<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 6, 2000
REGISTRATION NO. 333-51288
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CISCO SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 3679 77-0059951
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer Identification No.)
of incorporation or organization) Classification Code Number)
</TABLE>
170 WEST TASMAN DRIVE
SAN JOSE, CALIFORNIA 95134
(408) 526-4000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
LARRY R. CARTER
SENIOR VICE PRESIDENT, FINANCE AND ADMINISTRATION, CHIEF FINANCIAL OFFICER AND
SECRETARY
CISCO SYSTEMS, INC.
300 EAST TASMAN DRIVE
SAN JOSE, CALIFORNIA 95134
(408) 526-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
THERESE A. MROZEK, ESQ. JOHN M. STEEL, ESQ.
BROBECK, PHLEGER & HARRISON LLP W. MICHAEL HUTCHINGS, ESQ.
TWO EMBARCADERO PLACE GRAY CARY WARE & FREIDENRICH, LLP
2200 GENG ROAD 999 THIRD AVENUE, SUITE 4000
PALO ALTO, CALIFORNIA 94303 SEATTLE, WASHINGTON 98104
TELEPHONE: (650) 424-0160 TELEPHONE: (206) 839-4800
FACSIMILE: (650) 496-2865 FACSIMILE: (206) 839-4801
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: At the
Effective Time of the Merger of a wholly-owned subsidiary of the Registrant with
and into Active Voice Corporation, which shall occur as soon as practicable
after the Effective Date of this Registration Statement and the satisfaction or
waiver of all conditions to closing of such Merger.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PRICE PER SHARE PRICE(2) REGISTRATION FEE(3)
--------------------------------- ------------------- ------------------- ------------------- -------------------
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value per share......... 4,713,786 N/A $243,940,936 $64,400.41
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the maximum number of shares of Cisco common stock to be issued in
connection with the merger, calculated as the product of (a) 12,550,016, the
sum of (i) the aggregate number of shares of Active Voice common stock, no
par value per share, outstanding on December 4, 2000 (other than shares
owned by the registrant or Aqua Acquisition Corporation, a wholly owned
subsidiary of the registrant) and (ii) the aggregate number of shares of
Active Voice common stock issuable pursuant to outstanding options prior to
the date the merger is expected to be consummated and (b) an assumed
exchange ratio of 0.3756 shares of the registrant's common stock for each
share of Active Voice common stock.
(2) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act, and calculated pursuant to
Rule 457(f) under the Securities Act. Pursuant to Rule 457(f)(1) under the
Securities Act, the proposed maximum aggregate offering price of the
registrant's common stock was calculated in accordance with Rule 457(c)
under the Securities Act as: $19.4375, the average of the high and low
prices per share of Active Voice common stock on December 4, 2000 as
reported on The Nasdaq National Market, multiplied by 12,550,016, the
maximum number of shares of Active Voice common stock computed as described
in clause (a) of Note (1).
(3)Previously paid on December 5, 2000.
------------------------
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
[ ], 2000 [ACTIVE VOICE LOGO]
Dear Active Voice Shareholders:
On behalf of the Active Voice board of directors, I am pleased to forward
the enclosed proxy statement/ prospectus regarding an opportunity for Active
Voice to merge with Cisco Systems, Inc. We believe the merger will strengthen
the combined company's product offerings, competitive position, management depth
and research and development capabilities while offering significant value to
our shareholders.
If the merger with Cisco is approved, each share of your Active Voice
common stock will be converted into the right to receive a number of shares of
Cisco common stock equal to the ratio of (x) a quotient, the numerator of which
is $295,332,740 and the denominator of which is the average of the closing
prices of Cisco common stock as quoted on Nasdaq for the ten consecutive trading
days ending on the third trading day prior to the effective time of the merger
and (y) the total number of shares of Active Voice common stock issued and
outstanding on a fully diluted basis at the effective time of the merger. You
will receive cash for any fractional share of Cisco common stock which you would
otherwise receive in the merger. Cisco common stock is traded on the Nasdaq
National Market under the trading symbol "CSCO," and on [ ], 2000,
Cisco common stock closed at $[ ] per share.
Before we can merge, those holding a majority of Active Voice's outstanding
common stock must vote to approve the merger and adopt the merger agreement and
the asset purchase agreement. The merger proposal will be voted on at a special
meeting of Active Voice shareholders on [ ], [ ], 2001 at
2:00 p.m. Pacific Time, at the Seattle Art Museum, 100 University Street,
Seattle, Washington. Only those who hold shares of our common stock at the close
of business on December 4, 2000 will be entitled to vote at the special meeting.
The Active Voice board of directors has carefully considered the terms and
conditions of the merger and the asset purchase agreement and agrees that the
terms are fair to, and in the best interests of, our shareholders. The board of
directors has approved the merger agreement, the merger and the asset purchase
agreement and recommends that you vote FOR the approval of the merger and the
adoption of the merger agreement and the asset purchase agreement.
This proxy statement/prospectus provides you with detailed information
concerning Cisco and the merger. Please give all of the information in the proxy
statement/prospectus your careful attention. IN PARTICULAR, YOU SHOULD CAREFULLY
CONSIDER THE MATTERS DISCUSSED IN THE SECTION ENTITLED "RISK FACTORS" BEGINNING
ON PAGE 17 OF THIS PROXY STATEMENT/PROSPECTUS BEFORE VOTING. PLEASE REVIEW
CAREFULLY THE ENTIRE PROXY STATEMENT/PROSPECTUS.
AFTER CAREFUL CONSIDERATION, ACTIVE VOICE'S BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER, THE MERGER AGREEMENT AND THE ASSET PURCHASE
AGREEMENT, HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS FAIR TO YOU AND IN YOUR
BEST INTERESTS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE
MERGER, AND THE ADOPTION OF THE MERGER AGREEMENT AND THE ASSET PURCHASE
AGREEMENT.
YOUR VOTE IS VERY IMPORTANT. To approve the merger and the adoption of the
merger agreement and the asset purchase agreement, you MUST VOTE FOR the
proposal by following the instructions stated on the enclosed proxy card. If you
attend the special meeting, you may vote in person if you wish, even though you
have previously returned your proxy.
Whether or not you plan to attend the special meeting, PLEASE COMPLETE,
SIGN, DATE AND PROMPTLY RETURN YOUR PROXY CARD IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. If you do not vote at all, it will, in effect, count as a vote against
the proposal.
On behalf of the Active Voice board of directors, I thank you for your
support and urge you to vote FOR the approval of the merger and the adoption of
the merger agreement between Active Voice Corporation and Cisco Systems, Inc.
and the asset purchase agreement between Active Voice Corporation and Atlantis
Group, Inc.
Sincerely,
Robert L. Richmond
Chairman of the Board
Active Voice Corporation
2901 Third Avenue, Suite 500, Seattle, WA 98121 / (206) 441-4700 Fax (206)
441-4784
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SHARES OF CISCO COMMON STOCK TO BE
ISSUED IN THE MERGER OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE.
This proxy statement/prospectus is dated [ ], 2000, and is first
being mailed to Active Voice shareholders on or about [ ], 2000.
<PAGE> 3
ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about Cisco and Active Voice from documents that are not
included in or delivered with this proxy statement/ prospectus. This information
is available to you without charge upon your written or oral request. You can
obtain documents about Cisco and Active Voice incorporated by reference in this
proxy statement/ prospectus by requesting them in writing or by telephone or
over the Internet from the appropriate company at the following addresses and
telephone numbers:
<TABLE>
<S> <C>
Cisco Systems, Inc. Active Voice Corporation
Address: 170 West Tasman Drive Address: 2901 Third Avenue, Suite 500
San Jose, California 95134 Seattle, Washington 98121
Telephone: (408) 526-4000 Telephone: (206) 441-4700 x1197
E-mail: www.cisco.com E-mail: www.activevoice.com
</TABLE>
If you would like to request documents, please do so by in
order to receive them before the Active Voice special meeting.
See "Where You Can Find More Information" that begins on page 74.
<PAGE> 4
ACTIVE VOICE CORPORATION
2901 THIRD AVENUE, SUITE 500
SEATTLE, WASHINGTON 98121
(206) 441-4700
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD [ ], [ ], 2001
To the Shareholders of Active Voice Corporation:
We will hold a special meeting of shareholders of Active Voice Corporation
at 2:00 p.m. Pacific Time, on [ ], [ ], 2001 at the Seattle Art
Museum, 100 University Street, Seattle, Washington, for the following purposes:
1. To consider and vote on a proposal to approve the merger and adopt the
agreement and plan of merger and reorganization, dated November 9, 2000, by and
among Cisco Systems, Inc., Aqua Acquisition Corporation and Active Voice
Corporation, to adopt the asset purchase agreement dated November 9, 2000
between Active Voice Corporation and Atlantis Group, Inc. and to approve the
transactions contemplated in the merger agreement and the asset purchase
agreement. Under the agreement and plan of merger and reorganization, each
outstanding share of Active Voice common stock will be converted into the right
to receive a number of shares of Cisco common stock equal to the ratio of (x) a
quotient, the numerator of which is $295,332,740 and the denominator of which is
the average of the closing prices of Cisco common stock as quoted on Nasdaq for
the ten consecutive trading days ending on the third trading day prior to the
effective time of the merger and (y) the total number of Active Voice common
stock issued and outstanding on a fully diluted basis at the effective time of
the merger.
2. To transact such other business as may properly come before the special
meeting.
We describe these items of business more fully in the proxy
statement/prospectus attached to this notice. Please give all of the information
in the proxy statement/prospectus your careful attention.
Only shareholders of record of Active Voice common stock at the close of
business on Tuesday, December 4, 2000 are entitled to notice of, and will be
entitled to vote at, the special meeting or any adjournment or postponement
thereof. Adoption of the merger agreement and the asset purchase agreement will
require the affirmative vote of the holders of Active Voice common stock
representing a majority of the outstanding shares of Active Voice common stock
entitled to vote at the special meeting.
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING, YOU ARE
URGED TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN YOUR PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT/PROSPECTUS AT ANY TIME BEFORE IT HAS BEEN VOTED AT
THE SPECIAL MEETING. ANY SHAREHOLDERS ATTENDING THE SPECIAL MEETING MAY VOTE IN
PERSON EVEN IF THE SHAREHOLDER HAS RETURNED A PROXY.
By Order of the Board of Directors
Jose S. David
Chief Financial Officer, Treasurer and
Secretary
Seattle, Washington
[ ], 2000
YOUR VOTE IS IMPORTANT!
PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY CARD AND MAIL IT IN THE ENCLOSED
RETURN ENVELOPE.
<PAGE> 5
QUESTIONS AND ANSWERS ABOUT THE ACTIVE VOICE/CISCO MERGER
Q: WHY IS ACTIVE VOICE MERGING?
A: Active Voice believes the merger represents a significant strategic
opportunity to advance Active Voice's unified messaging technology as well as
an enhanced opportunity for share appreciation. Active Voice shareholders
will become shareholders of Cisco, which is one of the largest companies in
the Internet networking industry with annual sales expected to be over $18
billion. Active Voice also believes that the exchange ratio for shares of
Cisco common stock to be issued in the merger for shares of Active Voice
common stock represents a substantial premium over the prevailing market
price for Active Voice common stock prior to the announcement of the merger.
To review the reasons for the merger in greater detail, see pages 27 to 30.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If the merger is completed, you will receive the right to receive a number of
shares of Cisco common stock equal to the ratio of (x) a quotient, the
numerator of which is $295,332,740 and the denominator of which is the
average of the closing prices of Cisco common stock as quoted on Nasdaq for
the ten consecutive trading days ending on the third trading day prior to the
effective time of the merger and (y) the total number of Active Voice common
stock issued and outstanding on a fully diluted basis at the effective time
of the merger. Cisco will not issue fractional shares of common stock. You
will receive cash based on the market price of Cisco common stock instead of
any fractional share. Cisco common stock is traded on the Nasdaq National
Market under the trading symbol "CSCO," and on [ ], 2000, Cisco common
stock closed at $[ ] per share.
Q: WHEN WILL THE MERGER BE COMPLETED?
A: We expect to complete the merger during the second quarter of Cisco's fiscal
2001. Because the merger is subject to governmental approvals, however, we
cannot predict the exact timing.
Q: WHO MAY VOTE ON THE MERGER?
A: All Active Voice shareholders of record as of the close of business on
December 4, 2000 may vote. You are entitled to one vote per share of Active
Voice common stock that you own on the record date.
Q: HOW DO I VOTE?
A: Mail your signed proxy card in the enclosed return envelope as soon as
possible so that your shares may be represented at the special meeting. If
your shares are held in "street name" by your broker, your broker will vote
your shares only if you provide instructions on how to vote. You should
follow the directions provided by your broker regarding how to instruct your
broker to vote your shares. Without instructions, your shares will not be
voted at the special meeting and it will have the same effect as voting
against approval of the merger.
Q: HOW CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY PROXY?
A: You may change your vote by delivering a signed notice of revocation or a
subsequently dated and signed proxy card to Active Voice's corporate
secretary before the shareholder meeting, or by attending the shareholder
meeting and voting in person.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After we complete the merger, Cisco will send instructions to you
explaining how to exchange your shares of Active Voice common stock for the
appropriate number of shares of Cisco common stock.
Q: WHEN AND WHERE IS THE SPECIAL MEETING?
A: The special meeting will be held at 2:00 p.m., Pacific Time, on ,
2001 at the Seattle Art Museum, 100 University Street, Seattle, Washington.
Q: WHAT RIGHTS DO I HAVE IF I OPPOSE THE MERGER?
A: You may dissent from the merger and seek appraisal of the fair market value
of your shares by complying with all the Washington Business Corporation Act
procedures explained on pages 71 to 73 and in Appendix G.
Q: WHOM CAN I CALL WITH QUESTIONS?
A: If you have any questions about the merger, please call Active Voice Investor
Relations at (206) 441-4700 x1197.
<PAGE> 6
[ACTIVE VOICE LOGO] [CISCO LOGO]
Proxy Statement Prospectus
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS................... 1
MARKET PRICE AND DIVIDEND INFORMATION....................... 15
RISK FACTORS................................................ 17
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........... 20
THE SPECIAL MEETING......................................... 21
Proxy Statement/Prospectus................................ 21
Date, Time and Place of the Special Meeting............... 21
Matters to be Considered at the Special Meeting........... 21
Record Date and Shares Entitled to Vote................... 21
Voting of Proxies......................................... 21
Solicitation of Proxies................................... 22
Shareholders Should Not Send Stock Certificates with Their
Proxies................................................ 22
Vote Required............................................. 22
Voting by Active Voice Directors and Executive Officers... 22
Quorum; Abstentions and Broker Non-Votes.................. 22
Dissenters' Rights to Appraisal........................... 23
Board Recommendation...................................... 23
THE MERGER AND RELATED TRANSACTIONS......................... 24
Background of the Merger.................................. 24
Reasons for the Merger.................................... 27
Recommendation of Active Voice's Board of Directors....... 30
Opinion of William Blair & Company, L.L.C., Financial
Advisor to Active Voice................................ 30
Completion and Effectiveness of the Merger................ 36
Structure of the Merger and Conversion of Active Voice
common stock........................................... 37
Exchange of Active Voice Stock Certificates for Cisco
Stock Certificates..................................... 37
Treatment of Active Voice Stock Option Plans.............. 38
Termination of Active Voice Employee Stock Purchase
Plan................................................... 39
Other Provisions of the Merger Agreement.................. 39
Related Agreements........................................ 47
Operations Following the Merger........................... 53
Indemnification and Insurance............................. 53
Interests of Active Voice Directors, Officers and
Affiliates in the Merger............................... 53
Dissenters' Rights to Appraisal........................... 55
Antitrust Approval........................................ 56
Federal Income Tax Considerations......................... 56
Accounting Treatment of the Merger........................ 58
Restrictions on Sale of Shares by Affiliates of Active
Voice and Cisco........................................ 58
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND
MANAGEMENT OF ACTIVE VOICE................................ 59
COMPARATIVE STOCK PRICES AND DIVIDENDS...................... 61
COMPARISON OF RIGHTS OF SHAREHOLDERS OF ACTIVE VOICE AND
CISCO..................................................... 62
Director Nominations and Shareholder Proposals............ 62
Amendment to Governing Documents.......................... 63
Cumulative Voting......................................... 64
Appraisal or Dissenters' Rights........................... 64
</TABLE>
i
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Derivative Action......................................... 64
Shareholder Consent in Lieu of Meeting.................... 65
Fiduciary Duties of Directors............................. 65
Indemnification........................................... 65
Director Liability........................................ 66
Anti-Takeover Provisions and Interested Shareholder
Transactions........................................... 67
Advance Notice of Meeting................................. 67
Inspection of Books and Records........................... 68
Size of the Board of Directors............................ 68
Removal of Directors...................................... 68
Transactions Involving Directors.......................... 69
Filling Vacancies on the Board of Directors............... 70
DISSENTERS' RIGHTS TO APPRAISAL............................. 71
EXPERTS..................................................... 73
LEGAL MATTERS............................................... 73
WHERE YOU CAN FIND MORE INFORMATION......................... 74
APPENDICES:
Appendix A -- Agreement and Plan of Merger and
Reorganization............................................ A-1
Appendix B -- Asset Purchase Agreement...................... B-1
Appendix C -- Noteholder Rights and Security Agreement...... C-1
Appendix D -- Stock Option Agreement........................ D-1
Appendix E -- Shareholder Agreement......................... E-1
Appendix F -- Opinion of William Blair & Company, L.L.C. ... F-1
Appendix G -- Chapter 23B.13 of the Washington Business
Corporation Act........................................... G-1
</TABLE>
ii
<PAGE> 8
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. You should carefully read this entire proxy
statement/prospectus, including the appendices, and the other documents we refer
to for a more complete understanding of the merger. In addition, we incorporate
by reference important business and financial information about Cisco and Active
Voice into this proxy statement/prospectus. You may obtain the information
incorporated by reference in this proxy statement/prospectus without charge by
following the instructions in the section entitled "Where You Can Find More
Information" on page 74 of this proxy statement/prospectus.
THE COMPANIES
ACTIVE VOICE CORPORATION
2901 Third Avenue, Suite 500
Seattle, Washington 98121
www.activevoice.com
(206) 441-4700
Active Voice is a leading manufacturer of call processing systems,
including unified messaging systems and PC-based computer telephony integration,
or CTI, solutions, with more than 90,000 installations in virtually every kind
of business in over 60 countries. Active Voice develops technology that helps
businesses communicate better. Active Voice products are sold through a global
network of independent telecommunications dealers, telephony equipment
manufacturers, and computer resellers. Active Voice corporate headquarters are
located in Seattle, with representatives throughout the United States, as well
as offices in Australia, Canada, China, France, Germany, Italy, The Netherlands,
Sweden, and the United Kingdom.
Active Voice's software and servers enable people to manage information and
communicate more effectively by integrating their traditional office telephone
systems, also known as telephone switches, with personal computers, the local
area network, or LAN, and the Internet. Its products allow businesses to
incorporate telephone functions including PC-based unified messaging, voice mail
and desktop call handling into their daily operations. Unified messaging is the
ability to get any message from any device at any time. CTI allows people to
control all voice, fax, and e-mail messages, as well as inbound and outbound
telephone calls, and to control them visually using a personal computer. Active
Voice was one of the first voice processing manufacturers to offer a truly
unified product that permits on-screen desktop management of the entire spectrum
of personal communications, and has continued to research, develop, market, and
distribute novel CTI solutions.
Active Voice's products offer a full range of voice mail and CTI solutions,
from basic through advanced applications, and have been designed to fit the
functional and financial needs of specific market segments. All Active Voice
products offer voice mail, automated attendant, audiotext, and fax mail features
and most require the assistance of a dealer or other trained installer to
configure them to the end user's telephone. Active Voice also offers vertical
market applications, switch integrations, fax products, replacement hardware,
and other miscellaneous items. Active Voice's products are utilized by a broad
variety of enterprises in manufacturing, retail, service, healthcare,
governmental, and institutional settings.
1
<PAGE> 9
CISCO SYSTEMS, INC.
170 West Tasman Drive
San Jose, California 95134
(408) 526-4000
Cisco is the worldwide leader in networking for the Internet. Cisco
hardware, software and service offerings are used to create Internet solutions
so that individuals, companies and countries have seamless access to
information -- regardless of differences in time and place. Cisco solutions
provide competitive advantage to our customers through more efficient and timely
exchange of information, which in turn leads to cost savings, process
efficiencies, and closer relationships with their customers, prospects, business
partners, suppliers, and employees. These solutions form the networking
foundation for companies, universities, utilities, and government agencies
worldwide.
The company was founded in 1984 by a small group of computer scientists
from Stanford University seeking an easier way to connect different types of
computer systems. Cisco shipped its first product in 1986. Since then, Cisco has
grown into a multinational corporation with more than 34,000 employees.
STRUCTURE OF THE MERGER AND CONVERSION OF ACTIVE VOICE COMMON STOCK (SEE PAGE
37)
Active Voice and Cisco have entered into a merger agreement that provides
for the merger of Active Voice and Aqua Acquisition Corporation, a newly formed
wholly-owned subsidiary of Cisco. Following the merger, Active Voice will
continue its operations as a wholly-owned subsidiary of Cisco and shareholders
of Active Voice will become shareholders of Cisco. Each share of Active Voice
common stock will be exchanged for a number of shares of Cisco common stock
equal to the ratio of (x) a quotient, the numerator of which is $295,332,740 and
the denominator of which is the average of the closing prices of Cisco common
stock as quoted on Nasdaq for the ten consecutive trading days ending on the
third trading day prior to the effective time of the merger and (y) the total
number of Active Voice common stock issued and outstanding on a fully diluted
basis at the effective time of the merger. We urge you to read the merger
agreement, which is attached as Appendix A to this proxy statement/prospectus,
carefully and in its entirety.
ASSET PURCHASE AGREEMENT (SEE PAGE 47)
Following the merger, Active Voice will sell certain assets, other than
proprietary rights, related to the legacy voicemail solutions business of Active
Voice to Atlantis Group, Inc., a Washington corporation that will be owned by
certain former employees of Active Voice, and Atlantis Group will assume certain
liabilities and obligations of Active Voice pursuant to the terms of an asset
purchase agreement entered into by Active Voice and Atlantis Group. Atlantis
Group will indemnify Active Voice and Cisco against all losses and expenses
arising from or relating to the operations of Active Voice or the use of the
legacy voicemail assets prior to and after the closing date, the legacy
voicemail solutions business of Active Voice prior to and after the closing
date, certain liabilities that will be assumed by Atlantis Group, and third
party claims for acts occurring prior to the closing date. The proprietary
rights related to the legacy voicemail solutions business of Active Voice will
be licensed to Atlantis Group pursuant to the terms of a license agreement to be
entered into between Active Voice and Atlantis Group. The license agreement will
grant Atlantis Group a non-exclusive, worldwide, royalty free license to the
proprietary rights related to the legacy voicemail solutions business of Active
Voice. In addition, certain employees of Active Voice will be assigned to
Atlantis Group and such employees will execute employment and non-competition
agreements with Atlantis Group and Cisco. We urge you to read the asset purchase
agreement, which is attached as Appendix B to this proxy statement/prospectus,
carefully and in its entirety.
2
<PAGE> 10
NOTEHOLDER RIGHTS AND SECURITY AGREEMENT (SEE PAGE 49)
Following the merger, Active Voice and Atlantis Group will enter into a
noteholder rights and security agreement. Pursuant to the noteholder rights and
security agreement, as consideration for the legacy voicemail solutions assets
of Active Voice, Atlantis Group will issue to Active Voice a note in the initial
principal amount of $29,533,280. In the event a sale, merger, sale of
substantially all of the assets or another liquidity event of Atlantis Group, as
described in the noteholder rights and security agreement, occurs within six
months following the closing date, the initial $29,533,280 principal amount of
the note will be increased or decreased based upon the total amount of cash and
other consideration received by Atlantis Group from such liquidity event. The
noteholder rights and security agreement also provides that Active Voice will
have a security interest in all of Atlantis Group's property other than real
property to secure the payment of the obligations under the note.
The note will bear interest at a per annum rate equal to the prime rate
announced by Wells Fargo plus 1.25 percent (1.25%). The note will mature one
year following the closing date. Interest and all other fees payable under the
note are due and payable, in arrears, when the note becomes due and payable
(whether at maturity or prepayment or acceleration or otherwise). In the event
that the principal amount of the note is not paid in full when such amount
becomes due and payable, Atlantis Group fails to perform any covenant or
agreement in the noteholder rights agreement, an insolvency proceeding is
commenced by Atlantis Group, or there occurs another event of default under the
note, as described below, the note will bear interest on the balance of any
unpaid principal and obligations under the note at such per annum rate plus four
percent (4%) until such default is cured.
We urge you to read the form of the noteholder rights and security
agreement, which is attached as Appendix C to this proxy statement/prospectus,
carefully and in its entirety.
VOTE REQUIRED FOR SHAREHOLDER APPROVAL (SEE PAGE 22)
The holders of a majority of the outstanding shares of Active Voice common
stock must approve the merger, the adoption of the merger agreement and the
asset purchase agreement. Cisco shareholders are not required to approve the
merger agreement and the asset purchase agreement and will not vote on the
merger.
You are entitled to cast one vote per share of Active Voice common stock
you owned as of December 4, 2000, the record date.
RECOMMENDATION OF ACTIVE VOICE'S BOARD OF DIRECTORS (SEE PAGES 23 AND 30)
After careful consideration, Active Voice's board of directors has approved
the terms of the merger, the merger agreement and the asset purchase agreement
and determined that the terms of the merger and the merger agreement are fair
and in the best interests of Active Voice and its shareholders and unanimously
recommends that Active Voice shareholders vote FOR approval of the merger, the
adoption of the merger agreement and the asset purchase agreement.
FAIRNESS OPINION OF ACTIVE VOICE'S FINANCIAL ADVISOR (SEE PAGE 30)
William Blair & Company, L.L.C., Active Voice's financial advisor,
delivered an opinion to the Active Voice board of directors that, as of the date
of the opinion and based on the procedures followed, factors considered and
assumptions made by William Blair & Company, and subject to the limitations set
forth in the opinion, the exchange ratio in the merger agreement is fair to
Active Voice shareholders from a financial point of view. The complete opinion
of William Blair & Company is attached as Appendix F to this proxy
statement/prospectus. We urge you to read this opinion carefully and in its
entirety.
3
<PAGE> 11
DISSENTERS' RIGHTS TO APPRAISAL (SEE PAGE 71)
If you do not wish to accept Cisco common stock in the merger, you have the
right under Chapter 23B.13 of the Washington Business Corporation Act to dissent
from the merger and to receive payment in cash for the fair value of your shares
of Active Voice common stock. To preserve your rights if you wish to exercise
your statutory dissenters' rights, you must:
- deliver to the Secretary of Active Voice before the special meeting
written notice of your intent to demand payment for your shares of Active
Voice common stock if the merger is completed;
- not vote your shares in favor of the merger; and
- follow the statutory procedures for perfecting dissenters' rights under
Washington law, which are described in the section entitled "Dissenters'
Rights to Appraisal" on page 71.
Merely voting against the merger will not preserve your dissenters' rights.
Chapter 23B.13 of the Washington Business Corporation Act is reprinted in its
entirety and attached as Appendix G to this proxy statement/prospectus. Failure
to precisely comply with all procedures required by Washington law will result
in the loss of your dissenters' rights.
CONDITIONS TO COMPLETION OF THE MERGER (SEE PAGE 43)
Cisco's and Active Voice's respective obligations to complete the merger
are subject to the prior satisfaction or waiver of a number of conditions. If
either Cisco or Active Voice waives any conditions, Active Voice will consider
the facts and circumstances at that time and make a determination as to whether
a resolicitation of proxies from Active Voice shareholders is appropriate. The
following conditions, among others, must be satisfied or waived before
completion of the merger:
- the merger and merger agreement must be approved and adopted by a
majority of the Active Voice shareholders;
- the registration statement on Form S-4 registering the shares of Cisco
common stock to be issued in the merger, of which this proxy
statement/prospectus forms a part, must have been declared effective by
the Securities Exchange Commission and must not be the subject of any
stop order or proceeding seeking a stop order;
- no injunction or order preventing consummation of the merger or
restricting Cisco's operation of Active Voice after the merger may be in
effect;
- no law, regulation or order which makes completion of the merger illegal
may be enacted or issued;
- all necessary governmental approvals, waivers and consents must be
obtained, including such approvals, waivers and consents required under
United States antitrust laws and federal and state securities laws;
- Cisco's and Active Voice's respective representations and warranties in
the merger agreement must be true and correct in all material respects;
- Cisco and Active Voice must comply with their respective covenants and
obligations in the merger agreement;
- Cisco and Active Voice must receive an opinion of tax counsel to the
effect that the merger will qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code;
4
<PAGE> 12
- Active Voice must obtain certain necessary third-party consents required
under its material contracts;
- The original equipment manufacturer license agreement dated as of October
31, 2000 between Cisco and Active Voice must be in full force and effect.
Under the terms of the original equipment manufacturer license agreement
with Cisco, Active Voice has agreed to deposit certain intellectual
property and related materials into escrow, including source code to its
unified messaging technology. If Active Voice sells substantially all of
its assets or merges with a party other than Cisco, such intellectual
property and related materials held in escrow will be released to Cisco;
- no event, change or effect that is materially adverse to the condition,
properties, assets, liabilities or operations of Active Voice shall have
occurred;
- holders of not more than 5% (or 14.9% in the event NEC Corporation is a
dissenting shareholder) of the shares of Active Voice common stock shall
have exercised their rights as a dissenting shareholder and demanded
payment for their shares under the Washington Business Corporation Act;
- certain employees of Active Voice to become employed by Cisco following
the merger must have entered into employment and non-competition
agreements with Cisco and all employees of Active Voice to become
employed by Cisco following the merger, with the exception of up to five
employees, must have executed acceleration waivers so that 50% of their
unvested shares will become fully vested and exercisable upon the merger,
and no additional acceleration of vesting will occur;
- all employees of Active Voice to be assigned to Atlantis Group
immediately after completion of the merger shall have been provided with
written notice by Active Voice of assignment of the rights and
obligations of their employment to Atlantis Group to be effective
immediately after completion of the merger; and these employees shall
have been provided with written confirmation by Atlantis Group of such
assignment; and
- certain employees of Active Voice to be assigned to Atlantis Group
immediately after completion of the merger shall have entered into
employment and non-competition agreements with Atlantis Group and shall
have entered into non-competition and general release agreements with
Cisco and Active Voice and ninety percent (90%) of all other employees of
Active Voice who have unvested options prior to the merger and whose
employment is to be assigned to Atlantis Group immediately after
completion of the merger shall have executed a general release agreement
in favor of Cisco and Active Voice.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 45)
The merger agreement may be terminated before the completion of the merger
by the mutual consent of Cisco and Active Voice.
The merger agreement may also be terminated by either Cisco or Active Voice
if:
- the conditions to completion of the merger would not be satisfied because
of a breach of a representation, warranty or obligation of the other in
the merger agreement, which is not cured within ten business days of
receipt of written notice of such breach;
- the merger is not completed, without the fault of the terminating party,
by February 28, 2001 (or, under certain circumstances, March 30, 2001);
- a final court order preventing the merger is issued and is not
appealable; or
5
<PAGE> 13
- the Active Voice shareholders do not approve the merger agreement at the
special meeting of shareholders.
In addition, the merger agreement may be terminated by Cisco if the Active
Voice board of directors takes any of the following actions:
- withdraws or modifies its recommendation that Active Voice shareholders
approve the merger and adopt the merger agreement in a manner adverse to
Cisco, or resolves to do so;
- fails to comply with the nonsolicitation provisions contained in the
merger agreement, which provisions are summarized below and discussed in
detail on page 42 of this proxy statement/ prospectus;
- fails to call and hold the special meeting of shareholders by February
14, 2001 (or March 15, 2001 under certain circumstances);
- recommends, endorses or accepts a proposal for a merger or other business
combination involving Active Voice or acquisition of 15% (or 19.9% in
certain circumstances) or more of the outstanding shares of capital stock
of Active Voice or a significant portion of the assets of Active Voice;
or
- if an extraordinary transaction of the nature specified in the merger
agreement, such as an acquisition by any person of or tender offer by any
person for 15% (or 19.9% in certain circumstances) or more of the voting
power of Active Voice or any proposal for a merger or other business
combination involving Active Voice or acquisition of 15% (or 19.9% in
certain circumstances) or more of the outstanding shares of capital stock
of Active Voice or a significant portion of the assets of Active Voice,
occurs and the Active Voice board of directors does not within ten
business days of the occurrence of an extraordinary transaction reconfirm
its approval and recommendation of the merger agreement and reject the
extraordinary transaction.
PAYMENT OF TERMINATION FEE (SEE PAGE 46)
Active Voice has agreed to pay Cisco a termination fee of $10.3 million and
reimburse Cisco for its out-of-pocket expenses if the merger agreement is
terminated under circumstances which are described on page 46 of this proxy
statement/prospectus under the heading "Payment of Fees and Expenses."
NO OTHER TAKEOVER NEGOTIATIONS INVOLVING ACTIVE VOICE (SEE PAGE 42)
Until the merger is completed or the merger agreement is terminated, Active
Voice has agreed not to directly or indirectly take any of the following
actions:
- solicit, initiate, encourage or agree to any takeover proposal; or
- engage in negotiations with, or disclose any nonpublic information
relating to Active Voice or any of its subsidiaries to, or afford access
to the properties, books or records of Active Voice or any of its
subsidiaries to, any person that has advised Active Voice that it may be
considering making, or that has made, a takeover proposal.
Active Voice's board of directors is not prohibited from taking and
disclosing to the Active Voice shareholders a position with respect to a tender
offer pursuant to Rules 14d-9 and 14e-2 promulgated under the Securities
Exchange Act of 1934.
Active Voice has agreed to promptly provide Cisco with detailed information
about any takeover proposal it receives.
6
<PAGE> 14
Active Voice may engage in any of these otherwise prohibited acts, other
than solicitation, initiation or encouragement of any takeover proposal, if,
prior to the adoption of the merger agreement by Active Voice shareholders, its
board of directors:
- receives an unsolicited written takeover proposal;
- believes in good faith that such takeover proposal will result in a
transaction more favorable to the Active Voice shareholders from a
financial point of view than the merger; and
- determines in good faith after advice from outside legal counsel that
engaging in the prohibited negotiations or discussions or providing
non-public information is necessary in order to comply with the fiduciary
duties of the board under applicable law.
A takeover proposal is:
- any offer or proposal for a merger or other business combination
involving Active Voice or any of its subsidiaries;
- the acquisition of 15%, or in the case of NEC Corporation, 19.9%, or more
of the outstanding shares of capital stock of Active Voice or any of its
subsidiaries; or
- the acquisition of a significant portion of the assets of Active Voice or
any of its subsidiaries.
ACTIVE VOICE HAS ENTERED INTO A STOCK OPTION AGREEMENT THAT MAY DISCOURAGE THIRD
PARTIES THAT MAY BE INTERESTED IN ACQUIRING A STAKE IN ACTIVE VOICE (SEE PAGE
51)
Active Voice entered into a stock option agreement with Cisco that granted
Cisco the option to buy up to 2,275,000 shares of Active Voice common stock,
which represented approximately 19.9% of the shares of Active Voice common stock
outstanding on November 9, 2000, or approximately 16.6% after issuance of the
shares of Active Voice common stock subject to the option. The exercise price of
the option is $15 per share.
Cisco required Active Voice to grant the option as a prerequisite to
entering into the merger agreement. The option may discourage third parties who
are interested in acquiring a significant stake in Active Voice and is intended
by Cisco to increase the likelihood that the merger will be completed.
The option is not currently exercisable and Cisco may only exercise the
option if an extraordinary transaction of the nature specified in the merger
agreement occurs which obligates Active Voice to pay the termination fee
pursuant to the merger agreement. Otherwise, the option will terminate and may
not be exercised by Cisco.
We urge you to read the stock option agreement attached as Appendix D to
this proxy statement/prospectus in its entirety.
SHAREHOLDERS HOLDING APPROXIMATELY 17.7% OF ACTIVE VOICE'S COMMON STOCK HAVE
ENTERED INTO SHAREHOLDER AGREEMENTS REQUIRING THEM TO VOTE IN FAVOR OF THE
MERGER (SEE PAGE 51)
In connection with the execution of the merger agreement the executive
officers and directors of Active Voice have entered into shareholder agreements
with Cisco. The shareholder agreements require these Active Voice shareholders
to vote all shares of Active Voice common stock beneficially owned by them in
favor of approval of the merger agreement and against any competing proposal.
The shareholder agreements also required these Active Voice shareholders to
deliver an irrevocable proxy to Cisco. The irrevocable proxy enables Cisco to
vote the shareholders' shares to approve the merger. These Active Voice
shareholders were not paid additional consideration in connection with the
shareholder agreements.
7
<PAGE> 15
The shares of Active Voice common stock subject to the shareholder
agreements collectively represent approximately 17.7% of the outstanding Active
Voice common stock as of November 30, 2000.
We urge you to read the form of shareholder agreement, which is attached as
Appendix E to this proxy statement/prospectus, carefully and in its entirety.
INTERESTS OF ACTIVE VOICE DIRECTORS, OFFICERS AND AFFILIATES IN THE MERGER (SEE
PAGE 53)
When considering the recommendation of the Active Voice board of directors,
you should be aware that certain Active Voice directors and officers have
interests in the merger that are different from, or in addition to, your
interests. These interests include the following:
- As of November 30, 2000, directors and executive officers of Active Voice
and their affiliates beneficially owned approximately 23.76% of the
outstanding shares of Active Voice common stock.
- As of the date of this proxy statement/prospectus, non-employee directors
of Active Voice beneficially owned stock options to purchase an aggregate
of 163,068 shares of Active Voice common stock, 73,336 of which were
unvested. If the merger is completed, all of the unvested options, which
have a weighted average exercise price of $8.07 per share, will
accelerate and become fully vested and exercisable.
- Stock options granted by Active Voice under the 1993 Stock Option Plan,
1996 Stock Option Plan, 1998 Stock Option Plan, and 2000 Stock Option
Plan provide for the full acceleration of the unvested portion of each
option if the merger is completed and the optionee is terminated by Cisco
or voluntarily terminates his or her employment under certain conditions
within 18 months following the merger. Employees and executive officers
who become employees of Cisco are required to execute acceleration
waivers so that 50% of their unvested options will become fully vested
and exercisable upon the merger, and no additional acceleration of
vesting will occur. Employees of Active Voice to be assigned to Atlantis
Group following the merger will receive full acceleration of vesting of
their unvested options if the closing conditions for the merger are
satisfied (including the execution of general releases in favor of Cisco
and Active Voice) and the merger actually closes. As of the date of this
proxy statement/prospectus unvested options to purchase approximately
360,000 shares granted to executive officers (including employee
directors) of Active Voice will vest upon completion of the merger in
accordance with these provisions.
- As a condition of the closing of the merger, several employees and
executive officers of Active Voice to become employed by Cisco upon the
merger are required to enter into employment and non-competition
agreements with Cisco that will become effective upon completion of the
merger.
- As a condition of the closing of the merger and the sale of certain
assets of Active Voice, several employees and executive officers of
Active Voice to be assigned to Atlantis Group immediately after the
merger are required to enter into employment and non-competition
agreements with Atlantis Group that will become effective upon completion
of the merger and the sale of certain assets of Active Voice.
- Cisco has agreed to indemnify each present and former Active Voice
officer and director against liabilities arising out of the fact that
such person is or was a director or officer of Active Voice.
8
<PAGE> 16
- Several executive officers will receive cash bonuses upon the close of
the merger for an aggregate of $2,125,000.
- As a result of the closing of the merger and the sale of certain assets
of Active Voice, several officers of Active Voice to be assigned to
Atlantis Group will become eligible to earn a finder's fee of up to
$500,000 in total in the event that they are successful in selling the
assets of Atlantis Group within six (6) months after the closing of the
merger.
As a result, these directors and officers could be more likely to approve
or recommend the merger than if they did not hold these interests. Active Voice
shareholders should consider whether these interests may have influenced the
decision of the Active Voice board of directors to approve and recommend the
merger.
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 56)
We have structured the merger so that, in general, Active Voice
shareholders will not recognize gain or loss for United States federal income
tax purposes in the merger, except for taxes payable because of cash received by
Active Voice shareholders instead of fractional shares. It is a condition to the
merger that both Cisco and Active Voice receive legal opinions to the effect
that the merger constitutes a reorganization within the meaning of the Internal
Revenue Code.
ACCOUNTING TREATMENT OF THE MERGER
We intend to account for the merger using the purchase method.
THE SPECIAL MEETING (SEE PAGE 21)
The special meeting of Active Voice shareholders will be held at the
Seattle Art Museum, 100 University Street, Seattle, Washington, at 2:00 p.m.,
Pacific Time, on , 2001. At the special meeting, shareholders will
be asked to approve the merger, adopt the merger agreement and approve the asset
purchase agreement.
RECORD DATE; VOTING POWER
Active Voice shareholders are entitled to vote at the special meeting if
they owned shares as of the close of business on December 4, 2000, the record
date.
On the record date, there were 11,575,151 shares of Active Voice common
stock entitled to vote at the special meeting. Shareholders will have one vote
at the special meeting for each share of Active Voice common stock that they
owned on the record date.
VOTE REQUIRED
The affirmative vote of at least a majority of the shares of Active Voice
common stock outstanding on the record date is required to approve the merger,
to adopt the merger agreement and to approve the asset purchase agreement.
ANTITRUST APPROVAL REQUIRED TO COMPLETE THE MERGER (SEE PAGE 56)
The merger is subject to United States antitrust laws. We have made the
required filings with the United States Department of Justice and the Federal
Trade Commission. However, we are not permitted to complete the merger until the
applicable waiting period has expired or terminated.
9
<PAGE> 17
RESTRICTIONS ON THE ABILITY TO SELL CISCO COMMON STOCK (SEE PAGE 58)
All shares of Cisco common stock received by you in connection with the
merger will be freely transferable unless you are considered an "affiliate" of
either Active Voice or Cisco for purposes of the Securities Act of 1933. Shares
of Cisco common stock received by these affiliates in connection with the merger
may only be sold pursuant to a registration statement or exemption under the
Securities Act.
FORWARD-LOOKING STATEMENTS IN THIS PROXY STATEMENT-PROSPECTUS
This proxy statement/prospectus and the documents incorporated by reference
in this proxy statement/prospectus contain forward-looking statements within the
"safe harbor" provisions of the Private Securities Litigation Reform Act of 1995
with respect to Cisco's and Active Voice's financial condition, results of
operations and business and with respect to the expected impact of the merger on
Cisco's financial performance. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates" and similar expressions
identify forward-looking statements. These forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties that
could cause actual results to differ materially from the results contemplated by
the forward-looking statements. In evaluating the merger, you should carefully
consider the discussion of risks and uncertainties in the section entitled "Risk
Factors" on page 17 of this proxy statement/prospectus.
10
<PAGE> 18
SUMMARY FINANCIAL DATA
The following tables show financial results actually achieved by each of
Cisco and Active Voice.
Cisco's summary financial data as of and for the fiscal years ended July
28, 1996, July 26, 1997, July 25, 1998, July 31, 1999 and July 29, 2000 has been
derived from, and should be read in conjunction with, its consolidated financial
statements and related notes thereto incorporated herein by reference. Cisco's
historical figures as of October 28, 2000 and for the three months ended October
30, 1999 and October 28, 2000 have been derived from, and should be read in
conjunction with, Cisco's consolidated financial statements and the notes
thereto that are incorporated herein by reference. The results of operations for
the interim periods presented are unaudited and are not necessarily indicative
of the results to be expected for any other interim period or for the fiscal
year as a whole. However, in the opinion of Cisco's management, the interim
financial data presented reflects all adjustments, consisting only of normal
recurring adjustments, necessary to present a fair statement of the results of
operations for all periods presented.
Active Voice's summary financial data as of and for the fiscal years ended
March 31, 1996, 1997, 1998, 1999 and 2000 has been derived from, and should be
read in conjunction with, its consolidated financial statements and related
notes thereto and as indicated herein. Active Voice's historical financial data
for the six months ended September 30, 1999 and 2000 has been derived from, and
should be read in conjunction with, Active Voice's consolidated financial
statements and the notes thereto that are incorporated herein by reference. The
results of operations for the interim periods presented are unaudited and are
not necessarily indicative of the results to be expected for any other interim
period or for the fiscal year as a whole. However, in the opinion of Active
Voice's management, the interim financial data presented reflects all
adjustments, consisting only of normal recurring adjustments, necessary to
present a fair statement of the results of operations for all periods presented.
The Active Voice financial data reflects the two-for-one stock split
effective March 22, 2000. The Cisco financial data reflects the two-for-one
stock split effective March 22, 2000.
11
<PAGE> 19
SUMMARY FINANCIAL DATA, CONT.
CISCO:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THREE MONTHS ENDED
---------------------------------------------------- -------------------------
JULY 28, JULY 26, JULY 25, JULY 31, JULY 29, OCTOBER 30, OCTOBER 28,
1996 1997 1998 1999 2000 1999 2000
-------- -------- -------- -------- -------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS
DATA(1)(2):
Net sales.................................... $4,101 $6,452 $8,489 $12,173 $18,928 $3,918 $6,519
Net income................................... $ 915 $1,047 $1,331 $ 2,023 $ 2,668 $ 415 $ 798
Net income per share -- basic................ $ 0.16 $ 0.17 $ 0.21 $ 0.30 $ 0.39 $ 0.06 $ 0.11
Net income per share -- diluted.............. $ 0.15 $ 0.17 $ 0.20 $ 0.29 $ 0.36 $ 0.06 $ 0.11
Number of shares used in per-share
calculation -- basic....................... 5,758 6,007 6,312 6,646 6,917 6,833 7,093
Number of shares used in per-share
calculation -- diluted..................... 6,008 6,287 6,658 7,062 7,438 7,288 7,580
</TABLE>
<TABLE>
<CAPTION>
AS OF
---------------------------------------------------- AS OF
JULY 28, JULY 26, JULY 25, JULY 31, JULY 29, OCTOBER 28,
1996 1997 1998 1999 2000 2000
-------- -------- -------- -------- -------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE SHEET DATA:
Total assets.............................................. $3,647 $5,504 $9,043 $ 14,893 $ 32,870 $34,152
</TABLE>
------------------------
(1) All historical per share and share information has been adjusted to reflect
the Cisco two-for-one stock split effective March 22, 2000.
(2) Historical consolidated operating results include the following items:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THREE MONTHS ENDED
---------------------------------------------------- -------------------------
JULY 28, JULY 26, JULY 25, JULY 31, JULY 29, OCTOBER 30, OCTOBER 28,
1996 1997 1998 1999 2000 1999 2000
-------- -------- -------- -------- -------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
In-process research and development........ $-- $ 508 $594 $471 $1,373 $381 $ 509
Amortization of goodwill and other
acquisition-related charges.............. 14 11 23 61 291 24 231
Acquisition costs.......................... -- -- -- 16 62 -- --
Payroll tax on stock option exercises...... -- -- -- -- 51 -- 22
Net gains realized on minority
investments.............................. -- (152) (5) -- (531) -- (190)
Income tax effect.......................... (2) 7 (67) (54) -- (6) (7)
--- ----- ---- ---- ------ ---- -----
Net amount after tax....................... $12 $ 374 $545 $494 $1,246 $399 $ 565
=== ===== ==== ==== ====== ==== =====
</TABLE>
ACTIVE VOICE:
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEARS ENDED ENDED
MARCH 31, SEPTEMBER 30,
-------------------------------------- --------------
1996 1997 1998 1999 2000 1999 2000
----- ----- ----- ------ ----- ----- ------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS DATA(3):
Net sales................................................. $ 45 $ 50 $ 53 $ 63 $ 74 $ 39 $ 25
Net income (loss) available to common shareholders........ $ 5 $ 2 $ -- $ (5) $ 6 $ 10 $ (7)
Net income (loss) per share -- basic...................... $1.14 $0.38 $0.02 $(0.52) $0.62 $1.08 $(0.60)
Net income (loss) per share -- diluted.................... $1.11 $0.38 $0.02 $(0.52) $0.57 $1.04 $(0.60)
Number of shares used in per common share
calculation -- basic.................................... 9 9 9 9 10 9 11
Number of shares used in per common share
calculation -- diluted.................................. 9 9 10 9 11 10 11
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF MARCH 31, SEPTEMBER 30,
------------------------------------ --------------
1996 1997 1998 1999 2000 1999 2000
---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE SHEET DATA:
Total assets.............................................. $37 $39 $41 $39 $53 $54 $47
</TABLE>
------------------------
(3) All historical per share and share information has been adjusted to reflect
the Active Voice two-for-one stock split effective March 22, 2000.
12
<PAGE> 20
COMPARATIVE PER SHARE DATA
In the following tables, we provide you with certain historical per share
data and combined per share data on an unaudited basis after giving effect to
the merger assuming that 0.3756 of a pro forma share of Cisco common stock is
issued in exchange for each share of Active Voice common stock. This data should
be read along with the selected historical financial data set forth herein and
the historical financial statements of Cisco and Active Voice and the notes
thereto that are incorporated herein by reference. The pro forma data is
presented for illustrative purposes only. You should not rely on the pro forma
financial data as an indication 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.
SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR THREE MONTHS
ENDED ENDED
JULY 29, OCTOBER 28,
2000 2000
----------- ------------
<S> <C> <C>
CISCO HISTORICAL DATA:
Net income per share -- basic............................. $0.39 $0.11
Net income per share -- diluted........................... $0.36 $0.11
Book value per share(A)................................... $3.71 $3.84
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, SEPTEMBER 30,
2000 2000
------------- -------------
<S> <C> <C>
ACTIVE VOICE HISTORICAL DATA(B):
Net income (loss) per share -- basic...................... $(0.79) $(0.22)
Net income (loss) per share -- diluted.................... $(0.79) $(0.22)
Book value per share(A)................................... $ 3.84 $ 3.65
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR THREE MONTHS
ENDED ENDED
JULY 29, OCTOBER 28,
2000 2000
----------- ------------
<S> <C> <C>
PRO FORMA COMBINED NET INCOME PER SHARE(C)(D):
Per Cisco share -- basic.................................. $0.38 $0.11
Per Cisco share -- diluted................................ $0.36 $0.10
Equivalent per Active Voice share -- basic................ $0.14 $0.04
Equivalent per Active Voice share -- diluted.............. $0.13 $0.04
PRO FORMA COMBINED BOOK VALUE PER SHARE(C)(D)(E):
Per Cisco share........................................... $3.72 $3.85
Equivalent per Active Voice share......................... $1.40 $1.45
</TABLE>
---------------
(A) 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.
(B) The Active Voice historical data has been derived from the historical
financial statements of Active Voice; however, the periods presented were
selected to conform more closely with Cisco's fiscal year-end rather than
the historical presentation of Active Voice's fiscal year-end at March 31.
(C) The pro forma combined per share information combines financial information
of Cisco for the fiscal year ended July 29, 2000 and the three months ended
October 28, 2000 with the financial information of Active Voice for the
twelve months ended June 30, 2000 and the three months ended September 30,
2000, respectively. This information also assumes the merger occurred as of
the beginning of the earliest period presented and was accounted for using
the purchase method.
13
<PAGE> 21
(D) The equivalent Active Voice pro forma per share amounts are calculated by
multiplying the Cisco combined pro forma per share amounts by the assumed
exchange ratio of 0.3756.
(E) 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 the period.
14
<PAGE> 22
MARKET PRICE AND DIVIDEND INFORMATION
CISCO MARKET PRICE DATA
Cisco's common stock is traded on the Nasdaq National Market under the
symbol "CSCO." The following table shows 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 stock splits effected
in September 1998 and December 1997 and the two-for-one stock splits effected in
February 1996, June 1999 and March 2000.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
CISCO'S FISCAL 1998
First Quarter....................................... $ 9.37 $ 7.75
Second Quarter...................................... 10.05 8.10
Third Quarter....................................... 12.31 9.44
Fourth Quarter...................................... 17.20 11.74
CISCO'S FISCAL 1999
First Quarter....................................... $17.32 $10.97
Second Quarter...................................... 26.67 15.19
Third Quarter....................................... 29.69 23.78
Fourth Quarter...................................... 33.53 26.09
CISCO'S FISCAL 2000
First Quarter....................................... $37.00 $29.38
Second Quarter...................................... 57.63 35.00
Third Quarter....................................... 80.06 54.75
Fourth Quarter...................................... 71.44 50.55
CISCO'S FISCAL 2001
First Quarter....................................... $68.63 $49.81
Second Quarter (through December , 2000)..........
</TABLE>
ACTIVE VOICE MARKET PRICE DATA
Active Voice's common stock is traded on the Nasdaq National Market under
the symbol "ACVC." The following table shows the range of high and low closing
prices reported on the Nasdaq National Market for Active Voice common stock for
the periods indicated, adjusted to reflect the two-for-one stock split effected
in March 2000.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
ACTIVE VOICE'S FISCAL 1998
First Quarter....................................... $ 6.88 $ 4.82
Second Quarter...................................... 7.63 5.63
Third Quarter....................................... 7.69 5.82
Fourth Quarter...................................... 7.63 5.69
ACTIVE VOICE'S FISCAL 1999
First Quarter....................................... $ 7.00 $ 5.00
Second Quarter...................................... 5.44 3.75
Third Quarter....................................... 4.19 2.19
Fourth Quarter...................................... 5.69 3.88
</TABLE>
15
<PAGE> 23
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
ACTIVE VOICE'S FISCAL 2000
First Quarter....................................... $ 9.13 $ 4.25
Second Quarter...................................... 8.88 5.44
Third Quarter....................................... 19.94 7.44
Fourth Quarter...................................... 44.00 11.50
ACTIVE VOICE'S FISCAL 2001
First Quarter....................................... $15.69 $ 6.00
Second Quarter...................................... 14.38 7.25
Third Quarter (through December , 2000)...........
</TABLE>
DIVIDEND INFORMATION
Neither Cisco nor Active Voice has ever paid any cash dividends on its
stock, and both anticipate that they will continue to retain any earnings for
the foreseeable future for use in the operation of their respective businesses.
RECENT CLOSING PRICES
As of November 9, 2000, the last trading day before announcement of the
proposed merger, the closing prices per share of Cisco common stock and Active
Voice common stock on the Nasdaq National Market were $53.25 and $14.94,
respectively. On , 2000, the latest practicable trading day before
the printing of this proxy statement/prospectus, the closing prices per share of
Cisco common stock and Active Voice common stock on the Nasdaq National Market
were $[ ] and $[ ], respectively. The equivalent per share
prices for Active Voice common stock based on the Cisco common stock prices
multiplied by the assumed exchange ratio of 0.3756 were $20.00 as of November 9,
2000 and $[ ] as of [ ], 2000.
WE URGE YOU TO OBTAIN CURRENT MARKET QUOTATIONS FOR CISCO COMMON STOCK AND
ACTIVE VOICE COMMON STOCK. NO ASSURANCE CAN BE GIVEN AS TO THE FUTURE PRICES OR
MARKETS FOR CISCO COMMON STOCK OR ACTIVE VOICE COMMON STOCK.
NUMBER OF ACTIVE VOICE SHAREHOLDERS
As of November 30, 2000, there were approximately 88 shareholders of record
and approximately 4,500 beneficial owners who held shares of Active Voice common
stock, as shown on the records of Active Voice's transfer agent for such shares.
16
<PAGE> 24
RISK FACTORS
By voting in favor of the merger, you will be choosing to invest in Cisco
common stock. An investment in Cisco common stock involves a high degree of
risk. In addition to the other information contained in or incorporated by
reference in this proxy statement/prospectus, you should carefully consider the
following risk factors in deciding whether to vote for the merger.
RISKS RELATED TO THE MERGER
THE PRICE OF CISCO COMMON STOCK MAY BE AFFECTED BY FACTORS DIFFERENT FROM THOSE
AFFECTING THE PRICE OF ACTIVE VOICE COMMON STOCK.
Upon completion of the merger, holders of Active Voice common stock will
become holders of Cisco common stock. Cisco's business differs from that of
Active Voice, and Cisco's results of operations, as well as the price of Cisco
common stock, may be affected by factors different from those affecting Active
Voice's results of operations and the price of Active Voice common stock. For a
discussion of Cisco's and Active Voice's businesses and certain factors to
consider in connection with these businesses, see Cisco's Annual Report on Form
10-K for the fiscal year ended July 29, 2000 and Active Voice's Annual Report on
Form 10-K for the year ended March 31, 2000 which are incorporated by reference
in this proxy statement/prospectus. The share price of Cisco common stock is by
nature subject to the general price fluctuations in the market for publicly
traded equity securities and has experienced significant volatility. No
prediction can be made as to the market price of Cisco common stock at the
completion of the merger or as to the market price of Cisco common stock after
the completion of the merger.
ALTHOUGH CISCO AND ACTIVE VOICE EXPECT THAT THE MERGER WILL RESULT IN BENEFITS,
THOSE BENEFITS MAY NOT BE REALIZED.
Cisco and Active Voice entered into the merger agreement with the
expectation that the merger will result in benefits, including the ability to:
- strengthen Cisco's abilities to offer its customers a broad portfolio of
voice over internet protocol solutions;
- enhance Cisco's capabilities immediately in unified messaging for the
enterprise market; and
- leverage Active Voice's technical and sales expertise in unified
communications software.
Achieving the benefits of the merger will depend in part on the integration
of the technology, operations and personnel of the two companies in a timely and
efficient manner so as to minimize the risk that the merger will result in the
loss of customers or key employees or the continued diversion of the attention
of management.
In addition, the combined entity may not fully increase efficiencies from
the transaction. Active Voice's product line consists of unified messaging
systems. Integrating Active Voice's product sales into Cisco's business model
will involve risks that may jeopardize the success of the merged company. The
Active Voice technology and products address a new market for Cisco, namely the
unified messaging market for enterprise customers. For merger-related
efficiencies to be realized, Cisco will have to learn to satisfy the needs of
Active Voice's customers in a timely and efficient manner. In order for the
merger to be successful, Cisco and Active Voice may need to integrate Active
Voice's products and technologies with other Cisco products and platforms. This
integration will involve considerable technology and execution risk and may or
may not be successful. We cannot assure you that Cisco and
17
<PAGE> 25
Active Voice will be successfully integrated or that any of the anticipated
benefits will be realized, and failure to do so could have a material adverse
effect on Cisco's business, financial condition and operating results.
ACTIVE VOICE DIRECTORS AND OFFICERS HAVE CONFLICTS OF INTEREST THAT MAY
INFLUENCE THEM TO APPROVE OR RECOMMEND THE MERGER.
The directors and officers of Active Voice participate in arrangements and
have continuing indemnification against liabilities that provide them with
interests in the merger that are different from, or are in addition to, your
interest including the following:
- As of November 30, 2000, directors and executive officers of Active Voice
and their affiliates beneficially owned approximately 23.76% of the
outstanding shares of Active Voice common stock.
- As of the date of this proxy statement/prospectus, non-employee directors
of Active Voice beneficially owned stock options to purchase an aggregate
of 163,068 shares of Active Voice common stock, 73,336 of which were
unvested. If the merger is completed, all of the unvested options, which
have a weighted average exercise price of $8.07 per share, will
accelerate and become fully vested and exercisable.
- Stock options granted by Active Voice under the 1993 Stock Option Plan,
1996 Stock Option Plan, 1998 Stock Option Plan, and 2000 Stock Option
Plan provide for the full acceleration of the unvested portion of each
option if the merger is completed and the optionee is terminated by Cisco
or voluntarily terminates his or her employment under certain conditions
within 18 months following the merger. Employees and executive officers
who become employees of Cisco are required to execute acceleration
waivers so that 50% of their unvested options will become fully vested
and exercisable upon the merger, and no additional acceleration of
vesting will occur. Employees of Active Voice to be assigned to Atlantis
Group following the merger will receive full acceleration of vesting of
their unvested options if the closing conditions for the merger are
satisfied (including the execution of general releases in favor of Cisco
and Active Voice) and the merger actually closes. As of the date of this
proxy statement/prospectus, unvested options to purchase approximately
360,000 shares granted to executive officers (including employee
directors) of Active Voice will vest upon completion of the merger in
accordance with these provisions.
- As a condition of the closing of the merger, several employees and
executive officers of Active Voice to become employed by Cisco upon the
merger are required to enter into employment and non-competition
agreements with Cisco that will become effective upon completion of the
merger. Please see the summary of the terms of these agreements in the
section of this proxy statement/prospectus entitled "Employment and
Non-Competition Agreements" under "Other Provisions of the Merger
Agreement" on page 44 of this proxy statement/prospectus.
- As a condition of the closing of the merger and the sale of certain
assets of Active Voice, several employees and executive officers of
Active Voice to be assigned to Atlantis Group immediately after the
merger are required to enter into employment and non-competition
agreements with Atlantis Group that will become effective upon completion
of the merger and the sale of certain assets of Active Voice. Please see
the summary of the terms of these agreements in the section of this proxy
statement/prospectus entitled "Asset Purchase Agreement" under "Related
Agreements" on page 47 of this proxy statement/prospectus.
- Cisco has agreed to indemnify each present and former Active Voice
officer and director against liabilities arising out of the fact that
such person is or was a director or officer of Active Voice.
18
<PAGE> 26
- As a result of the closing of the merger and the sale of certain assets
of Active Voice, several officers of Active Voice to be assigned to
Atlantis Group will become eligible to earn a finder's fee of up to
$500,000 in total in the event that they successfully sell the assets of
Atlantis Group within six (6) months after the closing of the merger.
- Upon completion of the merger, the following executive officers of Active
Voice will receive cash bonuses as shown below:
<TABLE>
<CAPTION>
AMOUNT OF
CASH
NAME BONUS
---- ---------
<S> <C>
Kevin L. Chestnut.................................... $505,000
Frank J. Costa....................................... 910,000
Jose S. David........................................ 90,000
Debra A. Faulkner.................................... 50,000
Edward F. Masters.................................... 490,000
Ken Myers............................................ 80,000
</TABLE>
As a result, these directors and officers could be more likely to approve
or recommend the merger than if they did not hold these interests. Active Voice
shareholders should consider whether these interests may have influenced the
decision of Active Voice's board of directors to approve and recommend the
merger.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT ACTIVE VOICE'S STOCK
PRICE AND FUTURE BUSINESS AND OPERATIONS.
If the merger is not completed for any reason, Active Voice may be subject
to a number of material risks, including the following:
- Active Voice may be required to pay Cisco a termination fee of $10.3
million and reimburse Cisco for out-of-pocket expenses;
- Active Voice shareholders may experience dilution to their stock
ownership because the stock option granted to Cisco by Active Voice may
become exercisable;
- the price of Active Voice common stock may decline to the extent that the
current market price of Active Voice common stock reflects a market
assumption that the merger will be completed; and
- costs related to the merger, such as legal, accounting and financial
advisor fees, must be paid even if the merger is not completed.
