Effective Time, Cisco will either (i) at all times maintain at least $50,000,000
in cash, marketable securities and unrestricted lines of credit to be available
to indemnify the present and former officers, directors, employees and agents of
Summa Four against certain liabilities, or (ii) cause the Summa Four to use its
best efforts to cause to be maintained for the benefit of Summa Four's current
directors and officers and other persons covered by Summa Four's current
directors' and officers' liability insurance with respect to all matters
occurring on or prior to the Effective Time, directors and officers liability
insurance on terms substantially equivalent to the Summa Four directors' and
officers' liability insurance policy in effect on the date of the Reorganization
Agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Summa Four Board of Directors with
respect to the Merger, stockholders of Summa Four should be aware that certain
officers and directors of Summa Four have interests in the Merger, including
those referred to below, that presented them with potential conflicts of
interests. The Summa Four Board of Directors was aware of these potential
conflicts and considered them along with the other matters described in "The
Special Meeting -- Board Recommendation" and "The Merger and Related
Transactions -- Reasons for the Merger."
The Reorganization Agreement provides that Cisco will assume Summa Four's
outstanding stock options, whereafter such options will be exercisable for Cisco
Common Stock. In light of the premium reflected in the Exchange Ratio, Summa
Four's officers will thus receive a significant benefit from the Merger in the
form of the higher value of shares issuable upon exercise of their options.
However, officers of Summa Four will not receive or be entitled to "golden
parachute" or other change of control payments particularly by virtue of the
Merger.
Cisco has entered into employment and non-competition agreements with
certain Summa Four and Junction executive officers and employees in positions
comparable to such employee's current position with Summa Four or Junction, as
the case may be. These agreements generally provide that if the employment of
the employees were terminated by Cisco without cause or if the employee were to
resign with good cause, then Cisco would continue the employee's base salary for
a certain period as a severance payment. See "The Merger and Related
Transactions -- Related Agreements -- Employment and Non-Competition
Agreements."
The Reorganization Agreement provides that Cisco will, from and after the
Effective Time, and will cause Summa Four to indemnify, defend and hold harmless
the present and former officers, directors and employees and agents of Summa
Four in respect of acts or omissions occurring on or prior to the Effective
Time, in each case to the full extent such corporation is permitted under
Delaware law, the Summa Four Certificate or the Summa Four Bylaws or any
indemnification agreement to which Summa Four is a party, in each case as in
effect on the date of the Reorganization Agreement.
It is a condition to the obligations of Cisco and Merger Sub under the
Merger Agreement that the Purchase Agreement dated July 27, 1998 between Summa
Four and Junction shall have been consummated. The Purchase Agreement provides
for the purchase by Summa Four, for $6.4 million in cash, of the 25% interest in
Summation LLC currently owned by Junction. Russell I. Pillar, a Director of
Summa Four, is also a Director and owner of 40% of the outstanding stock of
Junction. Accordingly, Mr. Pillar has a significant financial interest in the
Merger.
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REGULATORY MATTERS
Under the HSR Act, and the rules promulgated thereunder by the FTC, the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division and
specified waiting period requirements have been satisfied. Cisco and Summa Four
each originally filed its Notification and Report Form required under the HSR
Act, with the FTC and the Antitrust Division on August 5, 1998 and the
applicable waiting period under the HSR Act has terminated. At any time before
or after consummation of the Merger, the FTC, the Antitrust Division, the state
attorneys general or others could take action under the antitrust laws with
respect to the Merger, including seeking to enjoin the consummation of the
Merger or seeking divestiture of substantial assets of Cisco or Summa Four.
Based on information available to them, Cisco and Summa Four believe that
the Merger will not violate federal or state antitrust laws. However, there can
be no assurance that a challenge to the consummation of the Merger on antitrust
grounds will not be made or that, if such a challenge were made, Cisco and Summa
Four would prevail or would not be required to accept certain conditions,
possibly including certain divestitures or hold-separate arrangements, in order
to consummate the Merger.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations relevant to the exchange of shares of Summa Four Common Stock for
Cisco Common Stock pursuant to the Merger that are generally applicable to
holders of Summa Four Common Stock. This discussion is based on currently
existing provisions of the Code, existing and proposed Treasury Regulations
thereunder and current administrative rulings and court decisions, all of which
are subject to change. Any such change, which may or may not be retroactive,
could alter the tax consequences to Cisco, Summa Four or Summa Four's
stockholders as described herein.
Summa Four stockholders should be aware that this discussion does not deal
with all federal income tax considerations that may be relevant to particular
Summa Four stockholders in light of their particular circumstances, such as
stockholders who are dealers in securities, who are subject to the alternative
minimum tax provisions of the Code, who are foreign persons, who do not hold
their Summa Four Common Stock as capital assets, or who acquired their shares in
connection with stock option or stock purchase plans or in other compensatory
transactions. In addition, the following discussion does not address the tax
consequences of the Merger under foreign, state or local tax laws, the tax
consequences of transactions effectuated prior or subsequent to, or concurrently
with, the Merger (whether or not any such transactions are undertaken in
connection with the Merger), including without limitation any transaction in
which shares of Summa Four Common Stock are acquired or shares of Cisco Common
Stock are disposed of, or the tax consequences of the assumption by Cisco of the
Summa Four Options. Accordingly, SUMMA FOUR STOCKHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE
MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES.
The Merger is intended to constitute a Reorganization. Provided that the
Merger does so qualify as a Reorganization, then, subject to the limitations and
qualifications referred to herein, the Merger will generally result in the
following federal income tax consequences:
(a) No gain or loss will be recognized by holders of Summa Four Common
Stock solely upon their receipt of Cisco Common Stock in exchange for Summa
Four Common Stock in the merger (except to the extent of cash received in
lieu of a fractional share of Cisco Common Stock).
(b) The aggregate tax basis of the Cisco Common Stock received by
Summa Four stockholders in the Merger (reduced by any tax bases
attributable to fractional shares deemed to be disposed of) will be the
same as the aggregate tax basis of the Summa Four Common Stock surrendered
in exchange therefor.
(c) The holding period of the Cisco Common Stock received by each
Summa Four stockholder in the Merger will include the period for which the
Summa Four Common Stock surrendered in exchange
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therefor was considered to be held, provided that the Summa Four Common
Stock so surrendered is held as a capital asset at the time of the Merger.
(d) Cash payments received by holders of Summa Four Common Stock in
lieu of a fractional share will be treated as if such fractional share of
Cisco Common Stock had been issued in the Merger and then redeemed by
Cisco. A Summa Four stockholder receiving such cash will recognize gain or
loss, upon such payment, measured by the difference (if any) between the
amount of cash received and the basis in such fractional share.
(e) Neither Cisco, Merger Sub nor Summa Four will recognize material
amounts of gain solely as a result of the Merger.
The parties are not requesting and will not request a ruling from the
Internal Revenue Service (the "IRS") in connection with the Merger. The
consummation of the Merger is conditioned on the receipt by Cisco of an opinion
from Brobeck, Phleger & Harrison LLP and the receipt by Summa Four of an opinion
from Hale and Dorr LLP to the effect that the Merger will constitute a
Reorganization (the "Tax Opinions"). Summa Four stockholders should be aware
that the Tax Opinions do not bind the IRS and the IRS is therefore not precluded
from successfully asserting a contrary opinion. The Tax Opinions will be subject
to certain assumptions and qualifications, including but not limited to the
truth and accuracy of certain representations made by Cisco, Summa Four and
Merger Sub.
A successful IRS challenge to the Reorganization status of the Merger would
result in Summa Four stockholders recognizing taxable gain or loss with respect
to each share of Common Stock of Summa Four surrendered equal to the difference
between the stockholder's basis in such share and the fair market value, as of
the Effective Time, of the Cisco Common Stock received in exchange therefor. In
such event, a stockholder's aggregate basis in the Cisco Common Stock so
received would equal its fair market value, and the stockholder's holding period
for such stock would begin the day after the Merger.
ACCOUNTING TREATMENT
The Merger will be accounted for as a "purchase" for accounting purposes in
accordance with generally accepted accounting principles, whereby the purchase
price will be allocated based on the fair values of the assets acquired and the
liabilities assumed. Any excess of such purchase price over the amounts so
allocated will be allocated to goodwill.
NO APPRAISAL RIGHTS
Section 262 of the Delaware General Corporation Law (the "DGCL") provides
appraisal rights (sometimes referred to as "dissenters' rights") to stockholders
of Delaware corporations in certain situations. However, Section 262 appraisal
rights are not available to stockholders of a corporation, such as Summa Four,
(a) whose securities are listed on a national securities exchange or are
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. ("NASD") and (b)
whose stockholders are not required to accept in exchange for their stock
anything other than stock of another corporation listed on a national securities
exchange or on an interdealer quotation system by the NASD and cash in lieu of
fractional shares. Because Summa Four's Common Stock is traded on such a system,
the Nasdaq National Market, and because the Summa Four stockholders are being
offered stock of Cisco, which is also traded on the Nasdaq National Market, and
cash in lieu of fractional shares, stockholders of Summa Four will not have
appraisal rights with respect to the Merger. The DGCL does not provide appraisal
rights to stockholders of a corporation, such as Cisco, which issues shares in
connection with a merger but is not itself a constituent corporation in the
Merger.
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COMPARISON OF RIGHTS OF STOCKHOLDERS
OF CISCO AND SUMMA FOUR
The rights of Cisco's shareholders are governed by its Articles of
Incorporation (the "Cisco Articles"), its Bylaws (the "Cisco Bylaws") and the
laws of the State of California. The rights of Summa Four's stockholders are
governed by its Amended and Restated Certificate of Incorporation (the "Summa
Four Certificate"), its Amended and Restated Bylaws (the "Summa Four Bylaws")
and the laws of the State of Delaware. After the Effective Time, the Summa Four
stockholders will become Cisco shareholders and will be governed by the Cisco
Articles, Cisco Bylaws and the laws of the State of California.
While the rights and privileges of stockholders of a Delaware corporation
such as Summa Four are, in many instances, comparable to those of shareholders
of a California corporation such as Cisco, there are certain differences. The
following is a summary of the material differences between the rights of holders
of Summa Four Common Stock and the rights of holders of Cisco Common Stock at
the date hereof. These differences arise from differences between the DGCL and
the California Corporations Code (the "CCC") and between the Summa Four
Certificate and the Summa Four Bylaws and the Cisco Articles and the Cisco
Bylaws.
VOTE REQUIRED FOR EXTRAORDINARY TRANSACTIONS
The CCC requires that the principal terms of a merger be approved by the
affirmative vote of a majority of the outstanding shares of each class entitled
to vote thereon, except that, unless required by its articles of incorporation,
no authorizing shareholder vote is required of a corporation surviving a merger
if the shareholders of such corporation shall own, immediately after the merger,
more than five-sixths of the voting power of the surviving corporation. The
Cisco Articles do not require a greater percentage vote. The CCC further
requires the affirmative vote of a majority of the outstanding shares entitled
to vote thereon if (a) the surviving corporation's articles of incorporation
will be amended and would otherwise require shareholder approval or (b)
shareholders of such corporation will receive shares of the surviving
corporation having different rights, preferences, privileges or restrictions
(including shares in a foreign corporation) than the shares surrendered.
Shareholder approval is not required under the CCC for mergers or consolidations
in which a parent corporation merges or consolidates with a subsidiary of which
it owns at least 90% of the outstanding shares of each class of stock.
The DGCL requires the affirmative vote of a majority of the outstanding
stock entitled to vote thereon to authorize any merger or consolidation of a
corporation, except that, unless required by its certificate of incorporation,
no authorizing stockholder vote is required of a corporation surviving a merger
if (a) such corporation's certificate of incorporation is not amended in any
respect by the merger; (b) each share of stock of such corporation outstanding
immediately prior to the effective date of the merger will be an identical
outstanding or treasury share of the surviving corporation after the effective
date of the merger; and (c) the number of shares to be issued in the merger does
not exceed 20% of such corporation's outstanding common stock immediately prior
to the effective date of the merger. The Summa Four Certificate does not require
a greater percentage vote for such actions. Shareholder approval is also not
required under the DGCL for mergers or consolidations in which a parent
corporation merges or consolidates with a subsidiary of which it owns at least
90% of the outstanding shares of each class of stock.
DIRECTOR NOMINATIONS
The Summa Four Bylaws require advance notice of director nominations. Such
notice must contain all information regarding each nominee which would be
required to be set forth in a definitive proxy statement filed with the
Commission pursuant to Section 14 of the Exchange Act and must be delivered by
written notice to the Secretary of Summa Four no more than 10 days following the
day on which the initial notice of the meeting is given to stockholders nor less
than 30 days prior to the first anniversary date of the initial notice of the
previous year's annual meeting of stockholders was given to stockholders. The
Cisco Bylaws require advance notice of director nominations.
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AMENDMENT TO GOVERNING DOCUMENTS
Unless otherwise specified in a California corporation's articles of
incorporation, an amendment to the articles of incorporation requires the
approval of the corporation's board of directors and the affirmative vote of a
majority of the outstanding shares entitled to vote thereon, either before or
after the board approval, although certain minor amendments may be adopted by
the board alone such as amendments causing stock splits (including an increase
in the authorized number of shares in proportion thereto) and amendments
changing names and addresses given in the Articles. The Cisco Articles do not
require a greater level of approval for an amendment thereto. Under the CCC, the
holders of the outstanding shares of a class are entitled to vote as a class if
a proposed amendment to the articles of incorporation would (i) increase or
decrease the aggregate number of authorized shares of such class; (ii) effect an
exchange, reclassification or cancellation of all or part of the shares of such
class, other than a stock split; (iii) effect an exchange, or create a right of
exchange, of all or part of the shares of another class into the shares of such
class; (iv) change the rights, preferences, privileges or restrictions of the
shares of such class; (v) create a new class of shares having rights,
preferences or privileges prior to the shares of such class, or increase the
rights, preferences or privileges or the number of authorized shares having
rights, preference or privileges prior to the shares of such class; (vi) in the
case of preferred shares, divide the shares of any class into series having
different rights, preferences, privileges or restrictions or authorize the board
of directors to do so; or (vii) cancel or otherwise affect dividends on the
shares of such class which have accrued but have not been paid. Under the CCC, a
corporation's bylaws may be adopted, amended or repealed either by the board of
directors or the shareholders of the corporation. The Cisco Bylaws provide that
the Cisco Bylaws may be adopted, amended or repealed either by the vote of the
holders of a majority of the outstanding shares entitled to vote or by the board
of directors; provided, however, that the Cisco Board of Directors may not amend
the Cisco Bylaws in order to change the authorized number of directors (except
to alter the authorized number of directors within the existing range of a
minimum of seven and a maximum of thirteen directors).
The DGCL requires a vote of the corporation's board of directors followed
by the affirmative vote of a majority of the outstanding stock of each class
entitled to vote for any amendment to the certificate of incorporation, unless a
greater level of approval is required by the certificate of incorporation.
Further, the DGCL states that if an amendment would increase or decrease the
aggregate number of authorized shares of such class, increase or decrease the
par value shares of such class or alter or change the powers, preferences or
special rights of a particular class or series of stock so as to affect them
adversely, the class or series shall be given the power to vote as a class
notwithstanding the absence of any specifically enumerated power in the
certificate of incorporation. The DGCL also states that the power to adopt,
amend or repeal the bylaws of a corporation shall be in the stockholders
entitled to vote, provided that the corporation in its certificate of
incorporation may confer such power on the board of directors in addition to the
stockholders. The Summa Four Certificate expressly authorizes the board of
directors to adopt, amend or repeal the Summa Four Bylaws.
APPRAISAL RIGHTS
Under the DGCL, holders of shares of any class or series, who neither vote
in favor of the merger or consolidation nor consent thereto in writing, have the
right, in certain circumstances, to dissent from a merger or consolidation by
demanding payment in cash for their shares equal to the fair value (excluding
any appreciation or depreciation as a consequence or in expectation of the
transaction) of such shares, as determined by agreement with the corporation or
by an independent appraiser appointed by a court in an action timely brought by
the corporation or the dissenters. The DGCL grants dissenters' appraisal rights
only in the case of mergers or consolidations and not in the case of a sale or
transfer of assets or a purchase of assets for stock regardless of the number of
shares being issued. Further, no appraisal rights are available for shares of
any class or series listed on a national securities exchange or designated as a
national market system security on the Nasdaq National Market or held of record
by more than 2,000 stockholders, unless the agreement of merger or consolidation
converts such shares into anything other than (a) stock of the surviving
corporation; (b) stock of another corporation which is either listed on a
national securities exchange or designated as a national market system security
on the Nasdaq National Market or held of record by more than 2,000
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stockholders; (c) cash in lieu of fractional shares; or (d) some combination of
the above. In addition, dissenters' rights are not available for any shares of
the surviving corporation if the merger did not require the vote of the
stockholders of the surviving corporation. See "The Merger and Related
Transactions -- No Appraisal Rights."
Under the CCC, if the approval of the outstanding shares of the corporation
is required for a merger or reorganization, each shareholder entitled to vote on
the transaction, and who did not vote in favor of the reorganization may require
the corporation to purchase for cash at their fair market value the shares owned
by such shareholder. No appraisal rights are available for shares listed on any
national securities exchange certified by the Commissioner of Corporations or
listed on the list of OTC margin stocks issued by the Board of Governors of the
Federal Reserve Systems, unless (a) there exists with respect to such shares any
restriction on transfer imposed by the corporation or by any law or regulation
or (b) if demands for payment are filed with respect to 5% or more of the
outstanding shares of that class.
DERIVATIVE ACTION
The CCC provides that a shareholder bringing a derivative action on behalf
of the corporation need not have been a shareholder at the time of the
transaction in question, provided that certain tests are met concerning the
fairness of allowing the action to go forward. The shareholder must make his or
her demands on the board before filing suite. The CCC also provides that the
corporation or the defendant in a derivative suit may make a motion to the court
for an order requiring the plaintiff shareholder to furnish a security bond.
Derivative actions may be brought in Delaware by a stockholder on behalf
of, and for the benefit of, the corporation. The DGCL provides that a
stockholder must aver in the complaint that he or she was a stockholder of the
corporation at the time of the transaction of which he or she complains. A
stockholder may not sue derivatively unless he first makes demand on the
corporation that it bring suit and such demand has been refused, unless it is
shown that such demand would have been futile.
STOCKHOLDER CONSENT IN LIEU OF MEETING
Under the DGCL and the CCC, unless otherwise provided in the certificate or
articles of incorporation, any action required to be taken or which may be taken
at an annual or special meeting of stockholders may be taken without a meeting
if a consent in writing is signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize such
action at a meeting at which all shares entitled to vote were present and voted.
If consent is sought for less than all shareholders entitled to vote, notice as
required under the CCC shall be given. The Cisco Articles provide that directors
may not be elected by written consent except by unanimous written consent of all
shares entitled to vote for the election of directors. The Summa Four
Certificate provides that any action by the stockholders must be taken at an
annual or special meeting of stockholders and may not be taken by written
consent.
FIDUCIARY DUTIES OF DIRECTORS
Directors of corporations incorporated or organized under the DGCL and the
CCC have fiduciary obligations to the corporation and its shareholders. Pursuant
to these fiduciary obligations, the directors must act in accordance with the
so-called duties of "due care" and "loyalty." Under the DGCL, the duty of care
requires that the directors act in an informed and deliberative manner and to
inform themselves, prior to making a business decision, of all material
information reasonably available to them. The duty of loyalty may be summarized
as the duty to act in good faith, not out of self-interest and in a manner that
the directors reasonably believe to be in the best interests of the corporation.
Under the CCC, the duty of loyalty requires directors to perform their duties in
good faith in a manner that the directors reasonably believe to be in the best
interests of the corporation and its stockholders. The duty of care requires
that the directors act with such care, including reasonable inquiry, as an
ordinarily prudent person in a like position would exercise under similar
circumstances.
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STOCKHOLDER PROPOSALS
The Summa Four Bylaws provide that no proposal by any person other than the
Board of Directors may be submitted for the approval of the Summa Four
stockholders at any regular or special meeting of stockholders unless the person
advancing the proposal is a record stockholder and has delivered a written
notice to the secretary of Summa Four no more than 10 days following the day on
which the initial notice of the meeting is given to stockholders nor less than
30 days prior to the first anniversary date of the initial notice of the
previous year's annual meeting of stockholder was given to stockholders. The
Cisco Bylaws provide that shareholders may propose business to be brought before
a meeting of shareholders only if they provide notice to Cisco no later than 60
days prior to such meeting.
