<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
------------------------
XYLAN CORPORATION
(NAME OF SUBJECT COMPANY)
ALCATEL
ZEUS ACQUISITION CORP.
(BIDDERS)
------------------------
COMMON STOCK, PAR VALUE $0.001 PER SHARE
PREFERRED SHARE PURCHASE RIGHTS
(TITLE OF CLASS OF SECURITIES)
------------------------
984151 10 0
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
MICHAEL HAASE
ALCATEL USA
1000 COIT ROAD
PLANO, TEXAS 75075
(972) 519-6855
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF THE BIDDERS)
------------------------
COPY TO
STANLEY KOMAROFF, ESQ.
PROSKAUER ROSE LLP
1585 BROADWAY
NEW YORK, NEW YORK 10036
(212) 969-3000
CALCULATION OF FILING FEE
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TRANSACTION VALUATION AMOUNT OF FILING FEE
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$1,467,869,106(1) $293,574
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</TABLE>
(1) Calculated by multiplying $37.00, the per share cash tender offer price, by
39,672,138, the number of shares of Common Stock being sought in the tender
offer and not owned by Parent or Purchaser.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
<TABLE>
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Amount Previously Paid: -------------------------- Filing Party: -------------------------
Form or Registration No.: ------------------------- Date Filed: --------------------------
</TABLE>
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<PAGE> 2
SCHEDULE 14D-1
CUSIP NO. 984151 10 0 PAGE 2 OF 3 PAGES
<TABLE>
<S> <C> <C>
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1 NAME OF REPORTING PERSON
Zeus Acquisition Corp. I.R.S. IDENTIFICATION NUMBER OF ABOVE
PERSON
Pending
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS* AF
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(e) or 2(f) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION California
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7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,943,705 shares of Common Stock (right to acquire).
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8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES
CERTAIN SHARES* [ ]
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9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 11.6
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10 TYPE OF REPORTING PERSON* CO
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</TABLE>
<PAGE> 3
SCHEDULE 14D-1
CUSIP NO. 984151 10 0 PAGE 3 OF 3 PAGES
<TABLE>
<S> <C> <C>
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1 NAME OF REPORTING PERSON
Alcatel I.R.S. IDENTIFICATION NUMBER OF ABOVE PERSON
Not applicable
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS* WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(e) or 2(f) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION France
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7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
7,757,949 shares of Common Stock (including 4,943,705 shares
that Alcatel has the right to acquire)
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8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES
CERTAIN SHARES* [ ]
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9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) 18.3
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10 TYPE OF REPORTING PERSON* CO
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</TABLE>
<PAGE> 4
This Tender Offer Statement on Schedule 14D-1 (the "Statement") relates to
the offer by Zeus Acquisition Corp., a corporation organized and existing under
the laws of the State of California ("Purchaser") and a wholly-owned indirect
subsidiary of Alcatel, a corporation organized and existing under the laws of
France ("Parent"), to purchase all of the outstanding shares of common stock,
par value $0.001 per share (including the associated Preferred Share Purchase
Rights) (collectively, the "Shares"), of Xylan Corporation, a corporation
organized and existing under the laws of the State of California (the
"Company"), at a price of $37.00 per Share, net to the seller in cash (subject
to applicable withholding of taxes), without interest, upon the terms and
subject to the conditions set forth in Purchaser's Offer to Purchase, dated
March 8, 1999 (the "Offer to Purchase"), and in the related Letter of
Transmittal (which, together with any amendments or supplements thereto,
collectively constitute the "Offer"), copies of which are filed herewith as
Exhibits (a)(1) and (a)(2), respectively.
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is Xylan Corporation and its principal
executive offices are located at 26707 West Agoura Road, Calabasas, California
91302.
(b) The class of equity securities and the exact amount of such securities
being sought are 39,672,138 shares of common stock, par value $0.001 per share,
of the Company (including the associated Preferred Share Purchase Rights). As of
February 23, 1999, there were 42,486,382 Shares issued and outstanding, as
represented by the Company in the Agreement and Plan of Merger, dated as of
March 1, 1999, by and among Parent, Purchaser and the Company. Parent currently
beneficially owns 2,814,244 of the Shares. The information set forth in the
Introduction and Section 1 ("Terms of the Offer; Proration; Expiration Date") of
the Offer to Purchase is incorporated herein by reference.
(c) The information concerning the principal market in which the Shares are
traded and certain high and low sales prices for the Shares in such principal
market is set forth in Section 6 ("Price Range of Shares; Dividends") in the
Offer to Purchase and is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) and (g) This Statement is being filed by Purchaser and Parent. The
information concerning the name, state or other place of organization, principal
business and address of the principal office of each of Purchaser and Parent and
the name, residence or business address, present principal occupation or
employment and the name, principal business and address of any corporation or
other organization in which such employment or occupation is conducted, material
occupations, positions, offices or employments during the last five years and
citizenship of each of the executive officers and directors of Purchaser and
Parent is set forth in Section 8 ("Certain Information Concerning Purchaser and
Parent") and Schedule I of the Offer to Purchase and is incorporated herein by
reference. Purchaser is a wholly-owned subsidiary of Alcatel USA, Inc., a
Delaware corporation ("Alcatel USA"), which is a 50%-owned subsidiary of each of
Parent and Alcatel USA Holdings, Inc., a Delaware corporation ("Alcatel USA
Holdings"), which is a wholly-owned subsidiary of Parent. The principal business
address of Alcatel USA is 1000 Coit Road, Plano, Texas 75075 and of Alcatel USA
Holdings is 39 Second Street, Hickory, North Carolina 29601.
(e) and (f) During the last five years, none of Purchaser, Parent, Alcatel
USA or Alcatel USA Holdings and, to the best knowledge of Purchaser and Parent,
none of the persons listed in Schedule I of the Offer to Purchase has been (i)
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting activities subject to, federal or state securities
laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a) The information set forth in Section 8 ("Certain Information Concerning
Purchaser and Parent") of the Offer to Purchase is incorporated herein by
reference.
<PAGE> 5
(b) The information set forth in the Introduction, Section 8 ("Certain
Information Concerning Purchaser and Parent") and Section 10 ("Background of the
Offer; Contacts with the Company; the Merger Agreement; Shareholder Agreements;
Stock Option Agreement; Employment Agreement") of the Offer to Purchase is
incorporated herein by reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(c) The information set forth in Section 9 ("Financing of the Offer and
the Merger") of the Offer to Purchase is incorporated herein by reference.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(e) The information set forth in the Introduction, Section 10
("Background of the Offer; Contacts with the Company; the Merger Agreement;
Shareholder Agreements; Stock Option Agreement; Employment Agreement") and
Section 11 ("Purpose of the Offer; Plans for the Company After the Offer and the
Merger; Other Matters") of the Offer to Purchase is incorporated herein by
reference.
(f) and (g) The information set forth in Section 13 ("Effect of the Offer
on the Market for the Shares, Exchange Listing and Exchange Act Registration")
of the Offer to Purchase is incorporated herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) The information set forth on the cover page hereto and in the
Introduction, Section 8 ("Certain Information Concerning Purchaser and Parent")
and Section 10 ("Background of the Offer; Contacts with the Company; the Merger
Agreement; Shareholder Agreements; Stock Option Agreement; Employment
Agreement") of the Offer to Purchase is incorporated herein by reference. Each
of Alcatel USA and Alcatel USA Holdings is deemed to beneficially own the
4,943,705 Shares (as to which each has the right to acquire) beneficially owned
by Purchaser, constituting approximately 11.6% of the total number of Shares
represented by the Company to be outstanding as of February 23, 1999. In
addition, Alcatel Data Networks, S.A., a subsidiary of Parent whose principal
business address is 1-3 avenue Jeanne Braconier 92360 Meudon La Foret, France,
beneficially owns 2,814,244 of the Shares deemed to be beneficially owned by
Parent, constituting approximately 6.6% of the total number of Shares
represented by the Company to be outstanding as of February 23, 1999.
(b) The information set forth in the Introduction, Section 8 ("Certain
Information Concerning Purchaser and Parent") and Section 10 ("Background of the
Offer; Contacts with the Company; the Merger Agreement; Shareholder Agreements;
Stock Option Agreement; Employment Agreement") of the Offer to Purchase is
incorporated herein by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT
COMPANY'S SECURITIES.
The information set forth in the Introduction, Section 8 ("Certain
Information Concerning Purchaser and Parent") and Section 10 ("Background of the
Offer; Contacts with the Company; the Merger Agreement; Shareholder Agreements;
Stock Option Agreement; Employment Agreement") of the Offer to Purchase is
incorporated herein by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in the Introduction and Section 16 ("Fees and
Expenses") of the Offer to Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth in Section 8 ("Certain Information Concerning
Purchaser and Parent") is incorporated herein by reference. The incorporation by
reference of such information does not constitute an
<PAGE> 6
admission that such information is material to a decision by a shareholder of
the Company whether to sell, tender or hold his, her or its Shares.
ITEM 10. ADDITIONAL INFORMATION.
(a) Not applicable
(b)-(c) and (e) The information set forth in Section 15 ("Certain Legal
Matters and Regulatory Approvals") of the Offer to Purchase is incorporated
herein by reference.
(d) Not applicable
(f) The information set forth in the Offer to Purchase is incorporated
herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
(a)(1) Offer to Purchase dated March 8, 1999
(a)(2) Letter of Transmittal
(a)(3) Notice of Guaranteed Delivery
(a)(4) Letter to brokers, dealers, commercial banks, trust
companies and nominees
(a)(5) Letter to clients for use by brokers, dealers, commercial
banks, trust companies and nominees
(a)(6) Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9
(a)(7) Summary advertisement as published in THE WALL STREET
JOURNAL on March 8, 1999
(a)(8) Press release issued on March 2, 1999
(b) Not applicable
(c)(1) Agreement and Plan of Merger, dated as of March 1, 1999, by
and among Parent, Purchaser and the Company
(c)(2) Shareholder Agreement, dated as of March 1, 1999, by and
among Parent, Purchaser, Steven Y. Kim, Steve Y. Kim Living
Trust and Kim Irrevocable Children's Trust
(c)(3) Shareholder Agreement, dated as of March 1, 1999, by and
among Parent, Purchaser and Yuri Pikover, Pikover 1995
Irrevocable Trust, Pikover Trust and Pikover Irrevocable
Children's Trust
(c)(4) Shareholder Agreement, dated as of March 1, 1999, by and
among Parent, Purchaser and John Walecka
(c)(5) Stock Option Agreement, dated March 1, 1999, by and among
Parent, Purchaser and the Company
(c)(6) 1995 Shareholder Agreement, dated as of March 13, 1995,
among Alcatel Data Networks, S.A., Brentwood Associates VI,
L.P., Crosspoint Venture Partners 93, Crosspoint 1993
Entrepreneurs Fund, Norwest Equity Partners IV, U.S. Venture
Partners IV, L.P., Second Ventures II, L.P., USVP
Entrepreneur Partners II, L.P., Steve Y. Kim and Yuri
Pikover
(d) Not applicable
(e) Not applicable
(f) Not applicable
</TABLE>
<PAGE> 7
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
ALCATEL
By: /s/ SERGE TCHURUK
------------------------------------
Name: Serge Tchuruk
Title: Chairman and Chief Executive
Officer
ZEUS ACQUISITION CORP.
By: /s/ OLIVIER HOUSSIN
------------------------------------
Name: Olivier Houssin
Title: Chairman
March 8, 1999
<PAGE> 8
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO.
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<S> <C> <C>
(a)(1) Offer to Purchase dated March 8, 1999
(a)(2) Letter of Transmittal
(a)(3) Notice of Guaranteed Delivery
(a)(4) Letter to brokers, dealers, commercial banks, trust
companies and nominees
(a)(5) Letter to clients for use by brokers, dealers, commercial
banks, trust companies and nominees
(a)(6) Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9
(a)(7) Summary advertisement as published in THE WALL STREET
JOURNAL on March 8, 1999
(a)(8) Press release issued on March 2, 1999
(b) Not applicable
(c)(1) Agreement and Plan of Merger, dated as of March 1, 1999, by
and among Parent, Purchaser and the Company
(c)(2) Shareholder Agreement, dated as of March 1, 1999, by and
among Parent, Purchaser, Steven Y. Kim, Steve Y. Kim Living
Trust and Kim Irrevocable Children's Trust
(c)(3) Shareholder Agreement, dated as of March 1, 1999, by and
among Parent, Purchaser and Yuri Pikover, Pikover 1995
Irrevocable Trust, Pikover Trust and Pikover Irrevocable
Children's Trust
(c)(4) Shareholder Agreement, dated as of March 1, 1999, by and
among Parent, Purchaser and John Walecka
(c)(5) Stock Option Agreement, dated March 1, 1999, by and among
Parent, Purchaser and the Company
(c)(6) 1995 Shareholder Agreement, dated as of March 13, 1995,
among Alcatel Data Networks, S.A., Brentwood Associates VI,
L.P., Crosspoint Venture Partners 93, Crosspoint 1993
Entrepreneurs Fund, Norwest Equity Partners IV, U.S. Venture
Partners IV, L.P., Second Ventures II, L.P., USVP
Entrepreneur Partners II, L.P., Steve Y. Kim and Yuri
Pikover
(d) Not applicable
(e) Not applicable
(f) Not applicable
</TABLE>
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OF THE OUTSTANDING SHARES OF COMMON STOCK
OF
XYLAN CORPORATION
AT
$37.00 NET PER SHARE
BY
ZEUS ACQUISITION CORP.
A WHOLLY-OWNED INDIRECT SUBSIDIARY OF
ALCATEL
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON FRIDAY, APRIL 2, 1999, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE HAVING BEEN
VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST
90% OF THE OUTSTANDING SHARES AND IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS
DESCRIBED IN THIS OFFER TO PURCHASE. SEE SECTIONS 14 AND 15.
THE BOARD OF DIRECTORS OF XYLAN CORPORATION (THE "COMPANY") HAS UNANIMOUSLY
APPROVED THE OFFER AND THE MERGER, APPROVED AND ADOPTED THE MERGER AGREEMENT,
THE STOCK OPTION AGREEMENT AND THE EMPLOYMENT AGREEMENT (AS TO WHICH STEVE Y.
KIM ABSTAINED) AS DESCRIBED HEREIN AND DETERMINED THAT EACH OF THE OFFER, THE
MERGER, THE STOCK OPTION AGREEMENT AND THE MERGER AGREEMENT IS FAIR TO AND IN
THE BEST INTERESTS OF THE SHAREHOLDERS OF THE COMPANY AND RECOMMENDS THAT THE
SHAREHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO
THE OFFER.
------------------------
IMPORTANT
Any shareholder desiring to tender all or any portion of such shareholder's
shares of common stock, par value $0.001 per share (including the associated
Preferred Share Purchase Rights) (collectively, the "Shares"), of the Company
should either (1) complete and sign the enclosed Letter of Transmittal (or a
manually signed facsimile thereof) in accordance with the instructions in the
Letter of Transmittal and (a) mail or deliver the Letter of Transmittal and any
other required documents together with the certificate(s) evidencing tendered
Shares to the Depositary or (b) tender such Shares pursuant to the procedures
for book-entry transfer set forth in Section 3 or (2) request such shareholder's
broker, dealer, commercial bank, trust company or other nominee to effect the
transaction for such shareholder. Any shareholder whose Shares are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
must contact such broker, dealer, commercial bank, trust company or other
nominee if such shareholder desires to tender such Shares.
A shareholder who desires to tender Shares and whose certificates
evidencing such Shares are not immediately available, or who cannot comply with
the procedures for book-entry transfer on a timely basis, may tender such Shares
by following the procedures for guaranteed delivery set forth in Section 3.
Questions or requests for assistance may be directed to the Information
Agent or to the Dealer Manager at their respective addresses and telephone
numbers set forth on the back cover of this Offer to Purchase. Additional copies
of this Offer to Purchase, the Letter of Transmittal and the Notice of
Guaranteed Delivery may also be obtained from the Information Agent or from
brokers, dealers, commercial banks or trust companies.
------------------------
THE DEALER MANAGER FOR THE OFFER IS:
LEHMAN BROTHERS
March 8, 1999
<PAGE> 2
TABLE OF CONTENTS
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PAGE
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INTRODUCTION..................................................... 1
THE TENDER OFFER
1. Terms of the Offer; Proration; Expiration Date.............. 4
2. Acceptance for Payment and Payment for Shares............... 6
3. Procedures for Accepting the Offer and Tendering Shares..... 6
4. Withdrawal Rights........................................... 9
5. Certain Federal Income Tax Consequences..................... 9
6. Price Range of Shares; Dividends............................ 10
7. Certain Information Concerning the Company.................. 10
8. Certain Information Concerning Purchaser and Parent......... 12
9. Financing of the Offer and the Merger....................... 13
10. Background of the Offer; Contacts with the Company; The 14
Merger Agreement; Shareholder Agreements; Stock Option
Agreement; Employment Agreement.............................
11. Purpose of the Offer; Plans for the Company After the Offer 30
and the Merger; Other Matters...............................
12. Dividends and Distributions................................. 32
13. Effect of the Offer on the Market for the Shares, Exchange 33
Listing and Exchange Act Registration.......................
14. Certain Conditions of the Offer............................. 33
15. Certain Legal Matters and Regulatory Approvals.............. 35
16. Fees and Expenses........................................... 38
17. Miscellaneous............................................... 38
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND PURCHASER....... 40
</TABLE>
i
<PAGE> 3
To the Holders of Common Stock of
XYLAN CORPORATION:
INTRODUCTION
Zeus Acquisition Corp., a corporation organized and existing under the laws
of the State of California ("Purchaser") and a wholly-owned indirect subsidiary
of Alcatel, a corporation organized and existing under the laws of France
("Parent" or "Alcatel"), hereby offers to purchase all of the outstanding shares
of common stock, par value $0.001 per share (including the associated Preferred
Share Purchase Rights) (collectively, "Company Common Stock" or "Shares"), of
Xylan Corporation, a corporation organized and existing under the laws of the
State of California (the "Company"), at a price of $37.00 per Share (such price,
or such higher price per Share as may be paid in the Offer, being referred to
herein as the "Offer Price"), net to the seller in cash (subject to applicable
withholding of taxes), without interest, upon the terms and subject to the
conditions set forth in this Offer to Purchase and in the related Letter of
Transmittal (which, together with any amendments or supplements hereto or
thereto, collectively constitute the "Offer").
Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 6 of the Letter of
Transmittal, stock transfer taxes with respect to the purchase of Shares by
Purchaser pursuant to the Offer. Purchaser will pay all fees and expenses of
Lehman Brothers Inc. ("Lehman Brothers"), which is acting as Dealer Manager for
the Offer (in such capacity, the "Dealer Manager"), The Bank of New York (the
"Depositary") and Georgeson & Company Inc. (the "Information Agent") incurred in
connection with the Offer. See Section 16.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE HAVING BEEN
VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST
90% OF THE OUTSTANDING SHARES (THE "MINIMUM CONDITION") AND IS ALSO SUBJECT TO
OTHER TERMS AND CONDITIONS DESCRIBED IN THIS OFFER TO PURCHASE. SEE SECTION 14,
WHICH SETS FORTH IN FULL THE CONDITIONS TO THE OFFER.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of March 1, 1999 (the "Merger Agreement"), by and among Parent, Purchaser and
the Company. The Merger Agreement provides that, among other things, as promptly
as practicable after the purchase of Shares pursuant to the Offer and the
satisfaction or waiver of the other conditions set forth in the Merger Agreement
and in accordance with the applicable provisions of the California General
Corporation Law (the "CGCL"), Purchaser will be merged with and into the Company
(the "Merger"), the separate corporate existence of Purchaser will cease and the
Company will continue as the surviving corporation (the "Surviving Corporation")
and will be a wholly-owned indirect subsidiary of Parent. At the effective time
of the Merger (the "Effective Time"), each remaining outstanding Share (other
than Shares owned by Parent, Purchaser or any direct or indirect wholly-owned
subsidiary of the Company or Parent immediately prior to the Effective Time
("Ineligible Shares") and Shares held by shareholders who properly perfect their
dissenters' rights under the CGCL ("Dissenting Shares")) will be converted
automatically into the right to receive the Offer Price, without interest. The
Merger Agreement is more fully described in Section 10.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD") HAS UNANIMOUSLY
APPROVED THE OFFER AND THE MERGER, APPROVED AND ADOPTED THE MERGER AGREEMENT,
THE STOCK OPTION AGREEMENT AND THE EMPLOYMENT AGREEMENT (AS TO WHICH MR. KIM
ABSTAINED) AS DESCRIBED HEREIN AND DETERMINED THAT EACH OF THE OFFER, THE
MERGER, THE STOCK OPTION AGREEMENT AND THE MERGER AGREEMENT IS FAIR TO AND IN
THE BEST INTERESTS OF THE SHAREHOLDERS OF THE COMPANY AND RECOMMENDS THAT THE
SHAREHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO
THE OFFER.
The Merger Agreement provides that, in the event the Minimum Condition is
not satisfied on any scheduled expiration date of the Offer and provided that
certain other conditions have been met, Purchaser may, in its sole discretion,
either (i) extend the Offer or (ii) amend the Offer to provide that, in the
event (A) the Minimum Condition is not satisfied at the next scheduled
expiration date of the Offer (without giving effect to the potential issuance of
any Shares issuable upon exercise of the Stock Option Agreement) and (B) the
number of Shares tendered pursuant to the Offer and not withdrawn as of such
next scheduled
1
<PAGE> 4
expiration date is more than 50% of the then outstanding Shares, Purchaser will
waive the Minimum Condition and amend the Offer to reduce the number of Shares
subject to the Offer to a number of Shares that, when added to the Shares then
owned by Purchaser, will equal 49.99% of the Shares then outstanding (the
"Revised Minimum Number"), and, if a greater number of Shares is tendered into
the Offer and not withdrawn, purchase, on a pro rata basis, the Revised Minimum
Number of Shares (it being understood that Purchaser may, but will not in any
event be required to accept for payment, and pay for, any Shares if less than
the Revised Minimum Number of Shares is tendered pursuant to the Offer and not
withdrawn at the applicable expiration date).
The consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including the approval and adoption of the Merger Agreement
by the requisite vote of the shareholders of the Company, if required by the
CGCL. See Sections 11 and 14. Under the CGCL, if Purchaser acquires, pursuant to
the Offer, the Stock Option Agreement or otherwise, at least 90% of the Shares
then outstanding, it will be able to approve the Merger Agreement and the
transactions contemplated thereby, including the Merger, without a vote of the
shareholders. In such event, Parent, Purchaser and the Company have agreed in
the Merger Agreement to take, subject to the satisfaction or waiver of the
conditions set forth in the Merger Agreement, all necessary and appropriate
action to cause the Merger to become effective as soon as practicable after the
acceptance of and payment for Shares by Purchaser pursuant to the Offer, without
a meeting of shareholders of the Company, in accordance with Section 1110 of the
CGCL. Under the CGCL, the Merger may not be accomplished for cash paid to the
shareholders of the Company if Purchaser or Parent owns, directly or indirectly,
more than 50% but less than 90% of the then outstanding Shares, unless either
all the shareholders of the Company consent or the Commissioner of Corporations
of the State of California approves, after a hearing, the terms and conditions
of the Merger and the fairness thereof. If Purchaser does not acquire at least
90% of the Shares then outstanding as of any scheduled expiration date of the
Offer, pursuant to the Offer, the Stock Option Agreement or otherwise, and
Purchaser instead waives the Minimum Condition and amends the Offer pursuant to
the immediately preceding paragraph, then Purchaser would own upon consummation
of the Offer 49.99% of the Shares then outstanding, and would thereafter solicit
the approval of the Merger and the Merger Agreement by a vote of the
shareholders of the Company. Under such circumstances, a significantly longer
period of time will be required to effect the Merger. See Sections 10 and 11.
Concurrently with the execution of the Merger Agreement, and as a condition
and inducement to Parent's and Purchaser's entering into the Merger Agreement,
the Company entered into the stock option agreement, dated March 1, 1999 (the
"Stock Option Agreement"), with Parent and Purchaser. Pursuant to the Stock
Option Agreement, the Company granted to Purchaser an irrevocable option (the
"Top-Up Stock Option") to purchase that number of Shares (the "Top-Up Option
Shares") equal to the number of Shares that, when added to the number of Shares
owned by Purchaser, Parent and their subsidiaries immediately following
consummation of the Offer, will constitute 90% of the Shares then outstanding at
a cash purchase price per Top-Up Option Share equal to the Offer Price, subject
to the terms and conditions set forth in the Stock Option Agreement, including,
without limitation, that the number of Shares to be issued under the Top-Up
Stock Option may not exceed the number of authorized Shares available for
issuance. If the Top-Up Stock Option is exercised by Purchaser (resulting in
Purchaser owning 90% or more of the Shares then outstanding), Purchaser will be
able to effect a short-form Merger under the CGCL, subject to the terms and
conditions of the Merger Agreement.
As a further condition and inducement to Parent's and Purchaser's entering
into the Merger Agreement, certain shareholders of the Company, including Steve
Y. Kim, Yuri Pikover and John Walecka, directors and/or executive officers of
the Company, and certain trusts formed by them (the "Shareholders"), entered
into shareholder agreements, each dated as of March 1, 1999 (the "Shareholder
Agreements"), with Parent and Purchaser. Subject to the terms and conditions of
the Shareholder Agreements, each of the Shareholders has, among other things,
(i) agreed to tender pursuant to the Offer all Shares beneficially owned by such
Shareholder, (ii) except for Mr. Walecka, granted to Purchaser an irrevocable
option to purchase the Shares subject to the Shareholder Agreements at a cash
purchase price per Share equal to the Offer Price, (iii) agreed to vote such
Shares in favor of the approval and adoption of the Merger and the Merger
Agreement and (iv) granted to Parent and certain officers of Parent an
irrevocable proxy to vote such Shares
2
<PAGE> 5
in favor of the transactions contemplated by the Merger Agreement. The Shares
owned by the Shareholders (excluding options) and subject to the Shareholder
Agreements, 4,943,705 Shares, constituted approximately 11.6% of the Shares
represented by the Company to be outstanding as of February 23, 1999. See
Section 10.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
3
<PAGE> 6
THE TENDER OFFER
1. TERMS OF THE OFFER; PRORATION; EXPIRATION DATE.
Upon the terms and subject to the conditions of the Offer (including if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment), and subject to reduction in the number of Shares subject to the
Offer to a number equal to the Revised Minimum Number, Purchaser will accept for
payment and pay for all Shares validly tendered on or prior to the Expiration
Date (as defined below) and not properly withdrawn as permitted by Section 4.
The term "Expiration Date" means 12:00 midnight, New York City time, on Friday,
April 2, 1999, unless and until Purchaser, in accordance with the terms of the
Merger Agreement, extends the period of time during which the Offer is open, in
which event the term "Expiration Date" will mean the latest time and date at
which the Offer, as so extended by Purchaser, will expire.
If on the Expiration Date, all conditions to the Offer will not have been
satisfied or waived, Purchaser may, from time to time, in its sole discretion,
extend the Expiration Date until a date not later than June 30, 1999. However,
if the HSR/Foreign Antitrust Condition (as defined in Section 14) has not been
satisfied or waived at the Expiration Date, Purchaser may extend the Expiration
Date until a date not later than September 30, 1999, and Parent and Purchaser
have agreed to exercise their reasonable best efforts to comply with any
requests of the United States Department of Justice (the "DOJ"), the United
States Federal Trade Commission (the "FTC") or similar foreign governmental
entity. In addition, at the request of the Company, Purchaser will extend the
Expiration Date (i) in one or more periods of not more than five business days
(but in no event later than April 30, 1999), if (A) any of the conditions set
forth in Section 14 has not been satisfied or waived at the Expiration Date, (B)
such condition is reasonably capable of being satisfied by the Company, (C) the
Company exercises its reasonable best efforts to cause such condition to be
satisfied and (D) the Company is in compliance with all of its covenants in the
Merger Agreement, (ii) for five business days in the event that the Minimum
Condition has not been satisfied at the first scheduled Expiration Date or (iii)
until a date not later than September 30, 1999, only if the HSR/Foreign
Antitrust Condition (as defined in Section 14) has not been satisfied or waived
at the Expiration Date and the Company exercises its reasonable best efforts to
comply with any second requests of the DOJ, FTC or similar foreign governmental
entity. Purchaser may also extend the Offer for any period required by any rule,
regulation, interpretation or position of the Securities and Exchange Commission
(the "SEC") applicable to the Offer, without the consent of the Company.
The Merger Agreement provides that, except as described below, Purchaser
will not (i) amend or waive the Minimum Condition, (ii) decrease the Offer
Price, (iii) decrease the number of Shares sought or (iv) amend any other
condition of the Offer in any manner adverse to the holders of the Shares
without the written consent of the Company (such consent to be authorized by the
Company Board or a duly authorized committee thereof). Nevertheless, in the
event the Minimum Condition is not satisfied on any Expiration Date and the
Company has not given to Purchaser a notice to extend the Expiration Date
pursuant to clause (ii) of the immediately preceding paragraph, Purchaser may,
in its sole discretion, either (i) extend the Offer pursuant to the above
paragraph or (ii) amend the Offer to provide that, in the event (A) the Minimum
Condition is not satisfied at the next scheduled Expiration Date (without giving
effect to the potential issuance of any Shares issuable upon exercise of the
Stock Option Agreement) and (B) the number of Shares tendered pursuant to the
Offer and not withdrawn as of such next scheduled Expiration Date is more than
50% of the then outstanding Shares, Purchaser will waive the Minimum Condition
and amend the Offer to reduce the number of Shares subject to the Offer to a
number of Shares that, when added to the Shares then owned by Purchaser, will
equal the Revised Minimum Number, and, if a greater number of Shares is tendered
into the Offer and not withdrawn, purchase, on a pro rata basis, the Revised
Minimum Number of Shares (it being understood that Purchaser may, but will not
in any event be required to accept for payment, and pay for, any Shares if less
than the Revised Minimum Number of Shares is tendered pursuant to the Offer and
not withdrawn at the applicable Expiration Date).
In addition to Purchaser's rights to extend and amend the Offer at any time
in its sole discretion, but subject to the provisions of the Merger Agreement,
Purchaser (i) will not be required to accept for payment or, subject to any
applicable rules and regulations of the SEC, pay for, and may delay the
acceptance for
4
<PAGE> 7
payment of, or payment for, any tendered Shares, and (ii) may terminate the
Offer or amend the Offer as to any Shares not then paid for, if any of the
conditions specified in Section 14 exists. Purchaser acknowledges that (a) Rule
14e-l(c) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires Purchaser to pay the consideration offered or return the Shares
tendered promptly after the termination or withdrawal of the Offer and (b)
Purchaser may not delay acceptance for payment of, or payment for (except as
provided in clause (i) of the first sentence of this paragraph), any Shares upon
the occurrence of any of the conditions specified in Section 14 without
extending the period of time during which the Offer is open.
Purchaser is required to give oral or written notice of any extension,
delay, termination or amendment of the Offer to the Depositary. Any such
extension, delay, termination or amendment will also be followed as promptly as
practicable by public announcement thereof, such announcement in the case of an
extension to be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Subject to
applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act,
which require that material changes be promptly disseminated to shareholders in
a manner reasonably designed to inform them of such changes) and without
limiting the manner in which Purchaser may choose to make any public
announcement, Purchaser will have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by issuing a press
release to the Dow Jones News Service.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, Purchaser will extend the Offer to the extent required by Rules 14d-4(c),
14d-6(d) and 14e-1(d) under the Exchange Act.
Subject to the terms of the Merger Agreement, if, prior to the Expiration
Date, Purchaser should decide to increase or decrease the number of Shares being
sought or to increase or decrease the Offer Price, such increase or decrease in
the number of Shares being sought or such increase or decrease in the Offer
Price will be applicable to all shareholders whose Shares are accepted for
payment pursuant to the Offer. If at the time notice of any such increase or
decrease in the number of Shares being sought or such increase or decrease in
the Offer Price is first published, sent or given to holders of such Shares, the
Offer is scheduled to expire at any time earlier than the period ending on the
tenth business day from and including the date that such notice is first so
published, sent or given, the Offer will be extended at least until the
expiration of such ten business day period. For purposes of the Offer, a
"business day" means any day, other than a Saturday, Sunday or a federal
holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight,
New York City time.
Under no circumstances will interest on the Offer Price for the Shares be
paid, regardless of any extension of the Offer or delay in making such payment.
During any extension of the Offer, all Shares previously tendered and not
withdrawn will remain tendered pursuant to the Offer, subject to the rights of a
tendering shareholder to withdraw his Shares. See Section 4.
If proration is required as a result of any reduction in the number of
Shares subject to the Offer to a number equal to the Revised Minimum Number,
then, because of the difficulty of determining precisely the number of Shares
validly tendered and not withdrawn, Purchaser would not expect to announce the
final results of proration until approximately seven Nasdaq National Market
System ("Nasdaq") trading days after the Expiration Date. Preliminary results of
proration will be announced by press release as promptly as practicable after
the Expiration Date. Holders of Shares may obtain such preliminary information
from the Depositary and may also be able to obtain such preliminary information
from their brokers. Purchaser will not pay for any Shares accepted for payment
pursuant to the Offer until the final proration factor is known.
The Company has provided Purchaser with the Company's shareholder list and
security position listings for the purpose of disseminating the Offer to holders
of Shares. This Offer to Purchase and the related Letter of Transmittal will be
mailed to record holders of Shares whose names appear on the Company's
shareholder list and will be furnished, for subsequent transmittal to beneficial
owners of Shares, to brokers, dealers, commercial banks, trust companies and
similar persons whose names, or the names of whose nominees, appear on the
shareholder list or, if applicable, who are listed as participants in a clearing
agency's security position listing.
5
<PAGE> 8
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), and subject to reduction in the number of Shares subject to the
Offer to a number equal to the Revised Minimum Number, Purchaser will accept for
payment, and will pay for, all Shares validly tendered on or prior to the
Expiration Date and not properly withdrawn as soon as Purchaser is legally
permitted to do so under applicable law. The obligation of Purchaser to
consummate the Offer and to accept for payment, and to pay for, all Shares
validly tendered and not properly withdrawn will be subject to the satisfaction
of the Minimum Condition and the satisfaction or waiver of the other conditions
to the Offer set forth in Section 14. Subject to applicable rules and
regulations of the SEC and to the terms and conditions of the Merger Agreement,
Purchaser expressly reserves the right to delay acceptance for payment of, or
payment for, Shares pending receipt of any regulatory approvals specified in
Section 15 or in order to comply in whole or in part with any other applicable
law.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (i) the
certificates evidencing such Shares (the "Share Certificates") or timely
confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such
Shares into the Depositary's account at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in Section
3, (ii) the Letter of Transmittal (or a manually signed facsimile thereof),
properly completed and duly executed, with any required signature guarantees, or
an Agent's Message (as defined below) in connection with a book-entry transfer,
and (iii) any other documents required by the Letter of Transmittal.
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has
received an express acknowledgment from each participant in such Book-Entry
Transfer Facility tendering the Shares, that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that Purchaser
may enforce such agreement against such participant.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn as, if and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance for payment of such Shares pursuant to the
Offer. Upon the terms and subject to the conditions of the Offer, payment for
Shares accepted for payment pursuant to the Offer will be made by deposit of the
purchase price therefor with the Depositary, which will act as agent for
tendering shareholders for the purpose of receiving payments from Purchaser and
transmitting such payments to validly tendering shareholders whose Shares have
been accepted for payment.
If any tendered Shares are not accepted for payment for any reason pursuant
to the terms and conditions of the Offer (including because of proration, if
any), Share Certificates evidencing unpurchased Shares will be returned, without
expense to the tendering shareholder (or, in the case of Shares tendered by
book-entry transfer into the Depositary's account at the Book-Entry Transfer
Facility pursuant to the procedures set forth in Section 3, such Shares will be
credited to an account maintained at such Book-Entry Transfer Facility), as
promptly as practicable following the expiration or termination of the Offer.
3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES.
Valid Tender. In order for a shareholder to tender validly Shares pursuant
to the Offer, the Letter of Transmittal (or a manually signed facsimile
thereof), properly completed and duly executed, together with any required
signature guarantees, or an Agent's Message in connection with a book-entry
transfer of Shares, and any other documents required by the Letter of
Transmittal, must be received by the Depositary at its address set forth on the
back cover of this Offer to Purchase and either (i) the Share Certificates
evidencing tendered Shares must be received by the Depositary at such address or
such Shares must be tendered pursuant to the procedures for book-entry transfer
described below and a Book-Entry Confirmation must be received by the
Depositary, in each case on or prior to the Expiration Date, or (ii) the
tendering shareholder must comply with the guaranteed delivery procedures
described below.
6
<PAGE> 9
THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER
FACILITY, IS AT THE OPTION AND SOLE RISK OF THE TENDERING SHAREHOLDER, AND THE
DELIVERY OF SHARE CERTIFICATES WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED
BY THE DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY A TIMELY
CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at the Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any financial
institution that is a participant in the system of the Book-Entry Transfer
Facility may make book-entry delivery of Shares by causing the Book-Entry
Transfer Facility to transfer such Shares into the Depositary's account at such
Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for such transfer. However, although delivery of Shares
may be effected through book-entry transfer at the Book-Entry Transfer Facility,
the Letter of Transmittal (or a manually signed facsimile thereof), properly
completed and duly executed, together with any required signature guarantees, or
an Agent's Message in connection with a book-entry transfer, and any other
required documents, must, in any case, be received by the Depositary at its
address set forth on the back cover of this Offer to Purchase on or prior to the
Expiration Date, or the tendering shareholder must comply with the guaranteed
delivery procedures described below. Delivery of documents to the Book-Entry
Transfer Facility does not constitute delivery to the Depositary.
Signature Guarantees. Signatures on all Letters of Transmittal must be
guaranteed by a firm which is a member of the Securities Transfer Agents
Medallion Program, or by any other "eligible guarantor institution," as such
term is defined in Rule 17Ad-15 under the Exchange Act (each of the foregoing
being referred to as an "Eligible Institution"), except in cases where Shares
are tendered (i) by a registered holder of Shares who has not completed either
the box entitled "Special Payment Instructions" or the box entitled "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution. If a Share Certificate is registered in the name of a
person other than the signatory of the Letter of Transmittal, or if payment is
to be made, or a Share Certificate not accepted for payment or not validly
tendered is to be returned, to a person other than the registered holder(s),
then the Share Certificate must be endorsed or accompanied by appropriate stock
powers, in either case signed exactly as the name(s) of the registered holder(s)
appear(s) on the Share Certificate, with the signature(s) on such Share
Certificate or stock powers guaranteed by an Eligible Institution. See
Instructions 1 and 5 of the Letter of Transmittal.
If Share Certificates are forwarded separately to the Depositary, a
properly completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof) and any other documents required by the Letter of Transmittal
must accompany each such delivery.
Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to
the Offer and such shareholder's Share Certificates evidencing such Shares are
not immediately available or such shareholder cannot deliver the Share
Certificates and all other required documents to the Depositary on or prior to
the Expiration Date, or such shareholder cannot complete the procedures for
delivery by book-entry transfer on a timely basis, such Shares may nevertheless
be tendered, provided that all the following guaranteed delivery procedures are
duly complied with:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by Purchaser, is
received by the Depositary on or prior to the Expiration Date as provided
below; and
(iii) the Share Certificates (or a Book-Entry Confirmation) evidencing
all tendered Shares, in proper form for transfer, in each case together
with the Letter of Transmittal (or a manually signed facsimile thereof),
properly completed and duly executed, with any required signature
guarantees (or, in the case of a book-entry transfer, an Agent's Message),
and any other documents required by the Letter of Transmittal, are received
by the Depositary within three Nasdaq trading days after the date of
7
<PAGE> 10
execution of such Notice of Guaranteed Delivery. A "trading day" is any day
on which trading occurs on Nasdaq.