In addition, Active Voice customers may, in response to the announcement of
the merger, delay or defer purchasing decisions. Any delay or deferral in
purchasing decisions by Active Voice customers could have a material adverse
effect on Active Voice's business, regardless of whether or not the merger is
ultimately completed. Similarly, current and prospective Active Voice employees
may experience uncertainty about their future role with Cisco until Cisco's
strategies with regard to Active Voice are announced or executed. This may
adversely affect Active Voice's ability to attract and retain key management,
sales, marketing and technical personnel.
Further, if the merger is terminated and Active Voice's board of directors
determines to seek another merger or business combination, there can be no
assurance that it will be able to find a partner willing to pay an equivalent or
more attractive price than that which would be paid in the merger. In addition,
while the merger agreement is in effect and subject to certain limited
exceptions described on page 42 of this proxy statement/prospectus, Active Voice
is prohibited from soliciting, initiating or
19
<PAGE> 27
encouraging or entering into certain extraordinary transactions, such as a
merger, sale of assets or other business combination, with any party other than
Cisco.
UNCERTAINTIES ASSOCIATED WITH THE MERGER MAY CAUSE ACTIVE VOICE TO LOSE KEY
PERSONNEL.
Current and prospective Active Voice employees may experience uncertainty
about their future as employees of Cisco. This uncertainty may adversely affect
Active Voice's ability to attract and retain key management, sales and marketing
and technical personnel.
RISKS RELATED TO CISCO
In addition to the risks discussed above, Cisco is subject to its own
specific risks relating to its business model, strategies, markets and legal and
regulatory environment. For a detailed discussion of these risks, please see the
risk factors included in Cisco's reports filed with the Commission under the
Securities Exchange Act of 1934, which reports are incorporated by reference in
this proxy statement/ prospectus.
RISKS RELATED TO ACTIVE VOICE
In addition to the risks discussed above, Active Voice is subject to its
own specific risks relating to its business model, strategies, markets and legal
and regulatory environment. For a detailed discussion of these risks, please see
the risk factors included in Active Voice's reports filed with the Commission
under the Securities Exchange Act of 1934, which reports are incorporated by
reference in this proxy statement/prospectus.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus and the documents incorporated by reference
in this proxy statement/prospectus contain forward-looking statements within the
"safe harbor" provisions of the Private Securities Litigation Reform Act of 1995
with respect to Cisco's and Active Voice's financial condition, results of
operations and business, and on the expected impact of the merger on Cisco's
financial performance. Words such as "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates" and similar expressions identify
forward-looking statements. These forward-looking statements are not guarantees
of future performance and are subject to risks and uncertainties that could
cause actual results to differ materially from the results contemplated by the
forward-looking statements. In evaluating the merger, you should carefully
consider the discussion of risks and uncertainties in the section entitled "Risk
Factors" on page 17 of this proxy statement/prospectus.
20
<PAGE> 28
THE SPECIAL MEETING
PROXY STATEMENT/PROSPECTUS
This proxy statement/prospectus is furnished in connection with the
solicitation of proxies from the holders of Active Voice common stock by the
Active Voice board of directors for use at a special meeting of Active Voice
shareholders.
This proxy statement/prospectus is first being furnished to shareholders of
Active Voice on or about [ ], 2000.
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The special meeting will be held on [ ], 2001 at 2:00 p.m.,
Pacific Time, at the Seattle Art Museum, 100 University Street, Seattle,
Washington.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting and any adjournment or postponement of the special
meeting, shareholders of Active Voice will be asked to consider and vote upon
proposals:
- to approve the merger and the adoption of the merger agreement and the
asset purchase agreement; and
- to transact such other business as may properly come before the special
meeting.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE SHAREHOLDERS OF ACTIVE VOICE. ACCORDINGLY, YOU 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.
RECORD DATE AND SHARES ENTITLED TO VOTE
Active Voice's board of directors has fixed the close of business on
December 4, 2000, as the record date for determination of Active Voice
shareholders entitled to notice of, and to vote at, the special meeting. As of
the close of business on December 4, 2000, there were approximately 11,575,151
shares of Active Voice common stock outstanding and entitled to vote, held by
approximately 88 shareholders of record of Active Voice. Each Active Voice
shareholder is entitled to one vote for each share of Active Voice common stock
held as of the record date.
VOTING OF PROXIES
You are requested to complete, date and sign the accompanying proxy and
promptly return it in the accompanying envelope or otherwise mail it to Active
Voice. If your shares are held in "street name" by your broker, your broker will
vote your shares only if you provide instructions on how to vote. Your broker
will provide you directions regarding how to instruct your broker to vote your
shares. All properly executed proxies received by Active Voice prior to the vote
at the special meeting, and that are not revoked, will be voted in accordance
with the instructions indicated on the proxies. If no direction is made, your
proxy will be voted to approve the merger and the adoption of the merger
agreement and the asset purchase agreement. Active Voice's board of directors
does not presently intend to bring any other business before the special meeting
and, so far as is known to Active Voice'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 the proxies. You may
21
<PAGE> 29
revoke your proxy at any time prior to its use by delivering to the Secretary of
Active Voice a signed notice of revocation or a subsequently dated, signed
proxy, or by attending the special meeting and voting in person. Attendance at
the special meeting does not in itself constitute the revocation of a proxy.
SOLICITATION OF PROXIES
Active Voice will bear the cost of the solicitation of proxies from its
shareholders. In addition to solicitation by mail, the directors, officers and
employees of Active Voice and its subsidiaries may solicit proxies from
shareholders by telephone, facsimile or other electronic means or in person.
Following the original mailing of the proxies and other soliciting materials,
Active Voice 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 Active Voice common stock and to request authority for
the exercise of proxies. Active Voice will reimburse any of these custodians,
nominees and fiduciaries for their reasonable out-of-pocket expenses in doing
so.
W.F. Doring & Co., Inc. will assist in the solicitation of proxies by
Active Voice. Active Voice will pay a fee in an amount not to exceed $5,000,
plus reimbursement of certain out-of-pocket expenses, and will indemnify it
against any losses arising out of its proxy soliciting services on behalf of
Active Voice.
SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXIES
A transmittal letter with instructions for the surrender of Active Voice
common stock certificates will be mailed to Active Voice shareholders as soon as
practicable after completion of the merger.
VOTE REQUIRED
The approval of the merger and the adoption of the merger agreement and the
asset purchase agreement requires the affirmative vote of the holders of at
least a majority of the shares of Active Voice common stock outstanding on the
record date and entitled to vote at the special meeting to approve the merger.
IF AN ACTIVE VOICE SHAREHOLDER ABSTAINS FROM VOTING OR DOES NOT VOTE, EITHER IN
PERSON OR BY PROXY, IT WILL HAVE THE EFFECT OF A VOTE AGAINST APPROVAL OF THE
MERGER AND THE ADOPTION OF THE MERGER AGREEMENT AND THE ASSET PURCHASE
AGREEMENT.
VOTING BY ACTIVE VOICE DIRECTORS AND EXECUTIVE OFFICERS
Selected shareholders of Active Voice have entered into shareholder
agreements and have delivered irrevocable proxies obligating them to vote in
favor of the merger agreement and the merger. As of November 30, 2000, these
shareholders, constituting executive officers and directors of Active Voice, as
a group beneficially owned 2,042,256 shares (exclusive of any shares issuable
upon the exercise of options or warrants) of Active Voice common stock
(constituting approximately 17.7% of the shares of Active Voice common stock
outstanding as of the record date). As of the record date and the date of this
proxy statement/prospectus, Cisco owns no shares of Active Voice common stock.
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 Active Voice common stock issued and outstanding
on the record date. If a quorum is not present in person or represented by
proxy, it is expected that the special meeting will be adjourned or postponed to
solicit additional proxies. Because adoption of the merger agreement and the
asset purchase agreement and the consummation of the merger requires the
affirmative vote of a majority of the outstanding shares of Active Voice common
stock entitled to vote, abstentions and broker non-votes
22
<PAGE> 30
will have the same effect as votes against the approval of the merger and the
adoption of the merger agreement and the asset purchase agreement. In addition,
the failure of an Active Voice shareholder to return a proxy will have the
effect of a vote against the approval of the merger and the adoption of the
merger agreement and the asset purchase agreement. 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, you are urged to return the enclosed proxy card marked to indicate
your vote. 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.
DISSENTERS' RIGHTS TO APPRAISAL
If you do not wish to accept Cisco common stock in the merger, you have the
right under Chapter 23B.13 of the Washington Business Corporation Act to dissent
from the merger and to receive payment in cash for the fair value of your shares
of Active Voice common stock. To preserve your rights if you wish to exercise
your statutory dissenters' rights, you must:
- deliver to the Secretary of Active Voice before the special meeting
written notice of your intent to demand payment for your shares of Active
Voice common stock if the merger is completed;
- not vote your shares in favor of the merger; and
- follow the statutory procedures for perfecting dissenters' rights under
Washington law, which are described in the section entitled "Dissenters'
Rights to Appraisal" on page 71.
Merely voting against the merger will not preserve your dissenters' rights.
Chapter 23B.13 of the Washington Business Corporation Act is reprinted in its
entirety and attached as Appendix G to this proxy statement/prospectus. Failure
to precisely comply with all procedures required by Washington law will result
in the loss of your dissenters' rights.
See "The Merger and Related Transactions -- Dissenters' Rights to
Appraisal" on page 55, "Comparison of Rights of Shareholders of Active Voice and
Cisco -- Appraisal or Dissenters' Rights" on page 64 and "Dissenters' Rights to
Appraisal" on page 71.
BOARD RECOMMENDATION
THE ACTIVE VOICE BOARD OF DIRECTORS HAS APPROVED THE MERGER, THE MERGER
AGREEMENT AND THE ASSET PURCHASE AGREEMENT AND RECOMMENDS THAT ACTIVE VOICE
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER, THE ADOPTION OF THE MERGER
AGREEMENT AND THE ASSET PURCHASE AGREEMENT.
In considering the recommendation of the Active Voice board of directors
with respect to the merger and the merger agreement, you should be aware that
some of the directors and officers of Active Voice have interests in the merger
that are different from, or are in addition to, the interests of Active Voice
shareholders generally. Please see the section entitled "Interests of Active
Voice Directors, Officers and Affiliates in the Merger" on page 53 of this proxy
statement/prospectus.
23
<PAGE> 31
THE MERGER AND RELATED TRANSACTIONS
This section of the proxy statement/prospectus describes material aspects
of the proposed merger, including the merger agreement and related agreements.
While we believe that the description covers the material terms of the merger
and the related transactions, this summary may not contain all of the
information that is important to you. You should read this entire document and
the other documents we refer to carefully for a more complete understanding of
the merger.
The following discussion of the background of the merger and the parties'
reasons for the merger and the potential benefits that could result from the
merger contains forward-looking statements which involve risks and
uncertainties. Readers are cautioned not to place undue reliance on these
forward-looking statements. The actual results of Cisco could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" on page 17 of
this proxy statement/prospectus and in the documents incorporated by reference
in this proxy statement/prospectus.
BACKGROUND OF THE MERGER
From August 1999 to May 2000, various representatives of Active Voice and
Cisco discussed a potential original equipment manufacturer contractual
relationship.
On May 9, 2000, the Active Voice board of directors authorized management
to obtain information from Cisco regarding a potential original equipment
manufacturer contractual relationship.
On June 6, 2000, Jim Cirincione, a representative of Cisco, telephoned
Kevin Chestnut, Chief Technology Officer of Active Voice, to express Cisco's
interest in partnering with Active Voice in an original equipment manufacturer
contractual relationship. Mr. Cirincione and Mr. Chestnut spoke again on June
30, 2000.
On July 28, 2000, Ammar Hanafi, the Vice President of Business Development
of Cisco telephoned Frank Costa, President and Chief Executive Officer of Active
Voice, and expressed Cisco's interest in pursuing a merger with Active Voice.
On August 1, 2000, Mr. Costa and Mr. James Richardson, a Cisco
representative, met to further discuss the possible terms of a proposed merger
with Active Voice.
On August 21, 2000, Mr. Costa and Ken Meyer, Executive Vice President of
Sales and Marketing, met with Mr. Hanafi, Saurabh Srivastava and Ramesh
Hamadani, the Director of Business Development and Senior Manager of Business
Development of Cisco, respectively. At the meeting, the representatives of
Active Voice provided an overview of Active Voice and its products.
On August 30, 2000, Active Voice retained William Blair & Company, L.L.C.,
as its financial advisor in connection with a potential transaction with Cisco.
During the month of September, 2000, various representatives of Cisco and
Active Voice met and held telephone conference calls to discuss Active Voice's
products and technology. During these meetings and discussions, Active Voice
representatives reported on the status of various deliverables, various
marketing issues and opportunities for selling the Unity unified messaging
product and the legacy voicemail product together versus selling the Unity
unified messaging product as a stand-alone product, and discussed a proposed
confidentiality and non-solicitation agreement and due diligence. Active Voice's
legal counsel also reviewed various alternative structures for selling the Unity
unified messaging business to Cisco in a tax-free exchange.
24
<PAGE> 32
On September 5, 2000, representatives of William Blair & Company commenced
discussions with Cisco's financial advisors. No proposed purchase price was
discussed, but indication was given that Cisco would only be interested in
Active Voice's Unity unified messaging business and an alternative structure for
the sale of Active Voice's legacy voicemail business was discussed. Cisco's
financial advisors suggested that Active Voice and its financial and legal
advisors review the terms of prior Cisco deals that involved a management buyout
structure.
On September 14, 2000, Mr. Costa had a telephone conference call with Ms.
Hamadani and Mr. Srivastava to discuss a potential strategic transaction with
Active Voice whereby Cisco would acquire all the outstanding shares of Active
Voice common stock in a stock-for-stock merger between the two companies.
On September 20, 2000, Active Voice's legal advisors and Cisco's legal
advisors discussed issues with respect to the limits on Active Voice's
willingness to lock-up the proposed transaction, the fiduciary duties of the
Active Voice board of directors and a potential structure for a management
buy-out of Active Voice's legacy voicemail business.
On September 29, 2000, Cisco and Active Voice entered into a limited
confidentiality and non-solicitation letter agreement. Pursuant to this letter
agreement, Active Voice agreed to an exclusivity period to permit due diligence
and negotiations of the proposed merger.
During the month of October, 2000, various representatives of Cisco and
Active Voice (and their legal and financial advisors) discussed potential terms
of the proposed merger and due diligence proceeded. Specific purchase price
terms were not discussed until October 31, 2000.
On October 20, 2000, Cisco and Active Voice entered into a letter agreement
extending the exclusivity period under the confidentiality and non-solicitation
letter agreement until October 27, 2000.
On October 23, 2000, Ms. Hamadani informed Mr. Costa that a separate
original equipment manufacture license agreement would be a pre-condition to
Cisco's continued negotiation of a potential merger and the terms of such
license agreement would provide that if the proposed merger transaction did not
go through under certain circumstances, Active Voice would license the Unity
technology to Cisco.
On October 25, 2000, the Active Voice board of directors met to discuss the
terms of the proposed original equipment manufacture license agreement, which
had been insisted upon by Cisco as a pre-condition to the proposed merger. The
board considered the terms of the license and determined that it would be in the
best interests of the shareholders of Active Voice to enter into the original
equipment manufacture license agreement. The Active Voice board of directors
authorized management to continue its discussions with Cisco regarding a
definitive original equipment manufacture license agreement.
On October 26, Cisco and Active Voice entered into a letter agreement
extending the exclusivity period under the confidentiality and non-solicitation
letter agreement until November 3, 2000.
On October 27, 2000, the Active Voice board of directors held a special
meeting and unanimously voted to approve the proposed original equipment
manufacture license agreement with Cisco and authorized management to negotiate
a definitive original equipment manufacture license agreement with Cisco. The
Active Voice board of directors authorized and instructed management to continue
discussions relating to the proposed merger with Cisco.
On October 30, 2000, the Active Voice board of directors met to discuss the
status of the definitive original equipment manufacture license agreement. The
Active Voice board of directors authorized management to enter into the
definitive original equipment manufacture license agreement with Cisco.
25
<PAGE> 33
On October 31, 2000, Cisco and Active Voice entered into the original
equipment manufacture license agreement.
On October 31, 2000, Cisco formally delivered proposed merger documents to
Active Voice, including the proposed purchase price of $20 per share. The Active
Voice board of directors held a meeting to consider the specific terms of the
proposed merger agreement and related documents. The Active Voice board of
directors met with its legal and financial advisors and discussed the terms of
the proposed merger. William Blair & Company, Active Voice's financial advisor,
indicated that the proposed exchange ratio was fair to Active Voice shareholders
from a financial point of view in light of Active Voice's prospects and
prevailing market valuation, and that William Blair & Company would be able to
render a fairness opinion relative to the proposed merger. The Active Voice
board of directors concluded that the proposed merger transaction represented a
significant strategic opportunity for shareholders and that management should
move forward with negotiations of definitive merger documents.
During the period between October 31, 2000 and November 9, 2000, the
management of Cisco and Active Voice, together with their respective legal
counsels and financial advisors, held extensive negotiations regarding the terms
and conditions of the definitive agreements relating to the proposed merger and
the sale of the legacy voicemail business.
On November 2, 2000, the Active Voice board of directors held a meeting via
teleconference to discuss certain issues contained in the merger agreement and
related documents. Active Voice's legal advisors made a presentation on the
terms of the proposed transaction and the board of directors' duties with
respect to consideration of the transaction. Active Voice's legal and financial
advisors answered questions posed by the Active Voice board of directors. The
Active Voice board of directors authorized and instructed management to continue
negotiation of a definitive merger agreement with Cisco.
On November 3, Cisco and Active Voice entered into a letter agreement
extending the exclusivity period under the confidentiality and non-solicitation
letter agreement until November 10, 2000.
On November 7, 2000, the Active Voice board of directors held a meeting to
consider the terms of the proposed merger, the merger agreement and the asset
purchase agreement for the sale of the legacy voicemail business. The Active
Voice board of directors considered Active Voice's current strategy and
determined that the proposal represented a significant strategic opportunity to
develop Active Voice's unified messaging technology while maximizing shareholder
value. The Active Voice board of directors also considered the proposed spin-out
of the non-unified messaging business and the terms of the proposed asset
purchase agreement for this business between Active Voice and a newly formed
corporation and determined that the terms of the asset purchase agreement were
fair to Active Voice shareholders and unlikely to result in a windfall to
certain executive officers of Active Voice who will be shareholders of this new
corporation. On November 7, 2000, the Active Voice board of directors met again
with its legal and financial advisors and discussed the final terms of the
proposed merger and the asset purchase agreement. William Blair & Company
reviewed its financial analysis of the proposed transaction, answered questions
posed by the Active Voice board of directors and delivered a draft fairness
opinion. The fairness opinion of William Blair was subsequently confirmed in
final form on November 9, 2000 and stated that, as of such date and based upon
the procedures followed, factors considered and assumptions made by William
Blair & Company and subject to the limitations set forth in the opinion, the
exchange ratio in the transaction was fair to Active Voice shareholders from a
financial point of view. At the conclusion of these discussions and
presentation, the Active Voice board of directors voted to approve the merger,
the merger agreement, the asset purchase agreement for the sale of the
non-unified messaging business and related transaction documents.
26
<PAGE> 34
On November 9, 2000, Cisco and Active Voice entered into the merger
agreement and certain related agreements, including the asset purchase
agreement, were executed and delivered by Active Voice, Cisco, and the parties
thereto. At approximately 8:00 a.m., Eastern Time, on November 10, 2000, Cisco,
in collaboration with Active Voice, issued a press release announcing the
business combination.
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:
- strengthen Cisco's abilities to offer its customers a broad portfolio of
voice over internet protocol solutions;
- enhance Cisco's capabilities immediately in unified messaging for the
enterprise market; and
- leverage Active Voice's technical and sales expertise in unified
communications software.
For the strategic reasons set forth above, the Cisco board of directors
determined that the merger agreement and the merger were in the best interests
of Cisco and its shareholders and that Cisco should proceed with the merger
agreement and the merger.
Active Voice's Reasons for the Merger
The Active Voice board of directors believes that over the past several
years Active Voice's strategy has evolved to a point where its unified messaging
technology is now its most valuable strategic asset. Despite Active Voice's
success to date, increasing competition and industry consolidation have made it
important for Active Voice to consider strategic opportunities to advance its
unified messaging technology in order to compete with larger companies with
substantially greater resources and broader, integrated product offerings. As
such, Active Voice's management has considered a number of alternatives for
increasing market share and providing the opportunities for its unified
messaging technology to have a greater presence in the larger end-user market,
including the penetration of existing and international markets, the acquisition
of smaller companies that could extend Active Voice's market presence and
enhance the distribution of Active Voice's products and services, and a merger
with a larger company. Since many of the voice processing industry technologies
overlap, mergers and acquisitions have become more prevalent in the industry,
particularly in the last couple of years. There are many advantages to be gained
from the synergies created by these combinations, including the offering of a
more complete product suite to end users, combining research and development
budgets and products, convergence of prior competing sales channels, and
consolidation of capital investments and operating costs. In the industry
environment referred to above, the Active Voice board of directors identified
several potential benefits for the Active Voice shareholders, employees and
customers that it believes could result from a merger with Cisco. These
potential benefits include:
- providing Active Voice shareholders with shares of Cisco, which is one of
the largest companies in the Internet networking industry with annual
sales expected to be over $18 billion, in a tax-free exchange at a
substantial premium over the prevailing market price for Active Voice
common stock immediately prior to the announcement of the merger;
- mitigating the risk of significant fluctuations in Active Voice's stock
price due to efforts to move into the larger end-user market; and
- enabling the combined company to expand the utilization of Active Voice's
proprietary Unity unified messaging technology through increased
development and application of that technology to complementary product
lines.
27
<PAGE> 35
The board of directors of Active Voice believes that the exchange ratio of
Cisco common stock provided to Active Voice shareholders will result in a
significant financial premium to the Active Voice shareholders. Although the
specific amount of the premium depends on the average value of Cisco common
stock for the ten consecutive trading days ending on the third trading day prior
to the closing date, based upon the closing price of Cisco common stock on
November 9, 2000, the date the merger agreement was executed, of $53.25, the
transaction implied a $20.00 price for each share of Active Voice common stock,
representing a premium of 34 percent to Active Voice's closing price on November
9, 2000 and a premium of 75 percent to Active Voice's average share price for
the 30 calendar days ending October 31, 2000, the date the financial terms were
proposed.
Historically, one of the greatest risks to Active Voice shareholders has
been the need to allocate significant resources to the development of new
products, globalization of products for international markets and customization
of products for strategic partners in order to remain competitive in a rapidly
changing technological environment. Active Voice has derived a substantial
portion of its revenue in the past from its traditional voice messaging
business. However, revenue from the voice messaging business will likely decline
significantly as Internet telephony solutions begin to prove themselves in the
market. Active Voice's management believes that its unified messaging technology
will need to be further developed and expanded to take advantage of the emerging
market. In order to further develop its unified messaging technology and
products, Active Voice would need to significantly increase its research and
development expenses. Competitive pressure from new entrants to the marketplace,
including large software companies and telephone switch manufactures with
greater resources, could adversely affect Active Voice's efforts to penetrate
the unified messaging market. The board of directors of Active Voice believes
that a merger with Cisco, a much larger company, will significantly mitigate the
effects of the changing market and Active Voice's changing revenue sources.
Active Voice's business depends, in significant part, upon capital
expenditures by providers of Internet and telecommunications technology, which
in turn depend upon the current and anticipated market demand for productsand
services utilizing such technology. The Internet and telecommunications industry
has been highly volatile and historically has experienced periods of oversupply,
resulting in significantly reduced demand for capital equipment. Worldwide
demand for voice messaging and unified messaging technology may fluctuate
significantly or suffer a downturn. The board of directors of Active Voice
believes that a combination of Active Voice and Cisco should lessen the impact
on the combined company of fluctuations in the voice messaging and unified
messaging market, given the combined company's greater diversification and the
synergies expected to be realized from the merger.
In the course of its deliberations, the Active Voice board of directors
reviewed with Active Voice's management and outside legal and financial advisors
a number of factors relevant to the merger, including the strategic overview and
prospects for Active Voice. The Active Voice board of directors also considered
the following potentially positive factors, among others, in connection with its
review and analysis of the merger. The conclusion reached by the Active Voice
board of directors with respect to each of the factors supported its
determination that the merger agreement and the merger are fair to, and in the
best interests of, Active Voice and its shareholders:
- the belief that the merger will result in a much greater certainty that
the full value of Active Voice's core technology will be realized for the
benefit of Active Voice shareholders;
- the ability of the combined company to dedicate greater resources to both
current and emerging product and technology development efforts and to
fund the future growth of Active Voice's business;
- historical information concerning Cisco's and Active Voice's respective
businesses, technology, management, competitive position, financial
condition, and results of operations;
28
<PAGE> 36
- the views of Active Voice management as to the prospective businesses,
competitive position, financial condition, and results of operations of
the combined company following the merger and Active Voice as a
stand-alone basis and, in particular, the view that, in light of industry
and market conditions, the greater financial strength of Cisco, the
ability to leverage the Cisco sales network to increase sales of Active
Voice products, the other synergies expected to be realized from the
merger, and other relevant considerations, the prospective businesses,
competitive position, financial condition, and results of operations of
the combined company would be better than the prospective business,
competitive position, financial condition, and results of operations of
Active Voice as a stand-alone basis;
- because the exchange ratio will not be calculated until three days before
the closing of the merger, the per share value of the consideration to be
received by Active Voice shareholders is highly unlikely to be less than
the price per share implied by the exchange ratio immediately before the
announcement of the merger due to fluctuations in the market value of
Cisco common stock and Active Voice common stock;
- current financial market conditions and historical market prices,
volatility and trading information with respect to Cisco common stock and
Active Voice common stock, as well as the greater liquidity and reduced
volatility of an investment in Cisco common stock compared to an
investment in Active Voice common stock;
- the belief of Active Voice management that the terms of the merger
agreement, including the parties' representations, warranties and
covenants, and the conditions to the parties' respective obligations, are
reasonable;
- the analyses prepared by William Blair & Company and presented to the
Active Voice board of directors, and the opinion of William Blair &
Company confirmed in final form on November 9, 2000, that as of November
9, 2000, and based upon and subject to certain considerations set forth
in William Blair's opinion (the full text of which is attached as
Appendix F to this proxy statement/prospectus), the exchange ratio was
fair, from a financial point of view, to the holders of Active Voice
common stock, as described more fully under "Opinion of William Blair &
Company, L.L.C., Financial Advisor to Active Voice"; and
- the impact of the merger on Active Voice's customers and employees.
The Active Voice board of directors also considered a number of potentially
negative factors in its deliberations concerning the merger. The potentially
negative factors considered by the Active Voice board of directors included:
- the risk that the merger might not be completed in a timely manner or at
all;
- the negative impact of any customer or supplier confusion or reduced
order after announcement of the proposed merger;
- the challenges relating to the integration of the companies;
- the loss of control over the future operations of Active Voice following
the merger;
- the possibility of management and employee disruption associated with the
merger and the risk that, despite the efforts of the combined company,
key management, marketing, technical and administrative personnel of
Active Voice might not continue with the combined company;
- certain terms of the merger agreement and related agreements that
prohibit Active Voice and its representatives from soliciting third party
bids or discussing, accepting, approving or recom-
29
<PAGE> 37
mending unsolicited third party bids except in very limited circumstances would
reduce the likelihood that a third party would make a competing bid for Active
Voice;
- the negative impact of the termination fee payable by Active Voice in
certain circumstances (see "Payment of Fees and Expenses") on the
likelihood that a third party would make a competing bid for Active
Voice;
- the negative impact of the escrow provisions in the original equipment
manufacturer license agreement that would release the source code of
Active Voice's unity technology in the event that Active Voice sells
substantially all of its assets or merges with a party other than Cisco;
- the negative impact of the stock option agreement and the original
equipment manufacturer license agreement on the likelihood that a third
party would make a competing bid for Active Voice;
- the risks relating to Cisco's business and how they could affect the
operations of the combined company; and
- the other risks described above under "Risk Factors" starting on page 17.
Active Voice's board of directors concluded that these potentially negative
factors were outweighed by the potential benefits of the merger.
The foregoing discussion, information and factors considered by the Active
Voice board of directors is not intended to be exhaustive but is believed to
include all material factors considered by the Active Voice board of directors.
In view of the wide variety of factors considered by the Active Voice board of
directors, the Active Voice board of directors did not find it practicable to
quantify or otherwise assign relative weight to the specific factors considered.
In addition, the Active Voice board did not reach any specific conclusions on
each factor considered, or any aspect of any particular factor, but conducted an
overall analysis of these factors. Individual members of the Active Voice board
may have given different weight to different factors. However, after taking into
account all of the factors set forth above, the Active Voice board of directors
unanimously agreed that the merger agreement and the merger were fair to, and in
the best interests of, Active Voice and its shareholders and that Active Voice
should proceed with the merger.
RECOMMENDATION OF ACTIVE VOICE'S BOARD OF DIRECTORS
FOR THE REASONS DISCUSSED ABOVE, THE ACTIVE VOICE BOARD OF DIRECTORS HAS
APPROVED THE MERGER, THE MERGER AGREEMENT AND THE ASSET PURCHASE AGREEMENT AND
RECOMMENDS THAT ACTIVE VOICE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER,
AND THE ADOPTION OF THE MERGER AGREEMENT AND THE ASSET PURCHASE AGREEMENT.
In considering the recommendation of the Active Voice board of directors
with respect to the merger and the merger agreement, you should be aware that
some of the directors and officers of Active Voice have interests in the merger
that are different from, or are in addition to, the interests of Active Voice
shareholders generally. Please see the section entitled "Interests of Active
Voice Directors, Officers and Affiliates in the Merger" on page 53 of this proxy
statement/prospectus.
OPINION OF WILLIAM BLAIR & COMPANY, L.L.C., FINANCIAL ADVISOR TO ACTIVE VOICE
Active Voice retained William Blair & Company, L.L.C., to act as its
financial advisor in connection with a possible transaction with Cisco. Active
Voice asked William Blair to render an opinion as to whether the exchange ratio
set forth in the merger agreement was fair to Active Voice
30
<PAGE> 38
shareholders, from a financial point of view. On November 9, 2000, William Blair
delivered an oral opinion, later confirmed in writing as of that date, to Active
Voice's Board that, as of that date and based upon and subject to the
assumptions and qualifications stated in its opinion, the exchange ratio was
fair to Active Voice shareholders from a financial point of view.
THE FULL TEXT OF WILLIAM BLAIR'S WRITTEN OPINION, DATED NOVEMBER 9, 2000,
IS ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS APPENDIX F AND IS INCORPORATED
HEREIN BY REFERENCE. YOU SHOULD READ THE ENTIRE OPINION CAREFULLY TO LEARN ABOUT
THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITS OF THE
SCOPE OF WILLIAM BLAIR'S REVIEW IN RENDERING ITS OPINION. THE FOLLOWING SUMMARY
OF WILLIAM BLAIR'S OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE OPINION. WILLIAM BLAIR'S OPINION WAS ADDRESSED TO ACTIVE VOICE'S
BOARD FOR THE PURPOSE OF ITS EVALUATION OF THE MERGER AND IS NOT A
RECOMMENDATION TO ANY ACTIVE VOICE SHAREHOLDER AS TO HOW TO VOTE ON THE MERGER
PROPOSAL.
In connection with its opinion, William Blair reviewed, among other things:
- a draft of the merger agreement dated November 7, 2000 and certain other
documents contemplated thereby;
- publicly available financial, operating and business information about
Active Voice and Cisco, including published equity research reports and
publicly filed documents with the SEC and other regulatory agencies;
- financial and other information about Active Voice's prospects prepared
by Active Voice's senior management;
- the pro forma impact of the merger on the earnings per share of Cisco
based on financial information prepared by the senior management of
Active Voice and published equity research reports regarding Cisco;
- information regarding publicly available financial terms and premiums
paid of certain recently-completed transactions of companies in
businesses William Blair believed were comparable to Active Voice and
public companies acquired or merged in transactions using substantially
all stock as consideration;
- current and historical market prices and trading volumes of Active Voice
common stock and Cisco common stock, including their performance in
comparison to publicly held companies in businesses William Blair
believed were comparable to Active Voice and Cisco, respectively; and
- certain other publicly available information about Active Voice and
Cisco.
William Blair also discussed the matters listed above with members of the
senior management of Active Voice, considered other matters which it deemed
relevant to its inquiry and took into account the accepted financial and
investment procedures and considerations it deemed relevant.
In rendering its opinion, William Blair assumed and relied upon the
accuracy and completeness of all the information it examined or otherwise
reviewed or discussed for purposes of its opinion. William Blair did not attempt
to verify independently any of this information, nor did it make or obtain an
independent valuation or appraisal of the assets, liabilities or solvency of
Active Voice or Cisco. Active Voice's management advised William Blair that the
forecasts concerning Active Voice's prospects that William Blair examined were
reasonably prepared on bases reflecting the best currently available
31
<PAGE> 39
estimates and judgments of Active Voice's management. William Blair expressed no
opinion with respect to these forecasts or the estimates and judgments on which
they were based.
William Blair based its opinion on economic, market, financial and other
conditions existing on November 3, 2000 and other information disclosed to
William Blair as of that date. Under its engagement with Active Voice, William
Blair does not have any obligation to update, revise or reaffirm its opinion. As
a result, circumstances may develop before the merger occurs that, if known at
the time William Blair rendered its opinion, would have altered William Blair's
opinion. William Blair assumed that the merger would be accounted for as a
purchase under generally accepted accounting principles, would be treated as a
tax-free reorganization under Section 368 of the Internal Revenue Code and that
the shares received by Active Voice shareholders would be freely tradable.
William Blair relied on the advice of counsel to Active Voice regarding legal
matters and assumed that the merger would be completed on the terms described in
the draft merger agreement it reviewed, without any waiver of any material terms
or conditions by Active Voice.
The following discussion summarizes the material financial analyses William
Blair performed in arriving at its opinion. William Blair discussed these
analyses with the Active Voice Board on November 7, 2000.
Stock Price Analysis. William Blair examined the history of the trading
prices and volume for Active Voice common stock and Cisco common shares and the
relationships between movements of these common stocks and movements in common
stocks of publicly held companies in businesses William Blair believed were
comparable to Active Voice and Cisco.
Analysis of Certain Publicly Traded Companies for Active Voice. William
Blair reviewed and compared Active Voice's financial information to
corresponding financial information, ratios and public market multiples for
publicly traded companies in the voice processing industry. These publicly
traded companies included Apropos Technology, Applied Voice Technology,
Cognitronics Corporation, Comverse Technology, Intervoice, Syntellect and Talx
Corporation. William Blair selected these companies because they are the
publicly traded companies whose operations William Blair believed are most
comparable to Active Voice. Although William Blair compared the trading
multiples of these companies at the date of William Blair's opinion to the
implied purchase multiples of Active Voice, none of the selected companies is
identical to Active Voice.
Among the information William Blair considered were revenue; operating
income, commonly known as EBIT; earnings before interest, taxes, depreciation
and amortization, commonly known as EBITDA; net income; earnings per share;
gross profit margins; EBIT margins and net income margins; growth in revenues
and net income; revenue and net income estimates for calendar years 2000 and
2001; return on assets; and equity and capital structure. The multiples and
ratios for Active Voice and the comparable companies were based on the most
recent publicly available financial information, earnings per share estimates
for calendar years 2000 and 2001 from First Call Corporation and these
companies' closing share prices on November 3, 2000.
William Blair observed that the multiples of enterprise value, which is
market equity value plus book value of total debt less cash and equivalents, to
revenues for the latest twelve months and for calendar years 2000 and 2001
implied by the terms of the merger compared favorably, from Active Voice's
perspective, to the median of the corresponding multiples of the comparable
companies. William Blair observed that multiples of market equity value to
calendar year 2001 earnings per share and common book equity as of September 30,
2000 implied by the terms of the merger compared favorably, from Active Voice's
perspective, to the median of the corresponding multiples of the comparable
companies. Other multiples of enterprise value and equity value calculated by
William Blair were not
32
<PAGE> 40
deemed relevant due to Active Voice's operating losses over the last twelve
months and estimates of losses that imply values that are not meaningful.
Information regarding the multiples implied by the terms of the merger
compared to the multiples from William Blair's analysis of selected voice
processing companies is set forth in the following table. LTM refers to the
latest twelve months.
<TABLE>
<CAPTION>
SELECTED VOICE
THE PROPOSED PROCESSING COMPANIES
ACTIVE VOICE ------------------------
MULTIPLE MERGER RANGE MEDIAN
-------- ------------ -------------- ------
<S> <C> <C> <C>
Enterprise Value to LTM Revenues.......... 4.2x 0.9x to 5.2x 1.5x
Enterprise Value to Estimated 2000
Revenues................................ 4.5x 0.8x to 3.2x 1.4x
Enterprise Value to Estimated 2001
Revenues................................ 2.6x 0.1x to 2.5x 1.1x
Equity Value to Estimated 2001 Earnings... 19.3x 11.4x to 30.3x 12.5x
Equity Value to Current Book Value........ 6.6x 1.8x to 6.0x 2.8x
</TABLE>
Comparable Acquisitions Analysis. William Blair analyzed recent merger or
acquisition transactions in the voice processing industry that William Blair
believed were generally comparable, in whole or in part, to the proposed
transaction. William Blair examined fourteen transactions announced between
October 23, 1995 and November 3, 2000. The selected transactions were not
intended to be representative of the entire range of possible transactions in
the voice processing industry. Although William Blair compared the transaction
multiples of these companies to the implied purchase multiples of Active Voice,
none of the selected companies or transactions is identical to Active Voice or
the merger.
William Blair reviewed the consideration paid in these transactions in
terms of the enterprise value as a multiple of revenues for the latest twelve
months prior to the announcement of these transactions, and as a multiple of
estimated revenues for the current calendar year and the next full calendar year
following the announcement of these transactions based on published equity
research analyst estimates for the respective companies at the time of
announcement. William Blair also reviewed the consideration paid in these
transactions in terms of the price paid for the common stock, also referred to
as the equity purchase price, as a multiple of equity book value at the time of
the announcement of the transactions. Other multiples of enterprise value and
equity value calculated by William Blair were not deemed relevant due to Active
Voice's operating losses over the last twelve months and estimates of losses
that imply values that are not meaningful.
Information regarding the multiples implied by the terms of the merger
compared to the acquisition multiples from William Blair's analysis of selected
voice processing companies is set forth in the following table. CY refers to
calendar year.
<TABLE>
<CAPTION>
FOURTEEN TRANSACTIONS IN
THE VOICE PROCESSING
THE PROPOSED INDUSTRY
ACTIVE VOICE -------------------------
MULTIPLE MERGER RANGE MEDIAN
-------- ------------ -------------- -------
<S> <C> <C> <C>
Enterprise Value to LTM Revenues........... 4.2x 0.7x to 12.2x 2.4x
Enterprise Value to Estimated Current CY
Revenues................................. 4.5x 0.7x to 3.1x 2.3x
Enterprise Value to Estimated Following CY
Revenues................................. 2.6x 0.6x to 2.3x 2.0x
Equity Purchase Price to Current Book
Value.................................... 6.6x 1.5x to 8.4x 3.9x
</TABLE>
33
<PAGE> 41
Premium Analysis of Comparable Transactions. In addition to evaluating
multiples paid in transactions in the voice processing industry, William Blair
analyzed the premiums paid over a public company's stock price prior to the
announcement of a transaction in eleven transactions in industries similar to
that of Active Voice, which were announced between October 23, 1995 and November
3, 2000. In these transactions, the companies' enterprise values ranged from $14
million to $1.7 billion. The premium analysis for Active Voice was based on its
closing price on November 3, 2000. The premium analysis conducted by William
Blair indicated the following:
<TABLE>
<CAPTION>
ELEVEN PUBLIC TRANSACTIONS
THE PROPOSED IN RELATED INDUSTRIES
ACTIVE VOICE --------------------------
PREMIUM MERGER RANGE MEDIAN
------- ------------ ---------------- ------
<S> <C> <C> <C>
One day before......................... 46.7% (14.3)% to 60.9% 20.0%
One week before........................ 56.9% 11.2 % to 93.5% 33.3%
Four weeks before...................... 66.7% 6.4 % to 93.5% 49.3%
</TABLE>
Premium Analysis of Stock Acquisitions of Public Companies. William Blair
analyzed the premiums paid over a public company's stock price prior to the
announcement of a transaction in 250 transactions with transaction values
between $50 million and $500 million announced between January 1, 1997 and
November 3, 2000 that were completed using substantially all stock as
consideration. The premium analysis for Active Voice was based on its closing
price on November 3, 2000 announcement date. The premium analysis conducted by
William Blair indicated the following:
<TABLE>
<CAPTION>
ACQUIRED WITH STOCK
THE PROPOSED 250 PUBLIC TRANSACTIONS
ACTIVE VOICE ---------------------------
PREMIUM MERGER RANGE MEDIAN
------- ------------ ----------------- ------
<S> <C> <C> <C>
One day before........................ 46.7% (51.0)% to 94.4% 26.2%
One week before....................... 56.9% (48.2)% to 103.1% 32.5%
Four weeks before..................... 66.7% (52.5)% to 113.3% 47.4%
</TABLE>
Discounted Cash Flow Analysis. Using a discounted cash flow analysis,
William Blair estimated the net present value of the free cash flows that Active
Voice could produce on a stand-alone basis over a five year period from 2001 to
2005. William Blair also estimated the net present value of the free cash flows
that Active Voice could produce on a stand-alone basis over a five year period
from 2001 to 2005 including synergies from the merger expected by the senior
management of Active Voice. Free cash flows means EBIT after taxes plus
depreciation and amortization less capital expenditures and increases in working
capital. In estimating these cash flows, William Blair used the forecasts
provided by Active Voice management for the years 2000 through 2003 on a
stand-alone basis and for expected merger synergies, and William Blair projected
results for 2004 and 2005 using similar growth rates and margins. William Blair
also calculated an enterprise value for Active Voice at the conclusion of the
five-year period ending in 2005, commonly referred to as the terminal value. In
calculating the terminal value, William Blair assumed multiples of enterprise
value to EBITDA ranging from 7.0x to 9.0x, which William Blair believed to be
appropriate for this analysis. The annual cash flows and terminal value were
discounted at rates between 16% and 20% to determine a net present value of the
enterprise value of Active Voice. Equity value was calculated by subtracting net
debt from enterprise value. The discounted cash flow analysis conducted by
William Blair indicated the following:
<TABLE>
<S> <C>
Stand-alone Valuation of the Equity........... $227 million to $328 million
Per Share Price Range......................... $15.38 to $22.24
Stand-alone plus Merger Synergies Valuation of
the Equity.................................. $326 million to $472 million
Per Share Price Range......................... $22.08 to $31.95
</TABLE>
34
<PAGE> 42
Discounted Cash Flow Analysis for Cisco. Using a discounted cash flow
analysis, William Blair estimated the net present value of the free cash flows
that Cisco could produce on a stand-alone basis over a five year period from
2001 to 2005. In estimating these cash flows William Blair used publicly
available information including published equity research reports for estimates
for the years 2001 and 2002 and projected results for 2003 through 2005 using
similar growth rates and margins. In calculating the terminal value, William
Blair assumed multiples of enterprise value to EBITDA ranging from 25.0x to
30.0x, representing a discount range of 55.3% to 62.7% to its current EBITDA
multiple, which William Blair believed to be appropriate for this analysis. The
annual and terminal free cash flows were discounted at rates between 16.0% and
20.0% to determine a net present value of the enterprise value of Cisco. The
discounted cash flow analysis conducted by William Blair indicated the
following:
<TABLE>
<S> <C>
Valuation of the Equity of Cisco............... $346 billion to $478 billion
Per Share Price Range.......................... $49.19 to $67.93
</TABLE>
Implied Future Share Price of Cisco. Based on consensus estimates of
published equity research reports, William Blair estimated the present value of
the expected future share price of Cisco. In estimating these values, William
Blair used the consensus estimates of published equity research reports for
Cisco earnings per share for estimates for fiscal years 2001 and 2002 and
projected values for 2003 through 2005 by applying the consensus earnings per
share growth rates of published equity research reports. In calculating future
expected share price, William Blair assumed Cisco will maintain its current
multiple of earnings per share ranging from 90.0x to 100.0x. The future share
prices were discounted at rates between 16.0% and 20.0% to determine a net
present value of the future expected share price of Cisco. The future share
price analysis implied a per share price for Cisco ranging from $58.83 to $67.05
based on earnings estimates for fiscal 2001 and a per share price ranging from
$87.26 to $113.90 based on earnings estimates for fiscal 2005.
Pro Forma Merger Analysis. William Blair also performed pro forma analyses
of the financial impact of the merger. Using the earnings forecast for Active
Voice provided by management and the consensus estimates of Cisco's earnings
(excluding nonrecurring charges and goodwill amortization attributable to
acquisitions) based on published equity research reports, William Blair compared
the earnings per share of the Cisco common shares on a stand-alone basis to the
earnings per share of the common stock of the surviving corporation on a pro
forma basis including potential cost savings and operating synergies as
projected of the senior management of Active Voice. William Blair assumed the
merger would be accounted for using purchase accounting. Based on an analysis of
the merger using the consensus estimates of published equity research reports,
the impact of the proposed transaction on fiscal 2001 and 2002 earnings is
negligible.
General. This summary is not a complete description of the analysis
performed by William Blair. The preparation of a fairness opinion involves
determinations about the most appropriate and relevant methods of financial
analysis and the application of these methods in particular circumstances. As a
result, a fairness opinion is not easily summarized. The preparation of a
fairness opinion does not involve a mathematical evaluation or weighing of the
results of the individual analyses performed, but requires William Blair to
exercise its professional judgment, based on its experience and expertise, in
considering a wide variety of analyses taken as a whole. Each of the analyses
conducted by William Blair was carried out in order to provide a different
perspective on the merger and add to the total mix of information available.
William Blair did not form a conclusion as to whether any individual analysis,
considered in isolation, supported or failed to support an opinion about the
fairness of the exchange ratio. Rather, in reaching its conclusion, William
Blair considered the results of the analyses in light of each other and
ultimately reached its opinion based on the results of all analyses taken as a
whole. William Blair did not place particular reliance or weight on any
particular analysis, but instead
35
<PAGE> 43
concluded that its analyses, taken as a whole, supported its determination.
William Blair believes that its analyses must be considered as a whole.
Selecting portions of William Blair's analyses and the factors considered by it,
without considering all analyses and factors, may create an incomplete view of
the evaluation process underlying its opinion. No company or transaction used in
the above analyses as a comparison is directly comparable to Cisco or Active
Voice or the merger. In performing its analyses, William Blair made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters. The analyses performed by William Blair are not
necessarily indicative of future actual values and future results, which may be
significantly more or less favorable than suggested by these analyses.
William Blair is a nationally recognized firm. As part of its investment
banking activities, William Blair regularly engages in the valuation of
businesses and their securities in connection with merger transactions and other
types of strategic combinations and acquisitions. William Blair acted as the
lead manager for Active Voice's initial public offering in 1993 and received
underwriting fees for those services. In the ordinary course of its business,
William Blair and its affiliates actively trade shares of Active Voice common
stock and Cisco common stock for their own accounts and for the accounts of
their customers and may hold a long or short position in these securities.
Active Voice agreed to pay William Blair a fee for its services equal to
0.75% the total consideration received by Active Voice and its shareholders.
This fee is contingent upon the completion of the merger. Active Voice will also
reimburse William Blair for all out-of-pocket expenses, including fees and
expenses of its counsel and any other independent experts retained by William
Blair, reasonably incurred by it in connection with its engagement. In addition,
Active Voice has agreed to indemnify William Blair and its affiliates against
specified liabilities, including liabilities arising under applicable securities
laws.
Active Voice did not retain William Blair as an advisor or agent to Active
Voice's shareholders or any other person. Active Voice retained William Blair
solely as an advisor to Active Voice's Board. William Blair's opinion is not an
opinion about the price at which Cisco common shares would trade at any time.
Active Voice and Cisco determined the exchange ratio in arms-length negotiations
in which William Blair advised Active Voice's Board. William Blair was not
requested to, nor did it, seek alternative participants for a possible
transaction with Active Voice. Active Voice did not impose any restrictions or
limitations on William Blair with respect to the investigations made or the
procedures that William Blair followed in rendering its opinion.
On November 9, 2000, William Blair & Company, L.L.C., rendered its written
opinion to the board of directors of Active Voice that, as of that date, and
based upon and subject to the various qualifications and assumptions described
in its opinion, the exchange ratio pursuant to the merger agreement was fair
from a financial point of view to the holders of Active Voice common stock.
COMPLETION AND EFFECTIVENESS OF THE MERGER
The merger will be completed when all of the conditions to completion of
the merger are satisfied or waived, including the approval of the merger and the
adoption of the merger agreement by the Active Voice shareholders. The merger
will become effective upon the filing of articles of merger with the State of
Washington and a certificate of merger with the State of Delaware.
We are working towards completing the merger as quickly as possible. We
hope to complete the merger during the second quarter of Cisco's fiscal 2001.
Because the merger is subject to government approvals, we cannot predict the
exact timing.
36
<PAGE> 44
STRUCTURE OF THE MERGER AND CONVERSION OF ACTIVE VOICE COMMON STOCK
In accordance with the merger agreement and Delaware law, Aqua Acquisition
Corporation, a newly-formed, wholly-owned subsidiary of Cisco, will be merged
with and into Active Voice. As a result of the merger, the separate corporate
existence of Aqua Acquisition Corporation will cease and Active Voice will
survive the merger as a wholly-owned subsidiary of Cisco.
Upon completion of the merger, each outstanding share of Active Voice
common stock, other than shares held by Cisco and its subsidiaries, will be
canceled and converted into the right to receive a number of shares of Cisco
common stock equal to the ratio of (x) a quotient, the numerator of which is
$295,332,740 and the denominator of which is the average of the closing prices
of Cisco common stock as quoted on the Nasdaq National Market for the ten
consecutive trading days ending on the third trading day prior to the effective
time of the merger and (y) the total number of shares of Active Voice common
stock issued and outstanding on a fully diluted basis at the effective time of
the merger (after giving effect to the conversion, exchange or exercise as the
case may be of all securities convertible into, or exercisable or exchangeable
for, Active Voice common stock, including all unexpired and unexercised options,
warrants or other rights to acquire Active Voice common stock). 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. will accompany each share of Cisco common
stock. The number of shares of Cisco common stock issuable in the merger will be
proportionately adjusted for any additional future stock split, stock dividend
or similar event with respect to Active Voice common stock or Cisco common stock
effected between the date of the merger agreement and the completion of the
merger.
No fractional shares of Cisco common stock will be issued in connection
with the merger. In lieu of a fraction of a share of Cisco common stock, you
will receive an amount of cash equal to the product of the fraction multiplied
by the average closing price for a share of Cisco common stock on the Nasdaq
National Market for the last ten trading days ending on the third trading day
prior to the effective time of the merger.
EXCHANGE OF ACTIVE VOICE STOCK CERTIFICATES FOR CISCO STOCK CERTIFICATES
When the merger is completed, the exchange agent will mail to you a letter
of transmittal and instructions for use in surrendering your Active Voice stock
certificates in exchange for Cisco stock certificates. When you deliver your
Active Voice stock certificates to the exchange agent along with a properly
executed letter of transmittal and any other required documents, your Active
Voice stock certificates will be canceled and you will receive Cisco stock
certificates representing the number of full shares of Cisco common stock to
which you are entitled under the merger agreement (and cash in lieu of
fractional shares).
YOU SHOULD NOT SUBMIT YOUR STOCK CERTIFICATES FOR EXCHANGE
UNTIL YOU HAVE RECEIVED THE LETTER OF TRANSMITTAL
AND INSTRUCTIONS REFERRED TO ABOVE.
You are not entitled to receive any dividends or other distributions on
Cisco common stock with a record date after the merger is completed until you
have surrendered your Active Voice stock certificates in exchange for Cisco
stock certificates.
If there is any dividend or other distribution on Cisco common stock with a
record date after the merger and a payment date prior to the date you surrender
your Active Voice stock certificates in exchange for Cisco stock certificates,
you will receive such dividend or other distribution with respect to
37
<PAGE> 45
the whole shares of Cisco common stock issued to you promptly after your Active
Voice stock certificates are surrendered. If there is any dividend or other
distribution on Cisco common stock with a record date after the merger and a
payment date after the date you surrender your Active Voice stock certificates
in exchange for Cisco stock certificates, you will receive such dividend or
other distribution with respect to the whole shares of Cisco common stock issued
to you promptly after the payment date. No interest will be payable with respect
to any delayed dividends or distributions.
Cisco will only issue a Cisco stock certificate or a check in lieu of a
fractional share in a name other than the name in which a surrendered Active
Voice stock certificate is registered if you present the exchange agent with all
documents required to show and effect the unrecorded transfer of ownership and
show that you paid any applicable stock transfer taxes.
TREATMENT OF ACTIVE VOICE STOCK OPTION PLANS
At the effective time of the merger, each outstanding option to purchase
shares of Active Voice common stock issued under Active Voice's 2000 Stock
Option Plan, 1998 Stock Option Plan, 1996 Stock Option Plan, 1993 Stock Option
Plan, 1988 Non-qualified Stock Option Plan, 2000 Director Stock Option Plan,
1997 Director Stock Option Plan, and Directors Stock Option Plan will be assumed
by Cisco regardless of whether the options are vested or unvested. Each Active
Voice stock option, which will be assumed by Cisco, will continue to have the
same terms, and be subject to the same conditions, that were applicable to the
option immediately prior to the effective time, except that:
- each Active Voice stock option will be exercisable for shares of Cisco
common stock;
- the number of shares of Cisco common stock issuable upon exercise of any
given Active Voice option will be determined by multiplying the number of
shares of Active Voice common stock underlying the option by the exchange
ratio and rounded down to the nearest whole number of shares of Cisco
common stock; and
- the per share exercise price of any given option will be determined by
dividing the exercise price of the option immediately prior to the
effective time by the exchange ratio and rounded up to the nearest whole
cent.
The exchange ratio shall equal the ratio of (x) a quotient, the numerator
of which is $295,332,740 and the denominator of which is the average of the
closing prices of Cisco common stock as quoted on the Nasdaq National Market for
the ten consecutive trading days ending on the third trading day prior to the
effective time of the merger and (y) the total number of Active Voice common
stock issued and outstanding on a fully diluted basis at the effective time of
the merger (after giving effect to the conversion, exchange or exercise as the
case may be of all securities convertible into, or exercisable or exchangeable
for, Active Voice common stock, including all unexpired and unexercised options,
warrants or other rights to acquire Active Voice common stock).
Active Voice stock options generally provide for the full acceleration of
the unvested portion of each option if the merger is completed and the optionee
is terminated without cause or voluntarily terminates his or her employment
under certain circumstances following the merger. Employees and executive
officers of Active Voice who become employees of Cisco following the merger are
required to execute acceleration waivers so that 50% of their unvested options
will become fully vested and exercisable upon the merger, and no additional
acceleration of vesting will occur. Employees of Active Voice to be assigned to
Atlantis Group following the merger will receive full acceleration of vesting of
their unvested options if the closing conditions for the merger are satisfied
(including the execution of general releases in favor of Cisco and Active Voice)
and the merger actually closes.
38
<PAGE> 46
Cisco has agreed to file a registration statement on Form S-8 covering
shares of Cisco common stock issuable upon the exercise of outstanding Active
Voice options granted to individuals for which a registration statement on Form
S-8 is available. Cisco also has agreed to file a registration statement on Form
S-3 covering shares of Cisco common stock issuable pursuant to outstanding
options granted to entities or individuals (including entities controlled by
Active Voice directors which are not eligible for registration on Form S-8) and
to keep this registration statement on Form S-3 available for one year.
TERMINATION OF ACTIVE VOICE EMPLOYEE STOCK PURCHASE PLAN
Pursuant to the terms of the merger agreement, as a condition to Cisco's
obligation to consummate the merger, the Active Voice Employee Stock Purchase
Plan must be terminated immediately following the December 31, 2000 purchase
date, and no additional shares may be purchased under the plan following the
December 31, 2000 purchase date.
OTHER PROVISIONS OF THE MERGER AGREEMENT
Representations and Warranties
Active Voice and Cisco each made a number of representations and warranties
in the merger agreement regarding authority to enter into the merger agreement
and to consummate the transactions contemplated by the merger agreement and with
regard to aspects of the business and financial condition of Active Voice and
Cisco, the structure of the merger and other facts pertinent to the merger.
The representations given by Active Voice cover the following topics as
they relate to Active Voice and its subsidiaries:
- Active Voice's organization, valid existence, qualification to do
business and power;
- Active Voice's capitalization;
- authorization of the merger and the transaction agreements by Active
Voice, subject to Active Voice shareholder approval;
- Active Voice's filings and reports with the Securities and Exchange
Commission;
- Active Voice's financial statements;
- changes in Active Voice's business since June 30, 2000;
- no undisclosed liabilities;
- litigation involving Active Voice;
- no restrictions on Active Voice's business;
- the possession of and compliance with governmental permits, licenses and
other authorizations required to conduct Active Voice's business;
- Active Voice's title to the properties it owns and leases;
- intellectual property used, owned and licensed by Active Voice;
- environmental laws that apply to Active Voice;
- Active Voice's taxes;
- Active Voice's employee benefit plans;
- the effect of the merger on obligations of Active Voice;
- matters relating to Active Voice's employees;
- Active Voice's transactions with interested parties;
- Active Voice's insurance;
39
<PAGE> 47
- Active Voice's compliance with applicable laws;
- Active Voice's minute books;
- documents requested by and delivered to Cisco and its counsel;
- brokers' and finders' fees;
- information supplied by Active Voice in this proxy statement/prospectus
and the related registration statement on Form S-4 of Cisco;
- the opinion of Active Voice's financial advisors;
- the vote required of the Active Voice shareholders to approve the merger;
- authorization and recommendation of the merger and the merger agreement
by the Active Voice board of directors;
- the agreement of certain Active Voice shareholders to vote for approval
of the merger;
- the inapplicability of Washington anti-takeover statutes to the merger;
- Active Voice's inventory;
- Active Voice's accounts receivable;
- certain Active Voice customers and suppliers;
- Active Voice's compliance with export control laws; and
- the effect of the Year 2000 on Active Voice's business and products.
The representations given by Cisco and Aqua Acquisition Corporation cover
the following topics as they relate to Cisco, Aqua Acquisition Corporation and
their respective subsidiaries:
- organization, good standing, qualification to do business and power of
Cisco and Aqua Acquisition Corporation;
- capitalization of Cisco and Aqua Acquisition Corporation;
- authorization of the merger by Cisco and Aqua Acquisition Corporation;
- Cisco's filings and reports with the Securities and Exchange Commission;
- Cisco's financial statements;
- no undisclosed liabilities;
- litigation involving Cisco;
- brokers' and finders' fees;
- litigation involving Cisco;
- information supplied by Cisco and Aqua Acquisition Corporation in this
proxy statement/ prospectus and the related registration statement on
Form S-4 of Cisco; and
- authorization by Cisco's board of directors.
This is only a summary. You are urged to carefully read the articles in the
merger agreement attached as Appendix A to this proxy statement/prospectus
entitled "Representations and Warranties of Company" and "Representations and
Warranties of Parent and Merger Sub."
Active Voice's Conduct of Business Before Completion of the Merger
Active Voice agreed that until the completion of the merger, the
termination of the merger agreement or unless Cisco consents in writing, Active
Voice and its subsidiaries will pay their respective
40
<PAGE> 48
debts and taxes when due and will operate their respective businesses in the
same manner as past practices and in good faith with the goal of:
- preserving intact its and its subsidiaries' current business
organizations;
- keeping available the services of its and its subsidiaries' current
officers and key employees; and
- preserving its and its subsidiaries' relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with them.
Active Voice also agreed to promptly notify Cisco of any event which would
harm Active Voice's or its subsidiaries' business or of any event or occurrence
not in the usual course of business. Active Voice also agreed that until the
completion of the merger, termination of the merger agreement or unless Cisco
consents in writing, Active Voice and its subsidiaries will conduct their
business in compliance with specific restrictions relating to the following:
- modification of Active Voice's articles of incorporation or bylaws;
- the issuance of dividends or other distributions;
- the modification of any stock option plans;
- the execution, modification or waiver of material contracts other than in
the ordinary course of business;
- the issuance and redemption of securities, except for (i) the issuance of
Active Voice common stock pursuant to the exercise of outstanding
options, warrants or other rights outstanding as of November 9, 2000 and
(ii) the repurchase of Active Voice common stock from certain employees,
directors and consultants in connection with their termination of
service;
- the transfer or license of Active Voice's intellectual property, the
creation of a source-code escrow for any of its intellectual property or
the grant of any source code license;
- the granting or amendment of exclusive rights to its products or
technology;
- the disposition of any properties or assets that are material to Active
Voice's or its subsidiaries' business other than in the ordinary course
of business;
- the incurrence of indebtedness;
- entering into operating leases over $100,000;
- the payment of obligations over $100,000 and other than in the ordinary
course of business;
- capital expenditures over $100,000 individually or $500,000 in the
aggregate and other than in the ordinary course of business;
- the material reduction of insurance;
- the waiver or termination of any right of substantial value to Active
Voice;
- employees, employee benefits and pay increases;
- severance arrangements;
- commencement of any lawsuit;
- the acquisition of assets or other entities;
- tax elections and liabilities other than in the ordinary course of
business;
- notices required under law;
- the revaluation of Active Voice's assets other than in the ordinary
course of business;
- accounting policies and procedures;
- Year 2000 compliance;
41
<PAGE> 49
- the amendment or waiver of any provision of the asset purchase agreement
or the noteholder rights and security agreement; or
- the draw down of any amounts from the revolving line of credit dated as
of November 30, 1998 between Active Voice and Wells Fargo Bank.
This is only a summary. You are urged to carefully read the article in the
merger agreement entitled "Conduct Prior to the Effective Time" in Appendix A to
this proxy statement/prospectus.
No Solicitation of Takeover Proposal
Until the merger is completed or the merger agreement is terminated, Active
Voice has agreed not to directly or indirectly take any of the following
actions:
- solicit, initiate, encourage or agree to any takeover proposal; or
- engage in discussions or negotiations with, or disclose any nonpublic
information relating to Active Voice or any of its subsidiaries to, or
afford access to the properties, books or records of Active Voice or any
of its subsidiaries to, any person that has advised Active Voice that it
may be considering making, or that has made, a takeover proposal.
Active Voice board of directors is not prohibited from taking and
disclosing to Active Voice shareholders a position with respect to a tender
offer pursuant to Rules 14d-9 and 14e-2 promulgated under the Securities
Exchange Act of 1934.
Active Voice has agreed to promptly provide Cisco with detailed information
about any takeover proposal it receives.
Active Voice may engage in any of these otherwise prohibited acts, other
than solicitation, initiation or encouragement of any takeover proposal, if,
prior to the adoption of the merger agreement by Active Voice Shareholders, its
board of directors:
- receives an unsolicited written takeover proposal;
- believes in good faith that such takeover proposal concerning an
extraordinary transaction of the nature specified in the merger agreement
will result in a transaction more favorable to the Active Voice
shareholders from a financial point of view than the merger; and
- determines in good faith after advice from outside legal counsel that
engaging in the prohibited negotiations or discussions or providing
non-public information is necessary in order to comply with the fiduciary
duties of the board of directors under applicable law.