INDEMNIFICATION
The Summa Four Certificate provides that the corporation may indemnify its
present and former directors, officers, employees and agents (each, an
"Indemnitee") against all reasonable expenses (including attorneys' fees) and,
except in actions initiated by or in the right of the corporation, against all
judgments, fines and amounts paid in settlement in actions brought against them,
if such individual acted in good faith, and in a manner which he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe his or her conduct was unlawful. The corporation shall indemnify an
Indemnitee to the extent that he or she is successful on the merits or otherwise
in the defense of any claim, issue or matter associated with an action
Under the CCC, (i) a corporation has the power to indemnify present and
former directors, officers, employees and agents against expenses, judgments,
fines, settlements and other amounts (other than in connection with actions by
or in the right of the corporation) if that person acted in good faith and in a
manner the person reasonably believed to be in the best interests of the
corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe the conduct of the person was unlawful, and (ii) a corporation has
the power to indemnify, with certain exceptions, any person who is a party to
any action by or in the right of the corporation, against expenses actually and
reasonably incurred by that person in connection with the defense or settlement
of the action if the person acted in good faith and in a manner the person
believed to be in the best interests of the corporation and its shareholders.
The indemnification authorized by the CCC is not exclusive, and a
corporation may grant its directors, officers, employees or other agents certain
additional rights to indemnification. The Cisco Articles and the Cisco Bylaws
provide for the indemnification of its agents (as defined under the CCC) to the
fullest extent permissible under the CCC, which may be in excess of the
indemnification expressly permitted by Section 317 of the CCC, subject to the
limits set forth in Section 204 of the CCC with respect to actions for breach of
duty to the corporation and its shareholders.
The DGCL and the CCC allow for the advance payment of an Indemnitee's
expenses prior to the final disposition of an action, provided that the
Indemnitee undertakes to repay any such amount advanced if it is later
determined that the Indemnitee is not entitled to indemnification with regard to
the action for which the expenses were advanced.
DIRECTOR LIABILITY
The DGCL and the CCC each provide that the charter documents of the
corporation may include provisions which limit or eliminate the liability of
directors to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided such liability does not arise from
certain proscribed conduct, including, in the case of the DGCL, for any breach
of the director's duty of loyalty to the corporation or its stockholders acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, the payment of unlawful dividends or expenditure of funds for
unlawful stock purchases or redemptions or transactions from which such director
derived an improper personal benefit, or, in the case of the CCC, intentional
misconduct or knowing and culpable violation of law, acts or omissions that a
director believes to be contrary to the best interests of the corporation or its
shareholders or that involve the absence of good faith on the part of the
director, the receipt of an improper personal benefit, acts or omissions
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that show reckless disregard for the director's duty to the corporation or its
shareholders, where the director in the ordinary course of performing a
director's duties should be aware of a risk of serious injury to the corporation
or its shareholders, acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
corporation and its shareholders, interested transactions between the
corporation and a director in which a director has a material financial interest
and liability for improper distributions, loans or guarantees. The Summa Four
Certificate contains a provision limiting the liability of its directors to the
fullest extent permitted by the DGCL. The Cisco Articles contain a provision
limiting the liability of its directors to the fullest extent provided by the
CCC.
ANTI-TAKEOVER PROVISIONS AND INTERESTED STOCKHOLDER TRANSACTIONS
The Summa Four Bylaws provide that a special meeting of the stockholders
may be called by the Chairman of the Board or the President and shall be called
by the Secretary at the request in writing of stockholders who hold at least 35%
in interest of the capital stock of the corporation issued and outstanding and
entitled to vote at such meeting. The Cisco Bylaws provide that in addition to
the board of directors, the chairman of the board and the president, one or more
shareholders holding not less than 10% of the voting power of the corporation
may call a special meeting of the shareholders.
The DGCL prohibits, in certain circumstances, a "business combination"
between the corporation and an "interested stockholder" within three years of
the stockholder becoming an "interested stockholder." An "interested
stockholder" is a holder who, directly or indirectly, controls 15% or more of
the outstanding voting stock or is an affiliate of the corporation and was the
owner of 15% or more of the outstanding voting stock at any time within the
prior year period. A "business combination" includes a merger or consolidation,
a sale or other disposition of assets having an aggregate market value equal to
10% or more of the consolidated assets of the corporation or the aggregate
market value of the outstanding stock of the corporation and certain
transactions that would increase the interested stockholder's proportionate
share ownership in the corporation. This provision does not apply where: (i)
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder is approved by the corporation's
board of directors prior to the date the interested stockholder acquired such
15% interest; (ii) upon the consummation of the transaction which resulted in
the stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the outstanding voting stock of the corporation excluding
for the purposes of determining the number of shares outstanding shares held by
persons who are directors and also officers and by employee stock plans in which
participants do not have the right to determine confidentiality whether shares
held subject to the plan will be tendered; (iii) the business combination is
approved by a majority of the board of directors and the affirmative vote of
two-thirds of the outstanding votes entitled to be cast by disinterested
stockholders at an annual or special meeting; (iv) the corporation does not have
a class of voting stock that is listed on a national securities exchange,
authorized for quotation on an inter-dealer quotation system of a registered
national securities association, or held of record by more than 2,000
stockholders unless any of the foregoing results from action taken, directly or
indirectly, by an interested stockholder or from a transaction in which a person
becomes an interested stockholder; (v) the stockholder acquires a 15% interest
inadvertently and divests itself of such ownership and would not have been a 15%
stockholder in the preceding 3 years but for the inadvertent acquisition of
ownership; (vi) the stockholder acquired the 15% interest when these
restrictions did not apply; or (vii) the corporation has opted out of this
provision. Summa Four has not opted out of this provision.
Under the CCC, there is no comparable provision. However, the CCC does
provide that, except where the fairness of the terms and conditions of the
transaction has been approved by the California Commissioner of Corporations and
except in a "short-form" merger (the merger of a parent corporation with a
subsidiary in which the parent owns at least 90% of the outstanding shares of
each class of the subsidiary's stock), if the surviving corporation or its
parent corporation owns, directly or indirectly, shares of the target
corporation representing more than 50% of the voting power of the target
corporation prior to the merger, the nonredeemable common stock of a target
corporation may be converted only into nonredeemable common stock of the
surviving corporation or its parent corporation, unless all of the shareholders
of the class consent. The effect of this provision is to prohibit a cash-out
merger of minority shareholders, except where the
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majority shareholders already own 90% or more of the voting power of the target
corporation and could, therefore, effect a short-form merger to accomplish such
a cash-out of minority shareholders.
CUMULATIVE VOTING
The Summa Four Certificate states that there shall be no cumulative voting.
The Cisco Articles provide for the elimination of cumulative voting in elections
of directors. Therefore, under California law, cumulative voting rights are not
available to Cisco shareholders.
ADVANCE NOTICE OF RECORD DATE
The DGLC requires that stockholders be provided prior written notice no
more than 60 days nor less than 10 days of the record date for determining the
rights to vote at the meeting of stockholders. The DGLC further states that
stockholders be provided prior written notice no more than 60 days prior to the
record date to determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purpose of any other lawful action.
The CCC requires that shareholders be provided prior written notice no more
than 60 days nor less than 10 days of the record date for determining the
shareholders entitled to notice of any meeting or to vote or entitled to receive
payment of any dividend or other distribution or allotment of any rights or
entitled to exercise any rights in respect of any other lawful action.
INSPECTION OF BOOKS AND RECORDS
The DGLC and California law allow any stockholder to inspect the accounting
books and records and minutes of proceedings of the shareholders and the board
and to inspect the stockholders' list at any reasonable time during usual
business hours, for a purpose reasonably related to such holder's interests as a
shareholder. Additionally, the California law provides for an absolute right to
inspect and copy the corporation's shareholders list by a shareholder or
shareholders holding at least 5% in the aggregate of the of the corporation's
outstanding voting shares, or any shareholder or shareholders holding 1% or more
of such shares who have filed a Schedule 14A with the Commission.
SIZE OF THE BOARD OF DIRECTORS
The DGLC states that the board of directors shall consist of one or more
members with the number of directors to be fixed as provided in the bylaws of
the corporation, unless the certificate of incorporation fixes the number of
directors, in which case a change in the number of directors shall be made only
by amendment of the certificate. The Summa Bylaws provides that the number of
directors which shall constitute the board of directors shall be determined by
resolution of the stockholders or the board of directors, but in no event shall
be less than 3. The number of directors may be decreased at any time and from
time to time by a majority of the directors then in office, but only to
eliminate vacancies existing by reason of death, resignation, removal or
expiration of the term a director.
Under the CCC, as provided in the articles or bylaws, the number of
directors may be specific or may be not less than a stated minimum nor more than
a stated maximum, with the exact number to be fixed by board or shareholders.
The minimum number cannot be less than three. A bylaw changing or fixing a
number of directors may only be adopted by approval of a majority of the
outstanding shares. The Cisco Bylaws provide that the authorized number of
directors of the corporation shall be not less than seven nor more than
thirteen, the exact number of directors to be fixed from time to time within
such range by duly adopted resolutions of the Board of Directors or
shareholders.
REMOVAL OF DIRECTORS
The DGCL states that any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
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The CCC provides that the board of directors may declare vacant the office
of a director who has been declared of unsound mind by an order of court or
convicted of a felony. Further, any director or the entire board of directors
may be removed, with or without cause, with the approval of a majority of the
outstanding shares entitled to vote thereon; however, no director may be removed
(unless the entire board is removed) if the number of shares voted against the
removal would be sufficient to elect the director under cumulative voting.
Shareholders holding at least 10% of the outstanding shares in any class may sue
in superior county court to remove from office any officer or director for
fraud, dishonest acts or gross abuse of authority or discretion.
TRANSACTIONS INVOLVING DIRECTORS
Both the DGCL and the CCC state that any contract or transaction between a
corporation and any of its directors, or a second corporation in which a
director has a material financial interest is not void or voidable if either (a)
the material facts as to the transaction and as to the director's interest are
fully disclosed and a majority of the disinterested shareholders represented and
voting at a duly held meeting approve or ratify the transaction in good faith,
(b) after full disclosure the transaction is approved by the board or a
committee in good faith and the transaction is just and reasonable to the
corporation, or (c) the person asserting the validity of the contract or
transaction sustains the burden of proving that the contract or transaction was
just and reasonable as to the corporation at the time it was authorized,
approved or ratified.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
The DGCL provides that, unless otherwise provided in the certificate of
incorporation or bylaws, vacancies may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
Further, if , at the time of filling any vacancy, the directors then in office
shall constitute less than a majority of the whole board, the Court of Chancery
may, upon application of any stockholder or stockholders holding at least 10% of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order any election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Under the CCC, any vacancy on the board of directors other than one created
by removal of a director may be filled by the board of directors, unless
otherwise provided in the articles or bylaws. If the number of directors is less
than a quorum, a vacancy may be filled by the unanimous written consent of the
directors then in office, by the affirmative vote of a majority of the directors
at a meeting held pursuant to notice or waivers of notice or by a sole remaining
director. A vacancy created by removal of a director can only be filled by the
shareholders unless board approval is authorized by a corporation's articles of
incorporation or by a bylaw approved by the corporation's shareholders. The
Cisco Bylaws authorize the Board to fill a vacancy created by the removal of a
director.
The foregoing discussion of certain similarities and material differences
between the rights of Cisco shareholder and the rights of Summa Four
stockholders under the respective Articles/Certificate of Incorporation and
Bylaws is only a summary of certain provisions and does not purport to be a
complete description of such similarities and differences, and is qualified in
its entirety by reference to the CCC and the DGCL, the common law thereunder and
the full text of the Articles/Certificate of Incorporation and Bylaws of each of
Cisco and Summa Four.
EXPERTS
The consolidated balance sheets of Cisco Systems, Inc. as of July 25, 1998
and July 26, 1997 and the consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended July 25,
1998, incorporated by reference in this Proxy Statement/Prospectus, have been
incorporated herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
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The consolidated balance sheets of Summa Four, Inc. as of March 31, 1998
and 1997 and the consolidated statements of operations, shareholders' equity,
and cash flows for each of the three years in the period ended March 31, 1998,
incorporated by reference in this Proxy Statement/Prospectus, have been
incorporated herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby and the federal
income tax consequences in connection with the Merger will be passed upon for
Cisco by Brobeck, Phleger & Harrison LLP, Palo Alto, California. Certain legal
matters with respect to federal income tax consequences in connection with the
Merger will be passed upon for Summa Four by Hale and Dorr LLP, Boston,
Massachusetts.
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APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CISCO SYSTEMS, INC.
AGEMO ACQUISITION CORPORATION
AND
SUMMA FOUR, INC.
JULY 27, 1998
<PAGE> 56
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE MERGER................................................... A-1
1.1 The Merger.................................................. A-1
1.2 Closing; Effective Time..................................... A-1
1.3 Effect of the Merger........................................ A-2
1.4 Certificate of Incorporation; Bylaws........................ A-2
1.5 Directors and Officers...................................... A-2
1.6 Effect on Capital Stock..................................... A-2
1.7 Surrender of Certificates................................... A-3
1.8 No Further Ownership Rights in Target Common Stock.......... A-4
1.9 Lost, Stolen or Destroyed Certificates...................... A-4
1.10 Tax Consequences............................................ A-4
1.11 Taking of Necessary Action; Further Action.................. A-4
ARTICLE II REPRESENTATIONS AND WARRANTIES OF TARGET.................... A-4
2.1 Organization, Standing and Power............................ A-5
2.2 Capital Structure........................................... A-5
2.3 Authority................................................... A-6
2.4 SEC Documents; Financial Statements......................... A-7
2.5 Absence of Certain Changes.................................. A-7
2.6 Absence of Undisclosed Liabilities.......................... A-8
2.7 Litigation.................................................. A-8
2.8 Restrictions on Business Activities......................... A-8
2.9 Governmental Authorization.................................. A-8
2.10 Title to Property........................................... A-8
2.11 Intellectual Property....................................... A-9
2.12 Environmental Matters....................................... A-10
2.13 Taxes....................................................... A-10
2.14 Employee Benefit Plans...................................... A-11
2.15 Certain Agreements Affected by the Merger................... A-13
2.16 Employee Matters............................................ A-13
2.17 Interested Party Transactions............................... A-13
2.18 Insurance................................................... A-14
2.19 Compliance With Laws........................................ A-14
2.20 Minute Books................................................ A-14
2.21 Complete Copies of Materials................................ A-14
2.22 Brokers' and Finders' Fees.................................. A-14
2.23 Registration Statement; Proxy Statement/Prospectus.......... A-14
2.24 Opinion of Financial Advisor................................ A-14
</TABLE>
i
<PAGE> 57
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
2.25 Vote Required............................................... A-15
2.26 Board Approval.............................................. A-15
2.27 Voting Agreement; Irrevocable Proxies....................... A-15
2.28 Section 203 of the DGCL Not Applicable...................... A-15
2.29 Inventory................................................... A-15
2.30 Accounts Receivable......................................... A-15
2.31 Customers and Suppliers..................................... A-15
2.32 Rights Plan................................................. A-15
2.33 Export Control Laws......................................... A-16
2.34 Representations Complete.................................... A-16
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR
AND MERGER SUB.............................................. A-16
3.1 Organization, Standing and Power............................ A-16
3.2 Capital Structure........................................... A-16
3.3 Authority................................................... A-17
3.4 SEC Documents; Financial Statements......................... A-17
3.5 Absence of Undisclosed Liabilities.......................... A-18
3.6 Litigation.................................................. A-18
3.7 Broker's and Finders' Fees.................................. A-18
3.8 Registration Statement; Proxy Statement/Prospectus.......... A-18
3.9 Board Approval.............................................. A-18
3.10 Representations Complete.................................... A-19
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME......................... A-19
4.1 Conduct of Business of Target and Acquiror.................. A-19
4.2 Conduct of Business of Target............................... A-19
4.3 No Solicitation............................................. A-21
ARTICLE V ADDITIONAL AGREEMENTS........................................ A-22
5.1 Proxy Statement/Prospectus; Registration Statement.......... A-22
5.2 Meeting of Stockholders..................................... A-22
5.3 Access to Information....................................... A-22
5.4 Confidentiality............................................. A-23
5.5 Public Disclosure........................................... A-23
5.6 Consents; Cooperation....................................... A-23
5.7 Voting Agreement............................................ A-24
5.8 Legal Requirements.......................................... A-24
5.9 Blue Sky Laws............................................... A-24
5.10 Employee Benefit Plans...................................... A-24
5.11 Letter of Acquiror's and Target's Accountants............... A-25
</TABLE>
ii
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
5.12 Form S-8.................................................... A-25
5.13 Option Agreement............................................ A-25
5.14 Listing of Additional Shares................................ A-25
5.15 Nasdaq Quotation............................................ A-25
5.16 Employees................................................... A-26
5.17 Amendment of Stock Option Plan.............................. A-26
5.18 Target Rights Agreement..................................... A-26
5.19 Indemnification............................................. A-26
5.20 Best Efforts and Further Assurances......................... A-27
ARTICLE VI CONDITIONS TO THE MERGER.................................... A-27
6.1 Conditions to Obligations of Each Party to Effect the
Merger...................................................... A-27
6.2 Additional Conditions to Obligations of Target.............. A-28
6.3 Additional Conditions to the Obligations of Acquiror and
Merger Sub.................................................. A-28
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.......................... A-29
7.1 Termination................................................. A-29
7.2 Effect of Termination....................................... A-30
7.3 Expenses and Termination Fees............................... A-30
7.4 Amendment................................................... A-32
7.5 Extension; Waiver........................................... A-32
ARTICLE VIII GENERAL PROVISIONS........................................ A-32
8.1 Non-Survival at Effective Time.............................. A-32
8.2 Notices..................................................... A-32
8.3 Interpretation.............................................. A-33
8.4 Counterparts................................................ A-33
8.5 Entire Agreement; Nonassignability; Parties in Interest..... A-33
8.6 Severability................................................ A-33
8.7 Remedies Cumulative......................................... A-33
8.8 Governing Law............................................... A-34
8.9 Rules of Construction....................................... A-34
</TABLE>
SCHEDULES
Target Disclosure Schedule
<TABLE>
<S> <C> <C>
Schedule 2.0 -- Revenue Levels
Schedule 2.10 -- Target Real Property
Schedule 2.11 -- Target Intellectual Property
Schedule 2.14 -- Target Employee Plans
Schedule 2.27 -- Signatories to Voting Agreement
Schedule 5.10A -- Persons Not Subject to Waiver
Schedule 5.10B -- Outstanding Options
Schedule 5.16 -- List of Employees
Schedule 6.3(g) -- Required Waivers
</TABLE>
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Acquiror Disclosure Schedule
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit A -- Certificate of Merger
Exhibit B -- Voting Agreement
Exhibit C -- Waiver
Exhibit D -- Option Agreement
Exhibit E-1, et. seq. -- Employment and Non-Competition Agreement
Exhibit F -- FIRPTA Notice
Exhibit G -- Purchase Agreement
</TABLE>
iv
<PAGE> 60
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of July 27, 1998, by and among Cisco Systems, Inc., a California
corporation ("Acquiror"), Agemo Acquisition Corporation, a Delaware corporation
("Merger Sub") and wholly owned subsidiary of Acquiror, and Summa Four, Inc, a
Delaware corporation ("Target").
RECITALS
A. The Boards of Directors of Target, Acquiror and Merger Sub believe it is
in the best interests of their respective companies and the stockholders of
their respective companies that Target and Merger Sub combine into a single
company through the statutory merger of Merger Sub with and into Target (the
"Merger") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, the outstanding shares of
Target Common Stock, $0.01 par value ("Target Common Stock"), shall be converted
into shares of Acquiror Common Stock, $0.001 par value ("Acquiror Common
Stock"), at the rate set forth herein.
C. Target, Acquiror and Merger Sub desire to make certain representations
and warranties and other agreements in connection with the Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code.
E. Concurrent with the execution of this Agreement and as an inducement to
Acquiror and Merger Sub to enter into this Agreement, (a) Target and Acquiror
have entered into a stock option agreement dated the date hereof (the "Option
Agreement") providing for the purchase by Acquiror of newly-issued shares of
Target's Common Stock, and (b) certain officers and directors have on the date
hereof entered into an agreement to vote the shares of Target's Common Stock
owned by such persons to approve the Merger and against any competing proposals.