The Notice of Guaranteed Delivery may be delivered by hand or mail or
transmitted by telegram or facsimile transmission to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in the form
of Notice of Guaranteed Delivery made available by Purchaser.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (i) the
Share Certificates evidencing such Shares or a Book-Entry Confirmation of the
delivery of such Shares, (ii) the Letter of Transmittal (or a manually signed
facsimile thereof), properly completed and duly executed, with any required
signature guarantees (or, in the case of a book-entry transfer, an Agent's
Message), and (iii) any other documents required by the Letter of Transmittal.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by Purchaser in its sole discretion, whose
determination will be final and binding on all parties. Purchaser reserves the
absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance for payment of which may, in the opinion of its
counsel, be unlawful. Purchaser also reserves the absolute right, in its sole
discretion, subject to the provisions of the Merger Agreement, to waive any
condition to the Offer or any defect or irregularity in the tender of any Shares
of any particular shareholder, whether or not similar defects or irregularities
are waived in the case of other shareholders. No tender of Shares will be deemed
to have been validly made until all defects and irregularities have been cured
or waived. None of Purchaser, Parent, the Dealer Manager, the Depositary, the
Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification. Purchaser's interpretation of the
terms and conditions of the Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding.
Appointment as Proxy. By executing the Letter of Transmittal as set forth
above, a tendering shareholder irrevocably appoints designees of Purchaser as
such shareholder's proxies, each with full power of substitution, in the manner
set forth in the Letter of Transmittal, to the full extent of such shareholder's
rights with respect to the Shares tendered by such shareholder and accepted for
payment by Purchaser (and with respect to any and all other Shares or other
securities issued or issuable in respect of such Shares on or after March 1,
1999). All such proxies will be considered coupled with an interest in the
tendered Shares. Such appointment will be effective when, and only to the extent
that, Purchaser accepts such Shares for payment. Upon such acceptance for
payment, all prior proxies given by such shareholder with respect to such Shares
(and such other Shares and securities) will be revoked without further action,
and no subsequent proxies may be given nor any subsequent written consent
executed by such shareholder (and, if given or executed, will not be deemed to
be effective) with respect thereto. The designees of Purchaser will, with
respect to the Shares (and such other Shares and securities) for which the
appointment is effective, be empowered to exercise all voting and other rights
of such shareholder as they in their sole discretion may deem proper at any
annual or special meeting of the Company's shareholders or any adjournment or
postponement thereof, by written consent in lieu of any such meeting or
otherwise. Purchaser reserves the right to require that, in order for Shares to
be deemed validly tendered, immediately upon Purchaser's payment for such
Shares, Purchaser must be able to exercise full voting rights with respect to
such Shares (and such other Shares and securities).
The acceptance for payment by Purchaser of Shares validly tendered pursuant
to any of the procedures described above will constitute a binding agreement
between the tendering shareholder and Purchaser upon the terms and subject to
the conditions of the Offer.
BACKUP WITHHOLDING. UNDER THE FEDERAL INCOME TAX LAWS, THE DEPOSITARY WILL
BE REQUIRED TO WITHHOLD 31% OF THE AMOUNT OF ANY PAYMENTS MADE TO CERTAIN
SHAREHOLDERS PURSUANT TO THE OFFER ("BACKUP WITHHOLDING"), UNLESS SUCH
SHAREHOLDER PROVIDES THE DEPOSITARY WITH APPROPRIATE CERTIFICATION SUCH AS THE
SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND A CERTIFICATION THAT
SUCH SHAREHOLDER IS NOT SUBJECT TO BACKUP WITHHOLDING BY COMPLETING THE
SUBSTITUTE FORM W-9 IN THE LETTER OF TRANSMITTAL. SEE INSTRUCTION 9 OF THE
LETTER OF TRANSMITTAL.
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<PAGE> 11
4. WITHDRAWAL RIGHTS.
Tenders of Shares made pursuant to the Offer are irrevocable except that
such Shares may be withdrawn at any time on or prior to the Expiration Date and,
unless theretofore accepted for payment by Purchaser pursuant to the Offer, may
also be withdrawn at any time after May 7, 1999. If Purchaser extends the Offer,
is delayed in its acceptance for payment of Shares or is unable to accept Shares
for payment pursuant to the Offer for any reason, then, without prejudice to
Purchaser's rights under the Offer, the Depositary may, nevertheless, on behalf
of Purchaser, retain tendered Shares, and such Shares may not be withdrawn
except to the extent that tendering shareholders are entitled to withdrawal
rights as described in this Section 4. Any such delay will be by an extension of
the Offer to the extent required by law. Under no circumstances will interest on
the Offer Price for the Shares be paid, regardless of any extension of the Offer
or delay in making such payment.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
its address set forth on the back cover page of this Offer to Purchase. Any such
notice of withdrawal must specify the name of the person who tendered the Shares
to be withdrawn, the number of Shares to be withdrawn and the name of the
registered holder of such Shares, if different from that of the person who
tendered such Shares. If Share Certificates evidencing Shares to be withdrawn
have been delivered or otherwise identified to the Depositary, then, prior to
the physical release of such Share Certificates, the serial numbers shown on
such Share Certificates must be submitted to the Depositary and the signature(s)
on the notice of withdrawal must be guaranteed by an Eligible Institution,
unless such Shares have been tendered for the account of an Eligible
Institution. If Shares have been tendered pursuant to the procedures for
book-entry transfer as set forth in Section 3, any notice of withdrawal must
also specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Shares, in which case a notice of
withdrawal will be effective if delivered to the Depositary by any method
described in the first sentence of this paragraph.
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by Purchaser, in its sole
discretion, whose determination will be final and binding. None of Purchaser,
Parent, the Dealer Manager, the Depositary, the Information Agent or any other
person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
Withdrawal of Shares may not be rescinded and any Shares properly withdrawn
will thereafter be deemed not to have been validly tendered for purposes of the
Offer. However, withdrawn Shares may be re-tendered at any time on or prior to
the Expiration Date by following one of the procedures described in Section 3.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
The receipt of cash for Shares pursuant to the Offer or to the Merger will
be a taxable transaction to the shareholders of the Company for federal income
tax purposes and may also be a taxable transaction under applicable state, local
or foreign tax laws. This will be the case whether a shareholder of the Company
sells Shares pursuant to the Offer, the Merger or both.
A tendering shareholder whose Shares are accepted for purchase pursuant to
the Offer generally will recognize gain or loss on the date the Offer is
consummated in an amount equal to the difference between (i) the amount of cash
received by the shareholder in exchange for his Shares and (ii) such
shareholder's tax basis in the Shares accepted for purchase. A shareholder who
receives cash in exchange for Shares pursuant to the Merger will recognize gain
or loss at the Effective Time in an amount equal to the difference between (i)
the amount of cash received by the shareholder in exchange for his Shares and
(ii) such shareholder's tax basis in the Shares surrendered.
Gain or loss will be capital gain or loss if the Shares were capital assets
in the hands of the shareholder, and will be long-term capital gain or loss if,
at the time of the exchange, the Shares were held by the shareholder for more
than 12 months. Under present U.S. federal law, long-term capital gains are
generally taxable at a maximum rate of 20% for individuals and 35% for
corporations.
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<PAGE> 12
The Offer and the Merger will not be a taxable transaction to Parent,
Purchaser or the Company.
THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO CERTAIN TYPES OF
SHAREHOLDERS, INCLUDING SHAREHOLDERS WHO ACQUIRED SHARES PURSUANT TO THE
EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION, INDIVIDUALS WHO
ARE NOT CITIZENS OR RESIDENTS OF THE UNITED STATES AND FOREIGN CORPORATIONS.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON PRESENT LAW. SHAREHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE
OFFER AND THE MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE
ALTERNATIVE MINIMUM TAX AND STATE, LOCAL AND FOREIGN TAX LAWS AND CHANGES IN
SUCH TAX LAWS.
6. PRICE RANGE OF SHARES; DIVIDENDS.
The Shares have been trading on Nasdaq since March 12, 1996 under the
symbol "XYLN." The following table sets forth, for the quarters indicated, the
high and low closing sales prices per Share as reported on Nasdaq. The Company
has not paid any dividends on the Shares during the periods set forth below.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1997:
First Quarter.................................... $36.13 $17.13
Second Quarter................................... 22.63 13.63
Third Quarter.................................... 24.56 15.50
Fourth Quarter................................... 23.38 14.50
1998:
First Quarter.................................... $26.13 $14.00
Second Quarter................................... 30.25 21.38
Third Quarter.................................... 31.06 10.50
Fourth Quarter................................... 21.63 10.69
1999:
First Quarter (through March 5).................. $36.25 $18.38
</TABLE>
On March 1, 1999, the last full trading day prior to the announcement of
the execution of the Merger Agreement and of Purchaser's intention to commence
the Offer, the closing price per Share as reported on Nasdaq was $26.94. On
March 5, 1999, the last full trading day prior to the date of this Offer to
Purchase, the closing price per Share as reported on Nasdaq was $36.25.
SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
7. CERTAIN INFORMATION CONCERNING THE COMPANY.
Except as otherwise set forth herein, the information concerning the
Company contained in this Offer to Purchase has been furnished by the Company or
has been taken from or based upon publicly available documents and records on
file with the SEC and other public sources. None of Purchaser, Parent or the
Dealer Manager assumes any responsibility for the accuracy or completeness of
the information concerning the Company, furnished by the Company or contained in
such documents and records or for any failure by the Company to disclose events
which may have occurred or may affect the significance or accuracy of any such
information but which are unknown to Purchaser, Parent or the Dealer Manager.
General. The Company is a corporation organized and existing under the
laws of the State of California with its principal executive offices located at
26707 West Agoura Road, Calabasas, California 91302. The Company is a leading
provider of high-bandwidth switching systems that enhance the performance of
existing local area networks and facilitate migration to next-generation
networking technologies such as Asynchronous Transfer Mode.
Financial Information. Set forth below is certain selected consolidated
financial information relating to the Company and its subsidiaries which has
been excerpted or derived from the financial statements contained
10
<PAGE> 13
in the Company's Annual Report on Form 10-K for the year ended December 31, 1997
(the "Form 10-K") and the unaudited financial statements contained in the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998
(the "Form 10-Q"). More comprehensive information is included in the Form 10-K,
the Form 10-Q and other documents filed by the Company with the SEC. The
financial information that follows is qualified in its entirety by reference to
such reports and other documents, including the financial statements and related
notes contained therein. Such reports and other documents may be examined and
copies may be obtained from the offices of the SEC in the manner set forth
below.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- -------------------
1997 1996 1995 1998 1997
-------- -------- ------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue...................................... $210,849 $128,456 $29,662 $250,181 $146,647
Cost of revenue.............................. 92,551 57,830 15,418 108,205 64,636
-------- -------- ------- -------- --------
Gross profit............................... 118,298 70,626 14,244 141,976 82,011
-------- -------- ------- -------- --------
Operating expenses:
Research and development................... 25,875 15,823 7,154 29,522 18,363
Sales and marketing........................ 60,356 32,590 13,011 65,661 42,234
General and administrative................. 7,013 4,397 3,593 6,975 4,969
-------- -------- ------- -------- --------
Total operating expenses........... 93,244 52,810 23,758 102,158 65,566
-------- -------- ------- -------- --------
Operating income (loss)...................... 25,054 17,816 (9,514) 39,818 16,445
Interest income, net....................... 6,694 5,240 73 4,044 5,190
-------- -------- ------- -------- --------
Income (loss) before income taxes............ 31,748 23,056 (9,441) 43,862 21,635
Income tax expense......................... 7,621 7,811 -- 15,436 4,070
-------- -------- ------- -------- --------
Net income (loss)............................ $ 24,127 $ 15,245 $(9,441) $ 28,426 $ 17,565
======== ======== ======= ======== ========
Net income (loss) per share(1):
Basic...................................... $ 0.57 $ 0.43 $ (0.91) $ 0.66 $ 0.41
Diluted.................................... $ 0.52 $ 0.33 $ (0.91) $ 0.60 $ 0.38
======== ======== ======= ======== ========
Shares used in per share computation(1):
Basic...................................... 42,550 35,870 10,320 43,063 42,398
Diluted.................................... 46,796 46,381 10,320 47,593 46,822
======== ======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1996 1998
-------- -------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 79,088 $112,981 $45,429
Investments................................................. 59,382 27,785 77,299
Working capital............................................. 124,934 134,615 97,421
Total assets................................................ 250,906 207,251 260,777
Capital lease obligations, long-term........................ 17 206 --
Net shareholders' equity.................................... 216,100 185,638 212,298
</TABLE>
- ---------------
(1) See Note 1 of Notes to Consolidated Financial Statements in the Form 10-K
for an explanation of the determination of the number of shares used to
compute net income (loss) per share.
The Company did not furnish Parent or Purchaser with any financial
projections in connection with the discussions and negotiations described in
Section 10.
Available Information. The Shares are registered under the Exchange Act
and the Company is therefore subject to the reporting requirements of the
Exchange Act and, in accordance therewith, is required to file periodic reports,
proxy statements and other information with the SEC relating to its business,
financial
11
<PAGE> 14
condition and other matters. Information as of particular dates concerning the
Company's directors and officers, their remuneration, stock options granted to
them, the principal holders of the Company's securities and any material
interest of such persons in transactions with the Company and certain other
matters is required to be disclosed in proxy statements distributed to the
Company's shareholders and filed with the SEC. Such reports, proxy statements
and other information should be available for inspection at the public reference
facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the SEC: New
York Regional Office, Seven World Trade Center, Suite 1300, New York, New York
10048; and Chicago Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained by
mail, upon payment of the SEC's customary fees, by writing to its principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also maintains
a Website (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the SEC. In addition, reports, proxy statements and other information concerning
the Company can be inspected and copied at Nasdaq Operations, 1735 K Street,
N.W., Washington, D.C. 20006. Except as otherwise stated in this Offer to
Purchase, all of the information with respect to the Company set forth in this
Offer to Purchase has been derived from publicly available information.
8. CERTAIN INFORMATION CONCERNING PURCHASER AND PARENT.
Purchaser is a newly incorporated corporation organized and existing under
the laws of the State of California. Purchaser was organized in connection with
the Offer and the Merger and has not carried on any activities other than in
connection with the Offer and the Merger. Until immediately prior to the time
that Purchaser will purchase Shares pursuant to the Offer, it is not anticipated
that Purchaser will have any significant assets or liabilities or engage in
activities other than those incident to its formation and capitalization and the
transactions contemplated by the Offer and the Merger. The principal offices of
Purchaser are located at 640 Bercut Drive, Sacramento, California 95814.
Purchaser is a wholly-owned indirect subsidiary of Parent.
Parent is a corporation organized and existing under the laws of France.
Its principal offices are located at 54, rue La Boetie, 75008 Paris, France.
Parent is a world leader in providing equipment and systems for the
telecommunications sector. Parent has operations in over 100 countries and has a
strong market base in Europe, where it currently generates approximately 60% of
its consolidated net sales, and a growing presence in North America with
approximately 15% of its consolidated net sales.
The name, citizenship, business address, principal occupation or
employment, and five-year employment history of each of the directors and
executive officers of Parent and Purchaser and certain other information are set
forth in Schedule I hereto.
Parent is a distributor of the Company's products. Through their original
equipment manufacturer partnership, Parent resells the Company's products under
its own name pursuant to the International Distributor Agreement, dated March
13, 1995 (the "Resale Agreement"), between Alcatel N.V. and the Company. This
arrangement is not exclusive, and Parent can cease marketing the Company's
products at its option with limited notice and with little or no penalty. In
addition, the Resale Agreement generally provides for flat discounts. Pursuant
to the related Product and Technology Agreement, dated March 13, 1995, between
Alcatel Data Networks, S.A. ("ADN") and the Company, Parent also has certain
manufacturing rights and has the right to purchase from the Company certain of
the Company's technologies. For the nine months ended September 30, 1998, Parent
accounted for approximately $42.9 million, or 17%, of the Company's total
revenues. For the year ended December 31, 1997, Parent accounted for
approximately $24.5 million, or 11.6%, of the Company's total revenues. For the
year ended December 31, 1996, Parent accounted for less than 10% of the
Company's total revenues.
On March 13, 1995, the Company entered into a 1995 Shareholder Agreement
with ADN and certain other of the Company's investors, including Steve Y. Kim
and Yuri Pikover (the "1995 Shareholder Agreement"). The 1995 Shareholder
Agreement provides Parent with a right of first refusal on transfers of voting
stock by the investors and Messrs. Kim and Pikover to third parties, except in
cases of permitted
12
<PAGE> 15
transfers, including transfers of voting shares to partners, as set forth in the
1995 Shareholder Agreement. The 1995 Shareholder Agreement also provides the
Company with a right of first refusal on transfers of voting stock by ADN to
third parties, except in cases of permitted transfers, as set forth in the 1995
Shareholder Agreement.
Parent currently beneficially owns 2,814,244 Shares (constituting
approximately 6.6% of the total number of Shares represented by the Company to
be outstanding as of February 23, 1999) with respect to which it shares voting
and dispositive power with ADN. Pursuant to the Shareholder Agreements, Parent
and Purchaser may be deemed to beneficially own an additional 4,943,705 Shares
(excluding options) with respect to which they share voting and dispositive
power. Parent and Purchaser are thus deemed to beneficially own approximately
18.3% and 11.6%, respectively, of the total number of Shares represented by the
Company to be outstanding as of February 23, 1999. If the Top-Up Stock Option is
exercised by Purchaser, Parent and Purchaser would be deemed to beneficially own
the number of Shares (which is currently indeterminable) that would aggregate
90% of the Shares then outstanding.
Except as described in this Offer to Purchase and in the Shareholder
Agreements and the Stock Option Agreement, (i) none of Purchaser, Parent or, to
the best knowledge of Purchaser and Parent, any of the persons listed in
Schedule I to this Offer to Purchase, or any affiliate or majority-owned
subsidiary of Purchaser, Parent or any of the persons so listed, beneficially
owns or has any right to acquire, directly or indirectly, any Shares and (ii)
none of Purchaser, Parent or, to the best knowledge of Purchaser and Parent, any
of the persons or entities referred to above, or any director, executive officer
or subsidiary of any of the foregoing, has effected any transaction in the
Shares during the past 60 days.
Except as provided in the Merger Agreement, the Shareholder Agreements and
the Stock Option Agreement and as otherwise described in this Offer to Purchase,
none of Purchaser, Parent or, to the best knowledge of Purchaser and Parent, any
of the persons listed in Schedule I to this Offer to Purchase has any contract,
arrangement, understanding or relationship with any other person with respect to
any securities of the Company, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or voting of
such securities, joint ventures, loan or option arrangements, puts or calls,
guaranties of loans, guaranties against loss or the giving or withholding of
proxies. Except as set forth in this Section 8, since January 1, 1996, none of
Purchaser, Parent or, to the best knowledge of Purchaser and Parent, any of the
persons listed in Schedule I hereto, has had any business relationship or
transaction with the Company or any of its executive officers, directors or
affiliates that is required to be reported under the rules and regulations of
the SEC applicable to the Offer. Except as set forth in this Offer to Purchase,
since January 1, 1996, there have been no contacts, negotiations or transactions
between any of Purchaser, Parent or any of their respective subsidiaries or, to
the best knowledge of Purchaser and Parent, any of the persons listed in
Schedule I to this Offer to Purchase, on the one hand, and the Company or its
affiliates, on the other hand, concerning a merger, consolidation or
acquisition, tender offer or other acquisition of securities, an election of
directors or a sale or other transfer of a material amount of assets.
Parent is subject to the informational requirements of the Exchange Act and
in accordance therewith files periodic reports and other information with the
Commission relating to its business, financial condition and other matters. Such
reports and other information are available for inspection and copying at the
offices of the Commission in the same manner as set forth with respect to the
Company in Section 7. The financial and other information of Parent's included
in Parent's Form 20-F for the year ended December 31, 1997 and Parent's Form 6-K
for the month of October 1998 is incorporated herein by reference.
9. FINANCING OF THE OFFER AND THE MERGER.
The total amount of funds required by Purchaser to consummate the Offer and
the Merger and to pay related fees and expenses is estimated to be approximately
$2.0 billion. Purchaser will obtain all of such funds from Parent. Parent
currently intends to provide such funds from cash on hand.
13
<PAGE> 16
10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY; THE MERGER AGREEMENT;
SHAREHOLDER AGREEMENTS; STOCK OPTION AGREEMENT; EMPLOYMENT AGREEMENT.
BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY
On March 13, 1995, ADN purchased 1,982,122 shares of Series C Preferred
Stock of the Company, representing approximately 18% of the outstanding shares
of capital stock of the Company at that time. In connection therewith,
subsidiaries of Alcatel entered into the Resale Agreement, the Product and
Technology Agreement and the 1995 Shareholder Agreement.
From October 1997 to July 1998, various discussions occurred regarding the
formation of a joint venture to be owned equally by Alcatel and Xylan for the
development of future multimedia technologies. The discussions also involved the
acquisition by Alcatel of additional shares of Xylan.
On June 9, 1998, representatives of the Enterprise & Data Networks Division
("EDD") of Alcatel recommended to the Alcatel Telecom Executive Committee that
Alcatel explore alternatives to strengthen Alcatel's existing business
relationship with the Company. One of these alternatives was a possible
acquisition of the Company.
On July 9, 1998, Jean-Pierre Halbron, Senior Executive Vice President of
Alcatel, Olivier Baujard, President of EDD, Jacques Dunogue, President of the
Telecom Sector of Alcatel and Steve Kim met in Richardson, Texas regarding a
potential transaction. At this meeting, the parties continued their previous
discussions regarding the formation of a joint venture for the development of
future multimedia technologies.
On August 26, 1998, executive officers of the Company, Jean-Luc Abaziou,
President of ADN and certain additional officers of Alcatel met in Ashburn,
Virginia to discuss the development of a core switch based on the Company's
hardware and Alcatel's software. However, no agreement was reached on the
development of the switch or the joint venture.
In September 1998, Mr. Kim and Mr. Abaziou held further discussions
regarding potential technical partnering arrangements between the parties.
However, subsequent discussions did not produce any definitive agreements
between the parties.
On January 7, 1999, Joelle Gauthier, Vice President Corporate Data Business
Unit of EDD, requested a meeting with Olivier Houssin, Executive Vice
President -- Telecom Sector of Alcatel, Mr. Kim and Ms. Gauthier in Calabasas,
California to review strategic issues. A meeting for later in the month was
confirmed.
From January 26-28, 1999, Joelle Gauthier and Olivier Houssin met with
Steve Kim and Yuri Pikover to discuss a potential acquisition of the Company by
Alcatel. The parties continued their discussions over the next day regarding
technology and marketing synergies. Both parties agreed that they would direct
their respective management teams and financial and legal representatives to
prepare a proposal and agreed to schedule a meeting in New York on February
21-22 to discuss further details of a potential acquisition.
On February 2, 1999, representatives from Lehman Brothers met with senior
executives of Alcatel to discuss a potential acquisition of the Company,
including possible structures and financial terms. During the first two weeks of
February, senior management of Alcatel, Proskauer Rose LLP, Alcatel's legal
counsel ("Proskauer"), and Lehman Brothers worked together to create a structure
for the potential acquisition of the Company.
On February 15, 1999, Olivier Houssin telephoned Steve Kim to inform him
that Alcatel had been studying various transaction structures and would prepare
a proposal by the end of the week, which was confirmed two days later during a
telephone call between Lehman Brothers and Morgan Stanley & Co. Incorporated
("Morgan Stanley").
On February 18, 1999, Lehman Brothers sent the Company a term sheet, via
Morgan Stanley, outlining a potential transaction structure.
14
<PAGE> 17
On February 19, 1999, representatives from Morgan Stanley, Venture Law
Group, Lehman Brothers and Simpson Thacher & Bartlett ("Simpson Thacher"), legal
counsel to Morgan Stanley, held a conference call to discuss the term sheet. The
terms included a tender offer which would have given senior management of the
Company an equity interest of the bidder, and an earn-out arrangement for those
executives of the Company that would have had an equity interest in the bidder.
The Company determined that the earn-out arrangement would be unfavorable and
proposed an alternative structure, which Morgan Stanley conveyed to Lehman
Brothers.
On February 21-22, 1999, Jean-Pierre Halbron, Olivier Houssin,
Jean-Christophe Giroux, Vice President of Financial Operations of Alcatel, and
representatives from Lehman Brothers and Proskauer met with Messrs. Kim and
Pikover and representatives from Morgan Stanley, Venture Law Group and Simpson
Thacher at Proskauer's offices in New York. The talks involved a proposal for a
cash tender offer followed by a merger which would be subject to completion of
customary due diligence and the negotiation of definitive agreements.
From February 24 through February 26, representatives from Alcatel,
Proskauer, Lehman Brothers and Arthur Andersen, Alcatel's accountants, conducted
due diligence at the Company's headquarters in Calabasas, California. During
such period, Alcatel, the Company and their respective legal and financial
advisors conducted further negotiations of the terms of the transaction,
including the terms of the Shareholder Agreements and the Stock Option
Agreement.
On March 1, 1999, the Board of Directors of Alcatel met to discuss the
proposed transaction. In addition, Alcatel's Board received a fairness opinion
from Lehman Brothers regarding the terms of the transaction. Following
discussion among the directors, Alcatel's Board unanimously approved the
transaction.
Also on March 1, 1999, the Company Board held a special meeting via video
and teleconference, in which all of the members were present. Morgan Stanley
made a presentation regarding certain financial analyses it had performed in
connection with its review of the Offer and the Merger, and rendered its oral
opinion, subsequently confirmed in writing, that, subject to certain assumptions
and qualifications, the consideration to be received by the holders of Company
Common Stock (other than Parent and its affiliates) in the Offer and the Merger
pursuant to the Merger Agreement was fair to such holders from a financial point
of view. Morgan Stanley also reviewed its discussions with other potential
acquirors and reported no change in status from its report to the Company Board
on February 28, 1999. Representatives of Venture Law Group also gave a
presentation regarding the various legal aspects of the transaction as well as a
summary of the principal terms of the Merger Agreement. At the conclusion of the
meeting, the Company Board unanimously approved the Offer, the Merger, the
Merger Agreement, the Stock Option Agreement and the Employment Agreement (as to
which Mr. Kim abstained), determined that the Offer, the Merger, the Stock
Option Agreement and the Merger Agreement are fair to and in the best interests
of the shareholders of the Company and recommended that the shareholders of the
Company accept the Offer and tender their Shares pursuant thereto.
In the evening of March 1, 1999, the Merger Agreement, the Shareholder
Agreements, the Stock Option Agreement and the Employment Agreement were
executed and a joint press release was issued by Alcatel and the Company before
the opening of the US stock markets on March 2, 1999 announcing the transaction.
On March 8, 1999, Purchaser commenced the Offer.
THE MERGER AGREEMENT
The following is a summary of the Merger Agreement, a copy of which is
filed as an exhibit to the Tender Offer Statement on Schedule 14D-1 (the
"Schedule 14D-1") filed by Purchaser and Parent with the SEC in connection with
the Offer. Such summary is qualified in its entirety by reference to the Merger
Agreement.
The Offer. The Merger Agreement provides for the commencement of the Offer
as promptly as reasonably practicable (but in no event later than five business
days after the public announcement of the execution of the Merger Agreement).
Purchaser has commenced the Offer in accordance with the terms of the Merger
Agreement.
15
<PAGE> 18
Subject to the terms of the Merger Agreement and (i) the satisfaction of
the Minimum Condition and (ii) the satisfaction or waiver of the other
conditions set forth in Section 14, Purchaser will use reasonable best efforts
to consummate the Offer in accordance with its terms and to accept for payment
and pay for Shares validly tendered and not withdrawn pursuant to the Offer as
soon as Purchaser is legally permitted to do so under applicable law.
Extension or Amendment of the Offer. If on the Expiration Date, all
conditions to the Offer will not have been satisfied or waived, Purchaser may,
from time to time, in its sole discretion, extend the Expiration Date until a
date not later than June 30, 1999. However, if the HSR/Foreign Antitrust
Condition (as defined in Section 14) has not been satisfied or waived at the
Expiration Date, Purchaser may extend the Expiration Date until a date not later
than September 30, 1999, and Parent and Purchaser will exercise their reasonable
best efforts to comply with any requests of the DOJ, FTC or similar foreign
governmental entity. Without limiting these rights of Purchaser to extend the
Offer, at the request of the Company, Purchaser will, and Parent will cause
Purchaser to, extend the Expiration Date (i) in one or more periods of not more
than five business days (but in no event later than April 30, 1999), if (A) any
of the conditions set forth in Section 14 have not been satisfied or waived at
the Expiration Date, (B) such condition is reasonably capable of being satisfied
by the Company, (C) the Company exercises its reasonable best efforts to cause
such condition to be satisfied and (D) the Company is in compliance with all of
its covenants in the Merger Agreement, (ii) for five business days in the event
that the Minimum Condition has not been satisfied at the first scheduled
Expiration Date or (iii) until a date not later than September 30, 1999, only if
the HSR/Foreign Antitrust Condition has not been satisfied or waived at the
Expiration Date and the Company exercises its reasonable best efforts to comply
with any second requests of the DOJ, FTC or similar foreign governmental entity.
In addition, Purchaser may increase the Offer Price and the Offer may be
extended to the extent required by law in connection with such increase, in each
case, without the consent of the Company.
Subject to the immediately succeeding sentence, Purchaser may not (i) amend
or waive the Minimum Condition, (ii) decrease the Offer Price, (iii) decrease
the number of Shares sought or (iv) amend any other condition of the Offer in
any manner adverse to the holders of the Shares without the written consent of
the Company (such consent to be authorized by the Company Board or a duly
authorized committee thereof). In the event the Minimum Condition is not
satisfied on any scheduled Expiration Date and the Company has not given to
Purchaser a notice to extend the Expiration Date pursuant to clause (ii) of the
immediately preceding paragraph, Purchaser may, in its sole discretion, either
(i) extend the Offer pursuant to the above paragraph or (ii) amend the Offer to
provide that, in the event (A) the Minimum Condition is not satisfied at the
next scheduled Expiration Date (without giving effect to the potential issuance
of any Shares issuable upon exercise of the Stock Option Agreement) and (B) the
number of Shares tendered pursuant to the Offer and not withdrawn as of such
next scheduled Expiration Date is more than 50% of the then outstanding Shares,
Purchaser will waive the Minimum Condition and amend the Offer to reduce the
number of Shares subject to the Offer to a number of Shares that, when added to
the Shares then owned by Purchaser, will equal the Revised Minimum Number, and,
if a greater number of Shares is tendered into the Offer and not withdrawn,
purchase, on a pro rata basis, the Revised Minimum Number of Shares (it being
understood that Purchaser may, but will not in any event be required to accept
for payment, and pay for, any Shares if less than the Revised Minimum Number of
Shares is tendered pursuant to the Offer and not withdrawn at the applicable
Expiration Date). If Purchaser purchases a number of Shares equal to the Revised
Minimum Number, without the prior written consent of Purchaser prior to the
termination of the Merger Agreement, the Company may not take any action
whatsoever to increase the percentage of Shares owned by Purchaser in excess of
the Revised Minimum Number.
Board Representation; Directors. The Merger Agreement provides that
promptly upon the acceptance for payment by Parent or any of its subsidiaries
for Shares purchased pursuant to the Offer, and from time to time thereafter as
Shares are acquired by Parent or any of its subsidiaries, Parent will be
entitled to designate such number of directors, rounded up to the next greatest
whole number, on the Company Board as will give Parent representation on the
Company Board equal to that number of directors which equals the product of the
total number of directors on the Company Board (giving effect to the directors
appointed or elected pursuant to this sentence and including current directors
serving as officers of the Company) multiplied by the
16
<PAGE> 19
percentage that the aggregate number of Shares beneficially owned by Purchaser,
Parent or any of their affiliates (including Shares accepted for payment
pursuant to the Offer, but excluding Shares held by the Company or any of its
affiliates, which would not include Parent, Purchaser or its affiliates) bears
to the number of Shares outstanding. However, if Purchaser has acquired the
Revised Minimum Number of Shares in the Offer, such number of directors will be
rounded up to the greatest whole number plus one to give Purchaser at least a
majority of the members of the Company Board. Furthermore, in the event that
Purchaser's designees are appointed or elected to the Company Board, until the
Effective Time the Company Board will have at least one director who is a
director on the date of the Merger Agreement and who is not an executive officer
of the Company (the "Independent Director"). At such times, the Company will
also cause (i) each committee of the Company Board, (ii) if requested by Parent,
the board of directors of each of the Company's subsidiaries and (iii) if
requested by Parent, each committee of such subsidiaries' boards to include
persons designated by Parent constituting the same percentage of each such
committee or board as Parent's designees are of the Company Board. The Company
will, upon request by Parent, promptly increase the size of the Company Board or
exercise its best efforts to secure the resignations of such number of
directors, or both, as is necessary to enable Parent's designees to be elected
or appointed to the Company Board and will cause Parent's designees to be so
elected or appointed.
Following the election or appointment of Parent's designees and prior to
the Effective Time, the approval of a majority of the Independent Directors will
be required to authorize (i) any amendment that would be adverse to the holders
of Shares, (ii) any termination of the Merger Agreement by the Company, (iii)
any consent by the Company to any extension of the time for performance of any
of the obligations or other acts of Parent or Purchaser, (iv) any waiver by the
Company of compliance with any of the covenants or conditions contained in the
Merger Agreement for the benefit of the Company or any other rights of the
Company under the Merger Agreement or (v) the exercise of any of the Company's
rights, remedies or benefits under the Merger Agreement.
The Merger. Following completion of the Offer, upon the terms and subject
to the conditions of the Merger Agreement, and in accordance with the CGCL, at
the Effective Time Purchaser will be merged with and into the Company. As a
result of the Merger, the separate corporate existence of Purchaser will cease
and the Company will continue as the Surviving Corporation and will be a
wholly-owned indirect subsidiary of Parent. Upon consummation of the Merger,
each Ineligible Share will be canceled and retired without payment of any
consideration thereof.
The Merger Agreement provides that the directors of Purchaser immediately
prior to the Effective Time will be the initial directors of the Surviving
Corporation and that the officers of the Company immediately prior to the
Effective Time will be the initial officers of the Surviving Corporation. The
Merger Agreement also provides that, at the Effective Time, the Articles of
Incorporation of Purchaser as in effect immediately prior to the Effective Time
will be the Articles of Incorporation of the Surviving Corporation, and further
provides that the By-Laws of Purchaser as in effect immediately prior to the
Effective Time will be the By-Laws of the Surviving Corporation.
Conversion of Securities. At the Effective Time, by virtue of the Merger:
(a) each Ineligible Share will cease to be outstanding, be canceled and
retired without payment of any consideration therefor and cease to exist;
(b) each issued and outstanding Share, other than Dissenting Shares and
Ineligible Shares, will be converted automatically into the right to receive the
Offer Price, without interest (the "Merger Consideration"). All such Shares,
when so converted, will no longer be outstanding and will automatically be
canceled and retired and will cease to exist, and each holder of a certificate
representing any such Shares will cease to have any rights with respect thereto,
except the right to receive the Merger Consideration upon the surrender of the
certificate or certificates evidencing such Shares;
(c) Each share of common stock of Purchaser issued and outstanding
immediately prior to the Effective Time will be converted into and exchanged for
one validly issued, fully paid and non-assessable share of common stock, par
value $0.01 per share, of the Surviving Corporation; and
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<PAGE> 20
(d) All other capital stock of the Company will be canceled and retired and
will cease to exist, and no Merger Consideration or other consideration will be
issued or delivered in exchange therefor.
Stock Options; Stock Purchase Plan. At the Effective Time, all options to
purchase Company Common Stock granted under the Company's 1993 Stock Incentive
Plan, as amended to date (the "1993 Plan"), the Company's 1996 Stock Plan (the
"1996 Plan"), the Company's 1998 Employee Stock Option Plan (the "1998 Plan")
and the Company's 1996 Directors' Stock Option Plan (the "Directors' Plan" and,
together with the 1993 Plan, the 1996 Plan and the 1998 Plan, the "Stock Option
Plans") or pursuant to any other arrangement adopted by the Company Board to
provide options, warrants or other rights to purchase capital stock of the
Company (in any such case, an "Option") then outstanding will be subject to the
following paragraphs.
Except as provided below, at the Effective Time, the Company's obligations
with respect to each outstanding Option, whether vested or unvested, will, by
virtue of the Merger Agreement and without any further action of the Company,
Parent, Purchaser or the holder of any Option, be assumed by Parent. Parent will
make such assumption in such manner that (i) Parent is a corporation "assuming a
stock option in a transaction to which Section 424(a) applies" within the
meaning of Section 424 of the Internal Revenue Code of 1986, as amended (the
"Code"), or (ii) to the extent that Section 424 of the Code does not apply to
such Option, Parent would be such a corporation were Section 424 of the Code
applicable to such Option. After the Effective Time, all references to the
Company in the Stock Option Plans and the applicable stock option agreements
will be deemed to refer to Parent as issuer and the Company as the employer of
the holders of Options, as applicable. Each Option assumed by Parent under the
Merger Agreement will continue to have, and be subject to, the same terms and
conditions set forth in the applicable Stock Option Plan and the applicable
stock option agreement as in effect immediately prior to the Effective Time,
except that (i) such Option will be exercisable for that number of Parent
American Depositary Shares ("ADSs") equal to the product of the number of shares
of Company Common Stock that were purchasable under such Option immediately
prior to the Effective Time multiplied by the quotient determined by dividing
the Merger Consideration by the fair market value of the ADSs, rounded down to
the nearest whole number of ADSs, and (ii) the per share exercise price for the
ADSs issuable upon exercise of such assumed Option will be equal to the exercise
price per share of Company Common Stock at which such Option was exercisable
immediately prior to the Effective Time multiplied by the quotient determined by
dividing the fair market value of the ADSs by the Merger Consideration, and
rounding the resulting exercise price up to the nearest whole cent. For purposes
of the Merger Agreement, the fair market value of the ADSs is based on the
average of the closing prices per share for the five trading days immediately
following (but not including) the date on which the Effective Time occurs, as
reported in The Wall Street Journal.
Nevertheless, subject to such procedures as may be established by Parent,
each holder of an Option granted under the 1993 Plan will have the right to
elect to receive with regard to such Option either of the following amounts: (i)
a cash payment equal to the product of (x) the number of Shares underlying the
vested portion of such unexercised Option and (y) the excess of the Merger
Consideration over the per share exercise price of the unexercised Option; or
(ii) the number of Options exercisable for ADSs determined under the conversion
formula set forth in the immediately preceding paragraph. In addition, each
outstanding Option granted to a director under the Directors' Plan will
terminate at the Effective Time.