A takeover proposal is (other than the merger):
- any offer or proposal for or indication of interest in a merger or other
business combination involving Active Voice or any of its subsidiaries;
- the acquisition of 15%, or in the case of NEC Corporation 19.9%, or more
of the outstanding shares of capital stock of Active Voice or any of its
subsidiaries; or
- the acquisition of a significant portion of the assets of Active Voice or
any of its subsidiaries.
42
<PAGE> 50
Conditions to the Merger
Cisco's and Active Voice's respective obligations to complete the merger
and the other transactions contemplated by the merger agreement are subject to
the satisfaction or waiver of each of the following conditions before completion
of the merger:
- the merger must be approved and the merger agreement must be adopted by
the holders of a majority of the Active Voice shareholders;
- the registration statement on Form S-4 registering the shares of Cisco
common stock to be issued in the merger, of which this proxy
statement/prospectus forms a part, must have been declared effective by
the Securities and Exchange Commission and must not be the subject of any
stop order or proceeding seeking a stop order;
- no law, regulation or order must be enacted or issued which has the
effect of making the merger illegal or otherwise prohibits completion of
the merger;
- Cisco and Active Voice shall have received the opinion of their
respective tax counsels that the merger will qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code; and
- Cisco, Aqua Acquisition Corporation and Active Voice shall have received
all necessary governmental approvals, waivers and consents, including
such approvals, waivers and consents required under United States
antitrust laws and federal and state securities laws.
Active Voice's obligations to complete the merger and the other
transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following additional conditions before
completion of the merger:
- Cisco's and Aqua Acquisition Corporation's representations and warranties
must be true and correct when made and as of the closing of the merger in
all material respects;
- Cisco and Aqua Acquisition Corporation shall have complied in all
material respects with all covenants, obligations and conditions of the
merger agreement required to be performed and complied with by them; and
- Active Voice shall have been provided with a certificate executed on
behalf of Cisco that all representations of Cisco and Aqua Acquisition
Corporation are true and correct and that all obligations of Cisco and
Aqua Acquisition Corporation have been fulfilled.
Cisco's and Aqua Acquisition Corporation's obligations to complete the
merger and the other transactions contemplated by the merger agreement are
subject to the satisfaction or waiver of each of the following additional
conditions before completion of the merger:
- Active Voice's representations and warranties must be true and correct
when made and as of the closing of the merger in all material respects;
- Active Voice shall have complied in all material respects with all
covenants, obligations and conditions of the merger agreement required to
be performed and complied with by it;
- Cisco shall have been provided with a certificate executed on behalf of
Active Voice that all representations of Active Voice are true and
correct and that all obligations of Active Voice have been fulfilled;
- Cisco shall have been provided evidence that Active Voice has obtained
certain necessary third-party consents required under its material
contracts;
- The original equipment manufacturer license agreement dated as of October
31, 2000 between Cisco and Active Voice must be in full force and effect.
Under the terms of the original
43
<PAGE> 51
equipment manufacturer license agreement with Cisco, Active Voice has
agreed to deposit certain intellectual property and related materials
into escrow, including source code to its unified messaging technology.
If Active Voice sells substantially all of its assets or merges with a
party other than Cisco, such intellectual property and related materials
held in escrow will be released to Cisco;
- no injunctions or restraints shall have been imposed preventing Cisco's
conduct or operation of Active Voice's business following the merger;
- no event, change or effect that is materially adverse to the condition,
properties, assets, liabilities or operations of Active Voice shall have
occurred;
- holder of not more than 5% (or 14.9% in the event NEC Corporation is a
dissenting shareholder) of the shares of Active Voice common stock shall
have exercised their rights as a dissenting shareholder and demanded
payment for their shares under the Washington Business Corporation Act;
- certain employees of Active Voice to become employed by Cisco following
the merger must have entered into employment and non-competition
agreements with Cisco and all employees of Active Voice to become
employed by Cisco following the merger, with the exception of up to five
employees, must have executed acceleration waivers so that 50% of their
unvested options will become fully vested and exercisable upon the
merger, and no additional acceleration of vesting will occur;
- all employees of Active Voice to be assigned to Atlantis Group
immediately after completion of the merger shall have been provided with
written notice by Active Voice of assignment of the rights and
obligations of their employment to Atlantis Group to be effective
immediately after completion of the merger; and these employees shall
have been provided with written confirmation by Atlantis Group of such
assignment;
- certain employees of Active Voice to be assigned to Atlantis Group
immediately after completion of the merger shall have entered into
employment and non-competition agreements with Atlantis Group and shall
have entered into non-competition and general release agreements with
Cisco and Active Voice and ninety percent (90%) of all other employees of
Active Voice who have unvested options prior to the merger and whose
employment is to be assigned to Atlantis Group immediately after
completion of the merger shall have executed a general release agreement
in favor of Cisco and Active Voice; and
- certain agreements of Active Voice with consultants and independent
contractors of Active Voice shall have been terminated consistent with
the termination provisions of each such agreement and Active Voice shall
have satisfied all termination liabilities existing under such
agreements.
Employment and Non-Competition Agreements
As a condition to the closing of the merger, several employees and
executive officers of Active Voice are required to enter into employment and
non-competition agreements with Cisco that will become effective upon completion
of the merger. The agreements require these employees to remain with Cisco for a
period of two years from the closing of the merger unless Cisco terminates them
earlier. If the employee's employment is terminated without cause prior to the
expiration of the two year period, Cisco will continue to pay the employee's
base salary as a severance payment for the earlier of one year from the date of
such termination or the date the employee begins employment with another
employer. If the employment is terminated for cause prior to the expiration of
the two year period, the employee will be paid all salary and benefits through
the date of termination of employment, but nothing else.
44
<PAGE> 52
The employment and non-competition agreements prohibit the employees,
during employment or within one year after termination of employment with Cisco,
from participating or engaging in the design, development, manufacture,
production, marketing, sale or servicing of any product, or the provision of any
service, that directly relates to the business of Cisco, and from using his or
her name in connection with a business which is competitive or substantially
similar to the business of Cisco.
Also as a condition to the closing of the merger, several other employees
and officers, whose employment will be assigned to Atlantis Group immediately
after completion of the merger, are required to enter into non-competition and
general release agreements with Cisco that will become effective upon completion
of the merger. The non-competition agreements to be executed by these employees
and officers prohibit these employees and officers, within two years after the
completion of the merger, from participating or engaging in the design,
development, manufacture, production, marketing, sale or servicing of any
product, or the provision of any service, that directly relates to the business
of Active Voice to which Cisco is the successor, and from using his or her name
in connection with a business which is competitive or substantially similar to
the business of Active Voice to which Cisco is the successor. The release
agreements to be executed by employees and officers of Active Voice who have
unvested options prior to the merger and whose employment will be assigned to
Atlantis Group immediately after completion of the merger will release Active
Voice and Cisco from any and all claims these employees and officers may have
against Active Voice and Cisco arising from or relating to events, acts and
omissions prior to the effective date of the merger.
Termination of the Merger Agreement
At any time prior to the completion of the merger, the merger agreement may
be terminated:
- by mutual written consent of Cisco and Active Voice;
- by either Cisco or Active Voice, if:
- without fault of the terminating party, the closing shall not have
occurred on or before February 28, 2001 (or March 30, 2001 in the event
the closing is delayed due solely to the failure of the registration
statement relating to the issuance of Cisco shares in the merger to be
declared effective or the failure to obtain required governmental
approvals in time to permit this closing to occur by February 28, 2001);
- any permanent injunction or other order of a court or other competent
authority preventing the consummation of the merger shall have been
issued and is final and nonappealable; or
- if any required approval of the Active Voice shareholders shall not have
been obtained by reason of the failure to obtain the required vote upon
a vote held at a duly held meeting of shareholders or at any adjournment
thereof.
- by Cisco, if:
- Active Voice shall have materially breached any of its representations,
warranties or obligations and such breach shall not have been cured
within 10 business days of receipt by Active Voice of written notice of
such breach;
- the Active Voice board of directors shall have withdrawn or modified its
recommendation of the merger agreement or the merger in a manner adverse
to Cisco or shall have resolved to do any of the foregoing;
- the Active Voice board of directors shall have solicited, initiated,
encouraged or agreed to any proposal for a merger or other business
combination involving Active Voice or acquisition of 15% (or 19.9% in
certain circumstances) or more of the outstanding shares of capital
stock of Active Voice or a significant portion of the assets of Active
Voice or engaged in any
45
<PAGE> 53
negotiations with, or disclosed any nonpublic information relating to
Active Voice or any of its subsidiaries, or afforded access to the
properties, books or records of Active Voice to any person that has
advised Active Voice that it may be considering making, or that has
made, a takeover proposal except as permitted in the merger agreement;
- the Active Voice board of directors shall have recommended, endorsed,
accepted or agreed to a proposal for a merger or other business
combination involving Active Voice or acquisition of 15% (or 19.9% in
certain circumstances) or more of the outstanding shares of capital
stock of Active Voice or a significant portion of the assets of Active
Voice or has resolved to do so;
- for any reason Active Voice fails to call and hold the special meeting
of shareholders by February 14, 2001, or March 15, 2001 if this proxy
statement/prospectus is not be declared effective by February 28, 2001;
or
- if an extraordinary transaction of the nature specified in the merger
agreement, such as an acquisition by any person of or tender offer by
any person for 15% (or 19.9% in certain circumstances) or more of the
voting power of Active Voice or any proposal for a merger or other
business combination involving Active Voice or acquisition of 15% (or
19.9% in certain circumstances) or more of the outstanding shares of
capital stock of Active Voice or a significant portion of the assets of
Active Voice, occurs and the Active Voice board of directors does not
within ten business days of the occurrence of an extraordinary
transaction reconfirm its approval and recommendation of the merger
agreement and reject the extraordinary transaction.
- by Active Voice, if:
- Cisco shall have materially breached any of its representations,
warranties or obligations and such breach shall not have been cured
within 10 business days following receipt by Cisco of written notice of
such breach.
Payment of Fees and Expenses
Whether or not the merger is consummated, all costs and expenses incurred
in connection with the merger 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 proxy 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.
In the event that the merger agreement is terminated because:
- a trigger event or takeover proposal shall have occurred and the board of
directors of Active Voice does not within 10 business days of the
occurrence of the trigger event or takeover proposal reconfirm its
approval and recommendation of the merger agreement and the merger, and
reject the takeover proposal or trigger event;
- Active Voice through its, or otherwise by its, officers, directors or
advisors or any person authorized by those persons, solicits, initiates,
encourages or agrees to a takeover proposal or engages in any discussions
or negotiations with, or discloses any nonpublic information relating to
Active Voice or any of its subsidiaries, or affords access to the
properties, books or records of Active Voice to any person that has
advised Active Voice that it may be considering making, or that it has
made, a takeover proposal in violation of the non-solicitation provisions
contained in the merger agreement;
- the Active Voice board of directors shall have recommended, endorsed,
accepted or agreed to a takeover proposal or shall have resolved to do
so;
46
<PAGE> 54
- the Active Voice board of directors shall have withdrawn or modified its
recommendation of the merger agreement or the merger in a manner adverse
to Cisco or shall have resolved to do any of the foregoing and prior to
this withdrawal or modification a trigger event or takeover proposal that
has not been rejected by Active Voice or withdrawn shall have occurred;
- any required approval of the shareholders of Active Voice shall not have
been obtained by reason of the failure to obtain the required vote upon a
vote held at a duly held meeting of shareholders and prior to the meeting
a trigger event or takeover proposal that has not been rejected by Active
Voice or withdrawn shall have occurred; or
- Active Voice has breached its representations, warranties or obligations
under the reorganization agreement, Active Voice has failed to timely
call and hold its shareholders' meeting by February 14, 2001 or the
merger shall not have been timely consummated.
then Active Voice will pay Cisco the termination fee of $10.3 million. In
addition, Active Voice has agreed that under certain circumstances it shall pay
Cisco's out-of-pocket costs and expenses upon termination of the merger
agreement and in the event any takeover proposal or trigger event is consummated
within six or twelve months of the later of the termination of the merger
agreement or payment of Cisco's fees and expenses, Active Voice will pay Cisco
the sum of $10.3 million less any amounts previously paid by Active Voice to
Cisco.
Extension, Waiver and Amendment of the Merger Agreement
The board of directors of either party may amend the merger agreement at
any time before completion of the merger. However, after the Active Voice or
Aqua Acquisition Corporation shareholders adopt the merger agreement, no change
will be made:
- to the number of shares of Active Voice common stock for which Active
Voice common stock will be converted;
- to any term of the articles of incorporation of Active Voice to be
effected by the merger; or
- to any of the terms and conditions of the merger agreement if the change
would harm the holders of Active Voice common stock or Aqua Acquisition
Corporation common stock.
Either party may extend the other's time for the performance of any of the
obligations or other acts under the merger agreement, waive any inaccuracies in
the other's representations and warranties and waive compliance by the other
with any of the agreements or conditions contained in the merger agreement.
RELATED AGREEMENTS
Asset Purchase Agreement
Following the merger, Active Voice will sell certain assets, other than
proprietary rights, related to the legacy voicemail solutions business of Active
Voice to Atlantis Group, Inc., a Washington corporation that will be owned by
certain former employees of Active Voice, including, without limitation, all
related real property, personal property, machinery, equipment, work-in-process,
finished goods, raw materials, cash and cash equivalents above $5 million,
books, records, capital stock in certain entities, and all rights under certain
contracts and agreements. Active Voice will retain all the assets related to the
unified messaging business, including, among other assets, all related
technology, inventory, property, computers, machinery, equipment,
work-in-process, finished goods, raw materials, proprietary rights and all
rights under certain contracts and agreements. The proprietary rights related to
the legacy voicemail solutions business of Active Voice will be licensed to
Atlantis Group pursuant to the terms of a license agreement to be entered into
between Active Voice and Atlantis Group. The
47
<PAGE> 55
license Agreement will grant Atlantis Group a non-exclusive, worldwide, royalty
free license to the proprietary rights related to the legacy voicemail solutions
business of Active Voice.
Proprietary rights includes:
- patents, patent applications, patent disclosures and all related model,
certificate of invention and design patents, registrations and
applications for registrations;
- trademarks, service marks, domain names, database rights, tradenames and
registrations and related applications for registration;
- copyrights and related registrations and applications for registration;
- mask works and related registrations and applications for registration;
- computer software, data and documentation; and
- trade secrets and confidential business information.
Pursuant to the asset purchase agreement, Atlantis Group will assume
certain liabilities and obligations, including, without limitation:
- all liabilities arising out of or relating to the legacy voicemail
solutions business of Active Voice;
- all liabilities and obligations of Active Voice under the contracts that
will be assumed by Atlantis Group;
- obligations of Active Voice to provide vacation time and vacation pay to
the employees of Active Voice that have accrued on or prior to the
closing date;
- obligations of Active Voice to provide payments to employees of Active
Voice who will be assigned to Atlantis Group following the consummation
of the merger in connection with their assignment to Atlantis Group and
the merger;
- all obligations and liabilities arising from any action, suit or
proceeding relating to the legacy voicemail solutions business or the
assets related to the legacy voicemail solutions business; and
- all taxes of Active Voice incurred on or prior to the closing date and
all taxes of Active Voice relating to the sale of the assets to Atlantis
Group.
Atlantis Group will indemnify Active Voice and Cisco against all losses and
expenses arising from or relating to the operations of Active Voice or the use
of the legacy voicemail assets prior to and after the closing date, the legacy
voicemail solutions business of Active Voice prior to and after the closing
date, certain liabilities that will be assumed by Atlantis Group, and third
party claims for acts occurring prior to the closing date.
The asset purchase agreement may be terminated before the completion of the
merger by:
- the mutual written consent of Active Voice and Atlantis Group;
- either Active Voice or Atlantis Group if the closing is not completed,
without the fault of the terminating party, by February 28, 2001 (or,
under certain circumstances, March 30, 2001);
- either Active Voice or Atlantis Group if any permanent injunction or
other order of a court or other competent authority preventing the
consummation of the sale is issued and becomes final and nonappeable; or
- either Active Voice or Atlantis Group if the merger is terminated in
accordance with the merger agreement.
As a condition to the closing of the merger and the asset purchase
agreement, certain employees and executive officers to be assigned to Atlantis
Group following the merger will be required to enter
48
<PAGE> 56
into employment and non-competition agreements with Atlantis Group and enter
into a non-competition and general release agreement with Cisco and Active Voice
that will become effective upon completion of the merger. The employment and
non-competition agreements with Atlantis Group require these employees and
executives to remain with Atlantis Group for a period of six months after the
closing of the merger unless Atlantis Group terminates them earlier.
Ninety percent of the employees of Active Voice who have unvested options
prior to the merger and whose employment is to be assigned to Atlantis Group
following the merger will also be required to execute a general release in favor
of Cisco and Active Voice. If the employee's employment is terminated without
cause prior to the six month period, Atlantis Group will continue to pay the
employee's base salary as a severance payment for the earlier of three months
from the date of such termination or the date the employee begins employment
with another employer. If the employment is terminated for cause prior to the
six month period, the employee will be paid all salary and benefits through the
date of termination of employment, but nothing else.
These agreements also prohibit these employees and executives, during
employment and within twelve months after the completion of the merger, from
participating or engaging in the design, development, manufacture, production,
marketing, sale or servicing of any product, or the provision of any service,
that directly relates to the business of Active Voice to which Atlantis Group is
the successor, and from using his or her name in connection with a business
which is competitive or substantially similar to the business of Active Voice to
which Atlantis Group is the successor.
Pursuant to the asset purchase agreement, following the completion of the
merger, Atlantis Group must offer certain employees assigned to Atlantis Group
retention bonuses that will be received by such employees provided that they
continue employment with Atlantis Group for the period that is the earlier of
the date of the sale of certain assets by Atlantis Group or six months after
completion of the merger. In addition, following the completion of the merger,
Atlantis Group must maintain a severance benefit plan that provides severance in
the form of three months' of salary and COBRA continuation premiums to employees
assigned to Atlantis Group whose employment is terminated within six months
after the completion of the merger.
We urge you to read the asset purchase agreement, which is attached as
Appendix B to this proxy statement/prospectus, carefully and in its entirety.
Noteholder Rights and Security Agreement
Following the merger, Active Voice and Atlantis Group will enter into a
noteholder rights and security agreement. Pursuant to the noteholder rights and
security agreement, as consideration for the legacy voicemail solutions assets
of Active Voice, Atlantis Group will issue to Active Voice a note in the initial
principal amount of $29,533,280. In the event a sale, merger, sale of
substantially all of the assets or another liquidity event of Atlantis Group, as
described in the noteholder rights and security agreement, occurs within six
months following the closing date, the initial $29,533,280 principal amount of
the note will be increased or decreased based upon the total amount of cash and
other consideration received by Atlantis Group from such liquidity event. The
noteholder rights and security agreement also provides that Active Voice will
have a security interest in all of Atlantis Group's property other than real
property to secure the payment of the obligations under the note.
The note will bear interest at a per annum rate equal to the prime rate
announced by Wells Fargo plus 1.25 percent (1.25%). The note will matures one
year following the closing date. Interest and all other fees payable under the
note are due and payable, in arrears, when the note becomes due and payable
(whether at maturity or prepayment or acceleration or otherwise). In the event
that the principal amount of the note is not paid in full when such amount
becomes due and payable, Atlantis Group fails
49
<PAGE> 57
to perform any covenant or agreement in the noteholder rights agreement, an
insolvency proceeding is commenced by Atlantis Group, or there occurs another
event of default under the note, as described below, the note will bear interest
on the balance of any unpaid principal and obligations under the note at such
per annum rate plus four percent (4%) until such default is cured.
Upon the occurrence of a liquidity event as defined in the noteholder
rights agreement, which includes a merger, a transaction which results in a
change in the ownership of control of more than 10% of the outstanding voting
equity securities of Atlantis Group, a sale of substantially all of the assets
of Atlantis Group, or a liquidation of Atlantis Group, Atlantis Group will be
required to prepay the principal amount of the note then outstanding, and all
accrued interest and all other fees payable under the note at such time in an
amount equal to the amount of proceeds received by Atlantis Group from any such
liquidity event. Upon the occurrence of any sale, assignment, lease or other
disposition of the assets of Atlantis Group which constitutes a partial
distribution as defined in the noteholder rights agreement or, in the event
Atlantis Group issues equity or incurs additional indebtedness in excess of
$25,000, Atlantis Group is required to prepay the principal amount of the note
then outstanding, and all accrued interest and all other fees payable under the
note at such time with the amount of the proceeds received by Atlantis Group
from any such partial disposition or additional financing. At any time following
the six month anniversary of the closing date, Atlantis Group will have the
right to prepay at its option prior to the maturity date all or any portion of
the principal amount of the note then outstanding and all accrued interest and
all other fees under the note then due and owing.
If any of the following events should occur, then so long as such condition
exists, Active Voice may declare the entire principal and unpaid accrued
interest under the note immediately due and payable, sell the personal property
of Atlantis Group at either a public or private sale, or exercise other rights
and remedies described in the noteholder rights agreement:
- default in the payment of the principal and unpaid accrued interest of
the note when due and payable;
- Atlantis Group fails to perform any covenant or agreement contained in
the noteholder rights agreement;
- any material portion of Atlantis Group's assets is attached or seized;
- the institution by Atlantis Group of proceedings to be adjudicated as
bankrupt or insolvent, the consent by it to the institution of bankruptcy
or insolvency proceedings against it, the consent by it to the filing of
any petition seeking reorganization or release under the federal
bankruptcy act or any other applicable federal or state law, or the
consent by it to the appointment of a receiver, trustee or other similar
official of Atlantis Group;
- default in any material agreement to which Atlantis Group is a party and
such default occurs at the final maturity of the obligations under such
material agreement, or results in a right by the other party to
accelerate the maturity of Atlantis Group's obligations under such
material agreement, to terminate such material agreement or to refuse to
renew such material agreement;
- any payment under any indebtedness of Atlantis Group that is subordinate
in right of payment to the note;
- any shareholder of Atlantis Group sells, transfers or conveys any of its
securities of Atlantis Group during the six month period following the
closing date; or
- the occurrence of any event or condition that would result in a material
adverse change in the business or operations of Atlantis Group or
Atlantis Group's ability to perform its obligations under the noteholder
rights agreement.
50
<PAGE> 58
We urge you to read the form of the noteholder rights and security
agreement, which is attached as Appendix C to this proxy statement/prospectus,
carefully and in its entirety.
Shareholder Agreements
In connection with the merger, executive officers and directors of Cisco
have entered into shareholder agreements with Cisco. The terms of the
shareholder agreement provide that the shareholders will vote all shares of
Active Voice common stock beneficially owned by them in favor of the approval of
the merger and the adoption of the merger agreement and against any competing
proposal.
The shareholder agreements also required the shareholders to deliver an
irrevocable proxy to Cisco. The irrevocable proxy enables Cisco to vote the
shareholders' shares to approve the merger. As of the date of this proxy
statement/prospectus, the Active Voice shareholders who entered into the
shareholder agreements collectively held 2,042,256 shares of Active Voice common
stock which represented approximately 17.7% of the outstanding Active Voice
common stock on November 30, 2000. None of the shareholders who are parties to
the shareholder agreement was paid additional consideration in connection with
the shareholder agreements.
Stock Option Agreement
Cisco required Active Voice to enter into a stock option agreement as a
prerequisite to entering into the merger agreement. The stock option agreement
grants Cisco the option to buy up to 2,275,000 shares of Active Voice common
stock, constituting approximately 19.9% of the outstanding shares of Active
Voice common stock as of November 9, 2000, at an exercise price, payable in
cash, of $15 per share.
The Cisco option is intended to increase the likelihood that the merger
will be completed. Consequently, aspects of the stock option agreement may have
the effect of discouraging persons who might now or at any time be interested in
acquiring all or a significant interest in Active Voice or its assets before
completion of the merger.
The Cisco option is exercisable by Cisco, in whole or in part, at any time
or from time to time after the occurrence of an event which would require
payment to Cisco of the $10.3 million termination fee. The Cisco option may not,
however, 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 merger agreement. The Cisco option will terminate
upon the earlier of:
- the effective time of the merger;
- the termination of the merger agreement pursuant to its terms, other than
a termination in connection with which Cisco is entitled to the payment
of the termination fee or expense reimbursement;
- 180 days or, in some circumstances, 12 months, following any termination
of the merger agreement in connection with which Cisco is entitled to the
payment of the $10.3 million termination fee; or
- if at the expiration of such 180 day or 12 month period, the Cisco 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.
51
<PAGE> 59
Under the terms of the stock option agreement, at any time during which the
Cisco option is exercisable, Cisco has the right to require Active Voice, or any
successor entity thereof, to repurchase from Cisco all or any part of the Cisco
option, to the extent not previously exercised (the Cisco Put) and Active Voice
has the right to require Cisco, or any successor entity thereof, to sell to
Active Voice all or any part of the Cisco option, to the extent not previously
exercised (the Active Voice Call), at the price set forth in subparagraph (a)
below. Furthermore at any time during which the Cisco option is exercisable,
Cisco has the right to require Active Voice, or any successor entity thereof, to
repurchase from Cisco (the Cisco Put) and Active Voice has the right to require
Cisco, or any successor entity thereof, to sell to Active Voice (the Active
Voice Call), all or any part of the Active Voice shares purchased by Cisco
pursuant to the Cisco option at the price set forth in subparagraph (b) below:
(a) The difference between (i) the "market/tender offer price" for
shares of Active Voice common stock as of the date either party gives
notice of its intent to exercise its put or call rights, which is defined
as the higher of:
- 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 merger
agreement, which was made prior to the notice date and not terminated or
withdrawn as of the notice date of the exercise of the Cisco Put or the
Active Voice Call, as the case may be; or
- the average of the closing prices of shares of Active Voice common stock
on the Nasdaq National Market for the ten trading days immediately
preceding the notice date of the exercise of the Cisco Put or the Active
Voice Call, as the case may be,
and (ii) $15, multiplied by the number of Active Voice shares purchasable
pursuant to the stock option agreement, or portion thereof with respect to
which either party can exercise its put or call right, as the case may be,
under the stock option agreement, but only if the market/tender offer price
exceeds $15.
(b) The exercise price paid by Cisco for the Active Voice shares
acquired pursuant to the stock option agreement plus the difference between
the market/tender offer price and $15, but only if the market/tender offer
price exceeds $15, multiplied by the number of Active Voice shares
purchased by Cisco pursuant to the stock option agreement.
Notwithstanding (a) and (b) above, in no event shall the proceeds payable
to Cisco as a result of the Cisco Put or the Active Voice Call exceed the sum of
(x) $11.8 million, plus (y) $15 multiplied by the number of Active Voice shares
purchased by Cisco pursuant to the stock option agreement minus (z) any amount
paid to Cisco by Active Voice as a termination fee pursuant to the merger
agreement.
Following any exercise of the Cisco option, Cisco may, by written notice,
request that Active Voice register under the Securities Act all or any part of
the shares of Active Voice common stock acquired pursuant to the stock option
agreement. Active Voice shall use its reasonable best efforts to register the
unpurchased registrable shares; provided, however, Cisco shall not be entitled
to more than an aggregate of two effective registration statements and Active
Voice will not be required to file any registration statement for a certain
period of time when:
- Active Voice is in possession of material non-public information which it
reasonably believes would be detrimental to be disclosed at that time
and, after consultation with legal counsel to Active Voice, Active Voice
determined that the information would have to be disclosed if a
registration statement were filed at that time;
- Active Voice is required under the Securities Act to include audited
financial statements for any period in the registration statement and
such financial statements are not then available for inclusion in the
registration statement; or
52
<PAGE> 60
- Active Voice determines, in its reasonable judgment, that the
registration would interfere with any financing, acquisition or other
material transaction involving Active Voice or any of its affiliates.
OPERATIONS FOLLOWING THE MERGER
Following the merger, Active Voice will continue its operations as a
wholly-owned subsidiary of Cisco. Upon consummation of the merger, the members
of Active Voice's board of directors will be Michelangelo Volpi, Daniel
Scheinman and Larry Carter. The membership of the Cisco board of directors will
remain unchanged as a result of the merger. The shareholders of Active Voice
will become shareholders of Cisco, and their rights as shareholders will be
governed by Cisco's articles of incorporation and bylaws and the laws of the
State of California.
INDEMNIFICATION AND INSURANCE
The merger agreement provides that Cisco will, after the completion of the
merger, indemnify, defend and hold harmless the present and former officers and
directors of Active Voice in respect of acts or omissions occurring on or prior
to the completion of the merger, in each case to the fullest extent the
corporation is permitted under Delaware law, the Active Voice amended and
restated articles of incorporation or the Active Voice amended and restated
bylaws, in each case as in effect on November 9, 2000.
The merger agreement also provides that, for five years after the
completion of the merger, Cisco will either:
- at all times maintain at least $50 million in cash, marketable securities
or unrestricted lines of credit to be available to indemnify the present
and former officers and directors of Active Voice against specified
liabilities; or
- have Active Voice maintain for the benefit of Active Voice's current
directors and officers and other persons covered by Active Voice's
current directors' and officers' liability insurance with respect to all
matters occurring on or prior to the completion of the merger, directors
and officers liability insurance on terms substantially equivalent to the
Active Voice directors' and officers' liability insurance policy in
effect on November 9, 2000.
INTERESTS OF ACTIVE VOICE DIRECTORS, OFFICERS AND AFFILIATES IN THE MERGER
In considering the recommendation of the Active Voice board of directors,
you should be aware that certain directors and officers of Active Voice have
interests in the merger which are different from, or in addition to, your
interest. The Active Voice board of directors was aware of these potential
conflicts and considered them. These interests include the following:
- As of November 30, 2000, directors and executive officers of Active Voice
and their affiliates beneficially owned approximately 23.76% of the
outstanding shares of Active Voice common stock. Please see "Security
Ownership of Certain Beneficial Holders and Management of Active Voice"
on page 59 of this proxy statement/prospectus for more information.
- As of the date of this proxy statement/prospectus, non-employee directors
of Active Voice beneficially owned stock options to purchase an aggregate
of 163,068 shares of Active Voice common stock, 73,336 of which were
unvested. Upon completion of the merger, all of the unvested stock
options, which have a weighted average exercise price of $8.07 per share,
and are
53
<PAGE> 61
held by the following non-employee directors will accelerate and become
fully vested and exercisable as shown below:
<TABLE>
<CAPTION>
# OF ACTIVE VOICE TOTAL
OPTION # OF ACTIVE VOICE
NAME SHARES ACCELERATING OPTION SHARES
---- ------------------- -----------------
<S> <C> <C>
Thomas A. Alberg.............. 10,000 58,068
Douglas P. Beighle............ 10,000 60,000
Robert C. Greco............... 13,336 13,336
Harold H. Kawaguchi........... 10,000 10,000
Robert L. Richmond............ 30,000 95,000
</TABLE>
- As of the date of this proxy statement/prospectus, executive officers
(including employee directors) beneficially owned stock options to
purchase an aggregate of 692,638 shares of Active Voice common stock. All
of the unvested stock options held by the following executive officers
will accelerate and become fully vested and exercisable if the optionee
is terminated by Cisco or voluntarily terminates his or her employment
under certain conditions within 18 months following the merger. Employees
and executive officers who become employees of Cisco are required to
execute acceleration waivers so that 50% of their unvested options will
become fully vested and exercisable upon the merger, and no additional
acceleration of vesting will occur. The number of options accelerating
for each executive officer is as shown below:
<TABLE>
<CAPTION>
# OF ACTIVE VOICE
OPTION
NAME SHARES ACCELERATING
---- -------------------
<S> <C>
Kevin L. Chestnut.............................. 40,000
Frank J. Costa................................. 92,500
Jose S. David.................................. 58,332
Debra A. Faulkner.............................. 44,500
Edward F. Masters.............................. 32,500
Ken Myer....................................... 92,500
</TABLE>
- Upon completion of the merger, the following executive officers of Active
Voice will receive cash bonuses as shown below:
<TABLE>
<CAPTION>
AMOUNT OF
NAME CASH BONUS
---- ----------
<S> <C>
Kevin L. Chestnut.............................. $505,000
Frank J. Costa................................. 910,000
Jose S. David.................................. 90,000
Debra A. Faulkner.............................. 50,000
Edward F. Masters.............................. 490,000
Ken Myers...................................... 80,000
</TABLE>
The acceleration of the vesting of options upon the merger, together with
the cash payments to be made in connection with the merger may result in
"excess parachute payments" as defined in Section 280G of the Internal
Revenue Code. Excess parachute payments are not deductible in accordance
with Section 280G. As a result, Cisco will not be entitled to a tax
deduction for the amounts determined to be excess parachute payments. The
amount of the lost deduction will depend on the value of the shares at the
time of the merger, the number of option shares being accelerated, plus
the amount of any payments deemed to be made in connection with the
merger.
54
<PAGE> 62
- As a condition of the closing of the merger, several employees and
executive officers of Active Voice to become employed by Cisco upon the
merger are required to enter into employment and non-competition
agreements with Cisco that will become effective upon completion of the
merger. Please see the summary of the terms of these agreements in the
section of this proxy statement/prospectus entitled "Employment and
Non-Competition Agreements" under "Other Provisions of the Merger
Agreement" on page 44 of this proxy statement/prospectus.
- As a condition of the closing of the merger and the sale of certain
assets of Active Voice, several employees and executive officers of
Active Voice to be assigned to Atlantis Group immediately after the
merger are required to enter into employment and non-competition
agreements with Atlantis Group that will become effective upon completion
of the merger and sale of certain assets to Active Voice. Please see the
summary of the terms of these agreements in the section of this proxy
statement/prospectus entitled "Asset Purchase Agreement" under "Related
Agreements" on page 47 of this proxy statement/prospectus.
- The merger agreement provides that Cisco will indemnify, from and after
the effective time, and will cause Active Voice to indemnify the present
and former officers, directors and employees and agents of Active Voice
in respect of acts or omissions occurring on or prior to the effective
time, in each case to the fullest extent permitted under Delaware law,
the Active Voice amended and restated articles of incorporation or the
Active Voice amended and restated bylaws, in each case as in effect on
November 9, 2000. Please see the section entitled "Indemnification and
Insurance" on page 53 of this proxy statement/prospectus.
- As a result of the closing of the merger and the sale of certain assets
of Active Voice, several officers of Active Voice to be assigned to
Atlantis Group will become eligible to earn a finder's fee of up to
$500,000 in total in the event that they are successful in selling the
assets of Atlantis Group within six (6) months after the closing of the
merger.
DISSENTERS' RIGHTS TO APPRAISAL
If you do not wish to accept Cisco common stock in the merger, you have the
right under Chapter 23B.13 of the Washington Business Corporation Act to dissent
from the merger and to receive payment in cash for the fair value of your shares
of Active Voice common stock. To preserve your rights if you wish to exercise
your statutory dissenters' rights, you must:
- deliver to the Secretary of Active Voice before the special meeting
written notice of your intent to demand payment for your shares of Active
Voice common stock if the merger is completed;
- not vote your shares in favor of the merger; and
- follow the statutory procedures for perfecting dissenters' rights under
Washington law, which are described in the section entitled "Dissenters'
Rights to Appraisal" on page 71.
Merely voting against the merger will not preserve your dissenters' rights.
Chapter 23B.13 of the Washington Business Corporation Act is reprinted in its
entirety and attached as Appendix G to this proxy statement/prospectus. Failure
to precisely comply with all procedures required by Washington law will result
in the loss of your dissenters' rights.
If you follow all the steps required by these provisions, your shares of
Active Voice common stock which are issued and outstanding immediately prior to
the merger will not be converted into or be exchangeable for the right to
receive shares of Cisco common stock, unless you fail to perfect or effectively
withdraw or lose your dissenters' rights to appraisal under the Washington
Business Corporation Act. If you fail to perfect or effectively withdraw or lose
your dissenters' rights, your shares of Active Voice common stock will be
converted into and become exchangeable for the right to receive,
55
<PAGE> 63
as of the effective time of the merger, (1) shares of Cisco common stock and (2)
cash for any fractional share of Cisco common stock, in each case without
interest.
Active Voice will give Cisco (1) prompt notice of any demands for
appraisal, attempted withdrawal of these demands, and any other instrument
served pursuant to the Washington Business Corporation Act and received by
Active Voice relating to dissenters' rights, and (2) the opportunity to
participate in, and direct all negotiations and proceedings with respect to, the
exercise of dissenters' rights under the Washington Business Corporation Act.
Active Voice is not allowed, except with the prior written consent of Cisco, to
make any payment with respect to any demands for appraisal, offer to settle or
settle any demands for appraisal.
ANTITRUST APPROVAL
The merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 which prevents some transactions from being
completed until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and certain waiting periods end or expire.
However, the Antitrust Division of the Department of Justice or the Federal
Trade Commission may challenge the merger on antitrust grounds either before or
after expiration of the waiting period. Accordingly, at any time before or after
the completion of the merger, either the Antitrust Division of the Department of
Justice or the Federal Trade Commission could take action under the antitrust
laws as it deems necessary or desirable in the public interest, or other persons
could take action under the antitrust laws, including seeking to enjoin the
merger. Additionally, at any time before or after the completion of the merger,
notwithstanding that the applicable waiting period expired or ended, any state
could take action under the antitrust laws as it deems necessary or desirable in
the public interest. There can be no assurance that a challenge to the merger
will not be made or that, if a challenge is made, we will prevail.
In addition, Cisco and Active Voice may need to obtain approval for the
merger in foreign jurisdictions depending upon the extent that Active Voice
conducts business in these jurisdictions and the statutory requirements of each
of these jurisdictions.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion describes the material United States federal
income tax considerations relevant to the exchange of shares of Active Voice
common stock for Cisco common stock pursuant to the merger that are generally
applicable to holders of Active Voice common stock. This discussion is based on
currently existing provisions of the Internal Revenue Code, existing and
proposed treasury regulations thereunder and current administrative rulings and
court decisions, all of which are subject to change. Any change, which may or
may not be retroactive, could alter the tax consequences to Active Voice
shareholders as described herein.
Active Voice shareholders should be aware that this discussion does not
deal with all federal income tax considerations that may be relevant to
particular Active Voice shareholders in light of their particular circumstances,
such as shareholders who are dealers in securities, who are subject to the
alternative minimum tax provisions of the Internal Revenue Code, who are foreign
persons, who do not hold their Active Voice 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
56
<PAGE> 64
limitation any transaction in which shares of Active Voice common stock are
acquired or shares of Cisco common stock are disposed of, the tax consequences
of the assumption by Cisco of the outstanding Active Voice stock options or the
tax consequences of the receipt of rights to acquire Cisco common stock.
Accordingly, ACTIVE VOICE SHAREHOLDERS 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 within the meaning of
the Internal Revenue Code. If the merger does 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 to the
Active Voice shareholders:
- No gain or loss will be recognized by holders of Active Voice common
stock solely upon their receipt of Cisco common stock in exchange for
Active Voice common stock in the merger (except to the extent of cash
received in lieu of a fractional share of Cisco common stock).
- The aggregate tax basis of the Cisco common stock received by Active
Voice shareholders in the merger (including any tax basis attributable to
fractional shares deemed to be disposed of) will be the same as the
aggregate tax basis of the Active Voice common stock surrendered in
exchange therefor.
- The holding period of the Cisco common stock received by each Active
Voice shareholder in the merger will include the period for which the
Active Voice common stock surrendered in exchange therefor was considered
to be held, provided that the Active Voice common stock so surrendered is
held as a capital asset at the time of the merger.
- Cash payments received by holders of Active Voice common stock in lieu of
a fractional share will be treated as if the fractional share of Cisco
common stock had been issued in the merger and then redeemed by Cisco. An
Active Voice shareholder receiving cash payments will recognize gain or
loss, upon payment, measured by the difference, if any, between the
amount of cash received and the basis in the fractional share.
The parties are not requesting and will not request a ruling from the
Internal Revenue Service as to the tax consequences of 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 Active Voice of an
opinion from Gray Cary Ware & Freidenrich LLP to the effect that the merger will
constitute a reorganization within the meaning of the Internal Revenue Code.
Active Voice shareholders should be aware that the tax opinions do not bind
the Internal Revenue Service and the Internal Revenue Service is therefore not
precluded from successfully asserting a contrary opinion. The tax opinions will
be subject to certain assumptions and qualifications, including the truth and
accuracy of certain representations made by Cisco, Active Voice and Aqua
Acquisition Corporation.
A successful Internal Revenue Service challenge to the reorganization
status of the merger would result in Active Voice shareholders recognizing
taxable gain or loss with respect to each share of common stock of Active Voice
surrendered equal to the difference between the shareholder's basis in the share
and the fair market value, as of the merger, of the Cisco common stock received
in exchange therefor. In this event, a shareholder's aggregate basis in the
Cisco common stock so received would equal its fair market value, and the
shareholder's capital gains holding period for such stock would begin the day
after the merger.
57
<PAGE> 65
ACCOUNTING TREATMENT OF THE MERGER
We intend to account for the merger using the purchase method.
RESTRICTIONS ON SALE OF SHARES BY AFFILIATES OF ACTIVE VOICE AND CISCO
The shares of Cisco common stock to be issued in connection with the merger
will be registered under the Securities Act of 1933 and will be freely
transferable under the Securities Act, except for shares of Cisco common stock
issued to any person who is deemed to be an affiliate of either Cisco or Active
Voice at the time of the special meeting. Persons who may be deemed to be
affiliates include individuals or entities that control, are controlled by, or
are under common control of either Cisco or Active Voice and may include some of
the officers and directors, as well as the principal shareholders of Cisco or
Active Voice. Affiliates may not sell their shares of Cisco common stock
acquired in connection with the merger except pursuant to:
- an effective registration statement under the Securities Act covering the
resale of those shares;
- an exemption under paragraph (d) of Rule 145 under the Securities Act; or
- another applicable exemption under the Securities Act.
Cisco's registration statement on Form S-4, of which this proxy
statement/prospectus forms a part, does not cover the resale of shares of Cisco
common stock to be received by affiliates in the merger.
58
<PAGE> 66
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND
MANAGEMENT OF ACTIVE VOICE
The following table sets forth certain information regarding beneficial
ownership of Active Voice's common stock as of November 30, 2000 by each person
that beneficially owns more than 5% of the outstanding shares of Active Voice
common stock, each director of Active Voice, the chief executive officer of
Active Voice, the four other most highly compensated Active Voice executive
officers who received annual compensation in excess of $100,000, collectively
referred to below as the "executive officers," and all Active Voice executive
officers and directors as a group.
To Active Voice's knowledge, each person has sole voting and investment
power over the shares shown as beneficially owned except to the extent authority
is shared by spouses under applicable law and except as described in the
footnotes to the table. The number of shares of common stock owned by each
person listed includes shares of common stock underlying options held by that
person that are exercisable within 60 days after November 30, 2000. The number
of outstanding shares of common stock used in calculating the percentage
ownership for each person listed includes the shares of common stock underlying
options held by that person that are exercisable within 60 days after November
30, 2000, but excludes shares of common stock underlying options held by any
other person. Percentage ownership calculations are based on 11,550,176 shares
of common stock outstanding as of November 30, 2000.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES OF COMMON
BENEFICIALLY STOCK
NAME OF SHAREHOLDER OWNED OUTSTANDING
------------------- ------------ -----------
<S> <C> <C>
Robert L. Richmond(1)....................................... 1,114,108 8.80%
Robert C. Greco(2).......................................... 737,000 6.00
Harold H. Kawaguchi(3)...................................... 238,824 2.03
Frank J. Costa(4)........................................... 235,000 1.99
Tom A. Alberg(5)............................................ 87,068 .75
Douglas P. Beighle(6)....................................... 80,000 .69
Edward F. Masters(7)........................................ 57,500 .50
Debra A. Faulkner(8)........................................ 95,068 .82
Kevin L. Chestnut(9)........................................ 73,514 .63
Jose S. David(10)........................................... 76,666 .66
Ken Myer(11)................................................ 104,050 .89
</TABLE>
-------------------------
(1) Includes 65,000 shares issuable on exercise of outstanding options
exercisable within 60 days of November 30, 2000. Includes 30,000 unvested
shares that will accelerate pursuant to the Merger Agreement.
(2) Includes 13,336 unvested shares that will accelerate pursuant to the Merger
Agreement.
(3) Includes 10,000 unvested shares that will accelerate pursuant to the Merger
Agreement.
(4) Includes 142,500 shares issuable on exercise of outstanding options
exercisable within 60 days of November 30, 2000. Includes 92,500 unvested
shares that will accelerate pursuant to the Merger Agreement.
(5) Includes 48,068 shares issuable on exercise of outstanding options
exercisable within 60 days of November 30, 2000. Includes 10,000 unvested
shares that will accelerate pursuant to the Merger Agreement.
59
<PAGE> 67
(6) Includes 50,000 shares issuable on exercise of outstanding options
exercisable within 60 days of November 30, 2000. Includes 10,000 unvested
shares that will accelerate pursuant to the Merger Agreement.
(7) Includes 25,000 shares issuable on exercise of outstanding options
exercisable within 60 days of November 30, 2000. Includes 32,500 unvested
shares that will accelerate pursuant to the Merger Agreement.
(8) Includes 33,472 shares issuable on exercise of outstanding options
exercisable within 60 days of November 30, 2000. Includes 44,500 unvested
shares that will accelerate pursuant to the Merger Agreement.
(9) Includes 30,000 shares issuable on exercise of outstanding options
exercisable within 60 days of November 30, 2000. Includes 40,000 unvested
shares that will accelerate pursuant to the Merger Agreement.
(10) Includes 18,334 shares issuable on exercise of outstanding options
exercisable within 60 days of November 30, 2000. Includes 58,332 unvested
shares that will accelerate pursuant to the Merger Agreement.
(11) Includes 10,500 shares issuable on exercise of outstanding options
exercisable within 60 days of November 30, 2000. Includes 92,500 unvested
shares that will accelerate pursuant to the Merger Agreement.
60
<PAGE> 68
COMPARATIVE STOCK PRICES AND DIVIDENDS
Cisco common stock is listed for trading on the Nasdaq National Market
under the trading symbol "CSCO" and Active Voice common stock is quoted on the
Nasdaq National Market under the trading symbol "ACVC." The following table sets
forth, for the periods indicated, dividends and the high and low closing prices
per share of Cisco common stock and Active Voice common stock on the Nasdaq
National Market. For current price information, shareholders are urged to
consult publicly available sources.
<TABLE>
<CAPTION>
CISCO ACTIVE VOICE
COMMON STOCK COMMON STOCK
--------------------------- ---------------------------
DIVIDENDS DIVIDEND
HIGH LOW DECLARED HIGH LOW DECLARED
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CISCO'S FISCAL 1998 ACTIVE VOICE'S FISCAL 1998
First Quarter................ $ 9.37 $ 7.75 -- First Quarter.................. $ 6.88 $ 4.82 --
Second Quarter............... 10.05 8.10 -- Second Quarter................. 7.63 5.63 --
Third Quarter................ 12.31 9.44 -- Third Quarter.................. 7.69 5.82 --
Fourth Quarter............... 17.20 11.74 -- Fourth Quarter................. 7.63 5.69 --
CISCO'S FISCAL 1999 ACTIVE VOICE'S FISCAL 1999
First Quarter................ $17.32 $10.97 -- First Quarter.................. $ 7.00 $ 5.00 --
Second Quarter............... 26.67 15.19 -- Second Quarter................. 5.44 3.75 --
Third Quarter................ 29.69 23.78 -- Third Quarter.................. 4.19 2.19 --
Fourth Quarter............... 33.53 26.09 -- Fourth Quarter................. 5.69 3.88 --
CISCO'S FISCAL 2000 ACTIVE VOICE'S FISCAL 2000
First Quarter................ $37.00 $29.38 -- First Quarter.................. $ 9.13 $ 4.25 --
Second Quarter............... 57.63 35.00 -- Second Quarter................. 8.88 5.44 --
Third Quarter................ 80.06 54.75 -- Third Quarter.................. 19.94 7.44 --
Fourth Quarter............... 71.44 50.55 -- Fourth Quarter................. 44.00 11.50 --
CISCO'S FISCAL 2001 ACTIVE VOICE'S FISCAL 2001
First Quarter................ $68.63 $48.81 -- First Quarter.................. $15.69 $ 6.00 --
Second Quarter (through Second Quarter................. 14.38 7.25 --
December , 2000.......... -- Third Quarter (through
December , 2000..........
</TABLE>
The following table sets forth the high and low closing prices per share of
Cisco common stock and Active Voice common stock on the Nasdaq National Market
on November 9, 2000, the last trading day before the public announcement of the
merger agreement, and on , the last trading day before the date
of this proxy statement/prospectus:
<TABLE>
<CAPTION>
CISCO ACTIVE VOICE
COMMON STOCK COMMON STOCK
---------------- ----------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
November 9, 2000........................................ $53.50 $50.50 $15.25 $13.50
[ ]..........................................
</TABLE>
61
<PAGE> 69
COMPARISON OF RIGHTS OF SHAREHOLDERS
OF ACTIVE VOICE AND CISCO
The following discussion of certain similarities and material differences
between the rights of Cisco shareholders and the rights of Active Voice
shareholders under the applicable corporation law, articles of incorporation and
bylaws is only a summary of certain provisions and does not purport to be a
complete description of the similarities and differences, and is qualified in
its entirety by reference to the California General Corporation Law and the
Washington Business Corporation Act, the common law thereunder and the full text
of the articles of incorporation and bylaws of each of Cisco and Active Voice.
As a shareholder of Active Voice, your rights are governed by the
Washington Business Corporation Act, Active Voice's amended and restated
articles of incorporation, as currently in effect, and Active Voice's amended
and restated bylaws. After completion of the merger, you will become a
shareholder of Cisco. As a Cisco shareholder, your rights will be governed by
the California General Corporation Law, Cisco's amended and restated articles of
incorporation and Cisco's amended and restated bylaws. In addition, Cisco is
incorporated in California while Active Voice is incorporated in Washington.
The following description summarizes the material differences between the
rights of holders of Active Voice common stock and Cisco common stock. While we
believe that the description covers the material differences between the two,
this summary may not contain all of the information that is important to you.
You should carefully read this entire document and the other documents we refer
to for a more complete understanding of the differences between being a
shareholder of Active Voice and being a shareholder of Cisco. The identification
of specific differences is not intended to indicate that other equally or more
significant differences do not exist. Shareholders should read carefully the
relevant provisions of the California General Corporation Law, Cisco's amended
and restated articles of incorporation, Cisco's amended and restated by-laws,
the Washington Business Corporation Act, Active Voice's amended and restated
articles of incorporation and Active Voice's amended and restated by-laws.
DIRECTOR NOMINATIONS AND SHAREHOLDER PROPOSALS
The Active Voice bylaws provide that its shareholders who are entitled to
vote for the election of directors may nominate directors for election at an
annual meeting or bring proposals at an annual meeting if they provide Active
Voice with written notice that complies with the time and content requirements
of the Active Voice bylaws
For notice to be timely, the notice must be delivered to or mailed and
received by Active Voice's Secretary not less than 120 days prior to the first
anniversary of the date that Active Voice's proxy statement was first released
to shareholders in connection with the previous year's annual meeting; or a
reasonable time prior to Active Voice's printing and mailing of its proxy
materials if the date of the current year's annual meeting has been changed by
more than thirty (30) days from the date of the previous year's meeting.
The Cisco bylaws provide that shareholders may propose business to be
brought before a meeting of shareholders or nominate directors only if they
provide notice to Cisco no later than 60 days prior to such meeting.
62
<PAGE> 70
AMENDMENT TO GOVERNING DOCUMENTS
The Washington Business Corporation Act authorizes a corporation's board of
directors to amend the corporation's articles of incorporation without
shareholder action with respect to the following matters:
- a change to the corporate name,
- if the corporation has only one class of shares outstanding change the
number of authorized shares solely to effect a stock split or stock
dividend in the corporation's shares; and
- changes to or elimination of provisions with respect to the par value of
the corporation's stock.
Approval of a majority of all votes entitled to be cast on the amendment,
upon recommendation of the board, is required to adopt other amendments. If the
board determines that because of a conflict of interest or other special
circumstances, it should make no recommendation and communicates the basis for
its determination to the shareholders, board recommendation is not required.
Active Voice's articles of incorporation provides that all the provision of
the articles of incorporation may be amended or repealed in any manner permitted
by law and do not specify that a different percentage of votes is required. The
Active Voice bylaws may be amended by the shareholders and the Active Voice
board unless the power to amend such bylaws is specifically reserved to the
shareholders.
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 of
incorporation do not require a greater level of approval for an amendment
thereto. Under California General Corporation Law, the holders of the
outstanding shares of a class of stock are entitled to vote as a class if a
proposed amendment to the articles of incorporation would:
- increase or decrease the aggregate number of authorized shares of such
class;
- effect an exchange, reclassification or cancellation of all or part of
the shares of such class, other than a stock split;
- 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;
- change the rights, preferences, privileges or restrictions of the shares
of such class;
- 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;
- 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
- cancel or otherwise affect dividends on the shares of such class which
have accrued but have not been paid.
Under California General Corporation Law, 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
63
<PAGE> 71
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 eight and a maximum of 15 directors).
CUMULATIVE VOTING
The Washington Business Corporation Act provides that directors may be
elected by cumulative voting unless otherwise provided for in the articles of
incorporation. Active Voice's articles of incorporation eliminated cumulative
voting with respect to election of directors after Active Voice became subject
to the reporting requirements of the Securities Exchange Act of 1934. Therefore,
under the Washington Business Corporation Act, cumulative voting rights are not
available to Active Voice shareholders. The Cisco articles provide for the
elimination of cumulative voting in elections of directors. Therefore, under the
California General Corporation Law, cumulative voting rights are not available
to Cisco shareholders.
APPRAISAL OR DISSENTERS' RIGHTS
Under Washington law, Active Voice's shareholders have the right to dissent
from the merger and to receive payment in cash for the fair value of their
shares of Active Voice common stock. To preserve their rights, Active Voice's
shareholders who wish to exercise their statutory dissenters' rights must
precisely follow the procedures described in Chapter 23B.13 of the Washington
Business Corporation Act, a copy of which is attached as Appendix G to this
proxy statement/prospectus.
Under California law, 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 merger
or 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 there exists
with respect to such shares any restriction on transfer imposed by the
corporation or by any law or regulation or if demands for payment are filed with
respect to 5% or more of the outstanding shares of that class.
DERIVATIVE ACTION
The Washington Business Corporation Act provides that a person may not
bring a derivative action on behalf of the corporation unless the person was a
shareholder of the corporation at the time of the transaction in question. A
demand to obtain action by the board is not required to bring a derivative
action.
California General Corporation Law 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 suit. The California
General Corporation Law 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.
64
<PAGE> 72
SHAREHOLDER CONSENT IN LIEU OF MEETING
The Washington Business Corporation Act does not permit shareholders of
public companies to act by written consent of less than all shareholders
entitled to vote on an action. Active Voice's articles of incorporation do not
permit shareholder action by written consent.
Under the California General Corporation Law, unless otherwise provided in
the articles of incorporation, any action required to be taken or which may be
taken at an annual or special meeting of shareholders may be taken without a
meeting if a consent in writing is signed by the holders of outstanding stock
having at least the minimum number of votes required to authorize such action.
If consent is sought for less than all shareholders entitled to vote, notice as
required under the California General Corporation Law shall be given. The Cisco
articles of incorporation 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.
FIDUCIARY DUTIES OF DIRECTORS
Directors of corporations incorporated or organized under the Washington
Business Corporation Act and California General Corporation Law 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 Washington Business Corporation Act, the
duty of care requires that the directors act with the care an ordinary prudent
person would exercise under similar standards. The duty of loyalty may be
summarized as the duty to act in good faith in a manner the directors reasonably
believe to be in the best interests of the corporation. Under California General
Corporation Law, 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 shareholders. 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.
INDEMNIFICATION
The Washington Business Corporation Act permits a corporation to advance
expenses to and/or indemnify its current or former directors who are made a
party to a proceeding because of being an Active Voice director. Unless
otherwise limited by the corporation's articles of incorporation, the Washington
Business Corporation Act requires indemnification if the director or officer is
wholly successful in the defense of any proceeding, on the merits or otherwise.
However, a corporation is not permitted to indemnify a director or officer for:
- acts or omissions of a director finally adjudged to be intentional
misconduct or a knowing violation of the law;
- conduct of a director or officer finally adjudged to be an unlawful
distribution; or
- any transaction with respect to which it is finally adjudged that the
director or officer in question, personally received a benefit in money,
property or services to which such director or officer was not legally
entitled.
Indemnification is not intended to be deemed exclusive of any other rights
to which any person seeking indemnification from the corporation may otherwise
be entitled under any agreement, vote of the shareholders or disinterested
directors or otherwise, both as to action in the director's, officer's or
agent's official capacity and as to action in another capacity while holding
such office.
Active Voice's articles of incorporation provide that Active Voice will
indemnify and advance reasonable expenses to its directors to the fullest extent
permitted by law. Regardless of whether or not
65
<PAGE> 73
Active Voice would have the power to indemnify its directors or officers, the
articles of incorporation of Active Voice provide that Active Voice may purchase
and maintain insurance on behalf of its directors and officers.
Under California General Corporation Law, 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 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 California General Corporation Law is not
exclusive, and a corporation may grant its directors, officers, employees or
other agents certain additional rights to indemnification. The Cisco articles of
incorporation and the Cisco bylaws provide for the indemnification of its agents
(as defined under the California General Corporation Law) to the fullest extent
permissible under California General Corporation Law, which may be in excess of
the indemnification expressly permitted by Section 317 of the California
Corporations Code, subject to the limits set forth in Section 204 of the
California Corporations Code with respect to actions for breach of duty to the
corporation and its shareholders.
California General Corporation Law also allows 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.
Insofar as indemnification for liabilities under federal securities laws
may be permitted to directors, officers or persons controlling Active Voice or
Cisco, pursuant to the foregoing provisions, in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is therefore unenforceable.
DIRECTOR LIABILITY
The Washington Business Corporation Act and California General Corporation
Law 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 shareholders, provided such liability does not arise from
certain proscribed conduct. In the case of Washington Business Corporation Act,
such conduct includes acts or omissions that involve intentional misconduct or a
knowing violation of law, conduct violating the prohibition on unlawful
distribution, or for any transaction in which the director will personally
receive a benefit in money, property or services to which the director is not
legally entitled and, in the case of California General Corporation Law,
intentional misconduct or knowing and culpable violation of law, acts or
omissions that a director believes to be contrary to the best interests of the
corporation or its shareholders or that involve the absence of good faith on the
part of the director, the receipt of an improper personal benefit, acts or
omissions that show reckless disregard for the director's duty to the
corporation or its shareholders, where the director in the ordinary course of
performing a director's duties should be aware of a risk of serious injury to
the corporation or its shareholders, acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation and its shareholders, interested transactions between
the corporation
66
<PAGE> 74
and a director in which a director has a material financial interest and
liability for improper distributions, loans or guarantees. Under Active Voice's
articles of incorporation, Active Voice's directors will not be personally
liable to the corporation for monetary damages for conduct as a director. The
Active Voice articles of incorporation contain a provision limiting the
liability of its directors except as required by Washington Business Corporation
Act. The Cisco articles of incorporation contain a provision limiting the
liability of its directors to the fullest extent provided by California General
Corporation Law.
ANTI-TAKEOVER PROVISIONS AND INTERESTED SHAREHOLDER TRANSACTIONS
The Active Voice and the Cisco bylaws provide that a special meeting of the
shareholders may be called by the chairman of the board, the board of directors,
the president or by one or more shareholders holding shares representing not
less than 10% of all the votes entitled to be cast on any issue proposed to be
considered at that meeting.
Washington law contains certain provisions that may have the effect of
delaying, deterring or preventing a takeover or change in control of Active
Voice. Chapter 23B.19 of the Washington Business Corporation Act prohibits a
corporation, with certain exceptions, from engaging in certain significant
business transactions with an "acquiring person" (defined as a person who
acquires 10% or more of a corporation's voting securities without the prior
approval of the corporation's board of directors) for a period of five years
after such acquisition. The prohibited transactions include, among others, a
merger with, disposition of assets to, or issuance or redemption of stock to or
from, the acquiring person, or otherwise allowing the acquiring person to
receive any disproportionate benefit as a shareholder. Active Voice may not
exempt itself from coverage of this statute. These statutory provisions may have
the effect of delaying, deterring or preventing a change in control of Active
Voice.
Under the California General Corporation Law, there is no comparable
provision. However, the California General Corporation Law does provide that,
except where the fairness of the terms and conditions of the transaction has
been approved by the California Commissioner of Corporations and except in a
"short-form" merger (the merger of a parent corporation with a subsidiary in
which the parent owns at least 90% of the outstanding shares of each class of
the subsidiary's stock), if the surviving corporation or its parent corporation
owns, directly or indirectly, shares of the target corporation representing more
than 50% of the voting power of the target corporation prior to the merger, the
nonredeemable common stock of a target corporation may be converted only into
nonredeemable common stock of the surviving corporation or its parent
corporation, unless all of the shareholders of the class consent. The effect of
this provision is to prohibit a cash-out merger of minority shareholders, except
where the majority shareholders already own 90% or more of the voting power of
the target corporation and could, therefore, effect a short-form merger to
accomplish such a cash-out of minority shareholders.
ADVANCE NOTICE OF MEETING
The Washington Business Corporation Act requires that shareholders be
provided prior written notice no more than sixty days nor less than twenty days
prior to a meeting of shareholders. Active Voice's bylaws provide that the board
may fix a date not more than seventy days before the meeting. The Washington
Business Corporation Act further provides that if the board does not fix the
record date for determining shareholders entitled to notice and to vote at a
special shareholders' meeting, the record date is the day before the first
notice is delivered to stockholders. Finally, notice of the date, time, and
place of a special meeting to approve an amendment to the articles of
incorporation, a plan of merger or share exchange, or a proposed sale of assets
must be given no fewer than twenty nor more than sixty days before the meeting
date. Active Voice's bylaws provide that written notice of a special meeting for
67
<PAGE> 75
any proposed merger or sale of substantially all of the assets of Active Voice
shall be given at least twenty days before the meeting date.
California General Corporation Law requires that shareholders be provided
prior written notice no more than 60 days nor less than 10 days prior to 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 Washington Business Corporation Act requires that a corporation's
shareholder list be made available for inspection by any shareholder, beginning
ten days prior to any shareholder meeting and continuing through the meeting, at
the corporation's principal office or the location where the meeting will be
held. Shareholders may inspect the list during regular business hours at their
own expense.
Under the California General Corporation Law, a shareholder is permitted to
inspect the accounting books and records and minutes of proceedings of the
shareholders and the board of directors is permitted to inspect the
shareholders' 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 General Corporation 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 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 Washington Business Corporation Act provides that a board of directors
must consist of one or more individuals, with the number specified in or fixed
in accordance with articles or incorporation or bylaws. A change in the number
of directors may be made by board amendment of the bylaws unless otherwise
prohibited in the articles of incorporation. Active Voice's board of directors
is currently set at six directors. Active Voice's bylaws provide that if a
greater or lesser number of directors is elected by the shareholders, then the
election of than number shall automatically constitute an amendment to Active
Voice's bylaws.