NOW, THEREFORE, in consideration of the covenants and representations set
forth herein, and for other good and valuable consideration, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, the Certificate
of Merger attached hereto as Exhibit A (the "Certificate of Merger") and the
applicable provisions of the Delaware General Corporation Law ("Delaware Law"),
Merger Sub shall be merged with and into Target, the separate corporate
existence of Merger Sub shall cease and Target shall continue as the surviving
corporation. Target as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "Surviving Corporation."
1.2 Closing; Effective Time. The closing of the transactions contemplated
hereby (the "Closing") shall take place as soon as practicable after the
satisfaction or waiver of each of the conditions set forth in Article VI hereof
or at such other time as the parties hereto agree (the "Closing Date"). The
Closing shall take place at the offices of Brobeck, Phleger & Harrison LLP, Two
Embarcadero Place, 2200 Geng Road, Palo Alto, CA 94303, or at such other
location as the parties hereto agree. In connection with the Closing, the
parties hereto shall cause the Merger to be consummated by filing the
Certificate of Merger with the Secretary of State of the State of Delaware and
with the Recorder of the County in which the registered office of each of Target
and Merger Sub is located, in accordance with the relevant provisions of
Delaware Law (the time of such filing being the "Effective Time").
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1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Target and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of Target and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by Delaware Law and such Certificate of Incorporation;
provided, however, that Article I of the Certificate of Incorporation of
the Surviving Corporation shall be amended to read as follows: "The name of
the corporation is Summa Four, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. At the Effective Time, the directors of the
Surviving Corporation shall be John Chambers and Larry Carter. The officers of
the Surviving Corporation shall be the initial officers of Merger Sub, until
their respective successors are duly elected or appointed and qualified.
1.6 Effect on Capital Stock. By virtue of the Merger and without any
action on the part of Merger Sub, Target or the holders of any of the following
securities:
(a) Conversion of Target Common Stock. At the Effective Time, each
share of Target Common Stock issued and outstanding immediately prior to
the Effective Time together with the corresponding Right (as defined in the
Rights Agreement dated as of February 22, 1995 (the "Target Rights
Agreement") between Target and State Street Bank and Trust Company (other
than any shares of Target Common Stock to be canceled pursuant to Section
1.6(b)) will be canceled and extinguished and be converted automatically
into the right to receive 0.178994 shares of Acquiror Common Stock (the
"Exchange Ratio"); provided, however, that (i) in the event the average of
the closing prices of a share of Acquiror Common Stock as quoted on the
Nasdaq National Market for the ten trading days immediately preceding and
ending on the trading day that is three calendar days prior to the Closing
Date (the "Acquiror Market Price") is less than $88.00, the Exchange Ratio
shall be equal to $15.75 divided by the Acquiror Market Price but in no
event greater than 0.196893 shares of Acquiror Common Stock, and (ii) in
the event the Acquiror Market Price is more than $107.55, the Exchange
Ratio shall equal to $19.25 divided by the Acquiror Market Price but in no
event less than 0.161094 shares of Acquiror Common Stock. All references in
this Agreement to Acquiror Common Stock to be issued pursuant to the Merger
shall be deemed to include the corresponding rights ("Acquiror Rights") to
purchase shares of Acquiror Series A Junior Participating Preferred Stock,
no par value, pursuant to the Acquiror Rights Agreement dated as of June
10, 1998 between Acquiror and Bank Boston, N.A., except where the context
otherwise requires.
(b) Cancellation of Target Common Stock Owned by Acquiror or
Target. At the Effective Time, all shares of Target Common Stock that are
owned by Target as treasury stock and each share of Target Common Stock
owned by Acquiror or any direct or indirect wholly owned subsidiary of
Acquiror or of Target immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
(c) Target Stock Option Plans. At the Effective Time, the 1993
Director Stock Option Plan, as amended, the 1995 Stock Option Plan, the
1993 Stock Incentive Plan, as amended, the Incentive Stock Option Plan of
August 1, 1992, the Incentive Stock Option Plan of January 1, 1985, and the
1987 Option Agreements between Target, on the one hand, and William
Scranton and Barry Gorsun, respectively, on the other hand (collectively,
the "Target Stock Option Plans") and all options to purchase Target Common
Stock then outstanding under the Target Stock Option Plans shall be assumed
by Acquiror in accordance with Section 5.10.
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(d) Capital Stock of Merger Sub. At the Effective Time, each share of
Common Stock, $0.0001 par value, of Merger Sub ("Merger Sub Common Stock")
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock, $0.01 par value, of the Surviving
Corporation, and the Surviving Corporation shall be a wholly-owned
subsidiary of Acquiror. Each stock certificate of Merger Sub evidencing
ownership of any such shares shall continue to evidence ownership of such
shares of capital stock of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities
convertible into Acquiror Common Stock or Target Common Stock),
reorganization, recapitalization or other like change with respect to
Acquiror Common Stock or Target Common Stock occurring after the date
hereof and prior to the Effective Time.
(f) Fractional Shares. No fraction of a share of Acquiror Common Stock
will be issued, but in lieu thereof each holder of shares of Target Common
Stock who would otherwise be entitled to a fraction of a share of Acquiror
Common Stock (after aggregating all fractional shares of Acquiror Common
Stock to be received by such holder) shall receive from Acquiror an amount
of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction, multiplied by (ii) the Acquiror Market Price.
1.7 Surrender of Certificates.
(a) Exchange Agent. Bank Boston, N.A. shall act as exchange agent (the
"Exchange Agent") in the Merger.
(b) Acquiror to Provide Common Stock and Cash. Promptly after the
Effective Time, Acquiror shall make available to the Exchange Agent for
exchange in accordance with this Article I, through such reasonable
procedures as Acquiror may adopt, (i) the shares of Acquiror Common Stock
issuable pursuant to Section 1.6(a) in exchange for shares of Target Common
Stock outstanding immediately prior to the Effective Time and (ii) cash in
an amount sufficient to permit payment of cash in lieu of fractional shares
pursuant to Section 1.6(f).
(c) Exchange Procedures. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of
a certificate or certificates (the "Certificates") which immediately prior
to the Effective Time represented outstanding shares of Target Common
Stock, whose shares were converted into the right to receive shares of
Acquiror Common Stock (and cash in lieu of fractional shares) pursuant to
Section 1.6, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall
pass, only upon receipt of the Certificates by the Exchange Agent, and
shall be in such form and have such other provisions as Acquiror may
reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing
shares of Acquiror Common Stock (and cash in lieu of fractional shares).
Upon surrender of a Certificate for cancellation to the Exchange Agent or
to such other agent or agents as may be appointed by Acquiror, together
with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holder of such Certificate
shall be entitled to receive in exchange therefor a certificate
representing the number of whole shares of Acquiror Common Stock and
payment in lieu of fractional shares which such holder has the right to
receive pursuant to Section 1.6, and the Certificate so surrendered shall
forthwith be canceled. Until so surrendered, each outstanding Certificate
that, prior to the Effective Time, represented shares of Target Common
Stock will be deemed from and after the Effective Time, for all corporate
purposes, other than the payment of dividends, to evidence the ownership of
the number of full shares of Acquiror Common Stock into which such shares
of Target Common Stock shall have been so converted and the right to
receive an amount in cash in lieu of the issuance of any fractional shares
in accordance with Section 1.6.
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions with respect to Acquiror Common Stock with a record
date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Acquiror Common
Stock represented
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<PAGE> 63
thereby until the holder of record of such Certificate shall surrender such
Certificate. Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Acquiror Common Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of
any such dividends or other distributions with a record date after the
Effective Time theretofore payable (but for the provisions of this Section
1.7(d)) with respect to such shares of Acquiror Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Acquiror
Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will
be properly endorsed and otherwise in proper form for transfer and that the
person requesting such exchange will have paid to Acquiror or any agent
designated by it any transfer or other taxes required by reason of the
issuance of a certificate for shares of Acquiror Common Stock in any name
other than that of the registered holder of the Certificate surrendered, or
established to the satisfaction of Acquiror or any agent designated by it
that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
Section 1.7, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to any person for any amount properly paid to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
1.8 No Further Ownership Rights in Target Common Stock. All shares of
Acquiror Common Stock issued upon the surrender for exchange of shares of Target
Common Stock in accordance with the terms hereof (including any cash paid in
lieu of fractional shares) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Target Common Stock, and
there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Target Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Acquiror Common
Stock (and cash in lieu of fractional shares) as may be required pursuant to
Section 1.6; provided, however, that Acquiror may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Acquiror, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.10 Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code.
1.11 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Target and Merger Sub, the officers and directors of Target
and Merger Sub are fully authorized in the name of their respective corporations
or otherwise to take, and will take, all such lawful and necessary action, so
long as such action is not inconsistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET
In this Agreement, any reference to any event, change, condition or effect
being "material" with respect to any person means any material event, change,
condition or effect related to the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations or results of
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operations of such person and its subsidiaries, taken as a whole. In this
Agreement, any reference to a "Material Adverse Effect" with respect to any
person means any event, change or effect that is materially adverse to the
condition (financial or otherwise), properties, assets, liabilities, business,
operations or results of operations of such person and its subsidiaries, taken
as a whole, provided, however, that a "Material Adverse Effect" with respect to
Target shall not include the following (collectively "Non-Controllable Events"):
(i) general changes in the telecommunications industry or economic conditions
that affect Target and its subsidiaries, taken as a whole, substantially
proportionately relative to the Acquiror and its subsidiaries, taken as a whole
or (ii) a decline in the revenues of Target following the date of this Agreement
which is attributable to a delay of, reduction in or cancellation or change in
the purchase orders by customers of Target arising as a result of the execution
or announcement of this Agreement (provided that revenues do not decline below
the levels set forth in Schedule 2.0). A decline of revenues below such levels
shall be deemed to be a Material Adverse Effect on Target.
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 party charged with senior administrative or operational
responsibility for such matters.
Except as disclosed in that section of the document of even date herewith
delivered by Target to Acquiror prior to the execution and delivery of this
Agreement (the "Target Disclosure Schedule") corresponding to the Section of
this Agreement to which any of the following representations and warranties
specifically relate or as disclosed in another section of the Target Disclosure
Schedule if it is reasonably apparent on the face of the disclosure that it is
applicable to another Section of this Agreement, Target represents and warrants
to Acquiror and Merger Sub as follows:
2.1 Organization, Standing and Power. Each of Target and its subsidiaries
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. Each of Target and its subsidiaries
has the corporate power to own its properties and to carry on its business as
now being conducted and as proposed to be conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to be
so qualified and in good standing would have a Material Adverse Effect on
Target. Target has delivered a true and correct copy of the Amended and Restated
Certificate of Incorporation, as amended (the "Certificate of Incorporation"),
and Bylaws, as amended, or other charter documents, as applicable, of Target and
each of its subsidiaries, each as amended to date, to Acquiror. Target is not in
violation of any of the provisions of its Certificate of Incorporation or Bylaws
and none of Target's subsidiaries is in violation of any material provisions of
its equivalent organizational documents. Target is the owner of all outstanding
shares of capital stock of each of its subsidiaries and all such shares are duly
authorized, validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock of each such subsidiary are owned by Target free and
clear of all liens, charges, claims or encumbrances or rights of others. There
are no outstanding subscriptions, options, warrants, puts, calls, rights,
exchangeable or convertible securities or other commitments or agreements of any
character relating to the issued or unissued capital stock or other securities
of any such subsidiary, or otherwise obligating Target or any such subsidiary to
issue, transfer, sell, purchase, redeem or otherwise acquire any such
securities. Except as disclosed in the Target SEC Documents (as defined in
Section 2.4), Target does not directly or indirectly own any equity or similar
interest in, or any interest convertible or exchangeable or exercisable for, any
equity or similar interest in, any corporation, partnership, joint venture or
other business association or entity.
2.2 Capital Structure. The authorized capital stock of Target consists of
20,000,000 shares of Common Stock, $0.01 par value, and 1,000,000 shares of
Preferred Stock, $0.01 par value, of which there were issued and outstanding as
of the close of business on July 14, 1998, 5,771,425 shares of Common Stock
(excluding treasury shares) and no shares of Preferred Stock. There are no other
outstanding shares of capital stock or voting securities and no outstanding
commitments to issue any shares of capital stock or voting securities after July
14, 1998 other than pursuant to the Option Agreement, the exercise of options
outstanding as of such date under the Target Stock Option Plans or pursuant to
the Target Employee Stock Purchase Plan (the "Target ESPP"). All outstanding
shares of Target Common Stock are duly authorized, validly issued, fully paid
and non-assessable and are free of any liens or encumbrances other than any
liens or encumbrances created by or imposed upon the holders thereof, and are
not subject to preemptive rights or rights of first refusal created by
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statute, the Certificate of Incorporation or Bylaws of Target or any agreement
to which Target is a party or by which it is bound. As of the close of business
on July 14, 1998, Target has reserved (i) 1,802,875 shares of Common Stock for
issuance to employees, consultants and directors pursuant to the Target Stock
Option Plans, of which 676,278 shares have been issued pursuant to option
exercises or direct stock purchases, 912,778 shares are subject to outstanding,
unexercised options, and no shares are subject to outstanding stock purchase
rights, and (ii) 175,000 shares of Common Stock for issuance to employees
pursuant to the Target ESPP, of which 69,797 shares have been issued. Since July
14, 1998, Target has not (i) issued or granted additional options under the
Target Stock Option Plans, or (ii) accepted enrollments in the Target ESPP.
Except for (i) the rights created pursuant to this Agreement, the Option
Agreement, the Target Stock Option Plans, the Target Rights Agreement and the
Target ESPP and (ii) the Target's rights to repurchase any unvested shares under
the Target Stock Option Plans, there are no other options, warrants, calls,
rights, commitments or agreements of any character to which Target is a party or
by which it is bound obligating Target to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of capital stock of Target or obligating Target to grant, extend,
accelerate the vesting of, change the price of, or otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. There are no
contracts, commitments or agreements relating to voting, purchase or sale of
Target's capital stock (i) between or among Target and any of its stockholders
and (ii) to the best of Target's knowledge, between or among any of Target's
stockholders, except for the stockholders named in Schedule 2.27 of this
Agreement. The terms of the Target Stock Option Plans permit the assumption or
substitution of options to purchase Acquiror Common Stock as provided in this
Agreement, without the consent or approval of the holders of such securities,
the Target stockholders, or otherwise. The current "Purchase Period" (as defined
in the Target ESPP) commenced under the Target ESPP on March 2, 1998, and will
end prior to the Effective Time as provided in this Agreement, and except for
the purchase rights granted on such commencement date to participants in the
current Purchase Period, there are no other purchase rights or options
outstanding under the Target ESPP. True and complete copies of all agreements
and instruments relating to or issued under the Target Stock Option Plans or
Target ESPP have been made available to Acquiror and such agreements and
instruments have not been amended, modified or supplemented, and there are no
agreements to amend, modify or supplement such agreements or instruments in any
case from the form made available to Acquiror.
2.3 Authority. Target has all requisite corporate power and authority to
enter into this Agreement and the Option Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Option Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Target, subject only to the approval of the
Merger by Target's stockholders as contemplated by Section 6.1(a). Each of this
Agreement and the Option Agreement has been duly executed and delivered by
Target and constitutes the valid and binding obligation of Target enforceable
against Target in accordance with its terms, except as enforceability may be
limited by bankruptcy and other laws affecting the rights and remedies of
creditors generally and general principles of equity. The execution and delivery
of this Agreement and the Option Agreement by Target does not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (i) any provision of
the Certificate of Incorporation or Bylaws of Target or any of its subsidiaries,
as amended, or (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Target
or any of its subsidiaries or any of their properties or assets, except where
such conflict, violation, default, termination, cancellation or acceleration
with respect to the foregoing provisions of (ii) would not have had and would
not reasonably be expected to have a Material Adverse Effect on Target. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other
governmental authority or instrumentality ("Governmental Entity") is required by
or with respect to Target or any of its subsidiaries in connection with the
execution and delivery of this Agreement, the Option Agreement, or the
consummation of the transactions contemplated hereby and thereby, except for (i)
the filing of the Certificate of Merger as provided in Section 1.2, (ii) the
filing with the
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Securities and Exchange Commission (the "SEC") and the National Association of
Securities Dealers, Inc. (the "NASD") of the Proxy Statement (as defined in
Section 2.23) relating to the Target Stockholders Meeting (as defined in Section
2.23), (iii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable state securities
laws and the securities laws of any foreign country; (iv) such filings as may be
required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended ("HSR"); and (v) such other consents, authorizations, filings, approvals
and registrations which, if not obtained or made, would not have a Material
Adverse Effect on Target and would not prevent, or materially alter or delay any
of the transactions contemplated by this Agreement or the Option Agreement.
2.4 SEC Documents; Financial Statements. Target has furnished to Acquiror
a true and complete copy of each statement, report, registration statement (with
the prospectus in the form filed pursuant to Rule 424(b) of the Securities Act
of 1933, as amended (the "Securities Act")), definitive proxy statement and
other filing filed with the SEC by Target since September 23, 1993, and, prior
to the Effective Time, Target will have furnished Acquiror with true and
complete copies of any additional documents filed with the SEC by Target prior
to the Effective Time (collectively, the "Target SEC Documents"). In addition,
Target has made available to Acquiror all exhibits to the Target SEC Documents
filed prior to the date hereof, and will promptly make available to Acquiror all
exhibits to any additional Target SEC Documents filed prior to the Effective
Time. All documents required to be filed as exhibits to the Target SEC Documents
have been so filed, and all material contracts so filed as exhibits are in full
force and effect, except those which have expired in accordance with their
terms, and neither Target nor any of its subsidiaries is in default thereunder.
As of their respective filing dates, the Target SEC Documents complied in all
material respects with the requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the Securities Act, and none of the Target
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading, except to the extent corrected by a subsequently filed Target
SEC Document. The financial statements of Target, including the notes thereto,
included in the Target SEC Documents (the "Target Financial Statements") were
complete and correct in all material respects as of their respective dates,
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto as of their respective dates, and have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of unaudited
statements included in Quarterly Reports on Form 10-Q, as permitted by Form 10-Q
of the SEC). The Target Financial Statements fairly present the consolidated
financial condition and operating results of Target and its subsidiaries at the
dates and during the periods indicated therein (subject, in the case of
unaudited statements, to normal, recurring year-end adjustments). There has been
no change in Target accounting policies since March 31, 1998, except as
described in the notes to the Target Financial Statements.
2.5 Absence of Certain Changes. Since March 31, 1998 (the "Target Balance
Sheet Date"), Target has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect to Target;
(ii) any acquisition, sale or transfer of any material asset of Target or any of
its subsidiaries other than in the ordinary course of business and consistent
with past practice; (iii) any change in accounting methods or practices
(including any change in depreciation or amortization policies or rates) by
Target or any revaluation by Target of any of its or any of its subsidiaries'
assets; (iv) any declaration, setting aside, or payment of a dividend or other
distribution with respect to the shares of Target, or any direct or indirect
redemption, purchase or other acquisition by Target of any of its shares of
capital stock; (v) any material contract entered into by Target or any of its
subsidiaries, other than in the ordinary course of business and as provided to
Acquiror, or any material amendment or termination of, or default under, any
material contract to which Target or any of its subsidiaries is a party or by
which it is bound; (vi) any amendment or change to the Certificate of
Incorporation or Bylaws or, except as contemplated by Section 2.32 hereof, the
Target Rights Agreement of Target; or (vii) any increase in or modification of
the compensation or benefits payable or to become payable by Target to any of
its directors or
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employees. Other than with respect to the stock option and incentive plans
described in Target's proxy statement for the annual meeting of its stockholders
to be held on July 27, 1998 (provided that Target has not granted any options
pursuant to any such plans other than the 1993 Director Stock Option Plan, as
amended), Target has not agreed since March 31, 1998 to do any of the things
described in the preceding clauses (i) through (vii) and is not currently
involved in any negotiations to do any of the things described in the 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 the Balance Sheet
included in Target's Annual Report on Form 10-K for the period ended March 31,
1998 (the "Target Balance Sheet"), (ii) those incurred in the ordinary course of
business and not required to be set forth in the Target Balance Sheet under
generally accepted accounting principles, (iii) those incurred in the ordinary
course of business since the Target Balance Sheet Date and consistent with past
practice; and (iv) those incurred in connection with the execution of this
Agreement.