The Merger Agreement further provides that, with respect to the Company's
1996 Employee Stock Purchase Plan (the "Stock Purchase Plan"), the Company will
take all actions as are necessary to cause the "exercise date" (referred to as
the last day of the "Offering Period," as such term is used in the Stock
Purchase Plan) applicable to the then current Offering Period to be the last
trading day on which the Company Common Stock is traded on Nasdaq, immediately
prior to the Effective Time (the "New Purchase Date"). Such change in the
"exercise date" will be conditioned upon the consummation of the Merger. On the
New Purchase Date, the Company will apply the funds credited as of such date
under the Stock Purchase Plan within each participant's payroll withholdings
account to the purchase of whole Shares in accordance with the terms of the
Stock Purchase Plan. The cost to each participant in the Stock Purchase Plan for
the Shares will be the lower of 95% of the closing sale price of Company Common
Stock, as reported on Nasdaq on (i) the first day of the then current Offering
Period or (ii) the last trading day prior to the New Purchase
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<PAGE> 21
Date. Prior to the Effective Time, the Company will take (or cause to be taken)
all actions as are necessary or appropriate to effectuate the termination of the
Stock Purchase Plan prior to the Effective Time in accordance with its terms and
the Code, the Employee Retirement Income Security Act of 1974, as amended, and
other applicable law.
Proxy Statement; Shareholders Meeting. The Merger Agreement provides that,
if required by applicable law in order to consummate the Merger, the Company,
acting through the Company Board, will, in accordance with applicable law:
(a) duly call, give notice of, convene and hold a special meeting of
its shareholders (the "Special Meeting") as promptly as practicable
following the acceptance for payment and purchase of Shares by Purchaser
pursuant to the Offer for the purpose of considering and taking action upon
the approval of the Merger and the adoption of the Merger Agreement;
(b) prepare and file with the SEC a preliminary proxy statement
relating to the Merger and the Merger Agreement and use its best efforts to
obtain and furnish the information required to be included by the SEC in
the proxy statement and, after consultation with Parent, to respond
promptly to any comments made by the SEC with respect to the preliminary
proxy statement and cause a definitive proxy statement to be mailed to its
shareholders;
(c) include in the proxy statement the recommendation of the Company
Board that shareholders of the Company vote in favor of the approval of the
Merger and the adoption of the Merger Agreement; and
(d) use its best efforts to solicit from holders of Shares proxies in
favor of the Merger and take all other action necessary or, in the
reasonable opinion of Parent, advisable to secure any vote or consent of
the shareholders required under California law to effect the Merger.
Under the Merger Agreement, Parent will vote, or cause to be voted, all of
the Shares then owned by it, Purchaser or any of its other subsidiaries or
affiliates controlled by Parent in favor of the approval of the Merger and the
approval and adoption of the Merger Agreement.
Nevertheless, in the event that Parent, Purchaser or any other subsidiary
of Parent acquires in the aggregate a number of the outstanding shares of each
class of capital stock of the Company pursuant to the Offer or otherwise
sufficient to enable Purchaser or the Company to cause the Merger to become
effective without a meeting of shareholders of the Company, the parties will, at
the request of Parent and subject to terms and conditions of the Merger
Agreement, take all necessary and appropriate action to cause the Merger to
become effective as soon as practicable after such acquisition without a meeting
of shareholders of the Company in accordance with Section 1110 of the CGCL.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto, including the
following representations by the Company: organization and qualification;
subsidiaries; Articles of Incorporation and By-Laws; capitalization; authority
relative to the Merger Agreement; material contracts; no conflict, required
filings and consents; rights plan; SEC filings, financial statements; absence of
certain changes or events; no undisclosed liabilities; absence of litigation;
employee benefit plans; employment agreements; labor matters; restrictions on
business activities; title to property; taxes; environmental matters; brokers;
intellectual property; vote required; opinion of financial advisor; and year
2000 compliance.
Rights Plan. In the Merger Agreement, the Company has represented that the
Company Board has approved, and the Company and The First National Bank of
Boston, as Rights Agent, have entered into, an amendment to the Preferred Shares
Rights Agreement (the "Rights Amendment"). Under the Rights Amendment, neither
the execution, delivery and performance of the Merger Agreement or the Stock
Option Agreement nor the consummation of the Offer, the Merger and the other
transactions contemplated by the Merger Agreement and the Stock Option Agreement
(the "Transactions") will result in the distribution of separate certificates
representing rights or the occurrence of a Distribution Date or a "flip-in" or
"flip-over" event (as such terms are defined in the Preferred Shares Rights
Agreement).
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<PAGE> 22
Conduct of Business. Under the Merger Agreement, the Company has
covenanted and agreed that, during the period from the date of the Merger
Agreement and continuing until the earlier to occur of the termination of the
Merger Agreement or the Effective Time, unless Parent otherwise agrees in
writing and unless otherwise expressly permitted under the Merger Agreement, the
Company will conduct its business and will cause the businesses of its
subsidiaries to be conducted, and the Company and its subsidiaries will not take
any action except, in the ordinary course of business and in a manner consistent
with past practice. The Company will also use reasonable commercial efforts to
preserve substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of the present officers, employees
and consultants of the Company and its subsidiaries, and to preserve the present
relationships of the Company and its subsidiaries with customers, suppliers and
other persons with which the Company or any of its subsidiaries has significant
business relations. By way of amplification and not limitation, neither the
Company nor any of its subsidiaries will, during the period from the date of the
Merger Agreement and continuing until the earlier to occur of the termination of
the Merger Agreement or the Effective Time, directly or indirectly do, or
propose to do, any of the following without the prior written consent of Parent,
unless otherwise expressly permitted under the Merger Agreement:
(a) amend or otherwise change the Company's or any of its
subsidiaries' Articles of Incorporation or By-Laws, or other equivalent
organizational documents;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of
capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital
stock, or any other ownership interest (including, without limitation, any
phantom interest) of the Company, any of its subsidiaries or affiliates
(except for the issuance of Shares pursuant to the exercise of Options
under the Stock Option Plans, which Options are outstanding on the date of
the Merger Agreement);
(c) sell, pledge, dispose of or encumber any assets of the Company or
any of its subsidiaries (except for (i) sales of assets in the ordinary
course of business and in a manner consistent with past practice and (ii)
dispositions of obsolete or worthless assets);
(d) amend or change the period (or permit any acceleration, amendment
or change) of exercisability of Options granted under the Stock Option
Plans or the Stock Purchase Plan or other than as expressly provided in the
second paragraph under "Stock Options" above, authorize cash payments in
exchange for any such Options;
(e) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of any of its capital stock, except that a wholly-owned
subsidiary of the Company may declare and pay a dividend to its parent,
(ii) split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock or (iii) amend
the terms of, repurchase, redeem or otherwise acquire, or permit any
subsidiary to repurchase, redeem or otherwise acquire, any of its
securities or any securities of its subsidiaries, or propose to do any of
the above;
(f) sell, transfer, license, sublicense or otherwise dispose of any
material Company intellectual property (other than in the ordinary course
of business consistent with past practice) or amend or modify any existing
agreements with respect to any material Company intellectual property or
third-party intellectual property rights;
(g) (i) acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof; (ii) incur any indebtedness for borrowed money or issue
any debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person, or
make any loans or advances except to employees in the ordinary course
consistent with past practice; (iii) enter into or amend any contract or
agreement other than in the ordinary course of business; (iv) authorize or
make any capital expenditures or purchases of fixed assets that are not
currently budgeted and that in the aggregate exceed $500,000; (v) terminate
any material contract or amend any of its material terms (other than
amendments to
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<PAGE> 23
existing credit arrangements designed to remedy defaults thereunder); or
(vi) enter into or amend any contract, agreement, commitment or arrangement
to effect any of the matters prohibited by this subparagraph;
(h) increase the compensation payable or to become payable to its
employees, officers or directors or grant any severance or termination pay
to, or enter into any employment or severance agreement with, any employee,
director or officer of the Company or any of its subsidiaries or establish,
adopt, enter into, terminate or amend any employee benefit plan (except as
may otherwise be required by applicable law);
(i) take any action, other than as required by United States Generally
Accepted Accounting Principles, to change accounting policies or procedures
or cash maintenance policies or procedures (including, without limitation,
procedures with respect to revenue recognition, capitalization of
development costs, payments of accounts payable and collection of accounts
receivable);
(j) make any material tax election inconsistent with past practice or
settle or compromise any material tax liability, except to the extent the
amount of any such settlement or compromise has been reserved for on the
consolidated financial statements contained in the Company's SEC reports,
or would not have a Company Material Adverse Effect. "Company Material
Adverse Effect" means any change or effect that, individually or when taken
together with all other such changes or effects that have occurred prior to
the date of determination of the occurrence of the Company Material Adverse
Effect, is materially adverse to the business, results of operations or
financial condition of the Company and its subsidiaries, taken as a whole.
In determining whether there has been a Company Material Adverse Effect,
any adverse effect attributable to the following will be disregarded: (i)
general economic or business conditions; (ii) general industry conditions;
(iii) the taking of any action permitted or required by the Merger
Agreement; (iv) a reduction in purchases of products from the Company by
International Business Machines Corporation or Parent; (v) a reduction or
delay in purchases of products from the Company as a direct result of the
public announcement or pendency of the Offer; or (vi) the breach by Parent
or Purchaser of the Merger Agreement; and in each case to the extent that
such adverse effect is attributable to such event. With respect to clause
(v) of this paragraph, the Company will bear the burden of proof (which
will be established through documentary evidence) in any proceeding with
regard to establishing that any reduction in purchases was attributable to
or results from the direct effect of the public announcement or pendency of
the Offer;
(k) pay, discharge, settle or satisfy any lawsuits, claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction
in the ordinary course of business and consistent with past practice of
liabilities reflected or reserved against in the financial statements of
the Company or incurred in the ordinary course of business and consistent
with past practice;
(l) except as may be required by law, take any action to terminate or
amend any employee benefit plan;
(m) permit any material increase in the number of employees of the
Company or any of its subsidiaries employed by the Company or any of its
subsidiaries, as the case may be, on the date of the Merger Agreement; or
(n) take or fail to take, or agree in writing or otherwise to take or
fail to take, any of the actions described in (a) through (m) above, or any
action which would make any of the representations or warranties of the
Company contained in the Merger Agreement untrue or incorrect or prevent
the Company from performing or cause the Company not to perform its
covenants under the Merger Agreement or result in any of the conditions to
the Merger not being satisfied.
No Solicitation. The Merger Agreement provides that the Company will not,
and will not permit or cause any of its subsidiaries or any of the officers and
directors of it or its subsidiaries to, and will direct it and its subsidiaries'
employees, agents and representatives (including any investment banker, attorney
or accountant retained by it or any of its subsidiaries) not to, directly or
indirectly, initiate, solicit, encourage, participate in or otherwise facilitate
any inquiries or the making of any proposal or offer with respect to a
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<PAGE> 24
merger, reorganization, share exchange, tender offer, consolidation or similar
transaction involving, or any purchase of 15% or more of the assets or any
equity securities of, the Company or any of its subsidiaries (any such proposal
or offer being hereinafter referred to as an "Acquisition Proposal"). The Merger
Agreement further provides that the Company will not, and will not permit or
cause any of its subsidiaries or any of the officers and directors of it or its
subsidiaries to, and will direct it and its subsidiaries' employees, agents and
representatives (including any investment banker, attorney or accountant
retained by it or any of its subsidiaries) not to, directly or indirectly,
engage in any negotiations concerning, or provide any confidential information
or data to, or have any discussions with, any person relating to an Acquisition
Proposal, whether made before or after the date of the Merger Agreement, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal. However, nothing contained in the Merger Agreement prevents the
Company or the Company Board from (i) complying with Rules 14e-2 and 14d-9
promulgated under the Exchange Act with regard to an Acquisition Proposal or
(ii) at any time prior to the earlier to occur of (x) payment for shares of
Company Common Stock pursuant to the Offer or (y) the approval of the Merger by
the requisite vote of the shareholders of the Company, (A) providing information
in response to a request therefor by a person who has made an unsolicited bona
fide written Acquisition Proposal (so long as such proposal did not result from
a breach of the provisions of this paragraph) if the Company Board receives from
the person so requesting such information an executed confidentiality agreement
with customary terms; or (B) engaging in any negotiations or discussions with
any person who has made an unsolicited bona fide written Acquisition Proposal,
if and only to the extent that (x) in each such case referred to in clause (A)
or (B) above, the Company Board determines in good faith after consultation with
outside legal counsel that such action is necessary in order for its directors
to comply with their fiduciary duties under applicable law and (y) in the case
referred to in clause (B) above, the Company Board determines in good faith
(after consultation with its financial advisor) that such Acquisition Proposal
is reasonably likely to be consummated, taking into account all legal, financial
and regulatory aspects of the proposal and the person making the proposal and
would, if consummated, result in a more favorable transaction than the
transaction contemplated by the Merger Agreement (any such more favorable
Acquisition Proposal being referred to as a "Superior Proposal"). Nevertheless,
the Company may not, except as permitted by the following paragraph, withdraw or
modify, or propose to withdraw or modify, its position with respect to the Offer
or the Merger or approve or recommend, or propose to approve or recommend, any
Acquisition Proposal or enter into any agreement with respect to any Acquisition
Proposal. The Company will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties previously
conducted with respect to any of the above matters. The Company has agreed that
it will take the necessary steps to promptly inform the individuals or entities
referred to in the first sentence of this paragraph of the above obligations.
In addition, the Merger Agreement provides that neither the Company Board
nor any committee thereof may (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Parent or Purchaser, the approval or
recommendation of the Offer, the Merger Agreement or the Merger, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal by a
third party or (iii) enter into a definitive agreement regarding any third-party
Acquisition Proposal unless, in the case of each of the preceding clauses, the
Company Board has (A) determined in good faith, based on the advise of outside
counsel, that such action is necessary in order for its directors to comply with
their fiduciary duties under applicable law and (B) determined in good faith,
after receiving advice from its financial advisor that the Acquisition Proposal
is superior, from a financial point of view, to the Offer and the Merger, that
such Acquisition Proposal is a Superior Proposal.
The Company will notify Parent promptly (but in any event within 24 hours)
if any such inquiries, proposals or offers are received by, any such information
requested from, or any such discussions or negotiations are sought to be
initiated or continued with, any of its representatives indicating, in
connection with such notice, the name of such person and the material terms and
conditions of any proposals or offers and thereafter will keep Parent informed,
on a current basis, of any material changes in the status and content of any
such proposals or offers and the status of any such negotiations or discussions.
The Company also will promptly request each person that has previously executed
a confidentiality agreement in connection with its consideration of an
Acquisition Proposal to return all confidential information that has been
furnished to such person by or on behalf of it or any of its subsidiaries.
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<PAGE> 25
Indemnification. The Merger Agreement provides that the Articles of
Incorporation of the Surviving Corporation will contain the provisions with
respect to indemnification set forth in the Articles of Incorporation and
By-Laws of the Company, which provisions may not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who
between the date of the Merger Agreement and the Effective Time were directors
or officers of the Company, unless such modification is required by law.
After the time that Parent's designees have been elected to, and constitute
a majority of, the Company Board (the "Appointment Date"), the Surviving
Corporation will, and Parent will cause the Surviving Corporation, to the
fullest extent permitted under applicable law or under the Surviving
Corporation's Articles of Incorporation or By-Laws, to indemnify and hold
harmless each director and officer of the Company or any of its subsidiaries
(collectively, the "Indemnified Parties") against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to any action or omission by such
director or officer by virtue of his holding the office of director or officer
occurring at or prior to the Effective Time (including, without limitation, the
transactions contemplated by the Merger Agreement) for a period of six years
after the Effective Time. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (i) any counsel retained by the Indemnified Parties for any period after
the Effective Time must be reasonably satisfactory to the Surviving Corporation
and Parent and (ii) neither the Surviving Corporation nor Parent will be liable
for any settlement effected without its written consent (which consent may not
be unreasonably withheld).
Furthermore, for a period of six years after the Effective Time, Parent
will cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by the Company (although Parent may
substitute policies with reputable and financially sound carriers of at least
the same coverage and amounts containing terms and conditions which are no less
advantageous) with respect to claims arising from or related to facts or events
that occurred at or before the Effective Time. However, Parent will not be
obligated to make annual premium payments for such insurance to the extent such
premiums exceed 150% of the annual premiums paid as of the date of the Merger
Agreement by the Company for such insurance (such 150% amount, the "Maximum
Premium"). If such insurance coverage cannot be obtained at all, or can only be
obtained at an annual premium in excess of the Maximum Premium, Parent will
maintain the most advantageous policies of directors' and officers' insurance
obtainable for an annual premium equal to the Maximum Premium. If such insurance
coverage cannot be obtained at all, Parent will purchase all available extended
reporting periods with respect to pre-existing insurance in an amount that,
together with all other insurance purchased pursuant to this paragraph, does not
exceed the Maximum Premium. The Company has represented to Parent that the
Maximum Premium is $342,482. Parent agrees, and will cause the Company not to
take any action that would have the effect of limiting the aggregate amount of
insurance coverage required to be maintained for the individuals referred to in
this paragraph.
Listing of ADSs. The Merger Agreement provides that Parent will use its
best efforts to cause the shares of Parent ADSs issuable upon exercise of the
Options assumed by Parent to be approved for listing on the New York Stock
Exchange.
Expenses. The Merger Agreement provides that the Surviving Corporation
will pay all charges and expenses in connection with the conversion of
securities in the Merger. Except as otherwise provided under "Termination; Fees
and Expenses" below, all other costs and expenses incurred in connection with
the Merger Agreement, the Stock Option Agreement and the Transactions will be
paid by the party incurring such expense, except that expenses incurred in
connection with the filing fee for the proxy statement and printing and mailing
the proxy statement will be shared equally by Parent and the Company.
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Conditions to the Merger. Under the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction
at or prior to the Effective Time of each of the following conditions:
(a) The Merger Agreement, the Merger and the transactions contemplated
by the Merger Agreement have been approved and adopted by the requisite
vote of the shareholders of the Company to the extent required by the CGCL
and the Articles of Incorporation of the Company;
(b) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or
governmental entity or other similar binding legal restraint or prohibition
preventing the consummation of the Merger is in effect, and there has not
been 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; and
(c) Parent, Purchaser or their affiliates have purchased, or caused to
be purchased, the Shares pursuant to the Offer.
Termination; Fees and Expenses. The Merger Agreement and the Transactions
may be terminated or abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the shareholders of the Company:
(a) by mutual written consent duly authorized by the respective boards
of directors of Parent and the Company (including the Independent
Director); or
(b) by either Parent or the Company if the Merger has not been
consummated by September 1, 2000 (provided that this right to terminate the
Merger Agreement will not be available to any party whose failure to
fulfill any obligation under the Merger Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date); or
(c) by either Parent or the Company if (i) a court of competent
jurisdiction or governmental entity has issued a non-appealable final
order, decree or ruling or taken any other action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
acceptance for payment of, or payment for, Shares pursuant to the Offer or
the Merger or (ii) any action is taken or any statute, rule, regulation or
order is enacted, entered, enforced or deemed applicable to the Offer or
the Merger which makes the consummation of the Offer or the Merger illegal;
or
(d) by either Parent or the Company, if the Company Common Stock has
not been purchased pursuant to the Offer prior to June 30, 1999 (provided
that this right to terminate the Merger Agreement will not be available to
any party whose failure to fulfill any obligation under the Merger
Agreement has been the cause of or resulted in the failure to consummate
the Offer before that date). If a request for additional information is
received from a governmental entity pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), or
applicable non-United States laws regulating competition, antitrust,
investment or exchange controls, such date will be extended to the 90th day
following acknowledgment by such governmental entity that Parent and the
Company have complied with such request, but in no event will such date be
extended to a date later than September 30, 1999; or
(e) as long as Company Common Stock has not been purchased pursuant to
the Offer by Parent, if any actions described in paragraph (e) in Section
14 has occurred; or
(f) as long as Company Common Stock has not been purchased pursuant to
the Offer, by Parent, upon a breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in the Merger
Agreement or if any representation or warranty of the Company, has become
untrue, in either case, such that the breach would give rise to the failure
of a condition set forth in Section 14 (a "Terminating Breach").
Nevertheless, if such Terminating Breach is curable prior to the expiration
of 30 days from its occurrence (but in no event later than April 30, 1999)
by the Company through the exercise of its reasonable best efforts and for
so long as the Company continues to exercise such
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<PAGE> 27
reasonable best efforts, Parent may not terminate the Merger Agreement
until the expiration of such period without such Terminating Breach having
been cured; or
(g) by Parent, if, due to an occurrence, not involving a breach by
Parent or Purchaser of its obligations hereunder, which makes it impossible
to satisfy any of the conditions set forth in Section 14, Parent, Purchaser
or any of their affiliates has failed to commence the Offer on or prior to
the fifth business day following the date of the initial public
announcement of the Offer; or
(h) by Parent or the Company, if the Offer has expired or has been
terminated in accordance with the terms set forth in the Merger Agreement
(including the conditions set forth in Section 14) without any Company
Common Stock having been purchased pursuant to the Offer; or
(i) by the Company, if Parent or Purchaser has failed to perform or
comply in any material respect with any material obligation, agreement or
covenant to be performed or complied with by it under the Merger Agreement.
However, if such failure of performance or compliance is curable prior to
the expiration of 30 days from its occurrence (but in no event later than
June 30, 1999) by Parent or Purchaser through the exercise of their
respective reasonable best efforts, the Company may not terminate the
Merger Agreement until the expiration of such period without such failure
of performance or compliance having been cured; or
(j) by the Company to allow the Company to enter into a definitive
agreement with respect to a Superior Proposal, provided that the Company
has complied with all the provisions described under "No Solicitation"
above, including the notice provisions.
In the event of the termination of the Merger Agreement and the abandonment
of the Transactions, the Merger Agreement will become void and there will be no
liability on the part of any party (or any of its affiliates, directors,
officers, employees, agents, legal and financial advisors or other
representatives) except (i) under the provisions of the Merger Agreement
relating to fees and expenses and survival of the representations and warranties
and (ii) nothing in the Merger Agreement will relieve any party from liability
or damages resulting from any breach of the Merger Agreement.
Except as described under "Expenses" above and as set forth below, all fees
and expenses incurred in connection with the Merger Agreement and the
Transactions will be paid by the party incurring such expenses, whether or not
the Merger is consummated.
The Company has agreed to pay Parent a fee of $54,000,000 (the "Fee"), plus
actual, documented and reasonable out-of-pocket expenses of Parent, not in
excess of $3,000,000, relating to the transactions contemplated by the Merger
Agreement (including, but not limited to, fees and expenses of Parent's
counsel), upon the earliest to occur of the following events:
(i) the termination of the Merger Agreement by Parent pursuant to
clause (e) above; or
(ii) the termination of the Merger Agreement by Parent or the Company
pursuant to clause (d) or (h) above if, at the time of termination, an
Acquisition Proposal has been publicly announced and not withdrawn and,
within six months from the date of termination, the Company enters into an
agreement or letter of intent concerning a transaction that would
constitute an Acquisition Proposal and such transaction is subsequently
consummated; or
(iii) the termination of the Merger Agreement by the Company pursuant
to clause (j) above; or
(iv) the termination of the Merger Agreement by Parent pursuant to
clause (f) above upon a Terminating Breach and (A) such Terminating Breach
was other than a breach of a representation or warranty not within the
control of the Company, (B) at the time of termination an Acquisition
Proposal has been publicly announced and not withdrawn, (C) within six
months from the date of termination, the Company enters into an agreement
or letter of intent concerning a transaction that would constitute an
Acquisition Proposal and (D) such transaction is subsequently consummated.
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SHAREHOLDER AGREEMENTS
For purposes of this section:
"Covered Shares" means the Owned Shares and the Shares Under Option.
"Owned Shares" means all the shares of Company Common Stock beneficially
owned by the Shareholder on the date of the Shareholder Agreements (other than
Shares Under Option), including any securities of the Company entitled, or which
may be entitled, to vote generally in the election of directors that are
beneficially owned by the Shareholder.
"Shares Under Option" means all the shares of Company Common Stock that are
subject to options, securities convertible into, exchangeable or exercisable for
any such shares, or any voting debt of the Company beneficially owned by the
Shareholder.
Tender of Shares. Pursuant to the Shareholder Agreements and in order to
induce Parent and Purchaser to enter into the Merger Agreement, the
Shareholders, who beneficially own in the aggregate approximately 11.6% of the
outstanding shares of Company Common Stock, have agreed to tender and sell all
their Owned Shares pursuant to the Offer and not to withdraw any Owned Shares
that have been tendered unless the Offer is terminated or has expired.
Voting of Owned Shares; Proxy. Each Shareholder Agreement provides that,
during the period commencing on the date of such Shareholder Agreement and
continuing until the earlier of (x) the consummation of the Offer and (y) the
termination of such Shareholder Agreement (such period being referred to as the
"Voting Period"), at any meeting (whether annual or special, and whether or not
an adjourned or postponed) of the Company's shareholders, however called, or in
connection with any written consent of the Company's shareholders, subject to
the absence of a preliminary or permanent injunction or other requirement under
applicable law by any United States federal, state or foreign court barring such
action, each Shareholder will vote (or cause to be voted) all Owned Shares: (i)
in favor of the Merger, the execution and delivery by the Company of the Merger
Agreement and the approval and adoption of the Merger and the terms thereof and
each of the other actions contemplated by the Merger Agreement and such
Shareholder Agreement; and (ii) against any action or agreement that would
impede, interfere with or prevent the Merger, including any Acquisition
Proposal.
Under the Shareholder Agreements, each Shareholder has granted to Parent
and certain officers of Parent, during the Voting Period, an irrevocable proxy
to vote such Shareholder's Owned Shares or grant a consent or approval in
respect of such Shareholder's Owned Shares (i) in favor of the Merger, the
execution and delivery by the Company of the Merger Agreement and the approval
and adoption of the Merger and the terms thereof and each of the other actions
contemplated by the Merger Agreement and (ii) against any action or agreement
that would impede, interfere with or prevent the Offer or the Merger, including
any Acquisition Proposal. The Shareholders may not enter into any agreement,
arrangement or understanding with any person the effect of which would be
inconsistent or violative of the above provisions and agreements.
Irrevocable Option. In addition, each Shareholder, except for John
Walecka, has granted Purchaser an irrevocable option (the "Irrevocable Option")
to purchase any or all of such Shareholder's Owned Shares and Shares Under
Option (to the extent exercisable on the date that Parent notifies such
Shareholder that it intends to exercise the Irrevocable Option) at a price per
share equal to the Offer Price. The Irrevocable Option will become exercisable
immediately prior to, but contingent upon, the consummation of a transaction
contemplated by the Acquisition Proposal referred to in clause (ii) below, if:
(i) the Merger Agreement is terminated and Parent would be entitled, or
following such time may be entitled, to receive the Fee in connection with such
termination and (ii) the Company enters into a letter of intent or definitive
agreement with respect to a transaction contemplated by an Acquisition Proposal
within six months after such termination. The Irrevocable Option will cease to
be exercisable immediately following the consummation of such a transaction.
The Irrevocable Option will become and remain exercisable so that Purchaser
will have the right and ability to exercise the Irrevocable Option and deliver
the Shares issuable upon such exercise and to receive the
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consideration payable for such Shares in connection with the consummation of the
transaction contemplated by the Acquisition Proposal. However, if at the
scheduled closing date for the transaction contemplated by the Acquisition
Proposal, Parent or Purchaser is legally prohibited from exercising the
Irrevocable Option as to all or any portion of the Owned Shares or Shares Under
Option (including by reason of a failure on the party of Parent and Purchaser to
comply fully with the requirements of the HSR Act or the EC Merger Regulations),
such legal prohibition will not delay or otherwise prevent consummation of such
transaction at its scheduled closing date. Moreover, Purchaser will not be
entitled to purchase any Covered Shares pursuant to the Irrevocable Option if
Purchaser has failed to purchase the Shares pursuant to the Offer in breach of
its obligations under the Merger Agreement.
Nevertheless, whenever the Irrevocable Option is exercisable, Purchaser may
elect, instead of exercising the Irrevocable Option, to require a Shareholder
upon consummation of the transaction contemplated by the Acquisition Proposal to
pay to Purchaser a portion of the consideration per Covered Share (the
"Consideration") received by such Shareholder at the consummation of such
transaction equal to the amount of the excess, if any, of the Consideration over
the Offer Price, multiplied by the number of Covered Shares acquired in such
transaction. Such payment will be made as and when paid in connection with such
transaction.
Restrictions on Transfer, Other Proxies; No Solicitation. Each Shareholder
Agreement, other than that of John Walecka, provides that a Shareholder will
not, until the termination of such Shareholder Agreement, directly or
indirectly: (i) except as provided in the above paragraphs, transfer to any
person any or all Covered Shares; or (ii) grant any proxies or powers of
attorney, deposit any Covered Shares into a voting trust or enter into a voting
agreement, understanding or arrangement with respect to such Covered Shares.
Nothing contained in such Shareholder Agreement will prevent such Shareholder
from transferring any or all of the Covered Shares to an affiliate of such
Shareholder which agrees to be bound by such Shareholder Agreement, provided
that such Shareholder will continue to remain liable for all its obligations
under such Shareholder Agreement.
Each Shareholder, except for John Walecka, has agreed, in its capacity as a
Shareholder of the Company, that it and its affiliates will not, and it will
cause its representatives not to, directly or indirectly, (i) initiate, solicit,
encourage (including by way of furnishing non-public information), participate
in or otherwise facilitate any inquiries or the making of any proposal or offer
that constitutes or is reasonably likely to lead to an Acquisition Proposal or
(ii) engage in any negotiations concerning, or provide any non-public
information or data to, or have any discussions with, any third party relating
to an Acquisition Proposal. Such Shareholder will notify Parent promptly (but in
any event within 24 hours) if any such inquiries, proposals or offers are
received by, any such information requested from, or any such discussions or
negotiations are sought to be initiated or continued with such Shareholder or
its representatives (if any) in each case in connection with any Acquisition
Proposal indicating, in connection with such notice, the name of such person and
the material terms and conditions of any proposals or offers and thereafter will
keep Parent informed, on a current basis, of the status and terms of any such
proposals or offers and the status of any such negotiations or discussions. Such
Shareholder has agreed that it will immediately cease and cause to be terminated
any existing activities or discussion with any parties previously conducted with
respect to an Acquisition Proposal and will request from each person that has
previously executed a confidentiality agreement in connection with its
consideration of an Acquisition Proposal to return all confidential information
that has been furnished to such person by or on behalf of it or any of its
subsidiaries. The foregoing will be subject to such Shareholder's fiduciary
duties as a director and/or officer of the Company. Any action taken by the
Company or any member of the Company Board in his capacity as such in accordance
with the terms of the Merger Agreement will be deemed not to violate this
paragraph.
Waiver of Appraisal Rights. Each Shareholder has waived any rights of
appraisal or rights to dissent from the Merger that it may have.
Non-Competition. In consideration of the transactions contemplated under
each Shareholder Agreement and the Merger Agreement, each of Steve Y. Kim and
Yuri Pikover has agreed that, commencing
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on the Effective Time and for a period ending four years after the Effective
Time for Mr. Kim and two years after the Effective Time for Mr. Pikover, he will
not, directly or indirectly:
(i) own, manage, control or participate in the ownership, management
or control of, or be employed or engaged by or otherwise affiliated or
associated as a consultant, independent contractor or otherwise with any
other corporation, partnership, proprietorship, firm, association or other
business entity engaged in the business of designing, manufacturing and/or
selling enterprise data LAN switching, ATM switching and/or Gigabit
Ethernet switching products to customers in the enterprise and/or carrier
markets. However, the following will not be deemed a violation of this
covenant: (A) the ownership of not more than three percent of any class of
publicly traded securities of any entity; and (B) passive investments in
venture capital funds or similar entities established by persons who are
not affiliated with or related to such Shareholder and over which such
Shareholder has no power to direct the management or investment decisions;
(ii) offer to employ or otherwise engage any person who is then (or
was at any time within one year prior to the time of such employment,
engagement or offer thereof) an employee, sales representative or agent of
the Company; or
(iii) solicit any business from any person or entity that is at the
time of such solicitation a customer of the Company in a manner likely to
result in a discontinuance or reduction of the extent of such person's or
entity's business relationship with the Company, or induce or influence any
customer, supplier or other person that has a business relationship with
the Company to discontinue or reduce the extent of such relationship with
the Company.
Cancellation of Change of Control Agreements; Agreement to Rollover Shares
Under Option; Option Vesting. In consideration of the transactions contemplated
under each Shareholder Agreement and under the Merger Agreement, each of Messrs.
Kim and Pikover has agreed to waive, effective at, and contingent upon the
occurrence of, the Effective Time, any and all claims, rights and entitlements
that he has, has had or may ever have with respect to or arising under the
Change of Control Agreement between such Shareholder and the Company (the "CIC
Agreement") and release, effective at, and contingent upon the occurrence of,
the Effective Time, the Company and its officers, directors, shareholders,
employees and representatives and any of their successors and assigns from any
and all such claims, rights and entitlements relating to or arising under the
CIC Agreement. Each of Messrs. Kim and Pikover has acknowledged that the CIC
Agreement will become null and void at the Effective Time.
The Shareholder Agreements further provide that Messrs. Kim and Pikover may
not exercise, sell or otherwise transfer (or attempt to exercise, sell or
otherwise transfer) any of their outstanding options to purchase shares of the
Company (whether vested or unvested) (the "Shareholder Options"), and will take
any and all actions necessary to ensure that all of their Shareholder Options
are converted in accordance with clause (ii) of the third paragraph under "The
Merger Agreement -- Stock Option; Stock Purchase Plan" above.
The Company and Mr. Pikover have also agreed that, as of the Effective
Time, Mr. Pikover's Shareholder Options will be amended to provide that: (I) the
Shareholder Options will not terminate following the termination of Mr.
Pikover's employment for any reason other than for "cause"; (II) Mr. Pikover
will continue to vest in the Shareholder Options in accordance with the
applicable option plan or agreements for the Shareholder Options on the same
basis as if he continued to be employed, provided that he continues to fulfill
all obligations with respect to the restrictive non-competition covenant
described above; and (III) if Mr. Pikover fulfills such restrictive covenant
obligations, he will be entitled to exercise his Shareholder Options at any time
within the 30 day period following the satisfaction of the restrictive covenant.
Unless terminated earlier as contemplated above, under the applicable option
plan or under the agreements for the Shareholder Options, Mr. Pikover's
Shareholder Options will automatically expire on their originally-specified
expiration dates. For purposes of Mr. Pikover's Shareholder Agreement, "cause"
means his fraud, embezzlement or similar activities; or his conviction of, or
plea of guilty or no contest to, any felony or any crime involving fraud,
embezzlement or other defalcation or any crime involving moral turpitude; or his
commission of any act of dishonesty or series of repeated acts of dishonesty
which are not in the best interests
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of the Company, or which are injurious to the business reputation of the
Company; or his willful and repeated failure to perform his material duties of
employment, which failure has not been cured within 30 business days after the
Company gives him written notice.
Termination. Each Shareholder Agreement, other than that of John Walecka,
and all rights and obligations of the parties thereunder, will terminate upon
the earlier of (a) the date upon which Parent has purchased and paid for all of
the Owned Shares of such Shareholder in accordance with the terms of the Offer,
(b) if the Merger Agreement is terminated in circumstances that do not give rise
to the payment of the Fee, the date on which the Merger Agreement is terminated,
(c) if the Merger Agreement is terminated in circumstances that give rise to the
payment of the Fee and the Company has not entered into a letter of intent or
definitive agreement with respect to a transaction contemplated by an
Acquisition Proposal within six months following such date of termination, six
months following the date on which the Merger Agreement is terminated, and (d)
if the Merger Agreement is terminated in circumstances that give rise to the
payment of the Fee and the Company has entered into a letter of intent or
definitive agreement with respect to a transaction contemplated by an
Acquisition Proposal within six months following such date of termination, the
date on which such transaction is consummated. Mr. Walecka's Shareholder
Agreement will terminate upon the earlier of (a) the date upon which Parent has
purchased and paid for all of Mr. Walecka's Owned Shares in accordance with the
terms of the Offer and (b) the date on which the Merger Agreement is terminated.
STOCK OPTION AGREEMENT
Under the Stock Option Agreement, the Company granted to Purchaser an
irrevocable Top-Up Stock Option to purchase that number of Top-Up Option Shares
equal to the number of shares of Company Common Stock that, when added to the
number of shares of Company Common Stock owned by Purchaser, Parent and their
subsidiaries immediately following consummation of the Offer, will constitute
90% of the shares of Company Common Stock then outstanding (assuming the
issuance of the Top-Up Option Shares) at a purchase price per Top-Up Option
Share equal to the Offer Price. However, the Top-Up Stock Option will not be
exercisable if the number of shares of Company Common Stock subject thereto
exceeds the number of authorized shares of Company Common Stock available for
issuance.
Subject to the terms and conditions of the Stock Option Agreement, the
Top-Up Stock Option may be exercised by Purchaser, in whole, but not in part, at
any one time after the occurrence of a Top-Up Exercise Event (as defined below)
and prior to the Top-Up Termination Date (as defined below). A "Top-Up Exercise
Event" will occur for purposes of the Stock Option Agreement at such time as
such number of shares of Company Common Stock that have been validly tendered
and not withdrawn when added to such number of Shares issuable pursuant to the
Stock Option Agreement would constitute at least 90% of the shares of Company
Common Stock then outstanding. Except as provided in the last sentence of this
paragraph, the "Top-Up Termination Date" will occur for purposes of the Stock
Option Agreement upon the earliest to occur of: (i) the Effective Time; (ii) the
date which is ten business days after the occurrence of a Top-Up Exercise Event;
(iii) the termination of the Merger Agreement; and (iv) the date on which
Purchaser waives the Minimum Condition and accepts for payment the Revised
Minimum Number of Shares. Nevertheless, even if the Top-Up Termination Date has
occurred, Purchaser will be entitled to purchase the Top-Up Option Shares if it
has exercised the Top-Up Stock Option in accordance with the terms of the Stock
Option Agreement prior to such occurrence.
The obligation of the Company to deliver Top-Up Option Shares upon the
exercise of the Top-Up Stock Option is subject to the following conditions: (a)
all waiting periods, if any, under the HSR Act, the EC Merger Regulations or
other applicable non-United States laws regulating competition, antitrust,
investment or exchange controls applicable to the issuance of the Top-Up Option
Shares have expired or have been terminated or waived; and (b) there is no
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or governmental entity or similar
binding legal restraint preventing or prohibiting the exercise of the Top-Up
Stock Option or the delivery of the Top-Up Option Shares in respect of any such
exercise.
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EMPLOYMENT AGREEMENT
Term and Position. Under an employment agreement, dated March 1, 1999 (the
"Employment Agreement"), between Purchaser and Steve Y. Kim, Purchaser agreed to
employ Mr. Kim as President and Chief Executive Officer of Purchaser. The term
of the Employment Agreement is for two years commencing at the Effective Time.
After the second anniversary, the term will be extended automatically for
successive one-year periods unless earlier terminated by either party. All
obligations under the Employment Agreement are conditioned upon consummation of
the Merger, and the Employment Agreement will terminate if such condition is not
satisfied.
Compensation. Under the Employment Agreement, Mr. Kim will receive a base
salary of $400,000 per year, subject to increase, and will be eligible for an
annual bonus equal to 50% of his salary based on his achievement of certain
performance standards. Mr. Kim will be eligible to participate in any benefit
plans offered to employees or executives of Purchaser.
Termination. Mr. Kim's employment may be terminated (i) due to his death
or permanent disability, (ii) by Purchaser for "cause" at any time, (iii) by Mr.
Kim for "good reason" or (iv) by Purchaser at any time "without cause." In the
event of Mr. Kim's death or permanent disability or his termination for "cause,"
he will not be entitled to receive any further compensation or benefits, except
for death or disability benefits. If Mr. Kim's employment is terminated by
Purchaser "without cause" or by Mr. Kim for "good cause," then for two years
from the date of termination, he will be entitled to the continuation of his
then-effective annual rate of salary and existing health and welfare benefits.