Under the California General Corporation Law, as provided in the articles
of incorporation 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 the board or the 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 eight nor more than 15, 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 Washington Business Corporation Act provides that one or more directors
may be removed by the shareholders, with or without cause, unless otherwise
provided for in the articles of incorporation. If a director is elected by
holders of one or more authorized classes of shares, only the holders of those
classes may participate in the vote to remove the director. Directors may be
removed by the shareholders only at a special meeting called for that purpose
and the meeting notice must state that the purpose of the meeting is removal of
the director. Active Voice's bylaws provide that a director (or the
68
<PAGE> 76
entire board) may be removed if the number of votes cast in favor of removing
such director exceeds the number of votes cast against removal; provided that if
a director has been elected by one or more voting groups, only those voting
groups may participate in the removal vote.
California General Corporation Law 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
The Washington Business Corporation Act provides that a proposed
transaction may not be enjoined, set aside or give rise to damages because a
director of a corporation has an interest in the transaction, unless the
director has a conflict of interest. A director has a conflict of interest when
(i) the director knows at the time of commitment that the director has a
beneficial financial interest in, or is so closely linked to, the transaction
and the transaction is of such financial significance to the director that the
interest would reasonably be expected to exert an influence on the director's
judgment if the director were called upon to vote on the transaction, or (ii)
the transaction is brought before the board of directors and the director knows
at the time that an entity of which the director is a director or general
partner, or a person who is a principal or employer of the director is a party
to the transaction. A directors' conflict of interest in a transaction may not
be enjoined or set aside if:
- the transaction received the affirmative vote of a majority, but no fewer
than two, of those qualified directors on the board after the director
discloses the existence and nature of the director's conflicting interest
and all facts know to the director regarding the subject matter of the
transaction that an ordinarily prudent person would reasonably believe to
be material to a judgment about whether or not to proceed with the
transaction to them or discloses the existence and nature of the
director's conflicting interest and informs them of the character and
limitations imposed by that duty and plays no part in their deliberations
or vote;
- the transaction is approved by a majority of the votes entitled to be
cast by holders of all qualified shares after notice to shareholders
describing the director's conflicting interest, the director has informed
the person counting the votes of the number of all share beneficially
owned by the director and informs the shareholders who voted on the
transaction of the existence and nature of the director's conflicting
interest and all facts know to the director regarding the subject matter
of the transaction that an ordinarily prudent person would reasonably
believe to be material to a judgment about whether or not to proceed with
the transaction; or
- the transaction is established to have been fair to the corporation.
The California General Corporation Law states 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 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. The California General Corporation Law provides that such a
contract or transaction also is not void or voidable if either after full
disclosure the transaction is approved by the board or a committee (excluding
the vote of interested directors) in good faith and the transaction is just and
reasonable to the corporation, or the person asserting the validity of
69
<PAGE> 77
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 Washington Business Corporation Act provides that, unless the articles
of incorporation provide otherwise, vacancies may be filled by the shareholders,
board of directors or, in the absence of a quorum, affirmative vote of a
majority of the directors in office. However, if the vacant office was held by a
director elected by holders of one or more authorized classes or series of
shares, only the holders of those classes or series of shares are entitled to
vote to fill the vacancy.
Active Voice's bylaws provide that vacancies may be filled by the
affirmative vote of a majority of the directors present at a meeting of the
board of directors at which a quorum is present, or absent a quorum, by the
affirmative vote of a majority of all of the directors in office. The board does
not have the power to fill a vacancy left by a director who was elected by a
voting group composed of less than all of the voting shareholders. A director
elected to fill any vacancy will hold office until the next meeting of
shareholders at which directors are elected and qualified.
Under California General Corporation Law, 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 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.
70
<PAGE> 78
DISSENTERS' RIGHTS TO APPRAISAL
The following is a brief summary of the rights of holders of Active Voice
common stock to dissent from the merger and receive cash equal to the fair value
of their Active Voice common stock instead of receiving shares of Cisco common
stock. This summary is not a complete statement of the law, and you should read
the applicable sections of Chapter 23B.13 of the Washington Business Corporation
Act, which is attached as Appendix G to this proxy statement/prospectus, in its
entirety. If you are contemplating the possibility of dissenting from the
merger, you should carefully review the text of Appendix G, particularly the
procedural steps required to perfect dissenters' rights, which are complex. You
should also consult your legal counsel. If you do not fully and precisely
satisfy the procedural requirements of the Washington Business Corporation Act,
you will lose your dissenters' rights.
Requirements for exercising appraisal rights
To exercise dissenters' rights, you must:
- deliver to Active Voice before the vote is taken at the special meeting
written notice of your intent to demand the fair value for your Active
Voice common stock if the merger is consummated and becomes effective;
and
- not vote your shares of Active Voice common stock at the special meeting
in favor of the proposal to approve the merger and adopt the merger
agreement and the asset purchase agreement.
If you do not satisfy each of these requirements, you cannot exercise
dissenters' rights and will be bound by the terms of the merger agreement.
Submitting a proxy card that does not direct how the Active Voice common stock
represented by that proxy is to be voted will constitute a vote in favor of the
merger and a waiver of your statutory dissenters' rights. In addition, voting
against the proposal to approve the merger and adopt the merger agreement and
the asset purchase agreement will not satisfy the notice requirement referred to
above. You must file the written notice of the intent to exercise dissenters'
rights with Active Voice at: Active Voice Corporation, 2901 Third Avenue,
Seattle, Washington 98121, Attn: Jose S. David, Secretary.
Appraisal procedure
Within 10 days after the effective time of the merger, Active Voice will
send written notice to all shareholders who have given written notice under the
dissenters' rights provisions and have not voted in favor of the merger as
described above. The notice will contain:
- the address where the demand for payment must be sent and where and when
and certificates representing shares of Active Voice common stock must be
deposited;
- any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received;
- a form for demanding payment that states the date of the first
announcement to the news media or to shareholders of the terms of the
proposed merger and requires certification of the date the shareholder,
or the beneficial owner on whose behalf the shareholder dissents,
acquired the Active Voice common stock or an interest in it;
- the date by which Active Voice must receive the demand for payment; and
- a copy of Chapter 23B.13 of the Washington Business Corporation Act.
71
<PAGE> 79
If you wish to assert dissenters' rights, you must demand payment and
deposit your Active Voice certificates within 30 days after the notice is given.
If you fail to make demand for payment and deposit your Active Voice
certificates within the 30-day period, you will lose the right to receive fair
value for your shares under the dissenters' rights provisions, even if you filed
a timely notice of intent to demand payment.
Except as provided below, within 30 days of the later of the effective time
of the merger or Active Voice's receipt of a valid demand for payment, Active
Voice will remit to each dissenting shareholder who complied with the
requirements of the Washington Business Corporation Act the amount Active Voice
estimates to be the fair value of the shareholder's Active Voice common stock,
plus accrued interest. Active Voice will include the following information with
the payment:
- financial data relating to Active Voice;
- an explanation of how Active Voice estimated the fair value of the
shares;
- an explanation of how the interest was calculated;
- a copy of Chapter 23B.13 of the Washington Business Corporation Act; and
- a brief description of the procedures to be followed in demanding
supplemental payment.
For dissenting shareholders who were not the beneficial owner of the shares
of Active Voice common stock before November 10, 2000, Active Voice may withhold
payment and instead send a statement setting forth its estimate of the fair
value of their shares and offering to pay such amount, with interest, as a final
settlement of the dissenting shareholder's demand for payment.
If you are dissatisfied with your payment or offer, you may, within 30 days
of the payment or offer for payment, notify Active Voice in writing of and
demand payment of your estimate of fair value of your shares and the amount of
interest due. If any dissenting shareholder's demand for payment is not settled
within 60 days after receipt by Active Voice of his or her payment demand,
Active Voice must commence a proceeding in King County Superior Court and
petition the court to determine the fair value of the shares and accrued
interest, naming all the dissenting shareholders whose demands remain unsettled
as parties to the proceeding. The court may appoint one or more appraisers to
receive evidence and make recommendations to the court as to the amount of the
fair value of the shares. The fair value of the shares as determined by the
court is binding on all dissenting shareholders and may be less than, equal to
or greater than the market price of the Cisco common stock to be issued to
nondissenting shareholders for their Active Voice common stock if the merger is
consummated.
If the court determines that the fair value of the shares is in excess of
any amount remitted by Active Voice, then the court will enter a judgment for
cash in favor of the dissenting shareholders in an amount by which the value
determined by the court, plus interest, exceeds the amount previously remitted.
The court will determine the costs and expenses of the court proceeding and
assess them against Active Voice, except that the court may assess part or all
of the costs against any dissenting shareholders whose actions in demanding
supplemental payments are found by the court to be arbitrary, vexatious or not
in good faith. If the court finds that Active Voice did not substantially comply
with the relevant provisions of sections 23B.13.200 through 23B.13.280 of the
Washington Business Corporation Act, the court may also assess against Active
Voice any fees and expenses of attorneys or experts that the court deems
equitable. The court may also assess those fees and expenses against any party
if the court finds that the party has acted arbitrarily, vexatiously or not in
good faith in bringing the proceedings. The court may award, in its discretion,
fees and expenses of the attorney for any dissenting shareholders out of the
72
<PAGE> 80
amount awarded to the shareholders, if it finds the services of the attorney
were of substantial benefit to the other dissenting shareholders and that those
fees should not be assessed against Active Voice.
A shareholder of record may assert dissenters' rights as to fewer than all
of the shares registered in the shareholder's name only if he or she dissents
with respect to all shares beneficially owned by any one person and notifies
Active Voice in writing of the name and address of each person on whose behalf
he or she asserts dissenters' rights. The rights of the partial dissenting
shareholder are determined as if the shares as to which he or she dissents and
his or her other shares were registered in the names of different shareholders.
Beneficial owners of Active Voice common stock who desire to exercise
dissenters' rights themselves must obtain and submit the registered owner's
written consent at or before the time they file the notice of intent to demand
fair value and must exercise those rights with respect to all shares of which
they are beneficial owners.
For purposes of the Washington Business Corporation Act, "fair value" means
the value of Active Voice common stock immediately before the effective time of
the merger, excluding any appreciation or depreciation in anticipation of the
merger, unless that exclusion would be inequitable. Under section 23B.13.020 of
the Washington Business Corporation Act, an Active Voice shareholder has no
right, at law or in equity, to set aside the approval and adoption of the merger
or the consummation of the merger except if the approval, adoption or
consummation fails to comply with the procedural requirements of Chapter 23B.13
of the Washington Business Corporation Act, Revised Code of Washington sections
25.10.900 through 25.10.955, Active Voice's articles of incorporation or Active
Voice's bylaws, or was fraudulent with respect to that shareholder or Active
Voice.
EXPERTS
The consolidated financial statements of Cisco Systems, Inc. incorporated
in this proxy statement/ prospectus by reference to the Annual Report on Form
10-K for the year ended July 29, 2000 have been so incorporated in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Active Voice Corporation as of
March 31, 2000 and 1999, and for each of the three fiscal years in the period
ended March 31, 2000, included in the 2000 Active Voice Corporation Form 10-K,
which is incorporated by reference in this proxy statement/prospectus have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
included therein. Such financial statements are incorporated herein by reference
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
PricewaterhouseCoopers LLP ("PWC"), Cisco's independent accountants, has
notified Cisco that PWC is engaged in discussions with the Securities and
Exchange Commission following an internal review by PWC, pursuant to an
administrative settlement with the Commission, of PWC's compliance with auditor
independence guidelines. PWC has advised Cisco that Cisco is one of the
companies affected by such discussions. Cisco is not involved in the discussions
between the Commission and PWC and cannot predict the result of those
discussions.
LEGAL MATTERS
The validity of the shares of Cisco common stock offered by this proxy
statement/prospectus 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 Active Voice
by Gray Cary Ware & Freidenrich, LLP, Seattle, Washington.
73
<PAGE> 81
WHERE YOU CAN FIND MORE INFORMATION
Active Voice and Cisco file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information that Cisco
and Active Voice file with the Securities and Exchange Commission at the
Securities and Exchange Commission's public reference rooms at the following
locations:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, NY 10048 Suite 1400
Chicago, IL 60661-2511
</TABLE>
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference rooms. These Securities and Exchange
Commission filings are also available to the public from commercial document
retrieval services and at the Internet world wide web site maintained by the
Securities and Exchange Commission at "http://www.sec.gov." Reports, proxy
statements and other information concerning Cisco and Active Voice are also
available for inspection at the offices of The Nasdaq Stock Market, which is
located at 1735 K Street, N.W., Washington, D.C. 20006.
Cisco filed a registration statement on Form S-4 to register with the
Securities and Exchange Commission Cisco common stock to be issued to Active
Voice shareholders in the merger. This proxy statement/prospectus is a part of
that registration statement and constitutes the prospectus of Cisco as well as a
proxy statement of Active Voice for the Active Voice special meeting.
Cisco has supplied all the information contained in this proxy
statement/prospectus relating to Cisco and Active Voice has supplied all such
information relating to Active Voice. As allowed by Securities and Exchange
Commission rules, this proxy statement/prospectus, the registration statement
and the exhibits to the registration statement do not contain all of the
information relating to Cisco and Active Voice.
Some of the important business and financial information relating to Cisco
and Active Voice that you may want to consider in deciding how to vote is not
included in this proxy statement/prospectus, but rather is "incorporated by
reference" to documents that have been previously filed by Cisco and Active
Voice with the Securities and Exchange Commission. The information incorporated
by reference is deemed to be a part of this proxy statement/prospectus, except
for any information superseded by information contained directly in this proxy
statement/prospectus or in later filed documents incorporated by reference in
this proxy statement/prospectus.
If you are an Active Voice shareholder, you can obtain any of the documents
incorporated by reference through Cisco, Active Voice or the Securities and
Exchange Commission. Documents incorporated by reference are available from
Cisco or Active Voice without charge, excluding all exhibits. You may obtain
documents incorporated by reference in this proxy statement/prospectus free of
charge by requesting them orally or in writing to the following addresses or by
telephone:
<TABLE>
<S> <C>
Cisco Systems, Inc. Active Voice Corporation
Investor Relations Investor Relations
170 West Tasman Drive 2901 Third Avenue, Suite 500
San Jose, CA 95134 Seattle, WA 98121
(408) 227-2726 (206) 441-4700 x1197
</TABLE>
TO ENSURE TIMELY DELIVERY, YOU MUST MAKE THIS REQUEST NO LATER THAN FIVE
BUSINESS DAYS BEFORE THE SPECIAL MEETING OR , 2001.
74
<PAGE> 82
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS TO VOTE ON THE MERGER. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THE PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY
DATE OTHER THAN THE DATE HEREOF, AND NEITHER THE MAILING OF THIS PROXY
STATEMENT/PROSPECTUS TO ACTIVE VOICE SHAREHOLDERS NOR THE ISSUANCE OF CISCO
COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
The Securities and Exchange Commission allows Cisco and Active Voice to
"incorporate by reference" the information Cisco and Active Voice file with the
SEC, which means that Cisco and Active Voice can disclose important information
to you by referring you to those documents. The information incorporated by
reference is considered to be part of this proxy statement/prospectus, and later
information filed with the Securities and Exchange Commission will update and
supersede this information. Cisco and Active Voice incorporate by reference the
documents listed below and any future filings made with the Securities and
Exchange Commission under Section 13a, 13(c), 14, or 15(d) of the Securities and
Exchange Act of 1934 until this merger is completed:
1. Cisco's Annual Report on Form 10-K for the fiscal year ended July
29, 2000, filed September 29, 2000, including certain information in
Cisco's Definitive Proxy Statement in connection with Cisco's 2000 Annual
Meeting of Shareholders and certain information in Cisco's Annual Report to
Shareholders for the fiscal year ended July 29, 2000;
2. Cisco's Current Reports on Form 8-K filed on December 15, 1999 (as
amended on Form 8-K/A filed on February 3, 2000 and on Form 8-K/A-1 filed
on August 4, 2000), August 15, 2000, September 7, 2000, September 15, 2000,
September 26, 2000, September 28, 2000, September 29, 2000, November 6,
2000, November 7, 2000, November 13, 2000 and November 15, 2000;
3. The description of Cisco's common stock contained in Cisco's
Registration Statement on Form 8-A filed January 11, 1990, including any
amendment or report filed for the purpose of updating such description;
4. The description of Cisco's Preferred Stock Purchase Rights,
contained in its registration statement of Form 8-A filed on June 11, 1998,
including any amendments or reports filed for the purpose of updating such
description;
5. Active Voice's Annual Report on Form 10-K for the fiscal year ended
March 31, 2000, filed June 29, 2000;
6. Active Voice's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2000, filed August 14, 2000 (as amended on Form 10-Q/A filed
on August 28, 2000);
7. Active Voice's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 2000, filed November 14, 2000; and
8. Active Voice's Current Reports on Form 8-K filed on February 8,
2000 and November 21, 2000.
75
<PAGE> 83
You may request a copy of Cisco's or Active Voice's filings, free of
charge, by writing or telephoning Cisco or Active Voice, as the case may be, at
the following address:
<TABLE>
<S> <C>
Larry R. Carter Jose S. David
Senior Vice President, Chief Financial Chief Financial Officer, Treasurer
Officer
and Secretary and Secretary
Cisco Systems, Inc. Active Voice Corporation
255 West Tasman Drive 2901 Third Avenue, Suite 500
San Jose, CA 95134 Seattle, WA 98121
(408) 526-4000 (206) 441-4700
</TABLE>
You must request this information no later than five business days before
the date of the special meeting or , 2001, to ensure timely delivery.
76
<PAGE> 84
APPENDIX A
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
CISCO SYSTEMS, INC.,
AQUA ACQUISITION CORPORATION
AND
ACTIVE VOICE CORPORATION
NOVEMBER 9, 2000
<PAGE> 85
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-2
1.3 Effect of the Merger........................................ A-2
1.4 Articles 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 Company Common Stock......... A-4
1.9 Lost, Stolen or Destroyed Certificates...................... A-5
1.10 Tax Consequences............................................ A-5
1.11 Withholding Rights.......................................... A-5
1.12 Termination of Exchange Agent Funding....................... A-5
1.13 Taking of Necessary Action; Further Action.................. A-5
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF COMPANY............... A-5
2.1 Organization, Standing and Power............................ A-6
2.2 Capital Structure........................................... A-7
2.3 Authority................................................... A-8
2.4 SEC Documents; Financial Statements......................... A-8
2.5 Absence of Certain Changes.................................. A-9
2.6 Absence of Undisclosed Liabilities.......................... A-10
2.7 Litigation.................................................. A-10
2.8 Restrictions on Business Activities......................... A-10
2.9 Governmental Authorization.................................. A-10
2.10 Title to Property........................................... A-10
2.11 Intellectual Property....................................... A-11
2.12 Environmental Matters....................................... A-12
2.13 Taxes....................................................... A-13
2.14 Employee Benefit Plans...................................... A-14
2.15 Certain Agreements Affected by the Merger................... A-16
2.16 Employee Matters............................................ A-17
2.17 Interested Party Transactions............................... A-17
2.18 Insurance................................................... A-18
2.19 Compliance with Laws........................................ A-18
2.20 Minute Books................................................ A-18
2.21 Complete Copies of Materials................................ A-18
2.22 Brokers' and Finders' Fees.................................. A-18
2.23 Registration Statement; Proxy Statement/Prospectus.......... A-18
2.24 Opinion of Financial Advisor................................ A-19
2.25 Vote Required............................................... A-19
2.26 Board Approval.............................................. A-19
2.27 Shareholder Agreement; Irrevocable Proxies.................. A-19
Chapter 23B.19 of the Washington Business Company Act Not
2.28 Applicable.................................................. A-19
2.29 Inventory................................................... A-19
2.30 Accounts Receivable......................................... A-20
2.31 Customers and Suppliers..................................... A-20
</TABLE>
A-i
<PAGE> 86
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
2.32 Export Control Laws......................................... A-20
2.33 Year 2000................................................... A-20
2.34 Representations Complete.................................... A-21
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB............................................................... A-21
3.1 Organization, Standing and Power............................ A-21
3.2 Capital Structure........................................... A-21
3.3 Authority................................................... A-21
3.4 SEC Documents; Financial Statements......................... A-22
3.5 Absence of Undisclosed Liabilities.......................... A-23
3.6 Litigation.................................................. A-23
3.7 Broker's and Finders' Fees.................................. A-23
3.8 Registration Statement; Proxy Statement/Prospectus.......... A-23
3.9 Board Approval.............................................. A-23
3.10 Representations Complete.................................... A-23
ARTICLE IV. CONDUCT PRIOR TO THE EFFECTIVE TIME..................... A-24
4.1 Conduct of Business of Company.............................. A-24
4.2 Restrictions on Conduct of Business of Company.............. A-24
4.3 No Solicitation............................................. A-26
ARTICLE V. ADDITIONAL AGREEMENTS.................................... A-27
5.1 Proxy Statement/Prospectus; Registration Statement.......... A-27
5.2 Meeting of Shareholders..................................... A-28
5.3 Access to Information....................................... A-28
5.4 Confidentiality............................................. A-29
5.5 Public Disclosure........................................... A-29
5.6 Consents; Cooperation....................................... A-29
5.7 Legal Requirements.......................................... A-30
5.8 Blue Sky Laws............................................... A-30
5.9 Employee Benefit Plans...................................... A-30
5.10 Forms S-3 and S-8........................................... A-32
5.11 Option Agreement............................................ A-32
5.12 Nasdaq Quotation............................................ A-32
5.13 Employees................................................... A-32
5.14 Action Under Stock Option Plan.............................. A-32
5.15 Notice to Certain Employees................................. A-32
5.16 Indemnification............................................. A-33
5.17 Tax Treatment............................................... A-34
5.18 Shareholder Litigation...................................... A-34
5.19 Section 280G/83(b) Agreement................................ A-34
5.20 Spreadsheet................................................. A-34
5.21 Execution of Shareholder Agreement by NEC................... A-34
5.22 Termination of Company ESPP................................. A-34
5.23 Resolution of Certain Litigation Matters.................... A-34
5.24 Best Efforts and Further Assurances......................... A-35
</TABLE>
A-ii
<PAGE> 87
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE VI. CONDITIONS TO THE MERGER................................ A-35
6.1 Conditions to Obligations of Each Party to Effect the
Merger...................................................... A-35
6.2 Additional Conditions to Obligations of Company............. A-36
6.3 Additional Conditions to the Obligations of Parent and
Merger Sub.................................................. A-38
ARTICLE VII. TERMINATION, AMENDMENT AND WAIVER...................... A-38
7.1 Termination................................................. A-38
7.2 Effect of Termination....................................... A-39
7.3 Expenses and Termination Fees............................... A-39
7.4 Amendment................................................... A-41
7.5 Extension; Waiver........................................... A-41
ARTICLE VIII. GENERAL PROVISIONS.................................... A-41
8.1 Non-Survival at Effective Time.............................. A-41
8.2 Notices..................................................... A-41
8.3 Interpretation.............................................. A-42
8.4 Counterparts................................................ A-42
8.5 Entire Agreement; Nonassignability; Parties in Interest..... A-43
8.6 Severability................................................ A-43
8.7 Remedies Cumulative......................................... A-43
8.8 Governing Law............................................... A-43
8.9 Rules of Construction....................................... A-44
</TABLE>
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit A -- Stock Option Agreement
Exhibit B -- Shareholder Agreement
Exhibit C -- Asset Purchase Agreement
Exhibit D -- Articles of Merger
Exhibit E -- Waivers
Exhibit F -- Employment Agreements
Exhibit G -- Notice to Transferred Employees
Exhibit H -- 280 G/83(b) Agreements
Exhibit I -- General Release and Non-Competition Agreements
Exhibit J -- General Release
</TABLE>
SCHEDULES
Company Disclosure Schedule
<TABLE>
<S> <C>
Schedule 2.0 Revenue Levels
Schedule 2.1 Organization, Standing and Power
Schedule 2.2 Capital Structure
Schedule 2.3 Authority
Schedule 2.4 SEC Documents; Financial Statements
Schedule 2.5 Absence of Certain Changes
Schedule 2.6 Absence of Undisclosed Liabilities
Schedule 2.7 Litigation
Schedule 2.9 Governmental Authorization
Schedule 2.10 Company Real Property
Schedule 2.11 Intellectual Property
Schedule 2.13 Taxes
</TABLE>
A-iii
<PAGE> 88
<TABLE>
<S> <C>
Schedule 2.14(a) Employee Benefit Plans
Schedule 2.14(d) COBRA/Family Act Obligations
Schedule 2.14(e) Certain Benefit Payments Affected by the Merger
Schedule 2.14(i) Company Foreign Plans
Schedule 2.14(j) List of Employees on Disability/Other Leave
Schedule 2.15 Certain Agreements
Schedule 2.16 Employee Matters
Schedule 2.18 Insurance
Schedule 2.19 Compliance with Law
Schedule 2.22 Broker's and Finder's Fees
Schedule 2.27 Signatories to Shareholder Agreement
Schedule 2.33 Year 2000
Schedule 4.2(h) Dispositions
Schedule 5.9(a) Outstanding Options
Schedule 5.9(b) Options Subject to Acceleration
Schedule 5.9(d) Disqualified Persons
Schedule 5.9(f) Acceleration Waivers
Schedule 5.10(a) S-8 Eligible Optionees
Schedule 5.10(b) S-3 Eligible Optionees
Schedule 5.13 Cisco Employees
Schedule 5.15 Transferred Employees
Schedule 5.15(a) Key Newco Employees
Schedule 5.15(b) Newco Employees
Schedule 6.3(c) Material Third Party Consents
Schedule 6.3(r) Non-terminated Consultants and Independent Contractors
</TABLE>
Parent Disclosure Schedule
A-iv
<PAGE> 89
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement") is
made and entered into as of November 9, 2000, by and among Cisco Systems, Inc.,
a California corporation ("Parent"), Aqua Acquisition Corporation, a Delaware
corporation ("Merger Sub") and wholly owned subsidiary of Parent, and Active
Voice Corporation, a Washington corporation ("Company").
RECITALS
A. The Boards of Directors of Company, Parent and Merger Sub believe it is
in the best interests of their respective companies and the shareholders of
their respective companies that Company and Merger Sub combine into a single
company through the statutory merger of Merger Sub with and into Company (the
"Merger") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, the outstanding shares of
Company common stock, no par value ("Company common stock"), shall be converted
into shares of Parent common stock, $0.001 par value ("Parent common stock"), at
the rate set forth herein.
C. Company, Parent 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 of the Code.
E. Concurrently with the execution of this Agreement and as an inducement
to Parent and Merger Sub to enter into this Agreement, (a) Company and Parent
have entered into a stock option agreement dated the date hereof in the form
attached hereto as Exhibit A (the "Option Agreement") providing for the purchase
by Parent of newly-issued shares of Company common stock, and (b) certain
shareholders of Company have on the date hereof entered into a shareholder
agreement in the form attached hereto as Exhibit B (the "Shareholder Agreement")
to, among other things, vote the shares of Company common stock owned by such
persons to approve the Merger and against any competing proposals.
F. Also, concurrently with the execution of this Agreement, Company and
Atlantis Group, Inc., a Washington corporation ("Newco"), have entered into an
Asset Purchase Agreement of even date herewith in the form attached hereto as
Exhibit C (the "Asset Purchase Agreement") which agreement provides for the sale
of certain of Company's assets to Newco and the assumption of certain of
Company's obligations and liabilities by Newco.
NOW, THEREFORE, in consideration of the covenants and representations set
forth herein, and for other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereto 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 and the Articles of Merger attached hereto as Exhibit D and in
accordance with the applicable provisions of the Delaware General Corporation
Law ("Delaware Law") and Washington Business Corporation Act ("Washington Law"),
respectively, Merger Sub shall be merged with and into Company, the separate
corporate existence of
A-1
<PAGE> 90
Merger Sub shall cease and Company shall continue as the surviving corporation.
Company as the surviving corporation after the Merger is hereinafter sometimes
referred to as the "Surviving Corporation."
1.2 Closing; Effective Time. The closing of the transactions contemplated
hereby (the "Closing") shall take place as soon as practicable after the
satisfaction or waiver of each of the conditions set forth in Article VI hereof
or at such other time as the parties hereto agree (the "Closing Date"). The
Closing shall take place at the offices of Brobeck, Phleger & Harrison LLP, Two
Embarcadero Place, 2200 Geng Road, Palo Alto, California 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
the Articles of Merger with the Secretary of State of the State of Washington,
in accordance with the relevant provisions of Delaware Law and Washington Law
(the time of the last such filing being the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Certificate of Merger, the Articles
of Merger and the applicable provisions of Delaware Law and Washington Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
Company and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 Articles of Incorporation; Bylaws.
(a) At the Effective Time, the Articles of Incorporation of Company shall
be amended so as to read in its entirety as set forth in Exhibit A to the
Articles of Merger and as so amended shall be the Articles of Incorporation of
the Surviving Corporation until thereafter amended as provided by Washington Law
and such Articles of Incorporation.
(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 those persons who were the directors of Merger
Sub, in each case until their successors are elected or appointed and qualified
or until their earlier resignation or removal. 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 or until their earlier
resignation or removal.
1.6 Effect on Capital Stock. By virtue of the Merger and without any
action on the part of Merger Sub, Company or the holders of any of the following
securities:
(a) Conversion of Company Common Stock. At the Effective Time, each
share of Company common stock issued and outstanding immediately prior to
the Effective Time (other than any shares of Company 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 shares of Parent
common stock, all of which shall have been registered pursuant to Section
5.1, based on the Exchange Ratio, subject to any adjustments made pursuant
to Section 1.6(d). The Exchange Ratio shall equal the ratio of (x) a
quotient, the numerator of which is $295,332,740 and the denominator of
which is the Parent Stock Price and (y) the total number of Company common
stock issued and outstanding on a fully diluted basis at the Effective Time
(after giving effect to the conversion, exchange or exercise as the case
may be of all securities convertible into, or exercisable or exchangeable
for, Company common stock, including all unexpired and unexercised options,
warrants or other rights to acquire Company common stock). The Parent Stock
Price shall equal the average of the closing
A-2
<PAGE> 91
prices of Parent common stock as quoted on Nasdaq for the ten consecutive
trading days ending on the third trading day prior to the Effective Time.
(b) Cancellation of Company Common Stock Owned by Parent or
Company. At the Effective Time, all shares of Company common stock that are
owned by Company as treasury stock and each share of Company common stock
owned by Parent or any direct or indirect wholly owned subsidiary of Parent
or of Company immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(c) Company Stock Option Plans. At the Effective Time, the Company
Stock Option Plans (as defined below) and all options to purchase Company
common stock then outstanding under the Company Stock Option Plans and all
obligations of Company under the Company ESPP (as defined below) shall be
assumed by Parent in accordance with Section 5.9.
(d) Capital Stock of Merger Sub. At the Effective Time, each share of
common stock, $0.001 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 of the Surviving Corporation, and the
Surviving Corporation shall be a wholly owned subsidiary of Parent. 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 Parent common stock or Company common stock),
reorganization, recapitalization or other like change with respect to
Parent common stock or Company common stock occurring after the date hereof
and prior to the Effective Time, so as to provide holders of Company common
stock and Parent the same economic effect as contemplated by this Agreement
prior to such stock split, reverse split, stock dividend, reorganization,
recapitalization or like change.
(f) Fractional Shares. No fraction of a share of Parent common stock
will be issued, but in lieu thereof each holder of shares of Company common
stock who would otherwise be entitled to a fraction of a share of Parent
common stock (after aggregating all fractional shares of Parent common
stock to be received by such holder) shall receive from Parent an amount of
cash (rounded to the nearest whole cent) equal to the product of (i) such
fraction, multiplied by (ii) the Parent Stock Price.
1.7 Surrender of Certificates.
(a) Exchange Agent. Parent's transfer agent shall act as exchange agent
(the "Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock and Cash. Promptly after the Effective
Time, Parent shall make available to the Exchange Agent for exchange in
accordance with this Article I, through such reasonable procedures as Parent may
adopt, (i) the shares of Parent common stock issuable pursuant to Section 1.6(a)
in exchange for shares of Company common stock outstanding immediately prior to
the Effective Time (provided that delivery of any shares that are subject to
vesting and/or repurchase rights or other restrictions shall be in book entry
form until such vesting and/or repurchase rights or other restrictions lapse)
and (ii) cash in an amount sufficient to permit payment of cash in lieu of
fractional shares pursuant to Section 1.6(e).
(c) Exchange Procedures. Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each holder of record of a certificate
or certificates (the "Certificates") which
A-3
<PAGE> 92
immediately prior to the Effective Time represented outstanding shares of
Company common stock, whose shares were converted into the right to receive
shares of Parent 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 Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates (or book entries in the case of shares that are
subject to vesting and/or repurchase rights or other restrictions) representing
shares of Parent 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 Parent, 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 (or book entry in the case of shares
that are subject to vesting and/or repurchase rights or other restrictions)
representing the number of whole shares of Parent 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 Company 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 Parent
common stock into which such shares of Company 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. Notwithstanding any other
provision of this Agreement, no interest will be paid or will accrue on any cash
payable to holders of Certificates pursuant to the provisions of this Article I.
(d) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to Parent 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 Parent common stock represented thereby until the
holder of record of such Certificate shall surrender such Certificate. Subject
to applicable law, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole shares of
Parent 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 Parent common
stock.
(e) Transfers of Ownership. If any certificate for shares of Parent 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 Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent common stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Parent 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, Parent 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 Company Common Stock. All shares of
Parent common stock issued upon the surrender for exchange of shares of Company
common stock in accordance with the terms hereof (including any cash paid in
lieu of fractional shares) shall be deemed to have been
A-4
<PAGE> 93
issued in full satisfaction of all rights pertaining to such shares of Company
common stock, and there shall be no further registration of transfers on the
records of the Surviving Corporation of shares of Company 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 Parent common stock
(and cash in lieu of fractional shares) as may be required pursuant to Section
1.6; provided, however, that Parent 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 Parent, 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 Withholding Rights. Parent and the Surviving Corporation shall be
entitled to deduct and withhold from the number of shares of Parent common stock
otherwise deliverable under this Agreement, and from any other payments made
pursuant to this Agreement, such amounts as Parent and the Surviving Corporation
are required to deduct and withhold with respect to such delivery and payment
under the Code or any provision of state, local, provincial or foreign tax law.
To the extent that amounts are so withheld, such withheld amounts shall be
treated for all purposes of this Agreement as having been delivered and paid to
the holder of shares of Company common stock in respect of which such deduction
and withholding was made by Parent and the Surviving Corporation.
1.12 Termination of Exchange Agent Funding. Any portion of funds
(including any interest earned thereon) or certificates for shares of Parent
common stock held by the Exchange Agent which have not been delivered to holders
of Certificates pursuant to this Article I within six months after the Effective
Time shall promptly be paid or delivered, as appropriate, to Parent, and
thereafter holders of Certificates who have not theretofore complied with the
exchange procedures set forth in and contemplated by Section 1.7 shall
thereafter look only to Parent (subject to abandoned property, escheat and
similar laws) for their claim for shares of Parent common stock and, only as
general creditors thereof, any cash in lieu of fractional shares of Parent
common stock and any dividends or distributions (with a record date after the
Effective Time) with respect to Parent common stock to which they are entitled.
1.13 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 Company and Merger Sub, the officers and directors of Company
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 COMPANY
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
A-5
<PAGE> 94
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations or results of 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 Company shall not include the
following (collectively, "Non-Controllable Events"): (i) general changes in the
telecommunications industry or economic conditions that affect Company and its
subsidiaries, taken as a whole, substantially proportionately relative to the
Parent and its subsidiaries, taken as a whole or (ii) a decline in the revenues
of Company 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 Company arising as a result of the execution or announcement of this
Agreement (provided that revenues do not decline below the amounts set forth in
Schedule 2.0). A decline of revenues below such levels shall be deemed to be a
Material Adverse Effect on Company.
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 Company to Parent prior to the execution and delivery of this
Agreement (the "Company 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 Company Disclosure
Schedule if it is reasonably apparent from the nature of the disclosure that it
is applicable to another Section of this Agreement, Company represents and
warrants to Parent and Merger Sub as follows:
2.1 Organization, Standing and Power. Each of Company and its subsidiaries
is a corporation duly organized, validly existing and no articles of dissolution
have been filed under the laws of its jurisdiction of organization. Each of
Company and its subsidiaries has the corporate power to own its properties and
to carry on its business as now being conducted and as presently proposed to be
conducted and is duly authorized and 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 Company. Company has
delivered to Parent a true and correct copy of the Amended and Restated Articles
of Incorporation, as amended (the "Articles of Incorporation"), and the Amended
and Restated Bylaws, as amended, or other charter documents, as applicable, of
Company and each of its subsidiaries, each as amended to date. Neither Company
nor any of its subsidiaries is in violation of any of the provisions of its
respective charter or bylaws or equivalent organization documents. Company 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 Company 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 Company or any such subsidiary to issue, transfer, sell, purchase,
redeem or otherwise acquire any such securities. Except as disclosed in the
Company SEC Documents (as defined in Section 2.4), Company 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.
A-6
<PAGE> 95
2.2 Capital Structure. The authorized capital stock of Company consists of
60,000,000 shares of common stock, no par value, and 2,000,000 shares of
Preferred Stock, no par value, of which there were issued and outstanding as of
the close of business on November 9, 2000, 11,436,453 shares of common stock and
no shares of Preferred Stock. There are no other outstanding shares of capital
stock or voting securities and no outstanding commitments to issue any shares of
capital stock or voting securities after November 9, 2000, other than pursuant
to the Option Agreement, the exercise of options outstanding as of such date
under the Company's 2000 Stock Option Plan, 1998 Stock Option Plan, 1996 Stock
Option Plan, 1993 Stock Option Plan, 1988 Non-qualified Stock Option Plan and
2000 Director Stock Option Plan, 1997 Director Stock Option Plan, Directors
Stock Option Plan and non-plan stock option grant to each of Tom Alberg and
Martin Richmond (collectively, the "Company Stock Option Plans") or pursuant to
the Company Employee Stock Purchase Plan (the "Company ESPP"). All outstanding
shares of Company common stock are duly authorized, validly issued, fully paid
and non-assessable and are free of any liens or encumbrances other than any
liens or encumbrances created by or imposed upon the holders thereof, and are
not subject to preemptive rights or rights of first refusal created by statute,
the Articles of Incorporation or Bylaws of Company or any agreement to which
Company is a party or by which it is bound. As of the close of business on
November 9, 2000, Company has reserved (i) 6,432,330 shares of common stock for
issuance to employees, consultants and directors pursuant to the Company Stock
Option Plans, of which 1,920,506 shares have been issued pursuant to option
exercises or direct stock purchases, 3,330,184 shares are subject to
outstanding, unexercised options, no shares are subject to outstanding stock
purchase rights, and 1,181,640 shares are available for issuance thereunder and
(ii) 700,000 shares of common stock for issuance to employees pursuant to the
Company ESPP, of which no shares have been issued. Since November 8, 2000,
Company has not (i) issued or granted additional options under the Company Stock
Option Plans, or (ii) accepted enrollments in the Company ESPP. Except for (i)
the rights created pursuant to this Agreement, the Option Agreement, the Company
Stock Option Plans and the Company ESPP and (ii) the Company's rights to
repurchase any unvested shares under the Company Stock Option Plans or the stock
option agreements thereunder, there are no other options, warrants, calls,
rights, commitments or agreements of any character to which Company is a party
or by which it is bound obligating Company to issue, deliver, sell, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of capital stock of Company or obligating Company to grant, extend,
accelerate the vesting and/or repurchase rights 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 Company's capital stock (i) between or among Company
and any of its shareholders and (ii) to the best of Company's knowledge, between
or among any of Company's shareholders. The terms of the Company Stock Option
Plans permit the assumption or substitution of options to purchase Parent common
stock as provided in this Agreement, without the consent or approval of the
holders of such securities, shareholders, or otherwise. The current "Payment
Period" (as defined in the Company ESPP) commenced under the Company ESPP on
October 1, 2000, and will end on the earlier of the day immediately prior to the
Effective Time and December 31, 2000, and except for the purchase rights granted
on such commencement date to participants in the current Payment Period, there
are no other purchase rights or options outstanding under the Company ESPP. True
and complete copies of all agreements and instruments relating to or issued
under the Company Stock Option Plans or Company ESPP have been made available to
Parent 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 Parent.
The shares of Company common stock issued under the Company Stock Option Plans,
as amended and under all prior versions thereof, have either been registered
under the Securities Act or were issued in transactions which
A-7
<PAGE> 96
qualified for exemptions under, either Section 4(2) of, or Rule 701 under, the
Securities Act for stock issuances under compensatory benefit plans.
2.3 Authority. Company has all requisite corporate power and authority to
enter into this Agreement, the Asset Purchase Agreement and the Option Agreement
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement, the Asset Purchase 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 Company, subject only to the adoption of this Agreement by Company's
shareholders holding a majority of the outstanding shares of Company common
stock as contemplated by Section 6.1(a). Each of this Agreement, the Asset
Purchase Agreement and the Option Agreement has been duly executed and delivered
by Company and constitutes the valid and binding obligation of Company
enforceable against Company 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, the Asset Purchase Agreement and the
Option Agreement by Company 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 Articles of Incorporation or
Bylaws of Company 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 Company or any of its subsidiaries
or any of their properties or assets. 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
Company or any of its subsidiaries in connection with the execution and delivery
of this Agreement, the Asset Purchase Agreement, the Option Agreement, or the
consummation of the transactions contemplated hereby and thereby, except for (i)
the filing of the Certificate of Merger and Articles of Merger as provided in
Section 1.2; (ii) the filing with the Securities and Exchange Commission (the
"SEC") and the National Association of Securities Dealers, Inc. (the "NASD") of
the Proxy Statement (as defined in Section 2.23) relating to the Company
Shareholders 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"); (v)
the filing of a Form S-4 Registration Statement with the SEC in accordance with
the Securities Act of 1933, as amended; (vi) the filing of a Current Report on
Form 8-K with the SEC; and (vii) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not have a
Material Adverse Effect on Company and would not prevent, or materially alter or
delay any of the transactions contemplated by this Agreement, the Asset Purchase
Agreement or the Option Agreement.
2.4 SEC Documents; Financial Statements. Company has made available to
Parent 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 filings made with the SEC by Company since October 29, 1995,
and, prior to the Effective Time, Company will have furnished to Parent true and
complete copies of any additional documents filed with the SEC by Company prior
to the Effective Time (collectively, the "Company SEC Documents"). Company has
timely filed all forms, statements and documents required to be filed by it with
the SEC and The Nasdaq National Market since October 29, 1995. In addition,
Company has made available to Parent all exhibits to the Company SEC Documents
filed prior to the date hereof, and will
A-8
<PAGE> 97
promptly make available to Parent all exhibits to any additional Company SEC
Documents filed prior to the Effective Time. All documents required to be filed
as exhibits to the Company 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 Company nor any of its
subsidiaries is in material default thereunder. As of their respective filing
dates, the Company 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 Company 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 Company SEC Document. The financial
statements of Company, including the notes thereto, included in the Company SEC
Documents (the "Company 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 United States generally
accepted accounting principles ("GAAP") 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
Company Financial Statements fairly present the consolidated financial condition
and operating results of Company 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 Company
accounting policies since June 30, 2000, except as described in the notes to the
Company Financial Statements.
2.5 Absence of Certain Changes. Since June 30, 2000, (the "Company Balance
Sheet Date"), Company has conducted its business in the ordinary course
consistent with past practice and, other than the execution and delivery of the
Asset Purchase Agreement and the performance of the transactions contemplated
thereby, there has not occurred: (i) any change, event or condition (whether or
not covered by insurance) that has resulted in, or is reasonably likely to
result in, or to the best of Company's knowledge any event beyond Company's
control that is reasonably likely to result in, a Material Adverse Effect to
Company; (ii) any acquisition, sale or transfer of any material asset of Company
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 Company or any revaluation by Company 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 Company, or any
direct or indirect redemption, purchase or other acquisition by Company of any
of its shares of capital stock; (v) any material contract entered into by
Company or any of its subsidiaries, other than in the ordinary course of
business and as provided to Parent, or any material amendment or termination of,
or default under, any material contract to which Company or any of its
subsidiaries is a party or by which it is bound; (vi) any amendment or change to
the Articles of Incorporation or Bylaws; or (vii) any increase in or
modification of the compensation or benefits payable, or to become payable, by
Company to any of its directors or employees, other than pursuant to scheduled
annual performance reviews, provided that any resulting modifications are in the
ordinary course of business and consistent with Company's past practices.
Company has not agreed since June 30, 2000 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 Parent and its representatives
regarding the transactions contemplated by this Agreement).
A-9
<PAGE> 98
2.6 Absence of Undisclosed Liabilities. Company 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 Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 2000 (the "Company Balance Sheet"), (ii) those incurred
in the ordinary course of business and not required to be set forth in the
Company Balance Sheet under GAAP, (iii) those incurred in the ordinary course of
business since the Company Balance Sheet Date and not reasonably likely to have
a Material Adverse Effect on Company; 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 Company or any of its
subsidiaries, threatened against Company 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 Company. There is no
judgment, decree or order against Company or any of its subsidiaries, or, to the
knowledge of Company 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
could reasonably be expected to have a Material Adverse Effect on Company.
Schedule 2.7 lists all actions, suits, proceedings, claims, arbitrations and
investigations pending before any agency, court or tribunal that involve Company
or any of its subsidiaries.
2.8 Restrictions on Business Activities. There is no agreement, judgment,
injunction, order or decree binding upon Company or any of its subsidiaries
which has or reasonably could be expected to have the effect of prohibiting or
materially impairing any business practice of Company or any of its
subsidiaries, any acquisition of property by Company or any of its subsidiaries
or the conduct of business by Company or any of its subsidiaries.
2.9 Governmental Authorization. Company 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 Company 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 Company's or any of its subsidiaries' business or the holding of any such
interest ((i) and (ii) herein collectively called "Company Authorizations"), and
all of such Company Authorizations are in full force and effect, except where
the failure to obtain or have any of such Company Authorizations or where the
failure of such Company Authorizations to be in full force and effect would not
reasonably be expected to have a Material Adverse Effect on Company.
2.10 Title to Property. Company 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 Company Balance Sheet or acquired after the
Company Balance Sheet Date (except properties, interests in properties and
assets sold or otherwise disposed of since the Company 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 Company Balance Sheet, and (iv) liens
that in the aggregate would not have a Material Adverse Effect on Company. The
plants, property and equipment of Company and its subsidiaries that are used in
the operations of their businesses are in good operating condition and repair,
except where the failure to be in good operating condition or repair would not
A-10
<PAGE> 99
have a Material Adverse Effect. All properties used in the operations of Company
and its subsidiaries are reflected in the Company 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 Company
or any of its subsidiaries. No lease relating to a foreign parcel contains any
extraordinary payment obligation.
2.11 Intellectual Property.
(a) Company and its subsidiaries own, or are licensed or otherwise possess
legally enforceable and unencumbered rights to use all patents, trademarks,
trade names, service marks, domain names, database rights, copyrights, and any
applications therefor, maskworks, net lists, schematics, technology, know-how,
trade secrets, inventory, ideas, algorithms, processes, computer software
programs or applications (in both source code, except in circumstances where
Company only possesses a license to the object code form, and object code form),
and tangible or intangible proprietary information or material ("Intellectual
Property") that are used in the business of Company and its subsidiaries.
Company owns and possesses source code for all software owned by Company and
owns or has valid licenses and possesses source code for all products owned,
distributed and presently supported by Company. Company 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. No
royalties or other continuing payment obligations are due in respect of Third
Party Intellectual Property Rights.
(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 Company is a party
and pursuant to which any person is authorized to use any Intellectual Property
(except for non-material licenses entered into by Company in the ordinary course
of business), and (iii) all licenses, sublicenses and other agreements as to
which Company is a party and pursuant to which Company 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 Company product, other than commercially available, off-the-shelf software.
(c) There is no unauthorized use, disclosure, infringement or
misappropriation of any Intellectual Property rights of Company or any of its
subsidiaries, or any Intellectual Property right of any third party to the
extent licensed by or through Company or any of its subsidiaries, by any third
party, including any employee or former employee of Company or any of its
subsidiaries. Neither Company 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, license agreements and distribution and other customer
agreements arising in the ordinary course of business.
(d) Company is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations under this
Agreement, in breach of any license, sublicense or other agreement relating to
the Intellectual Property or Third Party Intellectual Property Rights.
(e) All patents, trademarks, service marks and copyrights held by Company
are valid and subsisting. Company (i) has not been sued in any suit, action or
proceeding (or received any notice or, to Company's knowledge, threat) 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
A-11
<PAGE> 100
manufacture, marketing, licensing or sale of Company's products does not
infringe any patent, trademark, service mark, copyright, trade secret or other
proprietary right of any third party.
(f) Company 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 Company does not already own
by operation of law.
(g) Company has taken all reasonably 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 Company by or to a third party has been pursuant to the terms of a
written agreement between Company and such third party. All use, disclosure or
appropriation of Confidential Information not owned by Company has been pursuant
to the terms of a written agreement between Company and the owner of such
Confidential Information, or is otherwise lawful.
(h) There are no actions that must be taken by Company or any subsidiary
within sixty (60) days of the Closing Date that, if not taken, will result in
the loss of any Intellectual Property, including the payment of any
registration, maintenance or renewal fees or the filing of any responses to the
U.S. Patent and Trademark Office actions, documents, applications or
certificates for the purposes of obtaining, maintaining, perfecting or
preserving or renewing any Intellectual Property.
(i) Company has not received any opinion of counsel that any third party
patents apply to the Company's products.
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
Company or its subsidiaries either currently or in the past.
(iv) "Facilities" shall mean all buildings and improvements on the
Property.
(b) Company represents and warrants that, except in all cases as, in the
aggregate, would not have a Material Adverse Effect on Company, 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) Company
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 Company's knowledge, threatened relating to a violation of
any Environmental and Safety Laws; (v) to Company's knowledge, neither Company
nor its subsidiaries are a potentially responsible party under the federal
Comprehensive Environmental Response, Compensation and Liability Act
A-12
<PAGE> 101
(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 Company's and its subsidiaries uses and activities therein have
at all times complied with all Environmental and Safety Laws; and (xi) Company
and its subsidiaries have all the permits and licenses required to be issued
under applicable Environmental and Safety Laws and are in full compliance with
the terms and conditions of those permits and licenses.
2.13 Taxes. Company and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax (as defined below) purposes of
which Company or any of its subsidiaries is or has been a member, have properly
completed and timely filed all Tax Returns required to be filed by them and have
paid all Taxes shown thereon to be due. All unpaid Taxes of Company and its
subsidiaries for periods through June 30, 2000 are reflected in the Company
Balance Sheet. The Company has no material liability for unpaid Taxes accruing
after June 30, 2000 other than Taxes arising in the ordinary course of its
business subsequent to June 30, 2000. There is (i) no material claim for Taxes
that is a lien against the property of Company or any of its subsidiaries or is
being asserted against Company or any of its subsidiaries other than liens for
Taxes not yet due and payable; (ii) no audit of any Tax Return of Company or any
of its subsidiaries that is being conducted by a Tax authority; (iii) no
extension of the statute of limitations on the assessment of any Taxes that has
been granted by Company or any of its subsidiaries and that is currently in
effect; and (iv) no agreement, contract or arrangement to which Company or any
of its subsidiaries is a party that may result in the payment of any amount that
would not be deductible by reason of Sections 280G, 162 or 404 of the Code.
Neither Company nor any of its subsidiaries has been or will 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 Company nor any of its
subsidiaries has filed or will file any consent to have the provisions of
paragraph 341(f)(2) of the Code (or comparable provisions of any state Tax laws)
apply to Company or any of its subsidiaries. There are no Tax sharing or Tax
allocation agreements to which Company or any of its subsidiaries is a party or
to which it or any of them is bound. Neither Company nor any of its subsidiaries
has filed any disclosures under Section 6662 or comparable provisions of state,
local or foreign law to prevent the imposition of penalties with respect to any
Tax reporting position taken on any Tax Return. Except as set forth on Schedule
2.13, neither Company nor any of its subsidiaries has ever been a member of a
consolidated, combined or unitary group of which Company was not the ultimate
parent corporation. Company and each of its subsidiaries have in their
possession receipts for any Taxes paid to foreign Tax authorities. 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
A-13
<PAGE> 102
period; and (iii) any liability for the payment of any amounts of the type
described in (i) or (ii) as a result of being a transferee of or successor to
any person or as a result of any express or implied obligation to indemnify any
other person, including pursuant to any Tax sharing or Tax allocation agreement.
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. Neither Company nor any of its subsidiaries has
ever been a United States real property holding corporation within the meaning
of Section 897 of the Code.
2.14 Employee Benefit Plans.
(a) Schedule 2.14(a) lists, with respect to Company, any subsidiary of
Company and any trade or business (whether or not incorporated) which is treated
as a single employer with Company (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") other than Foreign Plans (as defined below)); (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 Company 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 Company of greater than $50,000 remain for the
benefit of, or relating to, any present or former employee, consultant or
director of Company (together, the "Company Employee Plans").
(b) Company has furnished or made available to Parent a copy of each of the
Company 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 Company Employee Plan which is
subject to ERISA reporting requirements, provided copies of the Form 5500
reports filed for the last three plan years. Any Company 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 other than the Uruguay Round
Agreements Act of 1994, the Uniformed Services Employment and Reemployment
Rights Act of 1994, the Small Business Job Protection Act of 1996, and the
Taxpayer Relief Act of 1997, 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. Company has also furnished Parent
with the most recent Internal Revenue Service determination letter issued with
respect to each such Company 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 Company Employee Plan subject to Code
Section 401(a). Company has also furnished Parent with all registration
statements and prospectuses prepared in connection with each Company Employee
Plan.
(c) None of the Company Employee Plans (including but not limited to
Foreign Plans) promises or provides retiree medical or other retiree welfare
benefits to any person, except as required by applicable
A-14
<PAGE> 103
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 Company
Employee Plan, which would reasonably be expected to have, in the aggregate, a
Material Adverse Effect on Company; (iii) each Company 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 Company, and Company and each subsidiary or ERISA
Affiliate have performed in all material respects all obligations required to be
performed by them under, are not in default in any material respect under or
violation of, and have no knowledge of any material default or violation by any
other party to, any of the Company Employee Plans; (iv) neither Company 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 Company Employee Plans; (v) all material contributions
required to be made by Company or any subsidiary or ERISA Affiliate to any
Company Employee Plan have been made on or before their due dates and a
reasonable amount has been accrued for contributions to each Company Employee
Plan for the current plan years; (vi) with respect to each Company 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 Company
Employee Plan is covered by, and neither Company 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 Company Employee Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to Parent (other than for benefits
accrued through the date of termination and ordinary administrative expenses
typically incurred in a termination event). With respect to each Company
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, Company 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 Company 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 Company is
threatened, against or with respect to any such Company 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 Company 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 Company Employee Plan, Company 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 Company, 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. Schedule 2.14(d) describes all
obligations of the Company as of the date of this Agreement under any of the
provisions of COBRA and the Family and Medical Leave Act of 1993.
(e) The consummation of the transactions contemplated by this Agreement
will not (i) entitle any current or former employee or other service provider of
Company, any Company subsidiary or any other ERISA Affiliate to severance
benefits or any other payment, except as expressly provided in this
A-15
<PAGE> 104
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 Company, any Company subsidiary or other ERISA
Affiliate relating to, or change in participation or coverage under, any Company
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 quarter included in Company's financial statements.
(g) Company 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 412 of the Code.
(h) Neither Company nor any Company 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.
(i) With regard to each compensation and benefit plan required to be
maintained or contributed to by the law or applicable custom or rule of the
relevant jurisdiction outside of the United States (the "Foreign Plans"), (i)
each of the Foreign Plans is listed in Schedule 2.14(i) and is in material
compliance with the provisions of the laws of each jurisdiction in which each
such Foreign Plan is maintained, to the extent those laws are applicable to the
Foreign Plans; (ii) all material contributions to, and material payments from,
the Foreign Plans which may have been required to be made in accordance with the
terms of any such Foreign Plan, and, when applicable, the law of the
jurisdiction in which such Foreign Plan is maintained, have been timely made or
shall be made by the Closing Date, and all such contributions to the Foreign
Plans, and all payments under the Foreign Plans, for any period ending before
the Closing Date that are not yet, but will be, required to be made, are
reflected as an accrued liability on the Balance Sheet; (iii) Company, each
Company subsidiary and ERISA Affiliates have materially complied with all
applicable reporting and notice requirements, and all of the Foreign Plans have
obtained from the governmental body having jurisdiction with respect to such
plans any required determinations, if any, that such Foreign Plans are in
compliance with the laws of the relevant jurisdiction if such determinations are
required in order to give effect to the Foreign Plan; (iv) each of the Foreign
Plans has been administered in all material respects at all times in accordance
with its terms and applicable law and regulations; (v) to the knowledge of
Company, there are no pending investigations by any governmental body involving
the Foreign Plans, and no pending claims (except for claims for benefits payable
in the normal operation of the Foreign Plans), suits or proceedings against any
Plan or asserting any rights or claims to benefits under any Foreign Plan; (vi)
the consummation of the transactions contemplated by this Agreement will not by
itself create or otherwise result in any liability with respect to any Foreign
Plan other than the triggering of payment to participants; and (vii) the
benefits available under any Foreign Plan in the aggregate do not provide
substantially greater benefits to employees of Company or any of its
subsidiaries participating in such plans than the benefits available under
Company Employee Plans for employees of Company in the United States.
(j) Schedule 2.14(j) identifies each employee of any of the Company who is
not fully available to perform work because of disability or other leave and
sets forth the basis of such disability or leave and the anticipated date of
return to full service.
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 Company or any of its subsidiaries,
A-16
<PAGE> 105
(ii) materially increase any benefits otherwise payable by Company or (iii)
result in the acceleration of the time of payment or vesting of any such
benefits.
2.16 Employee Matters. Schedule 2.16 contains a true, complete and
accurate list (and, as indicated below, description) of (i) the names and titles
of all consultants, independent contractors, full-time, part-time or casual
employees employed by the Company or any of its subsidiaries (collectively,
"Employees"), together with their status and location of their employment; (ii)
the date each Employee was hired or retained; (iii) a list of all written
employment, consulting or service contracts between the Company or any of its
subsidiaries and the Employees; (iv) the rate of annual remuneration of each
Employee at the date hereof, any bonuses paid since the end of the last
completed financial year and all other bonuses, incentive schemes and benefits
to which such Employee is entitled; (v) the amount of vacation pay or number of
weeks of vacation to which each Employee is entitled as of the date hereof; (vi)
the names of all inactive Employees, the reason they are inactive Employees,
whether they are expected to return to work, and if so when, and the nature of
any benefits to which such inactive Employees are entitled from the Company or
any of its subsidiaries; and (vii) particulars of all other material terms and
conditions of employment or engagement of the Employees and the positions, title
or classification held by them. Company 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 are 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 Company. Company 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. Company 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 Company or any of its
subsidiaries for any material amounts under any workers compensation plan or
policy or for long term disability. Neither Company 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. To the knowledge of Company or any of its subsidiaries,
there are no controversies pending or threatened, between Company 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 Company nor any of its subsidiaries is a party to any
collective bargaining agreement or other labor union contract nor does Company
nor any of its subsidiaries know of any activities or proceedings of any labor
union to organize any such Employees. To Company's knowledge, no employees of
Company or any of its subsidiaries 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 Company because of the nature of the business
conducted or presently proposed to be conducted by Company or any of its
subsidiaries or to the use of trade secrets or proprietary information of
others. No Employees of Company or any of its subsidiaries have given notice to
Company, nor is Company otherwise aware, that any such Employee intends to
terminate his or her employment with Company or any subsidiary.
2.17 Interested Party Transactions. Except as disclosed in the Company SEC
Documents, neither Company nor any of its subsidiaries is indebted to any
director or officer of Company or any of its subsidiaries (except for amounts
due as normal salaries and bonuses and in reimbursement of ordinary
A-17
<PAGE> 106
expenses), and no such person is indebted to Company or any of its subsidiaries,
and there are no other transactions of the type required to be disclosed
pursuant to Items 402 or 404 of Regulation S-K under the Securities Act and the
Exchange Act.
2.18 Insurance. Company 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 Company 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 Company and its subsidiaries are
otherwise in compliance in all material respects with the terms of such policies
and bonds. Company 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 Company 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 Company.
2.20 Minute Books. The minute books of Company and its subsidiaries made
available to Parent contain a complete and accurate summary of all meetings of
directors and shareholders or actions by written consent since the time of
incorporation of Company 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. Company has delivered or made available
true and complete copies of each document that has been requested by Parent or
its counsel in connection with their legal and accounting review of Company and
its subsidiaries.
2.22 Brokers' and Finders' Fees. Except for payment obligations to William
Blair & Company, L.L.C., whose fees and expenses will be paid in the manner
contemplated by the Asset Purchase Agreement, Company 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. Company
has provided to Parent a true and correct copy of William Blair & Company
L.L.C.'s engagement letter with Company in connection with the transactions
contemplated hereby and by the Asset Purchase Agreement.
2.23 Registration Statement; Proxy Statement/Prospectus. The information
supplied by Company 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 Parent 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 Company for inclusion in the
proxy statement/prospectus to be sent to the shareholders of Company in
connection with the meeting of Company's shareholders to consider the Merger and
the transactions contemplated by the Asset Purchase Agreement (the "Company
Shareholders 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 Company's shareholders, at the time
of the Company Shareholders 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
A-18
<PAGE> 107
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 Company
Shareholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any event or information should be discovered by Company
which should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, Company shall promptly inform Parent and
Merger Sub. Notwithstanding the foregoing, Company makes no representation,
warranty or covenant with respect to any information supplied by Parent or
Merger Sub or any other third party which is contained in any of the foregoing
documents.
2.24 Opinion of Financial Advisor. Company has been advised in writing by
its financial advisor, William Blair & Company, L.L.C., that in such advisor's
opinion, as of the date hereof, the consideration to be received by the
shareholders of Company is fair, from a financial point of view, to the
shareholders of Company, a signed copy of which opinion will be delivered to
Parent.
2.25 Vote Required. The affirmative vote of the holders of at least a
majority of the shares of Company common stock outstanding on the record date
set for the Company Shareholders Meeting is the only vote of the holders of any
of Company's capital stock necessary to approve this Agreement and the
transactions contemplated hereby.
2.26 Board Approval. The Board of Directors of Company has (i) approved
this Agreement and the Merger, (ii) determined that this Agreement and the
Merger are advisable and in the best interests of the shareholders of Company
and are on terms that are fair to such shareholders and (iii) recommended that
the shareholders of Company approve this Agreement and consummation of the
Merger.
2.27 Shareholder 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 a Shareholder Agreement, and pursuant to an Irrevocable Proxy
attached thereto as Exhibit A.