2.7 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Target or any of its
subsidiaries, threatened against Target or any of its subsidiaries or any of
their respective properties or any of their respective officers or directors (in
their capacities as such) that, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect on Target. There is no
judgment, decree or order against Target or any of its subsidiaries, or, to the
knowledge of Target and its subsidiaries, any of their respective directors or
officers (in their capacities as such), that would prevent, enjoin, alter or
materially delay any of the transactions contemplated by this Agreement, or that
would reasonably be expected to have a Material Adverse Effect on Target.
2.8 Restrictions on Business Activities. There is no agreement, judgment,
injunction, order or decree binding upon Target or any of its subsidiaries which
has or reasonably would be expected to have the effect of prohibiting or
materially impairing any business practice of Target or any of its subsidiaries,
any acquisition of property by Target or any of its subsidiaries or the conduct
of business by Target or any of its subsidiaries.
2.9 Governmental Authorization. Target and each of its subsidiaries have
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity (i)
pursuant to which Target or any of its subsidiaries currently operates or holds
any interest in any of its properties or (ii) that is required for the operation
of Target's or any of its subsidiaries' business or the holding of any such
interest ((i) and (ii) herein collectively called "Target Authorizations"), and
all of such Target Authorizations are in full force and effect, except where the
failure to obtain or have any of such Target Authorizations would not reasonably
be expected to have a Material Adverse Effect on Target.
2.10 Title to Property. Target and its subsidiaries have good and valid
title to all of their respective properties, interests in properties and assets,
real and personal, reflected in the Target Balance Sheet or acquired after the
Target Balance Sheet Date (except properties, interests in properties and assets
sold or otherwise disposed of since the Target Balance Sheet Date in the
ordinary course of business), or in the case of leased properties and assets,
valid leasehold interests in, free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind or character, except (i) the lien of current
taxes not yet due and payable, (ii) such imperfections of title, liens and
easements as do not and will not materially detract from or interfere with the
use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties, (iii) liens
securing debt which is reflected on the Target Balance Sheet, and (iv) liens
that in the aggregate would not have a Material Adverse Effect on Target. The
plants, property and equipment of Target and its subsidiaries that are used in
the operations of their businesses are in good operating condition and repair.
All properties used in the operations of Target and its subsidiaries are
reflected in the Target Balance Sheet to the extent generally accepted
accounting principles require the same to be reflected. Schedule 2.10 identifies
each parcel of real property owned or leased by Target or any of its
subsidiaries.
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2.11 Intellectual Property.
(a) Target and its subsidiaries own, or are licensed or otherwise
possess legally enforceable rights to use all patents, trademarks, trade
names, service marks, copyrights, and any applications therefor, maskworks,
net lists, schematics, technology, know-how, trade secrets, inventory,
ideas, algorithms, processes, computer software programs or applications,
and tangible or intangible proprietary information or material
("Intellectual Property") that are used in the business of Target and its
subsidiaries. Target owns and possesses source code for all software owned
by Target and owns or has valid licenses and possesses source code for all
products owned, distributed and presently supported by Target. Target has
not (i) licensed any of its Intellectual Property in source code form to
any party or (ii) entered into any exclusive agreements relating to its
Intellectual Property.
(b) Schedule 2.11 lists (i) all patents and patent applications and
all registered trademarks, trade names and service marks, registered
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 as to which Target is a party and pursuant to which any person
is authorized to use any Intellectual Property (except for non-material
licenses entered into by Target in the ordinary course of business), 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, other than commercially available,
off-the-shelf software.
(c) To the knowledge of Target, there is no unauthorized use,
disclosure, infringement or misappropriation of any Intellectual Property
rights of Target or any of its subsidiaries, or any Intellectual Property
right of any third party to the extent licensed by or through Target or any
of its subsidiaries, by any third party, including any employee or former
employee of Target or any of its subsidiaries. Neither Target nor any of
its subsidiaries has entered into any agreement to indemnify any other
person against any charge of infringement of any Intellectual Property,
other than indemnification provisions contained in purchase orders arising
in the ordinary course of business.
(d) Target is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations under this
Agreement, in breach of any material license, sublicense or other agreement
relating to the Intellectual Property or Third Party Intellectual Property
Rights.
(e) All patents, trademarks, service marks and copyrights held by
Target are valid and subsisting. Target (i) has not been sued in any suit,
action or proceeding which involves a claim of infringement of any patents,
trademarks, service marks, copyrights or violation of any trade secret or
other proprietary right of any third party and (ii) has not brought any
action, suit or proceeding for infringement of Intellectual Property or
breach of any license or agreement involving Intellectual Property against
any third party. The manufacture, marketing, licensing or sale of Target's
products does not infringe any patent, trademark, service mark, copyright,
trade secret or other proprietary right of any third party.
(f) Target has secured valid written assignments from all consultants
and employees who contributed to the creation or development of
Intellectual Property of the rights to such contributions that Target does
not already own by operation of law.
(g) Target has taken all necessary steps to protect and preserve the
confidentiality of all Intellectual Property not otherwise protected by
patents, or patent applications or copyright ("Confidential Information").
All use, disclosure or appropriation of Confidential Information owned by
Target by or to a third party has been pursuant to the terms of a written
agreement between Target and such third party. All use, disclosure or
appropriation of Confidential Information not owned by Target has been
pursuant to the terms of a written agreement between Target and the owner
of such Confidential Information, or is otherwise lawful.
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2.12 Environmental Matters.
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any federal, state
or local laws, ordinances, codes, regulations, rules, policies and
orders that are intended to assure the protection of the environment, or
that classify, regulate, call for the remediation of, require reporting
with respect to, or list or define air, water, groundwater, solid waste,
hazardous or toxic substances, materials, wastes, pollutants or
contaminants, or which are intended to assure the safety of employees,
workers or other persons, including the public.
(ii) "Hazardous Materials" shall mean any toxic or hazardous
substance, material or waste or any pollutant or contaminant, or
infectious or radioactive substance or material, including without
limitation, those substances, materials and wastes defined in or
regulated under any Environmental and Safety Laws.
(iii) "Property" shall mean all real property leased or owned by
Target or its subsidiaries either currently or in the past.
(iv) "Facilities" shall mean all buildings and improvements on the
Property of Target or its subsidiaries.
(b) Target represents and warrants that, except in all cases as, in
the aggregate, would not have a Material Adverse Effect on Target, as
follows: (i) no methylene chloride or asbestos is contained in or has been
used at or released from the Facilities; (ii) all Hazardous Materials and
wastes have been disposed of in accordance with all Environmental and
Safety Laws; (iii) Target and its subsidiaries have received no notice
(verbal or written) of any noncompliance of the Facilities or its past or
present operations with Environmental and Safety Laws; (iv) no notices,
administrative actions or suits are pending or, to Target's knowledge,
threatened relating to a violation of any Environmental and Safety Laws;
(v) neither Target nor its subsidiaries are a potentially responsible party
under the federal Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA), or state analog statute, arising out of events
occurring prior to the Closing Date; (vi) there have not been in the past,
and are not now, any Hazardous Materials on, under or migrating to or from
the Facilities or Property; (vii) there have not been in the past, and are
not now, any underground tanks or underground improvements at, on or under
the Property including without limitation, treatment or storage tanks,
sumps, or water, gas or oil wells; (viii) there are no polychlorinated
biphenyls (PCBs) deposited, stored, disposed of or located on the Property
or Facilities or any equipment on the Property containing PCBs at levels in
excess of 50 parts per million; (ix) there is no formaldehyde on the
Property or in the Facilities, nor any insulating material containing urea
formaldehyde in the Facilities; (x) the Facilities and Target's and its
subsidiaries uses and activities therein have at all times complied with
all Environmental and Safety Laws; and (xi) Target and its subsidiaries
have all the permits and licenses required to be issued and are in full
compliance with the terms and conditions of those permits.
2.13 Taxes. Target and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which Target or any of
its subsidiaries is or has been a member have timely filed all Tax Returns
(except Tax Returns filed by subsidiaries in foreign jurisdictions where the
late filing did not have a Material Adverse Effect on Target) required to be
filed by them and have paid all Taxes shown thereon to be due. Target has
provided adequate accruals in accordance with generally accepted accounting
principles in the Target Financial Statements for any Taxes that have not been
paid as of the date of such financial statements, whether or not shown as being
due on any Tax Returns. Except as disclosed in the SEC Documents, (i) no
material claim for Taxes has become a lien against the property of Target or any
of its subsidiaries or is being asserted against Target or any of its
subsidiaries other than liens for Taxes not yet due and payable, (ii) no audit
of any Tax Return of Target or any of its subsidiaries is being conducted by a
Tax authority, (iii) no extension of the statute of limitations on the
assessment of any Taxes has been granted by Target or any of its subsidiaries
and is currently in effect, and (iv) there is no agreement, contract or
arrangement to which Target or any of its subsidiaries is a party that may
result in the payment of any amount that would not be deductible
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by reason of Sections 280G, 162 or 404 of the Code. Target has not been and will
not be required to include any material adjustment in Taxable income for any Tax
period (or portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Merger. Neither
Target nor any of its subsidiaries is a party to any tax sharing or tax
allocation agreement (other than agreements solely between Target and its
wholly-owned subsidiaries) nor does Target or any of its subsidiaries owe any
amount under any such agreement. For purposes of this Agreement, the following
terms have the following meanings: "Tax" (and, with correlative meaning, "Taxes"
and "Taxable") means (i) any net income, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, environmental or windfall profit tax, custom,
duty or other tax, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or any penalty, addition to tax or
additional amount imposed by any Governmental Entity (a "Tax authority")
responsible for the imposition of any such tax (domestic or foreign), (ii) any
liability for the payment of any amounts of the type described in (i) as a
result of being a member of an affiliated, consolidated, combined or unitary
group for any Taxable period and (iii) any liability for the payment of any
amounts of the type described in (i) or (ii) as a result of any express or
implied obligation to indemnify any other person. As used herein, "Tax Return"
shall mean any return, statement, report or form (including, without limitation
estimated Tax returns and reports, withholding Tax returns and reports and
information reports and returns) required to be filed with respect to Taxes.
Target and each of its subsidiaries are in material compliance with all terms
and conditions of any Tax exemptions or other Tax-sparing agreement or order of
a foreign government and the consummation of the Merger shall not have any
adverse effect on the continued validity and effectiveness of any such Tax
exemptions or other Tax-sparing agreement or order.
2.14 Employee Benefit Plans.
(a) Schedule 2.14 lists, with respect to Target, any subsidiary of
Target and any trade or business (whether or not incorporated) which is
treated as a single employer with Target (an "ERISA Affiliate") within the
meaning of Section 414(b), (c), (m) or (o) of the Code, (i) all material
employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), (ii) each
loan to a non-officer employee in excess of $50,000, loans to officers and
directors and any stock option, stock purchase, phantom stock, stock
appreciation right, supplemental retirement, severance, sabbatical,
medical, dental, vision care, disability, employee relocation, cafeteria
benefit (Code section 125) or dependent care (Code Section 129), life
insurance or accident insurance plans, programs or arrangements, (iii) all
bonus, pension, profit sharing, savings, deferred compensation or incentive
plans, programs or arrangements, (iv) other fringe or employee benefit
plans, programs or arrangements that apply to senior management of Target
and that do not generally apply to all employees, and (v) any current or
former employment or executive compensation or severance agreements,
written or otherwise, as to which unsatisfied obligations of Target of
greater than $50,000 remain for the benefit of, or relating to, any present
or former employee, consultant or director of Target (together, the "Target
Employee Plans").
(b) Target has furnished to Acquiror a copy of each of the Target
Employee Plans and related plan documents (including trust documents,
insurance policies or contracts, employee booklets, summary plan
descriptions and other authorizing documents, and any material employee
communications relating thereto) and has, with respect to each Target
Employee Plan which is subject to ERISA reporting requirements, provided
copies of the Form 5500 reports filed for the last three plan years. Any
Target Employee Plan intended to be qualified under Section 401(a) of the
Code has either obtained from the Internal Revenue Service a favorable
determination letter as to its qualified status under the Code, including
all amendments to the Code effected by the Tax Reform Act of 1986 and
subsequent legislation, or has applied to the Internal Revenue Service for
such a determination letter prior to the expiration of the requisite period
under applicable Treasury Regulations or Internal Revenue Service
pronouncements in which to apply for such determination letter and to make
any amendments necessary to obtain a favorable determination. Target has
also furnished Acquiror with the most recent Internal
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Revenue Service determination letter issued with respect to each such
Target Employee Plan, and nothing has occurred since the issuance of each
such letter which would reasonably be expected to cause the loss of the
tax-qualified status of any Target Employee Plan subject to Code Section
401(a). Target has also furnished Acquiror with all registration statements
and prospectuses prepared in connection with each Target Employee Plan.
(c) (i) None of the Target Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person, except as required
by applicable law; (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 would reasonably be expected to
have, in the aggregate, a Material Adverse Effect on Target; (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 on Target, and Target and
each subsidiary or ERISA Affiliate have performed all 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 default or violation by
any other party to, any of the Target Employee Plans; (iv) neither Target
nor any subsidiary or ERISA Affiliate is subject to any material liability
or material penalty under Sections 4976 through 4980 of the Code or Title I
of ERISA with respect to any of the Target Employee Plans; (v) all material
contributions required to be made by Target or any subsidiary or ERISA
Affiliate to any Target Employee Plan have been made on or before their due
dates and a reasonable amount has been accrued for contributions to each
Target Employee Plan for the current plan years; (vi) with respect to each
Target Employee Plan, no "reportable event" within the meaning of Section
4043 of ERISA (excluding any such event for which the thirty (30) day
notice requirement has been waived under the regulations to Section 4043 of
ERISA) nor any event described in Section 4062, 4063 or 4041 or ERISA has
occurred; (vii) no Target Employee Plan is covered by, and neither Target
nor any subsidiary or ERISA Affiliate has incurred or expects to incur any
liability under Title IV of ERISA or Section 412 of the Code; and (viii)
each Target Employee Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms, without
liability to Acquiror (other than for benefits accrued through the date of
termination and ordinary administrative expenses typically incurred in a
termination event). With respect to each Target Employee Plan subject to
ERISA as either an employee pension plan within the meaning of Section 3(2)
of ERISA or an employee welfare benefit plan within the meaning of Section
3(1) of ERISA, Target has prepared in good faith and timely filed all
requisite governmental reports (which were true and correct as of the date
filed) and has properly and timely filed and distributed or posted all
notices and reports to employees required to be filed, distributed or
posted with respect to each such Target Employee Plan, except where the
failure to do so would not have 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. No payment or benefit which will or may
be made by Target to any employee will be characterized as an "excess
parachute payment" within the meaning of Section 280G(b)(1) of the Code.
(d) With respect to each Target Employee Plan, Target and each of its
United States subsidiaries have complied except to the extent that such
failure to comply would not, individually or in the aggregate, have a
Material Adverse Effect on Target, with (i) the applicable health care
continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and the regulations (including
proposed regulations) thereunder, (ii) the applicable requirements of the
Family Medical and Leave Act of 1993 and the regulations thereunder, and
(iii) the applicable requirements of the Health Insurance Portability and
Accountability Act of 1996 and the regulations (including proposed
regulations) thereunder.
(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other
service provider of Target, any Target subsidiary or any other ERISA
Affiliate to severance benefits or any other payment, except as expressly
provided in this
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Agreement, or (ii) accelerate the time of payment or vesting, or increase
the amount of compensation due any such employee or service provider.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by Target, any Target subsidiary or
other ERISA Affiliate relating to, or change in participation or coverage
under, any Target Employee Plan which would materially increase the expense
of maintaining such Plan above the level of expense incurred with respect
to that Plan for the most recent fiscal year included in Target's financial
statements.
(g) Target does not currently maintain, sponsor, participate in or
contribute to, nor has it ever maintained, established, sponsored,
participated in, or contributed to, any pension plan (within the meaning of
Section 3(2) of ERISA) which is subject to Part 3 of Subtitle B of Title I
of ERISA, Title IV of ERISA or Section 4.12 of the Code.
(h) Neither Target nor any Target subsidiary or other ERISA Affiliate
is a party to, or has made any contribution to or otherwise incurred any
obligation under, any "multiemployer plan" as defined in Section 3(37) of
ERISA.
2.15 Certain Agreements Affected by the Merger. Neither the execution and
delivery of this Agreement nor the consummation of the transaction contemplated
hereby will (i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming due to
any director or employee of Target or any of its subsidiaries, (ii) materially
increase any benefits otherwise payable by Target or (iii) result in the
acceleration of the time of payment or vesting of any such benefits.
2.16 Employee Matters. Target and each of its subsidiaries are in
compliance in all respects with all currently applicable laws and regulations
respecting employment, discrimination in employment, terms and conditions of
employment, wages, hours and occupational safety and health and employment
practices, and is not engaged in any unfair labor practice, except where the
failure to be in compliance or the engagement in such unfair labor practices
would not have a Material Adverse Effect on Target. Target has in all material
respects withheld all amounts required by law or by agreement to be withheld
from the wages, salaries, and other payments to employees; and is not liable for
any material arrears of wages or any material taxes or any material penalty for
failure to comply with any of the foregoing. Target is not liable for any
material payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). There are no pending claims against Target or any of its
subsidiaries for any material amounts under any workers compensation plan or
policy or for long term disability. Neither Target nor any of its subsidiaries
has any obligations under COBRA with respect to any former employees or
qualifying beneficiaries thereunder, except for obligations that are not
material in amount. There are no controversies pending or, to the knowledge of
Target or any of its subsidiaries, threatened, between Target or any of its
subsidiaries and any of their respective employees, which controversies have or
would reasonably be expected to result in an action, suit, proceeding, claim,
arbitration or investigation before any agency, court or tribunal, foreign or
domestic. Neither Target nor any of its subsidiaries is a party to any
collective bargaining agreement or other labor union contract nor does Target
nor any of its subsidiaries know of any activities or proceedings of any labor
union to organize any such employees. To Target's knowledge, no employees of
Target are in violation of any term of any employment contract, patent
disclosure agreement, noncompetition agreement, or any restrictive covenant to a
former employer relating to the right of any such employee to be employed by
Target because of the nature of the business conduced or presently proposed to
be conducted by Target or to the use of trade secrets or proprietary information
of others. No employees of Target have given notice to Target, nor is Target
otherwise aware, that any such employee intends to terminate his or her
employment with Target.
2.17 Interested Party Transactions. Except as disclosed in the Target SEC
Documents, neither Target nor any of its subsidiaries is indebted to any
director or officer of Target or any of its subsidiaries (except for amounts due
as normal salaries and bonuses and in reimbursement of ordinary expenses), and
no such person
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is indebted to Target or any of its subsidiaries, and there are no other
transactions of the type required to be disclosed pursuant to Items 402 and 404
of Regulation S-K under the Securities Act and the Exchange Act.
2.18 Insurance. Target and each of its subsidiaries have policies of
insurance and bonds of the type and in amounts customarily carried by persons
conducting businesses or owning assets similar to those of Target and its
subsidiaries. There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and Target and its subsidiaries are
otherwise in compliance in all material respects with the terms of such policies
and bonds. Target has no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
2.19 Compliance With Laws. Each of Target and its subsidiaries has
complied with, are not in violation of, and have not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures to comply as
would not be reasonably expected to have a Material Adverse Effect on Target.
2.20 Minute Books. The minute books of Target and its subsidiaries made
available to Acquiror contain a complete and accurate summary of all meetings of
directors and stockholders or actions by written consent since the time of
incorporation of Target and the respective subsidiaries through the date of this
Agreement, and reflect all transactions referred to in such minutes accurately
in all material respects.
2.21 Complete Copies of Materials. Target has delivered or made available
true and complete copies of each document that has been requested by Acquiror or
its counsel in connection with their legal and accounting review of Target and
its subsidiaries.
2.22 Brokers' and Finders' Fees. Except for payment obligations to Dain
Rauscher Wessels set forth in an engagement letter, a copy of which has been
provided to Acquiror, Target has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or investment bankers' fees or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
2.23 Registration Statement; Proxy Statement/Prospectus. The information
supplied by Target for inclusion in the registration statement on Form S-4 (or
such other or successor form as shall be appropriate) pursuant to which the
shares of Acquiror Common Stock to be issued in the Merger will be registered
with the SEC (the "Registration Statement") shall not at the time the
Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The information supplied by Target for inclusion
in the proxy statement/prospectus to be sent to the stockholders of Target in
connection with the meeting of Target's stockholders to consider the Merger (the
"Target Stockholders Meeting") (such proxy statement/prospectus as amended or
supplemented is referred to herein as the "Proxy Statement") shall not, on the
date the Proxy Statement is first mailed to Target's stockholders, at the time
of the Target Stockholders Meeting and at the Effective Time, contain any
statement which, at such time, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not false or misleading; or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Target Stockholders Meeting which has become
false or misleading. If at any time prior to the Effective Time any event or
information should be discovered by Target which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy Statement,
Target shall promptly inform Acquiror and Merger Sub. Notwithstanding the
foregoing, Target makes no representation, warranty or covenant with respect to
any information supplied by Acquiror or Merger Sub which is contained in any of
the foregoing documents.