Covenants; Options. The Employment Agreement contains a non-competition
and non-solicitation provision which extends for a period of four years from the
Effective Time. The Employment Agreement also provides that, subject to Mr.
Kim's fulfillment of such covenant, his options to purchase shares of the
Company will not terminate following the termination of his employment for any
reason other than for "cause" and he will continue to vest in, and be entitled
to exercise, such options. In addition, Mr. Kim has agreed that, during the term
of his employment and for two years thereafter, he will maintain the
confidentiality of Purchaser's proprietary information.
11. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY AFTER THE OFFER AND THE MERGER;
OTHER MATTERS.
Purpose of the Offer. The purpose of the Offer and the Merger is for
Parent to acquire control of, and the entire equity interest in, the Company.
The purpose of the Merger is for Parent to acquire all Shares not purchased
pursuant to the Offer. Upon consummation of the Merger, the Company will be a
wholly-owned indirect subsidiary of Parent. The Offer is intended to increase
the likelihood that the Merger will be completed promptly.
Plans for the Company. It is expected that, initially following the
Merger, the business and operations of the Company will, except as set forth in
this Offer to Purchase, be continued by the Company substantially as they are
currently being conducted. Parent will continue to evaluate the business and
operations of the Company during the pendency of the Offer and after the
consummation of the Offer and the Merger, and will take such actions as it deems
appropriate under the circumstances then existing. Parent intends to seek
additional information about the Company during this period. Thereafter, Parent
intends to review such information as part of a comprehensive review of the
Company's business, operations, capitalization and management with a view to
optimizing exploitation of the Company's potential in conjunction with Parent's
business.
Except as indicated in this Offer to Purchase, Parent does not have any
present plans or proposals which relate to or would result in an extraordinary
corporate transaction, such as a merger, reorganization or liquidation,
involving the Company or any of its subsidiaries, a sale or transfer of a
material amount of assets of the Company or any of its subsidiaries, any
material change in the Company's capitalization or dividend policy or any other
material change in the Company's corporate structure or business.
The Merger Agreement provides that, promptly upon the acceptance for
payment by Parent or any of its subsidiaries for Shares purchased pursuant to
the Offer, and from time to time thereafter as Shares are
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acquired by Parent or any of its subsidiaries, Parent will be entitled to
designate such number of directors, rounded up to the next greatest whole
number, on the Company Board as will give Parent representation on the Company
Board equal to that number of directors which equals the product of the total
number of directors on the Company Board (giving effect to the directors
appointed or elected pursuant to this sentence and including current directors
serving as officers of the Company) multiplied by the percentage that the
aggregate number of Shares beneficially owned by Purchaser, Parent or any of
their affiliates (including Shares accepted for payment pursuant to the Offer,
but excluding Shares held by the Company or any of its affiliates, which would
not include Parent, Purchaser or its affiliates) bears to the number of Shares
outstanding. However, if Purchaser acquires the Revised Minimum Number of Shares
in the Offer, such number of directors will be rounded up to the greatest whole
number plus one to give Purchaser at least a majority of the members of the
Company Board. The Merger Agreement further provides that the directors of
Purchaser and the officers of the Company immediately prior to the Effective
Time will be the initial directors and officers, respectively, of the Surviving
Corporation.
Shareholder Approval. Under the CGCL, the approval of the Company Board
and the affirmative vote of the holders of a majority of the outstanding Shares
are required to approve and adopt the Merger Agreement and the transactions
contemplated thereby. The Company has represented in the Merger Agreement that
the execution and delivery of the Merger Agreement by the Company and the
consummation by the Company of the transactions contemplated by the Merger
Agreement have been duly and validly authorized by all necessary corporate
action on the part of the Company, subject to the approval and adoption of the
Merger by the shareholders of the Company in accordance with the CGCL. In
addition, the Company has represented that the affirmative vote of the holders
of at least a majority of the outstanding Shares is the only vote of the holders
of any class or series of the Company's capital stock necessary to approve the
Merger. Therefore, unless the Merger is consummated in accordance with the
short-form merger provisions under the CGCL described below (in which case no
action by the shareholders of the Company will be required to consummate the
Merger), the only remaining corporate action of the Company will be the approval
and adoption of the Merger Agreement and the transactions contemplated thereby
by the affirmative vote of the holders of a majority of the Shares. The Merger
Agreement provides that Parent will vote, or cause to be voted, all of the
Shares then owned by it, Purchaser or any of its other subsidiaries or
affiliates in favor of the approval of the Merger and the approval and adoption
of the Merger Agreement. In the event that the Minimum Condition is satisfied,
Purchaser will have sufficient voting power to cause the approval of the Merger
Agreement and the transactions contemplated thereby without the affirmative vote
of any other shareholder of the Company.
Short-Form Merger. Section 1110 of the CGCL provides that, if a parent
corporation owns at least 90% of the outstanding shares of each class of a
subsidiary corporation, the merger of the parent corporation into the subsidiary
corporation may be effected by having the board of directors of the parent
corporation approve and adopt a resolution or plan of merger and by making the
appropriate filings with the California Secretary of State, without any action
or vote on the part of the shareholders of the subsidiary corporation. Under the
CGCL, if Purchaser acquires, pursuant to the Offer or otherwise, at least 90% of
the outstanding Shares, Purchaser will be able to effect the Merger without a
vote of the shareholders of the Company. In such event, Parent, Purchaser and
the Company have agreed in the Merger Agreement to take, subject to the
satisfaction or waiver of the conditions set forth in the Merger Agreement, all
necessary and appropriate action to cause the Merger to become effective as soon
as practicable after the acceptance of and payment for Shares by Purchaser
pursuant to the Offer without a meeting of shareholders of the Company.
Under the CGCL, the Merger may not be accomplished for cash paid to the
Company's shareholders if Purchaser owns, directly or indirectly, more than 50%
but less than 90% of the then outstanding Shares unless either all the
shareholders consent or the Commissioner of Corporations of the State of
California approves, after a hearing, the terms and conditions of the Merger and
the fairness thereof. If such shareholder consent or Commissioner of
Corporations approval is not obtained, the CGCL requires that the consideration
received in the Merger consist only of non-redeemable common stock of Parent.
The purpose of the Offer is to obtain 90% or more of the Shares and thus to
enable Parent and Purchaser to acquire all the equity of the Company for
consideration consisting solely of cash.
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Dissenters' Rights. Holders of Shares do not have dissenters' rights as a
result of the Offer. However, if the Merger is consummated, holders of Shares at
the Effective Time, by complying with the provisions of Chapter 13 of the CGCL,
may have certain rights to dissent and to require the Company to purchase their
Shares for cash at "fair market value." In general, holders of Shares will be
entitled to exercise dissenters' rights under the CGCL only if the holders of
five percent or more of the outstanding Shares properly file demands for payment
or if the Shares held by such holders are subject to any restriction on transfer
imposed by the Company or by any law or regulation ("Restricted Shares").
Accordingly, if any holder of Restricted Shares or the holders of five percent
or more of the Shares properly file demands for payment, all other holders who
fully comply with all other applicable provisions of Chapter 13 of the CGCL will
be entitled to require the Company to purchase their Shares for cash at their
fair market value if the Merger is consummated. In addition, if immediately
prior to the Effective Time, the Shares are not listed on a national securities
exchange or on the list of over-the-counter margin stocks issued by the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), holders
of Shares may exercise dissenters' rights as to any or all of their Shares
entitled to such rights
If the statutory procedures under the CGCL relating to dissenters' rights
are complied with, such rights could lead to a judicial determination of the
fair market value of the Shares. The "fair market value" would be determined as
of the day before the first announcement of the terms of the Merger, excluding
any appreciation or depreciation as a result of the Merger. The value so
determined could be more or less than the Offer Price.
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING SHAREHOLDERS DOES NOT
PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY
SHAREHOLDERS DESIRING TO EXERCISE ANY AVAILABLE DISSENTERS' RIGHTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE CGCL. THE PRESERVATION AND
EXERCISE OF DISSENTERS' RIGHTS REQUIRE STRICT ADHERENCE TO THE APPLICABLE
PROVISIONS OF THE CGCL.
Going Private Transactions. The SEC has adopted Rule 13e-3 under the
Exchange Act which is applicable to certain "going private" transactions and
which may under certain circumstances be applicable to the Merger or another
business combination following the purchase of Shares pursuant to the Offer in
which Purchaser seeks to acquire the remaining Shares not held by it. However,
Rule 13e-3 will not be applicable to the Merger or any such other business
combination if (i) the Shares are deregistered under the Exchange Act prior to
the Merger or other business combination or (ii) the Merger or other business
combination is consummated within one year after the purchase of the Shares
pursuant to the Offer and the value of the consideration paid per Share in the
Merger or other business combination (measured at the time of consummation of
the Merger) is at least equal to the amount paid per Share in the Offer. If
applicable, Rule 13e-3 requires, among other things, that certain financial
information concerning the Company and certain information relating to the
fairness of the proposed transaction and the consideration offered to minority
shareholders in such transaction be filed with the SEC and disclosed to
shareholders prior to consummation of the transaction.
12. DIVIDENDS AND DISTRIBUTIONS.
The Merger Agreement provides that, during the period from the date of the
Merger Agreement and continuing until the earlier to occur of the termination of
the Merger Agreement or the Effective Time, neither the Company nor any of its
subsidiaries may, without the prior written consent of Parent, (i) declare, set
aside, make or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of any of its capital stock,
except that a wholly-owned subsidiary of the Company may declare and pay a
dividend to its parent, (ii) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock or
(iii) amend the terms of, repurchase, redeem or otherwise acquire, or permit any
subsidiary to repurchase, redeem or otherwise acquire, any of its securities or
any securities of its subsidiaries, or propose to do any of the above. See
Section 10.
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13. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES, EXCHANGE LISTING AND
EXCHANGE ACT REGISTRATION.
The purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and could reduce the number of
holders of Shares, which could adversely affect the liquidity and market value
of the remaining Shares held by shareholders other than Purchaser. The extent of
the public market, if any, for the Shares and the availability of price
quotations in respect thereof following the purchase of Shares pursuant to the
Offer would depend upon the number of shareholders remaining at such time, the
interest in maintaining a market in the Shares on the part of securities firms,
the possible termination of registration of the Shares under the Exchange Act,
as described below, and other factors.
The Shares are listed on Nasdaq. According to Nasdaq's published
guidelines, the Shares may no longer be quoted on Nasdaq if, among other things,
the number of publicly held Shares (excluding Shares held directly or indirectly
by officers, directors and any person who is a beneficial owner of more than 10%
of the Shares) is less than 500,000, the aggregate market value of publicly held
Shares is less than $1,000,000 or there are fewer than 300 holders of the Shares
in round lots. If these standards are not met, quotations might continue to be
published in the over-the-counter "additional list" or one of the "local lists"
unless, as set forth in Nasdaq's published guidelines, the number of publicly
held Shares is less than 100,000 or there are fewer than 300 holders in total.
As described below, Purchaser intends to cause the Company to terminate its
Nasdaq listing and Exchange Act registration if there are fewer than 300 holders
of record of the Shares following consummation of the Offer. If Nasdaq were to
delist the Shares, the market therefore could be adversely affected.
The Shares are currently "margin securities," as such term is defined under
the rules of the Federal Reserve Board, which has the effect, among other
things, of allowing brokers to extend credit on the collateral of the Shares.
Depending upon factors similar to those described above regarding listing and
market quotations, following the Offer it is possible that the Shares might no
longer constitute "margin securities" for purposes of the margin regulations of
the Federal Reserve Board, in which event the Shares could no longer be used as
collateral for loans made by brokers.
The Shares are currently registered under the Exchange Act. Such
registration may be terminated upon application by the Company to the SEC if
there are fewer than 300 record holders of the Shares. The termination of the
registration of the Shares under the Exchange Act would substantially reduce the
information required to be furnished by the Company to holders of Shares and to
the SEC and would make certain provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b), the requirement of
furnishing a proxy statement in connection with shareholders' meetings and the
requirements of Rule 13e-3 under the Exchange Act with respect to "going
private" transactions, no longer applicable to the Shares. In addition,
"affiliates" of the Company and persons holding "restricted securities" of the
Company may be deprived of the ability to dispose of their Shares pursuant to
Rule 144 promulgated under the Securities Act of 1933. If registration of the
Shares under the Exchange Act were terminated, the Shares would no longer be
"margin securities" or be eligible for Nasdaq reporting. Purchaser currently
intends to seek to cause the Company to terminate the registration of the Shares
under the Exchange Act as soon after consummation of the Offer as the
requirements for termination of registration are met.
14. CERTAIN CONDITIONS OF THE OFFER.
Notwithstanding any other provision of the Offer and in addition to (and
not in limitation of) Purchaser's rights to extend and amend the Offer at any
time in its sole discretion (but subject in all cases to the provisions of the
Merger Agreement), Purchaser will not be required to accept for payment or,
subject to any applicable rules and regulations of the SEC, including Rule
14e-1(c) under the Exchange Act (relating to Purchaser's obligation to pay for
or return tendered Shares promptly after termination or withdrawal of the
Offer), pay for, and may delay the acceptance for payment of or, subject to the
restriction referred to above, the payment for, any tendered Shares, and may
terminate the Offer or amend the Offer as to any Shares not then paid for, if
(i) any applicable waiting period under the HSR Act, the EC Merger Regulations
(as defined below) or any applicable non-United States laws regulating
competition, antitrust, investment or exchange controls has not
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expired or terminated prior to the expiration of the Offer (the "HSR/Foreign
Antitrust Condition"), (ii) the Minimum Condition has not been satisfied or
waived (pursuant to the Merger Agreement) or (iii) at any time on or after the
date of the Merger Agreement and before the time of acceptance of Shares for
payment pursuant to the Offer, any of the following events occurs or is
determined by Purchaser to have occurred (other than as the result of any action
or inaction of Parent or its subsidiaries that would constitute a material
breach of the Merger Agreement (other than the representations and warranties of
Parent and Purchaser)):
(a) there has been instituted or is pending any suit, action or
proceeding by any governmental entity seeking, or by any other person which
would reasonably be expected to, (i) prohibit or impose any material
limitations on Parent's or Purchaser's ownership or operation (or that of
any of their respective subsidiaries or affiliates) of all or a material
portion of their or the Company's businesses or assets, or to compel Parent
or Purchaser or their respective subsidiaries and affiliates to dispose of
or hold separate any material portion of the business or assets of the
Company or Parent and their respective subsidiaries, (ii) prohibit the
acquisition by Parent or Purchaser of any Shares under the Offer or
pursuant to the Stock Option Agreement or the Shareholder Agreements, to
restrain or prohibit the making or consummation of the Offer or the Merger
or the performance of any of the other transactions contemplated by the
Merger Agreement, the Stock Option Agreement or the Shareholder Agreements,
or to require the Company, Parent or Purchaser to pay any damages that are
material in relation to the Company taken as a whole, (iii) impose material
limitations on the ability of Purchaser, or to render Purchaser unable, to
accept for payment, pay for or purchase some or all of the Shares pursuant
to the Offer and the Merger, (iv) impose material limitations on the
ability of Purchaser or Parent effectively to exercise full rights of
ownership of the Shares, including, without limitation, the right to vote
the Shares purchased by it on all matters properly presented to the
Company's shareholders or (v) have a Company Material Adverse Effect or
materially adversely affect the ability of the Company or Parent to
consummate the Offer or the Merger or to perform any of their obligations
under the Merger Agreement or the Stock Option Agreement; or
(b) there is any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated or deemed applicable to
the Offer or the Merger, or any other action is taken by any governmental
entity, other than the application to the Offer or the Merger of applicable
waiting periods under the HSR Act, EC Merger Regulations and applicable
non-United States laws regulating competition, antitrust, investment or
exchange controls that would reasonably be expected to result, directly or
indirectly, in any of the consequences referred to in clauses (i) through
(v) of paragraph (a) above; or
(c) there has occurred (i) any general suspension of trading in, or
limitation on prices for, securities on the New York Stock Exchange or in
Nasdaq (excluding suspensions or limitations resulting solely from physical
damage or interference with such exchanges not related to market
conditions), (ii) a declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States (whether or not
mandatory), (iii) a commencement of a war, armed hostilities or other
international or national calamity directly or indirectly involving the
United States other than the current hostilities in Iraq, Kosovo, Bosnia or
Serbia, (iv) any limitation (whether or not mandatory) by any United States
governmental authority on the extension of credit by banks or other
financial institutions, (v) a change in general financial bank or capital
market conditions which materially and adversely affects the ability of
financial institutions in the United States to extend credit or syndicate
loans or (vi) in the case of any of the foregoing existing at the time of
the commencement of the Offer, a material acceleration or worsening
thereof; or
(d) there has occurred and is continuing any change, condition, event
or development that would reasonably be expected to result in a Company
Material Adverse Effect; or
(e) the Company Board or any committee thereof has (i) withdrawn,
modified or changed in a manner adverse to Parent or Purchaser (including
by amendment of the Schedule 14D-9) its approval or recommendation of the
Offer, the Merger Agreement or the Merger or has resolved to do so or (ii)
recommended or taken a "neutral" position with respect to the approval or
acceptance of an
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Acquisition Proposal from, or similar business combination with, a person
or entity other than Parent, Purchaser or their affiliates or has resolved
to do so; or
(f) any of the representations and warranties of the Company set forth
in the Merger Agreement (disregarding for this purpose any qualifications
with respect to materiality or Company Material Adverse Effect) are not
true and correct as of the date of the Merger Agreement and as of the
scheduled expiration of the Offer and where the failure to be true and
correct would, together with all other such failures, have a Company
Material Adverse Effect; or
(g) the Company has and continues to have failed to perform in any
material respect any obligation or to comply in any material respect with
any agreement or covenant of the Company to be performed or complied with
by it under the Merger Agreement; or
(h) the Merger Agreement has been terminated in accordance with its
terms;
which in the reasonable judgment of Parent or Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
Purchaser) giving rise to such condition, makes it inadvisable to proceed with
the Offer and/or with such acceptance for payment of or payment for Shares.
The above conditions are for the sole benefit of Parent and Purchaser and
may (subject to the terms of the Merger Agreement) be waived by Parent or
Purchaser, in whole or in part, at any time and from time to time in the sole
discretion of Parent or Purchaser. The failure by Parent or Purchaser at any
time to exercise any of the above rights will not be deemed a waiver of any such
right and each such right will be deemed an ongoing right which may be asserted
at any time and from time to time.
"EC Merger Regulations" means Council Regulation (EEC) No. 4064/89 of
December 21, 1989 on the Control of Concentrations Between Undertakings, OJ
(1989) L 395/1 (as amended) and the regulations and decisions of the Commission
of the European Community or other organs of the European Union or European
Community implementing such regulations.
15. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS.
General. Based upon its examination of publicly available information with
respect to the Company, the review of certain information furnished by the
Company to Parent and discussions of representatives of Parent with
representatives of the Company during Parent's investigation of the Company (see
Section 10), neither Purchaser nor Parent is aware of any license or other
regulatory permit that appears to be material to the business of the Company and
its subsidiaries, taken as a whole, which might be adversely affected by the
acquisition of Shares by Purchaser pursuant to the Offer or, except as set forth
below, of any approval or other action by any domestic (federal or state) or
foreign governmental, administrative or regulatory authority or agency which
would be required prior to the acquisition of Shares by Purchaser pursuant to
the Offer. Should any such approval or other action be required, it is
Purchaser's present intention to seek such approval or action, except as
described below under "State Takeover Laws." There can be no assurance that any
such approval or other action, if needed, would be obtained without substantial
conditions or that adverse consequences might not result to the business of the
Company, Purchaser or Parent or that certain parts of the businesses of the
Company, Purchaser or Parent might not have to be disposed of or held separate
or other substantial conditions complied with in order to obtain such approval
or other action or in the event that such approval was not obtained or such
other action was not taken. Purchaser's obligation under the Offer to accept for
payment and pay for Shares is subject to certain conditions, including
conditions relating to the legal matters discussed in this Section 15. See
Section 14.
State Takeover Laws; Section 1203 of the CGCL. The Company is incorporated
under the laws of the State of California. Section 1203 of the CGCL provides
that if a tender offer is made to some or all of a corporation's shareholders by
an "interested party," an affirmative opinion in writing as to the fairness of
the consideration to the shareholders of such corporation is required to be
delivered to the shareholders at the time that the tender offer is first made in
writing to the shareholders. However, if the tender offer is commenced by
publication and tender offer materials are subsequently mailed or otherwise
distributed to the shareholders, the opinion may be omitted in the publication
if the opinion is included in the materials distributed to the
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shareholders. For purposes of Section 1203, the term "interested party"
includes, among other things, a person who is a party to the transaction and (A)
directly or indirectly controls the corporation that is the subject of the
tender offer or proposal, (B) is, or is directly or indirectly controlled by, an
officer or director of the subject corporation or (C) is an entity in which a
material financial interest is held by any director or executive officer of the
subject corporation. While none of the Company, Parent or Purchaser believes
that the Offer constitutes a transaction that falls within the provisions of
Section 1203, an independent financial advisor, Morgan Stanley, has been
retained by the Company to provide a fairness opinion with respect to the Offer.
Under the CGCL, the Merger may not be accomplished for cash paid to the
shareholders of the Company if Purchaser or Parent owns directly or indirectly
more than 50% but less than 90% of the then outstanding Shares, unless either
all the shareholders of the Company consent or the Commissioner of Corporations
of the State of California approves, after a hearing, the terms and conditions
of the Merger and the fairness thereof.
The Merger Agreement provides that, in the event less than 90% of the
Shares then outstanding are tendered pursuant to the Offer on any scheduled
Expiration Date and provided that certain other conditions have been met,
Purchaser may, in its sole discretion, either (i) extend the Offer or (ii) amend
the Offer to provide that, in the event (A) the Minimum Condition is not
satisfied at the next scheduled Expiration Date (without giving effect to the
potential issuance of any Shares issuable upon exercise of the Stock Option
Agreement) and (B) the number of Shares tendered pursuant to the Offer and not
withdrawn as of such next scheduled Expiration Date is more than 50% of the then
outstanding Shares, Purchaser will waive the Minimum Condition and amend the
Offer to reduce the number of Shares subject to the Offer to a number of Shares
that, when added to the Shares then owned by Purchaser, will equal the Revised
Minimum Number, and, if a greater number of Shares is tendered into the Offer
and not withdrawn, purchase, on a pro rata basis, the Revised Minimum Number of
Shares (it being understood that Purchaser may, but will not in any event be
required to accept for payment, and pay for, any Shares if less than the Revised
Minimum Number of Shares are tendered pursuant to the Offer and not withdrawn at
the applicable Expiration Date). In the event that Purchaser acquires the
Revised Minimum Number of Shares, it would have the ability to ensure approval
of the Merger by the shareholders of the Company with the approval of a de
minimus number of remaining outstanding Shares.
A number of states have adopted laws and regulations applicable to attempts
to acquire securities of corporations that are incorporated, or have substantial
assets, shareholders, principal executive offices or principal places of
business, or whose business operations otherwise have substantial economic
effects, in such states. In Edgar v. Mite Corp., the Supreme Court of the United
States invalidated on constitutional grounds the Illinois Business Takeover
Statute, which, as a matter of state securities law, made takeovers of
corporations meeting certain requirements more difficult. However, in 1987 in
CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that the State of
Indiana may, as a matter of corporate law and, in particular, with respect to
those aspects of corporate law concerning corporate governance, constitutionally
disqualify a potential acquirer from voting on the affairs of a target
corporation without the prior approval of the remaining shareholders, provided
that such laws were applicable only under certain conditions. Subsequently, in
TLX Acquisition Corp. v. Telex Corp., a Federal district court in Oklahoma ruled
that the Oklahoma statutes were unconstitutional insofar as they applied to
corporations incorporated outside Oklahoma in that they would subject such
corporations to inconsistent regulations. Similarly, in Tyson Foods, Inc. v.
McReynolds, a Federal district court in Tennessee ruled that four Tennessee
takeover statutes were unconstitutional as applied to corporations incorporated
outside Tennessee. This decision was affirmed by the United States Court of
Appeals for the Sixth Circuit. In December 1988, a federal district court in
Florida held in Grand Metropolitan PLC v. Butterworth that the provisions of the
Florida Affiliated Transactions Act and Florida Control Share Acquisition Act
were unconstitutional as applied to corporations incorporated outside of
Florida.
The Company, directly or through subsidiaries, may conduct business in a
number of states throughout the United States, some of which may have enacted
takeover laws. Purchaser does not know whether any of these laws will, by their
terms, apply to the Offer or the Merger and has not attempted to comply with any
such laws. Should any person seek to apply any state takeover law, Purchaser
reserves the right to challenge
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the validity or applicability of any such statute allegedly applicable to the
Offer in appropriate court proceedings or otherwise, and nothing contained in
this Offer to Purchase nor any action taken in connection herewith is intended
as a waiver of that right. In the event it is asserted that one or more state
takeover laws applies to the Offer or the Merger, and an appropriate court does
not determine that it is inapplicable or invalid as applied to the Offer or the
Merger, Purchaser might be required to file certain information with, or receive
approvals from, the relevant state authorities. In addition, if enjoined,
Purchaser might be unable to accept for payment any Shares tendered pursuant to
the Offer or be delayed in continuing or consummating the Offer and the Merger.
In such case, Purchaser may not be obligated to accept for payment, or pay for,
any Shares tendered. See Section 14.
Antitrust. Under the HSR Act and the rules that have been promulgated
thereunder by the FTC, certain acquisition transactions may not be consummated
unless certain information has been furnished to the Antitrust Division of the
DOJ (the "Antitrust Division") and the FTC and certain waiting period
requirements have been satisfied. The acquisition of Shares by Purchaser
pursuant to the Offer is subject to such requirements.
Pursuant to the HSR Act, Parent intends to file a Premerger Notification
and Report Form (the "HSR Report") with the Antitrust Division and the FTC in
connection with the purchase of Shares pursuant to the Offer. Under the
provisions of the HSR Act applicable to the Offer, the purchase of Shares
pursuant to the Offer may not be consummated until the expiration of a
15-calendar day waiting period following the filing by Parent. Parent intends to
file the HSR Report on March 8, 1999, so as to allow the applicable HSR Act
waiting period for the Offer to expire on or prior to 11:59 p.m., New York City
time, on March 22, 1999. Pursuant to the HSR Act, Parent intends to request
early termination of the waiting period applicable to the Offer. There can be no
assurance, however, that the 15-day HSR Act waiting period will be terminated
early. If either the FTC or the Antitrust Division were to request additional
information or documentary material from Parent with respect to the Offer, the
waiting period with respect to the Offer would expire at 11:59 p.m., New York
City time, on the tenth calendar day after the date of substantial compliance by
Parent with such request. Thereafter, the waiting period could be extended only
by court order. If the acquisition of Shares is delayed pursuant to a request by
the FTC or the Antitrust Division for additional information or documentary
material pursuant to the HSR Act, the Offer may, but need not, be extended and,
in any event, the purchase of and payment for Shares will be deferred until ten
days after the request is substantially complied with, unless the extended
period expires on or before the date when the initial 15-day period would
otherwise have expired, or unless the waiting period is sooner terminated by the
FTC and the Antitrust Division. Only one extension of such waiting period
pursuant to a request for additional information is authorized by the HSR Act
and the rules promulgated thereunder, except by court order. Any such extension
of the waiting period will not give rise to any withdrawal rights not otherwise
provided for by applicable law. See Section 4. It is a condition to the Offer
that the waiting period applicable under the HSR Act to the Offer expire or be
terminated. See Section 14.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Shares by
Purchaser pursuant to the Offer. At any time before or after the purchase of
Shares pursuant to the Offer by Purchaser, the FTC or the Antitrust Division
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the purchase of
Shares pursuant to the Offer or seeking the divestiture of Shares purchased by
Purchaser or the divestiture of substantial assets of Parent, the Company or
their respective subsidiaries. Private parties and state attorneys general may
also bring legal action under federal or state antitrust laws under certain
circumstances. Based upon an examination of information available to Parent
relating to the businesses in which Parent, the Company and their respective
subsidiaries are engaged, Parent and Purchaser believe that the Offer will not
violate the antitrust laws. Nevertheless, there can be no assurance that a
challenge to the Offer on antitrust grounds will not be made or, if such a
challenge is made, what the result would be. See Section 14 for certain
conditions to the Offer, including conditions with respect to litigation.
On March 2, 1999, an action entitled Daniel W. Krasner v. Xylan Corporation
et. al. was filed, and on March 5, 1999, an action entitled Jay Gentile v. Xylan
Corporation et. al. was filed, each in the Superior Court of the State of
California for the County of Los Angeles, in which the respective plaintiffs
named as
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defendants the Company, the directors of the Company and Parent. The complaints
purport to assert claims on behalf of all public shareholders of the Company.
The complaints allege that Parent and the members of the Company Board have
breached their fiduciary duties to the Company and that Parent used its
relationship with the Company and the Company Board to force the Company Board
to accept an inadequate proposal.
The complaints seek class certification and other equitable and monetary
relief, including enjoining the Offer and the Merger or awarding damages. Parent
and the Company believe that the allegations are without merit and intend to
vigorously contest these actions. There can be no assurance that the defendants
will be successful.
Foreign Laws. There is a possibility that filings may have to be made with
foreign governmental or regulatory authorities under their pre-merger
notification or similar statutes. The filing requirements of various nations are
being analyzed by the parties and, where necessary, such filings will be made.
16. FEES AND EXPENSES.
Except as set forth below, Purchaser will not pay any fees or commissions
to any broker, dealer or other person for soliciting tenders of Shares pursuant
to the Offer.
Lehman Brothers is acting as Dealer Manager in connection with the Offer
and has provided certain financial advisory services in connection with the
acquisition of the Company under an agreement dated February 24, 1999. Parent
has agreed to pay Lehman Brothers a fee structured and payable as follows: $0.25
million upon the signing of such agreement; $1.5 million upon the announcement
of the Merger Agreement on March 2, 1999; $1.0 million upon the commencement of
the Offer on March 8, 1999; and, upon the successful closing of the Merger, a
success fee of 0.55% of the total consideration involved in the completed
transaction less the amounts previously paid. Parent has also agreed to
reimburse Lehman Brothers for all reasonable out-of-pocket expenses incurred by
it, including the reasonable fees and expenses of legal counsel, and to
indemnify Lehman Brothers against certain liabilities and expenses in connection
with its engagement, including certain liabilities under the federal securities
laws.
Purchaser and Parent have retained Georgeson & Company Inc., as the
Information Agent, and The Bank of New York, as the Depositary, in connection
with the Offer. The Information Agent may contact holders of Shares by mail,
telephone, telex, telecopy, telegraph and personal interview and may request
banks, brokers, dealers and other nominee shareholders to forward materials
relating to the Offer to beneficial owners.
The Information Agent and the Depositary will receive reasonable and
customary compensation for their services in connection with the Offer, plus
reimbursement for their reasonable out-of-pocket expenses, and will be
indemnified against certain liabilities in connection with the Offer, including
certain liabilities under the federal securities laws. Brokers, dealers,
commercial banks and trust companies will be reimbursed by Purchaser for
customary handling and mailing expenses incurred by them in forwarding material
to their customers.
17. MISCELLANEOUS.
Purchaser is not aware of any jurisdiction where the making of the Offer is
prohibited by any administrative or judicial action pursuant to any valid state
statute. If Purchaser becomes aware of any valid state statute prohibiting the
making of the Offer, Purchaser will make a good faith effort to comply with any
such state statute. If, after such good faith effort, Purchaser cannot comply
with any such state statute, the Offer will not be made to, nor will tenders be
accepted from or on behalf of, the holders of Shares in such state. In any
jurisdiction where the securities, "blue sky" or other laws require the Offer to
be made by a licensed broker or dealer, the Offer shall be deemed to be made on
behalf of Purchaser by the Dealer Manager or by one or more registered brokers
or dealers licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF PURCHASER OR PARENT NOT CONTAINED IN THIS OFFER TO
PURCHASE OR IN THE LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
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Pursuant to Rule 14d-3 of the General Rules and Regulations under the
Exchange Act, Parent and Purchaser have filed with the SEC the Schedule 14D-1,
together with exhibits, furnishing certain additional information with respect
to the Offer. The Schedule 14D-1 and any amendments thereto, including exhibits,
may be inspected at, and copies may be obtained from, the same places and in the
same manner as set forth in Section 7 (except that they will not be available at
the regional offices of the SEC).
Zeus Acquisition Corp.
March 8, 1999
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SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF
PARENT AND PURCHASER
1. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT. The following table sets
forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments during the five years, of each director and executive officer of
Parent. Unless otherwise indicated, the current business address of each person
is 54, rue La Boetie, 75008 Paris, France. Unless otherwise indicated, each such
person is a citizen of France and has held his or her present position as set
forth below for the past five years. Unless otherwise indicated, each occupation
set forth opposite an individual's name refers to employment with Parent.
DIRECTORS
SERGE TCHURUK. Chairman and Chief Executive Officer of Alcatel since June
1995. During the previous five years, he was Chairman and Chief Executive
Officer of Total S.A., a French oil company located at Tour Total, 24 Cours
Michelet, 92800 Puteaux, France.
AMBROISE ROUX. Honorary Chairman and Director of Alcatel since 1986,
Chairman of the Supervisory Board of Pinault Printemps La Redoute S.A., a
diversified distribution group comprised of retail, wholesale, financial
services and international trade operations, located at 18 Place Henri Bergson,
75381 Paris, France, since December 1992, and Vice Chairman of Vivendi (formerly
Compagnie Generale des Eaux SA), one of the world's top two water companies
focusing in the utilities, communications and construction markets, located at
52, rue d'Anjou, 75008 Paris, France. During the last five years, he was also
Vice Chairman and Chief Executive Officer of Banque du Louvre, a French bank
located at 139 blvd. Haussman, 75008 Paris, France.
RAND V. ARASKOG. Chairman and Chief Executive Officer of ITT Corporation
NV, a real estate holding company located at 1330 Avenue of the Americas, New
York, New York 10019, until February 1998. Previously served as Chief Executive
Officer of the corporate predecessor of ITT Industries from 1979 and as its
Chairman. A U.S. citizen.
DANIEL BERNARD. Chairman and Chief Executive Officer of Carrefour S.A.,
France's largest hypermarket network located at 6, avenue Raymond Poincare, B.P.
419.16, 75769 Paris Cedex 16, France, since April 1998 and Chairman of the
Directoire of Carrefour S.A. between December 1992 and April 1998.
PHILIPPE BISSARA. Managing Director of ANSA (Association Nationale des
Societes par Actions), a legal consulting and lobbying organization located at
15, Place du General Catroux, 75017 Paris, France, since July 1997. Prior
thereto, he was General Counsel and Company Secretary of Alcatel and a Member of
the Supervisory Board of Gec Alsthom NV, a former subsidiary of Alcatel.
PAOLO CANTARELLA. Managing Director of Fiat Auto S.p.A., an Italian
automobile manufacturer located at 250, via Nizza, 10126 Turin, Italy. An
Italian citizen.
GUY DEJOUANY. Chairman and Chief Executive Officer of Vivendi (formerly
Compagnie Generale des Eaux SA), one of the world's top two water companies
focusing in the utilities, communications and construction markets, located at
52, rue d'Anjou, 75008 Paris, France, from 1976 to 1996, when he was appointed
Honorary Chairman.
JACQUES FRIEDMANN. Chairman of the Supervisory Board of AXA-U.A.P. S.A., a
French insurance company located at 9, place Vendome, 75001 Paris, France, since
1997. Prior thereto, he was Chairman and Chief Executive Officer of U.A.P. until
its merger with AXA.
NOEL GOUTARD. Chairman and Chief Executive Officer of Valeo S.A., a
company which designs and manufacturers components for both the original
equipment and aftermarket segments of the automotive industry, located at 43,
rue Bayen, 75848 Paris Cedex 17, France, since January 1987.
40
<PAGE> 43
FRANCOIS DE LAAGE DE MEUX. Chairman of the French Committee, International
Chamber of Commerce, located at 9, rue d'Anjou, 75008 Paris, France, since 1996.
During the previous five years, he was General Manager of Alcatel, Chairman and
Chief Executive Officer of Alcatel Alsthom Maroc and Member of the Supervisory
Board of Gec Alsthom NV.
PIERRE-LOUIS LIONS. Professor at the University of Paris IX -- Dauphine,
located at Place de Lattre de Tassigny, 75775 Paris Cedex 16, France, since
1981, and the Ecole Polytechnique, located at 91128 Palaiseau Cedex, France,
since 1992. Member of the French Academy of Sciences (Section de mathematiques)
since 1994.
THIERRY DE LOPPINOT. Legal Counsel at Alcatel Headquarters, a Member of
the Supervisory Board since February 1991, and Chairman since May 1995 of the
Alcatel employees' investment fund.
BRUNO VAILLANT. Engineer in charge of scientific information at Alcatel
Space Industries, located at 26, avenue Champollion, BP 1187, 31037 Toulouse
Cedex 1, France, since 1987 and a Member of the Supervisory Board of the Alcatel
employees' investment fund since 1997.
MARC VIENOT. Honorary Chairman (since November 1997) and Director (since
June 1986) of Societe Generale, one of the three largest commercial banks in
France, located at 92972 Paris La Defense Cedex, France. During the previous
five years, he was also Chairman and Chief Executive Officer of Societe
Generale.
HELMUT WERNER. Chairman of the Supervisory Board of Alcatel Deutschland
GmbH, a subsidiary of Alcatel, since 1997. During the previous five years, he
was Chairman of the Management Board of Mercedes Benz AG, located at D-10878
Berlin, Germany, and Chairman of Daimler Chrysler AG, located at HPC Z 850,
D-70546 Stuttgart, Germany, German automobile manufacturers. A German citizen.
EXECUTIVE OFFICERS
SERGE TCHURUK. Chairman and Chief Executive Officer of Alcatel since June
1995. During the previous five years, he was Chairman and Chief Executive
Officer of Total S.A., a French oil company located at Tour Total, 24 Cours
Michelet, 92800 Puteaux, France.
JEAN-PIERRE HALBRON. Senior Executive Vice President of Alcatel since
January 1997 and a Member of the Executive Committee since July 1995. Chairman
and Chief Executive Officer of Electro Banque, a commercial bank subsidiary of
Alcatel located at 54 rue la Boetie, 75411 Paris Cedex 8, France, since
September 1995. Prior thereto, he was President and Chief Executive Officer of
Wasserstein Perella France, a merchant bank located at 10 rue de la Paix, 75002
Paris, France.
JOZEF CORNU. Appointed President of the Alcatel Network Systems Group on
January 1, 1990. Since July 17, 1995, he has been Chief Operating Officer of the
Telecom Sector of Alcatel and a Member of the Alcatel Executive Committee.
GERARD HAUSER. Since November 1996, he has been Chairman and Chief
Executive Officer of Alcatel Cable France, Chairman of the Cables and Components
Segment and a Member of the Executive Committee of Alcatel. From 1975 to 1996,
he worked for the Pechiney S.A. Group, a leading producer of primary aluminum
and aluminum cans and metal and plastic packaging, located at 10, place des
Vosges, La Defense 5, 92400 Courbevoie, France.
ANNE LAUVERGEON. In 1991, she was appointed Deputy Chief of Staff at the
French Presidency, located at Palais de l'Elysee, 55, rue du Fauborg
Saint-Honore, 75008 Paris, France, and elected as "Sherpa" to the President, in
charge of the preparation of the G7 summits. In 1995, she became a Partner of
Lazard Freres, an investment banking firm located at 121, blvd. Haussmann, 75382
Paris, France. In March 1997, she was appointed Senior Executive Vice President
of the Telecom Sector of Alcatel until July 1998, when she was appointed a
Member of the Executive Committee of Alcatel.