2.28 Chapter 23B.19 of the Washington Business Company Act Not
Applicable. The Board of Directors of Company has taken all actions so that the
restrictions contained in Chapter 23B.19 of the Washington Law applicable to a
"significant business transaction" (as defined in Chapter 23B.19) will not apply
to the execution, delivery or performance of this Agreement, the Shareholder
Agreement, the Asset Purchase Agreement or the Option Agreement or the
consummation of the Merger or the other transactions contemplated by this
Agreement or by the Shareholder Agreement, the Asset Purchase Agreement or the
Option Agreement. No other state takeover statute is applicable to the Merger,
the Merger Agreement, the Shareholder Agreement, the Asset Purchase Agreement,
the Option Agreement or the transactions contemplated hereby or thereby.
2.29 Inventory. The inventories of Company disclosed in the Company SEC
Documents as of June 30, 2000 and in any subsequently filed Company SEC
Documents are stated consistently with the audited financial statements of
Company and consist of items of a quantity usable or salable in the ordinary
course of business. Since June 30, 2000, Company has continued to replenish
inventories in a normal and customary manner consistent with past practices.
Company 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 Company, which is consistent
with its past practice and in accordance with GAAP applied on a consistent
basis. Since June 30, 2000 due provision was made on the books of Company 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 the date
hereof, Company had no
A-19
<PAGE> 108
inventory in the distribution channel and had no commitments to purchase
inventory (other than purchases of supplies in the ordinary course).
2.30 Accounts Receivable. The accounts receivable disclosed in the Company
SEC Documents as of June 30, 2000, and, with respect to accounts receivable
created since such date, disclosed in any subsequently filed Company SEC
Documents, or as accrued on the books of Company in the ordinary course of
business consistent with past practices in accordance with GAAP since the last
filed Company 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 Company 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 Company's customers which
individually accounted for more than 10% of Company's gross revenues during the
12-month period preceding the date hereof has terminated any agreement with
Company. As of the date hereof, no material supplier of Company has indicated
that it will stop, or decrease the rate of, supplying materials, products or
services to Company. Company has not knowingly breached, so as to provide a
benefit to Company that was not intended by the parties, any agreement with, or
engaged in any fraudulent conduct with respect to, any customer or supplier of
Company.
2.32 Export Control Laws. Company 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 Company. Without limiting the
foregoing, Company represents and warrants that:
(a) Company has obtained all export licenses and other approvals
required for its exports of products, software and technologies from the
United States;
(b) Company is in compliance with the terms of all applicable export
licenses or other approvals;
(c) There are no pending or threatened claims against Company with
respect to such export licenses or other approvals;
(d) There are no actions, conditions or circumstances pertaining to
Company's export transactions that may give rise to any future claims; and
(e) No consents or approvals for the transfer of export licenses to
Parent are required, or such consents and approvals can be obtained
expeditiously without material cost.
2.33 Year 2000. Company's current products and services are "Year 2000
Compliant," where "Year 2000 Compliant" means that such products and services
have been designed and tested so that, when used in accordance with their
associated documentation, they are capable of accurately processing, providing
and/or receiving (i) date-related data from, into and between the Twentieth
(20th) and Twenty-First (21st) centuries, or (ii) date-related data in
connection with any valid date in the Twentieth (20th) and Twenty-First (21st)
centuries; provided that all other products and services used in combination in
any way with Company's current products and services properly exchange
date-related data with them. The information technology systems and
non-information technology systems used by Company in its internal operations
will function properly beyond 1999. Neither Company nor any of its subsidiaries
has made any representations or warranties relating to the ability of any
product or service of Company or its subsidiaries to be Year 2000 Compliant.
Company has made inquiries to its key third-party vendors
A-20
<PAGE> 109
and providers as to the status of their Year 2000 efforts, and has not uncovered
any problems that would aversely affect the operation of the products or that
could disrupt or harm the day-to-day functioning of the business or operations
of Company.
2.34 Representations Complete. None of the representations or warranties
made by Company herein or in any Schedule hereto, including the Company
Disclosure Schedule, or certificate furnished by Company pursuant to this
Agreement, or the Company 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 PARENT AND MERGER SUB
Except as disclosed in that section of the document of even date herewith
delivered by Parent to Company prior to the execution and delivery of this
Agreement (the "Parent 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 Parent Disclosure
Schedule if it is reasonably apparent on the face of the disclosure that it is
applicable to another Section of this Agreement, Parent represents and warrants
to Company as follows:
3.1 Organization, Standing and Power. Each of Parent and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization. Each of Parent and Merger Sub 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 Parent.
Neither Parent nor Merger Sub 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 Parent consists of
20,000,000,000 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 September 8, 2000, 7,122,688,341 shares of common stock
and no shares of Preferred Stock. The shares of Parent common stock to be issued
pursuant to the Merger will be duly authorized, validly issued, fully paid, and
non-assessable, free of any liens or encumbrances imposed by Parent or Merger
Sub.
3.3 Authority. Parent 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 Parent and Merger Sub. This
Agreement has been duly executed and delivered by Parent and Merger Sub and
constitutes the valid and binding obligations of Parent 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 Parent 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 Parent or any of its
subsidiaries or their properties or assets, except where such conflict,
violation, default,
A-21
<PAGE> 110
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 Parent. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity, is required by or with respect to Parent or any of its subsidiaries in
connection with the execution and delivery of this Agreement by Parent and
Merger Sub or the consummation by Parent and Merger Sub of the transactions
contemplated hereby, except for (i) the filing of the Certificate of Merger and
Articles 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 Parent common stock issuable upon
conversion of the Company common stock in the Merger and upon exercise of the
options under the Company Stock Option Plans assumed by Parent; (vii) the filing
of a registration statement on Form S-8 with the SEC, or other applicable form
covering the shares of Parent common stock issuable pursuant to outstanding
options under the Company Stock Option Plans assumed by Parent; and (viii) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not have a Material Adverse Effect on Parent and
would not prevent or materially alter or delay any of the transactions
contemplated by this Agreement.
3.4 SEC Documents; Financial Statements. Parent has made available to
Company 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 filings filed with the SEC by Parent since July 29, 2000,
and, prior to the Effective Time, Parent will have furnished or made available
to Company true and complete copies of any additional documents filed with the
SEC by Parent prior to the Effective Time (collectively, the "Parent SEC
Documents"). Parent has timely filed all forms, statements and documents
required to be filed by it with the SEC and The Nasdaq National Market since
July 29, 2000. In addition, Parent has made available to Company all exhibits to
the Parent SEC Documents filed prior to the date hereof, and will promptly make
available to Company all exhibits to any additional Parent SEC Documents filed
prior to the Effective Time. All documents required to be filed as exhibits to
the Company 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 Parent nor any of its subsidiaries
is in default thereunder. As of their respective filing dates, the Parent SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the Securities Act, and none of the Parent 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 Parent SEC Document. The
financial statements of Parent, including the notes thereto, included in the
Parent SEC Documents (the "Parent 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 GAAP 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 Parent Financial Statements fairly present the consolidated
financial condition and operating results of Parent 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).
A-22
<PAGE> 111
3.5 Absence of Undisclosed Liabilities. Parent 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 or in
the related Notes to Consolidated Financial Statements included in Parent's
Annual Report on Form 10-K for the year ended July 29, 2000 (the "Parent Balance
Sheet"), (ii) those disclosed in Parent SEC documents filed subsequent to such
Annual Report on Form 10-K for the year ended July 29, 2000, (iii) those
incurred in the ordinary course of business and not required to be set forth in
the Parent Balance Sheet under GAAP, and (iv) those incurred in the ordinary
course of business since the Parent Balance Sheet Date and consistent with past
practice.
3.6 Litigation. There is no litigation pending against Parent or any of
its subsidiaries or, to the knowledge of Parent, threatened against Parent or
any of its subsidiaries that would prevent, enjoin, alter or materially delay
any of the transactions contemplated by this Agreement, or that would have a
Material Adverse Effect on the ability of Parent to consummate the transactions
contemplated by this Agreement. There is no judgment, decree or order against
Parent or any of its subsidiaries, or, to the knowledge of Parent, 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 have a Material Adverse Effect on the ability
of Parent to consummate the transactions contemplated by this Agreement.
3.7 Broker's and Finders' Fees. Except for the fees of Thomas Weisel
Partners, whose fees will be paid by Parent, Parent 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 Parent 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 Parent for inclusion
in the Proxy Statement shall not, on the date the Proxy Statement is first
mailed to Company's shareholders, at the time of the Company Shareholders
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 Company
Shareholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any event or information should be discovered by Parent or
Merger Sub which should be set forth in an amendment to the Registration
Statement or a supplement to the Proxy Statement, Parent or Merger Sub will
promptly inform Company. Notwithstanding the foregoing, Parent and Merger Sub
make no representation, warranty or covenant with respect to any information
supplied by Company or any third party which is contained in any of the
foregoing documents.
3.9 Board Approval. The Boards of Directors of Parent and Merger Sub have
(i) approved this Agreement and the Merger, (ii) determined that the Merger is
advisable and in the best interests of their respective shareholders and is on
terms that are fair to such shareholders and (iii) recommended that the
shareholder of Merger Sub approve this Agreement and the consummation of the
Merger.
3.10 Representations Complete. None of the representations or warranties
made by Parent or Merger Sub herein or in any Schedule hereto, including the
Parent Disclosure Schedule, or certificate furnished by Parent or Merger Sub
pursuant to this Agreement, or the Parent SEC Documents, when all such documents
are read together in their entirety, contains or will contain at the Effective
Time any
A-23
<PAGE> 112
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 Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, Company agrees (except to the extent expressly
contemplated by this Agreement or as consented to in writing by Parent), to
carry on its and its subsidiaries' business in the 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. Company agrees to promptly
notify Parent of any material 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 Company.
4.2 Restrictions on Conduct of Business of Company. 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, Company 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 Parent:
(a) Charter Documents. Cause or permit any amendments to its Articles
of Incorporation or Bylaws;
(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. Except as required by Section 5.9 hereof,
take any action to accelerate, amend or change the period of exercisability
or vesting of options 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) 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) involve the payment by
Company or its subsidiaries in excess of $300,000;
A-24
<PAGE> 113
(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.
(f) Intellectual Property. Transfer or license to any person or entity
any rights to its Intellectual Property other than the license of
non-exclusive rights to its Intellectual Property in the ordinary course of
business consistent with past practice and except pursuant to the terms of
the Asset Purchase Agreement, place any of its Intellectual Property into a
source-code escrow, or grant any source-code license of any kind;
(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. Except as set forth in Schedule 4.2(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 and except pursuant to the terms of
the Asset Purchase Agreement;
(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 Company 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 that do not exceed $100,000 individually
or $500,000 in the aggregate;
(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;
(o) Employee Benefit Plans; New Hires; Pay Increases. Except as
required by Section 5.9(g) hereof, adopt or amend any employee benefit or
stock purchase or option plan 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 other than pursuant to scheduled annual performance reviews,
provided that any resulting modifications are in the ordinary course of
business and consistent with Company's past practices.
(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;
A-25
<PAGE> 114
(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 Parent
prior to the filing of such a suit, (iii) for a breach of this Agreement,
or (iv) to clarify its obligations under this Agreement or the Option
Agreement;
(r) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to its and its 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. Company shall give all notices and other information
required by applicable law to be given to the employees of Company, any
collective bargaining unit representing any group of employees of Company,
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;
(v) Accounting Policies and Procedures. Make any change to its
accounting methods, principles, policies, procedures or practices, except
as may be required by GAAP, Regulation S-X promulgated by the SEC or
applicable statutory accounting principles;
(w) Year 2000 Compliance. Fail to carry forward in all material
respects Company's Year 2000 assessment and compliance programs, as made
available to Parent by Company;
(x) Asset Purchase Agreement. Seek to amend or waive, or consent to an
amendment or waiver of, any provision of the Asset Purchase Agreement or
the Noteholder Rights and Security Agreement (as defined in the Asset
Purchase Agreement) or any of the forms of agreements contemplated by such
agreements; or
(y) Line of Credit. Company shall not draw down any amounts from that
certain Revolving Line of Credit, dated as of November 30, 1998, by and
between Company and Wells Fargo Bank, National Association, as amended (the
"Line of Credit").
(z) Other. Take or agree in writing or otherwise to take, any of the
actions described in Sections 4.2(a) through (y) 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. Company and its subsidiaries and the officers,
directors, employees or other agents of Company and its subsidiaries
(collectively, "Company Representatives") will not, directly or indirectly, (i)
take any action to solicit, initiate or encourage or agree to any Takeover
Proposal (as
A-26
<PAGE> 115
defined in Section 7.3(f)) or (ii) subject to the terms of the immediately
following sentence, engage in any discussions or negotiations with, or disclose
any nonpublic information relating to Company or any of its subsidiaries to, or
afford access to the properties, books or records of Company or any of its
subsidiaries to, any person that has advised Company that it may be considering
making, or that has made, a Takeover Proposal; provided, that nothing herein
shall prohibit Company's Board of Directors from complying with Rules 14d-9 and
14e-2 promulgated under the Exchange Act. Notwithstanding the immediately
preceding sentence, if, prior to adoption of this Agreement by Company
shareholders, an unsolicited written Takeover Proposal shall be received by the
Board of Directors of Company, then, to the extent the Board of Directors of
Company believes in good faith (after advice from its financial advisor and
after considering all terms and conditions of such written Takeover Proposal,
including the likelihood and timing of its consummation) that such Takeover
Proposal would result in a transaction more favorable to Company's shareholders
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 Company
determines in good faith after advice from outside legal counsel that it is
necessary for the Board of Directors of Company to comply with its fiduciary
duties to shareholders under applicable law, Company Representatives may furnish
in connection therewith information to the party making such Superior Proposal
and, subject to the provisions hereof, 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 Company
notifies Parent of such determination by the Company Board of Directors and
provides Parent with a true and complete copy of the Superior Proposal received
from such third party, and provides (or has provided) Parent with all documents
containing or referring to non-public information of Company that are supplied
to such third party; provided, however, that Company provides such non-public
information pursuant to a non-disclosure agreement at least as restrictive on
such third party as the Confidentiality Agreement (as defined in Section 5.4) is
on Parent; and provided further that Company shall not, and shall not permit any
of its officers, directors, employees or other representatives, as agents, to
agree to or endorse any Takeover Proposal or withdraw its recommendation of the
Merger and adoption of this Agreement unless Company has provided Parent at
least three (3) days prior notice thereof. Company will promptly (and in any
event within 24 hours) notify Parent 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 Company or any of its
subsidiaries or for access to the properties, books or records of Company or any
of its subsidiaries by any person that has advised Company that it may be
considering making, or that has made, a Takeover Proposal, or whose efforts to
formulate a Takeover Proposal would be assisted thereby (such notice to include
the identity of such person or persons), and will keep Parent fully informed of
the status and details of any such Takeover Proposal notice, request or
correspondence or communications related thereto, and shall provide Parent 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. Company shall immediately cease and cause to be terminated all
existing discussions or negotiations with any persons conducted heretofore with
respect to a Takeover Proposal.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement. As promptly as
practicable after the execution of this Agreement, Company and Parent shall
prepare, and Company shall file with the SEC, preliminary proxy materials
relating to the approval of the Merger and the transactions contemplated hereby
by the shareholders of Company. As promptly as practicable following receipt of
SEC comments
A-27
<PAGE> 116
thereon, Company shall file with the SEC definitive proxy materials and Parent
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. Company and Parent 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, Company
shall promptly inform Parent of such occurrence and cooperate in filing with the
SEC or its staff or any other government officials, and/or mailing to
shareholders of Company, such amendment or supplement. Subject to Section 4.3,
the Proxy Statement shall solicit the adoption of this Agreement by shareholders
of Company and shall include the approval of this Agreement and the Merger by
the Board of Directors of Company and the recommendation of the Board of
Directors of Company to Company's shareholders that they vote in favor of
adoption of this Agreement and the Merger. All shares of Parent Company Stock
issued pursuant to Section 1.6 hereof shall be registered pursuant to this
Section 5.1.
5.2 Meeting of Shareholders. Company shall promptly after the date hereof
take all action necessary in accordance with Washington Law and its Articles of
Incorporation and Bylaws to convene the Company Shareholders Meeting within 45
days of the Registration Statement being declared effective by the SEC. Company
shall consult with Parent regarding the date of the Company Shareholders Meeting
and use all reasonable efforts and shall not postpone or adjourn (other than for
the absence of a quorum) the Company Shareholders Meeting, without the consent
of Parent. Company shall use its reasonable best efforts to solicit from
shareholders of Company proxies in favor of adoption of this Agreement and the
Merger and shall take all other action necessary or advisable to secure the vote
or consent of shareholders required to effect the Merger.
5.3 Access to Information.
(a) Company shall afford Parent 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 Company's and its subsidiaries'
properties, books, contracts, commitments and records, and (ii) all other
information concerning the business, properties and personnel of Company and its
subsidiaries as Parent may reasonably request. Company agrees to provide to
Parent 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 Parent and Company 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.
(d) Company shall provide Parent and its accountants, counsel and other
representatives reasonable access, during normal business hours during the
period prior to the Effective Time, to all of Company's and subsidiaries Tax
Returns and other records and workpapers relating to Taxes, and shall also
provide the following information upon the request of Parent or its
subsidiaries: (i) a schedule of the types of Tax Returns being filed by Company
and each of its subsidiaries in each taxing jurisdiction, (ii) a schedule of the
year of the commencement of the filing of each such type of Tax Return, (iii) a
schedule
A-28
<PAGE> 117
of all closed years with respect to each such type of Tax Return filed in each
jurisdiction, (iv) a schedule of all material Tax elections filed in each
jurisdiction by Company and each of its subsidiaries, (v) a schedule of any
deferred intercompany gain with respect to transactions to which Company or any
of its subsidiaries has been a party, and (vi) receipts for any Taxes paid to
foreign Tax authorities.
5.4 Confidentiality. The parties acknowledge that each of Parent and
Company have previously executed a non-disclosure agreement, which agreement
shall continue in full force and effect in accordance with its terms; provided,
however, the fifth, sixth, eighth and ninth paragraphs of such non-disclosure
agreement shall be superseded by the terms hereof.
5.5 Public Disclosure. Unless otherwise permitted by this Agreement,
Parent and Company 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, in which case the party proposing to issue such press release or make
such public statement or disclosure shall use its commercially reasonable
efforts to consult with the other party before issuing such press release or
making such public statement or disclosure.
5.6 Consents; Cooperation.
(a) Each of Parent and Company 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. Company 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 Parent and Company 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 Parent and Company 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 Parent and Company decide that litigation is not in their respective
best interests. Notwithstanding the provisions of the immediately preceding
sentence, it is expressly understood and agreed that neither Parent nor Company
shall have any obligation to litigate or contest any administrative or judicial
action or proceeding or any Order beyond the Final Date (as defined in Section
7.1(b)). Each of Parent and Company 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
A-29
<PAGE> 118
with respect to such transactions as promptly as possible after the execution of
this Agreement. Parent and Company 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.
(c) Notwithstanding anything to the contrary in Section 5.6(a) or (b), (i)
neither Parent 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 a Material Adverse Effect on Parent or of Parent combined with
the Surviving Corporation after the Effective Time and (ii) neither Company 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 Company.
5.7 Legal Requirements. Each of Parent, Merger Sub and Company 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.
5.8 Blue Sky Laws. Parent 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 Parent common stock in connection with the
Merger. Company shall use its reasonable best efforts to assist Parent 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 Parent common stock in
connection with the Merger.
5.9 Employee Benefit Plans.
(a) At the Effective Time, each outstanding option to purchase shares of
Company common stock under the Company Stock Option Plans whether vested or
unvested, will be assumed by Parent as set forth below. Company represents and
warrants to Parent that Schedule 5.9(a) hereto sets forth a true and complete
list as of the date hereof of all holders of outstanding options under the
Company Stock Option Plans, including the number of shares of Company capital
stock subject to each such option, the exercise or vesting schedule, the
exercise price per share and the term of each such option. On the Closing Date,
Company shall deliver to Parent an updated Schedule 5.9(a) hereto current as of
such date. Each such option so assumed by Parent under this Agreement shall
continue to have, and be subject to, the same terms and conditions set forth in
the applicable Company Stock Option Plans and the applicable stock option
agreements, immediately prior to the Effective Time, except that (i) such option
will be exercisable for that number of whole shares of Parent common stock equal
to the product of the number of shares of Company 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 Parent common stock, and (ii) the per share exercise price for the
shares of Parent common stock issuable upon exercise of such assumed option will
be equal to the quotient determined by dividing the exercise price per share of
Company common stock at which such option was exercisable immediately prior to
the Effective Time by the Exchange Ratio, rounded up to
A-30
<PAGE> 119
the nearest whole cent. At or prior to the Closing, Company shall take all
actions required to prevent the cancellation or termination of such options upon
the closing of the Merger or the transactions contemplated hereby, and to allow
such options at the Effective Time to be converted into options to purchase
Parent common stock as described above, without requiring the consent of the
optionees. Except as set forth in Schedule 5.9(a)(i) of the Company Disclosure
Schedule, neither the Merger nor the transactions contemplated by the Asset
Purchase Agreement will terminate any of the outstanding options under the
Company Stock Plans or accelerate the exercisability or vesting of such options
or the shares of Parent common stock which will be subject to those options upon
Parent's assumption of the options in the Merger. Company has not granted any
options under the Company Stock Option Plans intended to qualify as "incentive
stock options" as defined in Section 422 of the Code. Within 30 business days
after the Effective Time, Parent will issue to each person who, immediately
prior to the Effective Time was a holder of an outstanding option under the
Company Stock Option Plans a document evidencing the foregoing assumption of
such option by Parent. At or prior to the Effective Time, Parent shall take all
corporate action necessary to reserve for future issuance, and shall maintain
such reservation for so long as any of the assumed options remain outstanding, a
sufficient number of shares of Parent common stock for delivery upon the
exercise of such options.
(b) All outstanding rights of Company which it may hold immediately prior
to the Effective Time to repurchase unvested shares of Company common stock (the
"Repurchase Options") shall continue in effect following the Merger and shall
thereafter continue to be exercisable by Parent 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
share shall be adjusted to reflect the Exchange Ratio.
(c) Outstanding purchase rights under the Company ESPP shall be exercised
upon the next scheduled purchase date, December 31, 2000, under the Company
ESPP, and each participant in the Company ESPP shall accordingly be issued
shares of Company common stock at that. Company shall cause the Company ESPP to
terminate with such exercise date, and no purchase rights shall be subsequently
granted or exercised under the Company ESPP. Company employees who meet the
eligibility requirements for participation in the Parent 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 after the Effective
Time.
(d) Within five (5) business days following the date of this Agreement,
Company shall set forth on Schedule 5.9(d) a list of all persons who Company
reasonably believes are, with respect to Company and as of the date of this
Agreement, "disqualified individuals" (within the meaning of Section 280G of the
Code and the regulations promulgated thereunder). For this purpose, Company
shall assume that the fair market value of Company common stock is $20 per
share. Within a reasonable period of time after the last business day of each
month after the date of this Agreement and on or about the date five business
days prior to the expected Closing Date, Company shall revise Schedule 5.9(d) to
reflect the most recently available closing price of Company common stock as of
the last business day of such month and to reflect any additional information
which Company reasonably believes would impact the determination of persons who
are, with respect to Company and as of the each such date, "disqualified
individuals" (within the meaning of Section 280G of the Code and the regulations
promulgated thereunder).
(e) If required by Parent in a written notice delivered to Company, the
Board of Directors of the Company shall, prior to the Closing Date, execute a
resolution either terminating or freezing the Company's benefit plan, that is
intended to be qualified under sections 401(a) and 401(k) of the Code (the
"Company's 401(k) Plan"), to be effective prior to the Closing Date. The Board
of Directors of the
A-31
<PAGE> 120
Company shall adopt a corresponding amendment to Company's 401(k) Plan freezing
contributions and participation as well as amending it for the relevant
provisions of the Taxpayer Relief Act of 1997 ("TRA '97"), the Small Business
Job Protection Act of 1996 ("SBJPA"), the Uruguay Round Agreements Act ("GATT"),
the Uniformed Services Employment and Reemployment Rights Act of 1994
("USERRA"), and the Restructuring and Reform Act of 1998 ("RRA"). Company's
Employees shall be eligible to participate in Parent's benefit plan that is
intended to be qualified under sections 401(a) and 401(k) of the Code as soon as
administratively feasible following the Closing Date.
(f) Company shall use its reasonable best efforts to obtain acceleration
waivers in the form attached hereto as Exhibit E (the "Waivers") from each of
the individuals listed on Schedule 5.9(f) hereto and from any other employee
other than a Transferred Employee who agrees to continue to be employed by
Company and/or Parent after the Closing.
(g) Company shall amend the Company Stock Option Plans and all options
outstanding under such Company Stock Option Plans to give each optionee a thirty
(30) day period following his or her termination of employment to exercise his
or her option and shall send to each optionee a notice of such change in form
and substance satisfactory to Parent.
5.10 Forms S-3 and S-8. Parent agrees to file, no later than 30 business
days after Parent's receipt of the Spreadsheet (as defined in Section
5.21)(provided that Parent has received within 10 business days after the
Closing all option documentation it requires relating to the outstanding
options), (i) a registration statement on Form S-8 under the Securities Act
covering the shares of Parent common stock issuable pursuant to outstanding
options granted to individuals for which a Form S-8 registration statement is
available and listed on Schedule 5.10(a) hereto and (ii) a registration
statement on Form S-3 under the Securities Act covering the shares of Parent
common stock issuable pursuant to outstanding options granted to entities or to
individuals for which a Form S-8 registration statement is not available, which
Form S-3 shall remain current for one year from the Effective Time, under the
Company Stock Option Plans assumed by Parent or otherwise issued in compensatory
transactions to entities or to individuals not currently providing services to
Company as employees or consultants and listed on Schedule 5.10(b). Company
shall cooperate with and assist Parent in the preparation of such registration
statements.
5.11 Option Agreement. Company agrees to fully perform its obligations
under the Option Agreement.
5.12 Nasdaq Quotation. Company and Parent agree to continue the quotation
of Company common stock and Parent common stock, respectively, on The Nasdaq
National Market during the term of the Agreement.
5.13 Employees. Company shall use its reasonable best efforts to cause
each of the individuals set forth on Schedule 5.13 to deliver to Parent an
executed Employment and Non-Competition Agreement in the form attached hereto as
Exhibit F.
5.14 Action Under Stock Option Plan. The Board of Directors of Company
shall take all action necessary to prevent the cancellation or termination of
options under the Company Stock Option Plans upon the closing of the Merger and
to allow such options to be assumed by Parent as described in Section 5.9
5.15 Notice to Certain Employees. Company shall provide written notice in
the form attached hereto as Exhibit G ("Notice to Transferred Employees") to
each of the employees listed on Schedule 5.15 (the "Transferred Employees"), as
such Schedule is amended from time to time by Parent prior to the Effective
Time, that such employee will be assigned to Newco and that Company's
A-32
<PAGE> 121
rights under such employee's employment agreement shall be assigned to Newco as
of the Effective Time.
5.16 Indemnification.
(a) After the Effective Time, Parent will fulfill and honor in all respects
the obligations of Company pursuant to the indemnification provisions of
Company's Articles of Incorporation and Bylaws or any indemnification agreement
with Company officers and directors to which Company 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 person so indemnified (an
"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, Parent 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 to the fullest extent permitted by the Delaware Law upon receipt of
any undertaking contemplated by Section 145(e) of the Delaware Law. Any
Indemnified Party wishing to claim indemnification under this Section 5.16, upon
learning of any such claim, action, suit, proceeding or investigation, shall
promptly notify Parent and the Surviving Corporation, and shall deliver to
Parent and the Surviving Corporation the undertaking contemplated by Section
145(e) of the Delaware Law.
(b) For five years after the Effective Time, Parent 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 5.16(a) above or
(ii) cause the Surviving Corporation 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 Company'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, Parent shall not be obligated to
cause the Surviving Corporation to pay premiums in excess of 150% of the amount
per annum Company paid in its last full fiscal year, which amount has been
disclosed to Parent, and if the Surviving Corporation is unable to obtain the
insurance required by this Section 5.16, it shall obtain as much comparable
insurance as possible for an annual premium equal to such maximum amount.
(c) 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
Company occurring prior to the Effective Time, or arises out of or pertains to
the transactions contemplated by this Agreement for a period lasting until the
expiration of five 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 5.16, such Indemnified Party shall be entitled to
be represented by counsel, which counsel shall be counsel of Parent (provided
that if use of counsel of Parent would be expected under applicable standards of
professional conduct to give rise to a conflict between the position of the
Indemnified Person and of Parent, the Indemnified Party shall be entitled
instead to be represented by counsel selected by the Indemnified Party and
reasonably acceptable to Parent) and following the Effective Time the Surviving
Corporation and Parent shall pay the reasonable fees and expenses of such
counsel, promptly after statements therefor are received and the Surviving
Corporation and Parent will cooperate in the defense of any such matter;
provided, however, that neither the Surviving Corporation nor Parent 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
A-33
<PAGE> 122
indemnification are asserted or made prior to the expiration of such five 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 5.16 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
representatives.
5.17 Tax Treatment. For U.S. federal income tax purposes, it is intended
that the Merger qualify as a reorganization within the meaning of the Code, and
the parties hereto intend that the transactions contemplated by this Agreement
shall constitute a "plan of reorganization" within the meaning of Section 368 of
the Code and Treasury Regulations Sections 1.368-2(g) and 1.368-3(a). Parent
will report the Merger on its income tax returns in a manner consistent with
treatment of the Merger as a Code Section 368(a) reorganization. Neither Parent,
the Company nor any of there respective affiliates has taken any action, nor
will they take any action, that would prevent or impede the Merger from
qualifying as a reorganization under Section 368 of the Code.
5.18 Shareholder Litigation. Unless and until the Board of Directors of
Company has withdrawn its recommendation of the Merger, Company shall give
Parent the opportunity to participate at its own expense in the defense of any
shareholder litigation against Company and/or its directors relating to the
transactions contemplated by this Agreement and the Option Agreement.
5.19 Section 280G/83(b) Agreement. Company shall use its reasonable best
efforts to obtain, prior to the Closing Date, a properly executed Section
280G/83(b) Agreement in the form attached hereto as Exhibit H (the "280G/83(b)
Agreement") from each person reasonably identified by Company or Parent as
potentially receiving excess parachute payments, as defined in Section 280G of
the Code, in connection with the Merger. Prior to the Closing Date, Company
shall disclose the contents, and provide a copy, of the 280G/83(b) Agreement to
each person that Company reasonably believes may potentially receive excess
parachute payments, as defined in Section 280G of the Code, in connection with
the Merger.
5.20 Spreadsheet. Company shall use all reasonable efforts to prepare a
spreadsheet in form acceptable to Parent which spreadsheet shall be certified as
complete and correct by a duly elected officer of Company as of the Closing and
shall list, as of the Closing, all optionholders and their respective addresses,
the number of Company options to purchase shares held by such persons (including
in the case of shares, the respective certificate numbers), the Exchange Ratio
applicable to each holder, the number of shares of options to purchase Parent
common stock to be issued to each holder, and the vesting arrangement with
respect to Company Options (the "Spreadsheet").
5.21 Execution of Shareholder Agreement by NEC. Company shall use its
reasonable best efforts to have NEC Corporation execute and deliver a
Shareholder Agreement promptly after the date hereof.
5.22 Termination of Company ESPP. The Board of Directors of Company shall
take all action necessary to terminate the Company ESPP immediately following
the December 31, 2000 purchase date under such plan.
5.23 Resolution of Certain Litigation Matters. Company shall use its
reasonable best efforts to settle, in an aggregate amount not to exceed $30,000,
or have dismissed, each of the litigation items listed as items 1,2 and 3 on
Schedule 2.7 hereof.
A-34
<PAGE> 123
5.24 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) Shareholder Approval. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the shareholders of
Company under Washington 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 Approvals. Parent, Company and Merger Sub and their
respective subsidiaries shall have timely obtained from each Governmental
Entity all approvals, waivers and consents, if any, necessary for
consummation of or in connection with the Merger and the several
transactions contemplated hereby, including such approvals, waivers and
consents as may be required under the Securities Act, under state Blue Sky
laws, and under HSR.
(e) Tax Opinion. Parent and Company shall have received substantially
similar written opinions of Brobeck, Phleger and Harrison LLP and Gary Cary
Ware & Freidenrich LLP, respectively, in form and substance reasonably
satisfactory to them, dated on or about the date of Closing 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 Parent, Merger Sub and Company. In addition, Parent and Company shall
have received from such respective firms such tax opinions as may be
required by the SEC in connection with the filing of the Registration
Statement.
A-35
<PAGE> 124
6.2 Additional Conditions to Obligations of Company. The obligations of
Company 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 Company:
(a) Representations, Warranties and Covenants. (i) The representations
and warranties of Parent 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 and
correct in all respects) both when made and on and as of the Effective Time
as though such representations and warranties were made on and as of such
time (provided that those representations and warranties which address
matters only as of a particular date shall be true and correct as of such
date) and (ii) Parent 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 Parent. Company shall have been provided with a
certificate executed on behalf of Parent by an authorized officer
certifying that the condition set forth in Section 6.2(a) shall have been
fulfilled.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent 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 Parent:
(a) Representations, Warranties and Covenants. (i) The representations
and warranties of Company 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 and correct in
all respects) both when made and on and as of the Effective Time as though
such representations and warranties were made on and as of such time
(provided that those representations and warranties which address matters
only as of a particular date shall be true and correct as of such date) and
(ii) Company 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 Company. Parent shall have been provided with a
certificate executed on behalf of Company 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. Parent shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons
whose consent or approval shall be required in connection with the Merger
under the contracts of Company set forth on Schedule 6.3(c) hereto.
(d) Injunctions or Restraints on Conduct of Business. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Parent's conduct or operation
of the business of Company 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) No Material Adverse Changes. There shall not have occurred any
Material Adverse Effect on Company, or any change that has a Material
Adverse Effect on Company (other than Non-Controllable Events).
A-36
<PAGE> 125
(f) Employment and Non-Competition Agreements. The employees of
Company set forth on Schedule 5.13 shall have accepted employment with
Parent and shall have entered into an Employment and Non-Competition
Agreement in the form attached hereto as Exhibit F.
(g) Action Under Stock Option Plans. The Board of Directors of Company
shall have taken all action necessary to prevent the cancellation or
termination of options under the Company Stock Option Plans upon the
closing of the Merger and to allow such options to be assumed by Parent as
described in Section 5.9.
(h) Warrants. All outstanding warrants to acquire Company capital
stock shall have been exercised in accordance with their terms.
(i) Asset Sale. All of the conditions to closing set forth in the
Asset Purchase Agreement shall have been satisfied.
(j) Dissenters' Rights. Holders of not more than 5%, or in the case
that NEC Corporation is a dissenting shareholder, 14.9%, of the shares of
Company common stock shall have not voted in favor of the Merger or not
consented thereto in writing and shall have delivered prior to the
Effective Time timely written notice of such holder's intent to demand
payment as a dissenting shareholder for such shares in accordance with
Washington Law.
(k) Waivers. Each individual listed on Schedule 5.9(f) hereto and any
Interviewed Employee (as defined below) who agrees to remain an employee of
Parent after the Closing shall have executed a Waiver and accepted
employment with Parent and delivered a Waiver and a transition letter to
Parent.
(l) Notice to Employees. Company shall have provided a Notice to
Transferred Employees to each of the employees listed on Schedule 5.15 and
each such employee listed on Schedule 5.15(a) shall have executed a General
Release and Non-Competition Agreement in the form attached hereto as
Exhibit I, and each such employee listed on Schedule 5.15(b) shall have
executed a General Release in one of the forms attached hereto as Exhibit
J, which shall have been delivered to Parent. Prior to the Closing, Parent
may interview and consider for employment and may, in its sole discretion,
offer employment to any of the employees of Company listed on Schedule
5.15(b) (the "Interviewed Employees") upon such terms and conditions
determined by Parent. In the event that any Interviewed Employee is offered
employment by Parent and accepts an offer of employment with Parent prior
to the Closing, such employee shall fulfill the conditions of Section
6.3(k) prior to the Closing.
(m) Spreadsheet. Parent shall have received the Spreadsheet, which
shall have been certified as true and correct by an authorized officer of
Company.
(n) Amendment of Stock Option Plans. Company shall have amended the
Company Stock Option Plans and all options outstanding under such Company
Stock Option Plans to give each optionee a thirty (30) day period following
his or her termination of employment to exercise his or her option and
shall have sent each optionee a notice of such change in form and substance
satisfactory to Parent.
(o) OEM Agreement. The Original Equipment Manufacturer Agreement,
dated as of October 31, 2000 by and between Parent and Company shall be in
full force and effect.
(p) Line of Credit. Company shall provide evidence in a form
satisfactory to Parent that there are no amounts outstanding under the Line
of Credit.
A-37
<PAGE> 126
(q) Termination of Company ESPP. The Board of Directors of Company
shall have taken all action necessary to terminate the Company ESPP
immediately following the December 31, 2000 purchase date under such plan.
(r) Termination of Consultants and Independent Contractors. Prior to
the Closing Date, the Company shall have terminated each agreement in
effect for each consultant and independent contractor, other than those
listed in Schedule 6.3(r), consistent with the termination provisions of
each such agreement; and the Company shall have satisfied all termination
liabilities existing under such agreements prior to the Closing Date by
sufficient notice of termination or otherwise.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. At any time prior to the Effective Time, whether before
or after approval of the matters presented in connection with the Merger by the
shareholders of Company, this Agreement may be terminated:
(a) by mutual consent of Parent and Company;
(b) by either Parent or Company, if, without fault of the terminating
party, the Closing shall not have occurred on or before February 28, 2001
or such later date as may be agreed upon in writing by the parties hereto
(the "Final Date"); provided, however, that the Final Date shall be
extended to March 30, 2001 in the event that if the only reason the Closing
shall not have occurred by February 28, 2001 is the failure of the
conditions set forth in Section 6.1(b) and/or Section 6.1(d) (although such
extension shall not occur if the failure of such conditions has been caused
or resulted from one party's action or failure to act constituting a breach
of this Agreement and the other party does not consent to such extension);
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 Parent, if (i) Company shall breach any of its representations,
warranties or obligations hereunder to an extent that would cause the
condition set forth in Section 6.3(a) not to be satisfied and such breach
shall not have been cured within ten (10) business days of receipt by
Company of written notice of such breach (and Parent shall not have
willfully breached any of its covenants hereunder, which breach is not
cured), (ii) the Board of Directors of Company shall have withdrawn or
modified its recommendation of this Agreement or the Merger in a manner
adverse to Parent or shall have resolved to do any of the foregoing, (iii)
Company shall have failed to comply with Section 4.3, (iv) the Board of
Directors of Company shall have recommended, endorsed, accepted or agreed
to a Takeover Proposal or shall have resolved to do so, or (v) for any
reason Company fails to call and hold the Company Shareholders Meeting by
February 14, 2001 or in the event the condition set forth in Section 6.1(b)
shall not have been satisfied by February 14, 2001 under circumstances in
which it can be reasonably expected that the Final Date will be extended
pursuant to the proviso set forth in Section 7.1(b), March 15, 2001;
(d) by Company, if Parent shall breach any of its representations,
warranties or obligations hereunder to an extent that would cause the
condition set forth in Section 6.2(a) not to be satisfied and such breach
shall not have been cured within ten (10) business days following receipt
by Parent of written notice of such breach (and Company shall not have
willfully breached any of its covenants hereunder, which breach is not
cured);
A-38
<PAGE> 127
(e) by Parent if a Trigger Event (as defined in Section 7.3(e)) or
Takeover Proposal shall have occurred and the Board of Directors of Company
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); or
(f) by either Parent or Company 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) any required approval of the shareholders of Company shall not have
been obtained by reason of the failure to obtain the required vote upon a
vote held at a duly held meeting of shareholders or at any adjournment
thereof (provided that the right to terminate this Agreement under this
subsection (ii) shall not be available to Company where the failure to
obtain such shareholder approval shall have been caused by the action or
failure to act of Company and such action or failure constitutes a breach
by Company of this Agreement).
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 Parent, Merger Sub or Company
or their respective officers, directors, shareholders or affiliates, except to
the extent that such termination results from the breach by a party hereto of
any of its representations, warranties or covenants set forth in this Agreement;
provided that, the provisions of Section 5.4 (Confidentiality), Section 7.3
(Expenses and Termination Fees), this Section 7.2 and Section 8.1 shall remain
in full force and effect and survive any termination of this Agreement. Nothing
herein shall relieve any party from liability in connection with a breach by
such party of the representations, warranties or covenants of such party to 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 Company and Parent.
(b) In the event that (i) Parent shall terminate this Agreement pursuant to
Section 7.1(e); (ii) Parent shall terminate this Agreement pursuant to Section
7.1(c)(iii) as a result of the failure by Company, its shareholders who are
parties to the Shareholder Agreements, and each of their respective directors,
officers, employees, affiliates and controlling persons, or any person
authorized by such persons, to comply with the requirements of Section 4.3;
(iii) Parent shall terminate this Agreement pursuant to Section 7.1(c)(iv); (iv)
Parent (or in the case of Section 7.1(f)(ii), Company) shall terminate this
Agreement pursuant to Section 7.1(c)(ii) or 7.1(f)(ii) and, prior to such
withdrawal, modification or shareholder rejection, there shall have been (A) a
Trigger Event with respect to Company or (B) a Takeover Proposal with respect to
Company which at the time of such withdrawal, modification or shareholder
rejection shall not have been rejected by Company; or (v) Parent (or in the case
of Section 7.1(b), Company) shall terminate this Agreement pursuant to Section
7.1(b), 7.1(c)(i) or 7.1(c)(v) due in whole or in part to any failure by Company
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
Company prior to or on the Closing Date or any failure by Company's affiliates
to take any
A-39
<PAGE> 128
actions required to be taken hereby, and prior thereto there shall have been (A)
a Trigger Event with respect to Company or (B) a Takeover Proposal with respect
to Company which shall not have been rejected by Company, then Company shall
promptly reimburse Parent for all of the out-of-pocket costs and expenses
incurred by Parent 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
Parent may have, Company shall promptly pay to Parent the sum of $10,300,000.
(c) In the event that (i) Parent shall terminate this Agreement pursuant to
Section 7.1(c)(i) or 7.1(c)(v) under circumstances not described in Section
7.3(b)(v); or (ii) Parent shall terminate this Agreement pursuant to Section
7.1(c)(ii) or 7.1(f)(ii) (under circumstances not described in Section
7.3(b)(iv)), Company shall promptly reimburse Parent for all of the
out-of-pocket costs and expenses incurred by Parent 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,
within twelve months of the later of (x) such termination of this Agreement and
(y) the payment of the above described expenses, consummated (as defined in
Section 7.3(g)) by or with any person (or any affiliate of any person) that made
a Takeover Proposal prior to termination of this Agreement or that caused a
Trigger Event prior to such termination, 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, Company shall promptly pay
to Parent the sum of $10,300,000 (less any amounts paid by Company to Parent
under Section 7.3(b)).
(d) In the event that Company shall terminate this Agreement pursuant to
Section 7.1(d) Parent shall promptly reimburse Company for all of the
out-of-pocket costs and expenses incurred by Company 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 15%, or in the case of
NEC Corporation, 19.9%, or more, or commences a tender or exchange offer, open
market purchase program or other publicly announced initiative following the
successful consummation of which the offeror and its affiliate would
beneficially own securities representing 15%, or in the case of NEC Corporation,
19.9%, or more, of the voting power of Company; provided, however, a Trigger
Event shall not be deemed to include the acquisition by any Person of securities
representing 15%, or in the case of NEC Corporation, 19.9%, or more of Company
if such Person has acquired such securities not with the purpose nor with the
effect of changing or influencing the control of Company, 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 Company; (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 Company (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 Company,
directly or indirectly, relating to a merger or other business combination
involving Company 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 Company; (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 Company, directly or indirectly, relating to a merger or
other business combination
A-40
<PAGE> 129
involving Company 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 Company; or (iv) otherwise acting, alone or in concert with others, to seek
control of Company or to seek to control or influence the management or policies
of Company.
(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 Company or any of its subsidiaries or the acquisition of
15%, or in the case of NEC Corporation, 19.9%, or more of the outstanding shares
of capital stock of Company, or a significant portion of the assets of, Company
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 Company or the
acquisition of 15%, or in the case of NEC Corporation, 19.9%, or more of the
outstanding shares of capital stock of Company, or sale or transfer of any
material assets (excluding the sale or disposition of assets in the ordinary
course of business) of Company or any of its subsidiaries and (B) "consummation"
of a Trigger Event shall occur on the date any Person (other than any
shareholder which currently owns 15% or more of the outstanding shares of
capital stock of Company provided such shareholder does not increase its
ownership) or any of its affiliates or associates would beneficially own
securities representing 15%, or in the case of NEC Corporation, 19.9%, or more
of the voting power of Company, 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 shareholders of
Company or Merger Sub shall not (i) alter or change the amount or kind of
consideration to be received on conversion of the Company common stock, (ii)
alter or change any term of the Articles of Incorporation of the Surviving
Corporation to be effected by the Merger, or (iii) alter or change any of the
terms and conditions of the Agreement if such alteration or change would
materially adversely affect the holders of Company 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 (Forms S-3 and S-8), 5.17 (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
A-41
<PAGE> 130
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 Parent or Merger Sub, to:
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, CA 95134
Attention: Senior 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
(b) if to Company, to:
Active Voice Corporation
2901 Third Avenue, Suite 500
Seattle, Washington 98121-9800
Attention: Chief Executive Officer
Facsimile No.: (206) 441-4784
Telephone No.: (206) 441-4700
with a copy to:
Gray Cary Ware & Freidenrich LLP
999 Third Avenue, Suite 4000
Seattle, Washington 98104-4099
Attention: John M. Steel, Esq.
Facsimile No.: (206) 839-4801
Telephone No.: (206) 839-4800
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 November 9, 2000.
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
A-42
<PAGE> 131
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 Company Disclosure Schedule and the Parent 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, 5.9, 5.10, 5.12 and 5.17; and (c) shall not be
assigned by operation of law or otherwise except as otherwise specifically
provided.
8.6 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.7 Remedies Cumulative. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the laws
that might otherwise govern under applicable principles of conflicts of law.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction of
any court located within the State of California in connection with any matter
based upon or arising out of this Agreement or the matters contemplated herein,
agrees that process may be served upon them in any manner authorized by the laws
of the State of California for such persons and waives and covenants not to
assert or plead any objection which they might otherwise have to such
jurisdiction and such process.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
[SIGNATURE PAGE FOLLOWS]
A-43
<PAGE> 132
IN WITNESS WHEREOF, Company, Parent and Merger Sub have caused this
Agreement and Plan of Merger and Reorganization to be executed and delivered by
their respective officers thereunto duly authorized, all as of the date first
written above.
ACTIVE VOICE CORPORATION
<TABLE>
<S> <C>
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
</TABLE>
CISCO SYSTEMS, INC.
<TABLE>
<S> <C>
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
</TABLE>
AQUA ACQUISITION CORPORATION
<TABLE>
<S> <C>
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
</TABLE>
[SIGNATURE PAGE TO AGREEMENT AND
PLAN OF MERGER AND REORGANIZATION]
A-44
<PAGE> 133
APPENDIX B
ASSET PURCHASE AGREEMENT
DATED AS OF
NOVEMBER 9, 2000
BETWEEN
ATLANTIS GROUP, INC.
AND
ACTIVE VOICE CORPORATION
<PAGE> 134
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I. DEFINITIONS....................................................... B-1
SECTION 1.1 Definitions................................................. B-1
ARTICLE II. PURCHASE AND SALE................................................ B-4
SECTION 2.1 Purchase and Sale........................................... B-4
SECTION 2.2 Excluded Assets............................................. B-5
SECTION 2.3 Assumption of Liabilities................................... B-5
SECTION 2.4 Excluded Liabilities........................................ B-6
SECTION 2.5 Assignment of Contracts and Rights.......................... B-6
SECTION 2.6 Purchase Price; Allocation of Purchase Price................ B-7
SECTION 2.7 Closing..................................................... B-7
SECTION 2.8 Further Assurances.......................................... B-8
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER........................ B-8
SECTION 3.1 Corporate Existence and Power............................... B-8
SECTION 3.2 Corporate Authorization..................................... B-8
SECTION 3.3 Governmental Authorization.................................. B-8
SECTION 3.4 Finders' Fees............................................... B-8
SECTION 3.5 Opinion of Financial Advisor................................ B-9
SECTION 3.6 Non-Contravention........................................... B-9
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER.......................... B-9
SECTION 4.1 Organization and Existence.................................. B-9
SECTION 4.2 Corporate Authorization..................................... B-9
SECTION 4.3 Governmental Authorization.................................. B-9
SECTION 4.4 Non-Contravention........................................... B-9
SECTION 4.5 Finders' Fees............................................... B-10
SECTION 4.6 Litigation.................................................. B-10
SECTION 4.7 Solvency.................................................... B-10
ARTICLE V. COVENANTS OF SELLER............................................... B-10
SECTION 5.1 Confidentiality............................................. B-10
SECTION 5.2 Trademarks; Tradenames...................................... B-10
SECTION 5.3 Certain Agreements.......................................... B-11
ARTICLE VI. COVENANTS OF BUYER............................................... B-11
SECTION 6.1 Confidentiality............................................. B-11
SECTION 6.2 Covenant Not to Compete..................................... B-11
SECTION 6.3 Certain Agreements.......................................... B-12
SECTION 6.4 Access...................................................... B-12
SECTION 6.5 Payments.................................................... B-12
ARTICLE VII. COVENANTS OF BOTH PARTIES....................................... B-12
SECTION 7.1 Reasonable Best Efforts..................................... B-12
SECTION 7.2 Consents; Cooperation....................................... B-12
SECTION 7.3 Legal Requirements.......................................... B-13
SECTION 7.4 Public Announcements........................................ B-13
ARTICLE VIII. TAX MATTERS.................................................... B-13
SECTION 8.1 Tax Cooperation; Allocation of Taxes; Tax Reimbursement..... B-13
</TABLE>
B-i
<PAGE> 135
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE IX. EMPLOYEES AND EMPLOYEE BENEFITS.................................. B-14
SECTION 9.1 Employees and Offers of Employment.......................... B-14
SECTION 9.2 Seller's Employee Group Health Plans........................ B-15
SECTION 9.3 Buyer Benefit Plans......................................... B-15
SECTION 9.4 No Third Party Beneficiaries................................ B-16
ARTICLE X. CONDITIONS TO CLOSING............................................. B-16
SECTION 10.1 Conditions to the Obligations of Each Party................. B-16
SECTION 10.2 Conditions to Obligations of Buyer.......................... B-16
SECTION 10.3 Conditions to Obligations of Seller......................... B-17
ARTICLE XI. INDEMNIFICATION.................................................. B-17
SECTION 11.1 Indemnification............................................. B-17
SECTION 11.2 Procedures.................................................. B-18
ARTICLE XII. TERMINATION..................................................... B-19
SECTION 12.1 Grounds for Termination..................................... B-19
SECTION 12.2 Effect of Termination....................................... B-19
ARTICLE XIII. MISCELLANEOUS.................................................. B-19
SECTION 13.1 Notices..................................................... B-19
SECTION 13.2 Amendments; No Waivers...................................... B-21
SECTION 13.3 Expenses.................................................... B-21
SECTION 13.4 Successors and Assigns...................................... B-21
SECTION 13.5 Governing Law............................................... B-21
SECTION 13.6 Counterparts; Effectiveness................................. B-21
SECTION 13.7 Entire Agreement............................................ B-21
SECTION 13.8 Bulk Sales Laws............................................. B-21
SECTION 13.9 Captions.................................................... B-21
SECTION 13.10 Survival.................................................... B-21
SECTION 13.11 Severability................................................ B-21
</TABLE>
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit A -- Form of License Agreement
Exhibit B -- Form of Note Agreement
Exhibit C -- Form of Security Agreement
Exhibit D -- Form of Undertaking and Assumption Agreement
Exhibit E -- Form of Bill of Sale and Assignment
Exhibit F -- Form of Offer Letter
Exhibit G -- Form of Employee Benefit Plan
Exhibit H -- Form of Offer of Retention Bonus and General Release
Exhibit I -- Form of Employment Agreement
</TABLE>
SCHEDULES
<TABLE>
<S> <C>
Schedule 1.1 Unity Technology Description
Schedule 2.1(a) Real Property
Schedule 2.1(b) Personal Property
Schedule 2.1(c) Purchased Inventories
Schedule 2.1(d) Assumed Contracts
Schedule 2.1(e) Buyer Payments
Schedule 2.1(f) Permits and Licenses
</TABLE>
B-ii
<PAGE> 136
<TABLE>
<S> <C>
Schedule 2.1(g) Capital Stock
Schedule 2.2(a) Proprietary Rights
Schedule 2.2(b) Unity Contracts
Schedule 2.2(c) Unity Licenses and Permits
Schedule 2.2(d) Retained Contracts
Schedule 2.2(e) Unity Inventories
Schedule 2.2(f) Unity Personal Property
Schedule 9.1(a) Interviewed Employees
Schedule 9.1(b) Cisco Employees
Schedule 9.1(c) Key Employees
Schedule 9.2 Employee Plans and Benefit Arrangements
</TABLE>
B-iii
<PAGE> 137
ASSET PURCHASE AGREEMENT
AGREEMENT dated as of November 9, 2000 between Atlantis Group, Inc., a
Washington corporation ("Buyer"), and Active Voice Corporation, a Washington
corporation ("Seller").
WITNESSETH:
WHEREAS, Seller designs, manufactures, sells, markets and supports a family
of call processing systems; and
WHEREAS, Buyer desires to purchase substantially all of the assets of
Seller, other than Seller's Excluded Assets, and is willing to assume all of
Seller's liabilities, other than the Excluded Liabilities, and Seller desires to
sell such assets to Buyer, upon the terms and subject to the conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties hereto agree
as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. (a) The following terms, as used herein, have the
following meanings:
"Affiliate" means, with respect to any Person, any Person deemed an
affiliate of such Person within the meaning of Rule 144 of the rules and
regulations of the Commission promulgated under the 1933 Act.
"Ancillary Agreements" means the License Agreement, the Note Agreement and
the Conveyance Documents.
"Benefit Arrangement" means an employment, severance or similar contract,
arrangement or policy, and each plan or arrangement, providing for severance,
insurance coverage (including any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits, vacation
benefits, pension or retirement benefits or deferred compensation,
profit-sharing, bonuses, stock options, stock appreciation rights or other forms
of incentive compensation or post-retirement insurance, compensation or benefits
that (i) is not an Employee Plan and (ii) is maintained or contributed to by
Seller or any of its ERISA Affiliates.
"Business" means all of the business and assets of Seller other than the
Excluded Assets.
"Cisco" means Cisco Systems, Inc., a California corporation.
"Closing" means the closing of the transactions contemplated hereby which
shall take place as soon as practicable after the satisfaction or waiver of each
of the conditions set forth in Article X hereof and immediately after the
Effective Time (as defined in the Merger Agreement) of the Merger.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Employee Plan" means each "employee benefit plan," as such term is defined
in Section 3(3) of ERISA, that is maintained or contributed to by Seller or any
of its ERISA Affiliates, as the case may be.
B-1
<PAGE> 138
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" of Seller means any other Person that, together with
Seller, would be treated as a single employer under Section 414 of the Code or
otherwise deemed to be under common control with such Person pursuant to Section
414 of the Code.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"License Agreement" means that certain license agreement to be dated as of
the Closing Date between Buyer and Seller in the form attached as Exhibit A
hereto.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
"Material Adverse Effect" with respect to any Person means a material
adverse effect on the business, assets, condition (financial or otherwise) or
results of operations of such Person.
"Merger" means the merger of Merger Sub with and into Seller with Seller
surviving the merger pursuant to the Merger Agreement.
"Merger Agreement" means the Agreement and Plan of Merger and
Reorganization among Merger Sub, Cisco and Seller of even date herewith.
"Merger Sub" means Aqua Acquisition Corporation, a Delaware corporation and
a wholly owned subsidiary of Cisco.
"Multiemployer Plan" means each Employee Plan that is a multiemployer plan,
as defined in Section 3(37) of ERISA.
"Note" means the Senior Secured Note of Buyer in the principal amount of
$29,533,280 (as adjusted as set forth therein) in the form attached as an
exhibit to the Note Agreement.
"Note Agreement" means the Noteholder Rights and Security Agreement to be
dated as of the Closing Date between Buyer and Seller, including the Security
Agreements in the form attached hereto as Exhibit B.
"Person" means an individual, corporation, partnership, association, trust
or other entity or organization, including a government or political subdivision
or an agency or instrumentality thereof.
"Proprietary Rights" means all (A) patents, patent applications, patent
disclosures and all related continuation, continuation-in-part, divisional,
reissue, re-examination, utility, model, certificate of invention and design
patents, patent applications, registrations and applications for registrations,
(B) trademarks, service marks, domain names, database rights, trade dress,
logos, tradenames, service names and corporate names and registrations and
applications for registration thereof, (C) copyrights and registrations and
applications for registration thereof, (D) mask works and registrations and
applications for registration thereof, (E) computer software, data and
documentation, (F) trade secrets and confidential business information, whether
patentable or nonpatentable and whether or not reduced to practice, know-how,
manufacturing and product processes and techniques, research and development
information, copyrightable works, financial, marketing and business data,
pricing and cost information, business and marketing plans and customer and
supplier lists and information, (G) other proprietary rights relating to any of
the foregoing (including without limitation associated goodwill and remedies
against past and future infringements thereof and rights of protection of an
interest therein under the laws of all jurisdictions) and (H) copies and
tangible embodiments thereof.
B-2
<PAGE> 139
"Security Agreement" means the Patent Security Agreement, Trademark
Security Agreement and Copyright Security Agreement to be dated as of the
Closing Date and executed by Buyer, each in the form attached as Exhibit C
hereto.
"Special Meeting" means the special meeting of the shareholders of Seller
to approve the transactions contemplated hereby.
"Tax" means any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, franchise, capital, paid-up
capital, profits, greenmail, 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 authority
(domestic or foreign) responsible for the imposition of any such tax.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendments thereof.
"Unity Assets" means Seller's unified messaging and related technology
described in Schedule 1.1 and all related personal property, whether tangible or
intangible, including, without limitation, any and all related (i) inventory;
(ii) furniture, computers and equipment; (iii) documentation; (iv) Proprietary
Rights, including, without limitation, the Unity Trademark, (v) goodwill and
(vi) any other items, materials and information necessary for Seller to
continue, without interruption or delay, the research, development and
commercialization of and other activities in connection with the Seller's
unified messaging and related technology. "Unity Trademark" means the trademark
"Unity" and any Unity related trademark and all (i) applications and
registrations therefor, (ii) common law rights related thereto and (iii)
goodwill associated therewith.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Antitrust Law........................................ 7.2
Assumed Contracts.................................... 2.1
Assumed Liabilities.................................. 2.3
Assumed Tax Liabilities.............................. 2.3
Closing.............................................. 2.7
Conveyance Documents................................. 2.7
Excluded Assets...................................... 2.2
Excluded Liabilities................................. 2.4
Purchased Assets..................................... 2.1
Purchase Price....................................... 2.6
Retained Contracts................................... 2.2
Transferred Employees................................ 9.1
Unity Contracts...................................... 2.2
</TABLE>
B-3
<PAGE> 140
ARTICLE II
PURCHASE AND SALE
SECTION 2.1 Purchase and Sale. Upon the terms and subject to the
conditions of this Agreement, Buyer agrees to purchase from Seller and Seller
agrees to sell, transfer, assign and deliver, or cause to be sold, transferred,
assigned and delivered, to Buyer at Closing all of Seller's right, title and
interest in and to all of the assets, properties and business (other than the
Excluded Assets) of every kind and description, wherever located, real, personal
or mixed, tangible or intangible, owned, held or used in the conduct of the
Business by Seller as the same shall exist on the Closing Date (the "Purchased
Assets"), including, without limitation, all right, title and interest of Seller
in, to and under such of the foregoing as are more specifically described below:
(i) all real property and leases of, and other interests in, real
property, in each case together with all buildings, fixtures, and
improvements erected thereon, listed on Schedule 2.1(a);
(ii) all personal property and interests therein, including machinery,
equipment, furniture, office equipment, communications equipment, vehicles
and other tangible property relating to the Business listed on Schedule
2.1(b);
(iii) all raw materials, work-in-process, finished goods, supplies and
other inventories relating to the Business listed on Schedule 2.1(c);
(iv) all rights under all contracts, agreements, leases, licenses,
commitments, sales and purchase orders and other instruments listed on
Schedule 2.1(d) (collectively, the "Assumed Contracts");
(v) all accounts, notes and other receivables relating to the
Business;
(vi) all prepaid expenses and deposits relating to the Business
including without limitation ad valorem taxes, leases and rentals;
(vii) all of Seller's cash and cash equivalents on hand and in banks
in excess of the amount set forth in Section 2.2(ii), including petty cash
located at the operating facilities of the Business, which shall be used by
Buyer to make the payments on or after the Closing Date set forth on
Schedule 2.1(e);
(viii) all of Seller's rights, claims, credits, causes of action or
rights of set-off against third parties relating to the Purchased Assets;
(ix) all transferable licenses, permits or other governmental
authorizations affecting, or relating in any way to, the Business, which
licenses, permits or other authorizations are listed on Schedule 2.1(f);
(x) all books, records, files and papers of Seller, whether in hard
copy or computer format, relating to the Business, including, without
limitation, engineering information, sales and promotional literature,
manuals and data, sales and purchase correspondence, lists of present and
former suppliers, lists of present and former customers, personnel and
employment records (to the extent permitted by applicable law) relating to
the Transferred Employees, and any information relating to Tax imposed on
the Purchased Assets;
(xi) all of Seller's outstanding capital stock in the entities
identified on Schedule 2.1(g);
(xii) all of the rights to use the intellectual property of Seller
described in the License Agreement, subject to the terms and conditions
thereof; and
B-4
<PAGE> 141
(xiii) all goodwill associated with the Business or the Purchased
Assets, together with the right to represent to third parties that Buyer is
the successor to the Business.