2.24 Opinion of Financial Advisor. Target has been advised in writing by
its financial advisor, Dain Rauscher Wessels, that in such advisor's opinion, as
of the date hereof, the consideration to be received by the stockholders of
Target is fair, from a financial point of view, to the stockholders of Target.
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2.25 Vote Required. The affirmative vote of the holders of a majority of
the shares of Target Common Stock outstanding on the record date set for the
Target Stockholders Meeting is the only vote of the holders of any of Target's
capital stock necessary to approve this Agreement and the transactions
contemplated hereby.
2.26 Board Approval. The Board of Directors of Target has (i) approved
this Agreement and the Merger, (ii) determined that the Merger is in the best
interests of the stockholders of Target and is on terms that are fair to such
stockholders and (iii) recommended that the stockholders of Target approve this
Agreement and consummation of the Merger.
2.27 Voting Agreement; Irrevocable Proxies. All of the persons listed on
Schedule 2.27 have agreed in writing to vote for approval of the Merger pursuant
to voting agreements attached hereto as Exhibit B ("Voting Agreements"), and
pursuant to Irrevocable Proxies attached thereto as Exhibit A ("Irrevocable
Proxies").
2.28 Section 203 of the DGCL Not Applicable. The Board of Directors of
Target has taken all actions so that the restrictions contained in Section 203
of the Delaware Law applicable to a "business combination" (as defined in
Section 203) will not apply to the execution, delivery or performance of this
Agreement or the Option Agreement or the consummation of the Merger or the other
transactions contemplated by this Agreement or by the Option Agreement.
2.29 Inventory. The inventories of Target disclosed in the Target SEC
Documents as of March 31, 1998 and in any subsequently filed Target SEC
Documents are stated consistently with the audited financial statements of
Target and consist of items of a quantity usable or salable in the ordinary
course of business. Since March 31, 1988, Target has continued to replenish
inventories in a normal and customary manner consistent with past practices.
Target has not received written or oral notice that it will experience in the
foreseeable future any difficulty in obtaining, in the desired quantity and
quality and at a reasonable price and upon reasonable terms and conditions, the
raw materials, supplies or component products required for the manufacture,
assembly or production of its products. The values at which inventories are
carried reflect the inventory valuation policy of Target, which is consistent
with its past practice and in accordance with generally accepted accounting
principles applied on a consistent basis. Since March 31, 1998, due provision
was made on the books of Target in the ordinary course of business consistent
with past practices to provide for all slow-moving, obsolete, or unusable
inventories to their estimated useful or scrap values and such inventory
reserves are adequate to provide for such slow-moving, obsolete or unusable
inventory and inventory shrinkage. As of March 31, 1998, Target had no inventory
in the distribution channel and had no commitments to purchase inventory (other
than purchases of supplies in the ordinary course) in an amount that exceeds
$100,000.
2.30 Accounts Receivable. The accounts receivable disclosed in the Target
SEC Documents as of March 31, 1998, and, with respect to accounts receivable
created since such date, disclosed in any subsequently filed Target SEC
Documents, or as accrued on the books of Target in the ordinary course of
business consistent with past practices in accordance with generally accepted
accounting principles since the last filed Target SEC Documents, represent and
will represent bona fide claims against debtors for sales and other charges, are
not subject to discount except for normal cash and immaterial trade discount.
The amount carried for doubtful accounts and allowances disclosed in each of
such Target SEC Document or accrued on such books is sufficient to provide for
any losses that may be sustained on realization of the receivables.
2.31 Customers and Suppliers. None of Target's customers which
individually accounted for more than 5% of Target's gross revenues during the
12-month period preceding the date hereof has terminated any agreement with
Target. As of the date hereof, no material supplier of Target has indicated that
it will stop, or decrease the rate of, supplying materials, products or services
to Target. Target has not knowingly breached, so as to provide a benefit to
Target that was not intended by the parties, any agreement with, or engaged in
any fraudulent conduct with respect to, any customer or supplier of Target.
2.32 Rights Plan. Target has amended the Target Rights Agreement on terms
satisfactory to Acquiror to make the Rights inapplicable to the Merger
Agreement; the Option Agreement and all of the transactions contemplated hereby
or thereby; provided that the Rights shall remain applicable to all acquisitions
of capital stock of Target other than pursuant to this Agreement or the Option
Agreement or any of the transactions
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contemplated hereby or thereby. After such amendment Target will not thereafter
amend the Rights Agreement so as to make the Rights applicable to the Merger or
so as to make the Rights inapplicable to any acquisition of capital stock of
Target other than pursuant to this Agreement or the Option Agreement or any of
the transactions contemplated hereby or thereby.
2.33 Export Control Laws. Target has conducted its export transactions in
accordance with applicable provisions of United States export control laws and
regulations, including but not limited to the Export Administration Act and
implementing Export Administration Regulations, except for such violations which
would not have a Material Adverse Effect on Target. Without limiting the
foregoing, Target represents and warrants that:
(a) Target has obtained all export licenses and other approvals
required for its exports of products, software and technologies from the
United States;
(b) Target is in compliance with the terms of all applicable export
licenses or other approvals;
(c) There are no pending or threatened claims against Target with
respect to such export licenses or other approvals;
(d) There are no actions, conditions or circumstances pertaining to
Target's export transactions that may give rise to any future claims; and
(e) No consents or approvals for the transfer of export licenses to
Acquiror are required, or such consents and approvals can be obtained
expeditiously without material cost.
2.34 Representations Complete. None of the representations or warranties
made by Target herein or in any Schedule hereto, including the Target Disclosure
Schedule, or certificate furnished by Target pursuant to this Agreement, or the
Target SEC Documents, when all such documents are read together in their
entirety, contains or will contain at the Effective Time any untrue statement of
a material fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
Except as disclosed in that section of the document of even date herewith
delivered by Acquiror to Target prior to the execution and delivery of this
Agreement (the "Acquiror Disclosure Schedule") corresponding to the Section of
this Agreement to which any of the following representations and warranties
specifically relate or as disclosed in another section of the Acquiror
Disclosure Schedule if it is reasonably apparent on the face of the disclosure
that it is applicable to another Section of this Agreement, Acquiror represents
and warrants to Target as follows:
3.1 Organization, Standing and Power. Each of Acquiror and its
subsidiaries, including Merger Sub, is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization. Each of Acquiror and its subsidiaries has the corporate power to
own its properties and to carry on its business as now being conducted and as
proposed to be conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified and in
good standing would have a Material Adverse Effect on Acquiror. 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.
3.2 Capital Structure. The authorized capital stock of Acquiror consists
of 2,400,000,000 shares of Common Stock, $0.001 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 June 30, 1998, 1,039,860,912 shares of Common Stock
and no shares of Preferred Stock. The authorized capital stock of Merger Sub
consists of 1,000 shares of Common Stock, $.0001 par value, all of which are
issued and outstanding and are held by Acquiror. All outstanding shares of
Acquiror and Merger Sub have been duly authorized, validly issued, fully paid
and are nonassessable and free of any liens or encumbrances other than any liens
or encumbrances created by or
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imposed upon the holders thereof. The shares of Acquiror Common Stock to be
issued pursuant to the Merger will be duly authorized, validly issued, fully
paid, and non-assessable.
3.3 Authority. Acquiror and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Acquiror and Merger Sub. This
Agreement has been duly executed and delivered by Acquiror and Merger Sub and
constitutes the valid and binding obligations of Acquiror and Merger Sub. The
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of a benefit under (i) any provision of the Articles of
Incorporation or Bylaws of Acquiror or any of its subsidiaries, as amended, or
(ii) any material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Acquiror or any of its
subsidiaries or their properties or assets, except where such conflict,
violation, default, termination, cancellation or acceleration with respect to
the foregoing provisions of (ii) would not have had and would not reasonably be
expected to have a Material Adverse Effect on Acquiror. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
Governmental Entity, is required by or with respect to Acquiror or any of its
subsidiaries in connection with the execution and delivery of this Agreement by
Acquiror and Merger Sub or the consummation by Acquiror and Merger Sub of the
transactions contemplated hereby, except for (i) the filing of the Certificate
of Merger as provided in Section 1.2, (ii) the filing with the SEC and NASD of
the Registration Statement, (iii) the filing of a Form 8-K with the SEC and NASD
within 15 days after the Closing Date, (iv) any filings as may be required under
applicable state securities laws and the securities laws of any foreign country,
(v) such filings as may be required under HSR, (vi) the filing with the Nasdaq
National Market of a Notification Form for Listing of Additional Shares with
respect to the shares of Acquiror Common Stock issuable upon conversion of the
Target Common Stock in the Merger and upon exercise of the options under the
Target Stock Option Plans assumed by Acquiror, (vii) the filing of a
registration statement on Form S-8 with the SEC, or other applicable form
covering the shares of Acquiror Common Stock issuable pursuant to outstanding
options under the Target Stock Option Plans assumed by Acquiror, and (vii) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not have a Material Adverse Effect on Acquiror and
would not prevent or materially alter or delay any of the transactions
contemplated by this Agreement.
3.4 SEC Documents; Financial Statements. Acquiror has made available to
Target each statement, report, registration statement (with the prospectus in
the form filed pursuant to Rule 424(b) of the Securities Act), definitive proxy
statement, and other filing filed with the SEC by Acquiror since July 31, 1994,
and, prior to the Effective Time, Acquiror will have furnished Target with true
and complete copies of any additional documents filed with the SEC by Acquiror
prior to the Effective Time (collectively, the "Acquiror SEC Documents"). In
addition, Acquiror has made available to Target all exhibits to the Acquiror SEC
Documents filed prior to the date hereof, and will promptly make available to
Target all exhibits to any additional Acquiror SEC Documents filed prior to the
Effective Time. All documents required to be filed as exhibits to the Target SEC
Documents have been so filed, and all material contracts so filed as exhibits
are in full force and effect, except those which have expired in accordance with
their terms, and neither Acquiror nor any of its subsidiaries is in default
thereunder. As of their respective filing dates, the Acquiror SEC Documents
complied in all material respects with the requirements of the Exchange Act and
the Securities Act, and none of the Acquiror SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed Acquiror SEC Document. The financial
statements of Acquiror, including the notes thereto, included in the Acquiror
SEC Documents (the "Acquiror Financial Statements") were complete and correct in
all material respects as of their respective dates, complied as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto as of their respective
dates, and have been prepared in accordance with generally accepted accounting
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principles applied on a basis consistent throughout the periods indicated and
consistent with each other (except as may be indicated in the notes thereto or,
in the case of unaudited statements included in Quarterly Reports on Form 10-Q,
as permitted by Form 10-Q of the SEC). The Acquiror Financial Statements fairly
present the consolidated financial condition and operating results of Acquiror
and its subsidiaries at the dates and during the periods indicated therein
(subject, in the case of unaudited statements, to normal, recurring year-end
adjustments).
3.5 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 25, 1998 (the "Acquiror Balance Sheet"), (ii) those disclosed
in Acquiror SEC documents filed subsequent to such Quarterly Report on Form 10-Q
for the period ended April 25, 1998, (iii) 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 (iv) those incurred in the
ordinary course of business since the Acquiror Balance Sheet Date and consistent
with past practice.
3.6 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Acquiror or any of its
subsidiaries, threatened against Acquiror or any of its subsidiaries or any of
their respective properties or any of their respective officers or directors (in
their capacities as such) that, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect on the ability of
Acquiror to consummate the transactions contemplated by this Agreement. There is
no judgment, decree or order against Acquiror or any of its subsidiaries or, to
the knowledge of Acquiror or any of its subsidiaries, any of their respective
directors or officers (in their capacities as such) that would prevent, enjoin,
alter or materially delay any of the transactions contemplated by this
Agreement, or that would reasonably be expected to have a Material Adverse
Effect on the ability of Acquiror to consummate the transactions contemplated by
this Agreement.
3.7 Broker's and Finders' Fees. Except for payment obligations to Merrill
Lynch, Pierce, Fenner & Smith Incorporated, whose fees will be paid by Acquiror,
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.
3.8 Registration Statement; Proxy Statement/Prospectus. The information
supplied by Acquiror and Merger Sub for inclusion in the Registration Statement
shall not, at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The information supplied by Acquiror for
inclusion in the Proxy Statement shall not, on the date the Proxy Statement is
first mailed to Target's stockholders, at the time of the Target Stockholders
Meeting and at the Effective Time, contain any statement which, at such time, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which it is made, not false or misleading; or omit to state
any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Target
Stockholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any event or information should be discovered by Acquiror
or Merger Sub which should be set forth in an amendment to the Registration
Statement or a supplement to the Proxy Statement, Acquiror or Merger Sub will
promptly inform Target. Notwithstanding the foregoing, Acquiror and Merger Sub
make no representation, warranty or covenant with respect to any information
supplied by Target which is contained in any of the foregoing documents.
3.9 Board Approval. The Boards of Directors of Acquiror and Merger Sub
have (i) approved this Agreement and the Merger, (ii) determined that the Merger
is in the best interests of their respective stockholders and is on terms that
are fair to such stockholders and (iii) recommended that the stockholder of
Merger Sub approve this Agreement and the consummation of the Merger.
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3.10 Representations Complete. None of the representations or warranties
made by Acquiror or Merger Sub herein or in any Schedule hereto, including the
Acquiror Disclosure Schedule, or certificate furnished by Acquiror or Merger Sub
pursuant to this Agreement, or the Acquiror SEC Documents, when all such
documents are read together in their entirety, contains or will contain at the
Effective Time any untrue statement of a material fact, or omits or will omit at
the Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of Target and Acquiror. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, each of Target and Acquiror agrees (except
to the extent expressly contemplated by this Agreement or as consented to in
writing by the other), to carry on its and its subsidiaries' business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay and to cause its subsidiaries to pay debts and
Taxes when due subject to good faith disputes over such debts or taxes, to pay
or perform other obligations when due, and to use all reasonable efforts
consistent with past practice and policies to preserve intact its and its
subsidiaries' present business organizations, use its reasonable best efforts
consistent with past practice to keep available the services of its and its
subsidiaries' present officers and key employees and use its reasonable best
efforts consistent with past practice to preserve its and its subsidiaries'
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it or its subsidiaries, to the end that its
and its subsidiaries' goodwill and ongoing businesses shall be unimpaired at the
Effective Time. Each of Target and Acquiror agrees to promptly notify the other
of any event or occurrence not in the ordinary course of its or its
subsidiaries' business, and of any event which would have a Material Adverse
Effect.
4.2 Conduct of Business of Target. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, except as expressly contemplated by this Agreement,
Target shall not do, cause or permit any of the following, or allow, cause or
permit any of its subsidiaries to do, cause or permit any of the following,
without the prior written consent of Acquiror:
(a) Charter Documents. Cause or permit any amendments to its
Certificate of Incorporation, Bylaws or the Target Rights Agreement;
(b) Dividends; Changes in Capital Stock. Declare or pay any dividends
on or make any other distributions (whether in cash, stock or property) in
respect of any of its capital stock, or split, combine or reclassify any of
its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly,
any shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of
shares in connection with any termination of service to it or its
subsidiaries;
(c) Stock Option Plans, Etc. Take any action to accelerate, amend or
change the period of exercisability or vesting of options or other rights
granted under its stock plans (except for the acceleration waiver required
pursuant to section 5.10 and the amendment required pursuant to Section
5.17) or authorize cash payments in exchange for any options or other
rights granted under any of such plans.
(d) Material Contracts. Enter into any contract or commitment, or
violate, amend or otherwise modify or waive any of the terms of any of its
contracts, other than in the ordinary course of business consistent with
past practice and in no event shall such contract, commitment, amendment,
modification or waiver (other than those relating to sales of products or
purchases of supplies in the ordinary course) be in excess of $100,000;
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(e) Issuance of Securities. Issue, deliver or sell or authorize or
propose the issuance, delivery or sale of, or purchase or propose the
purchase of, any shares of its capital stock or securities convertible
into, or subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any character obligating it to issue any such
shares or other convertible securities, other than the issuance of shares
of its Common Stock pursuant to the exercise of stock options, warrants or
other rights therefor outstanding as of the date of this Agreement;
provided, however, that Target may, in the ordinary course of business
consistent with past practice, grant options for the purchase of Target
Common Stock under the Target Option Plans (not to exceed an aggregate of
100,000 options to purchase shares of Target Common Stock and provided that
none of such options provide for acceleration of vesting upon the Merger).
(f) 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;
(g) 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;
(h) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets which are material, individually
or in the aggregate, to its and its subsidiaries' business, taken as a
whole, except in the ordinary course of business consistent with past
practice;
(i) 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;
(j) Leases. Enter into any operating lease in excess of $100,000;
(k) Payment of Obligations. Pay, discharge or satisfy in an amount in
excess of $100,000 in any one case, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise)
arising other than in the ordinary course of business, other than the
payment, discharge or satisfaction of liabilities reflected or reserved
against in the Target Financial Statements;
(l) Capital Expenditures. Make any capital expenditures, capital
additions or capital improvements except in the ordinary course of business
and consistent with past practice;
(m) Insurance. Materially reduce the amount of any material insurance
coverage provided by existing insurance policies;
(n) Termination or Waiver. Terminate or waive any right of substantial
value, other than in the ordinary course of business;
(o) Employee Benefit Plans; New Hires; Pay Increases. Adopt or amend
any employee benefit or stock purchase or option plan (other than the plans
described in Target's proxy statement for the annual meeting of its
stockholders to be held on July 27, 1998, provided that no additional
options are granted under any such plans other than the 1993 Director Stock
Option Plan, as amended), or hire any new director level or officer level
employee, pay any special bonus or special remuneration to any employee or
director, or increase the salaries or wage rates of its employees;
(p) Severance Arrangements. Grant any severance or termination pay (i)
to any director or officer or (ii) to any other employee except payments
made pursuant to standard written agreements outstanding on the date
hereof.
(q) 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;
(r) Acquisitions. Except with respect to the Purchase Agreement
referred to in Section 6.3(i) and the events contemplated thereby, acquire
or agree to acquire by merging or consolidating with, or by
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purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire
any assets which are material, individually or in the aggregate, to its and
its subsidiaries' business, taken as a whole, or acquire or agree to
acquire any equity securities of any corporation, partnership, association
or business organization;
(s) Taxes. Other than in the ordinary course of business, make or
change any material election in respect of Taxes, adopt or change any
accounting method in respect of Taxes, file any material Tax Return or any
amendment to a material Tax Return, enter into any closing agreement,
settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(t) Notices. Target shall give all notices and other information
required by applicable law 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;
(u) 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
(v) Other. Take or agree in writing or otherwise to take, any of the
actions described in Sections 4.2(a) through (u) above, or any action which
would make any of its representations or warranties contained in this
Agreement untrue or incorrect or prevent it from performing or cause it not
to perform its covenants hereunder.