KRISH PRABHU. Senior Executive Vice President of the Telecom Sector of
Alcatel since November 1998 and Executive Vice President and Member of the
Executive Committee of Alcatel since July 1998. Since
41
<PAGE> 44
September 1998, he has been President and Chief Executive Officer of Alcatel
USA, located at 1000 Coit Road, Plano, Texas 75075. Joined Alcatel in the United
States in 1991, becoming President of its Broadband Division in 1996. A U.S.
citizen.
2. DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER. Olivier Houssin is the
sole director and executive officer of Purchaser. The biographical information
for Mr. Houssin is listed below.
OLIVIER HOUSSIN. Joined Alcatel in 1993. He was appointed Chairman and
Chief Executive Officer of Alcatel Canada Wire Inc. and of Alcatel NA Cable
Systems Inc. and Executive Vice President, American Sector of Alcatel Cable from
1993 to 1995, then President, Telecommunication Products Division, Cables and
Components Sector of Alcatel from 1996 to 1998. He was appointed Executive Vice
President of the Telecom Sector of Alcatel in 1998. Chairman of Purchaser.
42
<PAGE> 45
Facsimile copies of the Letter of Transmittal will be accepted. The Letter
of Transmittal and certificates evidencing Shares and any other required
documents should be sent or delivered by each shareholder or his broker, dealer,
commercial bank, trust company or other nominee to the Depositary at its address
set forth below.
The Depositary for the Offer is:
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
By Mail: Facsimile Transmission: By Hand or Overnight Courier:
(for Eligible Institutions Only)
Tender & Exchange Department (212) 815-6213 Tender & Exchange Department
P.O. Box 11248 101 Barclay Street
Church Street Station Receive and Deliver Window
New York, New York 10286-1248 New York, New York 10286
</TABLE>
For Confirmation by
Telephone:
(800) 507-9357
Questions and requests for assistance or for additional copies of this
Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed
Delivery may be directed to the Information Agent or the Dealer Manager at their
respective addresses and telephone numbers listed below. Shareholders may also
contact their broker, dealer, commercial bank, trust company or other nominee
for assistance concerning the Offer.
The Information Agent for the Offer is:
(LOGO)
Wall Street Plaza
88 Pine Street, 30th Floor
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
ALL OTHERS CALL TOLL-FREE: (800) 223-2064
The Dealer Manager for the Offer is:
LEHMAN BROTHERS
Three World Financial Center
200 Vesey Street
New York, New York 10285
Call Collect: (212) 526-5044 or (212) 526-2660
<PAGE> 1
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
XYLAN CORPORATION
PURSUANT TO THE OFFER TO PURCHASE DATED MARCH 8, 1999
BY
ZEUS ACQUISITION CORP.
A WHOLLY-OWNED INDIRECT SUBSIDIARY OF
ALCATEL
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON FRIDAY, APRIL 2, 1999, UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer is:
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
By Mail: Fascimile Transmission: By Hand or Overnight Courier:
(for Eligible Institutions Only)
Tender & Exchange Department (212) 815-6213 Tender & Exchange Department
P.O. Box 11248 101 Barclay Street
Church Street Station Receive and Deliver Window
New York, New York 10286-1248 New York, New York 10286
For Confirmation by Telephone:
(800) 507-9357
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER
THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by shareholders of Xylan
Corporation either if certificates evidencing Shares (as defined below) are to
be forwarded herewith or, unless an Agent's Message (as defined in the Offer to
Purchase, dated March 8, 1999 (the "Offer to Purchase")) is utilized, if
delivery of Shares is to be made by book-entry transfer to the Depositary's
account at The Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the book-entry transfer procedures described in Section 3 of the
Offer to Purchase. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY
DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Shareholders whose certificates evidencing Shares ("Share Certificates")
are not immediately available or who cannot deliver their Share Certificates and
all other documents required hereby to the Depositary on or prior to the
Expiration Date (as defined in the Offer to Purchase) or who cannot complete the
procedures for delivery by book-entry transfer on a timely basis and who wish to
tender their Shares must do so pursuant to the guaranteed delivery procedures
described in Section 3 of the Offer to Purchase. See Instruction 2.
<PAGE> 2
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- ----------------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) SHARE CERTIFICATE(S) AND SHARE(S) TENDERED
ON SHARE CERTIFICATE(S)) (ATTACH ADDITIONAL LIST, IF NECESSARY)
- ----------------------------------------------------------------------------------------------------------------------------
SHARE TOTAL NUMBER OF SHARES NUMBER OF
CERTIFICATE EVIDENCED BY SHARE SHARES
NUMBER(S)* CERTIFICATE(S)* TENDERED**
<S> <C> <C> <C>
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
TOTAL SHARES
- ----------------------------------------------------------------------------------------------------------------------------
* Need not be completed by shareholders delivering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares evidenced by Share Certificates delivered to the
Depositary are being tendered hereby. See Instruction 4.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SPECIAL TENDER INSTRUCTIONS
Shareholders may wish, for tax planning purposes, to designate the specific
order in which they desire their Shares to be accepted for payment in the event
of proration. Each shareholder is urged to consult his own tax advisor with
respect to such considerations. See Instruction 11.
IF ANY OF YOUR SHARE CERTIFICATES HAS BEEN LOST, DESTROYED OR STOLEN, SEE
INSTRUCTION 10.
[ ] CHECK HERE IF SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN
ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY
AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE SYSTEM OF THE
BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution:
- --------------------------------------------------------------------------------
Account Number:
- --------------------------------------------------------------------------------
Transaction Code Number:
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING.
PLEASE ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED DELIVERY.
Name(s) of Registered Holder(s):
- -------------------------------------------------------------------------------
Window Ticket Number (if any):
- -------------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
- -----------------------------------------------------------
Name of Institution which Guaranteed Delivery:
- ----------------------------------------------------------------
If Delivery by Book-Entry Transfer Facility, please check this box: [ ]
Account Number:
- --------------------------------------------------------------------------------
Transaction Code Number:
- --------------------------------------------------------------------------------
2
<PAGE> 3
Ladies and Gentlemen:
The undersigned hereby tenders to Zeus Acquisition Corp., a corporation
organized and existing under the laws of the State of California ("Purchaser")
and a wholly-owned indirect subsidiary of Alcatel, a corporation organized and
existing under the laws of France ("Parent"), the above-described shares of
common stock, par value $0.001 per share (including the associated Preferred
Share Purchase Rights) (collectively, the "Shares"), of Xylan Corporation, a
corporation organized and existing under the laws of the State of California
(the "Company"), pursuant to Purchaser's offer to purchase all of the
outstanding Shares at a price of $37.00 per Share, net to the seller in cash
(subject to applicable withholding of taxes), without interest, upon the terms
and subject to the conditions set forth in the Offer to Purchase, receipt of
which is hereby acknowledged, and in this Letter of Transmittal (which, together
with the Offer to Purchase and any amendments or supplements hereto or thereto,
collectively constitute the "Offer"). The undersigned understands that Parent
and Purchaser may assign to any direct or indirect wholly-owned subsidiary the
right to purchase Shares tendered pursuant to the Offer.
Subject to, and effective upon, acceptance for payment of the Shares
tendered herewith in accordance with the terms of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment), the undersigned hereby sells, assigns and transfers to, or upon the
order of, Purchaser all right, title and interest in and to all the Shares that
are being tendered hereby and all dividends, distributions (including, without
limitation, distributions of additional Shares) and rights declared, paid or
distributed in respect of such Shares on or after March 1, 1999 (collectively,
"Distributions") and irrevocably appoints the Depositary the true and lawful
agent and attorney-in-fact of the undersigned with respect to such Shares and
all Distributions, with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (i) deliver
Share Certificates evidencing such Shares and all Distributions, or transfer
ownership of such Shares and all Distributions on the account books maintained
by the Book-Entry Transfer Facility, together, in either case, with all
accompanying evidences of transfer and authenticity, to or upon the order of
Purchaser, (ii) present such Shares and all Distributions for transfer on the
books of the Company and (iii) receive all benefits and otherwise exercise all
rights of beneficial ownership of such Shares and all Distributions, all in
accordance with the terms of the Offer.
The undersigned hereby irrevocably appoints Olivier Houssin and Pascal
Durand-Barthez, and each of them, as the attorneys-in-fact and proxies of the
undersigned, each with full power of substitution, to vote in such manner as
each such attorney and proxy or his substitute shall, in his sole discretion,
deem proper and otherwise act (by written consent or otherwise) with respect to
all the Shares tendered hereby which have been accepted for payment by Purchaser
prior to the time of such vote or other action and all Shares, and other
securities issued in Distributions in respect of such Shares, which the
undersigned is entitled to vote at any meeting of shareholders of the Company
(whether annual or special and whether or not an adjourned or postponed meeting)
or by written consent in lieu of any such meeting or otherwise. This proxy and
power of attorney is coupled with an interest in the Shares tendered hereby, is
irrevocable and is granted in consideration of, and is effective upon, the
acceptance for payment of such Shares by Purchaser in accordance with the terms
of the Offer. Such acceptance for payment shall revoke, without further action,
all other proxies and powers of attorney granted by the undersigned at any time
with respect to such Shares (and all Shares and other securities issued in
Distributions in respect of such Shares), and no subsequent proxy or power of
attorney shall be given or written consent executed (and if given or executed,
shall not be effective) by the undersigned with respect thereto. The undersigned
understands that, in order for Shares to be deemed validly tendered, immediately
upon Purchaser's acceptance for payment of such Shares, Purchaser or its
designees must be able to exercise full voting and other rights with respect to
such Shares and all Distributions, including, without limitation, voting at any
meeting of the Company's shareholders.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby and all Distributions, and that when and to the extent such
Shares are accepted for payment by Purchaser, Purchaser will acquire good,
marketable and unencumbered title thereto and to all Distributions, free and
clear of all liens, restrictions, charges, encumbrances, conditional sales
agreements or other obligations relating to the sale or transfer thereof, and
that none of such Shares and Distributions will be subject to any adverse
claims. The undersigned, upon request, shall execute and deliver all additional
documents deemed by the Depositary or Purchaser to be necessary or desirable to
complete the sale, assignment and transfer of the Shares tendered hereby and all
Distributions. In addition, the undersigned shall remit and transfer promptly to
the Depositary for the account of Purchaser all Distributions in respect of the
Shares tendered hereby, accompanied by appropriate documentation of transfer,
and, pending such remittance and transfer or appropriate assurance thereof,
Purchaser shall be
3
<PAGE> 4
entitled to all rights and privileges as owner of each such Distribution and may
withhold the entire purchase price of the Shares tendered hereby, or deduct from
such purchase price, the amount or value of such Distribution as determined by
Purchaser in its sole discretion.
No authority herein conferred or agreed to be conferred shall be affected
by, and all such authority shall survive, the death or incapacity of the
undersigned. All obligations of the undersigned hereunder shall be binding upon
the heirs, executors, administrators, legal representatives, successors and
assigns of the undersigned. Except as stated in the Offer to Purchase, this
tender is irrevocable, provided that the Shares tendered pursuant to the Offer
may be withdrawn at any time on or prior to the Expiration Date and, unless
theretofore accepted for payment as provided in the Offer to Purchase, may also
be withdrawn at any time after May 7, 1999.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto and Purchaser's acceptance for payment of such Shares will
constitute a binding agreement between the undersigned and Purchaser upon the
terms and subject to the conditions of the Offer.
Unless otherwise indicated herein in the box entitled "Special Payment
Instructions," please issue the check for the purchase price of all Shares
purchased, and return all Share Certificates evidencing Shares not purchased or
not tendered, in the name(s) of the registered holder(s) appearing above under
"Description of Shares Tendered." Similarly, unless otherwise indicated in the
box entitled "Special Delivery Instructions," please mail the check for the
purchase price of all Shares purchased and all Share Certificates evidencing
Shares not tendered or not purchased (and accompanying documents, as
appropriate) to the address(es) of the registered holder(s) appearing above
under "Description of Shares Tendered." In the event that the boxes entitled
"Special Payment Instructions" and "Special Delivery Instructions" are both
completed, please issue the check for the purchase price of all Shares
purchased, and return all Share Certificates evidencing Shares not purchased or
not tendered, in the name(s) of, and mail such check and Share Certificates to,
the person(s) so indicated. Shareholders tendering Shares by book-entry transfer
may request that any Shares not accepted for payment be returned by crediting
the account maintained at the Book-Entry Transfer Facility by making an
appropriate entry under "Special Payment Instructions." The undersigned
recognizes that Purchaser has no obligation pursuant to the "Special Payment
Instructions" to transfer any Shares from the name of the registered holder(s)
thereof if Purchaser does not purchase any of such Shares.
4
<PAGE> 5
------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Share Certificate(s) not tendered or not
purchased and/or the check for the purchase price of Shares purchased are
to be issued in the name of someone other than the undersigned, or if
Shares tendered by book-entry transfer which are not purchased are to be
returned by credit to an account maintained at the Book-Entry Transfer
Facility other than that designated on the front cover.
Issue: [ ] check [ ] certificates to:
Name:
----------------------------------------------------
(PLEASE PRINT)
Address:
--------------------------------------------------
------------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------------
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.)
(SEE SUBSTITUTE FORM W-9 ON PAGE 11)
[ ] Credit unpurchased Shares tendered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below:
------------------------------------------------------------
(ACCOUNT NUMBER)
------------------------------------------------------------
------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Share Certificate(s) not tendered or not
purchased and/or the check for the purchase price of Shares purchased are
to be sent to someone other than the undersigned or to the undersigned at
an address other than that shown on the front cover.
Mail: [ ] check [ ] certificates to:
Name:
----------------------------------------------------
(PLEASE PRINT)
Address:
--------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------------
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NO.)
------------------------------------------------------------
5
<PAGE> 6
SIGN HERE
AND PLEASE COMPLETE SUBSTITUTE FORM W-9 ON PAGE 11
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S) OF OWNER(S)
Dated:
- ---------------------------
(Must be signed by registered holder(s) exactly as name(s) appear(s) on the
Share Certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by Share Certificate(s) and documents
transmitted herewith. If signature is by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of a corporation or others acting in a
fiduciary or representative capacity, please provide the necessary information.
See Instruction 5.)
Name(s):------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title):
----------------------------------------------------------------
Address:
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number:
-----------------------------------------------------
Tax Identification or Social Security No.:
-------------------------------------------------
- --------------------------------------------------------------------------------
(SEE SUBSTITUTE FORM W-9 ON PAGE 11)
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 5)
Authorized Signature:
----------------------------------------------------------------
Name: --------------------------------------------------------------------------
Name of Firm:
---------------------------------------------------------------------
Address:
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Title:
---------------------------------------------------------------------------
Area Code and Telephone Number:
-----------------------------------------------------
Dated:--------------------------------------------------------------------------
6
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. All signatures on this Letter of Transmittal
must be medallion guaranteed by a firm which is a member of the Securities
Transfer Agents Medallion Program, or by any other "eligible guarantor
institution," as such term is defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (each of the foregoing being referred to as an
"Eligible Institution"), unless (i) this Letter of Transmittal is signed by the
registered holder(s) (which term, for purposes of this Letter of Transmittal,
shall include any participant in the Book-Entry Transfer Facility whose name
appears on a security position listing as the owner of Shares) of the Shares
tendered hereby and such holder(s) has (have) not completed either the box
entitled "Special Payment Instructions" or the box entitled "Special Delivery
Instructions" on the reverse hereof or (ii) such Shares are tendered for the
account of an Eligible Institution. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARE CERTIFICATES. This Letter
of Transmittal is to be used either if Share Certificates are to be forwarded
herewith or, unless an Agent's Message (as defined in the Offer to Purchase) is
utilized, if Shares are to be delivered by book-entry transfer pursuant to the
procedures set forth in Section 3 of the Offer to Purchase. Share Certificates
evidencing all physically tendered Shares, or a timely confirmation of a
book-entry transfer into the Depositary's account at the Book-Entry Transfer
Facility of all Shares delivered by book-entry transfer, as well as a properly
completed and duly executed Letter of Transmittal (or a manually signed
facsimile hereof), with any required signature guarantees, or an Agent's Message
in the case of a book-entry delivery, and any other documents required by this
Letter of Transmittal, must be received by the Depositary at one of its
addresses set forth herein on or prior to the Expiration Date. If Share
Certificates are forwarded to the Depositary in multiple deliveries, a properly
completed and duly executed Letter of Transmittal must accompany each such
delivery.
Shareholders whose Share Certificates are not immediately available, who
cannot deliver their Share Certificates and all other required documents to the
Depositary on or prior to the Expiration Date or who cannot complete the
procedure for delivery by book-entry transfer on a timely basis may tender their
Shares pursuant to the guaranteed delivery procedures described in Section 3 of
the Offer to Purchase. Pursuant to such procedures: (i) such tender must be made
by or through an Eligible Institution; (ii) a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form made available
by Purchaser, must be received by the Depositary on or prior to the Expiration
Date; and (iii) the Share Certificates evidencing all physically delivered
Shares in proper form for transfer, or a timely confirmation of a book-entry
transfer into the Depositary's account at the Book-Entry Transfer Facility of
all Shares delivered by book-entry transfer, in each case together with a Letter
of Transmittal (or a manually signed facsimile hereof), properly completed and
duly executed, with any required signature guarantees (or, in the case of a
book-entry delivery, an Agent's Message), and any other documents required by
this Letter of Transmittal, must be received by the Depositary within three
Nasdaq National Market System trading days after the date of execution of such
Notice of Guaranteed Delivery, all as described in Section 3 of the Offer to
Purchase.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile transmission or mailed to the Depositary and must include a
guarantee by an Eligible Institution on the form set forth in such notice.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THIS LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY
TRANSFER FACILITY, IS AT THE OPTION AND SOLE RISK OF THE TENDERING SHAREHOLDER,
AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
DEPOSITARY (INCLUDING IN THE CASE OF A BOOK-ENTRY TRANSFER, BY A TIMELY
CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL, WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. By execution of this Letter of Transmittal
(or a manually signed facsimile hereof), all tendering shareholders waive any
right to receive any notice of the acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein under "Description of
Shares Tendered" is inadequate, the Share Certificate numbers, the number of
Shares evidenced by such Share Certificates and the number of Shares tendered
should be listed on a separate schedule and attached hereto and separately
signed on each page thereof in the same manner as this Letter of Transmittal.
7
<PAGE> 8
4. PARTIAL TENDERS (NOT APPLICABLE TO SHAREHOLDERS WHO TENDER BY
BOOK-ENTRY TRANSFER). If fewer than all the Shares evidenced by any Share
Certificate delivered to the Depositary herewith are to be tendered, fill in the
number of Shares that is to be tendered in the box entitled "Number of Shares
Tendered." In such cases, new Share Certificate(s) evidencing the remainder of
the Shares that were evidenced by the Share Certificate(s) delivered to the
Depositary herewith will be sent to the person(s) signing this Letter of
Transmittal, unless otherwise provided in the box entitled "Special Delivery
Instructions" on this Letter of Transmittal, as soon as practicable after the
Expiration Date. All Shares evidenced by Share Certificates delivered to the
Depositary will be deemed to have been tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the Share Certificates evidencing such Shares without alteration,
enlargement or any other change whatsoever.
If any of the Shares tendered hereby is owned of record by two or more
persons, all such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby is registered in the names of
different holders, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of such
Shares.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of Share Certificates or separate stock
powers are required, unless payment is to be made to, or Share Certificates
evidencing Shares not tendered or not purchased are to be issued in the name of,
a person other than the registered holder(s), in which case the Share
Certificate(s) evidencing the Shares tendered hereby must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered holder(s) appear(s) on such Share Certificate(s).
Signatures on such Share Certificate(s) and stock powers must be guaranteed by
an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the Share Certificate(s)
evidencing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on such Share Certificate(s). Signatures on such
Share Certificate(s) and stock powers must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Share Certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to Purchaser of such person's authority so to act must be
submitted.
6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction
6, Purchaser will pay or cause to be paid all stock transfer taxes with respect
to the sale and transfer of any Shares to it or its order pursuant to the Offer.
If, however, payment of the purchase price of any Shares is to be made to, or
Share Certificate(s) evidencing Shares not tendered or not purchased are to be
issued in the name of, a person other than the registered holder(s), or if
tendered Shares are registered in the name of any person other than the
registered holder(s), or if tendered Share Certificates are registered in the
name of any person other than the person(s) signing this Letter of Transmittal,
the amount of any stock transfer taxes (whether imposed on the registered
holder(s), such other person or otherwise) payable on account of the transfer to
such other person will be deducted from the purchase price of such Shares
purchased, unless evidence satisfactory to Purchaser of the payment of such
taxes, or exemption therefrom, is submitted. EXCEPT AS PROVIDED IN THIS
INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO
THE SHARE CERTIFICATES EVIDENCING THE SHARES TENDERED HEREBY.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase
price of any Shares tendered hereby is to be issued, or Share Certificate(s)
evidencing Shares not tendered or not purchased are to be issued, in the name of
a person other than the person(s) signing this Letter of Transmittal or if such
check or any such Share Certificate(s) is to be sent to someone other than the
person(s) signing this Letter of Transmittal or to the person(s) signing this
Letter of Transmittal but at an address other than that shown in the box
entitled "Description of Shares Tendered," the appropriate boxes on this Letter
of Transmittal must be completed. Shareholders delivering Shares tendered hereby
by book-entry transfer may request that Shares not purchased be credited to such
account maintained at the Book-Entry Transfer Facility as such shareholder may
designate in the box entitled "Special Payment Instructions." If no such
instructions are
8
<PAGE> 9
given, all such Shares not purchased will be returned by crediting the account
at the Book-Entry Transfer Facility as the account from which such Shares were
delivered.
8. QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions
and requests for assistance may be directed to the Information Agent or the
Dealer Manager at their respective addresses or telephone numbers set forth
below. Additional copies of the Offer to Purchase, this Letter of Transmittal
and the Notice of Guaranteed Delivery may be obtained from the Information Agent
or the Dealer Manager or from brokers, dealers, commercial banks or trust
companies.
9. SUBSTITUTE FORM W-9. Each tendering shareholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN") on the
Substitute Form W-9 which is provided under "Important Tax Information" below
and to certify whether such shareholder is subject to backup withholding of
federal income tax. If a tendering shareholder has been notified by the Internal
Revenue Service that such shareholder is subject to backup withholding, such
shareholder must cross out item (2) of the Certification box of the Substitute
Form W-9, unless such shareholder has since been notified by the Internal
Revenue Service that such shareholder is no longer subject to backup
withholding. Failure to provide the information on the Substitute Form W-9 may
subject the tendering shareholder to 31% federal income tax withholding on the
payment of the purchase price of all Shares purchased from such shareholder. If
the tendering shareholder has not been issued a TIN and has applied for one or
intends to apply for one in the near future, such shareholder should write
"Applied For" in the space provided for the TIN in Part 1 of the Substitute Form
W-9 and sign and date the Substitute Form W-9. If "Applied For" is written in
Part 1 and the Depositary is not provided with a TIN within 60 days, the
Depositary will withhold 31% on all payments of the purchase price to such
shareholder until a TIN is provided to the Depositary.
Under the federal income tax laws, a shareholder whose tendered Shares are
accepted for payment is required by law to provide the Depositary with such
shareholder's correct TIN on the Substitute Form W-9 below. If such shareholder
is an individual, the TIN is such shareholder's social security number. If the
Depositary is not provided with the correct TIN, the Internal Revenue Service
may subject the shareholder to a $50 penalty. In addition, payments that are
made to such shareholder with respect to Shares purchased pursuant to the Offer
may be subject to backup withholding.
If backup withholding applies, the Depositary is required to withhold 31%
of any payments made to the shareholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If backup withholding results in an
overpayment of taxes, a refund may be obtained from the Internal Revenue
Service.
Certain shareholders (including, among others, all corporations and certain
foreign individuals) are exempt recipients not subject to these backup
withholding and reporting requirements. In order for a foreign individual to
qualify as an exempt recipient, such individual must submit an Internal Revenue
Form W-8, signed under penalties of perjury, attesting to such individual's
exempt status. A Form W-8 may be obtained from the Depositary. See the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional instructions.
To prevent backup withholding on payments that are made to a shareholder
with respect to Shares purchased pursuant to the Offer, a tendering shareholder
is required to notify the Depositary of such shareholder's correct TIN by
completing the form below certifying that the TIN provided on the Substitute
Form W-9 is correct (or that such shareholder is awaiting a TIN) and that (i)
such shareholder has not been notified by the Internal Revenue Service that he
is subject to backup withholding as a result of a failure to report all interest
or dividends or (ii) the Internal Revenue Service has notified such shareholder
that such shareholder is no longer subject to backup withholding.
The shareholder is required to give the Depositary the social security
number or TIN of the record holder of the Shares tendered hereby. If the Shares
are in more than one name or are not in the name of the actual owner, consult
the enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional guidance on which number to report. If the
tendering shareholder has not been issued a TIN and has applied for a number or
intends to apply for a number in the near future, the shareholder should write
"Applied For" in the space provided for the TIN in Part 1 and sign and date the
Substitute Form W-9. If "Applied For" is written in Part 1, the Depositary will
reserve 31% of all payments of the purchase price to such shareholder until a
TIN is provided to the Depositary. If the Depositary is not provided with a TIN
within 60 days, the Depositary will withhold 31% of all payments of the purchase
price to such shareholder.
9
<PAGE> 10
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Share Certificate has
been lost, destroyed or stolen, the shareholder should promptly call Boston
Equiserve Limited Partnership at (617) 575-2000. The shareholder will then be
instructed as to the steps that must be taken in order to replace the Share
Certificate. This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost, destroyed or stolen Share
Certificates has been followed.
11. ORDER IN WHICH SHARES WILL BE ACCEPTED (NOT APPLICABLE TO SHAREHOLDERS
WHO TENDER BY BOOK-ENTRY TRANSFER). If proration is required as a result of any
reduction in the number of Shares subject to the Offer to a number equal to the
Revised Minimum Number (as defined in the Offer to Purchase), the Shares listed
in the box captioned "Description of Shares Tendered" will be accepted for
payment in the order in which the certificate numbers of such Shares are listed.
Tendering shareholders who wish to have Shares accepted for payment in a
specific order in the event of proration should list the Shares in that order in
the box captioned "Description of Shares Tendered."
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), PROPERLY
COMPLETED AND DULY EXECUTED (TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES),
OR AN AGENT'S MESSAGE IN THE CASE OF BOOK-ENTRY DELIVERY, TOGETHER WITH SHARE
CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED
DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY ON OR PRIOR TO THE EXPIRATION
DATE.
10
<PAGE> 11
TO BE COMPLETED BY ALL TENDERING SHAREHOLDERS
(SEE INSTRUCTION 9)
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
PAYER'S NAME: THE BANK OF NEW YORK
- ----------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN PART 3--Social Security Number or
FORMW-9 THE BOX AT THE RIGHT AND CERTIFY BY Employer Identification Number
SIGNING AND DATING BELOW.
---------------------------------------------
(If awaiting TIN write "Applied For")
---------------------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE PART 2--For Payees exempt from backup withholding, see the enclosed Guidelines for
PAYER'S REQUEST FOR Certification of Taxpayer Identification Number on Substitute Form W-9 and complete
TAXPAYER as instructed therein.
IDENTIFICATION Certification--Under penalties of perjury, I certify that:
NUMBER ("TIN") (1) The number shown on this form is my correct TIN (or I am waiting for a number to
be issued to me); and
(2) I am not subject to backup withholding either because I have not been notified
by the Internal Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or the IRS has notified
me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out Item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding, you received
another notification from the IRS that you were no longer subject to backup
withholding, do not cross out item (2). (Also see instructions in the enclosed
Guidelines).
-----------------------------------------------------------------------------------------
SIGNATURE: _____________________________________ DATE:
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9.
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has not been issued to
me, and either (1) I have mailed or delivered an application to receive a taxpayer identification
number to the appropriate IRS Center or Social Security Administration Office or (2) I intend to
mail or deliver an application in the near future. I understand that if I do not provide a
taxpayer identification number by the time of payment, 31% of all reportable payments made to me
will be withheld, but that such amounts will be refunded to me if I then provide a taxpayer
identification number within sixty (60) days.
Signature: __________________________________________________________ Date:
- --------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
The Information Agent for the Offer is:
(LOGO)
Wall Street Plaza
88 Pine Street, 30th Floor
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
ALL OTHERS CALL TOLL FREE: (800) 223-2064
The Dealer Manager for the Offer is:
LEHMAN BROTHERS
Three World Financial Center
200 Vesey Street
New York, New York 10285
Call Collect: (212) 526-5044 or (212) 526-2660
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
OF
XYLAN CORPORATION
This Notice of Guaranteed Delivery, or one substantially in the form
hereof, must be used to accept the Offer (as defined in the Offer to Purchase,
dated March 8, 1999 (the "Offer to Purchase")) (i) if certificates ("Share
Certificates") evidencing shares of common stock, par value $0.001 per share
(including the associated Preferred Share Purchase Rights) (collectively, the
"Shares"), of Xylan Corporation, a corporation organized and existing under the
laws of the State of California (the "Company"), are not immediately available,
(ii) if Share Certificates and all other required documents cannot be delivered
to The Bank of New York, as Depositary (the "Depositary"), on or prior to the
Expiration Date (as defined in the Offer to Purchase) or (iii) if the procedures
for delivery of Shares by book-entry transfer cannot be completed on a timely
basis. This Notice of Guaranteed Delivery may be delivered by hand or mail or
transmitted by telegram or facsimile transmission to the Depositary and must
include a guarantee by an "Eligible Institution" (as defined in the Offer to
Purchase). See Section 3 of the Offer to Purchase.
The Depositary for the Offer is:
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
By Mail: Facsimile Transmission: By Hand or Overnight Courier:
(for Eligible Institutions Only)
Tender & Exchange Department (212) 815-6213 Tender & Exchange Department
P.O. Box 11248 101 Barclay Street
Church Street Station Receive and Deliver Window
New York, New York 10286-1248 New York, New York 10286
</TABLE>
For Confirmation by Telephone:
(800) 507-9357
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER
THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tender(s) to Zeus Acquisition Corp., a corporation
organized and existing under the laws of the State of California and a
wholly-owned indirect subsidiary of Alcatel, a corporation organized and
existing under the laws of France, upon the terms and subject to the conditions
set forth in the Offer to Purchase and the related Letter of Transmittal,
receipt of each of which is hereby acknowledged, the number of Shares specified
below pursuant to the guaranteed delivery procedures described in Section 3 of
the Offer to Purchase.
------------------------------------------------------------
Number of Shares:
---------------------------------------
Share Certificate Number(s) (if available):
------------
------------------------------------------------------------
------------------------------------------------------------
If Share(s) will be delivered by book-entry transfer, check this box. [ ]
Account Number:
----------------------------------------
------------------------------------------------------------
------------------------------------------------------------
Name(s) of Record Holder(s):
-------------------------
------------------------------------------------------------
------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address(es):
---------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
(ZIP CODE)
Area Code and Telephone
Number(s):
----------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
SIGNATURE(S)
Dated:
---------------------------------------------, 1999
------------------------------------------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a financial institution which is a member of the
Securities Transfer Agents Medallion Program or an "eligible guarantor
institution," as such term is defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), hereby (a) represents
that the tender of Shares effected hereby complies with Rule 14e-4 under the
Exchange Act and (b) guarantees to deliver to the Depositary, at its address set
forth above, Share Certificates evidencing the Shares tendered hereby, in proper
form for transfer, or a timely confirmation of book-entry transfer of such
Shares into the Depositary's account at The Depository Trust Company, in each
case with delivery of a Letter of Transmittal (or a manually signed facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, or, in the case of a book-entry delivery, an Agent's Message (as
defined in the Offer to Purchase), and any other required documents, all within
three Nasdaq National Market System trading days of the date of execution of
this Notice of Guaranteed Delivery.
------------------------------------------------------------
------------------------------------------------------------
NAME OF FIRM
------------------------------------------------------------
ADDRESS
------------------------------------------------------------
ZIP CODE
Area Code and
Telephone Number:
--------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
AUTHORIZED SIGNATURE
Name:
----------------------------------------------------
(PLEASE PRINT OR TYPE)
Title:
-----------------------------------------------------
Dated:
---------------------------------------------, 1999
------------------------------------------------------------
NOTE: DO NOT SEND SHARE CERTIFICATES WITH THIS NOTICE OF GUARANTEED DELIVERY.
SHARE CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
2
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OF THE OUTSTANDING SHARES OF COMMON STOCK
OF
XYLAN CORPORATION
AT
$37.00 NET PER SHARE
BY
ZEUS ACQUISITION CORP.
A WHOLLY-OWNED INDIRECT SUBSIDIARY OF
ALCATEL
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON FRIDAY, APRIL 2, 1999, UNLESS THE OFFER IS EXTENDED.
March 8, 1999
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by Zeus Acquisition Corp., a corporation organized
and existing under the laws of the State of California ("Purchaser") and a
wholly-owned indirect subsidiary of Alcatel, a corporation organized and
existing under the laws of France ("Parent"), to act as Dealer Manager in
connection with Purchaser's offer to purchase all of the outstanding shares of
common stock, par value $0.001 per share (including the associated Preferred
Share Purchase Rights) (collectively, the "Shares"), of Xylan Corporation, a
corporation organized and existing under the laws of the State of California
(the "Company"), at a price of $37.00 per Share, net to the seller in cash
(subject to applicable withholding of taxes), without interest, upon the terms
and subject to the conditions set forth in Purchaser's Offer to Purchase, dated
March 8, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal
(which, together with any amendments or supplements thereto, collectively
constitute the "Offer") enclosed herewith. The Offer is made in connection with
the Agreement and Plan of Merger, dated as of March 1, 1999 (the "Merger
Agreement"), by and among Parent, Purchaser and the Company.
Please furnish copies of the enclosed materials to those of your clients
for whose accounts you hold Shares registered in your name or in the name of
your nominee.
The Offer is conditioned upon, among other things, there having been
validly tendered and not withdrawn on or prior to the Expiration Date (as
hereinafter defined) at least 90% of the outstanding Shares. The Offer is also
subject to certain other terms and conditions contained in the Offer to
Purchase. See the Introduction and Tender Offer Sections 1 and 14 of the Offer
to Purchase. The Board of Directors of the Company has unanimously approved the
Offer, the Merger, the Stock Option Agreement and the Merger Agreement as
described in the Offer to Purchase and determined that the Offer, the Merger,
the Stock Option Agreement and the Merger Agreement are fair to and in the best
interests of the shareholders of the Company and recommends that the
shareholders of the Company accept the Offer and tender their Shares to
Purchaser pursuant to the Offer.
<PAGE> 2
Enclosed for your information and forwarding to your clients are copies of
the following documents:
1. Offer to Purchase, dated March 8, 1999;
2. Letter of Transmittal to be used by holders of Shares in accepting
the Offer and tendering Shares. Facsimile copies of the Letter of
Transmittal may be used to tender Shares;
3. Notice of Guaranteed Delivery to be used to accept the Offer if
certificates evidencing Shares ("Share Certificates") and all other
required documents are not immediately available or cannot be delivered to
The Bank of New York (the "Depositary") by the Expiration Date or if, in
the case of book-entry delivery of Shares, the procedures for book-entry
transfer set forth in Section 3 of the Offer to Purchase cannot be
completed by the Expiration Date;
4. Solicitation/Recommendation Statement on Schedule 14D-9 filed with
the Securities and Exchange Commission by the Company;
5. A letter which may be sent to your clients for whose accounts you
hold Shares registered in your name or in the name of your nominee, with
space provided for obtaining such client's instructions with regard to the
Offer;
6. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9; and
7. Return envelope addressed to the Depositary.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, APRIL 2, 1999 (THE "EXPIRATION
DATE"), UNLESS THE OFFER IS EXTENDED, IN WHICH EVENT THE TERM "EXPIRATION DATE"
WILL MEAN THE LATEST TIME AND DATE AT WHICH THE OFFER, AS SO EXTENDED, WILL
EXPIRE.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (i) Share
Certificates (or a confirmation of a book-entry transfer of such Shares into the
Depositary's account at The Depository Trust Company), (ii) a Letter of
Transmittal (or a manually signed facsimile thereof), properly completed and
duly executed, with any required signature guarantees, or an Agent's Message (as
defined in the Offer to Purchase) in connection with a book-entry delivery of
Shares and (iii) any other documents required by the Letter of Transmittal.
If holders of Shares wish to tender Shares, but cannot deliver their Share
Certificates or other required documents, or cannot comply with the procedures
for book-entry transfer, on or prior to the Expiration Date, a tender may be
effected by following the guaranteed delivery procedures described in Section 3
of the Offer to Purchase.
Purchaser will not pay any fees or commissions to any broker, dealer or
other person (other than the Dealer Manager, Depositary and Information Agent,
as described in the Offer to Purchase) in connection with the solicitation of
tenders of Shares pursuant to the Offer. However, Purchaser will, upon request,
reimburse you for customary mailing and handling expenses incurred by you in
forwarding any of the enclosed materials to your clients. Purchaser will pay or
cause to be paid any stock transfer taxes payable with respect to the transfer
of Shares to it, except as otherwise provided in Instruction 6 of the Letter of
Transmittal.
Any inquiries you may have with respect to the Offer should be addressed to
Georgeson & Company Inc., the Information Agent, or Lehman Brothers Inc., the
Dealer Manager, at their respective addresses and telephone numbers set forth on
the back cover of the Offer to Purchase. Additional copies of the enclosed
materials may be obtained from the Information Agent.
Very truly yours,
LEHMAN BROTHERS
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL AUTHORIZE YOU
OR ANY OTHER PERSON TO ACT ON BEHALF OF OR AS THE AGENT OF PARENT, PURCHASER,
THE COMPANY, THE DEALER MANAGER, THE INFORMATION AGENT OR THE DEPOSITARY, OR OF
ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY
DOCUMENT OR TO MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH
THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED
THEREIN.
2
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OF THE OUTSTANDING SHARES OF COMMON STOCK
OF
XYLAN CORPORATION
AT
$37.00 NET PER SHARE
BY
ZEUS ACQUISITION CORP.
A WHOLLY-OWNED INDIRECT SUBSIDIARY OF
ALCATEL
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON FRIDAY, APRIL 2, 1999, UNLESS THE OFFER IS EXTENDED.
March 8, 1999
To Our Clients:
Enclosed for your consideration are an Offer to Purchase, dated March 8,
1999 (the "Offer to Purchase"), and a related Letter of Transmittal (which,
together with any amendments or supplements thereto, collectively constitute the
"Offer") in connection with the offer by Zeus Acquisition Corp., a corporation
organized and existing under the laws of the State of California ("Purchaser")
and a wholly-owned indirect subsidiary of Alcatel, a corporation organized and
existing under the laws of France ("Parent"), to purchase all of the outstanding
shares of common stock, par value $0.001 per share (including the associated
Preferred Share Purchase Rights) (collectively, the "Shares"), of Xylan
Corporation, a corporation organized and existing under the laws of the State of
California (the "Company"), at a price of $37.00 per Share, net to the seller in
cash (subject to applicable withholding of taxes), without interest, upon the
terms and subject to the conditions set forth in the Offer. The Offer is made in
connection with the Agreement and Plan of Merger, dated as of March 1, 1999 (the
"Merger Agreement"), by and among Parent, Purchaser and the Company. Holders of
Shares whose certificates evidencing such Shares (the "Share Certificates") are
not immediately available or who cannot deliver their Share Certificates and all
other required documents to the Depositary (as hereinafter defined) on or prior
to the Expiration Date (as hereinafter defined), or who cannot complete the
procedures for book-entry transfer on a timely basis, must tender their Shares
according to the guaranteed delivery procedures set forth in Section 3 of the
Offer to Purchase.