SECTION 2.2 Excluded Assets. Buyer expressly understands and agrees that
the following assets and properties of seller (the "excluded assets") shall be
excluded from the purchased assets:
(i) the Unity Assets;
(ii) $5 million of Seller's cash and cash equivalents on hand and in
banks;
(iii) Seller's right to enforce any non-competition or nondisclosure
provision relating to the Unity Assets or Seller's Proprietary Rights that
may exist in any agreements between Seller and any of its employees or
third parties;
(iv) all of Seller's Proprietary Rights, including those listed on
Schedule 2.2(a);
(v) all rights under all contracts, agreements, leases, licenses,
commitments, sales and purchase orders and other instruments relating to
the Unity Assets, including those listed on Schedule 2.2(b) (the "Unity
Contracts");
(vi) all rights under Seller's current and former directors' and
officers' liability insurance policies;
(vii) all transferable licenses, permits or other governmental
authorizations affecting, or relating in any way to, the Excluded Assets,
which licenses, permits or other authorizations are listed on Schedule
2.2(c);
(viii) all rights under the contracts, agreements, leases, licenses,
and instruments listed on Schedule 2.2(d) (the "Retained Contracts");
(ix) all rights, claims, credits, causes of action or rights of
set-off against third parties relating to the Excluded Assets;
(x) all work-in-process, finished goods, supplies and other
inventories listed on Schedule 2.2(e), provided, however, in the event
Buyer and Seller agree prior to the Closing Date that certain inventories
listed on Schedule 2.2(e) shall be transferred, assigned and delivered to
Buyer at Closing, such inventories shall be deleted from Schedule 2.2(e)
and added to Schedule 2.1(c) prior to the Closing Date and included as
Purchased Assets with the consent of Seller;
(xi) all personal property and interests therein, including machinery,
equipment, furniture, office equipment, communications equipment, vehicles
and other tangible property relating to the Business listed on Schedule
2.2(f), provided, however, in the event Buyer and Seller agree prior to the
Closing Date that certain personal property listed on Schedule 2.2(f) shall
be transferred, assigned and delivered to Buyer at Closing, such personal
property shall be deleted from Schedule 2.2(f) and added to Schedule 2.1(b)
prior to the Closing Date and included as Purchased Assets with the consent
of Seller;
(xii) all books, records, files and papers of Seller, whether in hard
copy or computer format, relating to the Unity Assets and Seller's
Proprietary Rights, including, without limitation, engineering information,
sales and promotional literature, manuals and data, sales and purchase
correspondence, lists of present and former suppliers and list of present
and former customers; and
(xiii) all goodwill associated with the Unity Assets and Seller's
Proprietary Rights.
SECTION 2.3 Assumption of Liabilities. Upon the terms and subject to the
conditions of this Agreement, Buyer agrees, effective at the time of Closing, to
assume all debts, obligations, contracts and
B-5
<PAGE> 142
liabilities of Seller arising prior to the Closing or relating to acts or
omissions to act occurring prior to the Closing and all debts, obligations,
contracts and liabilities relating to the Purchased Assets and the Business, of
any kind, character or description whether known or unknown, accrued, absolute,
contingent or otherwise, except for the Excluded Liabilities (the "Assumed
Liabilities"), including without limitation, the following:
(i) all liabilities arising out of or relating to the Business;
(ii) all liabilities and obligations of Seller arising under the
Assumed Contracts;
(iii) all warranty claims or expenses of Seller in respect of products
sold or services rendered by the Business on or prior to the Closing Date;
(iv) Seller's obligation to provide vacation time and vacation pay to
the employees of Seller to the extent such time or pay shall have accrued
on or prior to the Closing Date;
(v) Seller's obligation to provide any payment to employees of Seller
in connection with their assignment to Buyer in connection with the
transactions contemplated hereby;
(vi) all obligations and liabilities arising from any action, suit,
investigation, or proceeding relating to or arising out of the Business or
the Purchased Assets, including, without limitation, any obligations or
liabilities resulting from the actions, suits, investigations or
proceedings set forth on Schedule 2.7 to the Merger Agreement;
(vii) all liabilities and obligations relating to any products
manufactured or sold by the Business on or prior to the Closing Date,
including without limitation warranty obligations and product liability
claims;
(viii) all obligations relating to the Transferred Employees,
including, without limitation, any bonus;
(ix) all Taxes of Seller incurred on or prior to the Closing Date,
whether due before or after the Closing Date, and all Taxes of Seller
relating to the sale of the Purchased Assets to Buyer, including, without
limitation, all income taxes of Seller ("Assumed Tax Liabilities"); and
(x) all fees and expenses of Seller including, without limitation,
fees and expenses of legal counsel, accountants and financial advisors,
incurred in connection with the transactions contemplated hereby and the
Merger Agreement other than those constituting Excluded Liabilities
pursuant to Section 2.4(ii).
SECTION 2.4 Excluded Liabilities. Notwithstanding any provision in this
Agreement, Buyer is assuming only the Assumed Liabilities and is not assuming
(i) any liability or obligation arising after the Closing Date with respect to
acts or omissions to act of Seller arising after the Closing Date relating to an
Excluded Asset or (ii) up to an aggregate of $150,000 of the fees and expenses
of Seller, including, without limitation, fees and expenses of legal counsel,
accountants and financial advisors, incurred in connection with the transactions
contemplated hereby and the Merger Agreement. The foregoing liabilities and
obligations shall be retained by and remain obligations and liabilities of
Seller (such liabilities and obligations not being assumed being herein referred
to as the "Excluded Liabilities").
SECTION 2.5 Assignment of Contracts and Rights. Anything in this Agreement
to the contrary notwithstanding, this Agreement shall not constitute an
agreement to assign any Purchased Asset or any claim or right or any benefit
arising thereunder or resulting therefrom if an attempted assignment thereof,
without consent of a third party thereto, would constitute a breach or other
contravention thereof or in any way adversely affect the rights of Buyer or
Seller thereunder. Prior and subsequent to Closing,
B-6
<PAGE> 143
Seller and Buyer will use their reasonable best efforts (but without any payment
of money by Seller or Buyer) to obtain the consent of the other parties to any
such Purchased Asset or claim or right or any benefit arising thereunder for the
assignment thereof to Buyer as Buyer may request. If such consent is not
obtained, or if an attempted assignment thereof would be ineffective or would
adversely affect the rights of Seller thereunder so that Buyer would not in fact
receive all such rights, Seller and Buyer will cooperate in a mutually agreeable
arrangement under which Buyer would obtain the benefits and assume the
obligations thereunder in accordance with this Agreement, including
subcontracting, sublicensing, or subleasing to Buyer, or under which Seller
would enforce for the benefit of Buyer, with Buyer assuming Seller's
obligations, any and all rights of Seller against a third party thereto. Seller
will promptly pay to Buyer when received all monies received by Seller with
respect to any Purchased Asset or any claim or right or any benefit arising
thereunder, except to the extent the same represents an Excluded Asset.
SECTION 2.6 Purchase Price; Allocation of Purchase Price.
(a) The purchase price for the Purchased Assets (the "Purchase Price") is
(i) the Note and (ii) the assumption of the Assumed Liabilities.
(b) The Purchase Price paid by Buyer for the Purchased Assets (as adjusted
upward or downward by any increase or decrease in the amount due from Buyer to
Seller under the Note) shall be allocated in such reasonable manner as shall be
proposed by Buyer and approved by Seller prior to the Closing Date.
(c) Seller and Buyer agree to utilize such allocation in the preparation of
financial statements and filing of all Tax Returns (including, without
limitation, filing Form 8594 with its Federal income tax return for the taxable
year that includes the date of the Closing) and in the course of any tax audit,
tax review or tax litigation relating thereto.
No later than ten (10) days prior to the filing of its respective Forms
8594 relating to this transaction, each party shall deliver to the other party a
copy of its Form 8594.
SECTION 2.7 Closing. The closing (the "Closing") of the purchase and sale
of the Purchased Assets and the assumption of the Assumed Liabilities hereunder
shall take place at the offices of Brobeck, Phleger & Harrison LLP, Palo Alto,
California 94303, or at such other place as Buyer and Seller may agree,
immediately after the effective time of the Merger.
At the Closing:
(a) Buyer shall deliver to Seller the executed Note.
(b) Seller and Buyer shall enter into the Undertaking and Assumption
Agreement and the Bill of Sale and Assignment substantially in the forms
attached hereto as Exhibits D and E, respectively, and Seller shall deliver
to Buyer such quitclaim deeds, endorsements, consents, assignments and
other good and sufficient instruments of conveyance and assignment
(collectively with the Undertaking and Assumption Agreement and Bill of
Sale and Assignment, the "Conveyance Documents") as the parties and their
respective counsel shall deem reasonably necessary or appropriate to vest
in Buyer all right, title and interest in, to and under the Purchased
Assets.
(c) Buyer shall enter into the Security Agreements and execute the UCC
financing statements as described in Section 10.3(b).
(d) Seller and Buyer shall execute and deliver to each other the
License Agreement.
(e) Each of Seller and Buyer shall deliver any other instruments and
documents required of it pursuant to Article X hereof.
B-7
<PAGE> 144
(f) Seller and Buyer shall also execute and deliver all such
instruments, documents and certificates as may be reasonably requested by
the other party that are necessary, appropriate or desirable for the
consummation at the Closing of the transactions contemplated by this
Agreement.
SECTION 2.8 Further Assurances. From time to time following the date
hereof, Seller shall execute and deliver, or cause to be executed and delivered,
to Buyer such other instruments of conveyance and transfer as Buyer may
reasonably request or as may be otherwise necessary to more effectively convey
and transfer to, and vest in, Buyer and put Buyer in possession of, any part of
the Purchased Assets, and, in the case of licenses, certificates, approvals,
authorizations, agreements, contracts, leases, easements and other commitments
included in the Purchased Assets (i) which cannot be transferred or assigned
effectively without consent of third parties which consent has not been obtained
prior to the date hereof, to cooperate with Buyer at its request in endeavoring
to obtain such consent promptly, and if any such consent is unobtained, to use
its reasonable best efforts to secure to Buyer the benefits thereof in some
other manner, or (ii) which are otherwise not transferable or assignable, to use
its reasonable best efforts jointly with Buyer to secure to Buyer the benefits
thereof in some other manner (including the exercise of the rights of Seller
thereunder).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer that:
SECTION 3.1 Corporate Existence and Power. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Washington. Seller has the corporate power to own its properties and to carry on
its business as now being conducted and as presently 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 Seller.
SECTION 3.2 Corporate Authorization. Seller has all requisite corporate
power and authority to enter into this Agreement and the Ancillary Agreements
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Ancillary Agreements and the
consummation by Seller of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of Seller,
subject only to any required approval by Seller's shareholders. This Agreement
and the Ancillary Agreements have been duly executed and delivered by Seller and
constitutes a valid and binding agreement of Seller, enforceable against Seller
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.
SECTION 3.3 Governmental Authorization. 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 is required by or with respect to Seller in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, except for (i) compliance with any applicable
requirements of the HSR Act, (ii) compliance with the requirements of the 1934
Act, and (iii) any action, which if not taken, or filing, which if not made,
would not, individually or in the aggregate, have a Material Adverse Effect on
Seller.
SECTION 3.4 Finders' Fees. Except for William Blair & Company, L.L.C.,
whose fees will be paid by Seller and Buyer in accordance with Sections 2.3(x)
and 2.4(ii) and Schedule 2.1(e), there is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of Seller who might be entitled to any fee or commission from Seller or
any of its Affiliates upon consummation of the transactions contemplated by this
Agreement.
B-8
<PAGE> 145
SECTION 3.5 Opinion of Financial Advisor. Seller has been advised in
writing by its financial advisor, William Blair & Company, L.L.C., that in such
advisor's opinion, as of the date hereof, the consideration to be received by
Seller in connection with the transactions contemplated hereby is fair to Seller
from a financial point of view.
SECTION 3.6 Non-Contravention. The execution and delivery of this
Agreement and the Ancillary Agreements by Seller does not, and the consummation
of the transactions contemplated hereby and thereby 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 Articles of Incorporation or Bylaws of Seller 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 Seller
or any of its subsidiaries or any of their properties or assets.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller that:
SECTION 4.1 Organization and Existence. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Washington. Buyer has the corporate power to own its properties and to carry on
its business as now being conducted and as presently 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 Buyer.
SECTION 4.2 Corporate Authorization. Buyer has all requisite corporate
power to enter into this Agreement and the Ancillary Agreements and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Ancillary Agreements and the consummation by
Buyer of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of Buyer. This
Agreement and each of the Ancillary Agreements has been duly executed and
delivered by Buyer and constitutes valid and binding agreements of Buyer,
enforceable against Buyer in accordance with their terms, except as
enforceability may be limited by bankruptcy and other laws affecting the rights
and remedies of creditors generally and general of principles of equity.
SECTION 4.3 Governmental Authorization. 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 is required by or with respect to Buyer in connection with the
execution and delivery of this Agreement and the Ancillary Agreements and the
consummation of the transactions contemplated hereby, except for (i) compliance
with any applicable requirements of the HSR Act, and (ii) any action, which if
not taken, or filing which if not made, would not, individually or in the
aggregate, have a Material Adverse Effect on Buyer.
SECTION 4.4 Non-Contravention. The execution and delivery of this
Agreement and the Ancillary Agreements by Buyer does not, and the consummation
of the transactions contemplated hereby and thereby 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 Articles of Incorporation or Bylaws of Buyer 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,
B-9
<PAGE> 146
law, ordinance, rule or regulation applicable to Buyer or any of its
subsidiaries or any of their properties or assets.
SECTION 4.5 Finders' Fees. There is no investment banker, broker, finder
or other intermediary that has been retained by or is authorized to act on
behalf of Buyer who might be entitled to any fee or commission from Buyer or any
of its Affiliates upon consummation of the transactions contemplated by this
Agreement.
SECTION 4.6 Litigation. There is no action, suit, investigation or
proceeding pending against or, to the knowledge of Buyer, threatened against,
Buyer before any court or arbitrator or any governmental body, agency or
official which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the transactions contemplated hereby.
SECTION 4.7 Solvency. After giving effect to the transactions contemplated
hereby and by the Merger Agreement, Buyer will not (i) be insolvent (either
because its financial condition is such that the sum of its debts is greater
than the fair value of its assets or because the present fair saleable value of
its assets will be less than the amount required to pay its probable liability
on its debts as they become absolute and matured), (ii) have unreasonably small
capital with which to engage in its business or (iii) have incurred or plan to
incur debts beyond its ability to pay as they become absolute and matured.
ARTICLE V
COVENANTS OF SELLER
Seller agrees that:
SECTION 5.1 Confidentiality. Seller will hold, and will use its reasonable
best efforts to cause its officers, directors, employees, accountants, counsel,
consultants, advisors and agents to hold, in confidence, unless compelled to
disclose by judicial or administrative process or by other requirements of law,
all confidential documents and information concerning Buyer or the Business,
except to the extent that such information can be shown to have been (i)
previously known on a nonconfidential basis by Seller, (ii) in the public domain
through no fault of Seller or (iii) later lawfully acquired by Seller from
sources other than Buyer; provided that Seller may disclose such information to
its officers, directors, employees, accountants, counsel, consultants, advisors
and agents in connection with the transactions contemplated by this Agreement so
long as such persons are informed by Seller of the confidential nature of such
information and are directed by Seller to treat such information confidentially.
The obligation of Seller and its Affiliates to hold any such information in
confidence shall be satisfied if they exercise the same care with respect to
such information as they would take to preserve the confidentiality of their own
similar information. If this Agreement is terminated, Seller and its Affiliates
will, and will use their reasonable best efforts to cause their respective
officers, directors, employees, accountants, counsel, consultants, advisors and
agents to, destroy or deliver to Buyer, upon request, all documents and other
materials, and all copies thereof, obtained by Seller or its Affiliates or on
their behalf from Buyer in connection with this Agreement that are subject to
such confidence. The provisions of this Section shall survive the Closing or the
termination of this Agreement.
SECTION 5.2 Trademarks; Tradenames. As soon as practicable after the
Closing Date, Seller shall eliminate the use of all of the trademarks,
tradenames, service marks and service names used in the Business, other than the
Unity Trademark, in any of their forms or spellings, on all advertising,
stationery, business cards, checks, purchase orders and acknowledgments,
customer agreements and other contracts and business documents.
B-10
<PAGE> 147
SECTION 5.3 Certain Agreements. Without limiting the rights of the parties
to pursue all other legal and equitable rights available to them for violation
of Section 5.1 or Section 5.2 by any of the other parties hereto, it is agreed
that other remedies cannot fully compensate a party for such a violation and
that the parties shall be entitled to injunctive relief to prevent the violation
or the continuing violation thereof. It is the intent and understanding of each
party hereto that if, in any action before any governmental entity legally
empowered to enforce Section 5.1 or Section 5.2, any term, restriction, covenant
or promise in Section 5.1 or Section 5.2 is found to be unreasonable and for
that reason unenforceable, then such term, restriction, covenant or promise
shall be deemed modified to the extent necessary to make it enforceable by such
court or agency.
ARTICLE VI
COVENANTS OF BUYER
SECTION 6.1 Confidentiality.
(a) Prior to the Closing Date and after any termination of this Agreement,
Buyer and its Affiliates will hold, and will use their reasonable best efforts
to cause their respective officers, directors, employees, accountants, counsel,
consultants, advisors and agents to hold, in confidence, unless compelled to
disclose by judicial or administrative process or by other requirements of law,
all confidential documents and information concerning the Business furnished to
Buyer or its Affiliates in connection with the transactions contemplated by this
Agreement.
(b) Buyer and its Affiliates will hold, and will use their reasonable best
efforts to cause their respective officers, directors, employees, accountants,
counsel, consultants, advisors and agents (collectively, "Representatives") to
hold, in confidence, unless compelled to disclose by judicial or administrative
process or by other requirements of law, all documents and information
concerning Seller, the Unity Assets and Seller's Proprietary Rights; in each
case, except to the extent that such information can be shown to have been (i)
previously known on a nonconfidential basis by Buyer, (ii) in the public domain
through no fault of Buyer or (iii) later lawfully acquired by Buyer from sources
other than Seller; provided that Buyer may disclose such information to its
officers, directors, employees, accountants, counsel, consultants, advisors and
agents in connection with the transactions contemplated by this Agreement so
long as such persons are informed by Buyer of the confidential nature of such
information and are directed by Buyer to treat such information confidentially.
The obligation of Buyer and its Affiliates to hold any such information in
confidence shall be satisfied if they exercise the same care with respect to
such information as they would take to preserve the confidentiality of their own
similar information. Buyer and its Affiliates shall not, and will use their
reasonable best efforts to cause their respective Representatives not to (A) use
for any purpose the Unity Assets or any information relating to the Unity Assets
or (B) use other than as permitted pursuant to the License Agreement the
Sellers' Proprietary Rights or any information relating to Seller's Proprietary
Rights. If this Agreement is terminated, Buyer and its Affiliates will, and will
use their reasonable best efforts to cause their respective officers, directors,
employees, accountants, counsel, consultants, advisors and agents to, destroy or
deliver to Seller, upon request, all documents and other materials, and all
copies thereof, obtained by Buyer or its Affiliates or on their behalf from
Seller in connection with this Agreement that are subject to such confidence.
The provisions of this Section shall survive the Closing or the termination of
this Agreement.
SECTION 6.2 Covenant Not to Compete. Upon the consummation of the
transactions contemplated hereby, Buyer agrees that, for a period commencing on
the Closing Date and ending on the first annual anniversary of the Closing Date,
Buyer and its Affiliates will not: directly or indirectly (whether as an
employer, employee, partner, shareholder, consultant, investor, director,
representative or otherwise)
B-11
<PAGE> 148
anywhere within the world own, manage, operate, control or be employed by,
participate in, consult with, or be otherwise connected in any manner with the
ownership, management or operation of any business involving the unified
messaging and related technology described in Schedule 1.1 (the "Covered
Activities"). Notwithstanding the foregoing, nothing herein shall restrict Buyer
or its Affiliates from (i) owning, solely for investment purposes up to five
percent of any class of securities of any person engaged in the Covered
Activities or (ii) engaging and operating the Business. The provisions of this
Section shall survive the Closing or the termination of this Agreement.
SECTION 6.3 Certain Agreements. Without limiting the rights of the parties
to pursue all other legal and equitable rights available to them for violation
of Section 6.1 or Section 6.2 by any of the other parties hereto, it is agreed
that other remedies cannot fully compensate a party for such a violation and
that the parties shall be entitled to injunctive relief to prevent the violation
or the continuing violation thereof. It is the intent and understanding of each
party hereto that if, in any action before any governmental entity legally
empowered to enforce Section 6.1 or Section 6.2, any term, restriction, covenant
or promise in Section 6.1 or Section 6.2 is found to be unreasonable and for
that reason unenforceable, then such term, restriction, covenant or promise
shall be deemed modified to the extent necessary to make it enforceable by such
court or agency.
SECTION 6.4 Access. On and after the Closing Date, Buyer will afford to
Seller and its agents reasonable access, upon at least twenty-four (24) hours'
prior notice, to its properties, books, records, employees and auditors to the
extent necessary to permit Seller to determine any matter relating to its rights
and obligations hereunder or to any period ending on or before the Closing Date;
provided that any such access by Seller shall not unreasonably interfere with
the conduct of the Business by Buyer.
SECTION 6.5 Payments. On and after the Closing Date, Buyer shall make all
payments required to be paid to the Transferred Employees under the terms of the
Offer Letter (as defined below), the Employment Agreement (as defined below) and
any other employment agreement or plan of Buyer, as applicable, and make all the
payments set forth on Schedule 2.1(e).
ARTICLE VII
COVENANTS OF BOTH PARTIES
The parties hereto agree that:
SECTION 7.1 Reasonable Best Efforts. Subject to the terms and conditions
of this Agreement, each party will use its reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary or desirable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement.
SECTION 7.2 Consents; Cooperation. (a) Each of Buyer and Seller shall
promptly apply for or otherwise seek, and use its reasonable best efforts to
obtain, all consents, approvals, authorizations or permits required to be
obtained by it for the consummation of the transactions contemplated herein,
including those required under the HSR Act. Each of Buyer and Seller shall use
its reasonable best efforts to obtain all necessary consents, waivers and
approvals under any of its material contracts in connection with the
transactions contemplated hereby. 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 the HSR Act or any
other federal, state or foreign antitrust or fair trade law.
B-12
<PAGE> 149
(b) Each of Buyer and Seller 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 and the
Ancillary Agreements under the HSR Act, 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 Buyer
and Seller shall cooperate and use all commercially reasonable efforts
vigorously to contest and resist any such action or proceeding and to have
vacated, lifted, reversed, or overturned any decree, judgment, injunction or
other order, whether temporary, preliminary or permanent (each an "Order"), that
is in effect and that prohibits, prevents, or restricts consummation of the
transactions contemplated hereby, unless by mutual agreement Buyer and Seller
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 neither party shall have any obligation to
litigate or contest any administrative or judicial action or proceeding or any
Order beyond the earlier of (i) Final Date (as defined below) or (ii) the date
of a ruling preliminarily enjoining the transactions contemplated hereby issued
by a court of competent jurisdiction. Each of Buyer and Seller shall use all
commercially reasonable efforts to take such action as may be required to cause
the expiration of the notice periods under the HSR Act or other Antitrust Laws
with respect to such transactions as promptly as possible after the execution of
this Agreement.
SECTION 7.3 Legal Requirements. Each of Buyer and Seller will, and will
cause their respective subsidiaries to, take all reasonable actions necessary to
comply in all material respects 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 by them in connection with the taking of
any action contemplated by this Agreement.
SECTION 7.4 Public Announcements. The parties agree to consult with each
other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and, except as
may be required by applicable law or any listing agreement with any national
securities exchange, will not issue any such press release or make any such
public statement prior to such consultation.
ARTICLE VIII
TAX MATTERS
SECTION 8.1 Tax Cooperation; Allocation of Taxes; Tax Reimbursement. (a)
Buyer and Seller agree to furnish or cause to be furnished to each other, upon
request, as promptly as practicable, such information and assistance relating to
the Purchased Assets and the Business as is reasonably necessary for the filing
of all Tax Returns, and making of any election related to Taxes, the preparation
for any audit by any taxing authority, and the prosecution or defense of any
claim, suit or proceeding relating to any Tax Return.
B-13
<PAGE> 150
(b) All Taxes assessed upon or with respect to the transfer of the
Purchased Assets to Buyer, and any recording or filing fees with respect thereto
shall be the responsibility of Buyer.
(c) Buyer shall pay to Seller all amounts of Taxes which constitute Assumed
Tax Liabilities under this Agreement five (5) days prior to the date on which
any such Assumed Tax Liability is due upon written demand therefor from Seller.
Seller's written demand shall be forwarded to Buyer ten (10) business days prior
to the due date for any such Assumed Tax Liability and shall include a copy of
the Tax Return or other appropriate documentation (including notices or demands
from taxing authorities) evidencing such Assumed Tax Liability. If Buyer
believes that such Assumed Tax Liability is being invalidly assessed and/or may
be recovered through a claim for refund or other proceeding, Buyer shall so
notify Seller. Seller and Buyer shall promptly consult with each other regarding
the potential contest or recovery of said Assumed Tax Liability. If Buyer and
Seller are unable to agree on the appropriate course of action, the dispute
shall be promptly referred to an independent accounting firm or law firm
acceptable to the parties in order to resolve the dispute, which resolution
shall be binding on both parties. If, as a result of the consultation between
the parties or other resolution, it is determined that the subject Assumed Tax
Liability will be paid and not contested, Buyer shall pay Seller the amount of
such Assumed Tax Liability (together with any applicable interest and
penalties). If it is determined that the subject Assumed Tax Liability will be
contested, Buyer shall pay Seller the amount of any Tax (together with any
applicable interest and penalties) eventually determined to be due promptly upon
such determination. Subject to the foregoing, Seller shall control, and Seller
and Buyer shall cooperate with each other in the conduct of, any audit or other
proceeding related to Taxes involving the Business, and each shall execute and
deliver such powers of attorney and other documents as are necessary to carry
out the intent of this Article VIII.
ARTICLE IX
EMPLOYEES AND EMPLOYEE BENEFITS
SECTION 9.1 Employees and Offers of Employment.
(a) On or prior to the Closing Date, Buyer shall confirm the assignment to
Buyer of existing employment rights and obligations, via a notice of
confirmation of assignment in the form attached hereto as Exhibit F ("Offer
Letter"), of each of the employees of Seller listed on Schedule 9.1(a) who are
"active employees" of Seller on the Closing Date. For purposes of this Article
IX, the term "active employee" shall mean any Person who, on the Closing Date,
is actively employed by Seller or who is on short-term disability leave,
authorized leave of absence, military service or lay-off with recall rights as
of the Closing Date (such inactive employees shall be offered employment by
Buyer as of the date they return to active employment), but shall exclude any
other inactive or former employee including any Person who has been on long-term
disability leave or unauthorized leave of absence or who has terminated his or
her employment, retired or died on or before the Closing Date. Any such offers
shall be at such salary or wage levels as are applicable to such employees on
the Closing Date. The employees who are assigned to Buyer and the Key Employees
(as defined below) are hereinafter collectively referred to as the "Transferred
Employees." Seller will not take any action that would impede, hinder, interfere
or otherwise compete with Buyer's effort to hire any Transferred Employees
except as described in this Section 9.1 below. Buyer hereby agrees to employ the
Transferred Employees in accordance with the terms of the Offer Letter for not
less than sixty (60) days following the Closing Date; provided, however, Buyer
may terminate any Transferred Employee for "cause," excluding any position
elimination, and provided further that (i) Buyer complies in all respects with
the provisions of the federal Worker Adjustment, Retraining and Notification
Act, 29 U.S.C. Section 2101, et seq. (the "WARN Act"); and (ii) Buyer adopts,
and does not modify, terminate or discontinue, an Employee
B-14
<PAGE> 151
Benefit Plan in the form attached hereto as Exhibit G, the benefits of which are
in addition to any entitlements Transferred Employees may have under the WARN
Act and under their employment agreement previously entered with the Seller. In
addition, prior to or following the Closing Date at Buyer's election, Buyer
shall offer a retention bonus to those Transferred Employees mutually agreed to
by Buyer and Seller prior to the Closing Date, and such retention bonus shall be
conditioned on such Transferred Employee's execution of a general release that
expressly waives, releases and discharges any and all claims against Seller and
Cisco. The offer of retention bonus and general release shall be substantially
in the form attached hereto as Exhibit H. Prior to the Closing Date, Cisco may
interview and consider for employment and may, in its sole discretion, offer
employment to any of the Transferred Employees listed on Schedule 9.1 (the
"Interviewed Employees") upon such terms and conditions determined by Cisco. In
the event that any Interviewed Employee accepts an offer of employment with
Cisco prior to the Closing Date, such employee shall execute a stock option
acceleration waiver and an acceptance of employment letter in form and substance
acceptable to Cisco. The provisions of this Section 9.1(a) shall survive the
Closing for a period of three years.
(b) Buyer hereby agrees that, commencing on the date hereof, neither it nor
any of its Affiliates shall induce or encourage, or assist others to induce or
encourage, any of the employees of the Seller listed on Schedule 9.1(b) or any
of the Interviewed Employees who accept an offer of employment with Cisco to
decline an employment arrangement with Cisco or Seller after the Merger, or
interfere in any manner with the relationship between Cisco or Seller and such
employee and Buyer hereby agrees that for a period of three years from the
Closing Date, neither it nor any of its Affiliates shall induce or encourage, or
assist others to induce or encourage, any of the employees of Seller listed on
Schedule 9.1(b) or any of the Interviewed Employees who accept an offer of
employment with Cisco, if such employee is hired by Cisco or Seller after the
Merger, to leave Cisco's or Seller's employ, whether to accept a position with
it or an entity related to or affiliated with it or otherwise. The provisions of
this Section 9.1(b) shall survive the Closing for a period of three years.
(c) On or prior to the Closing Date, Buyer shall offer employment to each
of the employees listed on Schedule 9.1(c) (the "Key Employees") pursuant to an
Employment and Non-Competition Agreement in the form of Exhibit I, ("Employment
Agreement") and such employees shall have accepted employment with Buyer and
shall have entered into such Employment Agreement which shall not be amended
without Seller's consent.
SECTION 9.2 Seller's Employee Group Health Plans. Each of Seller's
Employee Group Health Plans is listed on Schedule 9.2. On or as soon as
practicable following the Closing Date, Buyer shall adopt employee group health
plans for the benefit of each of the Transferred Employees that are comparable
to those of Seller prior to the Closing Date. Each such employee shall, with
respect to any group health plan that has a co-payment, deductible or other
co-insurance features, receive credit for any amounts such individual has paid
to date in the plan year of the Closing Date under Seller's group health plans
maintained by Seller prior to the Closing Date. Each such employee and eligible
dependent who, at the Closing Date, was participating in employee group health
plans maintained by Seller shall not be excluded from Newco's employee group
health plans or limited in coverage thereunder by reason of any waiting period
restriction or pre-existing condition limitation.
SECTION 9.3 Buyer Benefit Plans. Buyer or one of its Affiliates will
recognize all service of the Transferred Employees with Seller or any of its
Affiliates, for purposes of eligibility to participate in those employee benefit
plans, within the meaning of Section 3(3) of ERISA, in which the Transferred
Employees are enrolled by Buyer or one of its Affiliates immediately after the
Closing Date. Any medical plan adopted by Buyer after the Closing, to the extent
available on commercially reasonable terms, shall contain no pre-existing
exclusions and shall provide credit for deductibles and co-payments
B-15
<PAGE> 152
for the 2000 calendar year so that the Transferred Employees shall not be
entitled to any continuation coverage under Seller's plans pursuant to the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
SECTION 9.4 No Third Party Beneficiaries. No provision of this Article
shall create any third party beneficiary or other rights in any employee or
former employee (including any beneficiary or dependent thereof) of Seller or of
any of its subsidiaries in respect of continued employment (or resumed
employment) with either Buyer or the Business or any of their Affiliates and no
provision of this Article IX shall create any such rights in any such Persons in
respect of any benefits that may be provided, directly or indirectly, under any
Employee Plan or Benefit Arrangement or any plan or arrangement that may be
established by Buyer or any of its Affiliates. No provision of this Agreement
shall constitute a limitation on rights to amend, modify or terminate after the
Closing Date any such plans or arrangements of Buyer or any of its Affiliates.
ARTICLE X
CONDITIONS TO CLOSING
SECTION 10.1 Conditions to the Obligations of Each Party. The obligations
of Buyer and Seller to consummate the Closing are subject to the satisfaction of
the following conditions:
(a) The approval of the transactions contemplated hereby and by the
Merger Agreement shall have been approved and adopted by the requisite vote
of the shareholders of Seller under Washington Business Corporation Act.
(b)(i) The closing of the Merger shall have occurred and (ii) Buyer
and Seller shall have received a certificate to that effect from each of
the parties to the Merger Agreement.
(c) Any applicable waiting period under the HSR Act relating to the
transactions contemplated hereby shall have expired or been terminated.
(d) No preliminary or permanent injunction or other order shall have
been issued by any court, arbitrator or governmental body, agency or
authority which restrains or prohibits the consummation of the transactions
contemplated hereby.
(e) All actions by or in respect of or filings with any governmental
body, agency, official or authority required to permit the consummation of
the Closing shall have been obtained except where the failure so to obtain
would not have a Material Adverse Effect.
(f) The Purchase Price paid by Buyer for the Purchased Assets (as
adjusted upward or downward by any increase or decrease in the amount due
from Buyer to Seller under the Note) shall have been allocated in
accordance with a schedule proposed by Buyer and approved by Seller.
SECTION 10.2 Conditions to Obligations of Buyer. The obligation of Buyer
to consummate the Closing is subject to the satisfaction of the following
further conditions:
(a)(i) Seller shall have performed and complied in all material
respects with all of its covenants, obligations and conditions hereunder
required to be performed with and complied by it at or prior to the Closing
Date, (ii) the representations and warranties of Seller contained 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 and correct in all respects) both when made and on
and as of the Closing Date as though such representations and warranties
were made on and as of such
B-16
<PAGE> 153
time; and (iii) Buyer shall have received a certificate signed by an
officer of Seller to the foregoing effect.
(b) Seller shall have executed and delivered to Buyer the License
Agreement, the Note Agreement and the Bill of Sale and Assignment.
SECTION 10.3 Conditions to Obligations of Seller. The obligations of
Seller to consummate the Closing and the transactions contemplated hereby is
subject to the satisfaction of the following further conditions:
(a)(i) Buyer shall have performed and complied in all material
respects with all of its covenants, obligations and conditions hereunder
required to be performed and complied with by it at or prior to the Closing
Date, (ii) the representations and warranties of Buyer contained 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 and correct in all respects) both when made and on
and as of the Closing Date as though such representations and warranties
were made on and as of such time; and (iii) Seller shall have received a
certificate signed by an officer of Buyer to the foregoing effect.
(b) Buyer shall have executed and delivered to Seller a Security
Agreement, filed or appropriately recorded with the applicable governmental
agencies all related financing statements and other similar instruments and
documents (including, without limitation, filings in the U.S. Patent and
Trademark Office and U.S. Copyright Office), and taken all actions
necessary to perfect the security interests granted.
(c) Buyer shall have delivered to Seller copies of all insurance
policies of Buyer together with loss payable endorsements in favor of
Seller.
(d) Buyer shall have received all consents, authorizations or
approvals from governmental agencies referred to in Section 4.3, in each
case in form and substance reasonably satisfactory to Seller, and no such
consent, authorization or approval shall have been removed.
(e) The opinion of William Blair & Company, L.L.C., financial advisor
to Seller, referred to in Section 3.10, shall not have been withdrawn on or
prior to the Closing.
(f) Buyer shall have executed and delivered to Seller the Note, the
Note Agreement, the Security Agreements, the License Agreement, the UCC
Financing Statements and the Undertaking and Assumption.
ARTICLE XI
INDEMNIFICATION
SECTION 11.1 Indemnification. (a) Buyer shall, for a period of five (5)
years from the Closing Date, indemnify and hold harmless Cisco, Seller, any
Affiliate thereof and the directors, officers, employees, counsel or agents of
Cisco, Seller or any such Affiliate (the "Indemnified Parties"), from and
against any and all Loss and Expense (as defined below) arising from or relating
to (i) the operations of Seller or the ownership use or operations of Seller's
assets, including the Purchased Assets, prior to and after the Closing Date,
whether known or unknown, other than the Excluded Liabilities, (ii) the Assumed
Liabilities, including, without limitation, any obligations or liabilities
resulting from the actions, suits, investigations or proceedings set forth on
Schedule 2.7 to the Merger Agreement and any Assumed Tax Liabilities, (iii)
noncompliance with any applicable bulk sales laws;
B-17
<PAGE> 154
(iv) any third party liability claims for acts or omissions to act prior to the
Closing Date; and (v) the Business, either preceding or after the Closing. Loss
and Expense shall mean any and all liabilities, obligations, losses, costs,
damages or diminution of value and all out-of-pocket expenses, including
attorney's and accountant fees.
SECTION 11.2 Procedures. (a) If any of the Indemnified Parties determines
to seek indemnification under this Article XI with respect to any Loss and
Expense resulting from the assertion of liability by third parties, such
Indemnified Party shall give notice to the Buyer within 30 days of such
Indemnified Party becoming aware of any such Loss and Expense, or of facts upon
which any such Loss and Expense will be based. The notice shall set forth such
material information with respect thereto as is then reasonably available to
such Indemnified Party. In case any such liability is asserted against an
Indemnified Party, and such Indemnified Party notifies the Buyer thereof, the
Buyer will be entitled, if it so elects by written notice delivered to such
Indemnified Party within 20 days after receiving such Indemnified Party's
notice, to assume the defense thereof with counsel satisfactory to such
Indemnified Party. Notwithstanding the foregoing, (i) an Indemnified Party shall
also have the right to employ its own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party
unless such Indemnified Party shall reasonably determine that there is a
conflict of interest between or among such Indemnified Party and the Buyer with
respect to such Loss and Expense in which case the fees and expenses of such
counsel will be borne by the Buyer, (ii) such Indemnified Party shall not have
any obligation to give any notice of any assertion of liability by a third party
unless such assertion is in writing, and (iii) the rights of any Indemnified
Party to be indemnified hereunder in respect of any Loss and Expense resulting
from the assertion of liability by third parties shall not be adversely affected
by its failure to give notice pursuant to the foregoing unless, and, if so, only
to the extent that, Buyer is materially prejudiced thereby. With respect to any
assertion of liability by a third party that results in a Loss and Expense, the
parties hereto shall make available to each other all relevant information in
their possession material to any such assertion. Buyer shall not settle any
claim without the written consent of the Indemnified Parties; provided, however,
in the event such settlement contemplates that (i) neither party involved in the
claim shall make any admission, (ii) each party involved in the claim shall
execute standard releases for the claim and (iii) a cash settlement payment, the
Indemnified Parties shall consent to such settlement.
(b) In the event that an Indemnified Party asserts the existence of a claim
giving rise to a Loss and Expense (but excluding claims resulting from the
assertion of liability by third parties), it shall give written notice to Buyer.
Such written notice shall state that it is being given pursuant to this Section
11.2(b), specify the nature and amount of the claim asserted, and indicate the
date on which such assertion shall be deemed accepted and the amount of the
claim deemed a valid claim (such date to be established in accordance with the
next sentence). If Buyer, within 30 days after the giving of notice by such
Indemnified Party, shall not give written notice to such Indemnified Party
announcing its intent to contest such assertion of such Indemnified Party, such
assertion shall be deemed accepted and the amount of claim shall be deemed a
valid claim. In the event, however, that Buyer contests the assertion of a claim
by giving such written notice to such Indemnified Party within said period, then
the parties shall act in good faith to reach agreement regarding such claim. In
the event that arbitration or litigation shall arise with respect to any such
claim, the prevailing party in such arbitration or litigation shall be entitled
to reimbursement of costs and expenses incurred in connection with such
arbitration or litigation including attorney fees, if the parties hereto, acting
in good faith, cannot reach agreement with respect to such claim within thirty
(30) days after such notice.
(c) In the event that Buyer, within 30 days after receipt of the aforesaid
notice of any Loss and Expense, fails to assume the defense of any Indemnified
Party against such Loss and Expense, such Indemnified Party shall have the right
to undertake the defense, compromise or settlement of such action
B-18
<PAGE> 155
on behalf of and for the account, expense, and risk of Buyer; provided, however
that the Indemnified Party shall keep Buyer timely apprised of the status of any
claim with respect to such Loss and Expense and shall not settle such claim
without the written consent of Buyer, which consent shall not be unreasonably
withheld.
ARTICLE XII
TERMINATION
SECTION 12.1 Grounds for Termination. This Agreement may be terminated at
any time prior to the Closing:
(i) by mutual written agreement of Seller and Buyer;
(ii) by either Seller or Buyer, if, without fault of the terminating
party, the Closing shall not have been consummated on or before February
28, 2001 or such later date as may be agreed upon in writing by the parties
hereto (the "Final Date"); provided, however, that the Final Date shall be
extended to March 30, 2001 in the event that if the only reason the Closing
shall not have occurred by February 28, 2001 is the failure of the
conditions set forth in Section 6.1(b) and/or Section 6.1(d) of the Merger
Agreement;
(iii) by either Seller or Buyer if any permanent injunction or other
order of a court or other competent authority preventing the consummation
of the transactions contemplated hereby shall have become final and
nonappealable;
(iv) by either Seller or Buyer if the Merger Agreement is terminated
pursuant to the provisions contained therein.
The party desiring to terminate this Agreement pursuant to clause (ii) or
(iii) shall give notice of such termination to the other party.
SECTION 12.2 Effect of Termination. Subject to Section 13.3, if this
Agreement is terminated as permitted by Section 12.1, such termination shall be
without liability of either party (or any shareholder, director, officer,
employee, agent, consultant or representative of such party) to the other party
to this Agreement; provided, however, that if such termination shall result from
the failure of either party to fulfill a condition to the performance of the
obligations of the other party or to perform a covenant of this Agreement or
from a breach by either party to this Agreement, such party shall be fully
liable for any and all Losses and Expenses incurred or suffered by the other
party as a result of such failure or breach. The provisions of Sections 5.1, 6.1
and 6.3, this Article XII and Article XIII shall survive any termination hereof
pursuant to Section 12.1.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1 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
B-19
<PAGE> 156
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):
if to Buyer, to:
Atlantis Group, Inc.
2901 Third Avenue, Suite 500
Seattle, Washington 98121-9800
Attn: Frank Costa
Facsimile No.: (206) 441-4784
Telephone No.: (206) 441-4700
with a copy to:
Riddell Williams P.S.
1001 Fourth Avenue Plaza, Suite 4500
Seattle, Washington 98154
Attn: Frank Woodruff
Facsimile No: (206) 389-1708
Telephone No. (206) 624-3600
if to Seller, to:
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, CA 95134
Attention: Senior 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
SECTION 13.2 Amendments; No Waivers. (a) Any provisions of this Agreement
may be amended or waived prior to the Closing Date if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Buyer and Seller, or in the case of a waiver, by the party against whom the
waiver is to be effective.
(b) No failure or delay by either party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. 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.
B-20
<PAGE> 157
SECTION 13.3 Expenses. Except as otherwise provided herein, all costs and
expenses incurred in connection with this Agreement shall be paid by the party
incurring such cost or expense, whether or not the Closing occurs.
SECTION 13.4 Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that neither party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other party.
SECTION 13.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without regard
to the laws that might otherwise govern under applicable principles of conflicts
of law. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction of any court located within the State of California in connection
with any matter based upon or arising out of this Agreement or the matters
contemplated herein, agrees that process may be served upon them in any manner
authorized by the laws of the State of California for such persons and waives
and covenants not to assert or plead any objection which they might otherwise
have to such jurisdiction and such process.
SECTION 13.6 Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
a counterpart hereof signed by the other party hereto.
SECTION 13.7 Entire Agreement. This Agreement and each of the Ancillary
Agreements constitute the entire agreement between the parties with respect to
the subject matter hereof and supersedes all prior agreements, understandings
and negotiations, both written and oral, between the parties with respect to the
subject matter of this Agreement. No representation, inducement, promise,
understanding, condition or warranty not set forth herein has been made or
relied upon by either party hereto. Neither this Agreement nor any of the
Ancillary Agreements nor any provision hereof or thereof, is intended to confer
upon any Person other than Cisco and the parties hereto any rights or remedies
hereunder.
SECTION 13.8 Bulk Sales Laws. Buyer and Seller each hereby waive
compliance by Seller with the provisions of the "bulk sales," "bulk transfer" or
similar laws of any state.
SECTION 13.9 Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
SECTION 13.10 Survival. All representations, warranties, covenants,
indemnities and agreements made in this Agreement shall survive the Closing
except that the representations and warranties set forth in Articles III and IV
shall terminate one year after the Closing.
SECTION 13.11 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
B-21
<PAGE> 158
IN WITNESS WHEREOF, the parties hereto here caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
ATLANTIS GROUP, INC.
By:
------------------------------------
Name:
Title:
ACTIVE VOICE CORPORATION
By:
------------------------------------
Name:
Title:
B-22
<PAGE> 159
APPENDIX C
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NOTEHOLDER RIGHTS AND SECURITY AGREEMENT
BY AND AMONG
ATLANTIS GROUP, INC.
AS BORROWER,
AND
ACTIVE VOICE CORPORATION
AS LENDER
DATED AS OF , 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 160
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. DEFINITIONS AND CONSTRUCTION.................................... C-1
1.1 Definitions................................................. C-1
1.2 Accounting Terms............................................ C-10
1.3 Code........................................................ C-10
1.4 Construction................................................ C-10
1.5 Schedules and Exhibits...................................... C-11
2. NOTE PAYMENT AND ADMINISTRATION................................. C-11
2.1 Payments.................................................... C-11
2.2 Interest Rates, Payments, and Calculations.................. C-12
2.3 Crediting Payments.......................................... C-12
2.4 Prepayments................................................. C-13
2.5 Fees........................................................ C-13
2.6 Registration, etc. ......................................... C-14
2.7 Transfer and Exchange of Notes.............................. C-14
2.8 Replacement of Notes........................................ C-14
3. CREATION OF SECURITY INTEREST................................... C-14
3.1 Grant of Security Interest.................................. C-14
3.2 Negotiable Collateral....................................... C-15
Collection of Accounts, General Intangibles, and Negotiable
3.3 Collateral.................................................. C-15
3.4 Delivery of Additional Documentation Required............... C-15
3.5 Power of Attorney........................................... C-15
3.6 Right to Inspect............................................ C-16
3.7 Control Agreements.......................................... C-16
4. REPRESENTATIONS AND WARRANTIES.................................. C-16
4.1 No Encumbrances............................................. C-16
4.2 Equipment................................................... C-16
4.3 Location of Inventory and Equipment......................... C-16
4.4 Location of Chief Executive Office; FEIN.................... C-16
4.5 Organization and Standing of the Company.................... C-16
4.6 Due Authorization; No Conflict.............................. C-16
4.7 Litigation.................................................. C-17
4.8 Fraudulent Transfer......................................... C-17
4.9 Financial Information....................................... C-17
4.10 Taxes....................................................... C-18
4.11 Capitalization; Status of Capital Stock..................... C-18
4.12 Brokerage Fees.............................................. C-18
4.13 Intellectual Property....................................... C-18
4.14 Indebtedness................................................ C-18
4.15 Complete Disclosure......................................... C-18
5. AFFIRMATIVE COVENANTS........................................... C-18
5.1 Accounting System........................................... C-18
5.2 Financial Statements, Reports, Certificates................. C-18
5.3 Return...................................................... C-20
5.4 Maintenance of Properties................................... C-20
5.5 Taxes....................................................... C-20
5.6 Insurance................................................... C-20
5.7 Location of Inventory and Equipment......................... C-21
</TABLE>
C-i
<PAGE> 161
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
5.8 Compliance with Laws........................................ C-21
5.9 Leases...................................................... C-21
5.10 Brokerage Commissions....................................... C-21
5.11 Existence................................................... C-21
5.12 Environmental............................................... C-21
5.13 Payments; Maintenance of Benefit Plans...................... C-22
5.14 License Agreement........................................... C-22
5.15 Disclosure Updates.......................................... C-22
6. NEGATIVE COVENANTS.............................................. C-22
6.1 Indebtedness................................................ C-22
6.2 Liens....................................................... C-22
6.3 Restrictions on Fundamental Changes......................... C-22
6.4 Change Name................................................. C-22
6.5 Guarantee................................................... C-22
6.6 Nature of Business.......................................... C-23
6.7 Prepayments and Amendments.................................. C-23
6.8 Consignments................................................ C-23
6.9 Distributions............................................... C-23
6.10 Accounting Methods.......................................... C-23
6.11 Investments................................................. C-23
6.12 Transactions with Affiliates................................ C-23
6.13 Suspension.................................................. C-23
6.14 Use of Proceeds............................................. C-23
Change in Location of Chief Executive Office; Inventory and
6.15 Equipment with Bailees...................................... C-23
6.16 Securities Accounts......................................... C-23
6.17 Capital Expenditures........................................ C-23
6.18 Employment Agreements....................................... C-23
6.19 Operating Expenses.......................................... C-24
6.20 Maintenance of Ownership of Subsidiaries.................... C-24
7. EVENTS OF DEFAULT............................................... C-24
8. LENDER'S RIGHTS AND REMEDIES.................................... C-25
8.1 Rights and Remedies......................................... C-25
8.2 Remedies Cumulative......................................... C-27
9. TAXES AND EXPENSES.............................................. C-27
10. WAIVERS; INDEMNIFICATION........................................ C-27
10.1 Demand; Protest............................................. C-27
10.2 Lender's Liability for Collateral........................... C-27
10.3 Indemnification............................................. C-27
11. NOTICES......................................................... C-28
12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER...................... C-29
13. ASSIGNMENTS; SUCCESSORS......................................... C-30
13.1 Assignments................................................. C-30
13.2 Successors.................................................. C-30
14. AMENDMENTS; WAIVERS............................................. C-30
14.1 Amendments and Waivers...................................... C-30
14.2 No Waivers; Cumulative Remedies............................. C-31
15. GENERAL PROVISIONS.............................................. C-31
15.1 Effectiveness............................................... C-31
15.2 Section Headings............................................ C-31
</TABLE>
C-ii
<PAGE> 162
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
15.3 Interpretation.............................................. C-31
15.4 Severability of Provisions.................................. C-31
15.5 Withholding Taxes........................................... C-31
15.6 Amendments in Writing....................................... C-32
15.7 Counterparts; Telefacsimile Execution....................... C-32
15.8 Revival and Reinstatement of Obligations.................... C-32
15.9 Integration................................................. C-32
</TABLE>
EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A Form of Note
Schedule 4.3 Locations of Inventory and Equipment
Schedule 4.11 Borrower Securityholders
Schedule 4.13 Intellectual Property
</TABLE>
C-iii
<PAGE> 163
NOTEHOLDER RIGHTS AND SECURITY AGREEMENT
THIS NOTEHOLDER RIGHTS AND SECURITY AGREEMENT (this "Agreement"), is
entered into as of , 2000, between Active Voice Corporation, a
Washington corporation ("Lender"), and Atlantis Group, Inc., a Washington
corporation ("Borrower").
WHEREAS, pursuant to an Asset Purchase Agreement dated as of November 9,
2000 hereof between the Lender and the Borrower (the "Asset Purchase
Agreement"), the Borrower has agreed to purchase substantially all of the assets
of the Lender, and as partial consideration for such assets Borrower will issue
to Lender the Notes (as defined herein), which form of such Notes is attached
hereto as Exhibit A; and
WHEREAS, the Borrower and the Lender desire to set forth the terms and
conditions of the Notes in this Agreement.
NOW, THEREFORE, the Borrower and Lender hereby agree as follows:
1. Definitions and Construction.
1.1 Definitions. As used in this Agreement, the following terms shall have
the following definitions:
"Account Debtor" means any Person who is or who may become obligated under,
with respect to, or on account of, an Account, chattel paper, or a General
Intangible.
"Accounts" means all of Borrower's now owned or hereafter acquired right,
title, and interest with respect to "accounts" (as that term is defined in the
Code), and any and all supporting obligations in respect thereof.
"Additional Documents" has the meaning set forth in Section 3.4.
"Affiliate" means, as applied to any Person, any other Person who, directly
or indirectly, controls, is controlled by, or is under common control with, such
Person. For purposes of this definition, "control" means the possession,
directly or indirectly, of the power to direct the management and policies of a
Person, whether through the ownership of Stock, by contract, or otherwise;
provided, however, that, in any event: (a) any Person which owns directly or
indirectly 10% or more of the securities having ordinary voting power for the
election of directors or other members of the governing body of a Person or 10%
or more of the partnership or other ownership interests of a Person (other than
as a limited partner of such Person) shall be deemed to control such Person, (b)
each director (or comparable manager) of a Person shall be deemed to be an
Affiliate of such Person, and (c) each partnership or joint venture in which a
Person is a partner or joint venturer shall be deemed to be an Affiliate of such
Person.
"Agreement" has the meaning set forth in the preamble hereto.
"Asset Purchase Agreement" has the meaning set forth in the first recital
of this Agreement.
"Asset Transaction" means, pursuant to the Asset Purchase Agreement, the
purchase by Borrower of certain of the assets of Lender in exchange for the
assumption by Borrower of certain liabilities of Lender and the Obligations
incurred by Borrower.
"Assignee" has the meaning set forth in Section 13.1(a).
"Balance Sheet" means a balance sheet as of the Closing Date of Borrower
prepared in accordance with GAAP.
"Bankruptcy Code" means the United States Bankruptcy Code, as in effect
from time to time.
C-1
<PAGE> 164
"Base Rate" means, the rate of interest announced within Wells Fargo at its
principal office in San Francisco as its "prime rate", with the understanding
that the "prime rate" is one of Wells Fargo's base rates (not necessarily the
lowest of such rates) and serves as the basis upon which effective rates of
interest are calculated for those loans making reference thereto and is
evidenced by the recording thereof after its announcement in such internal
publication or publications as Wells Fargo may designate.
"Base Rate Margin" means 1.25 percentage points.
"Board of Directors" means the board of directors (or comparable managers)
of Borrower or any committee thereof duly authorized to act on behalf of the
board.
"Books" means Borrower's now owned or hereafter acquired books and records
(including all of its Records indicating, summarizing, or evidencing its assets
(including the Collateral) or liabilities, all of its Records relating to its
business operations or financial condition, and all of its goods or General
Intangibles related to such information).
"Borrower" has the meaning set forth in the preamble to this Agreement.
"Business Day" means any day that is not a Saturday, Sunday, or other day
on which national banks are authorized or required to close in San Francisco,
California.
"Capital Expenditures" means any payment made directly or indirectly for
the purpose of acquiring or constructing fixed assets, real property or
equipment which in accordance with GAAP consistently applied would be added as a
debit to the fixed asset account of the Person making such expenditure,
including without limitation, amounts paid or payable under any conditional sale
or other title retention agreement or under any lease or other periodic payment
arrangement which is of such a nature that payment obligations of the lessee or
obligor thereunder would be required by GAAP consistently applied to be
capitalized and shown as liabilities on the balance sheet of such lessee or
obligor.
"Capital Lease" means a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
"Capitalized Lease Obligation" means any Indebtedness represented by
obligations under a Capital Lease.
"Cash Equivalents" means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within 1 year from the date of acquisition thereof, (b) marketable
direct obligations issued by any state of the United States or any political
subdivision of any such state or any public instrumentality thereof maturing
within 1 year from the date of acquisition thereof and, at the time of
acquisition, having the highest rating obtainable from either S&P or Moody's,
(c) commercial paper maturing no more than 1 year from the date of acquisition
thereof and, at the time of acquisition, having a rating of A-1 or P-1, or
better, from S&P or Moody's, and (d) certificates of deposit or bankers'
acceptances maturing within 1 year from the date of acquisition thereof either
(i) issued by any bank organized under the laws of the United States or any
state thereof which bank has a rating of A or A2, or better, from S&P or
Moody's, or (ii) certificates of deposit less than or equal to $100,000 in the
aggregate issued by any other bank insured by the Federal Deposit Insurance
Corporation.
"Cisco" means Cisco Systems, Inc., a California corporation.
"Closing Date" means the date of the closing of the Asset Purchase
Agreement.
"Code" means the California Uniform Commercial Code, as in effect from time
to time.
C-2
<PAGE> 165
"Collateral" means all of Borrower's now owned or hereafter acquired right,
title, and interest in and to each of the following:
(a) Accounts,
(b) Books,
(c) Equipment,
(d) General Intangibles,
(e) Inventory,
(f) Investment Property,
(g) Negotiable Collateral,
(h) money or other assets of Borrower that now or hereafter come into
the possession, custody, or control of Lender, and
(i) the proceeds and products, whether tangible or intangible, of any
of the foregoing, including proceeds of insurance covering any or all of
the foregoing, and any and all Accounts, Books, Equipment, General
Intangibles, Inventory, Investment Property, Negotiable Collateral, Real
Property, money, deposit accounts, or other tangible or intangible property
resulting from the sale, exchange, collection, or other disposition of any
of the foregoing, or any portion thereof or interest therein, and the
proceeds thereof.
"Collateral Access Agreement" means a landlord waiver, bailee letter, or
acknowledgement agreement of any lessor, warehouseman, processor, consignee, or
other Person in possession of, having a Lien upon, or having rights or interests
in the Equipment or Inventory, in each case, in form and substance satisfactory
to Lender.
"Collections" means all cash, checks, notes, instruments, and other items
of payment (including insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds) of Borrower.
"Continuing Director" means (a) any member of the Board of Directors who
was a director (or comparable manager) of Borrower on the Closing Date, and (b)
any individual who becomes a member of the Board of Directors after the Closing
Date if such individual was appointed or nominated for election to the Board of
Directors by a majority of the Continuing Directors, but excluding any such
individual originally proposed for election in opposition to the Board of
Directors in office at the Closing Date in an actual or threatened election
contest relating to the election of the directors (or comparable managers) of
Borrower (as such terms are used in Rule 14a-11 under the Exchange Act) and
whose initial assumption of office resulted from such contest or the settlement
thereof.
"Control Agreement" means a control agreement, in form and substance
satisfactory to Lender, executed and delivered by Borrower, Lender, and the
applicable securities intermediary with respect to a Securities Account or bank
with respect to a deposit account.
"Copyright Security Agreement" means a copyright security agreement
executed and delivered by Borrower and Lender, the form and substance of which
is satisfactory to Lender.
"Daily Balance" means, with respect to each day during the term of this
Agreement, the amount of an Obligation owed at the end of such day.
"Default" means an event, condition, or default that, with the giving of
notice, the passage of time, or both, would be an Event of Default.
C-3
<PAGE> 166
"Environmental Actions" means any complaint, summons, citation, notice,
directive, order, claim, litigation, investigation, judicial or administrative
proceeding, judgment, letter, or other communication from any Governmental
Authority, or any third party involving violations of Environmental Laws or
releases of Hazardous Materials from (a) any assets, properties, or businesses
of Borrower or any predecessor in interest, (b) from adjoining properties or
businesses, or (c) from or onto any facilities which received Hazardous
Materials generated by Borrower or any predecessor in interest.
"Environmental Law" means any applicable federal, state, provincial,
foreign or local statute, law, rule, regulation, ordinance, code, binding and
enforceable guideline, binding and enforceable written policy, or rule of common
law now or hereafter in effect and in each case as amended, or any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, to the extent binding on Borrower, relating
to the environment, employee health and safety, or Hazardous Materials,
including CERCLA; RCRA; the Federal Water Pollution Control Act, 33 USC
sec. 1251 et seq; the Toxic Substances Control Act, 15 USC, sec. 2601 et seq;
the Clean Air Act, 42 USC sec. 7401 et seq.; the Safe Drinking Water Act, 42
USC. sec. 3803 et seq.; the Oil Pollution Act of 1990, 33 USC. sec. 2701 et
seq.; the Emergency Planning and the Community Right-to-Know Act of 1986, 42
USC. sec. 11001 et seq.; the Hazardous Material Transportation Act, 49 USC
sec. 1801 et seq.; and the Occupational Safety and Health Act, 29 USC. sec. 651
et seq. (to the extent it regulates occupational exposure to Hazardous
Materials); any state and local or foreign counterparts or equivalents, in each
case as amended from time to time.
"Environmental Liabilities and Costs" means all liabilities, monetary
obligations, Remedial Actions, losses, damages, punitive damages, consequential
damages, treble damages, costs and expenses (including all reasonable fees,
disbursements and expenses of counsel, experts, or consultants, and costs of
investigation and feasibility studies), fines, penalties, sanctions, and
interest incurred as a result of any claim or demand by any Governmental
Authority or any third party, and which relate to any Environmental Action.
"Environmental Lien" means any Lien in favor of any Governmental Authority
for Environmental Liabilities and Costs.
"Equipment" means all of Borrower's now owned or hereafter acquired right,
title, and interest with respect to equipment, machinery, machine tools, motors,
furniture, furnishings, fixtures, vehicles (including motor vehicles), tools,
parts, goods (other than consumer goods, farm products, or Inventory), wherever
located, including all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute thereto.
"ERISA Affiliate" means (a) any Person subject to ERISA whose employees are
treated as employed by the same employer as the employees of Borrower under IRC
Section 414(b), (b) any trade or business subject to ERISA whose employees are
treated as employed by the same employer as the employees of Borrower under IRC
Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412
of the IRC, any organization subject to ERISA that is a member of an affiliated
service group of which Borrower is a member under IRC Section 414(m), or (d)
solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any
Person subject to ERISA that is a party to an arrangement with Borrower and
whose employees are aggregated with the employees of Borrower under IRC Section
414(o).
"Event of Default" has the meaning set forth in Section 7.
"Exchange Act" means the Securities Exchange Act of 1934, as in effect from
time to time.
C-4
<PAGE> 167
"FEIN" means Federal Employer Identification Number.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
"General Intangibles" means all of Borrower's now owned or hereafter
acquired right, title, and interest with respect to general intangibles
(including payment intangibles, contract rights, rights to payment, rights
arising under common law, statutes, or regulations, choses or things in action,
goodwill, patents, trade secrets, trade names, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, infringement claims, computer
programs, information contained on computer disks or tapes, software, other
proprietary rights, literature, reports, catalogs, money, deposit accounts,
insurance premium rebates, tax refunds, and tax refund claims), and any and all
supporting obligations in respect thereof, and any other personal property other
than goods, Accounts, Investment Property, and Negotiable Collateral.
"Governing Documents" means, with respect to any Person, the certificate or
articles of incorporation, by-laws, and other organizational documents of such
Person.
"Governmental Authority" means any federal, state, local, or other
governmental or administrative body, instrumentality, department, or agency or
any court, tribunal, administrative hearing body, arbitration panel, commission,
or other similar dispute-resolving panel or body.
"Hazardous Materials" means (a) substances that are defined or listed in,
or otherwise classified pursuant to, any applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Indebtedness" means (a) all obligations of Borrower for borrowed money,
(b) all obligations of Borrower evidenced by bonds, debentures, notes, or other
similar instruments and all reimbursement or other obligations of Borrower in
respect of letters of credit, bankers acceptances, interest rate swaps, or other
financial products, (c) all obligations of Borrower under Capital Leases, (d)
all obligations or liabilities of others secured by a Lien on any asset of
Borrower, irrespective of whether such obligation or liability is assumed, (e)
all obligations of Borrower for the deferred purchase price of assets (other
than trade debt incurred in the ordinary course of Borrower's business and
repayable in accordance with customary trade practices), and (f) any obligation
of Borrower guaranteeing or intended to guarantee (whether directly or
indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse to
Borrower) any obligation of any other Person.
"Indemnified Liabilities" has the meaning set forth in Section 10.3.
"Indemnified Person" has the meaning set forth in Section 10.3.
"Insolvency Proceeding" means any proceeding commenced by or against any
Person under any provision of the Bankruptcy Code or under any other state or
federal bankruptcy or insolvency law, assignments for the benefit of creditors,
formal or informal moratoria, compositions, extensions generally with creditors,
or proceedings seeking reorganization, arrangement, or other similar relief.