4.3 No Solicitation. Target and its subsidiaries and the officers,
directors, employees or other agents of Target and its subsidiaries will not,
directly or indirectly, (i) take any action to solicit, initiate or encourage
any Takeover Proposal (as defined in Section 7.3(f)) or (ii) subject to the
terms of the immediately following sentence, engage in negotiations with, or
disclose any nonpublic information relating to Target or any of it subsidiaries
to, or afford access to the properties, books or records of Target or any of its
subsidiaries to, any person that has advised Target that it may be considering
making, or that has made, a Takeover Proposal; provided, nothing herein shall
prohibit Target's Board of Directors from taking and disclosing to Target's
stockholders a position with respect to a tender offer pursuant to Rules 14d-9
and 14e-2 promulgated under the Exchange Act. Notwithstanding the immediately
preceding sentence, if an unsolicited written Takeover Proposal shall be
received by the Board of Directors of Target, then, to the extent the Board of
Directors of Target believes in good faith (after written advice from its
financial advisor) that such Takeover Proposal would, if consummated, result in
a transaction more favorable to Target's stockholders from a financial point of
view than the transaction contemplated by this Agreement (any such more
favorable Takeover Proposal being referred to in this Agreement as a "Superior
Proposal") and the Board of Directors of Target determines in good faith after
advice from outside legal counsel that it is necessary for the Board of
Directors of Target to comply with its fiduciary duties to stockholders under
applicable law, Target and its officers, directors, employees, investment
bankers, financial advisors, attorneys, accountants and other representatives
retained by it may furnish in connection therewith information to the party
making such Superior Proposed and engage in negotiations with such party, and
such actions shall not be considered a breach of this Section 4.3 or any other
provisions of this Agreement; provided that in each such event Target notifies
Acquiror of such determination by the Target Board of Directors and provides
Acquiror with a true and complete copy of the Superior Proposal received from
such third party, and provides (or has provided) Acquiror with all documents
containing or referring to non-public information of Target that are supplied to
such third party; provided, further, that Target provides such non-public
information pursuant to a non-disclosure agreement at least as restrictive on
such third party as the Confidentiality Agreement is on Acquiror (as defined in
Section 5.4); provided, further, however, that Target shall not, and shall not
permit any of its officers, directors, employees or other representatives to
agree to or endorse any Takeover Proposal or withdraw its recommendation of the
Merger unless Target has provided Acquiror at least five (5) days prior notice
thereof, has terminated this Agreement pursuant to Section 7.1(f) and has paid
Acquiror all amounts payable to Acquiror pursuant to
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Section 7.3(b). Target will promptly notify Acquiror after receipt of any
Takeover Proposal or any notice that any person is considering making a Takeover
Proposal or any request for non-public information relating to Target or any of
its subsidiaries or for access to the properties, books or records of Target or
any of its subsidiaries by any person that has advised Target that it may be
considering making, or that has made, a Takeover Proposal and will keep Acquiror
fully informed of the status and details of any such Takeover Proposal notice,
and shall provide Acquiror with a true and complete copy of such Takeover
Proposal notice or any amendment thereto, if it is in writing, or a complete
written summary thereof, if it is not in writing.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement. As promptly as
practicable after the execution of this Agreement, Target and Acquiror shall
prepare, and Target shall file with the SEC, preliminary proxy materials
relating to the approval of the Merger and the transactions contemplated hereby
by the stockholders of Target. As promptly as practicable following receipt of
SEC comments thereon, Target shall file with the SEC definitive proxy materials
and Acquiror shall file with the SEC a Registration Statement on Form S-4 (or
such other or successor form as shall be appropriate), in each case which
complies in form with applicable SEC requirements and shall use all reasonable
efforts to cause the Registration Statement to become effective as soon
thereafter as practicable. Target and Acquiror will notify each other promptly
of the receipt of any comments from the SEC or its staff and of any request by
the SEC or its staff or any other government officials for amendments or
supplements to the Proxy Statement or any other filing or for additional
information and will supply each other with copies of all correspondence between
such party or any of its representatives, on the one hand, and the SEC, or its
staff or any other government officials, on the other hand, with respect to the
Proxy Statement or other filing. Whenever any event occurs that is required to
be set forth in an amendment or supplement to the Proxy Statement or any other
filing, Target shall promptly inform Acquiror of such occurrence and cooperate
in filing with the SEC or its staff or any other government officials, and/or
mailing to shareholders of Target, such amendment or supplement. The Proxy
Statement shall include the recommendation of the Board of Directors of Target
in favor of the Merger Agreement and the Merger.
5.2 Meeting of Stockholders. Target shall promptly after the date hereof
take all action necessary in accordance with Delaware Law and its Certificate of
Incorporation and Bylaws to convene the Target Stockholders Meeting within 45
days of the Registration Statement being declared effective by the SEC. Target
shall consult with Acquiror regarding the date of the Target Stockholders
Meeting and use all reasonable efforts and shall not postpone or adjourn (other
than for the absence of a quorum) the Target Stockholders Meeting without the
consent of Acquiror. Subject to Sections 4.3 and 5.1, Target shall use its
reasonable best efforts to solicit from stockholders of Target proxies in favor
of the Merger and shall take all other action necessary or advisable to secure
the vote or consent of stockholders required to effect the Merger.
5.3 Access to Information.
(a) Target shall afford Acquiror and its accountants, counsel and
other representatives, reasonable access during normal business hours
during the period prior to the Effective Time to (i) all of Target's and
its subsidiaries' properties, books, contracts, commitments and records,
and (ii) all other information concerning the business, properties and
personnel of Target and its subsidiaries as Acquiror may reasonably
request. Target agrees to provide to Acquiror and its accountants, counsel
and other representatives copies of internal financial statements promptly
upon request.
(b) Subject to compliance with applicable law, from the date hereof
until the Effective Time, each of Acquiror and Target shall confer on a
regular and frequent basis with one or more representatives of the other
party to report operational matters of materiality and the general status
of ongoing operations.
(c) No information or knowledge obtained in any investigation pursuant
to this Section 5.3 shall affect or be deemed to modify any representation
or warranty contained herein or the conditions to the obligations of the
parties to consummate the Merger.
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5.4 Confidentiality. The parties acknowledge that each of Acquiror and
Target have previously executed a non-disclosure agreement dated
, 1998 (the "Confidentiality Agreement"), which Confidentiality
Agreement shall continue in full force and effect in accordance with its terms.
5.5 Public Disclosure. Unless otherwise permitted by this Agreement,
Acquiror and Target shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange or with
the NASD.
5.6 Consents; Cooperation.
(a) Each of Acquiror and Target shall promptly apply for or otherwise
seek, and use its reasonable best efforts to obtain, all consents and
approvals required to be obtained by it for the consummation of the Merger,
including those required under HSR, and shall use its reasonable best
efforts to obtain all necessary consents, waivers and approvals under any
of its material contracts in connection with the Merger for the assignment
thereof or otherwise. The parties hereto will consult and cooperate with
one another, and consider in good faith the views of one another, in
connection with any analyses, appearances, presentations, memoranda,
briefs, arguments, opinions and proposals made or submitted by or on behalf
of any party hereto in connection with proceedings under or relating to HSR
or any other federal or state antitrust or fair trade law.
(b) Each of Acquiror and Target shall use its 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 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 its 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, 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 January 27, 1999. Each
of Acquiror and Target shall use its 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. The Acquiror
and Target also agree to take any and all of the following actions to the
extent necessary to obtain the approval of any Governmental Entity with
jurisdiction over the enforcement of any applicable laws regarding the
transactions contemplated hereby: entering into negotiations; providing
information required by law or governmental regulation; and substantially
complying with any second request for information pursuant to the Antitrust
Laws. Notwithstanding anything to the contrary in this Section 5.6, neither
the Acquiror nor Target nor any of their respective subsidiaries shall be
required to take any action that would reasonably be expected to
substantially impair the overall benefits expected, as of the date hereof,
to be realized from the consummation of the transactions contemplated
hereby.
(c) Notwithstanding anything to the contrary in Section 5.6(a) or (b),
(i) neither Acquiror nor any of it subsidiaries shall be required to divest
any of their respective businesses, product lines or assets, or to take or
agree to take any other action or agree to any limitation that would
reasonably be expected to have
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a Material Adverse Effect on Acquiror or of Acquiror combined with the
Surviving Corporation after the Effective Time or (ii) neither Target nor
its subsidiaries shall be required to divest any of their respective
businesses, product lines or assets, or to take or agree to take any other
action or agree to any limitation that would reasonably be expected to have
a Material Adverse Effect on Target.
5.7 Voting Agreement. Target shall use its reasonable best efforts, on
behalf of Acquiror and pursuant to the request of Acquiror, to cause each Person
named in Schedule 2.27 to execute and deliver to Acquiror a Voting Agreement
substantially in the form of Exhibit B attached hereto and an Irrevocable Proxy
in the form of Exhibit A thereto concurrent with the execution of this
Agreement.
5.8 Legal Requirements. Each of Acquiror, Merger Sub and Target will, and
will cause their respective subsidiaries to, take all reasonable actions
necessary to comply promptly with all legal requirements which may be imposed on
them with respect to the consummation of the transactions contemplated by this
Agreement and will promptly cooperate with and furnish information to any party
hereto necessary in connection with any such requirements imposed upon such
other party in connection with the consummation of the transactions contemplated
by this Agreement and will take all reasonable actions necessary to obtain (and
will cooperate with the other parties hereto in obtaining) any consent,
approval, order or authorization of, or any registration, declaration or filing
with, any Governmental Entity or other person, required to be obtained or made
in connection with the taking of any action contemplated by this Agreement.
5.9 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 reasonable 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.
5.10 Employee Benefit Plans.
(a) Prior to the Effective Time, Target shall use reasonable best
efforts to obtain from all holders of options to purchase Target Common
Stock, the exercisability or vesting of which would accelerate as a result
of the transactions contemplated hereby, a written waiver in substantially
the form attached hereto as Exhibit C (the "Waiver").
(b) At the Effective Time, the Target Stock Option Plans and each
outstanding option to purchase shares of Target Common Stock under the
Target Stock Option Plans, whether vested or unvested (but as modified by
the Waiver), will be assumed by Acquiror. Target represents and warrants to
Acquiror that Schedule 5.10B hereto sets forth a true and complete list as
of the date hereof of all holders of outstanding options under the Target
Stock Option Plans, including the number of shares of Target capital stock
subject to each such option, the exercise or vesting schedule (as modified
by the Waiver), the exercise price per share and the term of each such
option. On the Closing Date, Target shall deliver to Acquiror an updated
Schedule 5.10B hereto current as of such date. Each such option so assumed
by Acquiror under this Agreement shall continue to have, and be subject to,
the same terms and conditions set forth in the Target Stock Option Plans
and the applicable stock option agreements (as modified by the Waiver),
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. At or prior to the
Closing, Target shall cause the Target Stock Option Plans and the other
plans referred to in Target's proxy statement for its annual meeting of
stockholders to be held on July 27, 1998, to be amended so that the Merger
will not terminate any of the outstanding options under such plans or
(other than the 1993 Director Stock Option Plan, as amended, of Target)
accelerate the exercisability or vesting of such options or the shares of
Acquiror Common Stock which will be subject to those options upon the
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Acquiror's assumption of the options in the Merger. It is the intention of
the parties that the options so assumed by Acquiror qualify, to the maximum
extent permissible 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 20 business
days after the Effective Time, Acquiror will issue to each person who,
immediately prior to the Effective Time was a holder of an outstanding
option under the Target Stock Option Plans a document in form and substance
reasonably satisfactory to Target evidencing the foregoing assumption of
such option by Acquiror.
(c) All outstanding rights of Target which it may hold immediately
prior to the Effective Time to repurchase unvested shares of Target Common
Stock (the "Repurchase Options") shall be assigned to Acquiror in the
Merger and shall thereafter be exercisable by Acquiror upon the same terms
and conditions in effect immediately prior to the Effective Time, except
that the shares purchasable pursuant to the Repurchase Options and the
purchase price per shall be adjusted to reflect the Exchange Ratio.
(d) Outstanding purchase rights under the Target ESPP shall be
exercised upon the earlier of (i) the next scheduled purchase date under
the Target ESPP or (ii) immediately prior to the Effective Time, and each
participant in the Target ESPP shall accordingly be issued shares of Target
Common Stock at that time which shall be converted into shares of Acquiror
Common Stock in the Merger. The Target ESPP shall terminate with such
exercise date, and no purchase rights shall be subsequently granted or
exercised under the Target ESPP. Target employees who meet the eligibility
requirements for participation in the Acquiror Employee Stock Purchase Plan
shall be eligible to begin payroll deductions under that plan as of the
start date of the first offering period thereunder beginning at least
thirty (30) days after the Effective Time.
5.11 Letter of Acquiror's and Target's Accountants.
(a) Acquiror shall use its reasonable best efforts to cause to be
delivered to Target a Procedures Letter of Acquiror's independent auditors,
dated a date within two business days before the date on which the
Registration Statement shall become effective and addressed to Acquiror and
Target, in form reasonably satisfactory to Target and customary in scope
and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration
Statement.
(b) Target shall use its reasonable best efforts to cause to be
delivered to Acquiror a Procedures Letter of Target's independent auditors,
dated a date within two business days before the date on which the
Registration Statement shall become effective and addressed to Acquiror and
Target, in form reasonably satisfactory to Acquiror and customary in scope
and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration
Statement.
5.12 Form S-8. Acquiror agrees to use its reasonable best efforts to file
on the Closing Date (and in any event no later than twenty (20) business days
after the Closing Date), a registration statement on Form S-8 covering the
shares of Acquiror Common Stock issuable pursuant to outstanding options under
the Target Stock Option Plans assumed by Acquiror. Target shall cooperate with
and assist Acquiror in the preparation of such registration statement.
5.13 Option Agreement. Concurrently with the execution of this Agreement,
Target shall deliver to Acquiror an executed Option Agreement in the form of
Exhibit D attached hereto. Target agrees to fully perform its obligations under
the Option Agreement.
5.14 Listing of Additional Shares. Prior to the Effective Time, Acquiror
shall file with the Nasdaq National Market a Notification Form for Listing of
Additional Shares with respect to the shares referred to in Section 6.1(f).
5.15 Nasdaq Quotation. Target and Acquiror agree to continue the quotation
of Target Common Stock and Acquiror Common Stock, respectively, on the Nasdaq
National Market during the term of the
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Agreement so that, to the extent necessary, appraisal rights will not be
available to stockholders of Target under Section 262 of the Delaware Law.
5.16 Employees. Target shall use its reasonable best efforts to cause each
of the individuals set forth on Schedule 5.16 to deliver to Acquiror an executed
Employment Agreement in the form of Exhibit E-1, et. seq.
5.17 Amendment of Stock Option Plan. The Board of Directors of Target
shall take all action necessary to amend the terms of the Target Stock Option
Plans to permit the amendment referred to in Section 5.10.
5.18 Target Rights Agreement. Target hereby agrees that it has taken and
will continue to take all necessary action to ensure that none of the
transactions contemplated by this Agreement, the Option Agreement or the Voting
Agreement will cause (i) Acquiror or any of its affiliates or associates to
become an Acquiring Person (as defined in the Target Rights Agreement) for
purposes of the Target Rights Agreement, or (ii) otherwise affect in any way the
Rights under the Target Rights Agreement, including by causing such Rights to
separate from the underlying shares or by giving such holders the right to
acquire securities of any party hereto.
5.19 Indemnification.
(a) After the Effective Time, Acquiror will, and will cause the
Surviving Corporation to, indemnify and hold harmless the present and
former officers, directors, employees and agents of Target (the
"Indemnified Parties") in respect of acts or omissions occurring on or
prior to the Effective Time to the extent provided under Target's Amended
and Restated Certificate of Incorporation and Amended and Restated Bylaws
or any indemnification agreement with Target officers and directors to
which Target is a party, in each case in effect on the date hereof;
provided that such indemnification shall be subject to any limitation
imposed from time to time under applicable law. Without limitation of the
foregoing, in the event any such Indemnified Party is or becomes involved
in any capacity in any action, proceeding or investigation in connection
with any matter relating to this Agreement or the transactions contemplated
hereby occurring on or prior to the Effective Time, Acquiror shall, or
shall cause the Surviving Corporation to, pay as incurred such Indemnified
Party's reasonable legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith.
(b) For four years after the Effective Time, Acquiror will either (i)
at all times maintain at least $50,000,000 in cash, marketable securities
or unrestricted lines of credit (or any combination thereof) to be
available to indemnify the Indemnified Parties in accordance with Section
5.19(a) above or (ii) cause the Surviving Corporation to use its best
efforts to provide officers' and directors' liability insurance in respect
of acts or omissions occurring on or prior to the Effective Time covering
each such person currently covered by Target's officers' and directors'
liability insurance policy on terms substantially similar to those of such
policy in effect on the date hereof, provided that in satisfying its
obligation under this Section, Acquiror shall not be obligated to cause the
Surviving Corporation to pay premiums in excess of 150% of the amount per
annum Target paid in its last full fiscal year, which amount has been
disclosed to Acquiror, and if the Surviving Corporation is unable to obtain
the insurance required by this Section 5.19, it shall obtain as much
comparable insurance as possible for an annual premium equal to such
maximum amount.
(c) To the extent there is any claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time) against
an Indemnified Party that arises out of or pertains to any action or
omission in his or her capacity as director, officer, employee, fiduciary
or agent of Target occurring prior to the Effective Time, or arises out of
or pertains to the transactions contemplated by this Agreement for a period
of four years after the Effective Time (whether arising before or after the
Effective Time), in each case for which such Indemnified Party is
indemnified under this Section 5.19, such Indemnified Party shall be
entitled to be represented by counsel, which counsel shall be counsel of
the Acquiror (provided that if use of counsel of the Acquiror would be
expected under applicable standards of professional conduct to give rise to
a conflict between the position of the Indemnified Person and of the
Acquiror, the Indemnified Party shall be entitled instead to be represented
by counsel selected by the
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Indemnified Party and reasonably acceptable to Acquiror) and following the
Effective Time the Surviving Corporation and Acquiror shall pay the
reasonable fees and expenses of such counsel, promptly after statements
therefor are received and the Surviving Corporation and Acquiror will
cooperate in the defense of any such matter; provided, however, that
neither the Surviving Corporation nor Acquiror shall be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld); and provided, further, that, in the event that any
claim or claims for indemnification are asserted or made within such four
year period, all rights to indemnification in respect to any such claim or
claims shall continue until the disposition of any and all such claims. The
Indemnified Parties as a group may retain only one law firm (in addition to
local counsel) to represent them with respect to any single action unless
there is, under applicable standards of professional conduct, a conflict on
any significant issue between the position of any two or more Indemnified
Parties.
(d) The provisions of this Section 5.19 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or her
heirs and representatives.
5.20 Best Efforts and Further Assurances. Each of the parties to this
Agreement shall use its best efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to closing under
this Agreement. Each party hereto, at the reasonable request of another party
hereto, shall execute and deliver such other instruments and do and perform such
other acts and things as may be necessary or desirable for effecting completely
the consummation of this Agreement and the transactions contemplated hereby.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the stockholders of
Target under Delaware Law.
(b) Registration Statement Effective. The SEC shall have declared the
Registration Statement effective. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose, and no similar proceeding
in respect of the Proxy Statement, shall have been initiated or threatened
by the SEC; and all requests for additional information on the part of the
SEC shall have been complied with to the reasonable satisfaction of the
parties hereto.
(c) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect,
nor shall any proceeding brought by an administrative agency or commission
or other governmental authority or instrumentality, domestic or foreign,
seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced
or deemed applicable to the Merger, which makes the consummation of the
Merger illegal. In the event an injunction or other order shall have been
issued, each party agrees to use its reasonable best efforts to have such
injunction or other order lifted.
(d) Governmental Approval. Acquiror, Target and Merger Sub and their
respective subsidiaries shall have timely obtained from each Governmental
Entity all approvals, waivers and consents, if any, necessary for
consummation of or in connection with the Merger and the several
transactions contemplated hereby, including such approvals, waivers and
consents as may be required under the Securities Act, under state Blue Sky
laws, and under HSR.
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(e) Tax Opinion. Acquiror and Target shall have received substantially
identical written opinions of Brobeck, Phleger and Harrison LLP and Hale &
Dorr LLP, respectively, in form and substance reasonably satisfactory to
them, and dated on or about the date of and referred to in the Proxy
Statement as first mailed to stockholders of Target and shall be to the
effect that the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code, and such opinions shall not have been
withdrawn. In rendering such opinions, counsel shall be entitled to rely
upon, among other things, reasonable assumptions as well as representations
of Acquiror, Merger Sub and Target and certain stockholders of Target.
(f) Listing of Additional Shares. The filing with the Nasdaq National
Market of a Notification Form for Listing of Additional Shares with respect
to the shares of Acquiror Common Stock issuable upon conversion of the
Target Common Stock in the Merger and upon exercise of the options under
the Target Stock Option Plans assumed by Acquiror shall have been made.
6.2 Additional Conditions to Obligations of Target. The obligations of
Target to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in writing, by
Target:
(a) Representations, Warranties and Covenants. (i) The representations
and warranties of Acquiror and Merger Sub in this Agreement shall be true
and correct in all material respects (except for such representations and
warranties that are qualified by their terms by a reference to materiality
which representations and warranties as so qualified shall be true in all
respects) on and as of the Effective Time as though such representations
and warranties were made on and as of such time and (ii) Acquiror and
Merger Sub shall have performed and complied in all material respects with
all covenants, obligations and conditions of this Agreement required to be
performed and complied with by them as of the Effective Time.