WE ARE THE HOLDER OF RECORD OF SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER
OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO
YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR
INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR
ACCOUNT.
Accordingly, we request instructions as to whether you wish to have us
tender on your behalf any or all of the Shares held by us for your account upon
the terms and subject to the conditions set forth in the Offer.
Please note the following:
1. The tender price is $37.00 per Share, net to the seller in cash
(subject to applicable withholding of taxes), without interest, upon the
terms and subject to the conditions set forth in the Offer.
<PAGE> 2
2. The Offer is being made for all of the outstanding Shares.
3. The Board of Directors of the Company has unanimously approved the
Offer, the Merger, the Stock Option Agreement and the Merger Agreement as
described in the Offer to Purchase and determined that the Offer, the
Merger, the Stock Option Agreement and the Merger Agreement are fair to and
in the best interests of the shareholders of the Company and recommends
that the shareholders of the Company accept the Offer and tender their
Shares to Purchaser pursuant to the Offer.
4. The Offer and withdrawal rights will expire at 12:00 midnight, New
York City time, on April 2, 1999 (the "Expiration Date"), unless the Offer
is extended, in which event the term "Expiration Date" will mean the latest
time and date at which the Offer, as so extended, will expire.
5. The Offer is conditioned upon, among other things, there having
been validly tendered and not withdrawn on or prior to the Expiration Date
at least 90% of the outstanding Shares (the "Minimum Condition"). The Offer
is also subject to certain other terms and conditions contained in the
Offer to Purchase. See the Introduction and Tender Offer Sections 1 and 14
of the Offer to Purchase.
6. The Merger Agreement provides that, in the event the Minimum
Condition is not satisfied on any scheduled Expiration Date and provided
that certain other conditions have been met, Purchaser may, in its sole
discretion, either (i) extend the Offer or (ii) amend the Offer to provide
that, in the event (A) the Minimum Condition is not satisfied at the next
scheduled Expiration Date (without giving effect to the potential issuance
of any Shares issuable upon exercise of the Stock Option Agreement) and (B)
the number of Shares tendered pursuant to the Offer and not withdrawn as of
such next scheduled Expiration Date is more than 50% of the then
outstanding Shares, Purchaser will waive the Minimum Condition and amend
the Offer to reduce the number of Shares subject to the Offer to a number
of Shares that, when added to the Shares then owned by Purchaser, will
equal 49.99% of the Shares then outstanding (the "Revised Minimum Number"),
and, if a greater number of Shares is tendered into the Offer and not
withdrawn, purchase, on a pro rata basis, the Revised Minimum Number of
Shares (it being understood that Purchaser may, but will not in any event
be required to accept for payment, and pay for, any Shares if less than the
Revised Minimum Number of Shares is tendered pursuant to the Offer and not
withdrawn at the applicable Expiration Date).
7. Tendering shareholders will not be obligated to pay brokerage fees
or commissions or, except as otherwise provided in Instruction 6 of the
Letter of Transmittal, stock transfer taxes with respect to the purchase of
Shares by Purchaser pursuant to the Offer.
8. Payment for Shares purchased pursuant to the Offer will in all
cases be made only after timely receipt by The Bank of New York (the
"Depositary") of (a) Share Certificates or, in the case of book-entry
delivery of Shares, timely confirmation of the book-entry transfer of such
Shares into the Depositary's account at The Depository Trust Company
pursuant to the procedures set forth in Section 3 of the Offer to Purchase,
(b) the Letter of Transmittal (or a manually signed facsimile thereof),
properly completed and duly executed, with any required signature
guarantees or an Agent's Message (as defined in the Offer to Purchase), in
connection with a book-entry delivery, and (c) any other documents required
by the Letter of Transmittal.
The Offer is made solely by the Offer to Purchase and the related Letter of
Transmittal and is being made to all holders of Shares. Purchaser is not aware
of any jurisdiction where the making of the Offer is prohibited by
administrative or judicial action pursuant to any valid state statute. If
Purchaser becomes aware of any valid state statute prohibiting the making of the
Offer, Purchaser will make a good faith effort to comply with such state
statute. If, after such good faith effort, Purchaser cannot comply with such
state statute, the Offer will not be made to, nor will tenders be accepted from
or on behalf of, the holders of Shares in such state. In any jurisdiction where
the securities, "blue sky" or other laws require the Offer to be made by a
licensed broker or dealer, the Offer shall be deemed to be made on behalf of
Purchaser by Lehman Brothers Inc., the Dealer Manager, or one or more registered
brokers or dealers licensed under the laws of such jurisdiction.
IF YOU WISH TO HAVE US TENDER ANY OR ALL OF YOUR SHARES, PLEASE SO INSTRUCT
US BY COMPLETING, EXECUTING AND RETURNING TO US THE INSTRUCTION FORM CONTAINED
IN THIS LETTER. AN ENVELOPE IN WHICH TO RETURN YOUR INSTRUCTIONS TO US IS
ENCLOSED. IF YOU AUTHORIZE THE TENDER OF YOUR SHARES, ALL SUCH SHARES WILL BE
TENDERED UNLESS OTHERWISE SPECIFIED IN YOUR INSTRUCTIONS. YOUR INSTRUCTIONS
SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR
BEHALF PRIOR TO THE EXPIRATION OF THE OFFER.
2
<PAGE> 3
INSTRUCTIONS WITH RESPECT TO
THE OFFER TO PURCHASE FOR CASH
ALL OF THE OUTSTANDING SHARES OF COMMON STOCK
OF
XYLAN CORPORATION
BY
ZEUS ACQUISITION CORP.
A WHOLLY-OWNED INDIRECT SUBSIDIARY OF
ALCATEL
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated March 8, 1999 (the "Offer to Purchase"), and the
related Letter of Transmittal (which, together with any amendments or
supplements thereto, collectively constitute the "Offer") in connection with the
offer by Zeus Acquisition Corp., a corporation organized and existing under the
laws of the State of California and a wholly-owned indirect subsidiary of
Alcatel, a corporation organized and existing under the laws of France, to
purchase all of the outstanding shares of common stock, par value $0.001 per
share (including the associated Preferred Share Purchase Rights) (collectively,
the "Shares"), of Xylan Corporation, a corporation organized and existing under
the laws of the State of California, at a price of $37.00 per Share, net to the
seller in cash (subject to applicable withholding of taxes), without interest,
upon the terms and subject to the conditions set forth in the Offer to Purchase.
This will instruct you to tender the number of Shares indicated below (or,
if no number is indicated below, all Shares) that are held by you for the
account of the undersigned, upon the terms and subject to the conditions set
forth in the Offer.
Dated:
-------------------------- , 1999
Number of Shares to be Tendered:
-------------------------- Shares*
*Unless otherwise indicated, it will be assumed that all Shares held by us for
your account are to be tendered.
SIGN HERE
- --------------------------------------------------------------------------------
SIGNATURE(S) OF HOLDER(S)
Name(s) of Holder(s):
- --------------------------------------------------------------------------------
PLEASE TYPE OR PRINT
- --------------------------------------------------------------------------------
ADDRESS(ES)
- --------------------------------------------------------------------------------
ZIP CODE(S)
- --------------------------------------------------------------------------------
AREA CODE AND TELEPHONE NUMBER(S)
- --------------------------------------------------------------------------------
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER(S)
3
<PAGE> 1
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER -- Social Security numbers have nine digits separated by two hyphens:
i.e., 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e., 00-0000000. The table below will help determine the
number to give the payer.
------------------------------------------------------------------
<TABLE>
<S> <C> <C>
GIVE THE SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- ---------------------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals (joint The actual owner of the
account) account or, if combined
funds, any one of the
individuals(1)
3. Husband and wife (joint account) The actual owner of the
account or, if joint funds,
either person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint account) The adult or, if the minor
is the only contributor, the
minor(1)
6. Account in the name of guardian The ward, minor or
or committee for a designated incompetent person(3)
ward, minor or incompetent
person
7. a. The usual revocable savings The grantor-trustee(1)
trust account (grantor is also
trustee)
b. So-called trust account that The actual owner(1)
is not a legal or valid trust
under state law
8. Sole proprietorship account The owner(4)
- ---------------------------------------------------------------------
GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF --
- ---------------------------------------------------------------------
9. A valid trust, estate or pension The legal entity (Do not
trust furnish the identifying
number of the personal
representative or trustee
unless the legal entity
itself is not designated in
the account title.)(5)
10. Corporate account The corporation
11. Religious, charitable or The organization
educational organization account
12. Partnership account held in the The partnership
name of the business
13. Association, club or other The organization
tax-exempt organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of The public entity
Agriculture in the name of a
public entity (such as a state
or local government, school
district or prison) that
receives agricultural program
payments
</TABLE>
------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate or pension trust.
NOTE:If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEE EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under Section 501(a) or an individual
retirement plan.
- - The United States or any agency or instrumentality thereof.
- - A state, the District of Columbia, a possession of the United States or any
subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government or any
agency or instrumentality thereof.
- - An international organization or any agency or instrumentality thereof.
- - A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- - A real estate investment trust.
- - A common trust fund operated by a bank under Section 584(a).
- - An exempt charitable remainder trust or a nonexempt trust described in Section
4947(a)(1).
- - An entity registered at all times under the Investment Company Act of 1940.
- - A foreign central bank of issue.
PAYMENTS NOT GENERALLY SUBJECT TO BACKUP WITHHOLDING
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- - Payments to nonresident aliens subject to withholding under section 1441.
- - Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- - Payments of patronage dividends where the amount received is not paid in
money.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt interest dividends under
section 852).
- - Payments described in section 6049(b)(5) to non-resident aliens.
- - Payments on tax-free covenant bonds under section 1451.
- - Payments made by certain foreign organizations.
- - Payments made to nominees.
EXEMPT PAYEES DESCRIBED ABOVE SHOULD FILE FORM W-9 TO AVOID POSSIBLE ERRONEOUS
BACKUP WITHHOLDING. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under section 6041, 6041A(a), 6045
and 6050A.
PRIVACY ACT NOTICE. -- Section 6109 requires most recipients of dividend,
interest or other payments to give taxpayer identification numbers to payers who
must report the payments to the IRS. The IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend and certain other payments to a payee who does not furnish a
taxpayer identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications of affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE> 2
TO BE COMPLETED BY ALL TENDERING SHAREHOLDERS
(SEE INSTRUCTION 9 TO LETTER OF TRANSMITTAL)
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
PAYER'S NAME: THE BANK OF NEW YORK
- ----------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN PART 3--Social Security Number or
FORMW-9 THE BOX AT THE RIGHT AND CERTIFY BY Employer Identification Number
SIGNING AND DATING BELOW.
---------------------------------------------
(If awaiting TIN write "Applied For")
---------------------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE PART 2--For Payees exempt from backup withholding, see the enclosed Guidelines for
PAYER'S REQUEST FOR Certification of Taxpayer Identification Number on Substitute Form W-9 and complete
TAXPAYER as instructed therein.
IDENTIFICATION Certification--Under penalties of perjury, I certify that:
NUMBER ("TIN") (1) The number shown on this form is my correct TIN (or I am waiting for a number to
be issued to me); and
(2) I am not subject to backup withholding either because I have not been notified
by the Internal Revenue Service (IRS) that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or the IRS has notified
me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out Item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding, you received
another notification from the IRS that you were no longer subject to backup
withholding, do not cross out item (2). (Also see instructions in the enclosed
Guidelines).
-----------------------------------------------------------------------------------------
SIGNATURE: _____________________________________ DATE:
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9.
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has not been issued to
me, and either (1) I have mailed or delivered an application to receive a taxpayer identification
number to the appropriate IRS Center or Social Security Administration Office or (2) I intend to
mail or deliver an application in the near future. I understand that if I do not provide a
taxpayer identification number by the time of payment, 31% of all reportable payments made to me
will be withheld, but that such amounts will be refunded to me if I then provide a taxpayer
identification number within sixty (60) days.
Signature: __________________________________________________________ Date:
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
[FORM OF SUMMARY ADVERTISEMENT]
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares (as defined below). The Offer (as defined below) is made solely
by the Offer to Purchase, dated March 8, 1999, and the related Letter of
Transmittal and is being made to all holders of Shares. Purchaser (as defined
below) is not aware of any state where the making of the Offer is prohibited by
administrative or judicial action pursuant to any valid state statute. If
Purchaser becomes aware of any valid state statute prohibiting the making of the
Offer, Purchaser will make a good faith effort to comply with such state
statute. If, after such good faith effort, Purchaser cannot comply with such
state statute, the Offer will not be made to, nor will tenders be accepted from
or on behalf of, the holders of Shares in such state. In any jurisdiction where
the securities, "blue sky" or other laws require the Offer to be made by a
licensed broker or dealer, the Offer shall be deemed to be made on behalf of
Purchaser by Lehman Brothers Inc., the Dealer Manager, or one or more registered
brokers or dealers licensed under the laws of such jurisdiction.
NOTICE OF OFFER TO PURCHASE FOR CASH
ALL OF THE OUTSTANDING SHARES OF COMMON STOCK
OF
XYLAN CORPORATION
AT
$37.00 NET PER SHARE
BY
ZEUS ACQUISITION CORP.
A WHOLLY-OWNED INDIRECT SUBSIDIARY OF
ALCATEL
Zeus Acquisition Corp., a corporation organized and existing under the laws
of the State of California ("Purchaser") and a wholly-owned indirect subsidiary
of Alcatel, a corporation organized and existing under the laws of France
("Parent"), is offering to purchase all of the outstanding shares of common
stock, par value $0.001 per share (the "Shares"), of Xylan Corporation, a
corporation organized and existing under the laws of the State of California
(the "Company"), at a price of $37.00 per Share (such price, or such higher
price per Share as may be paid in the Offer, being referred to herein as the
"Offer Price"), net to the seller in cash (subject to applicable withholding of
taxes), without interest, upon the terms and subject to the conditions set forth
in the Offer to Purchase, dated March 8, 1999 (the "Offer to Purchase"), and in
the related Letter of Transmittal (which, together with any amendments or
supplements thereto, collectively constitute the "Offer"). Tendering
shareholders will not be obligated to pay brokerage fees or commissions or,
except as otherwise provided in Instruction 6 of the Letter of Transmittal,
stock transfer taxes with respect to the purchase of Shares by Purchaser
pursuant to the Offer. Following the Offer, Purchaser intends to effect the
Merger (as defined below).
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, APRIL 2, 1999, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE HAVING BEEN
VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST
90% OF THE OUTSTANDING SHARES (THE "MINIMUM CONDITION") AND IS ALSO SUBJECT TO
OTHER TERMS AND CONDITIONS DESCRIBED IN THE OFFER TO PURCHASE.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of March 1, 1999 (the "Merger Agreement"), by and among Parent, Purchaser and
the Company. The Merger Agreement provides
<PAGE> 2
that, among other things, as promptly as practicable after the purchase of
Shares pursuant to the Offer and the satisfaction or waiver of the other
conditions set forth in the Merger Agreement and in accordance with the
applicable provisions of the California General Corporation Law (the "CGCL"),
Purchaser will be merged with and into the Company (the "Merger"), the separate
corporate existence of Purchaser will cease and the Company will continue as the
surviving corporation and will be a wholly-owned indirect subsidiary of Parent.
At the effective time of the Merger (the "Effective Time"), each remaining
outstanding Share (other than Shares owned by Parent, Purchaser or any direct or
indirect wholly-owned subsidiary of the Company or Parent immediately prior to
the Effective Time and Shares held by shareholders who properly perfect their
dissenters' rights under the CGCL) will be converted automatically into the
right to receive the Offer Price, without interest.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER,
THE MERGER, THE STOCK OPTION AGREEMENT AND THE MERGER AGREEMENT AS DESCRIBED IN
THE OFFER TO PURCHASE AND DETERMINED THAT THE OFFER, THE MERGER, THE STOCK
OPTION AGREEMENT AND THE MERGER AGREEMENT ARE FAIR TO AND IN THE BEST INTERESTS
OF THE SHAREHOLDERS OF THE COMPANY AND RECOMMENDS THAT THE SHAREHOLDERS OF THE
COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
The Merger Agreement provides that, in the event the Minimum Condition is
not satisfied on any scheduled expiration date of the Offer and provided that
certain other conditions have been met, Purchaser may, in its sole discretion,
either (i) extend the Offer or (ii) amend the Offer to provide that, in the
event (A) the Minimum Condition is not satisfied at the next scheduled
expiration date of the Offer (without giving effect to the potential issuance of
any Shares issuable upon exercise of the Stock Option Agreement) and (B) the
number of Shares tendered pursuant to the Offer and not withdrawn as of such
next scheduled expiration date is more than 50% of the then outstanding Shares,
Purchaser will waive the Minimum Condition and amend the Offer to reduce the
number of Shares subject to the Offer to a number of Shares that, when added to
the Shares then owned by Purchaser, will equal 49.99% of the Shares then
outstanding (the "Revised Minimum Number"), and, if a greater number of Shares
is tendered into the Offer and not withdrawn, purchase, on a pro rata basis, the
Revised Minimum Number of Shares (it being understood that Purchaser may, but
will not in any event be required to accept for payment, and pay for, any Shares
if less than the Revised Minimum Number of Shares is tendered pursuant to the
Offer and not withdrawn at the applicable expiration date).
Concurrently with the execution of the Merger Agreement, and as a condition
and inducement to Parent's and Purchaser's entering into the Merger Agreement,
the Company entered into a stock option agreement, dated March 1, 1999 (the
"Stock Option Agreement"), with Parent and Purchaser. Pursuant to the Stock
Option Agreement, the Company granted to Purchaser an irrevocable option (the
"Top-Up Stock Option") to purchase that number of Shares (the "Top-Up Option
Shares") equal to the number of Shares that, when added to the number of Shares
owned by Purchaser, Parent and their subsidiaries immediately following
consummation of the Offer, will constitute 90% of the Shares then outstanding at
a cash purchase price per Top-Up Option Share equal to the Offer Price, subject
to the terms and conditions set forth in the Stock Option Agreement, including,
without limitation, that the number of Shares to be issued under the Top-Up
Stock Option may not exceed the number of authorized Shares available for
issuance.
As a further condition and inducement to Parent's and Purchaser's entering
into the Merger Agreement, certain shareholders of the Company, including Steven
Y. Kim, Yuri Pikover and John Walecka, directors and/or executive officers of
the Company, and certain trusts formed by them (the "Shareholders"), entered
into shareholder agreements, each dated as of March 1, 1999 (the "Shareholder
Agreements"), with Parent and Purchaser. Subject to the terms and conditions of
the Shareholder Agreements, each of the Shareholders has, among other things,
(i) agreed to tender pursuant to the Offer all Shares beneficially owned by such
Shareholder, (ii) except for Mr. Walecka, granted to Purchaser an irrevocable
option to purchase the Shares subject to the Shareholder Agreements at a cash
purchase price per Share equal to the Offer Price, (iii) agreed to vote such
Shares in favor of the approval and adoption of the Merger and the Merger
Agreement and (iv) granted to Parent and certain officers of Parent an
irrevocable proxy to vote such Shares in favor of the transactions contemplated
by the Merger Agreement. The Shares owned by the Shareholders
2
<PAGE> 3
and subject to the Shareholder Agreements, 4,943,705 Shares, constituted
approximately 11.6% of the Shares represented by the Company to be outstanding
as of February 23, 1999.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not withdrawn as, if
and when Purchaser gives oral or written notice to The Bank of New York (the
"Depositary") of Purchaser's acceptance for payment of such Shares pursuant to
the Offer. Upon the terms and subject to the conditions of the Offer, payment
for Shares accepted for payment pursuant to the Offer will be made by deposit of
the purchase price therefor with the Depositary, which will act as agent for
tendering shareholders for the purpose of receiving payments from Purchaser and
transmitting such payments to validly tendering shareholders whose Shares have
been accepted for payment. Under no circumstances will interest on the Offer
Price for the Shares be paid, regardless of any extension of the Offer or any
delay in making such payment.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (i) the
certificates evidencing such Shares (the "Share Certificates") or timely
confirmation of a book-entry transfer of such Shares into the Depositary's
account at The Depository Trust Company pursuant to the procedures set forth in
Section 3 of the Offer to Purchase, (ii) the Letter of Transmittal (or a
manually signed facsimile thereof), properly completed and duly executed, with
any required signature guarantees, or an Agent's Message (as defined in Section
2 of the Offer to Purchase) in connection with a book-entry transfer, and (iii)
any other documents required by the Letter of Transmittal.
The term "Expiration Date" means 12:00 midnight, New York City time, on
Friday, April 2, 1999, unless and until Purchaser, in accordance with the terms
of the Merger Agreement, extends the period of time during which the Offer is
open, in which event the term "Expiration Date" will mean the latest time and
date at which the Offer, as so extended by Purchaser, will expire. Subject to
the terms and conditions of the Merger Agreement, Purchaser may extend the
period of time during which the Offer is open at any time in its sole discretion
and thereby delay acceptance for payment of, and payment for, any Shares, by
giving oral or written notice of such extension to the Depositary and by making
a public announcement thereof by no later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date. During any
such extension, all Shares previously tendered and not withdrawn will remain
tendered pursuant to the Offer, subject to the rights of a tendering shareholder
to withdraw his Shares.
If proration is required as a result of any reduction in the number of
Shares subject to the Offer to a number equal to the Revised Minimum Number,
then, because of the difficulty of determining precisely the number of Shares
validly tendered and not withdrawn, Purchaser would not expect to announce the
final results of proration until approximately seven Nasdaq National Market
System trading days after the Expiration Date. Preliminary results of proration
will be announced by press release as promptly as practicable after the
Expiration Date. Holders of Shares may obtain such preliminary information from
the Depositary and may also be able to obtain such preliminary information from
their brokers. Purchaser will not pay for any Shares accepted for payment
pursuant to the Offer until the final proration factor is known.
Tenders of Shares made pursuant to the Offer are irrevocable except that
such Shares may be withdrawn at any time on or prior to the Expiration Date and,
unless theretofore accepted for payment by Purchaser pursuant to the Offer, may
also be withdrawn at any time after May 7, 1999. For a withdrawal to be
effective, a written, telegraphic or facsimile transmission notice of withdrawal
must be timely received by the Depositary at its address set forth on the back
cover page of the Offer to Purchase. Any such notice of withdrawal must specify
the name of the person who tendered the Shares to be withdrawn, the number of
Shares to be withdrawn and the name of the registered holder of such Shares, if
different from that of the person who tendered such Shares. If Share
Certificates evidencing Shares to be withdrawn have been delivered or otherwise
identified to the Depositary, then, prior to the physical release of such Share
Certificates, the serial numbers shown on such Share Certificates must be
submitted to the Depositary and the signature(s) on the notice of withdrawal
must be guaranteed by an Eligible Institution (as defined in Section 3 of the
Offer to Purchase), unless such Shares have been tendered for the account of an
Eligible Institution. If Shares have been tendered pursuant to the procedures
for book-entry transfer as set forth in Section 3 of the Offer to
3
<PAGE> 4
Purchase, any notice of withdrawal must also specify the name and number of the
account at The Depository Trust Company to be credited with the withdrawn
Shares. All questions as to the form and validity (including the time of
receipt) of any notice of withdrawal will be determined by Purchaser, in its
sole discretion, whose determination will be final and binding.
The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended, is contained in the Offer to Purchase and is incorporated herein by
reference.
The Company has provided Purchaser with the Company's shareholder list and
security position listings for the purpose of disseminating the Offer to holders
of Shares. The Offer to Purchase and the related Letter of Transmittal will be
mailed to record holders of Shares whose names appear on the Company's
shareholder list and will be furnished, for subsequent transmittal to beneficial
owners of Shares, to brokers, dealers, commercial banks, trust companies and
similar persons whose names, or the names of whose nominees, appear on the
shareholder list or, if applicable, who are listed as participants in a clearing
agency's security position listing.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
set forth below. Copies of the Offer to Purchase and the related Letter of
Transmittal and other tender offer materials may be obtained from the
Information Agent at its address and telephone number set forth below and will
be furnished promptly at Purchaser's expense. No fees or commissions will be
paid to brokers, dealers or other persons (other than the Dealer Manager and
Information Agent) for soliciting tenders of Shares pursuant to the Offer.
The Information Agent for the Offer is:
(LOGO)
Wall Street Plaza
88 Pine Street, 30th Floor
New York, New York 10005
Banks and Brokers Call Collect: (212) 440-9800
ALL OTHERS CALL TOLL FREE: (800) 223-2064
The Dealer Manager for the Offer is:
LEHMAN BROTHERS
Three World Financial Center
200 Vesey Street
New York, New York 10285
Call Collect: (212) 526-5044 or (212) 526-2660
March 8, 1999
4
<PAGE> 1
Exhibit (a)(8)
Press release
ALCATEL TO ACQUIRE XYLAN, CREATING NEW LEADER IN VOICE AND DATA
SOLUTIONS FOR ENTERPRISE AND SERVICE PROVIDER NETWORKS
Paris, France & Calabasas, California - March 2, 1999 - To extend its technology
lead in the fast growing market for voice and data networks, Alcatel (NYSE: ALA)
today announced it has entered into a definitive agreement to acquire Xylan
Corporation (NASDAQ: XYLN) for $37 a share. The transaction is valued at
approximately $2.0 billion.
This acquisition will be made by a cash tender offer for all outstanding shares.
The tender offer will commence by Monday, March 8 and will be scheduled to
expire 20 business days thereafter. Completion of the acquisition is subject to
90% of the shares being tendered, the expiration or termination of applicable
waiting periods under appropriate antitrust laws, and other customary
conditions. All shares not purchased in the tender offer will be acquired by
merger for cash at the same price per share. The deal is expected to be
completed in the beginning of April 1999.
"Alcatel has devised and is implementing a comprehensive strategy to become a
key worldwide player in the Internet field, capitalizing on its leadership
position in major telecommunications markets and technologies. This strategy
encompasses the targeted acquisitions of leading IP-focused companies,
leveraging Alcatel's strengths to leapfrog competition. A major step is the
acquisition of Xylan, a long-time partner, which I am happy to announce today",
said Serge Tchuruk, Chairman and CEO of Alcatel. "The combined Alcatel/Xylan
strengths in voice and data networking for enterprises will constitute a very
powerful force in world corporate markets. In addition, Xylan technologies for
carriers' data networks will remarkably complement other actions underway to
build a leading Alcatel offering for converged voice/data carriers' networks."
Xylan provides Alcatel with a superior portfolio of data switching equipment and
a fast-growing position in the enterprise data market, where Xylan is developing
well above market trends. The combined Alcatel/Xylan product offering will
surpass competition in the enterprise market, both in terms of performance and
spread of functionalities. Xylan's strong inroads in the carriers' markets, in
particular, managed LAN services and the forthcoming traffic aggregation
equipment, will substantially enhance solutions developed by Alcatel for service
providers.
"In the face of industry giants, Xylan has grown beyond anyone's expectations
over the last five years because we've offered the best technology available.
The synergies from
<PAGE> 2
combining that technology with Alcatel's resources will provide a dramatic boost
to Xylan's future success," said Steve Kim, president and chief executive
officer of Xylan.
"We are very pleased to expand the partnership we began four years ago with
Xylan. Alcatel has delivered Xylan products throughout the world and is one of
Xylan's leading partners," said Olivier Houssin, executive vice president of
Alcatel Telecom. "We are confident that we will be able to effectively integrate
Xylan into the Alcatel organization and rapidly bring its products to an
expanded market. In particular, it is our plan to continue to sell Xylan
products through their existing distribution channels. In addition, the Xylan
acquisition gives Alcatel access to the enterprise market in the U.S. and will
allow our Group to play a leading role in the integrated voice/data private
networking market in North America."
A NEW CENTER FOR ALCATEL ENTERPRISE DATA NETWORKING
Xylan will become the center of competence for all of Alcatel's enterprise data
networking solutions. Xylan's expertise will be combined with Alcatel's
leadership in enterprise voice networks to provide converged voice/data
solutions.
Alcatel recently announced its 4400 IP PCX (private communications exchange), a
full-blown IP-based communication platform, which includes voice application
servers, unified messaging, Web-enabled call centers, IP telephones, and other
applications. Combining this with Xylan's best-of-breed enterprise switching
systems gives Alcatel the power to deliver a complete integrated solution.
ADDS DEPTH TO SERVICE PROVIDER NETWORKS
Xylan will also provide key additions to Alcatel's IP and ATM solutions for
service providers, focusing on Internet access, DSL data services, cable modem
data services, and multi-service virtual private networks.
Xylan is currently working with more than 100 carrier customers, including Bell
South and Bell Atlantic, Teleport, and Rhythms in the U.S., MetroNet in Canada,
Telewest in the U.K., and Telia in Sweden. Together, Xylan and Alcatel will
leverage Alcatel's presence in the carrier marketplace and Xylan's unique
intelligent edge switches to offer unmatched service provider solutions.
ABOUT ALCATEL
A world leader in telecommunications systems and equipment as well as related
cables and components activities, Alcatel operates in over 130 countries.
Alcatel provides complete solutions and services to operators, service
providers, enterprises and consumers, ranging from backbone networks to user's
terminals. For more information, visit the Alcatel web at www.alcatel.com.
<PAGE> 3
ABOUT XYLAN
Xylan has been the fastest growing internetworking company in the history of the
industry, acquiring more than 4,000 customers and growing total revenues to $348
million in just five years. In each of the last two years, the company has grown
approximately 65%, outstripping the growth of the data networking market. More
information about Xylan and its products is available at www.xylan.com.
This document may include forward-looking statements within the meaning of Safe
Harbor provisions of the U.S. federal securities laws. These statements are
based on current expectations, estimates and projections about the general
economy and Alcatel's and Xylan's lines of business and are generally
identifiable by statements containing words such as "expects," "believes,"
"estimates," or similar expressions. Statements related to the future
performance involve certain assumptions, risks and uncertainties, many of which
are beyond the control of Alcatel or Xylan, and include, among others, foreign
and domestic product and price competition, cost effectiveness, changes in
governmental regulations, general economic and market conditions in various
geographic areas, interest rates and the availability of capital. Although
Alcatel and Xylan believe their respective expectations reflected in any such
forward-looking statements are based upon reasonable assumptions, they can give
no assurance that those expectations will be achieved.
CONTACTS
PRESS RELATIONS
Christophe Lachnitt
Tel: +33 (0)1 40 76 12 19
[email protected]
Niall Hickey
Tel: +33 (0)1 40 76 11 56
[email protected]
INVESTOR RELATIONS
Claire Pedini
Tel: +33 (0)1 40 76 13 93
[email protected]
Charlotte Laurent-Ottomane
Tel: +33 (0)1 40 76 13 30
[email protected]
Stephane Mermet
<PAGE> 4
Tel: + 33 (0)1 40 76 16 04
[email protected]
Michael Haase (US)
Tel: +1 972 519 68 55
[email protected]
XYLAN CONTACTS
David Rodewald
Tel: +1 818 878 49 76
[email protected]
<PAGE> 1
Exhibit (c)(1)
AGREEMENT AND PLAN OF MERGER
AMONG ALCATEL,
ZEUS ACQUISITION CORP.
AND
XYLAN CORPORATION
Dated: March 1, 1999
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I THE OFFER
SECTION 1.01. The Offer. ...................................... - 2 -
SECTION 1.02. Company Action. .................................. - 4 -
SECTION 1.03. Directors......................................... - 5 -
ARTICLE II
THE MERGER......................................................... - 6 -
SECTION 2.01. The Merger........................................ - 6 -
SECTION 2.02. Effective Time.................................... - 6 -
SECTION 2.03. Effect of the Merger.............................. - 7 -
SECTION 2.04. Articles of Incorporation; By-Laws................ - 7 -
SECTION 2.05. Closing........................................... - 7 -
SECTION 2.06. Directors and Officers............................ - 7 -
SECTION 2.07. Shareholders' Meeting. .......................... - 7 -
ARTICLE III
CONVERSION OF SECURITIES........................................... - 8 -
SECTION 3.01. Effect on Capital Stock........................... - 8 -
SECTION 3.02. Exchange of Certificates.......................... - 9 -
SECTION 3.03. Dissenting Shares................................ - 11 -
SECTION 3.04. Lost, Stolen or Destroyed Certificates........... - 11 -
SECTION 3.05. Taking of Necessary Action; Further Action....... - 11 -
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................... - 11 -
SECTION 4.01. Organization and Qualification; Subsidiaries..... - 12 -
SECTION 4.02. Articles of Incorporation and By-Laws............ - 12 -
SECTION 4.03. Capitalization................................... - 12 -
SECTION 4.04. Authority Relative to This Agreement............. - 13 -
SECTION 4.05. Material Contracts; No Conflict, Required Filings
and Consents..................................... - 14 -
SECTION 4.06. Rights Plan...................................... - 15 -
SECTION 4.07. SEC Filings, Financial Statements................ - 15 -
SECTION 4.08. Absence of Certain Changes or Events............. - 16 -
SECTION 4.09. No Undisclosed Liabilities....................... - 16 -
SECTION 4.10. Absence of Litigation............................ - 16 -
SECTION 4.11. Employee Benefit Plans; Employment Agreements.... - 16 -
SECTION 4.12. Labor Matters.................................... - 19 -
SECTION 4.13. Restrictions on Business Activities.............. - 19 -
SECTION 4.14. Title to Property................................ - 19 -
SECTION 4.15. Taxes............................................ - 19 -
SECTION 4.16. Environmental Matters............................ - 21 -
SECTION 4.17. Brokers.......................................... - 23 -
SECTION 4.18. Intellectual Property............................ - 23 -
i
<PAGE> 3
SECTION 4.19. Vote Required.................................... - 24 -
SECTION 4.20. Opinion of Financial Advisor..................... - 24 -
SECTION 4.21. Year 2000 Compliance............................. - 24 -
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER............ - 24 -
SECTION 5.01. Organization and Qualification................... - 24 -
SECTION 5.02. Authority Relative to this Agreement............. - 25 -
SECTION 5.03. No Conflict, Required Filings and Consents....... - 25 -
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER............................ - 26 -
SECTION 6.01. Conduct of Business by the Company Pending the
Merger........................................... - 26 -
SECTION 6.02. No Solicitation.................................. - 28 -
SECTION 6.03. Information Supplied............................. - 29 -
ARTICLE VII
ADDITIONAL AGREEMENTS............................................. - 30 -
SECTION 7.01. Filings, Other Actions; Notification............. - 30 -
SECTION 7.02. Access to Information; Confidentiality........... - 31 -
SECTION 7.03. Stock Options. ................................. - 31 -
SECTION 7.04. Stock Purchase Plan.............................. - 32 -
SECTION 7.06. Indemnification.................................. - 33 -
SECTION 7.07. Notification of Certain Matters.................. - 34 -
SECTION 7.08. Further Action................................... - 34 -
SECTION 7.09. Public Announcements............................. - 34 -
SECTION 7.10. Listing.......................................... - 34 -
SECTION 7.11. Expenses......................................... - 34 -
ARTICLE VIII
CONDITIONS TO THE MERGER.......................................... - 35 -
SECTION 8.01. Conditions to Obligation of Each Party to
Effect the Merger................................ - 35 -
ARTICLE IX
TERMINATION....................................................... - 35 -
SECTION 9.01. Termination...................................... - 35 -
SECTION 9.02. Effect of Termination............................ - 37 -
SECTION 9.03. Fees and Expenses................................ - 37 -
ARTICLE X
GENERAL PROVISIONS................................................ - 38 -
SECTION 10.01. Effectiveness of Representations, Warranties and
Agreements....................................... - 38 -
ii
<PAGE> 4
SECTION 10.02. Notices.......................................... - 38 -
SECTION 10.03. Amendment........................................ - 39 -
SECTION 10.04. Waiver........................................... - 39 -
SECTION 10.05. Headings......................................... - 39 -
SECTION 10.06. Severability..................................... - 39 -
SECTION 10.07. Entire Agreement................................. - 40 -
SECTION 10.08. Assignment, Purchaser............................ - 40 -
SECTION 10.09. Parties in Interest.............................. - 40 -
SECTION 10.10. Failure or Indulgence Not Waiver; Remedies
Cumulative....................................... - 40 -
SECTION 10.11. Governing Law.................................... - 40 -
SECTION 10.12. Counterparts..................................... - 40 -
SECTION 10.13. Waiver of Jury Trial............................. - 40 -
SECTION 10.14. Certain Definitions.............................. - 41 -
iii
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 1, 1999 (the
"Agreement"), by and among Alcatel, a French corporation ("Parent"), Zeus
Acquisition Corp., a California corporation and a wholly-owned indirect
subsidiary of Parent ("Purchaser") and Xylan Corporation, a California
corporation (the "Company"). Certain capitalized terms used in this Agreement
have the meanings ascribed to them in Article X, Section 10.14 hereof.