C-5
<PAGE> 168
"Intangible Assets" means, with respect to any Person, that portion of the
book value of all of such Person's assets that would be treated as intangibles
under GAAP.
"Inventory" means all Borrower's now owned or hereafter acquired right,
title, and interest with respect to inventory, including goods held for sale or
lease or to be furnished under a contract of service, goods that are leased by
Borrower as lessor, goods that are furnished by Borrower under a contract of
service, and raw materials, work in process, or materials used or consumed in
Borrower's business.
"Investment" means, with respect to any Person, any investment by such
Person in any other Person (including Affiliates) in the form of loans,
guarantees, advances, or capital contributions (excluding (a) commission,
travel, and similar advances to officers and employees of such Person made in
the ordinary course of business, and (b) bona fide Accounts arising from the
sale of goods or rendition of services in the ordinary course of business
consistent with past practice), purchases or other acquisitions for
consideration of Indebtedness or securities, and any other items that are or
would be classified as investments on a balance sheet prepared in accordance
with GAAP.
"Investment Property" means all of Borrower's now owned or hereafter
acquired right, title, and interest with respect to "investment property" as
that term is defined in the Code, and any and all supporting obligations in
respect thereof.
"IRC" means the Internal Revenue Code of 1986, as in effect from time to
time.
"Lender" has the meaning set forth in the preamble to this Agreement.
"Lender's Account" means an account at a bank designated by Lender from
time to time as the account into which Borrower shall make all payments to
Lender under this Agreement and the other Loan Documents.
"Lender's Liens" means the Liens granted by Borrower to Lender under this
Agreement or the other Loan Documents.
"Lender Expenses" means all (a) costs or expenses (including taxes, and
insurance premiums) required to be paid by Borrower under any of the Loan
Documents that are paid or incurred by Lender, (b) fees or charges paid or
incurred by Lender in connection with Lender's transactions with Borrower,
including, fees or charges for photocopying, notarization, couriers and
messengers, telecommunication, public record searches (including tax lien,
litigation, and UCC searches and including searches with the patent and
trademark office, the copyright office, or the department of motor vehicles),
filing, recording, publication, appraisal (including periodic Collateral
appraisals or business valuations to the extent of the fees and charges (and up
to the amount of any limitation) contained in this Agreement), real estate
surveys, real estate title policies and endorsements, and environmental audits,
(c) costs and expenses incurred by Lender in the disbursement of funds to
Borrower (by wire transfer or otherwise), (d) charges paid or incurred by Lender
resulting from the dishonor of checks, (e) reasonable costs and expenses paid or
incurred by Lender to correct any default or enforce any provision of the Loan
Documents, or in gaining possession of, maintaining, handling, preserving,
storing, shipping, selling, preparing for sale, or advertising to sell the
Collateral, or any portion thereof, irrespective of whether a sale is
consummated, (f) audit fees and expenses of Lender related to audit examinations
of the Books to the extent of the fees and charges (and up to the amount of any
limitation) contained in this Agreement, (g) reasonable costs and expenses of
third party claims or any other suit paid or incurred by Lender in enforcing or
defending the Loan Documents or in connection with the transactions contemplated
by the Loan Documents or Lender's relationship with Borrower, (h) Lender's
reasonable fees and expenses (including attorneys fees) incurred in advising,
structuring, drafting, reviewing, administering, or amending the Loan Documents,
and (i) Lender's reasonable fees and expenses (including attorneys fees)
C-6
<PAGE> 169
incurred in terminating, enforcing (including attorneys fees and expenses
incurred in connection with a "workout," a "restructuring," or an Insolvency
Proceeding concerning Borrower or in exercising rights or remedies under the
Loan Documents), or defending the Loan Documents, irrespective of whether suit
is brought, or in taking any Remedial Action concerning the Collateral.
"Lender-Related Person" means Lender, Lender's Affiliates, and the
officers, directors, employees, and agents of Lender.
"License Agreement" means that certain License Agreement to be entered into
between Borrower and Lender on the Closing Date in the form attached to the
Asset Purchase Agreement.
"Lien" means any interest in an asset securing an obligation owed to, or a
claim by, any Person other than the owner of the asset, whether such interest
shall be based on the common law, statute, or contract, whether such interest
shall be recorded or perfected, and whether such interest shall be contingent
upon the occurrence of some future event or events or the existence of some
future circumstance or circumstances, including the lien or security interest
arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation,
assignment, deposit arrangement, security agreement, conditional sale or trust
receipt, or from a lease, consignment, or bailment for security purposes and
also including reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases, and other title
exceptions and encumbrances affecting Real Property.
"Liquidity Event" shall mean (i) any consolidation of Borrower with or
merger of Borrower into another Person or Persons or any merger of another
Person or Persons into Borrower, or any other transaction or series of related
transactions, which results directly or indirectly in an aggregate change in the
ownership or control of more than 10% of the voting rights of outstanding voting
equity securities of Borrower, (ii) any sale, lease, mortgage, exchange,
transfer or other disposition of assets of Borrower or its Subsidiaries which,
when aggregated with any sales or other dispositions of assets of Borrower
occurring after the date of this Agreement, results in the sale, lease mortgage,
exchange transfer or other disposition of all or substantially all of the assets
of Borrower to another Person or Persons, (iii) the acquisition by any Person,
directly or indirectly, of securities of Borrower representing more than 10% of
the voting rights of outstanding voting equity securities of Borrower, (iv) a
liquidation of Borrower, (v) a majority of the members of the Board of Directors
do not constitute Continuing Directors, or (vi) the closing of Borrower's
initial public offering.
"Loan Documents" means this Agreement, the Control Agreement, the Copyright
Security Agreement, the Patent Security Agreement and Trademark Security
Agreement, any note or notes executed by Borrower in connection with this
Agreement and payable to Lender, and any other agreement entered into, now or in
the future, by Borrower and Lender in connection with this Agreement.
"Material Adverse Change" means (a) a material adverse change in the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of Borrower, (b) a material impairment of
Borrower's ability to perform its obligations under the Loan Documents to which
it is a party or of Lender's ability to enforce the Obligations or realize upon
the Collateral, or (c) a material impairment of the enforceability or priority
of the Lender's Liens with respect to the Collateral as a result of an action or
failure to act on the part of Borrower.
"Maturity Date" means [Insert Date that is one year from the Closing Date].
"Merger" means the stock-for-stock merger of Merger Sub with and into
Lender with Lender surviving the merger pursuant to the Merger Agreement.
C-7
<PAGE> 170
"Merger Agreement" means that certain agreement, dated as of November 9,
2000 among Merger Sub, Cisco, and Lender.
"Merger Sub" means a newly-formed, wholly-owned subsidiary of Cisco.
"Negotiable Collateral" means all of Borrower's now owned and hereafter
acquired right, title, and interest with respect to letters of credit, letter of
credit rights, instruments, promissory notes, drafts, documents, and chattel
paper (including electronic chattel paper and tangible chattel paper), and any
and all supporting obligations in respect thereof.
"Notes" means senior secured notes of Borrower in the principal amount of
$29,533,280 initially (subject to adjustment as hereinafter set forth) in the
form of Exhibit A hereto. Upon the occurrence of a Liquidity Event (other than a
liquidation of Borrower) within six months of the Closing Date, the aggregate
principal amount of $29,533,280 of the Notes shall be increased or decreased to
an amount equal to the Transaction Valuation; provided that Lender has approved
in writing such Liquidity Event; further, provided, that (i) upon each Partial
Disposition that is made within six months of the Closing Date the aggregate
principal amount of $29,533,280 of the Notes shall be reduced by an amount equal
to the gross proceeds received by Borrower in such Partial Disposition and (ii)
if assets of Borrower have been sold, assigned, leased or otherwise disposed of
in a series of Partial Dispositions within six months of the Closing Date the
aggregate principal amount of $29,533,280 of the Notes shall be increased or
decreased to an amount equal to the aggregate amount of all gross proceeds
received by Borrower in all such Partial Dispositions.
"Obligations" means the Notes, debts, principal, interest (including any
interest that, but for the provisions of the Bankruptcy Code, would have
accrued), premiums, liabilities, obligations, fees, charges, costs, Lender
Expenses (including any fees or expenses that, but for the provisions of the
Bankruptcy Code, would have accrued), lease payments, guaranties, covenants, and
duties of any kind and description owing by Borrower to Lender pursuant to or
evidenced by the Loan Documents and irrespective of whether for the payment of
money, whether direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, and including all interest not paid when due
and all Lender Expenses that Borrower is required to pay or reimburse by the
Loan Documents, by law, or otherwise. Any reference in this Agreement or in the
Loan Documents to the Obligations shall include all amendments, changes,
extensions, modifications, renewals replacements, substitutions, and
supplements, thereto and thereof, as applicable, both prior and subsequent to
any Insolvency Proceeding.
"Partial Disposition" has the meaning set forth in Section 2.4(b) hereof.
"Patent Security Agreement" means a patent security agreement executed and
delivered by Borrower and Lender, the form and substance of which is
satisfactory to Lender.
"Permitted Discretion" means a determination made in good faith and in the
exercise of reasonable (from the perspective of a secured asset-based lender)
business judgment.
"Permitted Dispositions" means (a) sales or other dispositions by Borrower
of Equipment that is substantially worn, damaged, or obsolete in the ordinary
course of Borrower's business, (b) sales by Borrower of Inventory to buyers in
the ordinary course of business, (c) the use or transfer of money or Cash
Equivalents by Borrower in a manner that is not prohibited by the terms of this
Agreement or the other Loan Documents, and (d) the licensing by Borrower, on a
non-exclusive basis, subject to the terms of the License Agreement, of patents,
trademarks, copyrights, and other intellectual property rights in the ordinary
course of Borrower's business.
"Permitted Liens" means (a) Liens held by Lender, (b) Liens for unpaid
taxes that either (i) are not yet delinquent, or (ii) do not constitute an Event
of Default hereunder and are the subject of Permitted
C-8
<PAGE> 171
Protests, (c) the interests of lessors under operating leases, (d) Liens arising
by operation of law in favor of warehousemen, landlords, carriers, mechanics,
materialmen, laborers, or suppliers, incurred in the ordinary course of business
of Borrower and not in connection with the borrowing of money, and which Liens
either (i) are for sums not yet delinquent, or (ii) are the subject of Permitted
Protests, (e) Liens arising from deposits made in connection with obtaining
worker's compensation or other unemployment insurance, (f) Liens or deposits to
secure performance of bids, tenders, or leases incurred in the ordinary course
of business of Borrower and not in connection with the borrowing of money, (g)
Liens granted as security for surety or appeal bonds in connection with
obtaining such bonds in the ordinary course of business of Borrower, and (h)
Liens resulting from any judgment or award that is not an Event of Default
hereunder.
"Permitted Protest" means the right of Borrower to protest any Lien (other
than any such Lien that secures the Obligations), taxes (other than payroll
taxes or taxes that are the subject of a United States federal tax lien), or
rental payment, provided that (a) a reserve with respect to such obligation is
established on the Books in such amount as is required under GAAP, (b) any such
protest is instituted promptly and prosecuted diligently by Borrower in good
faith, and (c) Lender is satisfied that, while any such protest is pending,
there will be no impairment of the enforceability, validity, or priority of any
of the Lender's Liens.
"Person" means natural persons, corporations, limited liability companies,
limited partnerships, general partnerships, limited liability partnerships,
joint ventures, trusts, land trusts, business trusts, or other organizations,
irrespective of whether they are legal entities, and governments and agencies
and political subdivisions thereof.
"Personal Property Collateral" means all Collateral other than Real
Property.
"Purchase Money Indebtedness" means Indebtedness (other than the
Obligations, but including Capitalized Lease Obligations), incurred at the time
of, or within 20 days after, the acquisition of any fixed assets for the purpose
of financing all or any part of the acquisition cost thereof.
"Real Property" means any estates or interests in real property now owned
or hereafter acquired by Borrower and the improvements thereto.
"Record" means information that is inscribed on a tangible medium or which
is stored in an electronic or other medium and is retrievable in perceivable
form.
"Remedial Action" means all actions taken to (a) clean up, remove,
remediate, contain, treat, monitor, assess, evaluate, or in any way address
Hazardous Materials in the indoor or outdoor environment, (b) prevent or
minimize a release or threatened release of Hazardous Materials so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment, (c) perform any pre-remedial studies,
investigations, or post-remedial operation and maintenance activities, or (d)
conduct any other actions authorized by 42 USC sec. 9601.
"SEC" means the United States Securities and Exchange Commission and any
successor thereto.
"Securities Account" means a "securities account" as that term is defined
in the Code.
"Solvent" means, with respect to any Person on a particular date, that such
Person is not insolvent (as such term is defined in the Uniform Fraudulent
Transfer Act).
"Stock" means all shares, options, warrants, interests, participations, or
other equivalents (regardless of how designated) of or in a Person, whether
voting or nonvoting, including common stock, preferred stock, or any other
"equity security" (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations promulgated by the SEC under the Exchange Act).
C-9
<PAGE> 172
"Subsidiary" of a Person means a corporation, partnership, limited
liability company, or other entity in which that Person directly or indirectly
owns or controls of such corporation, partnership, limited liability company, or
other entity.
"Taxes" has the meaning set forth in Section 15.5.
"Trademark Security Agreement" means a trademark security agreement
executed and delivered by Borrower and Lender, the form and substance of which
is satisfactory to Lender.
"Transaction Valuation" means the total amount of cash and the fair market
value (on the date of payment) of all other consideration paid or payable
(including amounts paid into escrow) to Borrower or its security holders or its
employees in connection with a Liquidity Event (other than a liquidation of
Borrower), including amounts paid or payable in respect of convertible
securities, warrants, stock appreciation rights, options or similar rights, plus
(in each case without duplication) the principal amount of Capitalized Leases
and the amount of any preferred stock required to be set forth on the
consolidated balance sheet of Borrower on the date of the consummation of such
Liquidity Event plus debt of Borrower which is assumed in the transaction.
Transaction Valuation shall also include the aggregate amount of any dividends,
or other distributions declared by Borrower after the Closing Date.
"Voidable Transfer" has the meaning set forth in Section 15.8.
"Wells Fargo" means Wells Fargo Bank, National Association, a national
banking association.
"Working Capital" as of any date means current assets less current
liabilities, each as set forth in the consolidated balance sheet of Borrower and
its Subsidiaries prepared in accordance with GAAP consistently applied for such
date.
1.2 Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrower and its Subsidiaries on a
consolidated basis unless the context clearly requires otherwise.
1.3 Code. Any terms used in this Agreement that are defined in the Code
shall be construed and defined as set forth in the Code unless otherwise defined
herein.
1.4 Construction. Unless the context of this Agreement or any other Loan
Document clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the term "including" is
not limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and similar terms in this Agreement or any
other Loan Document refer to this Agreement or such other Loan Document, as the
case may be, as a whole and not to any particular provision of this Agreement or
such other Loan Document, as the case may be. Section, subsection, clause,
schedule, and exhibit references herein are to this Agreement unless otherwise
specified. Any reference in this Agreement or in the other Loan Documents to any
agreement, instrument, or document shall include all alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements, thereto and thereof, as applicable (subject to any
restrictions on such alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements
set forth herein). Any reference herein to any Person shall be construed to
include such Person's successors and assigns. Any requirement of a writing
contained herein or in the other Loan Documents shall be satisfied by the
transmission of a Record and any Record transmitted shall constitute a
representation and warranty as to the accuracy and completeness of the
information contained therein.
C-10
<PAGE> 173
1.5 Schedules and Exhibits. All of the schedules and exhibits attached to
this Agreement shall be deemed incorporated herein by reference.
2. Note Payment and Administration.
2.1 Payments.
(a) Payments by Borrower.
(i) Except as otherwise expressly provided herein, all payments by Borrower
shall be made to Lender's Account and shall be made in immediately available
funds, no later than 11:00 a.m. (California time) on the date specified herein.
Any payment received by Lender later than 11:00 a.m. (California time) shall be
deemed to have been received on the following Business Day and any applicable
interest or fee shall continue to accrue until such following Business Day.
(ii) Unless due earlier pursuant to Section 2.4, Section 8.1 or otherwise,
all Obligations shall be due and payable on the Maturity Date.
(b) Application and Reversal of Payments.
(i) All payments shall be remitted to Lender and all such payments (other
than payments received while no Default or Event of Default has occurred and is
continuing and which relate to the payment of principal or interest with respect
to the Notes or which relate to the payment of specific Obligations, including,
but not limited to, the payment of specific fees), and all proceeds of Accounts
or other Collateral received by Lender, shall be applied as follows:
(A) first, to pay any Lender Expenses then due to Lender under the
Loan Documents, until paid in full,
(B) second, to pay any fees then due to Lender under the Loan
Documents, until paid in full,
(C) third, to pay all accrued interest amounts due with respect to the
Notes, until paid in full,
(D) fourth, to pay all principal amounts due with respect to the
Notes, until paid in full, and
(E) fifth, to pay any other Obligations, until paid in full.
(ii) In each instance, so long as no Default or Event of Default has
occurred and is continuing, Section 2.1(b) shall not be deemed to apply to any
payment by Borrower specified by Borrower to be for the payment of specific
Obligations then due and payable (or prepayable) under any provision of this
Agreement.
(iii) For purposes of the foregoing, "paid in full" means payment of all
amounts owing under the Loan Documents according to the terms thereof, including
loan fees, service fees, professional fees, interest (and specifically including
interest accrued after the commencement of any Insolvency Proceeding), default
interest, interest on interest, and expense reimbursements, whether or not the
same would be or is allowed or disallowed in whole or in part in any Insolvency
Proceeding.
(iv) In the event of a direct conflict between the priority provisions of
this Section 2.1 and other provisions contained in any other Loan Document, it
is the intention of the parties hereto that such priority provisions in such
documents shall be read together and construed, to the fullest extent possible,
to be in concert with each other. In the event of any actual, irreconcilable
conflict that cannot be resolved as aforesaid, the terms and provisions of this
Section 2.1 shall control and govern.
C-11
<PAGE> 174
2.2 Interest Rates, Payments, and Calculations.
(a) Interest Rates. Except as provided in clause (c) below, the Notes and
all other Obligations that have been charged to Borrower pursuant to the terms
hereof shall bear interest on the Daily Balance thereof at a per annum rate
equal the Base Rate plus the Base Rate Margin.
The foregoing notwithstanding, at no time shall any portion of the Notes or
the other Obligations bear interest on the Daily Balance thereof at a per annum
rate less than 7%. To the extent that interest accrued hereunder at the rate set
forth herein would be less than the foregoing minimum daily rate, the interest
rate chargeable hereunder for such day automatically shall be deemed increased
to the minimum rate.
(b) Default Rate. Upon the occurrence and during the continuation of an
Event of Default, the Notes and all other Obligations that have been charged to
Borrower pursuant to the terms hereof shall bear interest on the Daily Balance
thereof at a per annum rate equal to 4 percentage points above the per annum
rate otherwise applicable hereunder.
(c) Payment. Interest and all other fees payable hereunder shall be due and
payable, in arrears, when the Notes become due and payable (whether at maturity
or prepayment or acceleration or otherwise).
(d) Computation. All interest and fees chargeable under the Loan Documents
shall be computed on the basis of a 360 day year for the actual number of days
elapsed. In the event the Base Rate is changed from time to time hereafter, the
rates of interest hereunder based upon the Base Rate automatically and
immediately shall be increased or decreased by an amount equal to such change in
the Base Rate.
(e) Intent to Limit Charges to Maximum Lawful Rate. In no event shall the
interest rate or rates payable under this Agreement, plus any other amounts paid
in connection herewith, exceed the highest rate permissible under any law that a
court of competent jurisdiction shall, in a final determination, deem
applicable. Borrower and Lender, in executing and delivering this Agreement,
intend legally to agree upon the rate or rates of interest and manner of payment
stated within it; provided, however, that, anything contained herein to the
contrary notwithstanding, if said rate or rates of interest or manner of payment
exceeds the maximum allowable under applicable law, then, ipso facto, as of the
date of this Agreement, Borrower is and shall be liable only for the payment of
such maximum as allowed by law, and payment received from Borrower in excess of
such legal maximum, whenever received, shall be applied to reduce the principal
balance of the Obligations to the extent of such excess.
2.3 Crediting Payments. The receipt of any payment item by Lender shall not
be considered a payment on account unless such payment item is a wire transfer
of immediately available federal funds made to the Lender's Account or unless
and until such payment item is honored when presented for payment. Should any
payment item not be honored when presented for payment, then Borrower shall be
deemed not to have made such payment and interest shall be calculated
accordingly. Anything to the contrary contained herein notwithstanding, any
payment item shall be deemed received by Lender only if it is received into the
Lender's Account on a Business Day on or before 11:00 a.m. (California time). If
any payment item is received into the Lender's Account on a non-Business Day or
after 11:00 a.m. (California time) on a Business Day, it shall be deemed to have
been received by Lender as of the opening of business on the immediately
following Business Day.
C-12
<PAGE> 175
2.4 Prepayments
Borrower covenants and agrees that, so long as any of the Obligations are
outstanding:
(a) Required Liquidity Event Prepayments. Borrower shall give not less
than 30 days prior written notice to Lender of the occurrence of any
Liquidity Event, or if Borrower did not have knowledge that a Liquidity
Event would occur until less than 30 days prior thereto, then as promptly
as practicable, but in no event more than 2 Business Days after Borrower
first acquires knowledge that a Liquidity Event will occur or has occurred.
Such notice shall describe in reasonable detail the facts and circumstances
giving rise thereto and state that Borrower will prepay all, but not less
than all, of the Obligations. Borrower shall, on the effective date of any
Liquidity Event, prepay all of the Obligations at a prepayment price equal
to the principal amount then outstanding, together with all interest
accrued to the date of prepayment and any Lender Expenses then due and
owing.
(b) Required Prepayments Based Upon Partial Dispositions. Borrower
shall prepay, within five Business Days after the receipt of funds, without
penalty or premium, an amount of the principal amount then outstanding on
the Notes, together with interest accrued to the date of such payment and
any Lender Expenses then due and owing, that is equal to the amount of the
proceeds received by the Borrower from any sale, assignment, lease or other
disposition of or voluntary parting of control of (whether in one
transaction or in a series of transactions) the assets (whether now owned
or hereinafter acquired) of the Borrower or any of its Subsidiaries other
than a Liquidity Event (which is subject to the provisions of subsection
(a) of this Section 2.4) or a Permitted Disposition (each a "Partial
Disposition"). Borrower shall give to each holder of the Notes at least
twenty days prior notice of the occurrence of any Partial Disposition which
shall in any event continue to be subject to the provisions of Section 6.3.
(c) Required Prepayments Based Upon Additional Financing. Borrower
shall prepay, within five Business Days after the receipt of funds by the
Borrower, without penalty or premium, an amount of the principal amount
then outstanding on the Notes, together with interest accrued to the date
of such payment and any Lender Expenses then due and owing, that is equal
to the amount of the proceeds received by the Borrower from any issuance by
Borrower of equity (not otherwise constituting a Liquidity Event) or the
incurrence by Borrower of any Indebtedness for borrowed money in an amount
greater than $25,000 (each an "Additional Financing"), less the applicable
costs and taxes payable by Borrower in connection therewith. Borrower shall
give to each holder of the Notes at least twenty days prior notice of the
consummation of any Additional Financing which shall in any event continue
to be subject to the provisions of Section 6.3.
(d) Optional Prepayments. At any time after the six (6) month
anniversary of the Closing Date, Borrower shall have the right to elect to
prepay all or any portion of the Obligations prior to the Maturity Date, at
a prepayment price equal to the principal amount then outstanding, together
with all interest accrued to the date of prepayment and any Lender Expenses
and fees then due and owing.
(e) Notice of Prepayment. Notice of any prepayment of Notes pursuant
to paragraph (a), (b), (c) or (d) shall be given to Lender in accordance
with the provisions of Section 11, which notice shall specify the
anticipated date of prepayment and the principal amount and interest to be
paid in respect of the Notes.
2.5 Fees. Borrower shall pay to Lender the following fees and charges,
which fees and charges shall be non-refundable when paid (irrespective of
whether this Agreement is terminated thereafter): audit, appraisal, and
valuation fees and charges as follows (i) a fee of $750 per day, per auditor,
plus
C-13
<PAGE> 176
out-of-pocket expenses for each financial audit of Borrower performed by
personnel employed by Lender, (ii) if implemented, a one time charge of $3,000
plus out-of-pocket expenses for expenses for the establishment of electronic
collateral reporting systems, (iii) a fee of $1,500 per day per appraiser, plus
out-of-pocket expenses, for each appraisal of the Collateral performed by
personnel employed by Lender, and (iv) the actual charges paid or incurred by
Lender if it elects to employ the services of one or more third Persons to
perform financial audits of Borrower, to appraise the Collateral, or any portion
thereof, or to assess Borrower's business valuation.
2.6 Registration, etc. Borrower shall maintain at its principal office a
register of the Notes and shall record therein the names and addresses of the
registered holders of the Notes, the address to which notices are to be sent and
payments are to be made as designated by the registered holder if other than the
address of, and the particulars of all transfers, exchanges and replacements of
Notes. No transfer of a Note shall be valid unless made on such register for the
registered holder or his executors or administrators or his or their duly
appointed attorney, upon surrender therefor for exchange as hereinafter
provided, accompanied by an instrument in writing, in form and execution
reasonably satisfactory to Borrower. Each Note issued hereunder, whether issued
originally or upon transfer, exchange or replacement of a Note or Notes, shall
be registered on the date of execution thereof by Borrower and shall be dated
the date to which interest has been paid on such Notes or Note. The registered
holder of a Note shall be that Person in whose name the Note has been so
registered by Borrower. A registered holder shall be deemed the owner of a Note
for all purposes of this Agreement and, subject to the provisions hereof, shall
be entitled to the principal, premium, if any, and interest evidenced by such
Note free from all equities or rights of setoff or counterclaim between Borrower
and the transferor of such registered holder or any previous registered holder
of such Note.
2.7 Transfer and Exchange of Notes. The registered holder of any Note or
Notes may, prior to maturity or prepayment thereof, surrender such Note or Notes
at the principal office of Borrower for transfer or exchange. Within a
reasonable time after notice to Borrower from a registered holder of its
intention to make such exchange and without expense (other than transfer taxes,
if any) to such registered holder, Borrower shall issue in exchange therefor
another Note or Notes, in such denominations as requested by the registered
holder, for the same aggregate principal amount as the unpaid principal amount
of the Note or Notes so surrendered and having the same maturity and rate of
interest, containing the same provisions and subject to the same terms and
conditions as the Note or Notes so surrendered. Each new Note shall be made
payable to such Person or Persons, or registered assigns, as the registered
holder of such surrendered Note or Notes may designate, and such transfer or
exchange shall be made in such a manner that no gain or loss of principal or
interest shall result therefrom.
2.8 Replacement of Notes. Upon receipt of evidence reasonably satisfactory
to Borrower of the loss, theft, destruction or mutilation of any Note, Borrower
will issue a new Note, of like tenor and amount and dated the date to which
interest has been paid, in lieu of such lost, stolen, destroyed or mutilated
Note.
3. Creation of Security Interest.
3.1 Grant of Security Interest. Borrower hereby grants to Lender a
continuing security interest in all of its right, title, and interest in all
currently existing and hereafter acquired or arising Personal Property
Collateral in order to secure prompt repayment of any and all of the Obligations
in accordance with the terms and conditions of the Loan Documents and in order
to secure prompt performance by Borrower of each of its covenants and duties
under the Loan Documents. The Lender's Liens in and to the Personal Property
Collateral shall attach to all Personal Property Collateral without further act
on the part of Lender or Borrower. Anything contained in this Agreement or any
other Loan Document to the
C-14
<PAGE> 177
contrary notwithstanding, except for Permitted Dispositions, Borrower has no
authority, express or implied, to dispose of any item or portion of the
Collateral.
3.2 Negotiable Collateral. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, and if and to
the extent that perfection of priority of Lender's security interest is
dependent on or enhanced by possession, Borrower, immediately upon the request
of Lender, shall endorse and deliver physical possession of such Negotiable
Collateral to Lender.
3.3 Collection of Accounts, General Intangibles, and Negotiable
Collateral. At any time after the occurrence and during the continuation of an
Event of Default, Lender or Lender's designee may (a) notify Account Debtors of
Borrower that the Accounts, chattel paper, or General Intangibles have been
assigned to Lender or that Lender has a security interest therein, or (b)
collect the Accounts, chattel paper, or General Intangibles directly and charge
the collection costs and expenses to the Loan Account. Borrower agrees that it
will hold in trust for Lender, as Lender's trustee, any Collections that it
receives and immediately will deliver said Collections to Lender in their
original form as received by Borrower.
3.4 Delivery of Additional Documentation Required. At any time upon the
request of Lender, Borrower shall execute and deliver to Lender, any and all
financing statements, original financing statements in lieu of continuation
statements, fixture filings, security agreements, pledges, assignments,
endorsements of certificates of title, and all other documents (the "Additional
Documents") that Lender may request in its Permitted Discretion, in form and
substance satisfactory to Lender, to perfect and continue perfected or better
perfect the Lender's Liens in the Collateral (whether now owned or hereafter
arising or acquired), to create and perfect Liens in favor of Lender in any Real
Property acquired after the Closing Date, and in order to fully consummate all
of the transactions contemplated hereby and under the other Loan Documents. To
the maximum extent permitted by applicable law, Borrower authorizes Lender to
execute any such Additional Documents in Borrower's name and authorizes Lender
to file such executed Additional Documents in any appropriate filing office. In
addition, on such periodic basis as Lender shall require, Borrower shall (a)
provide Lender with a report of all new patentable, copyrightable, or
trademarkable materials acquired or generated by Borrower during the prior
period, (b) cause all patents, copyrights, and trademarks acquired or generated
by Borrower that are not already the subject of a registration with the
appropriate filing office (or an application therefor diligently prosecuted) to
be registered with such appropriate filing office in a manner sufficient to
impart constructive notice of Borrower's ownership thereof, and (c) cause to be
prepared, executed, and delivered to Lender supplemental schedules to the
applicable Loan Documents to identify such patents, copyrights, and trademarks
as being subject to the security interests created thereunder.
3.5 Power of Attorney. Borrower hereby irrevocably makes, constitutes, and
appoints Lender (and any of Lender's officers, employees, or agents designated
by Lender) as Borrower's true and lawful attorney, with power to (a) if Borrower
refuses to, or fails timely to execute and deliver any of the documents
described in Section 3.4, sign the name of Borrower on any of the documents
described in Section 3.4, (b) at any time that an Event of Default has occurred
and is continuing, sign Borrower's name on any invoice or bill of lading
relating to the Collateral, drafts against Account Debtors, or notices to
Account Debtors, (c) send requests for verification of Accounts, (d) endorse
Borrower's name on any Collection item that may come into Lender's possession,
(e) at any time that an Event of Default has occurred and is continuing, make,
settle, and adjust all claims under Borrower's policies of insurance and make
all determinations and decisions with respect to such policies of insurance, and
(f) at any time that an Event of Default has occurred and is continuing, settle
and adjust disputes and claims respecting the Accounts, chattel paper, or
General Intangibles directly with Account Debtors, for amounts and upon terms
that Lender determines to be reasonable, and Lender may cause to be executed
C-15
<PAGE> 178
and delivered any documents and releases that Lender determines to be necessary.
The appointment of Lender as Borrower's attorney, and each and every one of its
rights and powers, being coupled with an interest, is irrevocable until all of
the Obligations have been fully and finally repaid and performed.
3.6 Right to Inspect. Lender and its officers, employees, or agents shall
have the right, from time to time hereafter to inspect the Books and to check,
test, and appraise the Collateral in order to verify Borrower's financial
condition or the amount, quality, value, condition of, or any other matter
relating to, the Collateral.
3.7 Control Agreements. Borrower agrees that it will not transfer assets
out of any Securities Accounts, unless each of Borrower, Lender and the
substitute securities intermediary have entered into a Control Agreement. No
arrangement contemplated hereby or by any Control Agreement in respect of any
Securities Accounts or other Investment Property shall be modified by Borrower
without the prior written consent of Lender. Upon the occurrence and during the
continuance of a Default or Event of Default, Lender may notify any securities
intermediary to liquidate the applicable Securities Account or any related
Investment Property maintained or held thereby and remit the proceeds thereof to
the Lender's Account.
4. Representations and Warranties.
In order to induce Lender to enter into this Agreement, Borrower makes the
following representations and warranties to Lender and such representations and
warranties shall survive the execution and delivery of this Agreement:
4.1 No Encumbrances. Borrower has good and indefeasible title to the
Collateral, free and clear of Liens except for Permitted Liens.
4.2 Equipment. All of the Equipment is used or held for use in
Borrower's business and is fit for such purposes. No Equipment is affixed
to any Real Property.
4.3 Location of Inventory and Equipment. The Inventory, Equipment and
other Collateral are not stored with a bailee, warehouseman, or similar
party and are located only at the locations identified on Schedule 4.3.
4.4 Location of Chief Executive Office; FEIN. The chief executive
office of Borrower is located at 2901 Third Avenue, Suite 500, Seattle,
Washington, and Borrower's FEIN is [to be provided by Borrower prior to
Closing].
4.5 Organization and Standing of the Company. Borrower and each
Subsidiary is a duly organized and validly existing corporation in good
standing under the laws of the jurisdiction in which it was organized and
has all requisite corporate power and authority for the ownership and
operation of its properties and for the carrying on of its business as now
conducted and as proposed to be conducted. Borrower and each Subsidiary is
duly licensed or qualified and in good standing as a foreign corporation
authorized to do business in any jurisdictions wherein the character of the
property owned or leased, or the nature of the activities conducted by it,
makes such licensing or qualification necessary.
4.6 Due Authorization; No Conflict.
(a) The execution, delivery, and performance by Borrower of this
Agreement and the Loan Documents to which it is a party have been duly
authorized by all necessary action on the part of Borrower.
(b) The execution, delivery, and performance by Borrower of this
Agreement and the Loan Documents to which it is a party do not and will not
(i) violate any provision of federal, state, or
C-16
<PAGE> 179
local law or regulation applicable to Borrower, the Governing Documents of
Borrower, or any order, judgment, or decree of any court or other
Governmental Authority binding on Borrower, (ii) conflict with, result in a
breach of, or constitute (with due notice or lapse of time or both) a
default under any material contractual obligation of Borrower, (iii) result
in or require the creation or imposition of any Lien of any nature
whatsoever upon any properties or assets of Borrower, other than Permitted
Liens, or (iv) require any approval of Borrower's interestholders or any
approval or consent of any Person under any material contractual obligation
of Borrower.
(c) Other than the filing of financing statements and fixture filings,
the execution, delivery, and performance by Borrower of this Agreement and
the Loan Documents to which Borrower is a party do not and will not require
any registration with, consent, or approval of, or notice to, or other
action with or by, any Governmental Authority or other Person under any
material contractual obligation of Borrower.
(d) This Agreement and the other Loan Documents to which Borrower is a
party, and all other documents contemplated hereby and thereby, when
executed and delivered by Borrower will be the legally valid and binding
obligations of Borrower, enforceable against Borrower in accordance with
their respective terms, except as enforcement may be limited by equitable
principles or by bankruptcy, insolvency, reorganization, moratorium, or
similar laws relating to or limiting creditors' rights generally.
(e) The Lender's Liens are validly created, perfected, and first
priority Liens, subject only to Permitted Liens.
4.7 Litigation. There is no litigation or governmental proceeding or
investigation pending or, to the knowledge of Borrower, threatened against
Borrower affecting any of its properties or assets (including, without
limitation, its Subsidiaries), or against any officer, key employee or
principal stockholder of Borrower where such litigation, proceeding or
investigation, either individually or in the aggregate, would have a
Material Adverse Change, nor, to the knowledge of Borrower, has there
occurred any event or does there exist any condition on the basis of which
any litigation, proceeding or investigation might properly be instituted.
Neither Borrower, nor, to the knowledge of Borrower, any officer or key
employee of Borrower, or principal stockholder of Borrower or Subsidiary,
is in default with respect to any order, writ, injunction, decree, ruling
or decision of any court, commission, board or other government agency
affecting Borrower or any Subsidiary. There are no actions or proceedings
pending or threatened (or any basis therefor known to Borrower) which might
result, either in any case or in the aggregate, in any Material Adverse
Change, or which might call into question the validity of this Agreement or
any of the Loan Documents.
4.8 Fraudulent Transfer.
(a) Borrower is Solvent.
(b) No transfer of property is being made by Borrower and no
obligation is being incurred by Borrower in connection with the
transactions contemplated by this Agreement or the other Loan Documents
with the intent to hinder, delay, or defraud either present or future
creditors of Lender or Borrower.
4.9 Financial Information. The Balance Sheet has been previously
delivered to Lender. The Balance Sheet is complete and correct, is in
accordance with the books and records of Borrower and presents fairly the
financial condition of Borrower as at the date indicated in accordance with
GAAP consistently applied. Borrower and its Subsidiaries have no
liabilities contingent or otherwise not disclosed in the aforesaid Balance
Sheet, this Agreement or in the Schedules hereto.
C-17
<PAGE> 180
4.10 Taxes. The Company and each Subsidiary have accurately prepared
and timely filed all federal, state and other tax returns required by law
to be filed by it, and all taxes shown to be due and all additional
assessments have been paid or provision made therefor. Borrower knows of no
additional assessments or adjustments pending or threatened against
Borrower or any Subsidiary for any period, nor of any basis for any such
assessment or adjustment.
4.11 Capitalization; Status of Capital Stock. Borrower has a total
authorized capitalization consisting of 1,000,000 shares of Common Stock,
no par value, and 4,000,000 shares of Preferred Stock, no par value, of
which there are issued and outstanding 4,000 shares of Common Stock and no
shares of Preferred Stock. A complete list of the outstanding capital stock
of Borrower and the names in which such capital stock of Borrower is
registered is set forth in Schedule 4.11 hereto. All the outstanding shares
of Common Stock of Borrower have been duly authorized, are validly issued
and are fully paid and nonassessable.
4.12 Brokerage Fees. Borrower has not utilized the services of any
broker or finder in connection with the transactions contemplated hereby
and no brokerage commission or finders fee is payable by Borrower in
connection herewith.
4.13 Intellectual Property. Attached hereto as Schedule 4.13 is a
true, correct, and complete listing of all patents, patent applications,
trademarks, trademark applications, copyrights, and copyright registrations
as to which Borrower is the owner or is an exclusive licensee.
4.14 Indebtedness. There is no Indebtedness of Borrower outstanding.
4.15 Complete Disclosure. All factual information (taken as a whole)
furnished by or on behalf of Borrower in writing to Lender (including all
information contained in the Schedules hereto or in the other Loan
Documents) for purposes of or in connection with this Agreement, the other
Loan Documents, or any transaction contemplated herein or therein is, and
all other such factual information (taken as a whole) hereafter furnished
by or on behalf of Borrower in writing to Lender will be, true and
accurate, in all material respects, on the date as of which such
information is dated or certified and not incomplete by omitting to state
any fact necessary to make such information (taken as a whole) not
misleading in any material respect at such time in light of the
circumstances under which such information was provided.
5. Affirmative Covenants.
Borrower covenants and agrees that, until full and final payment of the
Obligations, Borrower shall and shall cause each of its Subsidiaries to do all
of the following:
5.1 Accounting System. Maintain a system of accounting that enables
Borrower to produce financial statements in accordance with GAAP and
maintain records pertaining to the Collateral that contain information as
from time to time reasonably may be requested by Lender. Borrower also
shall keep an inventory reporting system that shows all additions, sales,
claims, returns, and allowances with respect to the Inventory.
5.2 Financial Statements, Reports, Certificates. Deliver to Lender:
(a) as soon as available, but in any event within 30 days (45 days
in the case of a month that is the end of one of the first 3 fiscal
quarters in a fiscal year) after the end of each month during each of
Borrower's fiscal years,
(i) a company prepared consolidated balance sheet, income
statement, and statement of cash flow covering Borrower's and its
Subsidiaries' operations during such period,
C-18
<PAGE> 181
(ii) a certificate signed by the chief financial officer of
Borrower to the effect that:
(A) the financial statements delivered hereunder have been
prepared in accordance with GAAP (except for the lack of
footnotes and being subject to year-end audit adjustments) and
fairly present in all material respects the financial condition
of Borrower and its Subsidiaries,
(B) the representations and warranties of Borrower
contained in this Agreement and the other Loan Documents are
true and correct in all material respects on and as of the date
of such certificate, as though made on and as of such date
(except to the extent that such representations and warranties
relate solely to an earlier date), and
(C) there does not exist any condition or event that
constitutes a Default or Event of Default (or, to the extent of
any non-compliance, describing such non-compliance as to which
he or she may have knowledge and what action Borrower has taken,
is taking, or proposes to take with respect thereto), and
(b) as soon as available, but in any event within 90 days after the
end of each of Borrower's fiscal years,
(i) financial statements of Borrower and its Subsidiaries for
each such fiscal year, audited by independent certified public
accountants reasonably acceptable to Lender and certified, without
any qualifications, by such accountants to have been prepared in
accordance with GAAP (such audited financial statements to include a
balance sheet, income statement, and statement of cash flow and, if
prepared, such accountants' letter to management),
(c) if and when filed by Borrower,
(i) Form 10-Q quarterly reports, Form 10-K annual reports, and
Form 8-K current reports,
(ii) any other filings made by Borrower with the SEC,
(iii) copies of Borrower's federal income tax returns, and any
amendments thereto, filed with the Internal Revenue Service, and
(iv) any other information that is provided by Borrower to its
shareholders generally,
(d) if and when filed by Borrower and as requested by Lender,
satisfactory evidence of payment of applicable excise taxes in each
jurisdictions in which (i) Borrower conducts business or is required to
pay any such excise tax, (ii) where Borrower's failure to pay any such
applicable excise tax would result in a Lien on the properties or assets
of Borrower, or (iii) where Borrower's failure to pay any such
applicable excise tax reasonably could be expected to result in a
Material Adverse Change,
(e) as soon as Borrower has knowledge of any event or condition
that constitutes a Default or an Event of Default, notice thereof and a
statement of the curative action that Borrower proposes to take with
respect thereto, and
(f) upon the request of Lender, any other report reasonably
requested relating to the financial condition of Borrower.
In addition to the financial statements referred to above, Borrower
agrees to deliver financial statements prepared on both a consolidated and
consolidating basis and agrees that no Subsidiary of Borrower will have a
fiscal year different from that of Borrower. Borrower agrees that its
C-19
<PAGE> 182
independent certified public accountants are authorized to communicate with
Lender and to release to Lender whatever financial information concerning
Borrower Lender reasonably may request. Borrower waives the right to assert
a confidential relationship, if any, it may have with any accounting firm
or service bureau in connection with any information requested by Lender
pursuant to or in accordance with this Agreement, and agrees that Lender
may contact directly any such accounting firm or service bureau in order to
obtain such information.
5.3 Return. Cause returns and allowances, as between Borrower and its
Account Debtors, to be on the same basis and in accordance with the usual
customary practices of Borrower, as they exist at the time of the execution and
delivery of this Agreement. If, at a time when no Event of Default has occurred
and is continuing, any Account Debtor returns any Inventory to Borrower,
Borrower promptly shall determine the reason for such return and, if Borrower
accepts such return, issue a credit memorandum (with a copy to be sent to
Lender) in the appropriate amount to such Account Debtor. If, at a time when an
Event of Default has occurred and is continuing, any Account Debtor returns any
Inventory to Borrower, Borrower promptly shall determine the reason for such
return and, if Lender consents (which consent shall not be unreasonably
withheld), issue a credit memorandum (with a copy to be sent to Lender) in the
appropriate amount to such Account Debtor.
5.4 Maintenance of Properties. Maintain and preserve all of its properties
which are necessary or useful in the proper conduct to its business in good
working order and condition, ordinary wear and tear excepted, and comply at all
times with the provisions of all leases to which it is a party as lessee so as
to prevent any loss or forfeiture thereof or thereunder.
5.5 Taxes. Cause all assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrower
or any of its assets to be paid in full, before delinquency or before the
expiration of any extension period, except to the extent that the validity of
such assessment or tax shall be the subject of a Permitted Protest. Borrower
will make timely payment or deposit of all tax payments and withholding taxes
required of it by applicable laws, including those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Lender with proof satisfactory to Lender indicating
that Borrower has made such payments or deposits. Borrower shall deliver
satisfactory evidence of payment of applicable excise taxes in each
jurisdictions in which Borrower is required to pay any such excise tax.
5.6 Insurance.
(a) At Borrower's expense, maintain insurance respecting its assets
wherever located, covering loss or damage by fire, theft, explosion, and all
other hazards and risks as ordinarily are insured against by other Persons
engaged in the same or similar businesses. Borrower also shall maintain business
interruption, public liability, and product liability insurance, as well as
insurance against larceny, embezzlement, and criminal misappropriation. All such
policies of insurance shall be in such amounts and with such insurance companies
as are reasonably satisfactory to Lender. Borrower shall deliver copies of all
such policies to Lender with a satisfactory lender's loss payable endorsement
naming Lender as sole loss payee or additional insured, as appropriate. Each
policy of insurance or endorsement shall contain a clause requiring the insurer
to give not less than 30 days prior written notice to Lender in the event of
cancellation of the policy for any reason whatsoever.
(b) Borrower shall give Lender prompt notice of any loss covered by such
insurance. Lender shall have the exclusive right to adjust any losses payable
under any such insurance policies in excess of $200,000, without any liability
to Borrower whatsoever in respect of such adjustments. Any monies received as
payment for any loss under any insurance policy mentioned above (other than
liability insurance policies) or as payment of any award or compensation for
condemnation or taking by eminent domain, shall be paid over to Lender to be
applied at the option of Lender either to the prepayment of
C-20
<PAGE> 183
the Obligations or shall be disbursed to Borrower under staged payment terms
reasonably satisfactory to Lender for application to the cost of repairs,
replacements, or restorations. Any such repairs, replacements, or restorations
shall be effected with reasonable promptness and shall be of a value at least
equal to the value of the items of property destroyed prior to such damage or
destruction.
(c) Borrower will not take out separate insurance concurrent in form or
contributing in the event of loss with that required to be maintained under this
Section 5.6, unless Lender is included thereon as named insured with the loss
payable to Lender under a lender's loss payable endorsement or its equivalent.
Borrower immediately shall notify Lender whenever such separate insurance is
taken out, specifying the insurer thereunder and full particulars as to the
policies evidencing the same, and copies of such policies promptly shall be
provided to Lender.
5.7 Location of Inventory and Equipment. Keep the Inventory and Equipment
only at the locations identified on Schedule 4.3; provided, however, that
Borrower may amend Schedule 4.3 so long as such amendment occurs by written
notice to Lender not less than 30 days prior to the date on which Inventory or
Equipment is moved to such new location, so long as such new location is within
the continental United States, and so long as, at the time of such written
notification, Borrower provides any financing statements or fixture filings
necessary to perfect and continue perfected the Lender's Liens on such assets
and also provides to Lender a Collateral Access Agreement.
5.8 Compliance with Laws. Comply with the requirements of all applicable
laws, rules, regulations, and orders of any Governmental Authority, other than
laws, rules, regulations, and orders the non-compliance with which, individually
or in the aggregate, would not result in and reasonably could not be expected to
result in a Material Adverse Change.
5.9 Leases. Pay when due all rents and other amounts payable under any
leases to which Borrower is a party or by which Borrower's properties and assets
are bound, unless such payments are the subject of a Permitted Protest.
5.10 Brokerage Commissions. Pay any and all brokerage commission or finders
fees incurred in connection with or as a result of Borrower's obtaining
financing from Lender under this Agreement. Borrower agrees and acknowledges
that payment of all such brokerage commissions or finders fees shall be the sole
responsibility of Borrower, and Borrower agrees to indemnify, defend, and hold
Lender harmless from and against any claim of any broker or finder arising out
of Borrower's obtaining financing from Lender under this Agreement.
5.11 Existence. At all times preserve and keep in full force and effect
Borrower's valid existence and good standing and any rights and franchises
material to Borrower's businesses.
5.12 Environmental.
(a) Keep any property either owned or operated by Borrower free of any
Environmental Liens or post bonds or other financial assurances sufficient to
satisfy the obligations or liability evidenced by such Environmental Liens, (b)
comply, in all material respects, with Environmental Laws and provide to Lender
documentation of such compliance which Lender reasonably requests, (c) promptly
notify Lender of any release of a Hazardous Material in any reportable quantity
from or onto property owned or operated by Borrower and take any Remedial
Actions required to abate said release or otherwise to come into compliance with
applicable Environmental Law, and (d) promptly provide Lender with written
notice within 10 days of the receipt of any of the following: (i) notice that an
Environmental Lien has been filed against any of the real or personal property
of Borrower, (ii) commencement of any Environmental Action or notice that an
Environmental Action will be filed against Borrower, and (iii) notice of a
violation, citation, or other administrative order which reasonably could be
expected to result in a Material Adverse Change.
C-21
<PAGE> 184
5.13 Payments; Maintenance of Benefit Plans. Borrower shall make all
required payments to employees of Lender in connection with the assignment of
Transferred Employees (as defined in the Asset Purchase Agreement) to Borrower
and the closing of the transactions contemplated by the Asset Purchase
Agreement. Borrower shall make all payments arising from obligations relating to
the Transferred Employees (as defined in the Asset Purchase Agreement),
including, without limitation, any payments required to be paid under the terms
of the Offer Letter (as defined in the Asset Purchase Agreement Letter), the
Employment Agreement (as defined in the Asset Purchase Agreement), and any other
employment agreement or plan of Borrower, as applicable, excise taxes and any
bonus. On or as soon as practicable following the Closing Date, Borrower shall
adopt employee group health plans for the benefit of each of the employees
listed on Schedule 9.1(a) of the Asset Purchase Agreement that are comparable to
those of Lender prior to the Closing Date. Each such employee shall, with
respect to any group health plan that has a co-payment, deductible or other
co-insurance features, receive credit for any amounts such individual has paid
to date in the plan year of the Closing Date under Lender's group health plans
maintained by Lender prior to the Closing Date. Each such employee and eligible
dependent who, at the Closing Date, was participating in employee group health
plans maintained by Lender shall not be excluded from Borrower's employee group
health plans or limited in coverage thereunder by reason of any waiting period
restriction or pre-existing condition limitation.
5.14 License Agreement. Comply at all times with all of the terms and
conditions of the License Agreement.
5.15 Disclosure Updates. Promptly and in no event later than 5 Business
Days after obtaining knowledge thereof, (a) notify Lender if any written
information, exhibit, or report furnished to Lender contained any untrue
statement of a material fact or omitted to state any material fact necessary to
make the statements contained therein not misleading in light of the
circumstances in which made, and (b) correct any defect or error that may be
discovered therein or in any Loan Document or in the execution, acknowledgement,
filing, or recordation thereof.
6. Negative Covenants.
Borrower covenants and agrees that, until full and final payment of the
Obligations, without the written consent of Cisco, Borrower will not and will
not permit any of its Subsidiaries to do any of the following:
6.1 Indebtedness. Create, incur, assume, permit, guarantee, or otherwise
become or remain, directly or indirectly, liable with respect to any
Indebtedness, except Indebtedness evidenced by this Agreement and the other Loan
Documents.
6.2 Liens. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its assets, of any kind,
whether now owned or hereafter acquired, or any income or profits therefrom,
except for Permitted Liens.
6.3 Restrictions on Fundamental Changes. Effect, or enter into any
agreement to effect, any Liquidity Event, Partial Disposition or Additional
Financing.
6.4 Change Name. Change Borrower's name, FEIN, corporate structure, or
identity, or add any new fictitious name; provided, however, that Borrower may
change its name upon at least 30 days prior written notice to Lender of such
change and so long as, at the time of such written notification, Borrower
provides any financing statements or fixture filings necessary to perfect and
continue perfected the Lender's Liens.
6.5 Guarantee. Guarantee or otherwise become in any way liable with respect
to the obligations of any third Person.
C-22
<PAGE> 185
6.6 Nature of Business. Make any change in the principal nature of its
business.
6.7 Prepayments and Amendments.
(a) Prepay, redeem, defease, purchase, or otherwise acquire any
Indebtedness, other than the Obligations in accordance with this Agreement.
(b) Amend, modify, alter, increase, or change any of the terms or
conditions of any agreement, instrument, document, indenture, or other writing
evidencing or concerning Indebtedness.
6.8 Consignments. Consign any Inventory or sell any Inventory on bill and
hold, sale or return, sale on approval, or other conditional terms of sale.
6.9 Distributions. Make any distribution or declare or pay any dividends
(in cash or other property) on, or purchase, acquire, redeem, or retire any
securities, of any class, whether now or hereafter outstanding.
6.10 Accounting Methods. Modify or change its method of accounting (other
than as may be required to conform to GAAP) or enter into, modify, or terminate
any agreement currently existing, or at any time hereafter entered into with any
third party accounting firm or service bureau for the preparation or storage of
Borrower's accounting records without said accounting firm or service bureau
agreeing to provide Lender information regarding the Collateral or Borrower's
financial condition.
6.11 Investments. Directly or indirectly, make or acquire any Investment or
incur any liabilities (including contingent obligations) for or in connection
with any Investment.
6.12 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any transaction with any Affiliate.
6.13 Suspension. Suspend or go out of a substantial portion of its
business.
6.14 Use of Proceeds. Use the proceeds of the Notes for any purpose other
than on the Closing Date, (i) to acquire certain assets of Lender, and (ii) to
pay transactional fees, costs, and expenses incurred in connection with this
Agreement, the other Loan Documents, and the transactions contemplated hereby
and thereby.
6.15 Change in Location of Chief Executive Office; Inventory and Equipment
with Bailees. Relocate its chief executive office to a new location without
providing 30 days prior written notification thereof to Lender and so long as,
at the time of such written notification, Borrower provides any financing
statements or fixture filings necessary to perfect and continue perfected the
Lender's Liens and also provides to Lender a Collateral Access Agreement with
respect to such new location. The Inventory and Equipment shall not at any time
now or hereafter be stored with a bailee, warehouseman, or similar party without
Lender's prior written consent.
6.16 Securities Accounts. Establish or maintain any Securities Account
unless Lender shall have received a Control Agreement in respect of such
Securities Account. Borrower shall not transfer assets out of any Securities
Account; provided, however, that, so long as no Event of Default has occurred
and is continuing or would result therefrom, Borrower may use such assets (and
the proceeds thereof) to the extent not prohibited by this Agreement.
6.17 Capital Expenditures. Incur Capital Expenditures on a consolidated
basis in any fiscal month in excess of $75,000.
6.18 Employment Agreements. Amend any Employment Agreement (as defined in
the Asset Purchase Agreement) without the consent of Cisco.
C-23
<PAGE> 186
6.19 Operating Expenses.
(i) Increase operating expenses in any fiscal month.
(ii) In any fiscal month, decrease operating expenses by more than
$400,000.
6.20 Maintenance of Ownership of Subsidiaries. Sell or otherwise dispose of
any shares of capital stock of any of its Subsidiaries, except to Borrower or
another of its Subsidiaries, or permit any of its Subsidiaries to issue, sell or
otherwise dispose of any shares of its capital stock or the capital stock of any
of its Subsidiaries.
7. Events of Default.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
7.1 If Borrower fails to pay when due and payable, or when declared
due and payable, all or any portion of the Obligations (whether of
principal, interest (including any interest which, but for the provisions
of the Bankruptcy Code, would have accrued on such amounts), fees and
charges due Lender, reimbursement of Lender Expenses, or other amounts
constituting Obligations);
7.2 If Borrower fails to perform, keep, or observe any term,
provision, condition, covenant, or agreement contained in this Agreement,
any of the other Loan Documents or the License Agreement;
7.3 If any material portion of Borrower's or any of its Subsidiaries'
assets is attached, seized, subjected to a writ or distress warrant, levied
upon, or comes into the possession of any third Person;
7.4 If an Insolvency Proceeding is commenced by Borrower or any of its
Subsidiaries;
7.5 If an Insolvency Proceeding is commenced against Borrower, or any
of its Subsidiaries, and any of the following events occur: (a) Borrower or
the Subsidiary consents to the institution of such Insolvency Proceeding
against it, (b) the petition commencing the Insolvency Proceeding is not
timely controverted, (c) the petition commencing the Insolvency Proceeding
is not dismissed within 45 calendar days of the date of the filing thereof;
provided, however, that, during the pendency of such period, Lender shall
be relieved of its obligations hereunder, (d) an interim trustee is
appointed to take possession of all or any substantial portion of the
properties or assets of, or to operate all or any substantial portion of
the business of, Borrower or any of its Subsidiaries, or (e) an order for
relief shall have been entered therein;
7.6 If Borrower or any of its Subsidiaries is enjoined, restrained, or
in any way prevented by court order from continuing to conduct all or any
material part of its business affairs;
7.7 If a notice of Lien, levy, or assessment is filed of record with
respect to any of Borrower's or any of its Subsidiaries' assets by the
United States, or any department, agency, or instrumentality thereof, or by
any state, county, municipal, or governmental agency, or if any taxes or
debts owing at any time hereafter to any one or more of such entities
becomes a Lien, whether choate or otherwise, upon any of Borrower's or any
of its Subsidiaries' assets and the same is not paid before such payment is
delinquent;
7.8 If a judgment or other claim becomes a Lien or encumbrance upon
any material portion of Borrower's or any of its Subsidiaries' assets;
7.9 If there is a default in any material agreement to which Borrower
or any of its Subsidiaries is a party and such default (a) occurs at the
final maturity of the obligations
C-24
<PAGE> 187
thereunder, or (b) results in a right by the other party thereto,
irrespective of whether exercised, to accelerate the maturity of Borrower's
or its Subsidiaries' obligations thereunder, to terminate such agreement,
or to refuse to renew such agreement pursuant to an automatic renewal right
therein;
7.10 If Borrower or any of its Subsidiaries makes any payment on
account of Indebtedness that has been contractually subordinated in right
of payment to the payment of the Obligations, except to the extent such
payment is permitted by the terms of the subordination provisions
applicable to such Indebtedness;
7.11 If any material misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or Record made to
Lender by Borrower, its Subsidiaries, or any officer, employee, agent, or
director of Borrower or any of its Subsidiaries;
7.12 If this Agreement or any other Loan Document that purports to
create a Lien, shall, for any reason, fail or cease to create a valid and
perfected and, except to the extent permitted by the terms hereof or
thereof, first priority Lien on or security interest in the Collateral
covered hereby or thereby; or
7.13 Any provision of any Loan Document shall at any time for any
reason be declared to be null and void, or the validity or enforceability
thereof shall be contested by Borrower, or a proceeding shall be commenced
by Borrower, or by any Governmental Authority having jurisdiction over
Borrower, seeking to establish the invalidity or unenforceability thereof,
or Borrower shall deny that Borrower has any liability or obligation
purported to be created under any Loan Document.
7.14 If any shareholder of Borrower sells, transfers or conveys any
securities of Borrower held by such shareholder prior to the six (6) month
anniversary of the Closing Date.
7.15 If there occurs any event or condition that would result in a
Material Adverse Change.
8. Lender's Rights and Remedies.
8.1 Rights and Remedies. Upon the occurrence, and during the continuation,
of an Event of Default, Lender (at its election but without notice of its
election and without demand) may do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable;
(b) Cease extending credit to or for the benefit of Borrower under
this Agreement, under any of the Loan Documents, or under any other
agreement between Borrower and Lender;
(c) Terminate this Agreement and any of the other Loan Documents as to
any future liability or obligation of Lender, but without affecting any of
the Lender's Liens in the Collateral and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account Debtors
for amounts and upon terms which Lender considers advisable, and in such
cases, Lender will credit Borrower's Loan Account with only the net amounts
received by Lender in payment of such disputed Accounts after deducting all
Lender Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust for Lender,
segregate all returned Inventory from all other assets of Borrower or in
Borrower's possession and conspicuously label said returned Inventory as
the property of Lender;
C-25
<PAGE> 188
(f) Without notice to or demand upon Borrower, make such payments and
do such acts as Lender considers necessary or reasonable to protect its
security interests in the Collateral. Borrower agrees to assemble the
Personal Property Collateral if Lender so requires, and to make the
Personal Property Collateral available to Lender at a place that Lender may
designate which is reasonably convenient to both parties. Borrower
authorizes Lender to enter the premises where the Personal Property
Collateral is located, to take and maintain possession of the Personal
Property Collateral, or any part of it, and to pay, purchase, contest, or
compromise any Lien that in Lender's determination appears to conflict with
the Lender's Liens and to pay all expenses incurred in connection therewith
and to charge Borrower's Loan Account therefor. With respect to any of
Borrower's owned or leased premises, Borrower hereby grants Lender a
license to enter into possession of such premises and to occupy the same,
without charge, in order to exercise any of Lender's rights or remedies
provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower (such notice being expressly waived),
and without constituting a retention of any collateral in satisfaction of
an obligation (within the meaning of the Code), set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by
Lender, or (ii) Indebtedness at any time owing to or for the credit or the
account of Borrower held by Lender;
(h) Hold, as cash collateral, any and all balances and deposits of
Borrower held by Lender to secure the full and final repayment of all of
the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein)
the Personal Property Collateral. Borrower hereby grants to Lender a
license or other right to use, without charge, Borrower's labels, patents,
copyrights, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to
the Personal Property Collateral, in completing production of, advertising
for sale, and selling any Personal Property Collateral and Borrower's
rights under all licenses and all franchise agreements shall inure to
Lender's benefit;
(j) Sell the Personal Property Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for
cash or on terms, in such manner and at such places (including Borrower's
premises) as Lender determines is commercially reasonable. It is not
necessary that the Personal Property Collateral be present at any such
sale;
(k) Lender shall give notice of the disposition of the Personal
Property Collateral as follows:
(i) Lender shall give Borrower a notice in writing of the time and
place of public sale, or, if the sale is a private sale or some other
disposition other than a public sale is to be made of the Personal
Property Collateral, then the time on or after which the private sale or
other disposition is to be made; and
(ii) The notice shall be personally delivered or mailed, postage
prepaid, to Borrower as provided in Section 11, at least 10 days before
the earliest time of disposition set forth in the notice; no notice
needs to be given prior to the disposition of any portion of the
Personal Property Collateral that is perishable or threatens to decline
speedily in value or that is of a type customarily sold on a recognized
market;
(l) Lender may credit bid and purchase at any public sale; and
(m) Lender may seek the appointment of a receiver or keeper to take
possession of all or any portion of the Collateral or to operate same and,
to the maximum extent permitted by law, may seek the appointment of such a
receiver without the requirement of prior notice or a hearing;
C-26
<PAGE> 189
(n) Lender shall have all other rights and remedies available at law
or in equity or pursuant to any other Loan Document; and
(o) Any deficiency that exists after disposition of the Personal
Property Collateral as provided above will be paid immediately by Borrower.
Any excess will be returned, without interest and subject to the rights of
third Persons, by Lender to Borrower.