(b) Certificate of Acquiror. Target shall have been provided with a
certificate executed on behalf of Acquiror by its President and its Chief
Financial Officer certifying that the condition set forth in Section 6.2(a)
shall have been fulfilled.
6.3 Additional Conditions to the Obligations of Acquiror and Merger
Sub. The obligations of Acquiror and Merger Sub to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Acquiror:
(a) Representations, Warranties and Covenants. (i) The representations
and warranties of Target in this Agreement shall be true and correct in all
material respects (except for such representations and warranties that are
qualified by their terms by a reference to materiality, which
representations and warranties as so qualified shall be true in all
respects) on and as of the Effective Time as though such representations
and warranties were made on and as of such time and (ii) Target shall have
performed and complied in all material respects with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by it as of the Effective Time.
(b) Certificate of Target. Acquiror shall have been provided with a
certificate executed on behalf of Target by its President and Chief
Financial Officer certifying that the condition set forth in Section 6.3(a)
shall have been fulfilled.
(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 any material contract of Target or any of its subsidiaries or
otherwise, except where failure to obtain such consent would not have a
Material Adverse Effect on Target.
(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
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administrative agency or commission or other Governmental Entity, domestic
or foreign, seeking the foregoing be pending.
(e) No Material Adverse Changes. There shall not have occurred any
material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Target and its
subsidiaries, taken as a whole (other than Non-Controllable Events).
(f) 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.
(g) Employment and Non-Competition Agreements/Waivers. The employees
of Target set forth on Schedule 5.16 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 E-1, et.
seq. The individuals set forth in Schedule 6.3(g) shall have executed the
Waiver required under Section 5.10 with respect to his or her outstanding
options under the Target Stock Option Plans.
(h) Board Amendment of Option Plans. The Board of Directors of Target
shall have approved the amendment described in Section 5.17 effective
immediately prior to the Closing Date.
(i) Purchase Agreement. The Purchase Agreement, dated July 27, 1998
between Target and Junction, Inc. in the form of Exhibit G hereto shall
have been consummated.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. At any time prior to the Effective Time, whether before
or after approval of the matters presented in connection with the Merger by the
stockholders of Target, this Agreement may be terminated:
(a) by mutual consent of Acquiror and Target;
(b) by either Acquiror or Target, if, without fault of the terminating
party, the Closing shall not have occurred on or before January 27, 1999
(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, if (i) Target shall breach any of its
representations, warranties or obligations hereunder and such breach shall
not have been cured within ten (10) business days of receipt by Target of
written notice of such breach (and Acquiror shall not have willfully
breached any of its covenants hereunder, which breach is not cured), (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 Stockholders Meeting by
December 27, 1998;
(d) by Target, if Acquiror shall breach any of its representations,
warranties or obligations hereunder and such breach shall not have been
cured within ten (10) business days following receipt by
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Acquiror of written notice of such breach (and Target shall not have
willfully breached any of its covenants hereunder, which breach is not
cured);
(e) by Acquiror if a Trigger Event (as defined in Section 7.3(e)) or
Takeover Proposal shall have occurred and the Board of Directors of Target
in connection therewith, does not within ten (10) business days of such
occurrence (i) reconfirm its approval and recommendation of this Agreement
and the transactions contemplated hereby, and (ii) reject such Takeover
Proposal or Trigger Event (in the case of a Trigger Event involving a
tender or exchange offer);
(f) by Target if a Superior Proposal shall have occurred, Target shall
have provided Acquiror at least five (5) business days prior notice of the
terms of the Superior Proposal and Target shall have paid Acquiror the
amounts set forth in Section 7.3(b); or
(g) by either Acquiror or Target if (i) any permanent injunction or
other order of a court or other competent authority preventing the
consummation of the Merger shall have become final and nonappealable or
(ii) if any required approval of the stockholders of Target shall not have
been obtained by reason of the failure to obtain the required vote upon a
vote held at a duly held meeting of stockholders or at any adjournment
thereof.
7.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Acquiror, Merger Sub or
Target or their respective officers, directors, stockholders or affiliates,
except to the extent that such termination results from the breach by a party
hereto of any of its representations, warranties or covenants 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), (d) and (e) 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, except that expenses incurred in connection with printing the
Proxy Materials and the Registration Statement, registration and filing
fees incurred in connection with the Registration Statement, the Proxy
Materials and the listing of additional shares pursuant to Section 6.1(f)
and fees, costs and expenses associated with compliance with applicable
state securities laws in connection with the Merger shall be shared equally
by Target and Acquiror.
(b) In the event that (i) Acquiror shall terminate this Agreement
pursuant to Section 7.1(e) or, but for the payment of the amount set forth
below in this Section 7.3(b), Target is entitled to terminate this
Agreement pursuant to Section 7.1(f), (ii) Acquiror shall terminate this
Agreement pursuant to Section 7.1(c)(ii), (iii) either Acquiror or Target
shall terminate this Agreement pursuant to Section 7.1(g)(ii) following a
failure of the stockholders of Target to approve this Agreement and, prior
to the time of the meeting of Target's stockholders, there shall have been
(A) a Trigger Event with respect to Target or (B) a Takeover Proposal with
respect to Target which at the time of the meeting of Target's stockholders
shall not have been rejected by Target, or (iv) Acquiror shall terminate
this Agreement pursuant to Section 7.1(c) (i) or (iii), due in whole or in
part to any failure by Target to use its reasonable 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 rejected by Target, then Target shall reimburse
Acquiror for all of the out-of-pocket costs and expenses incurred by
Acquiror in connection with this Agreement and the transactions
contemplated hereby (including, without limitation, the fees and expenses
of its advisors, accountants and legal counsel), and, in addition to any
other remedies Acquiror may have, Target shall promptly pay to Acquiror the
sum of $3,500,000.
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(c) In the event that (i) Acquiror shall terminate this Agreement
pursuant to Section 7.1(c)(i) or (iii) under circumstances not described in
Section 7.3(b)(iv) or (ii) Acquiror shall terminate this Agreement pursuant
to Section 7.1(g)(ii) (under circumstances not described in Section
7.3(b)(iii)), 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); and, in the event (A) any Takeover Proposal or Trigger Event is
consummated (as defined in Section 7.3(g)) by or with any Person that made
a Takeover Proposal prior to termination of this Agreement or that caused a
Trigger Event prior to such termination, or any Affiliate of any such
Person, within twelve months of the later of, or (B) any other Takeover
Proposal or Trigger Event not described in clause (A) is consummated (as
defined in Section 7.3(g)) within six months of, the later of, (x) such
termination of this Agreement and (y) the payment of the above-described
expenses, Target shall promptly pay to Acquiror the additional sum of
$3,500,000 (less any amounts paid by Target to Acquiror under Section
7.3(b)).
(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).
(e) As used herein, a "Trigger Event" shall occur if any Person (as
that term is defined in Section 13(d) of the Exchange Act and the
regulations promulgated thereunder) acquires securities representing 20% or
more, or commences a tender or exchange offer following the successful
consummation of which the offeror and its affiliate would beneficially own
securities representing 20% or more, of the voting power of Target;
provided, however, a Trigger Event shall not be deemed to include the
acquisition by any Person of securities representing 20% or more of Target
if such Person has acquired such securities not with the purpose nor with
the effect of changing or influencing the control of Target, nor in
connection with or as a participant in any transaction having such purpose
or effect, including without limitation not in connection with such Person
(i) making any public announcement with respect to the voting of such
shares at any meeting to consider any merger, consolidation, sale of
substantial assets or other business combination or extraordinary
transaction involving Target, (ii) making, or in any way participating in,
any "solicitation" of "proxies" (as such terms are defined or used in
Regulation 14A under the Exchange Act) to vote any voting securities of
Target (including, without limitation, any such solicitation subject to
Rule 14a-11 under the Exchange Act) or seeking to advise or influence any
Person with respect to the voting of any voting securities of Target,
directly or indirectly, relating to a merger or other business combination
involving Target or the sale or transfer of a significant portion of assets
(excluding the sale or disposition of assets in the ordinary course of
business) of Target, (iii) forming, joining or in any way participating in
any "group" within the meaning of Section 13(d)(3) of the Exchange Act with
respect to any voting securities of Target, directly or indirectly,
relating to a merger or other business combination involving Target or the
sale or transfer of a significant portion of assets (excluding the sale or
disposition of assets in the ordinary course of business) of Target, or
(iv) otherwise acting, alone or in concert with others, to seek control of
Target or to seek to control or influence the management or policies of
Target.
(f) For purposes of this Agreement, "Takeover Proposal" means any
offer or proposal for, or any indication of interest in, a merger or other
business combination involving Target or any of its subsidiaries or the
acquisition of 20% or more of the outstanding shares of capital stock of
Target, or a significant portion of the assets of, Target or any of its
subsidiaries, other than the transactions contemplated by this Agreement.
(g) For purposes of Section 7.3(c) above, (A) "consummation" of a
Takeover Proposal shall occur on the date a written agreement is entered
into with respect to a merger or other business combination involving
Target or the acquisition of 20% or more of the outstanding shares of
capital stock of Target, or sale or transfer of any material assets
(excluding the sale or disposition of assets in the ordinary course of
business) of Target or any of its subsidiaries and (B) "consummation" of a
Trigger Event shall occur on
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the date any Person (other than any shareholder which currently owns 20% or
more of the outstanding shares of capital stock of Target) or any of its
affiliates or associates would beneficially own securities representing 20%
or more of the voting power of Target, following a tender or exchange
offer.
7.4 Amendment. The boards of directors of the parties hereto may cause
this Agreement to be amended at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto; provided that an
amendment made subsequent to adoption of the Agreement by the stockholders of
Target or Merger Sub shall not (i) alter or change the amount or kind of
consideration to be received on conversion of the Target Common Stock, (ii)
alter or change any term of the Certificate of Incorporation of the Surviving
Corporation to be effected by the Merger, or (iii) alter or change any of the
terms and conditions of the Agreement if such alteration or change would
materially adversely affect the holders of Target Common Stock or Merger Sub
Common Stock.
7.5 Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival at Effective Time. The representations, warranties and
agreements set forth in this Agreement shall terminate at the Effective Time,
except that the agreements set forth in Article I, Section 5.4
(Confidentiality), 5.10 (Employee Benefit Plans), 5.12 (Form S-8), 5.14 (Listing
of Additional Shares), 5.19 (Indemnification), 5.20 (Best Efforts and Further
Assurances), 7.3 (Expenses and Termination Fees), 7.4 (Amendment), and this
Article VIII shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) if to Acquiror or Merger Sub, to:
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, CA 95134
Attention: Vice President, Legal and Government Affairs
Facsimile No.: (408) 526-5926
Telephone No.: (408) 526-8252
with a copy to:
Brobeck, Phleger & Harrison LLP
2200 Geng Road
Two Embarcadero Place
Palo Alto, CA 94303
Attention: Therese A. Mrozek, Esq.
Facsimile No.: (650) 496-2885
Telephone No.: (650) 424-0160
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(b) if to Target, to:
Summa Four, Inc.
25 Sundial Avenue
Manchester, NH 03103-7251
Attention: President
Facsimile No.: (603) 668-4810
Telephone No.: (603) 625-4050
with a copy to:
Hale & Dorr LLP
60 State Street
Boston, MA 02109
Attn: John K.P. Stone, III, Esq.
Facsimile No.: (617) 526-5000
Telephone No.: (617) 526-6000
8.3 Interpretation. When a reference is made in this Agreement to Exhibits
or Schedules, such reference shall be to an Exhibit or Schedule to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The phrase "made available" in this Agreement shall
mean that the information referred to has been made available if requested by
the party to whom such information is to be made available. The phrases "the
date of this Agreement", "the date hereof", and terms of similar import, unless
the context otherwise requires, shall be deemed to refer to July 27, 1998. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; Nonassignability; Parties in Interest. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Target Disclosure Schedule and the Acquiror Disclosure
Schedule (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, except for the Confidentiality Agreement, which shall continue in full
force and effect, and shall survive any termination of this Agreement or the
Closing, in accordance with its terms; (b) are not intended to confer upon any
other person any rights or remedies hereunder, except as set forth in Sections
1.6(a)-(c) and (f), 1.7-1.9, 5.10, 5.12, 5.14 and 5.19; and (c) shall not be
assigned by operation of law or otherwise except as otherwise specifically
provided.
8.6 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.7 Remedies Cumulative. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
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8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws that might otherwise govern under applicable principles
of conflicts of law. Each of the parties hereto irrevocably consents to the
exclusive jurisdiction of any court located within the State of Delaware 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 Delaware for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
IN WITNESS WHEREOF, Target, Acquiror and Merger Sub have caused this
Agreement to be executed and delivered by their respective officers thereunto
duly authorized, all as of the date first written above.
SUMMA FOUR, INC.
By: /s/ ROBERT A. DEGAN
------------------------------------------
Name: Robert A. Degan
------------------------------------------
Title: President and Chief Executive
Officer
------------------------------------------
CISCO SYSTEMS, INC.
By: /s/ LARRY CARTER
------------------------------------------
Name: Larry Carter
------------------------------------------
Title: Senior Vice President, Finance and
Administration,
------------------------------------------
Chief Financial Officer and
Secretary
------------------------------------------
AGEMO ACQUISITION CORPORATION
By: /s/ LARRY CARTER
------------------------------------------
Name: Larry Carter
------------------------------------------
Title: Executive Officer
------------------------------------------
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
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<PAGE> 94
APPENDIX B
July 27, 1998
The Board of Directors
Summa Four, Inc.
25 Sundial Avenue
Manchester, NH 03103
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the stockholders of Summa Four, Inc., a Delaware corporation (the
"Company"), of the consideration to be received by the stockholders pursuant to
the terms of the proposed Agreement and Plan of Reorganization (the "Agreement")
dated as of July 27, 1998, by and among Cisco Systems, Inc., a California
corporation (the "Acquiror"), AGEMO Acquisition Corp., a Delaware corporation
and wholly owned subsidiary of the Acquiror ("Merger Sub"), and the Company.
Capitalized terms used herein shall have the meanings used in the Agreement
unless otherwise defined herein.
Pursuant to the Agreement, each outstanding share of common stock, $.01 par
value per share, of the Company is proposed to be converted into and represent
the right to receive 0.178994 shares, $.001 par value, of the Acquiror's common
stock (the "Acquiror Shares"), subject to adjustments described in the Agreement
(the "Exchange Ratio"). The transaction is intended to qualify as a tax-free
reorganization for U.S. Federal Income tax purposes and to be accounted for as a
purchase transaction under applicable accounting principles. The terms and
conditions of the Merger and the Exchange Ratio are set forth more fully in the
Agreement.
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated ("Dain
Rauscher Wessels"), as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, corporate restructurings, negotiated underwritings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes.
We are acting as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon the consummation of the Merger. In addition, the Company has
agreed to indemnify us for certain liabilities arising out of our engagement. In
the ordinary course of business, Dain Rauscher Wessels acts as a market maker
and broker in the publicly traded securities of the Company and the Acquiror and
receives customary compensation in connection therewith, and also provides
research coverage for the Company and the Acquiror for its own account and for
the accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities.
In connection with our review of the Merger, and in arriving at our
opinion, we have: (i) reviewed and analyzed the financial terms of the
Agreement; (ii) reviewed and analyzed certain publicly available financial and
other data (including financial forecasts of the Company) with respect to the
Company and Acquiror and certain other historical relevant and operating data
relating to the Company and Acquiror made available to us from published sources
and from the internal records of the Company and Acquiror; (iii) conducted
discussions with members of the senior management of the Company with respect to
the business and prospects of the Company; (iv) conducted discussions with
members of the senior management of the Acquiror with respect to the business
and prospects of the Acquiror; (v) reviewed the reported prices and trading
activity for the Company's Common Stock and the Acquiror's Common Stock; (vi)
compared the financial performance of the Company and the Acquiror and the
prices of the Company's Common Stock and the Acquiror's Common Stock with that
of certain other comparable publicly-traded companies and their securities; and
(vii) reviewed the financial terms, to the extent publicly available, of certain
comparable merger transactions. In addition, we have conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as we have deemed necessary in arriving at our opinion.
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The Board of Directors
July 27, 1998
Page 2
With respect to the Company's financial forecasts, upon advice of the
Company we have assumed that such forecasts have been reasonably prepared on a
basis reflecting the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Company
and that the Company will perform substantially in accordance with such
projections. We express no opinion as to such financial forecast information or
the assumptions on which they were based.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of the financial, legal, tax, operating and other information
provided to us by the Company and the Acquiror (including without limitation the
financial statements and related notes thereto of the Company and Acquiror), and
have not assumed responsibility for independently verifying and have not
independently verified such information. We have not assumed any responsibility
to perform, and have not performed, an independent evaluation or appraisal of
any of the respective assets or liabilities of the Company or the Acquiror, and
we have not been furnished with any such valuations or appraisals. In addition,
we have not assumed any obligation to conduct, and have not conducted, any
physical inspection of the property or facilities of the Company or the
Acquiror. Additionally, we have not been asked and did not consider the possible
effects of any litigation, other legal claims or any other contingent matters.
Further, we have assumed that the Merger will be accounted for by the Acquiror
as a purchase transaction under generally accepted accounting principles and
will qualify as a tax-free reorganization for U.S. federal income tax purposes.
Our opinion speaks only as of the date hereof, is based on the conditions
as they exist and information which we have been supplied as of the date hereof,
and is without regard to any market, economic, financial, legal or other
circumstances or event of any kind or nature which may exists or occur after
such date. Our advisory services and the opinion expressed herein are provided
for the information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and such opinion does not constitute a recommendation to any
stockholder as to how such stockholder should vote with respect to such
transaction. Further, our opinion does not address the merits of the underlying
decision by the Company to engage in such transaction.
We are not expressing any opinion herein as to the prices at which the
Acquiror Shares will trade following the announcement or consummation of the
Merger.
Based on our experience as investment bankers and subject to the foregoing,
including the various assumptions and limitations set forth herein, it is our
opinion that, as of the date hereof, the consideration to be received by the
holders of the Company's Common Stock pursuant to the Agreement is fair, from a
financial point of view, to the holders of the Company's Common Stock.
Very truly yours,
/s/ DAIN RAUSCHER WESSELS
--------------------------------------
Dain Rauscher Wessels
a division of Dain Rauscher
Incorporated
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<PAGE> 96
APPENDIX C
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Agreement"), dated as of July 27, 1998, by and
between, Cisco Systems, Inc., a California corporation ("Acquiror"), and Summa
Four, Inc., a Delaware corporation ("Target").
WHEREAS, concurrently with the execution and delivery of this Agreement,
Target, Acquiror and Agemo Acquisition Corporation, a Delaware corporation
("Sub"), are entering into an Agreement and Plan of Reorganization, dated as of
the date hereof (the "Reorganization Agreement"), which provides that, among
other things, upon the terms and subject to the conditions thereof, Sub will be
merged with and into Target (the "Merger"), with Target continuing as the
surviving corporation; and
WHEREAS, as a condition and inducement to Acquiror's willingness to enter
into the Reorganization Agreement, Acquiror has required that Target agree, and
Target has so agreed, to grant to Acquiror an option with respect to certain
shares of Target's common stock on the terms and subject to the conditions set
forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and in the Reorganization Agreement,
the parties hereto agree as follows:
0. Grant of Option. Target hereby grants Acquiror an irrevocable option
(the "Target Option") to purchase up to 1,148,500 shares (the "Target Shares")
of common stock, par value $.0l per share, of Target (the "Target Common Stock")
in the manner set forth below at a price (the "Exercise Price") of $17.50 per
Target Share, payable in cash. Capitalized terms used herein but not defined
herein shall have the meanings set forth in the Reorganization Agreement.
1. Exercise of Option. The Target Option may be exercised by Acquiror, in
whole or in part at any time or from time to time after the occurrence of any of
the events described in Sections 7.3(b) of the Reorganization Agreement or if a
Takeover Proposal or Trigger Event is consummated as set forth in Section 7.3(c)
of the Reorganization Agreement. In the event Acquiror wishes to exercise the
Target Option, Acquiror shall deliver to Target a written notice (an "Exercise
Notice") specifying the total number of Target Shares it wishes to purchase.