WHEREAS, the Boards of Directors of each of Parent, Purchaser and the
Company have approved, and deem it advisable and in the best interests of their
respective shareholders for Parent to enter into a business combination with the
Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, it is proposed that Purchaser
make a cash tender offer (the "Offer") to acquire all of the outstanding Common
Stock, par value $.001 per share, of the Company (the "Company Common Stock") at
a price of $37.00 per share, net to the seller in cash, upon the terms and
conditions of this Agreement;
WHEREAS, prior to the approval of the business combination, the Board of
Directors of the Company approved the amendment to the Preferred Shares Rights
Agreement to permit the transactions contemplated by this Agreement to proceed
without triggering a distribution of rights under the Agreement;
WHEREAS, the Boards of Directors of each of Parent and the Company have
approved this Agreement and the merger (the "Merger"), following the
consummation of the Offer, of Purchaser with and into the Company in accordance
with the CGCL and upon the terms and subject to the conditions set forth herein;
WHEREAS, the Company Board has (i) determined that the consideration to be
paid for each Share in the Offer and the Merger is fair to the holders of such
Shares, (ii) approved the making of the Offer and (iii) resolved and agreed to
recommend that holders of such Shares tender their Shares pursuant to the Offer
and approve this Agreement, the Stock Option Agreement and each of the
Transactions (as defined in Section 1.02 hereof) upon the terms and subject to
the conditions set forth herein and therein;
WHEREAS, as a condition and inducement to Parent's and Purchaser's
entering into this Agreement and incurring the obligations set forth herein,
Parent, Purchaser and the Founding Shareholders, concurrently herewith are
entering into shareholders' agreements ("Shareholders Agreement") pursuant to
which such Founding Shareholders are agreeing to take certain actions to support
the transactions contemplated by this Agreement;
WHEREAS, as a condition and inducement to Parent's and Purchaser's
entering into this Agreement and incurring the obligations set forth herein, the
Company, concurrently herewith, is entering into a Stock Option Agreement, dated
as of the date hereof, with Parent and Purchaser,
<PAGE> 6
pursuant to which the Company is granting Purchaser an option to purchase
Shares, all upon the terms and subject to the conditions set forth in the Stock
Option Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Purchaser and the Company hereby agree as follows:
ARTICLE I
THE OFFER
SECTION 1.01. The Offer. (a) Provided that this Agreement shall not have
been terminated in accordance with Article IX and none of the events set forth
in Annex A shall have occurred and be existing, as promptly as reasonably
practicable (but in no event later than five business days after the public
announcement of the execution of this Agreement), Purchaser shall commence
(within the meaning of Rule 14d-2 promulgated under the Exchange Act) the Offer
to acquire all the Shares at a price of $37.00 per Share, net to the seller in
cash, subject to applicable withholding taxes (such price, or such higher price
per Share as may be paid in the Offer, being referred to herein as the "Offer
Price"). Subject to Section 1.01(c) and (i) the satisfaction of the Minimum
Condition and (ii) the satisfaction or waiver of the other conditions set forth
in Annex A, Purchaser shall use reasonable best efforts to consummate the Offer
in accordance with its terms and to accept for payment and pay for Shares
validly tendered and not withdrawn pursuant to the Offer as soon as Purchaser is
legally permitted to do so under applicable law. The Offer shall have an initial
scheduled expiration date twenty (20) business days following commencement
thereof, unless consents, approvals, authorizations, permits, filings or
notifications are required pursuant to EC Merger Regulations or any applicable
non-United States laws regulating competition, antitrust, investment or exchange
controls, in which event the initial scheduled expiration date of the Offer
shall be a date mutually agreed by Parent and the Company. The Offer shall be
made by means of an offer to purchase (the "Offer to Purchase") and shall be
subject to the Minimum Condition (as may be amended pursuant to Section 1.01(c))
and the other conditions set forth in Annex A hereto, and shall reflect, as
appropriate, the other terms set forth in this Agreement. Subject to Section
1.01(c), Purchaser shall not (i) amend or waive the Minimum Condition, (ii)
decrease the Offer Price, (iii) decrease the number of Shares sought or (iv)
amend any other condition of the Offer in any manner adverse to the holders of
the Shares without the written consent of the Company (such consent to be
authorized by the Board of Directors of the Company or a duly authorized
committee thereof). If on the initial scheduled expiration date of the Offer, or
any extension thereof, all conditions to the Offer will not have been satisfied
or waived, Purchaser may, from time to time, in its sole discretion, extend the
expiration date of the Offer until a date not later than June 30, 1999;
provided, however, that if the HSR/Foreign Antitrust Condition (as defined in
Annex A) shall not have been satisfied or waived at the scheduled or any
extended expiration date of the Offer, Purchaser may extend the expiration date
of the Offer until a date not later than September 30, 1999 and Parent and
Purchaser shall exercise its reasonable best efforts to comply with any requests
of the DOJ, FTC or similar foreign Governmental Entity. Without limiting the
right of Purchaser to extend the Offer pursuant to the immediately preceding
sentence, at the request of the Company, Purchaser
-2-
<PAGE> 7
shall, and Parent shall cause Purchaser to, extend the expiration date of the
Offer (i) in one or more periods of not more than five business days (but in no
event later than April 30, 1999), if (A) any of the conditions set forth in
Annex A shall not have been satisfied or waived at the scheduled or extended
expiration date of the Offer, (B) such condition is reasonably capable of being
satisfied by the Company, (C) the Company exercises its reasonable best efforts
to cause such condition to be satisfied and (D) the Company is in compliance
with all of its covenants in this Agreement, (ii) for five business days in the
event that the Minimum Condition shall not have been satisfied at the first
scheduled expiration date of the Offer or (iii) until a date not later than
September 30, 1999, only if the HSR/Foreign Antitrust Condition shall not have
been satisfied or waived at the scheduled or any extended expiration date of the
Offer and the Company exercises its reasonable best efforts to comply with any
second requests of the DOJ, FTC or similar foreign Governmental Entity. In
addition, Purchaser may increase the Offer Price and the Offer may be extended
to the extent required by law in connection with such increase in each case,
without the consent of the Company.
(b) As soon as practicable on the date the Offer is commenced, Parent and
Purchaser shall file with the SEC a Tender Offer Statement on Schedule 14D-1
(together with all amendments and supplements thereto, the "Schedule 14D-1")
with respect to the Offer. The Schedule 14D-1 shall contain or shall incorporate
by reference the Offer to Purchase and forms of the related letter of
transmittal and any related summary advertisement (the Schedule 14D-1, the Offer
to Purchase and such other documents, together with all supplements and
amendments thereto, being referred to herein collectively as the "Offer
Documents"). Parent and Purchaser shall mail the Schedule 14D-1 to the
shareholders of the Company as soon as practicable after filing with the SEC.
The Offer Documents shall comply in all material respects with the provisions of
applicable federal securities laws. Each of Parent and Purchaser, on the one
hand, and the Company, on the other hand, shall correct promptly any information
provided by it for use in the Offer Documents which shall have become false or
misleading in any material respect, and Parent and Purchaser further agree to
take all steps necessary to cause the Schedule 14D-1, as so corrected, to be
filed with the SEC and the other Offer Documents, as so corrected, to be
disseminated to holders of the Shares, in each case as and to the extent
required by applicable federal securities laws. Parent and Purchaser shall give
the Company and its counsel reasonable opportunity to review and comment upon
the Schedule 14D-1 prior to it being filed with, or sent to, the SEC. Parent and
Purchaser agree to provide the Company and its counsel any comments Parent,
Purchaser or their counsel may receive from the SEC or its staff with respect to
the Offer Documents promptly after the receipt of such comments.
(c) In the event the Minimum Condition is not satisfied on any scheduled
expiration date of the Offer and the Company shall not have given to Purchaser a
notice to extend the expiration date of the Offer pursuant to subsection (ii) of
the penultimate sentence of Section 1.01(a) above, Purchaser may, in its sole
discretion, either (i) extend the Offer pursuant to Section 1.01(a) or (ii)
amend the Offer to provide that, in the event (A) the Minimum Condition is not
satisfied at the next scheduled expiration date of the Offer (without giving
effect to the potential issuance of any Shares issuable upon exercise of the
Stock Option Agreement), and (B) the number of Shares tendered pursuant to the
Offer and not withdrawn as of such next scheduled expiration date is more than
50% of the then outstanding Shares, Purchaser shall waive the
-3-
<PAGE> 8
Minimum Condition and amend the Offer to reduce the number of Shares subject to
the Offer to a number of Shares that, when added to the Shares then owned by
Purchaser, will equal the Revised Minimum Number, and, if a greater number of
Shares is tendered into the Offer and not withdrawn, purchase, on a pro rata
basis, the Revised Minimum Number of Shares (it being understood that Purchaser
may, but shall not in any event be required to accept for payment, and pay for,
any Shares if less than the Revised Minimum Number of Shares are tendered
pursuant to the Offer and not withdrawn at the applicable expiration date).
Notwithstanding any other provision of this Agreement, in the event that
Purchaser purchases a number of Shares equal to the Revised Minimum Number,
without the prior written consent of the Purchaser prior to the termination of
this Agreement, the Company shall take no action whatsoever to increase the
percentage of Shares owned by the Purchaser in excess of the Revised Minimum
Number.
(d) Parent has, and shall provide or cause to be provided to Purchaser on
a timely basis, the funds necessary to purchase the Shares that Purchaser
becomes obligated to purchase pursuant to the Offer.
SECTION 1.02. Company Action. (a) The Company hereby approves of and
consents to the Offer and represents that the Company Board, at a meeting duly
called and held on March 1, 1999 at which all members were present, by a
unanimous affirmative vote has (i) determined that each of the Agreement, the
Stock Option Agreement, the Offer and the Merger are, and the other transactions
contemplated hereby and thereby (the "Transactions") are, fair to and in the
best interests of the shareholders of the Company, (ii) authorized, approved,
and adopted this Agreement, the Stock Option Agreement and the Transactions and
(iii) recommended that the shareholders of the Company accept the Offer and
tender their Shares to Purchaser pursuant to the Offer and approve and adopt
this Agreement and the Transactions (provided, however, that subject to and in
accordance with the provisions of Section 6.02(b), such recommendation may be
withdrawn, modified or amended in connection with a Superior Proposal (as
defined in Section 6.02(a)). The Company hereby consents to the inclusion in the
Offer Documents of the recommendation of the Company Board described in the
immediately preceding sentence, subject to Section 6.02(b).
(b) Concurrently with the commencement of the Offer, the Company shall
file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9
(together with all amendments and supplements thereto, the "Schedule 14D-9")
containing the recommendation of the Company Board described in Section 1.02(a)
and shall disseminate the Schedule 14D-9 to the extent required by Rule 14d-9
promulgated under the Exchange Act and any other applicable federal securities
laws. The Schedule 14D-9 shall comply in all material respects with the
provisions of applicable federal securities laws. Each of the Company, on the
one hand, and Parent and Purchaser, on the other hand, shall correct promptly
any information provided by it for use in the Schedule 14D-9 which shall have
become false or misleading in any material respect, and the Company further
agrees to take all steps necessary to cause the Schedule 14D-9, as so corrected,
to be filed with the SEC and disseminated holders of the Shares, in each case as
and to the extent required by applicable federal securities laws. Parent and its
counsel shall be given reasonable opportunity to review and comment upon the
Schedule 14D-9 prior to it being filed with, or sent to, the SEC. The Company
agrees to provide Parent and Purchaser and their
-4-
<PAGE> 9
counsel any comments the Company or its counsel may receive from the SEC or its
staff with respect to the Schedule 14D-9 promptly after the receipt of such
comments.
(c) The Company shall cause its transfer agent to promptly furnish
Purchaser with mailing labels containing the names and addresses of all record
holders of the Shares and with security position listings of shares of Company
Common Stock held in stock depositories, each as of a recent date, together with
all other available listings and computer files containing names, addresses and
security position listings of record holders and beneficial owners of Shares.
The Company shall furnish Purchaser with such additional information, including,
without limitation, updated listings and computer files of shareholders, mailing
labels and security position listings, and such other assistance as Parent,
Purchaser or their agents may reasonably request. Subject to the requirements of
applicable law, and except for such steps as are necessary to disseminate the
Offer Documents and any other documents necessary to consummate the Offer or the
Merger, Parent and Purchaser shall (i) hold in confidence the information
contained in such labels, listings and files, (ii) use such information only in
connection with the Offer and the Merger and (iii) if this Agreement is
terminated in accordance with Article IX, upon request of the Company, deliver
or cause to be delivered to the Company all copies of such information then in
their possession or the possession of its agents or representatives.
SECTION 1.03. Directors. (a) Promptly upon the acceptance for payment by
Parent or any of its subsidiaries for Shares purchased pursuant to the Offer,
and from time to time thereafter, as Shares are acquired by Parent or any of its
subsidiaries, Parent shall be entitled, subject to compliance with Section 14(f)
of the Exchange Act, to designate such number of directors, rounded up to the
next greatest whole number, on the Company Board as will give Parent
representation on the Company Board equal to that number of directors which
equals the product of the total number of directors on the Company Board (giving
effect to the directors appointed or elected pursuant to this sentence and
including current directors serving as officers of the Company) multiplied by
the percentage that the aggregate number of shares of Company Common Stock
beneficially owned by Purchaser, Parent or any of their affiliates (including
for purposes of this Section 1.03, such shares of Company Common Stock as are
accepted for payment pursuant to the Offer, but excluding shares of Company
Common Stock held by the Company or any of its affiliates, which would not
include Parent, Purchaser or its affiliates) bears to the number of shares of
Company Common Stock outstanding; provided, however, that if Purchaser has
acquired the Revised Minimum Number of Shares in the Offer, such number of
directors shall be rounded up to the greatest whole number plus one to give
Purchaser at least a majority of the members of the Company Board; and provided,
further, that in the event that Purchaser's designees are appointed or elected
to the Company Board, until the Effective Time (as defined in Section 2.02) the
Company Board shall have at least one director who is a director on the date of
this Agreement and who is not an executive officer of the Company (the
"Independent Director"). At such times, the Company will also cause (i) each
committee of the Company Board, (ii) if requested by Parent, the board of
directors of each of the Company's subsidiaries and (iii) if requested by
Parent, each committee of such subsidiaries' boards to include persons
designated by Parent constituting the same percentage of each such committee or
board as Parent's designees are of the Company Board. The Company shall, upon
request by Parent, promptly increase the size of the Company Board or exercise
its best efforts to secure the
-5-
<PAGE> 10
resignations of such number of directors, or both, as is necessary to enable
Parent's designees to be elected or appointed to the Company Board and shall
cause Parent's designees to be so elected or appointed.
(b) Following the election or appointment of Parent's designees pursuant
to this Section 1.03, and prior to the Effective Time, the approval of a
majority of the Independent Directors shall be required to authorize (i) any
amendment that would be adverse to the holders of Shares, (ii) any termination
of this Agreement by the Company, (iii) any consent by the Company to any
extension of the time for performance of any of the obligations or other acts of
Parent or Purchaser, (iv) any waiver by the Company of compliance with any of
the covenants or conditions contained in this Agreement for the benefit of the
Company or any other rights of the Company under this Agreement, or (v) the
exercise of any of the Company's rights, remedies or benefits hereunder.
(c) Subject to applicable law, the Company shall promptly take all action
necessary pursuant to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder in order to fulfill its obligations under this Section
1.03 and shall include in the Schedule 14D-9 mailed to shareholders promptly
after the commencement of the Offer (or an amendment thereof or an information
statement pursuant to Rule 14f-1 if Parent has not theretofore designated
directors) such information with respect to the Company and its officers and
directors as is required under Section 14(f) and Rule 14f-1 in order to fulfill
its obligations under this Section 1.03. Subsequent to the purchase of and
payment for Shares as a result of which Parent owns beneficially at least that
number of Shares which satisfies the Minimum Condition or the Revised Minimum
Number, as applicable, Parent shall always have its designees represent at least
a majority of the Company Board. Parent and Purchaser shall furnish to the
Company and be solely responsible for any information with respect to itself and
its nominees, officers, directors and affiliates required by Section 14(f) and
Rule 14f-1. The provisions of this Section 1.03 are in addition to and shall not
limit any rights which Purchaser, Parent or any of their affiliates may have as
a holder or beneficial owner of Shares as a matter of law with respect to the
election of directors or otherwise.
ARTICLE II
THE MERGER
SECTION 2.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the CGCL, at the Effective Time
Purchaser shall be merged with and into the Company. As a result of the Merger,
(i) the separate corporate existence of Purchaser shall cease and the Company
shall continue as the surviving corporation of the Merger (the "Surviving
Corporation"), (ii) the Company shall succeed to and assume all the rights and
obligations of Purchaser in accordance with the CGCL and (iii) the separate
corporate existence of the Company with all its rights, privileges, immunities,
powers and franchises shall continue unaffected by the Merger, except as set
forth in Section 2.04.
SECTION 2.02. Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VIII of this
Agreement and the California Merger
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Agreement (the form of which shall be mutually agreed by Purchaser and the
Company), the parties hereto shall file the California Merger Agreement with the
Secretary of State of the State of California, whereupon Purchaser shall be
merged with and into the Company in accordance with the applicable provisions of
this Agreement and the CGCL. The parties hereto shall make all other filings,
recordings or publications required by the CGCL in connection with the Merger.
The Merger shall become effective at such time as specified in the California
Merger Agreement (the time the Merger becomes effective being the "Effective
Time").
SECTION 2.03. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the California Merger
Agreement and the applicable provisions of the CGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers and franchises of the Company and Purchaser
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of the Company and Purchaser shall become the debts, liabilities and duties of
the Surviving Corporation.
SECTION 2.04. Articles of Incorporation; By-Laws. At the Effective Time,
the Articles of Incorporation of the Purchaser as in effect immediately prior to
the Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended as provided by the CGCL and such Articles
of Incorporation. The By-Laws of Purchaser, as in effect immediately prior to
the Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended as provided by the CGCL, the Articles of Incorporation of the
Surviving Corporation and such By-Laws.
SECTION 2.05. Closing. Unless this Agreement has been terminated and the
transactions herein contemplated have been abandoned pursuant to Article IX and
subject to the satisfaction or waiver of the conditions set forth in Article
VIII, the closing of the Merger (the "Closing") will take place at 10:00 AM
(EST) as promptly as practicable (and in any event within two business days)
after satisfaction or waiver of the conditions set forth in Article VIII, at the
offices of Proskauer Rose LLP, 1585 Broadway, New York, New York 10036, unless
another date, time or place is agreed to in writing by the parties hereto.
SECTION 2.06. Directors and Officers. The directors of Purchaser
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and By-Laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
SECTION 2.07. Shareholders' Meeting.
(a) If required by applicable law in order to consummate the Merger,
the Company, acting through the Company Board, shall, in accordance with
applicable law:
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(i) duly call, give notice of, convene and hold a special
meeting of its shareholders (the "Special Meeting") as promptly as practicable
following the acceptance for payment and purchase of Shares by Purchaser
pursuant to the Offer for the purpose of considering and taking action upon the
approval of the Merger and the adoption of this Agreement;
(ii) prepare and file with the SEC a preliminary Proxy
Statement relating to the Merger and this Agreement and use its best efforts to
obtain and furnish the information required to be included by the SEC in the
Proxy Statement and, after consultation with Parent, to respond promptly to any
comments made by the SEC with respect to the preliminary Proxy Statement and
cause a definitive Proxy Statement to be mailed to its shareholders, provided
that no amendment or supplement to such Proxy Statement will be made by the
Company without consultation with Parent and its counsel;
(iii) include in the Proxy Statement the recommendation of the
Company Board that shareholders of the Company vote in favor of the approval of
the Merger and the adoption of this Agreement;
(iv) use its best efforts to solicit from holders of Shares
proxies in favor of the Merger and shall take all other action necessary or, in
the reasonable opinion of Parent, advisable to secure any vote or consent of the
shareholders required under California law to effect the Merger.
(b) Parent will provide the Company with the information concerning
Parent and Purchaser required to be included in the Proxy Statement. Parent
shall vote, or cause to be voted, all of the Shares then owned by it, Purchaser
or any of its other subsidiaries or affiliates controlled by Parent in favor of
the approval of the Merger and the approval and adoption of this Agreement.
SECTION 2.08. Merger without Meeting of Shareholders. Notwithstanding
Section 2.07 hereof, in the event that Parent, Purchaser or any other subsidiary
of Parent shall acquire in the aggregate a number of the outstanding shares of
each class of capital stock of the Company pursuant to the Offer or otherwise
sufficient to enable Purchaser or the Company to cause the Merger to become
effective without a meeting of shareholders of the Company, the parties hereto
shall, at the request of Parent and subject to Article VIII, take all necessary
and appropriate action to cause the Merger to become effective as soon as
practicable after such acquisition without a meeting of shareholders of the
Company in accordance with Section 1110 of the CGCL.
ARTICLE III
CONVERSION OF SECURITIES
SECTION 3.01. Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Purchaser, the Company
or the holders of any of the following securities:
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(a) Cancellation. Each Share held in the treasury of the Company and each
Share owned by Parent, Purchaser or any direct or indirect wholly owned
subsidiary of the Company or Parent immediately prior to the Effective Time
("Ineligible Shares") shall, by virtue of the Merger and without any action on
the part of the holder thereof, cease to be outstanding, be canceled and retired
without payment of any consideration therefor and cease to exist.
(b) Conversion of Securities. Each issued and outstanding Share, other
than Dissenting Shares and the Ineligible Shares, shall be converted into the
right to receive the Offer Price, payable to the holder thereof, without
interest (the "Merger Consideration"), upon surrender of the certificate
formerly representing such share of Company Common Stock in the manner provided
in Section 3.02. All such shares of Company Common Stock, when so converted,
shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate representing any such
Shares shall cease to have any rights with respect thereto, except the right to
receive the Merger Consideration therefor upon the surrender of such certificate
in accordance with Section 3.02 hereof.
(c) Stock Options. All options to purchase Company Common Stock granted
under the Company's 1993 Stock Incentive Plan, as amended to date (the "1993
Plan"), the Company's 1996 Stock Plan (the "1996 Plan") and the Company's 1998
Employee Stock Option Plan (the "1998 Plan") and the Company's 1996 Directors'
Stock Option Plan (the "Directors' Plan" and, together with the 1993 Plan, the
1996 Plan, and the 1998 Plan, the "Stock Option Plans") or pursuant to any other
arrangement adopted by the Company Board to provide options, warrants or other
rights to purchase capital stock of the Company (in any such case, an "Option")
then outstanding shall be subject to the provisions of Section 7.03.
(d) Capital Stock of Purchaser. Each share of Purchaser Common Stock
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
non-assessable share of common stock, par value $.01 per share, of the Surviving
Corporation. Each stock certificate of Purchaser evidencing ownership of any
such shares shall continue to evidence ownership of such shares of capital stock
of the Surviving Corporation.
(e) All Other Capital Stock of the Company. All other capital stock of the
Company shall be canceled and retired and shall cease to exist, and no Merger
Consideration or other consideration shall be issued or delivered in exchange
therefor.
SECTION 3.02. Exchange of Certificates.
(a) Paying Agent. Parent shall designate a bank or trust
company to act as agent for the holders of the Shares in connection with the
Merger (the "Paying Agent") to receive in trust the funds to which holders of
the Shares shall become entitled pursuant to Section 3.01(b) hereof. At the
Effective Time, Parent shall take all steps necessary to deposit or cause to be
deposited with the Paying Agent such funds for timely payment thereunder. Such
funds shall be invested by the Paying Agent as directed by Parent or the
Surviving Corporation pending payment thereof by the Paying Agent to holders of
the Shares. Earnings from such investments
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<PAGE> 14
shall be the sole and exclusive property of Purchaser and the Surviving
Corporation, and no part of such earnings shall accrue to the benefit of the
holder of Shares.
(b) Exchange Procedures. As soon as reasonably practicable
after the Effective Time, Parent shall cause the Paying Agent to mail to each
holder of record of a certificate or certificates, which immediately prior to
the Effective Time represented outstanding Shares (the "Certificates"), whose
Shares were converted pursuant to Section 3.01 hereto into the right to receive
the Merger Consideration, (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 delivery of the Certificates to the Paying 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 payment of the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Paying Agent, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange there for the Merger Consideration for each share of Company
Common Stock formerly represented by such Certificate and the Certificate so
surrendered shall forthwith be canceled. If payment of the Merger Consideration
is to be made to a person other than the person in whose name the surrendered
Certificate is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or shall be otherwise in
proper form for transfer and that the person requesting such payment shall have
paid any transfer and other taxes required by reason of the payment of the
Merger Consideration to a person other than the registered holder of the
Certificate surrendered or shall have established to the satisfaction of the
Surviving Corporation that such tax either has been paid or is not applicable.
Until surrendered as contemplated by this Section 3.02(b), each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive the Merger Consideration in cash as contemplated by this Section
3.02.
(c) Transfer Books; No Further Ownership Rights in Company
Common Stock. At the Effective Time, the stock transfer books of the Company
shall be closed and thereafter there shall be no further registration of
transfers of Shares on the records of the Company. From and after the Effective
Time, the holders of Certificates evidencing ownership of the Shares outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such Shares, except as otherwise provided for herein or by applicable
law. 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 III.
(d) Termination of Fund; No Liability. At any time following
six months after the Effective Time, the Surviving Corporation shall be entitled
to require the Paying Agent to deliver to it any funds (including any interest
received with respect thereto) which had been made available to the Paying Agent
and which have not been disbursed to holders of Certificates, and thereafter
such holders shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat or other similar laws) only as general creditors
thereof with respect to the payment of any Merger Consideration that may be
payable upon surrender of any Certificates such shareholder holds, as determined
pursuant to this Agreement, without any interest thereon. Notwithstanding the
foregoing, neither the Surviving Corporation nor the
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<PAGE> 15
Paying Agent shall be liable to any holder of a Certificate for Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
SECTION 3.03. Dissenting Shares. Notwithstanding any provision of
this Agreement to the contrary, if and to the extent required by the CGCL,
Dissenting Shares shall not be exchangeable for the right to receive the Merger
Consideration, and holders of such Dissenting Shares shall be entitled to
receive only such rights as are granted by the CGCL. If, after the Effective
Time, any such holder fails to perfect or effectively withdraws or loses such
right, such Dissenting Shares shall thereupon be treated as if they had been
converted into and to have become exchangeable for, at the Effective Time, the
right to receive the Merger Consideration, without any interest thereon.
Notwithstanding anything to the contrary contained in this Section 3.03, if (i)
the Merger is rescinded or abandoned or (ii) the shareholders of the Company
revoke the authority to effect the Merger, then the right of any shareholder to
be paid the fair value of such shareholder's Dissenting Shares pursuant to
Section 1300 of the CGCL shall cease. The Company shall give Parent prompt
notice of any demands received by the Company for appraisals of Dissenting
Shares. The Company shall not, except with the prior written consent of Parent,
make any payment with respect to any demands for appraisals or offer to settle
or settle any such demands.
SECTION 3.04. Lost, Stolen or Destroyed Certificates. If any Certificates
shall have been lost, stolen or destroyed, the Paying 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 Merger Consideration as may
be required pursuant to Section 3.01; provided, however, that Parent may, in its
discretion and as a condition precedent to the issuance and delivery 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 or the Paying Agent with respect to the Certificates
alleged to have been lost, stolen or destroyed.
SECTION 3.05. Taking of Necessary Action; Further Action. Each of Parent,
Purchaser and the Company in good faith shall take all such commercially
reasonable and lawful action as may be necessary or appropriate in order to
effectuate the Merger in accordance with this Agreement as promptly as possible.
If, at any time after the Effective Time, any such 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 the Company and
Purchaser, the officers and directors of the Company and Purchaser are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Purchaser that,
except as set forth in the Company Disclosure Schedule:
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SECTION 4.01. Organization and Qualification; Subsidiaries. Each of the
Company and its subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has the requisite corporate power and authority and is in possession of all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, approvals and orders ("Approvals") necessary to own, lease and
operate the properties it purports to own, operate or lease and to carry on its
business as it is now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power, authority and
Approvals would not reasonably be expected to have a Company Material Adverse
Effect. Each of the Company and its subsidiaries is duly qualified or licensed
as a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned, leased or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except for such failures to be so duly qualified or licensed and in
good standing that would not reasonably be expected to have a Company Material
Adverse Effect. A true and complete list of all of the Company's subsidiaries,
together with the jurisdiction of incorporation of each subsidiary and the
percentage of each subsidiary's outstanding capital stock owned by the Company
or another subsidiary, is set forth in Section 4.01 of the Company Disclosure
Schedule. Except as set forth in Section 4.01 of the Company Disclosure
Schedule, the Company does not directly or indirectly own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, joint
venture or other business association or entity.
SECTION 4.02. Articles of Incorporation and By-Laws. The Company has
heretofore furnished to Parent a complete and correct copy of its Articles of
Incorporation and By-Laws, as amended to date, and a complete and correct copy
of the equivalent organizational documents of each of its subsidiaries. Such
Articles of Incorporation, By-Laws and equivalent organizational documents of
each of its subsidiaries are in full force and effect. The Company is not in
violation of any of the provisions of its Articles of Incorporation or By-Laws.
None of the Company's subsidiaries is in violation of any of the provisions of
its Certificate of Incorporation or By-Laws or equivalent organizational
documents.
SECTION 4.03. Capitalization. (a) The authorized capital stock of the
Company consists of 200,000,000 shares of Company Common Stock and 5,000,000
shares of preferred stock, par value $.001 per share. As of February 23, 1999,
(i) 42,486,382 shares of Company Common Stock were issued and outstanding, all
of which have been duly authorized and validly issued and are fully paid and
non-assessable, (ii) no shares of preferred stock were issued or outstanding,
(iii) no Shares were held in the treasury of the Company, and (iv) 12,042,574
Shares were issuable under outstanding Options (whether or not exercisable)
granted under the Stock Option Plans of which (A) 3,990,000 Shares were reserved
for future issuance pursuant to outstanding Options granted under the 1993 Plan,
(B) 7,163,128 Shares were reserved for future issuance pursuant to outstanding
Options granted under the 1996 Plan, (C) 839,446 Shares were reserved for future
issuance pursuant to outstanding Options granted under the 1998 Plan, and (D)
50,000 Shares were reserved for future issuance pursuant to outstanding Options
granted under the Directors' Plan. The Company has reserved 1,500,000 Shares
under its 1996 Employee Stock Purchase Plan (the "Stock Purchase Plan"), of
which 234,781 have been issued as of
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February 23, 1999. No shares of preferred stock were reserved for issuance,
other than those shares of preferred stock reserved for issuance under the
Preferred Shares Rights Agreement. No change in such capitalization has occurred
between September 30, 1998 and the date hereof other than any change associated
with the exercise of vested Options. Except as set forth in this Section 4.03 or
Section 4.11 hereof or in Section 4.03 or Section 4.11 of the Company Disclosure
Schedule, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Company or any of its subsidiaries obligating the Company
or any of its subsidiaries to issue or sell any shares of capital stock of, or
other equity interests in, the Company or any of its subsidiaries. All Shares
subject to issuance as aforesaid, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, will be duly
authorized, validly issued, fully paid and non-assessable. Except as is set
forth in Section 4.03 of the Company Disclosure Schedule, there are no
obligations, contingent or otherwise, of the Company or any of its subsidiaries
to repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or the capital stock of any subsidiary or to provide funds to or make
any investment (in the form of a loan, capital contribution or otherwise) in any
such subsidiary or any other entity other than guarantees of bank obligations of
subsidiaries entered into in the ordinary course of business. All of the
outstanding shares of capital stock of each of the Company's subsidiaries are
duly authorized, validly issued, fully paid and non-assessable, and are owned by
the Company or another subsidiary, free and clear of all security interests,
liens, claims, pledges, agreements, limitations in the Company's voting rights,
charges or other encumbrances of any nature whatsoever. Unless otherwise stated,
all references in this Agreement to Company Common Stock and Shares shall be
deemed to include the associated preferred share purchase rights issued pursuant
to the Preferred Shares Rights Agreement.
(b) There are no voting trusts or other agreements or understandings
to which the Company or any of its subsidiaries is a party with respect to the
voting of the capital stock of the Company or any of the subsidiaries. None of
the Company or its subsidiaries is required to redeem, repurchase or otherwise
acquire shares of capital stock of the Company, or any of its subsidiaries,
respectively, as a result of the transactions contemplated by this Agreement.
SECTION 4.04. Authority Relative to This Agreement. (a) The Company has
all necessary corporate power and authority to execute and deliver this
Agreement and the Stock Option Agreement, to perform its obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Stock Option
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions so contemplated (other than the approval and adoption of the Merger
by shareholders as contemplated by Section 2.07). This Agreement and the Stock
Option Agreement each has been duly and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery of this
Agreement and the Stock Option Agreement by Parent and Purchaser, constitutes
the legal, valid and binding obligation of the Company enforceable against the
Company in accordance with their respective terms.
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(b) The Company Board, at a meeting duly called and held on March 1, 1999
at which all members were present, has (i) unanimously determined that each of
this Agreement, the Stock Option Agreement and the Transactions are fair to, and
in the best interests of the shareholders of the Company, (ii) authorized,
approved and adopted this Agreement, the Stock Option Agreement and the
Transactions, and (iii) recommended that the shareholders of the Company accept
the Offer and tender their Shares to Purchaser pursuant to the Offer and approve
and adopt this Agreement and the Transactions, and none of the aforesaid actions
by the Company Board has been amended, rescinded or modified. As of the date
hereof and at all times on or prior to the Effective Time, no California
takeover statute is applicable to the Offer, the Merger or the other
Transactions, other than Section 1203 of the CGCL.
SECTION 4.05. Material Contracts; No Conflict, Required Filings and
Consents. (a) All agreements which, as of the date hereof, are required to be
filed with the SEC pursuant to the requirements of the Exchange Act as "material
contracts" (collectively, the "Material Contracts") of the Company and its
subsidiaries are filed as Exhibits to the Company SEC Reports. All of the
Material Contracts are valid, binding and in full force and effect. The Company
is not in material default of any of its obligations under the Material
Contracts. No contracting party to any Material Contract has notified (whether
written or oral) the Company of its intention to terminate, cancel or modify
such Material Contract or otherwise to reduce or change its activity thereunder
so as to affect materially and adversely the benefits derived, or currently
expected to be derived, by the Company.
(b) Except as set forth in Section 4.05(b) of the Company Disclosure
Schedule (i) the execution and delivery of this Agreement and the Stock Option
Agreement by the Company does not, and (ii) the performance of this Agreement
and the Stock Option Agreement and the consummation of the Transactions by the
Company will not, (A) conflict with or violate the Articles of Incorporation or
By-Laws or equivalent organizational documents of the Company or any of its
subsidiaries, (B) conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to the Company or any of its subsidiaries or by
which its or any of their respective properties or assets is bound or affected
or (C) 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), or impair the Company's
or any of its subsidiaries' rights or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any Material Contract, or result in the
creation of a lien or encumbrance on any of the properties or assets of the
Company or any of its subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or its or any of their
respective properties is bound or affected except, in the case of clauses (B)
and (C), for such breaches, violations or defaults that would not have a Company
Material Adverse Effect.
(c) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, except (i)
for applicable requirements, if any, of the Securities
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Act, the Exchange Act, state securities laws ("Blue Sky Laws"), state takeover
laws, the pre-merger notification requirements of the HSR Act, the EC Merger
Regulations, any non-United States laws regulating competition, antitrust,
investment and exchange controls and the filing of the California Merger
Agreement or other documents as required by the CGCL, and (ii) where the failure
to obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay consummation of the Merger,
or otherwise prevent or delay the Company from performing its obligations under
this Agreement, or would not otherwise have a Company Material Adverse Effect.
SECTION 4.06. Rights Plan. The Company Board has approved, and the Company
and the Rights Agent have entered into, an amendment to the Preferred Shares
Rights Agreement, substantially in the form of Exhibit A hereto (the "Rights
Amendment"). Pursuant to the Rights Amendment, neither the execution and
delivery and performance of this Agreement or the Stock Option Agreement, or the
consummation of the Transactions will result in the distribution of separate
certificates representing rights or the occurrence of a Distribution Date (as
defined in Section 1(h) of the Preferred Shares Rights Agreement) or a "flip-in"
or "flip-over" event (that is, an event described in Sections 11(a)(ii) and 13
of the Preferred Shares Rights Agreement).
SECTION 4.07. SEC Filings, Financial Statements. (a) The Company has filed
all forms, reports and documents required to be filed by it with the SEC since
January 1, 1997. The Company has delivered or made available to Parent, in the
form filed with the SEC, the Company SEC Reports. The Company SEC Reports
(including any financial statements or schedules included therein) (i) were
prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and (ii) did not at the time they were filed
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. None of the Company's subsidiaries is
required to file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Company SEC Reports was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated therein or in the notes thereto)
and each fairly presents in all material respects the consolidated financial
position of the Company and its subsidiaries as at the respective dates thereof
and the consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments and such statements do not
contain notes thereto.
(c) The Company has heretofore furnished to Parent a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by the Company with the SEC pursuant
to the Securities Act or the Exchange Act.
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SECTION 4.08. Absence of Certain Changes or Events. Except as set forth in
Section 4.08 of the Company Disclosure Schedule or in the Company SEC Reports,
since September 30, 1998, the Company has conducted its business in the ordinary
course and there has not occurred: (i) any amendments or changes in the Articles
of Incorporation or By-Laws of the Company; (ii) any material damage to,
destruction or loss of any assets of the Company (whether or not covered by
insurance); (iii) any change by the Company in its accounting methods,
principles or practices; (iv) any revaluation by the Company of any of its
assets, including, without limitation, writing down the value of capitalized
software or inventory or writing off notes or accounts receivable other than in
the ordinary course of business; or (v) any sale of a material amount of assets
of the Company, except for the sale of inventory in the ordinary course of
business.
SECTION 4.09. No Undisclosed Liabilities. Except as is disclosed in
Section 4.09 of the Company Disclosure Schedule or the Company SEC Reports,
neither the Company nor any of its subsidiaries has any liabilities (absolute,
accrued, contingent or otherwise) of the type that are required to be disclosed
in financial statements, including the notes thereto, prepared in accordance
with GAAP which are, in the aggregate, material to the business, operations or
financial condition of the Company and its subsidiaries taken as a whole, except
liabilities (i) adequately provided for or referred to in the Company's balance
sheet and the related notes thereto as of September 30, 1998 included in the
Company's Form 10-Q for the quarter ended September 30, 1998 (which is part of
the Company SEC Reports) (the "September 30, 1998 Balance Sheet"), (ii) incurred
in the ordinary course of business and not required under GAAP to be reflected
on the September 30, 1998 Balance Sheet or (iii) incurred since September 30,
1998 in the ordinary course of business and consistent with past practice.
SECTION 4.10. Absence of Litigation. Except as set forth in Section 4.10
of the Company Disclosure Schedule or in the Company SEC Reports filed prior to
the date of this Agreement, there are no claims, actions, suits, proceedings or
investigations pending or, to the knowledge of the Company, threatened against
the Company or any of its subsidiaries, or any properties or rights of the
Company or any of its subsidiaries, before any court, arbitrator or Governmental
Entity that is reasonably likely to have a Company Material Adverse Effect.
SECTION 4.11. Employee Benefit Plans; Employment Agreements. (a) Section
4.11(a) of the Company Disclosure Schedule lists all employee benefit plans (as
defined in Section 3(3) of ERISA), all other bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance
or termination pay, post-retirement, health, welfare, sickness, accident,
vacation, medical or life insurance, disability, supplemental unemployment
benefits, retention, change-in-control or parachute plans, profit-sharing,
pension or retirement plans or agreements, commissions or sale arrangements and
other similar fringe or employee benefit plans, programs or arrangements
(whether written or unwritten, insured or self-insured, foreign or domestic),
and any employment or executive compensation or severance agreements, plans or
programs regardless of whether ERISA is applicable thereto, for the benefit of,
or relating to, any employee, director or shareholder (or any of their
beneficiaries) of the Company (whether current, former or retired) or any trade
or business (whether or not incorporated) which is a member of a controlled
group including the Company or which is under
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common control with the Company (an "ERISA Affiliate") within the meaning of
Section 414(b), (c), (m) or (o) of the Code (the "Employee Plans").
(b) None of the Company (including any subsidiary thereof), any ERISA
Affiliate or any of their respective predecessors has ever contributed to,
contributes to, has ever been required to contribute to, or otherwise
participated in or participates in or in any way, directly or indirectly, has
any liability with respect to any plan subject to Section 412 of the Code,
Section 302 of ERISA or Title IV of ERISA, including, without limitation, any
"multiemployer plan" (within the meaning of Sections (3)(37) or 4001(a)(3) of
ERISA or Section 414(f) of the Code), or any single employer pension plan
(within the meaning of Section 4001(a)(15) of ERISA) which is subject to
Sections 4063 and 4064 of ERISA.