8.2 Remedies. The rights and remedies of Lender under this Agreement, the
other Loan Documents, and all other agreements shall be cumulative. Lender shall
have all other rights and remedies not inconsistent herewith as provided under
the Code, by law, or in equity. No exercise by Lender of one right or remedy
shall be deemed an election, and no waiver by Lender of any Event of Default
shall be deemed a continuing waiver. No delay by Lender shall constitute a
waiver, election, or acquiescence by it.
(b) The Notes are not an obligation of the shareholders of Borrower but
only of Borrower and the shareholders of Borrower have no personal liability
with respect to the Notes and the Obligations in their capacity as shareholders.
9. Taxes and Expenses.
If Borrower fails to pay any monies (whether taxes, assessments, insurance
premiums, or, in the case of leased properties or assets, rents or other amounts
payable under such leases) due to third Persons, or fails to make any deposits
or furnish any required proof of payment or deposit, all as required under the
terms of this Agreement, then, Lender, in its sole discretion and without prior
notice to Borrower, may do any or all of the following: (a) make payment of the
same or any part thereof, or (b) in the case of the failure to comply with
Section 5.6 hereof, obtain and maintain insurance policies of the type described
in Section 5.6 and take any action with respect to such policies as Lender deems
prudent. Any such amounts paid by Lender shall constitute Lender Expenses and
any such payments shall not constitute an agreement by Lender to make similar
payments in the future or a waiver by Lender of any Event of Default under this
Agreement. Lender need not inquire as to, or contest the validity of, any such
expense, tax, or Lien and the receipt of the usual official notice for the
payment thereof shall be conclusive evidence that the same was validly due and
owing.
10. Waivers; Indemnification.
10.1 Demand; Protest. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of documents,
instruments, chattel paper, and guarantees at any time held by Lender on which
Borrower may in any way be liable.
10.2 Lender's Liability for Collateral. Borrower hereby agrees that: (a) so
long as Lender complies with its obligations, if any, under the Code, Lender
shall not in any way or manner be liable or responsible for: (i) the safekeeping
of the Collateral, (ii) any loss or damage thereto occurring or arising in any
manner or fashion from any cause, (iii) any diminution in the value thereof, or
(iv) any act or default of any carrier, warehouseman, bailee, forwarding agency,
or other Person, and (b) all risk of loss, damage, or destruction of the
Collateral shall be borne by Borrower.
10.3 Indemnification. Borrower shall pay, indemnify, defend, and hold the
Lender-Related Persons and each of their respective officers, directors,
employees, agents, and attorneys-in-fact (each, an "Indemnified Person")
harmless (to the fullest extent permitted by law) from and against any and all
claims, demands, suits, actions, investigations, proceedings, and damages, and
all reasonable attorneys fees and disbursements and other costs and expenses
actually incurred in connection therewith (as and when they are incurred and
irrespective of whether suit is brought), at any time asserted against,
C-27
<PAGE> 190
imposed upon, or incurred by any of them (a) in connection with or as a result
of or related to the execution, delivery, enforcement, performance, or
administration of this Agreement, any of the other Loan Documents, or the
transactions contemplated hereby or thereby, and (b) with respect to any
investigation, litigation, or proceeding related to this Agreement, any other
Loan Document, or the use of the proceeds of the Notes or other credit provided
hereunder (irrespective of whether any Indemnified Person is a party thereto),
or any act, omission, event, or circumstance in any manner related thereto (all
the foregoing, collectively, the "Indemnified Liabilities"). The foregoing to
the contrary notwithstanding, Borrower shall have no obligation to any
Indemnified Person under this Section 10.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations. If any Indemnified Person makes any payment to any
other Indemnified Person with respect to an Indemnified Liability as to which
Borrower was required to indemnify the Indemnified Person receiving such
payment, the Indemnified Person making such payment is entitled to be
indemnified and reimbursed by Borrower with respect thereto. WITHOUT LIMITATION,
THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO
INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART CAUSED BY OR ARISE OUT OF ANY
NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON.
11. Notices.
Unless otherwise provided in this Agreement, all notices or demands by
Borrower or Lender to the other relating to this Agreement or any other Loan
Document shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by registered or certified mail (postage
prepaid, return receipt requested), overnight courier, electronic mail (at such
email addresses as Borrower or Lender, as applicable, may designate to each
other in accordance herewith), or telefacsimile to Borrower or Lender, as the
case may be, at its address set forth below:
If to Borrower: Atlantis Group, Inc.
2901 Third Avenue, Suite 500
Seattle, Washington 98121-9800
Attn: Frank Costa
Telephone No: (206) 441-4700
Facsimile No: (206) 441-4784
with copies to: Riddell Williams P.S.
1001 Fourth Avenue Plaza
Suite 4500
Seattle, Washington 98154
Attn: Frank Woodruff, Esq.
Facsimile No: (206) 389-1708
Telephone No: (206) 624-3600
If to Lender: Active Voice Corporation
c/o Cisco Systems, Inc.
Attn: Senior Vice President, Legal and Governmental Affairs
Facsimile No. (408) 526-5926
C-28
<PAGE> 191
with copies to: Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attn: Therese A. Mrozek, Esq.
Fax No.: (650) 496-2885
Lender and Borrower may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other party. All notices or demands sent in accordance with this Section 11,
other than notices by Lender in connection with enforcement rights against the
Collateral under the provisions of the Code, shall be deemed received on the
earlier of the date of actual receipt or 3 Business Days after the deposit
thereof in the mail. Borrower acknowledges and agrees that notices sent by
Lender in connection with the exercise of enforcement rights against Collateral
under the provisions of the Code shall be deemed sent when deposited in the mail
or personally delivered, or, where permitted by law, transmitted by
telefacsimile or any other method set forth above.
12. Choice of Law and Venue; Jury Trial Waiver.
(a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH
OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF
AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO
ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL
BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF CALIFORNIA.
(b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION
WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED
ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF SAN FRANCISCO,
STATE OF CALIFORNIA PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST
ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER'S OPTION, IN THE
COURTS OF ANY JURISDICTION WHERE LENDER ELECTS TO BRING SUCH ACTION OR WHERE
SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWER AND LENDER WAIVE, TO
THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE
DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 12(b).
(c) BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE
LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. BORROWER AND LENDER REPRESENT THAT EACH HAS REVIEWED THIS
WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
C-29
<PAGE> 192
13. Assignments; Successors.
13.1 Assignments.
(a) Lender may assign and delegate to one or more assignees (each an
"Assignee") all, or any ratable part of all, of the Obligations and the other
rights and obligations of Lender hereunder and under the other Loan Documents;
provided, however, that Borrower may continue to deal solely and directly with
Lender in connection with the interest so assigned to an Assignee until (i)
written notice of such assignment, together with payment instructions,
addresses, and related information with respect to the Assignee, have been given
to Borrower by Lender and the Assignee, and (ii) Lender and its Assignee have
delivered to Borrower an appropriate assignment and acceptance agreement.
(b) From and after the date that Lender provides Borrower with such written
notice and executed assignment and acceptance agreement, (i) the Assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such assignment and
acceptance agreement, shall have the assigned and delegated rights and
obligations of Lender under the Loan Documents, and (ii) Lender shall, to the
extent that rights and obligations hereunder and under the other Loan Documents
have been assigned and delegated by it pursuant to such assignment and
acceptance agreement, relinquish its rights (except with respect to Section 10.3
hereof) and be released from its obligations under this Agreement (and in the
case of an assignment and acceptance covering all or the remaining portion of
Lender's rights and obligations under this Agreement and the other Loan
Documents, Lender shall cease to be a party hereto and thereto), and such
assignment shall affect a novation between Borrower and the Assignee.
(c) Immediately upon Borrower's receipt of such fully executed assignment
and acceptance agreement, this Agreement shall be deemed to be amended to the
extent, but only to the extent, necessary to reflect the addition of the
Assignee and the resulting adjustment of the rights and duties of Lender arising
therefrom.
(d) In connection with any such assignment or proposed assignment, a Lender
may disclose all documents and information which it now or hereafter may have
relating to Borrower or Borrower's business.
(e) Any other provision in this Agreement notwithstanding, Lender may at
any time create a security interest in, or pledge, all or any portion of its
rights under and interest in this Agreement in favor of any Federal Reserve Bank
in accordance with Regulation A of the Federal Reserve Bank or U.S. Treasury
Regulation 31 CFR sec. 203.14, and such Federal Reserve Bank may enforce such
pledge or security interest in any manner permitted under applicable law.
13.2 Successors. This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties; provided, however,
that Borrower may not assign this Agreement or any rights or duties hereunder
without Lender's prior written consent and any prohibited assignment shall be
absolutely void ab initio. No consent to assignment by Lender shall release
Borrower from its Obligations. Lender may assign this Agreement and the other
Loan Documents and its rights and duties hereunder and thereunder pursuant to
Section 13.1 hereof and, except as expressly required pursuant to Section 13.1
hereof, no consent or approval by Borrower is required in connection with any
such assignment.
14. Amendments; Waivers.
14.1 Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by Borrower therefrom, shall be effective unless the same shall be in
writing and signed by Lender and Borrower and then any such
C-30
<PAGE> 193
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
14.2 No Waivers; Cumulative Remedies. No failure by Lender to exercise any
right, remedy, or option under this Agreement or any other Loan Document, or
delay by Lender in exercising the same, will operate as a waiver thereof. No
waiver by Lender will be effective unless it is in writing, and then only to the
extent specifically stated. No waiver by Lender on any occasion shall affect or
diminish Lender's rights thereafter to require strict performance by Borrower of
any provision of this Agreement. Lender's rights under this Agreement and the
other Loan Documents will be cumulative and not exclusive of any other right or
remedy that Lender may have.
15. General Provisions.
15.1 Effectiveness. This Agreement shall be binding and deemed effective
when executed by Borrower and Lender.
15.2 Section Headings. Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each Section applies equally to this entire Agreement.
15.3 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed against Lender or Borrower, whether under
any rule of construction or otherwise. On the contrary, this Agreement has been
reviewed by all parties and shall be construed and interpreted according to the
ordinary meaning of the words used so as to accomplish fairly the purposes and
intentions of all parties hereto.
15.4 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
15.5 Withholding Taxes. All payments made by Borrower hereunder or under
any note will be made without setoff, counterclaim, or other defense, except as
required by applicable law other than for Taxes (as defined below). All such
payments will be made free and clear of, and without deduction or withholding
for, any present or future taxes, levies, imposts, duties, fees, assessments or
other charges of whatever nature now or hereafter imposed by any jurisdiction
(other than the United States) or by any political subdivision or taxing
authority thereof or therein (other than of the United States) with respect to
such payments (but excluding, any tax imposed by any jurisdiction or by any
political subdivision or taxing authority thereof or therein (i) measured by or
based on the net income or net profits of Lender, or (ii) to the extent that
such tax results from a change in the circumstances of Lender, including a
change in the residence, place of organization, or principal place of business
of Lender, or a change in the branch or lending office of Lender participating
in the transactions set forth herein) and all interest, penalties or similar
liabilities with respect thereto (all such non-excluded taxes, levies, imposts,
duties, fees, assessments or other charges being referred to collectively as
"Taxes"). If any Taxes are so levied or imposed, Borrower agrees to pay the full
amount of such Taxes, and such additional amounts as may be necessary so that
every payment of all amounts due under this Agreement or under any note,
including any amount paid pursuant to this Section 15.5 after withholding or
deduction for or on account of any Taxes, will not be less than the amount
provided for herein; provided, however, that Borrower shall not be required to
increase any such amounts payable to Lender if the increase in such amount
payable results from Lender's own willful misconduct or gross negligence.
Borrower will furnish to Lender as promptly as possible after the date the
payment of any Taxes is due pursuant to applicable law certified copies of tax
receipts evidencing such payment by Borrower.
C-31
<PAGE> 194
15.6 Amendments in Writing. This Agreement only can be amended by a writing
signed by Lender and Borrower.
15.7 Counterparts; Telefacsimile Execution. This Agreement may be executed
in any number of counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be an original,
and all of which, when taken together, shall constitute but one and the same
Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement. The foregoing shall apply to each other Loan Document mutatis
mutandis.
15.8 Revival and Reinstatement of Obligations. If the incurrence or payment
of the Obligations by Borrower or the transfer to Lender of any property should
for any reason subsequently be declared to be void or voidable under any state
or federal law relating to creditors' rights, including provisions of the
Bankruptcy Code relating to fraudulent conveyances, preferences, or other
voidable or recoverable payments of money or transfers of property
(collectively, a "Voidable Transfer"), and if Lender is required to repay or
restore, in whole or in part, any such Voidable Transfer, or elects to do so
upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Lender is required or elects to repay or
restore, and as to all reasonable costs, expenses, and attorneys fees of Lender
related thereto, the liability of Borrower automatically shall be revived,
reinstated, and restored and shall exist as though such Voidable Transfer had
never been made.
15.9 Integration. This Agreement, together with the other Loan Documents,
reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
[Signature page to follow.]
C-32
<PAGE> 195
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
ATLANTIS GROUP, INC.
a Washington corporation
By:
Title:
ACTIVE VOICE CORPORATION,
a Washington corporation
By:
Title:
C-33
<PAGE> 196
APPENDIX D
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement"), dated as of November 9,
2000, by and between Cisco Systems, Inc., a California corporation ("Parent"),
and Active Voice Corporation, a Washington corporation ("Company").
WHEREAS, concurrently with the execution and delivery of this Agreement,
Company, Parent and Aqua Acquisition Corporation, a Delaware corporation
("Merger Sub"), are entering into an Agreement and Plan of Merger and
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, Merger Sub will be merged with and into Company (the
"Merger"), with Company continuing as the surviving corporation; and
WHEREAS, as a condition and inducement to Parent's willingness to enter
into the Reorganization Agreement, Parent has required that Company agree, and
Company has so agreed, to grant to Parent an option with respect to certain
shares of Company's common stock on the terms and subject to the conditions set
forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and in the Reorganization Agreement,
the parties hereto agree as follows:
1. Grant of Option. Company hereby grants Parent an irrevocable option (the
"Company Option") to purchase up to 2,275,000 shares of the Company's
outstanding shares (the "Company Shares") of common stock, no par value per
share, of Company (the "Company common stock") in the manner set forth below at
a price (the "Exercise Price") of $15 per Company Share, payable in cash.
Capitalized terms used herein but not defined herein shall have the meanings set
forth in the Reorganization Agreement.
2. Exercise of Option. The Company Option may be exercised by Parent, in
whole or in part, at any time or from time to time after the occurrence of any
of the events that obligate Company to pay Parent the Termination Fee pursuant
to Section 7.3(b) or 7.3(c) of the Reorganization Agreement. In the event Parent
wishes to exercise the Company Option, Parent shall deliver to Company a written
notice (an "Exercise Notice") specifying the total number of Company Shares it
wishes to purchase. Each closing of a purchase of Company Shares (a "Closing")
shall occur at a place, on a date and at a time designated by Parent in an
Exercise Notice delivered at least two business days prior to the date of the
Closing.
3. Termination of Option. The Company Option shall terminate upon the
earlier of: (a) the Effective Time; (b) the termination of the Reorganization
Agreement pursuant to Section 7.1 thereof (other than a termination in
connection with which Parent is entitled to any payments as specified in Section
7.3(b) or 7.3(c) thereof); (c) 180 days following any termination of the
Reorganization Agreement in connection with which Parent is entitled to a
payment as specified in Section 7.3(b) thereof (or if, at the expiration of such
180 day period, the Company 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 (d) 12 months following any termination of the
Reorganization Agreement in connection with which Parent is entitled to a
payment as specified in Section 7.3(c) thereof (or if, at the expiration of such
12 month period, the Company 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); provided, however, that if Parent has
D-1
<PAGE> 197
exercised the Company Option but the Closing has not occurred as provided in
Section 5 with respect to such exercise, the Company Option shall survive until
immediately following such Closing. Notwithstanding the foregoing, the Company
Option may not be exercised if Parent is in material breach of any of its
representations, warranties, covenants or agreements contained in this Agreement
or in the Reorganization Agreement.
4. Conditions to Closing. The obligation of Company to issue the Company
Shares to Parent hereunder is subject to the conditions that (a) 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 Company Shares hereunder shall have expired or
have been terminated; (b) all consents, approvals, orders or authorizations of,
or registrations, declarations or filings with, any Federal, state or local
administrative agency or commission or other Federal, state or local
governmental authority or instrumentality, if any, required in connection with
the issuance of the Company Shares hereunder shall have been obtained or made,
as the case may be; and (c) no preliminary or permanent injunction or other
order by any court of competent jurisdiction prohibiting or otherwise
restraining such issuance shall be in effect. Company shall use its reasonable
best efforts to satisfy such conditions as soon as practicable after Parent
exercises the Company Option.
5. Closing. At any Closing, (a) Company will deliver to Parent a single
certificate in definitive form representing the number of Company Shares
designated by Parent in its Exercise Notice, such certificate to be registered
in the name of Parent and to bear the legend set forth in Section 11, and (b)
Parent will deliver to Company the aggregate price for the Company Shares so
designated and being purchased by wire transfer of immediately available funds
or, at the option of the Company, certified check or bank check. At any Closing
at which Parent is exercising the Company Option in part, Parent shall present
and surrender this Agreement to Company, and Company shall deliver to Parent an
executed new agreement with the same terms as this Agreement evidencing the
right to purchase the balance of the shares of Company common stock purchasable
hereunder.
6. Representations and Warranties of Company. Company represents and
warrants to Parent that (a) Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Washington 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
Company and the consummation by Company of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Company and no other corporate proceedings on the part of Company are necessary
to authorize this Agreement or any of the transactions contemplated hereby; (c)
this Agreement has been duly executed and delivered by Company and constitutes a
valid and binding obligation of Company, and, assuming this Agreement
constitutes a valid and binding obligation of Parent and the receipt of all
required governmental approvals, enforceable against Company 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) Company has taken all necessary corporate action to authorize and
reserve for issuance and to permit it to issue, upon exercise of the Company
Option, and at all times from the date hereof through the expiration of the
Company Option will have reserved, that number of unissued Company Shares that
are subject to the Company 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 Company Shares to Parent
upon the exercise of the Company Option, Parent will acquire the Company 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 Company does not, and the performance of this
Agreement by Company will not, conflict with, or result in any violation of, or
default (with or without notice or
D-2
<PAGE> 198
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 (any such conflict, violation, default, right of termination,
cancellation or acceleration, loss or creation, a "Violation") of Company
pursuant to, (i) any provision of the Restated Articles of Incorporation, as
amended, or Restated By-laws, as amended, of Company; (ii) any provisions of any
material mortgage, indenture, lease, contract or other agreement, instrument,
permit, concession, franchise, or license of Company or to which it is a party
or by which its assets are bound; or (iii) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Company or its properties or
assets, which Violation, in the case of each of clauses (ii) and (iii), would
have a Material Adverse Effect on Company; and (g) except as described in
Section 2.3 of the Reorganization Agreement and except for the expiration of the
waiting period under the HSR Act and except as contemplated by Sections 8(a) and
8(b), the execution and delivery of this Agreement by Company does not, and the
performance of this Agreement by Company will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, other than applicable filings with and
payment of fees to the Nasdaq National Market with respect to the inclusion for
quotation thereon of the additional shares of Company common stock which may be
purchased hereunder.
7. Representations and Warranties of Parent. Parent represents and warrants
to Company that (a) Parent 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
Parent and the consummation by Parent of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Parent and no other corporate proceedings on the part of Parent are necessary to
authorize this Agreement or any of the transactions contemplated hereby; (c)
this Agreement has been duly executed and delivered by Parent and constitutes a
valid and binding obligation of Parent, enforceable against Parent 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 Parent
does not, and the performance of this Agreement by Parent will not, result in
any Violation pursuant to, (i) any provision of the Articles of Incorporation,
as amended, or By-laws, as amended, of Parent, (ii) any provisions of any
material mortgage, indenture, lease, contract or other agreement, instrument,
permit, concession, franchise, or license of Parent; or (iii) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Parent
or its properties or assets, which Violation, in the case of each of clauses
(ii) and (iii), would have a Material Adverse Effect on Parent; (e) except as
described in Section 3.3 of the Reorganization Agreement and Section 4(a) of
this Agreement, and except as may be required under the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the execution
and delivery of this Agreement by Parent does not, and the performance of this
Agreement by Parent will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority; and (f) any Company Shares acquired by Parent upon exercise of the
Company Option will be acquired for Parent's own account for investment purposes
only and will not be, and the Company Option is not being, acquired by Parent
with a view to the public distribution thereof.
8. Put and Call.
(a) Exercise. At any time during which the Company Option is exercisable
pursuant to Sections 2 and 3 (the "Repurchase Period"), upon written demand by
Parent, Parent shall have the right to sell to Company (or any successor entity
thereof), and Company (or such successor entity) shall be obligated to
D-3
<PAGE> 199
repurchase from Parent (the "Put"), and upon written demand by Company, Company
(or any successor entity thereof) shall have the right to purchase from Parent
and Parent shall be obligated to sell to Company (or any successor entity) (the
"Call"), all or any portion of the Company Option, to the extent not previously
exercised, at the price set forth in subparagraph (i) below, or all or any
portion of the Company Shares purchased by Parent pursuant thereto, at a price
set forth in subparagraph (ii) below:
(i) The difference between the "Market/Tender Offer Price" for shares
of Company common stock as of the date (the "Notice Date") written notice
of exercise of the Put or Call, as the case may be, is given to the other
party (defined as the higher of (A) the price per share offered as of the
Notice Date pursuant to any tender or exchange offer or other Takeover
Proposal (as defined in the Reorganization Agreement) which was made prior
to the Notice Date and not terminated or withdrawn as of the Notice Date
(the "Tender Price") or (B) the average of the closing prices of shares of
Company 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 Company Shares purchasable
pursuant to the Company Option (or portion thereof with respect to which
Parent is exercising its rights under this Section 8), but only if the
Market/ Tender Offer Price is greater than the Exercise Price.
(ii) The Exercise Price paid by Parent for the Company Shares acquired
pursuant to the Company 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 Company Shares so purchased.
(iii) Notwithstanding subparagraphs (i) and (ii) above, in no event
shall the proceeds payable to Parent pursuant to this Section 8 exceed the
sum of (x) $11,800,000 plus (y) the Exercise Price multiplied by the number
of Company Shares purchased minus (z) any amount paid to Parent by Company
pursuant to Section 7.3(b) or Section 7.3(c) of the Reorganization
Agreement.
(b) For purposes of Section 8(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 Company Option or Shares. In the event Parent
or Company exercises its rights under this Section 8, Company shall, within ten
business days of the Notice Date, pay the required amount to Parent in
immediately available funds and Parent shall surrender to Company the Company
Option or the certificates evidencing the Company Shares purchased by Parent
pursuant thereto, and Parent 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.
9. Registration Rights.
(a) Following any exercise of the Company Option, Parent may by written
notice (the "Registration Notice") to Company request Company to register under
the Securities Act all or any part of the shares of Company common stock
acquired pursuant to this Agreement (the "Restricted Shares") beneficially owned
by Parent (the "Registrable Securities") pursuant to a bona fide firm commitment
underwritten public offering in which Parent and the underwriters shall effect
as wide a distribution of such Registrable Securities as is reasonably
practicable and shall use their reasonable best efforts to prevent any Person
(including any group as used in Rule 13d-5 under the Exchange Act) and its
affiliates from purchasing through such offering Restricted Shares representing
more than 1% of the outstanding shares of common stock of Company on a fully
diluted basis (a "Permitted Offering"); provided, further, that any such
Registration Notice must relate to a number of shares equal to at least 2% of
the outstanding shares of Company common stock and that any rights to require
registrations hereunder shall terminate with respect to any shares that may be
sold pursuant to Rule 144(k) under the Securities Act. The
D-4
<PAGE> 200
Registration Notice shall include a certificate executed by Parent 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 9, the term "Fair Market Value" shall mean the per
share average of the closing sale prices of Company's common stock on The Nasdaq
National Market for the ten trading days immediately preceding the date of the
Registration Notice.
(b) Company shall use its reasonable best efforts to effect, as promptly as
practicable, the registration under the Securities Act of the unpurchased
Registrable Securities; provided, however, that (i) Parent shall not be entitled
to demand more than an aggregate of two effective registration statements
hereunder and (ii) Company 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) Company 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 Company, such information
would have to be disclosed if a registration statement were filed at that time;
(B) Company 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) Company determines, in its reasonable judgment, that such registration
would interfere with any financing, acquisition or other material transaction
involving Company 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 9 shall again be applicable to any
proposed registration; provided, however, that Parent shall not be entitled to
request more than two registrations pursuant to this Section 9. Company shall
use its reasonable best efforts to cause any Registrable Securities registered
pursuant to this Section 9 to be qualified for sale under the securities or Blue
Sky laws of such jurisdictions as Parent may reasonably request and shall
continue such registration or qualification in effect in such jurisdiction;
provided, however, that Company 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 9 are subject to the
condition that Parent shall provide Company with such information with respect
to Parent's Registrable Securities, the plans for the distribution thereof, and
such other information with respect to Parent as, in the reasonable judgment of
counsel for Company, is necessary to enable Company to include in such
registration statement all material facts required to be disclosed with respect
to a registration thereunder.
(d) If Company'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, The Nasdaq National Market, or any other securities exchange or
automated quotations system, Company, upon the request of Parent, shall promptly
file an application, if required, to authorize for quotation, trading or listing
the shares of Registrable Securities on such exchange or system and will use its
reasonable best efforts to obtain approval, if required, of such quotation,
trading or listing as soon as practicable.
(e) A registration effected under this Section 9 shall be effected at
Company's expense, except for underwriting discounts and commissions and the
fees and the expenses of counsel to Parent, and Company 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
D-5
<PAGE> 201
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.
10. Adjustment Upon Changes in Capitalization.
(a) In the event of any change in Company 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 Company 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 Parent shall
receive, upon exercise of the Company Option, the number and class of shares or
other securities or property that Parent would have received in respect of the
Company common stock if the Company Option had been exercised immediately prior
to such event or the record date therefor, as applicable.
(b) In the event that Company shall enter in an agreement: (i) to
consolidate with or merge into any person, other than Parent or one of its
subsidiaries, and Company shall not be the continuing or surviving corporation
of such consolidation or merger; (ii) to permit any person, other than Parent or
one of its subsidiaries, to merge into Company and Company shall be the
continuing or surviving corporation, but, in connection with such merger, the
then-outstanding shares of Company common stock shall be changed into or
exchanged for stock or other securities of Company or any other person or cash
or any other property or the outstanding shares of Company 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 Parent 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, Parent shall receive for each Company Share with
respect to which the Company 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 Company 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 Company
common stock, subject to the foregoing, proper provision shall be made so that
the holder of the Company Option would have the same election or similar rights
as would the holder of the number of shares of Company common stock for which
the Company Option is then exercisable).
11. Restrictive Legends. Each certificate representing shares of Company
common stock issued to Parent 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 NOVEMBER 8, 2000, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.
12. Binding Effect; No Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. Except as expressly provided for in this Agreement, neither
this agreement nor the rights or the obligations of either party hereto are
assignable, except by operation of law, or with the written consent of the other
party. Nothing contained in this Agreement, express or implied, is intended to
confer upon any person other than the parties hereto and their respective
permitted assigns any rights or remedies of any nature whatsoever by
D-6
<PAGE> 202
reason of this Agreement. Any Restricted Shares sold by Parent in compliance
with the provisions of Section 9 shall, upon consummation of such sale, be free
of the restrictions imposed with respect to such shares by this Agreement,
unless and until Parent 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 Parent. Certificates representing shares sold in a registered
public offering pursuant to Section 9 shall not be required to bear the legend
set forth in Section 11.
13. 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.
14. Entire Agreement. This Agreement and the Reorganization Agreement
(including the Company Disclosure Schedule and the Parent 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.
15. 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.
16. 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.
17. 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
D-7
<PAGE> 203
telecopy number, or to such other address or addresses as such person may
subsequently designate by notice given hereunder.
(a) if to Parent or Merger Sub, to:
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, CA 95134-1706
Attention: Senior Vice President, Legal and Government Affairs
Facsimile No.: (408) 526-5925
Telephone No.: (408) 526-8252
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 Company, to:
Active Voice Corporation
2901 Third Avenue, Suite 500
Seattle, Washington 98121-9800
Attention: Chief Executive Officer
Facsimile No.: (206) 441-4784
Telephone No.: (206) 441-4700
with a copy to:
Gray Cary Ware & Freidenrich LLP
999 Third Avenue, Suite 4003
Seattle, WA 98104-4099
Attention: John M. Steel, Esq.
Facsimile No.: (206) 839-4801
Telephone No.: (206) 839-4824
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to agreements
made and to be performed entirely within such State without regard to any
applicable conflicts of law rules.
19. 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.
20. 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.
D-8
<PAGE> 204
21. 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.
22. 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.
[SIGNATURE PAGE FOLLOWS.]
D-9
<PAGE> 205
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:
--------------------------------------
Name:
Title:
ACTIVE VOICE CORPORATION
By:
--------------------------------------
Name:
Title:
[SIGNATURE PAGE TO STOCK OPTION AGREEMENT]
D-10
<PAGE> 206
APPENDIX E
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT (the "Agreement") is made and entered into as of
November 9, 2000, between Cisco Systems, Inc., a California corporation
("Parent"), Aqua Acquisition Corporation, a Delaware corporation and
wholly-owned subsidiary of Parent ("Merger Sub"), and the undersigned
shareholder ("Shareholder") of Active Voice Corporation, a Washington
corporation ("Company").
RECITALS
WHEREAS, pursuant to an Agreement and Plan of Merger and Reorganization
dated as of November 9, 2000, by and between Parent, Merger Sub and Company
(such agreement as it may be amended or restated is hereinafter referred to as
the "Reorganization Agreement"), the parties agreed that on the signing of the
Reorganization Agreement, Parent, Merger Sub and Shareholder would execute and
deliver a Shareholder Agreement containing the terms and conditions set forth in
an Exhibit to the Reorganization Agreement together with such other terms and
conditions as may be agreed to by the parties to the Reorganization Agreement
acting reasonably;
WHEREAS, Parent has agreed to acquire the outstanding securities of Company
pursuant to a statutory merger of Merger Sub with and into Company (the
"Merger") effected in part through the conversion of each outstanding share of
capital stock of Company (the "Company Capital Stock"), into shares of common
stock of Parent (the "Parent Shares") at the rate set forth in the
Reorganization Agreement (the "Transaction");
WHEREAS, in order to induce Parent to enter into the Transaction, Company
has agreed to use its best efforts to solicit the proxy of certain shareholders
of Company on behalf of Parent, and to cause certain shareholders of Company to
execute and deliver Shareholder Agreements to Parent;
WHEREAS, Shareholder is the registered and beneficial owner of such number
of shares of the outstanding Company Capital Stock as is indicated on the
signature page of this Agreement (the "Shares"); and
WHEREAS, in order to induce Parent to enter into the Transaction, certain
shareholders of Company have agreed not to transfer or otherwise dispose of any
of the Shares, or any other shares of Company Capital Stock acquired by such
shareholder hereafter and prior to the Expiration Date (as defined in Section
1.1 below), and have agreed to vote the Shares and any other such shares of
Company Capital Stock so as to facilitate consummation of the Transaction.
NOW, THEREFORE, the parties agree as follows:
1. Share Ownership and Agreement to Retain Shares.
1.1 Transfer and Encumbrance.
(a) Shareholder represents, warrants and covenants to Parent that (i)
Shareholder is the beneficial owner of that number of Shares of Company Capital
Stock set forth on the signature page hereto and, except as otherwise set forth
on the signature page hereto, has held such Company Capital Stock at all times
since the date set forth on such signature page; (ii) the Shares constitute the
Shareholder's entire interest in the outstanding Company Capital Stock; (iii) no
other person or entity not a signatory to this Agreement has a beneficial
interest in or a right to acquire the Shares or any portion of the Shares; and
(iv) the Shares are and will be at all times up until the Expiration Date free
and clear of any liens, claims, options, charges or other encumbrances.
E-1
<PAGE> 207
(b) Shareholder agrees not to transfer (except as may be specifically
required by court order or by operation of law), sell, exchange, pledge or
otherwise dispose of or encumber the Shares or any New Shares (as defined
below), or to make any offer or agreement relating thereto, at any time prior to
the Expiration Date. As used herein, the term "Expiration Date" shall mean the
earlier to occur of (i) the Effective Time (as defined in the Reorganization
Agreement) of the Transaction, and (ii) the termination of the Reorganization
Agreement.
1.2 New Shares. Shareholder agrees that any shares of Company Capital
Stock that Shareholder purchases or with respect to which Shareholder otherwise
acquires beneficial ownership after the date of this Agreement and prior to the
Expiration Date ("New Shares") shall be subject to the terms and conditions of
this Agreement to the same extent as if they constituted Shares.
2. Agreement to Vote Shares. Prior to the Expiration Date, at every meeting
of the shareholders of Company called with respect to any of the following, and
at every adjournment thereof, and on every action or approval by written
resolution of the shareholders of Company with respect to any of the following,
Shareholder shall vote the Shares and any New Shares (i) in favor of approval of
the Transaction and any matter that could reasonably be expected to facilitate
the Transaction and (ii) against any proposal for any recapitalization, merger,
sale of assets or other business combination (other than the Transaction)
between Company and any person or entity other than Parent and Merger Sub.
3. Irrevocable Proxy. Shareholder is hereby delivering to Parent a duly
executed proxy in the form attached hereto as Exhibit A (the "Proxy") with
respect to each meeting of shareholders (or written consent in lieu thereof) of
Company, such Proxy to cover the total number of Shares and New Shares in
respect of which Shareholder is entitled to vote at any such meeting. Upon the
execution of this Agreement by the Shareholder, the Shareholder hereby revokes
any and all prior proxies given by the Shareholder with respect to the Shares
and agrees not to grant any subsequent proxies with respect to the Shares or any
New Shares until after the Expiration Date.
4. Representations, Warranties and Covenants of Shareholder. Shareholder
hereby represents, warrants and covenants to Parent as follows:
(a) Until the Expiration Date, the Shareholder will not (and will use
such Shareholder's reasonable best efforts to cause Company, its
affiliates, officers, directors and employees and any investment banker,
attorney, accountant or other agent retained by such Shareholder or them,
not to): (i) initiate or solicit, directly or indirectly, any proposal,
plan of offer to acquire all or any substantial part of the business or
properties or Company Capital Stock, whether by merger, purchase of assets,
tender offer or otherwise, or to liquidate Company or otherwise distribute
to the shareholders of Company all or any substantial part of the business,
properties or Company Capital Stock (each, an "Acquisition Proposal"); (ii)
initiate, directly or indirectly, any contact with any person in an effort
to or with a view towards soliciting any Acquisition Proposal; (iii)
furnish information concerning Company's business, properties or assets to
any corporation, partnership, person or other entity or group (other than
Parent or Merger Sub, or any associate, agent or representative of Parent
or Merger Sub), under any circumstances that would reasonably be expected
to relate to an actual or potential Acquisition Proposal; or (iv) negotiate
or enter into discussions or an agreement, directly or indirectly, with any
entity or group with respect of any potential Acquisition Proposal provided
that, in the case of clauses (iii) and (iv), the foregoing shall not
prevent Shareholder, in Shareholder's capacity as a director or officer (as
the case may be) of Company, from taking any actions permitted under
Section 4.3 of the Reorganization Agreement. In the event the Shareholder
shall receive or become aware of any Acquisition Proposal subsequent to the
date hereof, such Shareholder shall promptly inform Parent as to any such
matter and the
E-2
<PAGE> 208
details thereof to the extent possible without breaching any other
agreement to which such Shareholder is a party or violating its fiduciary
duties.
(b) Shareholder is competent to execute and deliver this Shareholder
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Shareholder Agreement has been duly
and validly executed and delivered by Shareholder and, assuming the due
authorization, execution and delivery by Parent, constitutes a legal, valid
and binding obligation of Shareholder, enforceable against Shareholder in
accordance with its terms except that (i) the enforceability thereof may be
subject to applicable bankruptcy, insolvency or other similar laws, now or
hereinafter in effect affecting creditors' rights generally and (ii) the
availability of the remedy of specific performance or injunctive or other
forms of equitable relief may be subject to equitable defenses and would be
subject to the discretion of the court before which any proceeding therefor
may be brought.
(c) The execution and delivery of this Shareholder Agreement by
Shareholder does not, and the performance of this Shareholder Agreement by
Shareholder shall not result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration
or cancellation of, or result in the creation of a lien or encumbrance, on
any of the Shares or New Shares pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Shareholder is a party or by which
Shareholder or the Shares or New Shares are or will be bound or affected.
5. Additional Documents. Shareholder hereby covenants and agrees to execute
and deliver any additional documents necessary or desirable, in the reasonable
opinion of Parent, to carry out the purpose and intent of this Agreement.
6. Consent and Waiver. Shareholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Transaction under the
terms of any agreement to which Shareholder is a party or pursuant to any rights
Shareholder may have.
7. Termination. This Agreement and the Proxy delivered in connection
herewith shall terminate and shall have no further force or effect as of the
Expiration Date.
8. Confidentiality. Shareholder agrees (i) to hold any information
regarding this Agreement and the Transaction in strict confidence, and (ii) not
to divulge any such information to any third person, until such time as the
Transaction has been publicly disclosed by Parent.
9. Miscellaneous.
9.1 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
9.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without the prior written consent of the other. This Agreement is
binding upon Shareholder in Shareholder's capacity as a shareholder of Company
(and not in Shareholder's capacity as a director or officer, as the case may be,
of Company) and only with respect to the specific matters set forth herein.
E-3
<PAGE> 209
9.3 Amendment and Modification. This Agreement may not be modified,
amended, altered or supplemented except by the execution and delivery of a
written agreement executed by the parties hereto.
9.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Parent will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
Shareholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Parent or Merger Sub upon any such
violation, Parent and Merger Sub shall have the right to enforce such covenants
and agreements by specific performance, injunctive relief or by any other means
available to Parent or Merger Sub at law or in equity and the Shareholder hereby
waives any and all defenses which could exist in its favor in connection with
such enforcement and waives any requirement for the security or posting of any
bond in connection with such enforcement.
9.5 Notices. All notices, requests, demands or other communications that
are required or may be given pursuant to the terms of this Shareholder Agreement
shall be in writing and shall be deemed to have been duly given if delivered by
hand or mailed by registered or certified mail, postage prepaid, as follows:
(a) If to the Shareholder, at the address set forth below the
Shareholder's signature at the end hereof.
(b) if to Parent or Merger Sub, to:
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, CA 95134-1706
Attention: Senior Vice President, Legal and Government Affairs
Facsimile No.: (408) 526-5925
Telephone No.: (408) 526-8252
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
(c) if to Company, to:
Active Voice Corporation
2901 Third Avenue, Suite 500
Seattle, Washington 98121-9800
Attention: Chief Executive Officer
Facsimile No.: (206) 441-4784
Telephone No.: (206) 441-4700
E-4
<PAGE> 210
with a copy to:
Gray Cary Ware & Freidenrich LLP
999 Third Avenue, Suite 4000
Seattle, Washington 98104-4099
Attention: John M. Steel, Esq.
Facsimile No.: (206) 839-4825
Telephone No.: (206) 839-
or to such other address as any party hereto may designate for itself by notice
given as herein provided.
9.6 Governing Law. This Amendment shall be governed by, construed and
enforced in accordance with the laws of the State of Delaware, without regard to
any applicable conflicts of laws rules.
9.7 Entire Agreement. This Agreement and the Proxy contain the entire
understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
9.8 Counterpart. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
9.9 Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
[SIGNATURE PAGE FOLLOWS.]
E-5
<PAGE> 211
IN WITNESS WHEREOF, the parties have caused this Shareholder Agreement to
be executed as of the date first above written.
<TABLE>
<S> <C>
CISCO SYSTEMS, INC SHAREHOLDER
By:
--------------------------------------------------------
--------------------------------------------
(Signature)
Name:
--------------------------------------------------------
--------------------------------------------
(Print Name)
Title:
--------------------------------------------------------
--------------------------------------------
(Print Address)
AQUA ACQUISITION CORPORATION --------------------------------------------------------
(Print Address)
By:
--------------------------------------------------------
--------------------------------------------
(Print Telephone Number)
Name:
--------------------------------------------------------
--------------------------------------------
(Social Security or Tax I.D. Number)
Title:
--------------------------------------------
</TABLE>
Total Number of Shares of Company Capital Stock owned on the date hereof:
Common Stock:
[SIGNATURE PAGE TO SHAREHOLDER AGREEMENT]
E-6
<PAGE> 212
EXHIBIT A
IRREVOCABLE PROXY
TO VOTE STOCK OF
ACTIVE VOICE CORPORATION
The undersigned shareholder of Active Voice Corporation, a Washington
corporation ("Company"), hereby irrevocably (to the full extent permitted by the
Washington Business Corporation Act) appoints the members of the Board of
Directors of Cisco Systems, Inc., a California corporation ("Parent"), and each
of them, or any other designee of Parent, as the sole and exclusive attorneys
and proxies of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the full
extent that the undersigned is entitled to do so) with respect to all of the
shares of capital stock of Company that now are or hereafter may be beneficially
owned by the undersigned, and any and all other shares or securities of Company
issued or issuable in respect thereof on or after the date hereof (collectively,
the "Shares") in accordance with the terms of this Irrevocable Proxy. The Shares
beneficially owned by the undersigned shareholder of Company as of the date of
this Irrevocable Proxy are listed on the final page of this Irrevocable Proxy.
Upon the undersigned's execution of this Irrevocable Proxy, any and all prior
proxies given by the undersigned with respect to any Shares are hereby revoked
and the undersigned agrees not to grant any subsequent proxies with respect to
the Shares until after the Expiration Date (as defined below).
This Irrevocable Proxy is irrevocable (to the extent provided in the
Washington Business Corporation Act), is coupled with an interest, including,
but not limited to, that certain Shareholder Agreement dated as of even date
herewith by and among Parent, Aqua Acquisition Corporation and the undersigned,
and is granted in consideration of Parent entering into that certain Agreement
and Plan of Merger and Reorganization between Company, Parent and Merger Sub
(the "Reorganization Agreement"), which agreement provides for the merger of
Merger Sub with and into Company (the "Merger"). As used herein, the term
"Expiration Date" shall mean the earlier to occur of (i) such date and time as
the Merger shall become effective in accordance with the terms and provisions of
the Reorganization Agreement, and (ii) the date of termination of the
Reorganization Agreement in accordance with its terms. This Irrevocable Proxy
shall terminate on the Expiration Date.
The attorneys and proxies named above, and each of them are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting and other rights of the undersigned with respect to the
Shares (including, without limitation, the power to execute and deliver written
consents pursuant to the Washington Business Corporation Act), at every annual,
special or adjourned meeting of the shareholders of Company and in every written
consent in lieu of such meeting as follows:
[X] In favor of approval of the Merger and the Reorganization Agreement,
in favor of any matter that could reasonably be expected to facilitate
the Merger and against any proposal for any recapitalization, merger,
sale of assets or other business combination (other than the Merger)
between Company and any person or entity other than Parent and Merger
Sub.
The attorneys and proxies named above may not exercise this Irrevocable
Proxy on any other matter except as provided above. The undersigned shareholder
may vote the Shares on all other matters.
All authority herein conferred shall survive the death or incapacity of the
undersigned and any obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned.
[SIGNATURE PAGE FOLLOWS.]
E-7
<PAGE> 213
This Irrevocable Proxy is coupled with an interest as aforesaid and is
irrevocable.
Dated: , 2000
--------------------------------------
(Signature of Shareholder)
--------------------------------------
(Print Name of Shareholder)
Shares beneficially owned:
shares of Company
Common Stock
E-8
<PAGE> 214
APPENDIX F
[WILLIAM BLAIR & COMPANY LETTERHEAD]
November 9, 2000
Board of Directors
Active Voice Corporation
2901 Third Avenue
Suite 500
Seattle, WA 98121
To the Board of Directors:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the outstanding shares of common stock (other than
Cisco Systems, Inc. ("CSCO")) (collectively the "Stockholders") of Active Voice
Corporation (the "Company") of the Exchange Ratio (as defined below) specified
in the Agreement and Plan of Merger and Reorganization as of November 9, 2000
(the "Merger Agreement") by and among CSCO, CSCO Merger Sub, a wholly-owned
subsidiary of CSCO ("Merger Sub"), and the Company. Pursuant to the terms of and
subject to the conditions set forth in the Merger Agreement, the Company will be
merged into Merger Sub (the "Merger") and each share of common stock of the
Company, with no par value per share, will be converted into CSCO common stock,
$0.001 par value per share, at an exchange ratio equal to $20 divided by the
average closing price of CSCO common stock for the ten trading days ending on
the third day prior to closing (the "Exchange Ratio").
We are familiar with the Company, having provided certain investment
banking services to the Company from time to time, including acting as lead
manager on the Company's initial public offering and providing financial
advisory services on other matters in the past.
In connection with our review of the Merger and the preparation of our
opinion herein, we have examined: (a) the draft Merger Agreement and certain
other documents contemplated thereby; (b) certain audited historical financial
statements of the Company for the three years ended March 31, 2000 and of CSCO
for the three years ended July 31, 2000; (c) the unaudited financial statements
of the Company for the three months ended June 30, 2000; (d) certain internal
business, operating and financial information and forecasts of the Company (but
not of CSCO) (the "Forecasts"), prepared by the senior management of the
Company; (e) information regarding the strategic, financial and operational
benefits anticipated from the Merger prepared by the senior management of the
Company, (f) the pro forma impact of the Merger on the earnings per share of
CSCO (before and after taking into consideration any goodwill created as a
result of the Merger); (g) information regarding publicly available financial
terms and premiums paid of certain recently-completed transactions in the
Company's industry; (h) current and historical market prices and trading volumes
of the common stock of the Company and CSCO, including their performance in
comparison to selected companies in comparable businesses; and (i) certain other
publicly available information on the Company and CSCO. We have also held
discussions with members of the senior management of the Company (but not of
CSCO) to discuss the foregoing, have considered other matters which we have
deemed relevant to our inquiry and have taken into account such accepted
financial and investment banking procedures and considerations as we have deemed
relevant.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all the information examined
by or otherwise reviewed or discussed with
F-1
<PAGE> 215
us for purposes of this opinion including without limitation the Forecasts
provided by senior management. We have not made or obtained an independent
valuation or appraisal of the assets, liabilities or solvency of the Company or
CSCO. We have been advised by the senior management of the Company that the
Forecasts have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the senior management of the Company. In
that regard, we have assumed, with your consent, that all material assets and
liabilities (contingent or otherwise) of the Company are as set forth in the
Company's financial statements or other information made available to us. We
express no opinion with respect to the Forecasts or the estimates and judgments
on which they are based. Our opinion herein is based upon economic, market,
financial and other conditions existing on, and other information disclosed to
us as of, the date of this letter. It should be understood that, although
subsequent developments may affect this opinion, we do not have any obligation
to update, revise or reaffirm this opinion. We have relied as to all legal
matters on advice of counsel to the Company, and have assumed that the Merger
will be consummated on the terms described in the Merger Agreement, without any
waiver of any material terms or conditions by the Company.
William Blair & Company has been engaged in the investment banking business
since 1935. We continually undertake the valuation of investment securities in
connection with public offerings, private placements, business combinations,
estate and gift tax valuations and similar transactions. In the ordinary course
of our business, we may from time to time trade the securities of the Company or
CSCO for our own account and for the accounts of customers, and accordingly may
at any time hold a long or short position in such securities. We have acted as
the investment banker to the Company in connection with the Merger and will
receive a fee from the Company for our services, a significant portion or which
is contingent upon consummation of the Merger. In addition, the Company has
agreed to indemnify us against certain liabilities arising out of our
engagement.
We are expressing no opinion herein as to the price at which the common
stock of the Company and CSCO will trade at any future time or as to the effect
of the Merger on the trading price of the common stock of the Company or CSCO.
Such trading price may be affected by a number of factors, including but not
limited to (i) dispositions of the common stock of CSCO by stockholders within a
short period of time after the effective date of the Merger, (ii) changes in
prevailing interest rates and other factors which generally influence the price
of securities, (iii) adverse changes in the current capital markets, (iv) the
occurrence of adverse changes in the financial condition, business, assets,
results of operations or prospects of the Company or of CSCO or in the product
market, (v) any necessary actions by or restrictions of federal, state or other
governmental agencies or regulatory authorities, and (vi) timely completion of
the Merger on terms and conditions that are acceptable to all parties at
interest.
Our investment banking services and our opinion were provided for the use
and benefit of the Board of Directors of the Company in connection with its
consideration of the transaction contemplated by the Merger Agreement. Our
opinion is limited to the fairness, from a financial point of view, to the
stockholders of the Company of the Exchange Ratio in connection with the Merger,
and we do not address the merits of the underlying decision by the Company to
engage in the Merger and this opinion does not constitute a recommendation to
any stockholder as to how such stockholder should vote with respect to the
proposed Merger. It is understood that this letter may not be disclosed or
otherwise referred to without prior written consent, except that the opinion may
be included in its entirety in a proxy statement mailed to the stockholders by
the Company with respect to the Merger.
F-2
<PAGE> 216
Based upon and subject to the foregoing, it is our opinion as investment
banker that, as of the date hereof, the Exchange Ratio is fair, from a financial
point of view, to the Stockholders, other than CSCO.
Very truly yours,
WILLIAM BLAIR & COMPANY, L.L.C.
--------------------------------------
WILLIAM BLAIR & COMPANY, L.L.C.
F-3
<PAGE> 217
APPENDIX G
CHAPTER 23B.13
DISSENTERS' RIGHTS
23B.13.010 Definitions. As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RCW 23B.13.020 and who exercises that right when and
in the manner required by RCW 23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effective date of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would
be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
23B.13.020 Right to dissent. (1) A shareholder is entitled to dissent
from, and obtain payment of the fair value of the shareholder's shares in the
event of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by RCW
23B.11.030, 23B.11.080, or the articles of incorporation and the
shareholder is entitled to vote on the merger, or (ii) if the corporation
is a subsidiary that is merged with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
(d) An amendment of the articles of incorporation that materially
reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under
RCW 23B.06.040; or
G-1
<PAGE> 218
(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any one
of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the written
consent of the corporation.
23B.13.030 Dissent by nominees and beneficial owners. (1) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in the shareholder's name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the shareholder asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which the dissenter
dissents and the dissenter's other shares were registered in the names of
different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
23B.13.200 Notice of dissenters' rights. (1) If proposed corporate action
creating dissenters' rights under RCW 23B.13.020 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this chapter and be
accompanied by a copy of this chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020 is
taken without a vote of shareholders, the corporation, within ten days after
[the] effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken and
send them the dissenters' notice described in RCW 23B.13.220.
23.B.13.210 Notice of intent to demand payment. (1) If proposed corporate
action creating dissenters' rights under RCW 23B.13.020 is submitted to a vote
at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights must (a) deliver to the corporation before the vote is taken written
notice of the shareholder's intent to demand payment for the shareholder's
shares if the proposed action is effected, and (b) not vote such shares in favor
of the proposed action.
G-2
<PAGE> 219
(2) A shareholder who does not satisfy the requirements of subsection (1)
of this section is not entitled to payment for the shareholder's shares under
this chapter.
23B.13.220 Dissenters' notice. (1) If proposed corporate action creating
dissenters' rights under RCW 23B.13.020 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the effective
date of the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date;
(d) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days
after the date the notice is subsection (1) of this section is delivered;
and
(e) Be accompanied by a copy of this chapter.
23B.13.230 Duty to demand payment. (1) A shareholder sent a dissenters'
notice described in RCW 23B.13.220 must demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before the date required
to be set forth in the dissenters' notice pursuant to RCW 23B.13.220(2)(c), and
deposit the shareholder's certificates in accordance with the terms of the
notice.
(2) The shareholder who demands payment and deposits the shareholder's
share certificates under subsection (1) of this section retains all other rights
of a shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates were required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
23B.13.240 Share restrictions. (1) The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is effected or the restriction is
released under RCW 23B.13.260.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until the
effective date of the proposed corporate action.
23B.13.250 Payment. (1) Except as provided in RCW 23B.13.270, within
thirty days of the later of the effective date of the proposed corporate action,
or the date the payment demand is received, the corporation shall pay each
dissenter who complied with RCW 23B.13.230 the amount the corporation estimates
to be the fair value of the shareholder's shares, plus accrued interest.
G-3
<PAGE> 220
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(b) An explanation of how the corporation estimated the fair value of
the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under RCW
23B.13.280; and
(e) A copy of this chapter.
23B.13.260. Failure to take action. (1) If the corporation does not effect
the proposed action within sixty days after the date set for demanding payment
and depositing share certificates, the corporation shall return the deposited
certificates and release any transfer restrictions imposed on uncertificated
shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment demand
procedure.
23B.13.270 After-acquired shares. (1) A corporation may elect to withhold
payment required by RCW 23B.13.250 from a dissenter unless the dissenter was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation of
how the interest was calculated, and a statement of the dissenter's right to
demand payment under RCW 23B.13.280.
23B.13.280 Procedure if shareholder dissatisfied with payment or
offer. (1) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under RCW
23B.13.250, or reject the corporation's offer under RCW 23B.13.270 and demand
payment of the dissenter's estimate of the fair value of the dissenter's shares
and interest due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250
or offered under RCW 23B.13.270 is less than the fair value of the
dissenter's shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250 within
sixty days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (1) of this section within thirty days after the
corporation made or offered payment for the dissenter's shares.
G-4
<PAGE> 221
23B.13.300 Court action. (1) If a demand for payment under RCW 23B.13.280
remains unsettled, the corporation shall commence a proceeding within sixty days
after receiving the payment demand and petition the court to determine the fair
value of the shares and accrued interest. If the corporation does not commence
the proceeding within the sixty-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this chapter. If the court determines that such
shareholder has not complied with the provisions of this chapter, the
shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under RCW 23B.13.270.
23B.13.310 Court costs and counsel fees. (1) The court in a proceeding
commenced under RCW 23B.13.300 shall determine all costs of the proceeding,
including the reasonable compensation and expenses of appraisers appointed by
the court. The court shall assess the costs against the corporation, except that
the court may assess the costs against all or some of the dissenters, in amounts
the court finds equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under RCW
23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280; or
(b) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by chapter 23B.13.RCW.
G-5
<PAGE> 222
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
G-6
<PAGE> 223
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 317 of the California Corporations Code authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit indemnification, including
reimbursement of expenses incurred, under certain circumstances for liabilities
arising under the Securities Act. Cisco's Restated Articles of Incorporation, as
amended, and Amended Bylaws provide for indemnification of its directors,
officers, employees and other agents to the maximum extent permitted by the
California Corporations Code. In addition, Cisco has entered into
indemnification agreements with each of its directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith or incorporated by reference
herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S> <C>
2.1* -- Agreement and Plan of Merger and Reorganization dated as of
November 9, 2000 by and among Cisco Systems, Inc., Aqua
Acquisition Corporation and Active Voice Corporation
(attached as Appendix A to the proxy statement/prospectus
contained in this registration statement).
2.2* -- Asset Purchase Agreement dated as of November 9, 2000
between Atlantis Group, Inc. and Active Voice Corporation
(attached as Appendix B to the proxy statement/prospectus
contained in this registration statement).
2.3* -- Form of Noteholder Rights and Security Agreement to be
entered into between Atlantis Group, Inc. and Active Voice
Corporation (attached as Appendix C to the proxy
statement/prospectus contained in this registration
statement).
2.4* -- Stock Option Agreement dated as of November 9, 2000 between
Cisco Systems, Inc. and Active Voice Corporation (attached
as Appendix D to the proxy statement/prospectus contained in
this registration statement).
3.1* -- Cisco Systems, Inc.'s Restated Articles of Incorporation as
currently in effect, including the Certificate of
Determination of Series A Junior Participating Preferred
Stock (incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended July 25, 1998).
3.2* -- Certificate of Amendment to Cisco Systems, Inc.'s Restated
Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended April 29, 2000).
3.3* -- Cisco Systems, Inc.'s Amended and Restated Bylaws, as
currently in effect (incorporated by reference to Exhibit
3.2 to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarterly period ended October 30, 1999).
4.1* -- Form of Specimen Certificate for Cisco Systems, Inc.'s
common stock (incorporated by reference to Exhibit 28.01 of
Registrant's Registration Statement on Form S-1 (File No.
33-32778)).
4.2* -- Rights Agreement dated as of June 10, 1998 between Cisco
Systems, Inc. and BankBoston, N.A., as Rights Agent
(incorporated by reference to Registrant's Current Report on
Form 8-K filed on June 11, 1998).
</TABLE>
II-1
<PAGE> 224
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S> <C>
4.3* -- First Amendment to the Rights Agreement and Certification of
Compliance with Section 27 Thereof between Cisco Systems,
Inc. and Fleet National Bank (formerly known as BankBoston,
N.A.), as Rights Agent (incorporated by reference to Exhibit
4.2 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended July 29, 2000).
5.1* -- Opinion of Brobeck, Phleger & Harrison LLP regarding the
legality of the securities being issued.
8.1* -- Opinion of Brobeck, Phleger & Harrison LLP regarding certain
tax matters.
8.2 -- Opinion of Gray Cary Ware & Freidenrich regarding certain
tax matters.
23.1* -- Consent of PricewaterhouseCoopers LLP with respect to Cisco
Systems, Inc.'s financial statements.
23.2* -- Consent of Ernst & Young LLP with respect to Active Voice
Corporation's financial statements.
23.3* -- Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1 and Exhibit 8.1).
23.4 -- Consent of Gray Cary Ware & Freidenrich (included in Exhibit
8.2).
23.5* -- Consent of William Blair & Co. L.L.C.
24.1* -- Power of Attorney (see page II-4).
</TABLE>
---------------
*Previously filed.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
1. That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act), that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be a bona fide offering thereof;
2. That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act,
such reoffering prospectus will contain the information called for by
the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form;
3. That every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of
an amendment to this Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof;
4. To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11 or 13 of Form S-4,
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt
II-2
<PAGE> 225
means. This includes information contained in documents filed subsequent
to the effective date of this Registration Statement through the date of
responding to the request; and
5. To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in this Registration
Statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
[signature pages follow]
II-3
<PAGE> 226
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Jose,
State of California, on this 6th day of December.
CISCO SYSTEMS, INC.
By: /s/ JOHN T. CHAMBERS*
------------------------------------
John T. Chambers, President,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOHN T. CHAMBERS* President, Chief Executive Officer December 6, 2000
--------------------------------------------- and Director (Principal Executive
John T. Chambers Officer)
/s/ LARRY R. CARTER Senior Vice President, Finance and December 6, 2000
--------------------------------------------- Administration, Chief Financial
Larry R. Carter Officer, Secretary and Director
(Principal Financial and
Accounting Officer)
/s/ JOHN P. MORGRIDGE* Chairman of the Board and Director December 6, 2000
---------------------------------------------
John P. Morgridge
/s/ DONALD T. VALENTINE* Vice Chairman and Director December 6, 2000
---------------------------------------------
Donald T. Valentine
/s/ JAMES F. GIBBONS* Director December 6, 2000
---------------------------------------------
James F. Gibbons
/s/ STEVEN M. WEST* Director December 6, 2000
---------------------------------------------
Steven M. West
/s/ EDWARD R. KOZEL* Director December 6, 2000
---------------------------------------------
Edward R. Kozel
/s/ CAROL A. BARTZ* Director December 6, 2000
---------------------------------------------
Carol A. Bartz
/s/ JAMES C. MORGAN* Director December 6, 2000
---------------------------------------------
James C. Morgan
</TABLE>
II-4
<PAGE> 227
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MARY CIRILLO* Director December 6, 2000
---------------------------------------------
Mary Cirillo
/s/ ARUN SARIN* Director December 6, 2000
---------------------------------------------
Arun Sarin
/s/ JERRY YANG* Director December 6, 2000
---------------------------------------------
Jerry Yang
*By: /s/ LARRY R. CARTER
---------------------------------------
Larry R. Carter
Attorney-in-fact
</TABLE>
II-5
<PAGE> 228
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S> <C>
2.1* -- Agreement and Plan of Merger and Reorganization dated as of
November 9, 2000 by and among Cisco Systems, Inc., Aqua
Acquisition Corporation and Active Voice Corporation
(attached as Appendix A to the proxy statement/prospectus
contained in this registration statement).
2.2* -- Asset Purchase Agreement dated as of November 9, 2000
between Atlantis Group, Inc. and Active Voice Corporation
(attached as Appendix B to the proxy statement/prospectus
contained in this registration statement).
2.3* -- Form of Noteholder Rights and Security Agreement to be
entered into between Atlantis Group, Inc. and Active Voice
Corporation (attached as Appendix C to the proxy
statement/prospectus contained in this registration
statement).
2.4* -- Stock Option Agreement dated as of November 9, 2000 between
Cisco Systems, Inc. and Active Voice Corporation (attached
as Appendix D to the proxy statement/prospectus contained in
this registration statement).
3.1* -- Cisco Systems, Inc.'s Restated Articles of Incorporation as
currently in effect, including the Certificate of
Determination of Series A Junior Participating Preferred
Stock (incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended July 25, 1998).
3.2* -- Certificate of Amendment to Cisco Systems, Inc.'s Restated
Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended April 29, 2000).
3.3* -- Cisco Systems, Inc.'s Amended and Restated Bylaws, as
currently in effect (incorporated by reference to Exhibit
3.2 to the Registrant's Quarterly Report on Form 10-Q for
the fiscal quarterly period ended October 30, 1999).
4.1* -- Form of Specimen Certificate for Cisco Systems, Inc.'s
common stock (incorporated by reference to Exhibit 28.01 of
Registrant's Registration Statement on Form S-1 (File No.
33-32778)).
4.2* -- Rights Agreement dated as of June 10, 1998 between Cisco
Systems, Inc. and BankBoston, N.A., as Rights Agent
(incorporated by reference to Registrant's Current Report on
Form 8-K filed on June 11, 1998).
4.3* -- First Amendment to the Rights Agreement and Certification of
Compliance with Section 27 Thereof between Cisco Systems,
Inc. and Fleet National Bank (formerly known as BankBoston,
N.A.), as Rights Agent (incorporated by reference to Exhibit
4.2 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended July 29, 2000).
5.1* -- Opinion of Brobeck, Phleger & Harrison LLP regarding the
legality of the securities being issued.
8.1* -- Opinion of Brobeck, Phleger & Harrison LLP regarding certain
tax matters.
8.2 -- Opinion of Gray Cary Ware & Freidenrich regarding certain
tax matters.
23.1* -- Consent of PricewaterhouseCoopers LLP with respect to Cisco
Systems, Inc.'s financial statements.
23.2* -- Consent of Ernst & Young LLP with respect to Active Voice
Corporation's financial statements.
23.3* -- Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1 and Exhibit 8.1).
23.4 -- Consent of Gray Cary Ware & Freidenrich (included in Exhibit
8.2).
</TABLE>
<PAGE> 229
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S> <C>
23.5* -- Consent of William Blair & Co. L.L.C.
24.1* -- Power of Attorney (see page II-4).
</TABLE>
---------------
*Previously filed.