Each closing of a purchase of Target Shares (a "Closing") shall occur at a
place, on a date and at a time designated by Acquiror in an Exercise Notice
delivered at least two business days prior to the date of the Closing. The
Target Option shall terminate upon the earlier of: (i) the Effective Time; (ii)
the termination of the Reorganization Agreement pursuant to Section 7.1 thereof
(other than a termination in connection with which Acquiror is entitled to any
payments as specified in Sections 7.3(b) or (c) thereof); (iii) 180 days
following any termination of the Reorganization Agreement in connection with
which Acquiror is entitled to a payment as specified in Sections 7.3(b) thereof
(or if, at the expiration of such 180 day period, the Target Option cannot be
exercised by reason of any applicable judgment, decree, order, law or
regulation, ten business days after such impediment to exercise shall have been
removed or shall have become final and not subject to appeal); or (iv) 12 months
following any termination of the Reorganization Agreement in connection with
which Acquiror is entitled to a payment as specified in Section 7.3(c) thereof
(or if, at the expiration of such 12 month period, the Target Option cannot be
exercised by reason of any applicable judgment, decree, order, law or
regulation, ten business days after such impediment to exercise shall have been
removed or shall have become final and not subject to appeal). Notwithstanding
the foregoing, the Target Option may not be exercised if Acquiror is in material
breach of any of its representations, warranties, covenants or agreements
contained in this Agreement or in the Reorganization Agreement.
2. Conditions to Closing. The obligation of Target to issue the Target
Shares to Acquiror hereunder is subject to the conditions that (i) all waiting
periods, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder ("HSR Act"),
applicable to the issuance of the Target Shares hereunder shall have expired or
have been terminated; (ii) all consents, approvals, orders or authorizations of,
or registrations, declarations or filings with, any Federal, state or local
administrative agency or commission or other Federal state or local governmental
authority or
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instrumentality, if any, required in connection with the issuance of the Target
Shares hereunder shall have been obtained or made, as the case may be; and (iii)
no preliminary or permanent injunction or other order by any court of competent
jurisdiction prohibiting or otherwise restraining such issuance shall be in
effect.
3. Closing. At any Closing, (a) Target will deliver to Acquiror a single
certificate in definitive form representing the number of Target Shares
designated by Acquiror in its Exercise Notice, such certificate to be registered
in the name of Acquiror and to bear the legend set forth in Section 10, and (b)
Acquiror will deliver to Target the aggregate price for the Target Shares so
designated and being purchased by wire transfer of immediately available funds
or certified check or bank check. At any Closing at which Acquiror is exercising
the Target Option in part, Acquiror shall present and surrender this Agreement
to Target, and Target shall deliver to Acquiror an executed new agreement with
the same terms as this Agreement evidencing the right to purchase the balance of
the shares of Target Common Stock purchasable hereunder.
4. Representations and Warranties of Target. Target represents and warrants
to Acquiror that (a) Target is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder, (b) the execution and delivery of this Agreement by
Target and the consummation by Target of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Target and no other corporate proceedings on the part of Target are necessary to
authorize this Agreement or any of the transactions contemplated hereby, (c)
this Agreement has been duly executed and delivered by Target and constitutes a
valid and binding obligation of Target, and, assuming this Agreement constitutes
a valid and binding obligation of Acquiror, is enforceable against Target in
accordance with its terms, except as enforceability may be limited by bankruptcy
and other laws affecting the rights and remedies of creditors generally and
general principles of equity, (d) Target has taken all necessary corporate
action to authorize and reserve for issuance and to permit it to issue, upon
exercise of the Target Option, and at all times from the date hereof through the
expiration of the Target Option will have reserved, that number of unissued
Target Shares that are subject to the Target Option, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable, (e) upon delivery of the Target
Shares to Acquiror upon the exercise of the Target Option, Acquiror will acquire
the Target Shares free and clear of all claims, liens, charges, encumbrances and
security interests of any nature whatsoever, (f) except as may be required under
the Securities Act of 1933, as amended (the "Securities Act"), the execution and
delivery of this Agreement by Target does not, and the performance of this
Agreement by Target will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or the
loss of a benefit under, or the creation of a lien, pledge, security interest or
other encumbrance on assets pursuant to (any such conflict, violation, default,
right of termination, cancellation or acceleration, loss or creation, a
"Violation"), (A) any provision of the Certificate of Incorporation, as amended,
or Amended and Restated By-laws, as amended, or the Rights Agreement dated as of
February 22, 1995, as amended, of Target or (B) any provisions of any material
mortgage, indenture, lease, contract or other agreement, instrument, permit,
concession, franchise, or license or (C) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Target or its properties or
assets, which Violation, in the case of each of clauses (B) and (C), would have
a Material Adverse Effect on Target and (g) except as described in Section 2.3
of the Reorganization Agreement, the execution and delivery of this Agreement by
Target does not, and the performance of this Agreement by Target will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority.
5. Representations and Warranties of Acquiror. Acquiror represents and
warrants to Target that (a) Acquiror is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
the corporate power and authority to enter into this Agreement and to carry out
its obligations hereunder, (b) the execution and delivery of this Agreement by
Acquiror and the consummation by Acquiror of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Acquiror and no other corporate proceedings on the part of Acquiror are
necessary to authorize this Agreement or any of the transactions contemplated
hereby, (c) this Agreement has been duly executed and delivered by Acquiror and
constitutes a valid and binding obligation of Acquiror, and, assuming
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this Agreement constitutes a valid and binding obligation of Target, is
enforceable against Acquiror in accordance with its terms, except as
enforceability may be limited by bankruptcy and other laws affecting the rights
and remedies of creditors generally and general principles of equity, (d) except
as described in Section 3.3 of the Reorganization Agreement, the execution and
delivery of this Agreement by Acquiror does not, and the performance of this
Agreement by Acquiror will not, result in any Violation pursuant to, (A) any
provision of the Articles of Incorporation or By-laws of Acquiror, (B) any
provisions of any material mortgage, indenture, lease, contract or other
agreement, instrument, permit, concession, franchise, or license or (C) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Acquiror or its properties or assets, which Violation, in the case of each of
clauses (B) and (C), would have a Material Adverse Effect on Acquiror, (e)
except as described in Section 3.3 of the Reorganization Agreement and Section
3(i) of this Agreement, and except as may be required under the Securities Act,
the execution and delivery of this Agreement by Acquiror does not, and the
performance of this Agreement by Acquiror will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority and (f) any Target Shares acquired upon
exercise of the Target Option will not be, and the Target Option is not being,
acquired by Acquiror with a view to the public distribution thereof.
6. Put.
(a) Exercise. At any time during which the Target Option is
exercisable pursuant to Section 2 (the "Repurchase Period"), upon demand by
Acquiror, Acquiror shall have the right to sell to Target (or any successor
entity thereof), and Target (or such successor entity) shall be obligated
to repurchase from Acquiror (the "Put"), all or any portion of the Target
Option, at the price set forth in subparagraph (i) below, or all or any
portion of the Target Shares purchased by Acquiror pursuant thereto, at a
price set forth in subparagraph (ii) below:
(i) the difference between the "Market/Tender Offer Price" for
shares of Target Common Stock as of the date (the "Notice Date") notice
of exercise of the Put is given to Target (defined as the higher of (A)
the price per share offered as of the Notice Date pursuant to any tender
or exchange offer or other Takeover Proposal (as defined in the
Reorganization Agreement) which was made prior to the Notice Date and
not terminated or withdrawn as of the Notice Date (the "Tender Price")
or (B) the average of the closing prices of shares of Target Common
Stock on the Nasdaq National Market for the ten trading days immediately
preceding the Notice Date (the "Market Price")), and the Exercise Price,
multiplied by the number of Target Shares purchasable pursuant to the
Target Option (or portion thereof with respect to which Acquiror is
exercising its rights under this Section 7), but only if the
Market/Tender Offer Price is greater than the Exercise Price;
(ii) the Exercise Price paid by Acquiror for the Target Shares
acquired pursuant to the Target Option plus the difference between the
Market/Tender Offer Price and the Exercise Price, but only if the
Market/Tender Offer Price is greater than the Exercise Price, multiplied
by the number of Target Shares so purchased.
(b) For purposes of this Section 7(a), the Tender Price shall be the
highest price per share offered pursuant to a tender or exchange offer or
other Takeover Proposal during the Repurchase Period.
(c) Payment and Redelivery of Target Option or Shares. In the event
Acquiror exercises its rights under this Section 7, Target shall, within
ten business days of the Notice Date, pay the required amount to Acquiror
in immediately available funds and Acquiror shall surrender to Target the
Target Option or the certificates evidencing the Target Shares purchased by
Acquiror pursuant thereto, and Acquiror shall warrant that it owns such
shares and that such shares are then free and clear of all liens, claims,
charges and encumbrances of any kind or nature whatsoever.
7. Registration Rights.
(a) Following the termination of the Reorganization Agreement,
Acquiror may by written notice (the "Registration Notice") to Target
request Target to register under the Securities Act all or any part of the
shares of Target Common Stock acquired pursuant to this Agreement (the
"Restricted Shares") beneficially owned by Acquiror (the "Registrable
Securities") pursuant to a bona fide firm commitment
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underwritten public offering in which Acquiror and the underwriters shall
effect as wide a distribution of such Registrable Securities as is
reasonably practicable and shall use their best efforts to prevent any
Person (including any Group) and its affiliates from purchasing through
such offering Restricted Shares representing more than 1% of the
outstanding shares of Common Stock of Target on a fully diluted basis (a
"Permitted Offering"). The Registration Notice shall include a certificate
executed by Acquiror and its proposed managing underwriter, which
underwriter shall be an investment banking firm of nationally recognized
standing (the "Manager"), stating that (i) they have a good faith intention
to commence promptly a Permitted Offering and (ii) the Manager in good
faith believes that, based on the then prevailing market conditions, it
will be able to sell the Registrable Securities at a per share price equal
to at least 80% of the Fair Market Value of such shares. For purposes of
this Section 8, the term "Fair Market Value" shall mean the per share
average of the closing sale prices of Target's Common Stock on the Nasdaq
National Market for the ten trading days immediately preceding the date of
the Registration Notice. Target (and/or any Person designated by Target)
shall thereupon have the option exercisable by written notice delivered to
Acquiror within ten business days after the receipt of the Registration
Notice, irrevocably to agree to purchase all or any part of the Registrable
Securities for cash at a price (the "Option Price") equal to the product of
(i) the number of Registrable Securities and (ii) the Fair Market Value of
such shares. Any such purchase of Registrable Securities by Target
hereunder shall take place at a closing to be held at the principal
executive offices of Target or its counsel at any reasonable date and time
designated by Target and/or such designee in such notice within 10 business
days after delivery of such notice. Any payment for the shares to be
purchased shall be made by delivery at the time of such closing of the
Option Price in immediately available funds.
(b) If Target does not elect to exercise its option to purchase
pursuant to Section 8(a) with respect to all Registrable Securities, it
shall use its best efforts to effect, as promptly as practicable, the
registration under the Securities Act of the unpurchased Registrable
Securities; provided, however, that (i) Acquiror shall not be entitled to
more than an aggregate of two effective registration statements hereunder
and (ii) Target will not be required to file any such registration
statement during any period of time (not to exceed 40 days after such
request in the case of clause (A) below or 90 days in the case of clauses
(B) and (C) below) when (A) Target is in possession of material non-public
information which it reasonably believes (i) would be detrimental to be
disclosed at such time and, (ii) after consultation with counsel to Target,
such information would have to be disclosed if a registration statement
were filed at that time; (B) Target is required under the Securities Act to
include audited financial statements for any period in such registration
statement and such financial statements are not yet available for inclusion
in such registration statement; or (C) Target determines, in its reasonable
judgment, that such registration would interfere with any financing,
acquisition or other material transaction involving Target or any of its
affiliates. If consummation of the sale of any Registrable Securities
pursuant to a registration hereunder does not occur within 120 days after
the filing with the SEC of the initial registration statement, the
provisions of this Section 8 shall again be applicable to any proposed
registration; provided, however, that Acquiror shall not be entitled to
request more than two registrations pursuant to this Section 8. Target
shall use its best efforts to cause any Registrable Securities registered
pursuant to this Section 8 to be qualified for sale under the securities or
Blue Sky laws of such jurisdictions as Acquiror may reasonably request and
shall continue such registration or qualification in effect in such
jurisdiction; provided, however, that Target shall not be required to
qualify to do business in, or consent to general service of process in, any
jurisdiction by reason of this provision.
(c) The registration rights set forth in this Section 8 are subject to
the condition that Acquiror shall provide Target with such information with
respect to Acquiror's Registrable Securities, the plans for the
distribution thereof, and such other information with respect to Acquiror
as, in the reasonable judgment of counsel for Target, is necessary to
enable Target to include in such registration statement all material facts
required to be disclosed with respect to a registration thereunder.
(d) If Target's securities of the same type as the Registrable
Securities are then authorized for quotation or trading or listing on the
New York Stock Exchange, Nasdaq National Market System, or any other
securities exchange or automated quotations system, Target, upon the
request of Acquiror, shall
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promptly file an application, if required, to authorize for quotation,
trading or listing the shares of Registrable Securities on such exchange or
system and will use its reasonable efforts to obtain approval, if required,
of such quotation, trading or listing as soon as practicable.
(e) A registration effected under this Section 8 shall be effected at
Target's expense, except for underwriting discounts and commissions and the
fees and the expenses of counsel to Acquiror, and Target shall provide to
the underwriters such documentation (including certificates, opinions of
counsel and "comfort" letters from auditors) as are customary in connection
with underwritten public offerings as such underwriters may reasonably
require. In connection with any such registration, the parties agree (i) to
indemnify each other and the underwriters in the customary manner and (ii)
to enter into an underwriting agreement in form and substance customary to
transactions of this type with the Manager and the other underwriters
participating in such offering.
8. Adjustment Upon Changes in Capitalization.
(a) In the event of any change in Target Common Stock by reason of
stock dividends, splitups, mergers (other than the Merger),
recapitalizations, combinations, exchange of shares or the like, the type
and number of shares or securities subject to the Target Option, and the
purchase price per share provided in Section 1, shall be adjusted
appropriately, and proper provision shall be made in the agreements
governing such transaction so that Acquiror shall receive, upon exercise of
the Target Option, the number and class of shares or other securities or
property that Acquiror would have received in respect of the Target Common
Stock if the Target Option had been exercised immediately prior to such
event or the record date therefor, as applicable.
(b) In the event that Target shall enter in an agreement: (i) to
consolidate with or merge into any person, other than Acquiror or one of
its Subsidiaries, and shall not be the continuing or surviving corporation
of such consolidation or merger; (ii) to permit any person, other than
Acquiror or one of its Subsidiaries, to merge into Target and Target shall
be the continuing or surviving corporation, but, in connection with such
merger, in the then-outstanding shares of Target Common Stock shall be
changed into or exchanged for stock or other securities of Target or any
other person or cash or any other property or the outstanding shares of
Target Common Stock immediately prior to such merger shall after such
merger represent less than 50% of the outstanding shares and share
equivalents of the merged company; or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person, other than Acquiror
or one of its Subsidiaries, then, and in each such case, the agreement
governing such transaction shall make proper provisions so that upon the
consummation of any such transaction and upon the terms and conditions set
forth herein, Acquiror shall receive for each Target Share with respect to
which the Target Option has not been exercised an amount of consideration
in the form of and equal to the per share amount of consideration that
would be received by the holder of one share of Target Common Stock less
the Exercise Price (and, in the event of an election or similar arrangement
with respect to the type of consideration to be received by the holders of
Target Common Stock, subject to the foregoing, proper provision shall be
made so that the holder of the Target Option would have the same election
or similar rights as would the holder of the number of shares of Target
Common Stock for which the Target Option is then exercisable).
9. Restrictive Legends. Each certificate representing shares of Target
Common Stock issued to Acquiror hereunder shall include a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD ONLY
IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. SUCH
SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH
IN THE STOCK OPTION AGREEMENT, DATED AS OF JULY 27, 1998, A COPY OF WHICH MAY BE
OBTAINED FROM THE ISSUER.
10. Binding Effect; No Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. Except as expressly provided for in
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this Agreement, neither this agreement nor the rights or the obligations of
either party hereto are assignable, except by operation of law, or with the
written consent of the other party. Nothing contained in this Agreement, express
or implied, is intended to confer upon any person other than the parties hereto
and their respective permitted assigns any rights or remedies of any nature
whatsoever by reason of this Agreement. Any Restricted Shares sold by Acquiror
in compliance with the provisions of Section 8 shall, upon consummation of such
sale, be free of the restrictions imposed with respect to such shares by this
Agreement, unless and until Acquiror shall repurchase or otherwise become the
beneficial owner of such shares, and any transferee of such shares shall not be
entitled to the rights of Acquiror. Certificates representing shares sold in a
registered public offering pursuant to Section 8 shall not be required to bear
the legend set forth in Section 10.
11. Specific Performance. The parties recognize and agree that if for any
reason any of the provisions of this Agreement are not performed in accordance
with their specific terms or are otherwise breached, immediate and irreparable
harm or injury would be caused for which money damages would not be an adequate
remedy. Accordingly, each party agrees that, in addition to other remedies, the
other party shall be entitled to an injunction restraining any violation or
threatened violation of the provisions of this Agreement. In the event that any
action should be brought in equity to enforce the provisions of this Agreement,
neither party will allege, and each party hereby waives the defense, that there
is adequate remedy at law.
12. Entire Agreement. This Agreement and the Reorganization Agreement
(including the Target Disclosure Schedule and the Acquiror Disclosure Schedule
relating thereto) constitute the entire agreement among the parties with respect
to the subject matter hereof and supersede all other prior agreements and
understandings, both written and oral, among the parties or any of them with
respect to the subject matter hereof.
13. Further Assurance. Each party will execute and deliver all such further
documents and instruments and take all such further action as may be necessary
in order to consummate the transactions contemplated hereby.
14. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect. In
the event any court or other competent authority holds any provision of this
Agreement to be null, void or unenforceable, the parties hereto shall negotiate
in good faith the execution and delivery of an amendment to this Agreement in
order, as nearly as possible, to effectuate, to the extent permitted by law, the
intent of the parties hereto with respect to such provision. Each party agrees
that, should any court or other competent authority hold any provision of this
Agreement or part hereof to be null, void or unenforceable, or order any party
to take any action inconsistent herewith, or not take any action required
herein, the other party shall not be entitled to specific performance of such
provision or part hereof or to any other remedy, including but not limited to
money damages, for breach hereof or of any other provision of this Agreement or
part hereof as the result of such holding or order.
15. Notices. Any notice or communication required or permitted hereunder
shall be in writing and either delivered personally, telegraphed or telecopied
or sent by certified or registered mail, postage prepaid, and shall be deemed to
be given, dated and received when so delivered personally, telegraphed or
telecopied or, if mailed, five business days after the date of mailing to the
following address or telecopy number, or to such other address or addresses as
such person may subsequently designate by notice given hereunder.
(a) if to Acquiror or Merger Sub, to:
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, CA 95134-1706
Attention: Vice President, Legal and Government Affairs
Facsimile No.: (408) 526-5925
Telephone No.: (408) 526-8252
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with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: Therese A. Mrozek, Esq.
Facsimile No.: (650) 496-2885
Telephone No.: (650) 424-0160
(b) if to Target, to:
Summa Four, Inc.
25 Sundial Avenue
Manchester, NH 03103-7251
Attention: Robert A. Degan, CEO
Facsimile No.: (603) 668-4810
Telephone No.: (603) 625-4050
with a copy to:
Hale & Dorr LLP
60 State Street
Boston, MA 02109
Attention: John K.P. Stone III, Esq.
Facsimile No.: (617) 526-5000
Telephone No.: (617) 526-6000
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State without regard to any applicable
conflicts of law rules.
17. Descriptive Headings. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which,
taken together, shall constitute one and the same instrument.
19. Expenses. Except as otherwise expressly provided herein or in the
Reorganization Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
20. Amendments; Waiver. This Agreement may be amended by the parties hereto
and the terms and conditions hereof may be waived only by an instrument in
writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
CISCO SYSTEMS, INC.
By: /s/ LARRY CARTER
---------------------------------------
Name: Larry Carter
------------------------------------------
Title: Senior Vice President, Finance and
Administration,
------------------------------------------
Chief Financial Officer and
Secretary
------------------------------------------
SUMMA FOUR, INC.
By: /s/ ROBERT A. DEGAN
---------------------------------------
Name: Robert A. Degan
------------------------------------------
Title: President and Chief Executive
Officer
------------------------------------------
[SIGNATURE PAGE TO STOCK OPTION AGREEMENT]
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