(c) With respect to each of the Employee Plans: (i) none of the Employee
Plans provides retiree medical, death or other retiree welfare benefits (whether
or not insured) to any current or future retiree or terminee (other than under
Section 4980B of the Code, the Federal Social Security Act or a plan qualified
under Section 401(a) of the Code); (ii) all Employee Plans are in compliance in
all material respects with the terms thereof and the requirements prescribed by
any and all applicable statutes (including, without limitation, the Code and
ERISA), orders or governmental rules and regulations currently in effect with
respect thereto, and the Company, each of its subsidiaries and any ERISA
Affiliate have performed all material obligations required to be performed by
them under, are not in any material respect in default under or in violation of,
and have no knowledge of any default or violation by any other party to, any of
the Employee Plans; (iii) each Employee Plan intended to qualify under Section
401(a) of the Code (or similar provisions for tax-registered or tax-favored
plans of foreign jurisdictions) is either (A) the subject of a favorable
determination letter from the IRS (or, if applicable, similar approvals of
governmental entities in foreign jurisdictions), (B) may rely on a favorable
determination letter from the IRS issued to a prototype plan sponsor, or (C) the
time during which the Company may apply for an IRS determination letter and make
retroactive amendments so as to assure the qualified status of the plan has not
expired, and nothing has occurred or could reasonably be expected to occur that
impaired or could impair such determination or result in the imposition of any
penalty or tax liability; (iv) all contributions required to be made prior to
the Effective Time to any Employee Plan under the terms of the Employee Plan or
any collective bargaining agreement or as required by law with respect to all
periods through the date of the Effective Time shall have been made prior to the
Effective Time or provided for by the Company as applicable, by appropriate
accruals on the Company's latest financial statements; (v) no "prohibited
transaction," within the meaning of Section 4975 of the Code or Section 406 of
ERISA, has occurred or is expected to occur with respect to any Employee Plan;
and (vi) with respect to each Employee Plan that is funded mostly or partially
through an insurance policy, neither the Company nor any ERISA Affiliate has any
liability in the nature of retroactive rate adjustment, loss sharing arrangement
or other actual or contingent liability arising wholly or partially out of
events occurring on or before the Effective Time.
(d) There are no pending audits, investigations, litigation or other
enforcement actions against the Company with respect to any of the Employee
Plans and no completed audit, if any, has resulted in the imposition of any Tax
or penalty.
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(e) With respect to each of the Employee Plans, there are no material
actions, suits or claims pending or, threatened against any such Employee Plan,
the Company, any ERISA Affiliate, any director, officer or employee thereof, or
the trustee, assets or fiduciaries of the Employee Plans (other than
non-material routine claims for benefits) and no set of circumstances or facts
exist that could reasonably be expected to give rise to any such action, suit or
claim.
(f) Section 4.11(f) of the Company Disclosure Schedule sets forth a true
and complete list of each current or former employee, officer or director of the
Company or any of its subsidiaries who holds an Option as of the date hereof,
together with the number of shares of Company Common Stock subject to such
Option, the date of grant of such Option, the exercise price of such Option (to
the extent determined as of the date hereof), the expiration date of such Option
and whether such Option is a nonqualified stock option or an "incentive stock
option" within the meaning of Section 422(b) of the Code. Section 4.11(f) of the
Company Disclosure Schedule also sets forth the total number of outstanding
Options. No shares of restricted stock have been granted under the Stock Option
Plans.
(g) With respect to each scheme or arrangement mandated by a government
other than the United States and with respect to each Employee Plan that is not
subject to United States law, there are no material liabilities.
(h) The Company has made available to Parent: (i) copies of all employment
agreements with officers of the Company; (ii) copies of all agreements with
consultants who are individuals obligating the Company to make annual cash
payments in an amount exceeding $100,000 and which are not terminable on less
than 60 days' notice without penalty; (iii) copies of all plans, programs,
agreements and other arrangements of the Company with or relating to its
employees which contain change in control provisions; and (iv) the various forms
of employment agreements, if any, of the Company for its nonexecutive employees.
(i) Except as set forth in Section 4.11(i)(1) of the Company Disclosure
Schedule, the consummation of the transactions contemplated by this Agreement
will not give rise to any liability, including, without limitation, liability
for severance pay, unemployment compensation, termination pay or withdrawal
liability, or accelerate the time of payment or vesting or increase the amount
of compensation or benefits due to any employee, director or shareholder of the
Company (whether current, former or retired) or their beneficiaries solely by
reason of such transactions or by reason of a termination of employment
following such transaction. No amounts payable under any Employee Plan will fail
to be deductible for federal income tax purposes by virtue of Sections 162(m) or
280G of the Code. Neither the Company, any ERISA Affiliate, nor any officer or
employee thereof, has made any promises or commitments, whether legally binding
or not, to create any additional plan, agreement or arrangement, or to modify or
change any existing Employee Plan. No event, condition or circumstance exists
that could reasonably be expected to result in a material increase of the
benefits provided under any Employee Plan or the expense of maintaining any
Employee Plan from the level of benefits or expense incurred for the most recent
fiscal year ended before the Effective Time. Neither the Company nor any ERISA
Affiliate has any unfunded liabilities pursuant to any Employee Plan that is not
intended to be qualified under Section 401(a) of the Code, and that is an
employee
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<PAGE> 23
pension benefit plan within the meaning of Section 3(2) of ERISA, a nonqualified
deferred compensation plan, an excess benefit plan or a foreign pension plan. No
event, condition or circumstance exists that would prevent the amendment or
termination of any Employee Plan.
SECTION 4.12. Labor Matters. There are no labor disputes pending or, to
the knowledge of the Company, threatened, between the Company or any of its
subsidiaries and any of their respective employees, which disputes are
reasonably likely to have a Company Material Adverse Effect. Neither the Company
nor any of its subsidiaries is involved in or, to the knowledge of the Company,
threatened with any labor dispute, grievance, or litigation relating to labor,
safety or discrimination matters involving any persons employed by the Company
or its subsidiaries, including, without limitation, charges of unfair labor
practices or discrimination complaints that individually or in the aggregate
would reasonably be expected to have a Company Material Adverse Effect. Neither
the Company nor any of its subsidiaries has knowingly engaged in any unfair
labor practices within the meaning of the National Labor Relations Act or
similar such legislation of foreign jurisdictions. Except as set forth in
Section 4.12 of the Company Disclosure Schedule, neither the Company nor any of
its subsidiaries is presently or has been in the past a party to, or bound by,
any collective bargaining agreement or union contract with respect to any
persons employed by the Company or its subsidiaries and no collective bargaining
agreement is being negotiated by the Company or any of its subsidiaries. Neither
the Company nor any of its subsidiaries has any knowledge of any strikes,
slowdowns, work stoppages or lockouts, or threats thereof, by or with respect to
any employees of the Company or any of its subsidiaries, and there have been no
such strikes, slowdowns, work stoppages or lockouts within the past three years.
Each of the Company and its subsidiaries is in compliance in all material
respects with all applicable laws, regulations and orders relating to workers'
compensation and the Worker Adjustment and Retraining Notification Act or
similar such legislation of foreign jurisdictions.
SECTION 4.13. Restrictions on Business Activities. Other than this
Agreement, there is no material agreement, judgment, injunction, order or decree
binding upon the Company or any of its subsidiaries which has or could
reasonably be expected to have (after giving effect to the consummation of the
Offer and the Merger) the effect of prohibiting or impairing in any material
respect any material business operations of the Company or any of its
subsidiaries, as currently conducted.
SECTION 4.14. Title to Property. The Company and each of its subsidiaries
have good, marketable and defensible title to all of their properties and
assets, free and clear of all liens, charges and encumbrances except liens for
taxes not yet due and payable and such liens or other imperfections of title, if
any, as do not materially detract from the value of or interfere with the
present use of the property affected thereby or which would not be reasonably
likely to have a Company Material Adverse Effect.
SECTION 4.15. Taxes. Except as set forth in Section 4.15 of the Company
Disclosure Schedule:
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(a) The Company and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which the Company or
any of its subsidiaries is or has been a member, have timely filed all United
States federal income Tax Returns and all other material Tax Returns required to
be filed by them or any of them (taking into account applicable extensions), and
have timely paid and discharged all Taxes (whether or not shown on any Tax
Return) due, except with respect to which the Company is maintaining reserves in
accordance with GAAP in its financial statements that are in all material
respects adequate for their payment. All federal income Tax Returns and all
other material Tax Returns filed by the Company and each of its subsidiaries
with respect to Taxes were true, complete and correct in all material respects
as of the date on which they were filed or as subsequently amended to the date
hereof. The Company and each of its subsidiaries have disclosed to the relevant
taxing authority any position taken where the failure to make such disclosure
would enable the taxing authority to subject such person to any material
penalties or additions to Tax. Neither the IRS nor any other taxing authority or
agency is now asserting or, to the best of the Company's knowledge, threatening
to assert against the Company or any of its subsidiaries any deficiency or claim
for material additional Taxes. There are no requests for information from the
IRS or any other taxing authority or agency currently outstanding. No material
Tax Return of either the Company or any of its subsidiaries is currently being
audited by any taxing authority nor are any proceedings (whether administrative
or judicial) currently being conducted with respect to any issues relating to
Taxes. No material Tax claim has become a lien on any assets of the Company or
any subsidiary thereof. Neither the Company nor any of its subsidiaries is
required to include in income (i) any material items in respect of any change in
accounting principles or (ii) any installment sale gain, where the inclusion in
income would result in a material tax liability in excess of the reserves
therefor.
(b) (i) Neither the Company nor any of its subsidiaries is a party to any
agreement, contract or arrangement, or maintains or sponsors any Employee Plans,
that will reasonably be expected to result, separately or in the aggregate, in
the payment of any "excess parachute payment" within the meaning of Section
280G(b)(1) of the Code, determined without regard to Section 280G(b)(4) of the
Code; (ii) neither the Company nor any of its subsidiaries has been subject to
any accumulated earnings tax or personal holding company tax; (iii) none of the
Company's foreign subsidiaries have any investments in United States property
within the meaning of Section 956 of the Code, or for taxable years beginning
after September 30, 1994 and before January 1, 1998, have "excess passive
assets" as defined in former Section 956A(c) of the Code; (iv) neither the
Company nor any of its subsidiaries is obligated under any agreement with
respect to industrial development bonds or other obligations with respect to
which the excludability from gross income of the holder for United States
federal or state income tax purposes could be affected by the transactions
contemplated hereunder; (v) neither the Company nor any of its subsidiaries has
entered into any deferred intercompany transaction within the meaning of section
1.1502-13 of the United States Treasury Regulations as to which items of
deferred gain or loss has not been restored; (vi) no excess loss account within
the meaning of section 1.1502-19 of the United States Treasury Regulations
exists with respect to the stock of any of its subsidiaries; (vii) no extension
of time within which to file any material Tax Return that relates to the Company
or any of its subsidiaries has been requested which Tax Returns has not since
been filed; (viii) there are no waivers or extensions of any applicable statute
of
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limitations for the assessment or collection of Taxes with respect to any
material Tax Return that relates to the Company or any of its subsidiaries which
remain in effect; (ix) there are no tax rulings, closing agreements or changes
of accounting method relating to the Company or any of its subsidiaries which
would affect their liability for Taxes for any period after the Effective Time;
(x) none of the federal or material state and local income Tax Returns of the
Company or any of its subsidiaries have been examined or closed or are Tax
Returns with respect to which the applicable statute of limitations has expired
without extension or waiver; (xi) neither the Company nor any subsidiary has
filed a consent under Section 341(f) of the Code or any comparable provision of
state revenue statutes; (xii) no material property of the Company or its
subsidiaries is "tax-exempt use property" within the meaning of Section 168(h)
of the Code; (xiii) neither the Company nor its subsidiaries is a party to any
lease made pursuant to Section 168(f) of the Code; (xiv) to the extent
applicable, the Company and its subsidiaries have properly and in a timely
manner documented their transfer pricing methodology in compliance with Section
482 and related provisions of the Code; and (xv) neither the Company nor any of
its subsidiaries were members of a consolidated, combined, unitary or similar
group of corporations other than such a group of which the Company is the common
parent corporation.
(c) No power of attorney has been granted by the Company or any of its
subsidiaries with respect to any material matter relating to Taxes which is
currently in force.
(d) Neither the Company nor any of its subsidiaries is a party to any
material agreement or arrangement (written or oral) providing for the allocation
or sharing of Taxes.
(e) The Company and each of its subsidiaries have withheld from each
payment made to any of their respective past or present employees, officers or
directors, or any other person, the amount of all Taxes and other deductions
required to be withheld therefrom and paid the same to the proper tax or other
receiving officers within the time required by law, except where the failure to
do so would not result in any deficiency or claim for material additional Taxes.
(f) The accruals for deferred Taxes reflected in the financial statements
of Company for the year ended December 31, 1997 are adequate in all material
respects to cover any deferred Tax liability of the Company and its subsidiaries
determined in accordance with GAAP through the date thereof.
SECTION 4.16. Environmental Matters. Except as set forth in Section 4.16
of the Company Disclosure Schedule:
(a) All of the current operations of the Company and each of its
subsidiaries and their respective assets, businesses and real property,
including any operations at or from any real property presently or formerly
owned, used, leased, occupied, managed or operated by the Company or any of its
subsidiaries (collectively, the "Real Property"), comply in all material
respects, and, to the Company's knowledge, have at all times complied in all
material respects with all applicable Environmental Laws.
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(b) None of the assets of the Company or any of its subsidiaries, nor any
of the Real Property, contains any Hazardous Substances in, on, over, under or
at it, in concentrations which would violate in any material respect any
applicable Environmental Laws or reasonably would be likely to result in the
imposition of material liability or obligations on the Company or any of its
subsidiaries under any applicable Environmental Laws, including any material
liability or obligations for the investigation, corrective action, remediation
or monitoring of Hazardous Substances in, on, over, under or at the Real
Property.
(c) None of the Real Property is listed or proposed for listing on the
National Priorities List pursuant to CERCLA, or any similar inventory of sites
requiring investigation or remediation maintained by any state or locality.
Neither the Company, nor any of its subsidiaries has received any written notice
from any Governmental Entity or third party of any actual or threatened
Environmental Liabilities.
(d) Each of the Company and its subsidiaries has all the permits,
licenses, authorizations and approvals necessary for the conduct of their
businesses and for the operations on, in or at the Real Property which are
required under applicable Environmental Laws (the "Environmental Permits") and
they are in compliance in all material respects with the terms and conditions of
all such Environmental Permits. To the Company's knowledge, no reason exists why
the Company would not be capable of continued operation of its business in
compliance in all material respects with the Environmental Permits and the
applicable Environmental Laws.
(e) Neither the Company nor any of its subsidiaries, nor to the knowledge
of the Company and its subsidiaries, any other person or entity, has engaged in,
authorized, allowed or suffered any operations or activities upon any of the
Real Property for the purpose of or in any way involving the handling,
manufacture, treatment, processing, storage, use, generation, release,
discharge, spilling, emission, dumping or disposal of any Hazardous Substances
at, on, under or from the Real Property, except in material compliance with all
applicable Environmental Laws.
(f) There are no underground storage tanks in, on, under or at the Real
Property.
(g) There are no conditions existing at any Real Property or with respect
to any of the assets of the Company or its subsidiaries that require, or to the
Company's knowledge, which with the giving of notice or the passage of time or
both, will reasonably likely require remedial or corrective action, removal,
monitoring or closure pursuant to the Environmental Laws.
(h) The Company and its subsidiaries have provided to Purchaser all
environmental reports, assessments, audits, studies, investigations, data,
Environmental Permits and other written environmental information in its
custody, possession or control concerning the Real Property or the assets of the
Company or its subsidiaries.
(i) Neither the Company nor any of its subsidiaries has contractually, by
operation of law, by the Environmental Laws, by common law or otherwise assumed
or succeeded to any Environmental Liabilities of any predecessors or any other
person or entity.
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SECTION 4.17. Brokers. No broker, finder or investment banker (other than
Morgan Stanley & Co., Incorporated) is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company. The
Company has heretofore furnished to Parent a complete and correct copy of all
agreements among the Company and Morgan Stanley & Co., Incorporated pursuant to
which such firm would be entitled to any payment relating to the transactions
contemplated hereunder.
SECTION 4.18. Intellectual Property. (a) Subject to Section 4.18(b), the
Company and its subsidiaries own or have the right to use all material
Intellectual Property (as defined hereafter) reasonably necessary for the
Company and its subsidiaries to conduct their business as it is currently
conducted or currently proposed to be conducted.
(b) Except as set forth in Schedule 4.18 of the Company Disclosure
Schedule: (i) all of the registrations relating to material Intellectual
Property owned by the Company and its subsidiaries are unexpired, free of all
liens or encumbrances, and have not been abandoned; (ii) to the knowledge of the
Company, the Company does not infringe the intellectual property rights of any
third party in any respect that would reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect; (iii) no
judgment, decree, injunction, rule or order has been rendered by any
Governmental Entity or third party which would limit, cancel or question the
validity of, or the Company's or its subsidiaries' rights in and to, any
Intellectual Property owned by the Company in any respect that would reasonably
be expected to have, individually or in the aggregate, a Company Material
Adverse Effect; (iv) the Company has not received written notice of any pending
or threatened suit, action or adversarial proceeding that seeks to limit, cancel
or question the validity of, or in the Company's or its subsidiaries' rights in
and to, any Intellectual Property, which would reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect and (v) to
the Company's knowledge, there is no material unauthorized use, infringement or
misappropriation of any of the Intellectual Property by any third party. The
Company is not, nor will it be as a result of the execution and delivery of this
Agreement or the performance of its obligations hereunder, in violation of any
rights to use any material Intellectual Property granted to the Company by a
third party under any license, sublicense or agreement.
(c) For purposes of this Agreement, "Intellectual Property" shall
mean all rights, privileges and priorities provided under United States, state
and foreign law relating to intellectual property, including without limitation
all (x) (1) proprietary inventions, discoveries, processes, formulae, designs,
methods, techniques, procedures, concepts, developments, technology, new and
useful improvements thereof and proprietary know-how relating thereto, whether
or not patented or eligible for patent protection; (2) copyrights and
copyrightable works, including computer applications, programs, software,
databases and related items; (3) trademarks, service marks, trade names, and
trade dress, the goodwill of any business symbolized thereby, and all common-law
rights relating thereto; (4) trade secrets and other confidential information;
(y) all registrations, applications and recordings for any of the foregoing and
(z) licenses or other similar agreements granting to the Company or any of its
subsidiaries the rights to use any of the foregoing.
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<PAGE> 28
SECTION 4.19. Vote Required. The affirmative vote of the holders of at
least a majority of the outstanding shares of Company Common Stock is the only
vote of the holders of any class or series of the Company's capital stock
necessary to approve the Merger.
SECTION 4.20. Opinion of Financial Advisor. The Company Board has been
advised by its financial advisor, Morgan Stanley & Co., Incorporated, that in
its opinion, as of the date hereof, the consideration to be received by holders
of Company Common Stock in the Offer and the Merger, taken together, is fair
from a financial point of view to such holders (other than Alcatel and its
affiliates), and will delivered written copies of such opinion to Parent upon
receipt.
SECTION 4.21. Year 2000 Compliance. (a) The computer systems of the
Company and its subsidiaries (including all software, hardware, workstations and
related components, automated devices, embedded chips and other date sensitive
equipment) are Year 2000 Compliant or will be Year 2000 Compliant by December
31, 1999 except as would not reasonably be expected to have a Company Material
Adverse Effect.
(b) The Company has taken commercially reasonable affirmative steps to
fully assess, address and correct any and all potential material problems and
liabilities relating to Year 2000 Compliance and its impact on any Employee Plan
and its participants and beneficiaries, including, without limitation, having
made a formal inquiry of all third parties with whom it has contractual
relations or transactions in the ordinary course of business with respect to any
Employee Plan.
SECTION 4.22. Full Disclosure. No statement contained in any certificate
or schedule furnished or to be furnished by the Company or its subsidiaries to
Parent or Purchaser in, or pursuant to the provisions of, this Agreement
contains or shall contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary, in the light of the
circumstances under which it was made, to make the statements herein not
misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser each hereby represent and warrant to the Company
that:
SECTION 5.01. Organization and Qualification. Each of Parent and Purchaser
is a corporation (or other entity) duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority and is in possession of all Approvals
necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now being conducted, except where
the failure to be so organized, existing and in good standing or to have such
power, authority and Approvals would not have a Parent Material Adverse Effect.
Each of Parent and Purchaser is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, leased or operated by it or the nature of
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its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would not
reasonably be expected to have a Parent Material Adverse Effect.
SECTION 5.02. Authority Relative to this Agreement. Each of Parent and
Purchaser has all necessary corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the Stock Option Agreement by Parent and Purchaser and the consummation by
Parent and Purchaser of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary corporate action on the part
of Parent and Purchaser, and no other corporate proceedings on the part of
Parent or Purchaser are necessary to authorize this Agreement or the Stock
Option Agreement or to consummate the transactions so contemplated. This
Agreement and the Stock Option Agreement each has been duly and validly executed
and delivered by Parent and Purchaser and, assuming the due authorization,
execution and delivery of this Agreement by the Company, constitutes a legal,
valid and binding obligation of Parent and Purchaser, enforceable against Parent
and Purchaser in accordance with their respective terms.
SECTION 5.03. No Conflict, Required Filings and Consents. (a) Except as
set forth in Section 5.03(b) hereof, the execution and delivery of this
Agreement by Parent and Purchaser do not, and the performance of this Agreement
and the consummation of the Transactions by Parent and Purchaser will not, (i)
conflict with or violate the statuts of Parent or Articles of Association or
By-Laws of Purchaser, (ii) conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to Parent or any of its subsidiaries or by
which its or their respective properties or assets are bound or affected or
(iii) result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or impair
Parent's or Purchaser's rights or alter the rights or obligations of any third
party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any contracts material to the business of
Parent and Purchaser taken as a whole or result in the creation of a lien or
encumbrance on any of the properties or assets of Parent or Purchaser pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Parent or Purchaser
is a party or by which Parent or Purchaser or any of their respective properties
are bound or affected, except in the case of clauses (ii) and (iii) for any such
breaches, defaults or other occurrences that would not have a Parent Material
Adverse Effect.
(b) The execution and delivery of this Agreement by Parent and Purchaser
does not, and the performance of this Agreement will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity except (i) for applicable requirements, if any, of the
Securities Act, the Exchange Act, the Blue Sky Laws, the NYSE, state takeover
laws, the pre-merger notification requirements of the HSR Act, the EC Merger
Regulations, any non-United States laws regulating competition, antitrust,
investment and exchange controls and the filing of the California Merger
Agreement or other documents as required by the CGCL and (ii) where the failure
to obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay
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consummation of the Merger, or otherwise prevent Parent or Purchaser from
performing their respective obligations under this Agreement, and would not have
a Parent Material Adverse Effect.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.01. Conduct of Business by the Company Pending the Merger.
During the period from the date of this Agreement and continuing until the
earlier to occur of the termination of this Agreement or the Effective Time, the
Company covenants and agrees that, unless Parent shall otherwise agree in
writing and unless otherwise expressly permitted hereunder, the Company shall
conduct its business and shall cause the businesses of its subsidiaries to be
conducted, and the Company and its subsidiaries shall not take any action
except, in the ordinary course of business and in a manner consistent with past
practice; and the Company shall use reasonable commercial efforts to preserve
substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of the present officers, employees
and consultants of the Company and its subsidiaries, and to preserve the present
relationships of the Company and its subsidiaries with customers, suppliers and
other persons with which the Company or any of its subsidiaries has significant
business relations. By way of amplification and not limitation, neither the
Company nor any of its subsidiaries shall, during the period from the date of
this Agreement and continuing until the earlier to occur of the termination of
this Agreement or the Effective Time, directly or indirectly do, or propose to
do, any of the following without the prior written consent of Parent, unless
otherwise expressly permitted hereunder:
(a) amend or otherwise change the Company's or any of its subsidiaries'
Articles of Incorporation or By-Laws, or other equivalent organizational
documents;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of capital
stock of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of capital stock, or any other
ownership interest (including, without limitation, any phantom interest) of the
Company, any of its subsidiaries or affiliates (except for the issuance of
Shares pursuant to the exercise of Options under the Stock Option Plans, which
Options are outstanding on the date hereof);
(c) sell, pledge, dispose of or encumber any assets of the Company or any
of its subsidiaries (except for (i) sales of assets in the ordinary course of
business and in a manner consistent with past practice and (ii) dispositions of
obsolete or worthless assets);
(d) amend or change the period (or permit any acceleration, amendment or
change) of exercisability of Options granted under the Stock Option Plans or the
Stock Purchase Plan or other than as expressly provided in Section 7.03(b),
authorize cash payments in exchange for any such Options;
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(e) (i) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
any of its capital stock, except that a wholly owned subsidiary of the Company
may declare and pay a dividend to its parent, (ii) split, combine or reclassify
any of its capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock or (iii) amend the terms of, repurchase, redeem or otherwise
acquire, or permit any subsidiary to repurchase, redeem or otherwise acquire,
any of its securities or any securities of its subsidiaries, or propose to do
any of the foregoing;
(f) sell, transfer, license, sublicense or otherwise dispose of any
material Company Intellectual Property (other than in the ordinary course of
business consistent with past practice) or amend or modify any existing
agreements with respect to any material Company Intellectual Property or third
party Intellectual Property rights;
(g) (i) acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof; (ii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse or otherwise as an accommodation
become responsible for, the obligations of any person, or make any loans or
advances except to employees in the ordinary course consistent with past
practice; (iii) enter into or amend any contract or agreement other than in the
ordinary course of business; (iv) authorize or make any capital expenditures or
purchases of fixed assets that are not currently budgeted and that in the
aggregate, exceeds $500,000 (v) terminate any Material Contract or amend any of
its material terms (other than amendments to existing credit arrangements
designed to remedy defaults thereunder); or (vi) enter into or amend any
contract, agreement, commitment or arrangement to effect any of the matters
prohibited by this Section 6.01(g);
(h) increase the compensation payable or to become payable to its
employees, officers, directors or grant any severance or termination pay to, or
enter into any employment or severance agreement with any employee, director or
officer of the Company or any of its subsidiaries or establish, adopt, enter
into, terminate, or amend any Employee Plan (except as may otherwise be required
by applicable law);
(i) take any action, other than as required by GAAP, to change accounting
policies or procedures or cash maintenance policies or procedures (including,
without limitation, procedures with respect to revenue recognition,
capitalization of development costs, payments of accounts payable and collection
of accounts receivable);
(j) make any material Tax election inconsistent with past practice or
settle or compromise any material Tax liability, except to the extent the amount
of any such settlement or compromise has been reserved for on the consolidated
financial statements contained in the Company SEC Reports, or would not have a
Company Material Adverse Effect;
(k) pay, discharge, settle, or satisfy any lawsuits, claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of
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liabilities reflected or reserved against in the financial statements of the
Company or incurred in the ordinary course of business and consistent with past
practice;
(l) except as may be required by law, take any action to terminate or
amend any Employee Plan;
(m) permit any material increase in the number of employees of the Company
or any of its subsidiaries employed by the Company or any of its subsidiaries,
as the case may be, on the date hereof; or
(n) take or fail to take, or agree in writing or otherwise to take or fail
to take, any of the actions described in Section 6.01(a) through (m) above, or
any action which would make any of the representations or warranties of the
Company contained in this Agreement untrue or incorrect or prevent the Company
from performing or cause the Company not to perform its covenants hereunder or
result in any of the conditions to the Merger set forth herein not being
satisfied.
SECTION 6.02. No Solicitation. (a) The Company will not, and will not
permit or cause any of its subsidiaries or any of the officers and directors of
it or its subsidiaries to, and shall direct it and its subsidiaries' employees,
agents and representatives (including any investment banker, attorney or
accountant retained by it or any of its subsidiaries) not to, directly or
indirectly, initiate, solicit, encourage, participate in or otherwise facilitate
any inquiries or the making of any proposal or offer with respect to a merger,
reorganization, share exchange, tender offer, consolidation or similar
transaction involving, or any purchase of 15% or more of the assets or any
equity securities of, the Company or any of its subsidiaries (any such proposal
or offer being hereinafter referred to as an "Acquisition Proposal"). The
Company will not, and will not permit or cause any of its subsidiaries or any of
the officers and directors of it or its subsidiaries to, and shall direct it and
its subsidiaries' employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
subsidiaries) not to, directly or indirectly, engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to an Acquisition Proposal, whether made
before or after the date of this Agreement, or otherwise facilitate any effort
or attempt to make or implement an Acquisition Proposal; provided, however, that
nothing contained in this Agreement shall prevent the Company or the Company
Board from (i) complying with Rules 14e-2 and 14d-9 promulgated under the
Exchange Act with regard to an Acquisition Proposal or (ii) at any time prior to
the earlier to occur of (x) payment for shares of Company Common Stock pursuant
to the Offer or (y) the approval of the Merger by the requisite vote of the
shareholders of the Company, (A) providing information in response to a request
therefor by a person who has made an unsolicited bona fide written Acquisition
Proposal (so long as such proposal did not result from a breach of this Section
6.02) if the Company Board receives from the person so requesting such
information an executed confidentiality agreement with customary terms; or (B)
engaging in any negotiations or discussions with any person who has made an
unsolicited bona fide written Acquisition Proposal, if and only to the extent
that, (x) in each such case referred to in clause (A) or (B) above, the Company
Board determines in good faith after consultation with outside legal counsel
that such action is necessary in order for its directors to comply with their
fiduciary duties under applicable law and (y) in the case referred to
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in clause (B) above, the Board of Directors of the Company determines in good
faith (after consultation with its financial advisor) that such Acquisition
Proposal is reasonably likely to be consummated, taking into account all legal,
financial and regulatory aspects of the proposal and the person making the
proposal and would, if consummated, result in a more favorable transaction than
the transaction contemplated by this Agreement (any such more favorable
Acquisition Proposal being referred to in this Agreement as a "Superior
Proposal"); provided, however, that the Company may not, except as permitted by
Section 6.02(b) below, withdraw or modify, or propose to withdraw or modify, its
position with respect to the Offer or the Merger or approve or recommend, or
propose to approve or recommend any Acquisition Proposal, or enter into any
agreement with respect to any Acquisition Proposal. The Company will immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing. The Company agrees that it will take the necessary steps to promptly
inform the individuals or entities referred to in the first sentence hereof of
the obligations undertaken in this Section 6.02.
(b) Neither the Company Board nor any committee thereof shall (i) withdraw
or modify, or propose to withdraw or modify, in a manner adverse to Parent or
Purchaser, the approval or recommendation of the Offer, this Agreement or the
Merger, (ii) approve or recommend, or propose to approve or recommend any
Acquisition Proposal by a third party, or (iii) enter into a definitive
agreement regarding any third party Acquisition Proposal unless, in the case of
each of the preceding clauses, the Company Board shall have (A) determined in
good faith, based on the advise of outside counsel, that such action is
necessary in order for its directors to comply with their fiduciary duties under
applicable law and (B) determined in good faith, after receiving advice from its
financial advisor that the Acquisition Proposal is superior, from a financial
point of view, to the Offer and the Merger, that such Acquisition Proposal is a
Superior Proposal.
(c) The Company will notify Parent promptly (but in any event within 24
hours) if any such inquiries, proposals or offers are received by, any such
information requested from, or any such discussions or negotiations are sought
to be initiated or continued with, any of its representatives indicating, in
connection with such notice, the name of such person and the material terms and
conditions of any proposals or offers and thereafter shall keep Parent informed,
on a current basis, on any material changes in the status and content of any
such proposals or offers and the status of any such negotiations or discussions.
The Company also will promptly request each person that has heretofore executed
a confidentiality agreement in connection with its consideration of an
Acquisition Proposal to return all confidential information heretofore furnished
to such person by or on behalf of it or any of its subsidiaries.
SECTION 6.03. Information Supplied. Each of the Company and Parent agrees,
as to itself and its subsidiaries, that none of the information supplied or to
be supplied by it or its subsidiaries for inclusion or incorporation by
reference in (i) the Offer Documents, the Schedule 14D-1 and the Schedule 14D-9
will, at the time of filing thereof and at the time of distribution thereof,
contain any untrue statement of 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, (ii) the Proxy Statement, if any, will,
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at the date of mailing to shareholders of the Company and at the time of the
meeting of shareholders of the Company to be held in connection with the Merger,
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.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01. Filings, Other Actions; Notification. (a) Parent and the
Company shall promptly prepare and file as soon as practicable after the date
hereof all documents required to be filed (i) with the FTC and the DOJ in order
to comply with the HSR Act and (ii) any other documents which are required under
the EC Merger Regulations or any non-United States laws regulating competition,
antitrust, exchange controls or investment. Parent and the Company shall
promptly furnish all materials thereafter required in connection therewith.
(b) Each of the Company and Parent shall cooperate with each other and use
(and shall cause its subsidiaries to use) all best efforts (i) to cause to be
done all things necessary, proper or advisable on its part under this Agreement
and applicable laws to consummate and make effective the Offer, the Merger and
the other transactions contemplated by this Agreement as soon as practicable,
including preparing and filing as promptly as practicable all documentation to
effect all necessary notices, reports and other filings and (ii) to obtain as
promptly as practicable all consents, registrations, approvals, permits and
authorizations necessary or advisable to be obtained from any third party and/or
any Governmental Entity in connection with, as a result of or in order to
consummate the Offer, the Merger or any of the other transactions contemplated
by this Agreement, including, without limitation, upon request of Parent, all
material consents required in connection with the consummation of the Offer and
the Merger; provided, however, that nothing in this Section 7.01 shall require,
or be construed to require, Parent, in connection with the receipt of any
regulatory approval, to proffer to, or agree to (i) sell or hold separate and
agree to sell or to discontinue to or limit, before or after the Effective Time,
any assets, businesses or interest in any assets or businesses of Parent, the
Company or any of their respective affiliates which would be material in
relation to the business of the Company (or to consent to any sale, or agreement
to sell, or discontinuance or limitation by the Company of any of the assets or
businesses that are material to the Company) or (ii) agree to any conditions
relating to, or changes or restriction in, the operations of any such asset or
businesses which, in either case, could, in the judgment of Parent, materially
and adversely impact the economic or business benefits to Parent of the
transactions contemplated by this Agreement. Subject to applicable laws relating
to the exchange of information, Parent and the Company shall have the right to
review in advance, and to the extent practicable each will consult the other on,
all the information relating to Parent or the Company, as the case may be, and
any of their respective subsidiaries, that appear in any filing made with, or
written materials submitted to, any third party or any Governmental Entity in
connection with the Offer, the Merger and the other transactions contemplated by
this Agreement. In exercising the foregoing right, each of the Company and
Parent shall act reasonably and as promptly as practicable.
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(c) Each of the Company and Parent shall, upon request by the other,
furnish the other with all information concerning itself, its subsidiaries,
directors, officers and stockholders and such other matters as may be reasonably
necessary or advisable in connection with the Offer Documents, the Schedule
14D-1, the Schedule 14D-9, the Proxy Statement (if any), or any other statement,
filing, notice or application made by or on behalf of Parent, the Company or any
of their respective subsidiaries to any third party or Governmental Entity in
connection with the Offer, the Merger and the other transactions contemplated by
this Agreement.
(d) Each of the Company and Parent shall keep the other apprised of the
status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notices or other
communications received by Parent or the Company, as the case may be, or any of
its subsidiaries, from any third party or any Governmental Entity with respect
to the Offer, the Merger and the other transactions contemplated by this
Agreement.
SECTION 7.02. Access to Information; Confidentiality. The Company shall
(and shall cause each of its subsidiaries to) afford to the officers, employees,
accountants, counsel and other representatives of Parent, full access, during
the period prior to the Appointment Date, to all its properties, books,
contracts, commitments and records and, during such period, the Company shall
(and shall cause each of its subsidiaries to) furnish promptly to Parent all
information concerning its business, properties and personnel as such party may
reasonably request, and shall make available to the other party the appropriate
individuals (including attorneys, accountants and other professionals) for
discussion of its business, properties and personnel as Parent may reasonably
request. After the Appointment Date, the Company shall provide Parent and such
persons as Parent shall designate with all such information, at any time as
Parent shall request. Until the Appointment Date, unless otherwise required by
law or in order to comply with disclosure requirements applicable to the Offer
Documents or the Proxy Statement, Parent shall hold any such information which
is nonpublic in confidence. Notwithstanding the foregoing, no such review,
inquiry or investigation shall affect any representations or warranties of any
parties herein or the conditions to the obligations of any parties.
SECTION 7.03. Stock Options. (a) Except as provided in Section 7.03(b) and
(c), at the Effective Time, the Company's obligations with respect to each
outstanding Option, whether vested or unvested, shall, by virtue of this
Agreement and without any further action of the Company, Parent, Purchaser or
the holder of any Option, be assumed by Parent. Parent shall make such
assumption in such manner that (i) Parent is a corporation "assuming a stock
option in a transaction to which Section 424(a) applies" within the meaning of
Section 424 of the Code or (ii) to the extent that Section 424 of the Code does
not apply to such Option, Parent would be such a corporation were Section 424 of
the Code applicable to such Option; and, after the Effective Time, all
references to the Company in the Stock Option Plans and the applicable stock
option agreements shall be deemed to refer to Parent as issuer and the Company
as the employer of the holders of Options, as applicable, which shall have
assumed the Stock Option Plans as of the Effective Time by virtue of this
Agreement and without any further action. Each Option so assumed by Parent under
this Agreement shall continue to have, and be subject to, the same
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terms and conditions set forth in the applicable Stock Option Plan and the
applicable stock option agreement as in effect immediately prior to the
Effective Time, except that (i) such Option will be exercisable for that number
of Parent American Depositary Shares ("ADSs") equal to the product of the number
of shares of Company Common Stock that were purchasable under such Option
immediately prior to the Effective Time multiplied by the quotient determined by
dividing the Merger Consideration by the fair market value of the ADSs, rounded
down to the nearest whole number of ADSs and (ii) the per share exercise price
for the ADSs issuable upon exercise of such assumed Option will be equal to the
exercise price per share of Company Common Stock at which such Option was
exercisable immediately prior to the Effective Time multiplied by the quotient
determined by dividing fair market value of the ADSs by the Merger
Consideration, and rounding the resulting exercise price up to the nearest whole
cent. For purposes of this Section 7.03, the fair market value of the ADSs is
based on the average of the closing prices per share for the five (5) trading
days immediately following (but not including) the date on which the Effective
Time occurs, as reported in The Wall Street Journal.
(b) Notwithstanding paragraph (a) of this Section 7.03, subject to such
procedures as may be established by Parent, each holder of an Option granted
under the 1993 Plan shall have the right to elect to receive with regard to such
Option either of the following amounts: (i) a cash payment equal to the product
of (x) the number of shares of Company Common Stock underlying the vested
portion of such unexercised Option and (y) the excess of the Merger
Consideration over the per share exercise price of the unexercised Option; or
(ii) the number of Options exercisable for ADSs determined under the conversion
formula set forth in paragraph (a) of this Section 7.03.
(c) Notwithstanding paragraph (a) of this Section 7.03, each outstanding
Option granted to a director under the Directors' Plan shall terminate at the
Effective Time.
SECTION 7.04. Stock Purchase Plan. (a) The Company shall take all actions
as are necessary to cause the "exercise date" (referred to as the last day of
the "Offering Period," as such term is used in the Stock Purchase Plan)
applicable to the then current Offering Period to be the last trading day on
which the Company Common Stock is traded on the NASDAQ, immediately prior to the
Effective Time (the "New Purchase Date"); provided that, such change in the
"exercise date" shall be conditioned upon the consummation of the Merger. On the
New Purchase Date, the Company shall apply the funds credited as of such date
under the Stock Purchase Plan within each participant's payroll withholdings
account to the purchase of whole Shares in accordance with the terms of the
Stock Purchase Plan. The cost to each participant in the Stock Purchase Plan for
the Shares shall be the lower of 95% of the closing sale price of Company Common
Stock, as reported on the NASDAQ on (i) the first day of the then current
Offering Period or (ii) the last trading day prior to the New Purchase Date.
(b) Prior to the Effective Time, the Company shall take (or cause to be
taken) all actions as are necessary or appropriate to effectuate the termination
of the Stock Purchase Plan prior to the Effective Time in accordance with its
terms and the Code, ERISA and other applicable law. The Company shall promptly
deliver to Parent prior to the Effective Time true
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and complete copies of all documentation relating to or arising from the
termination of the Stock Purchase Plan.
SECTION 7.05. Intentionally Omitted
SECTION 7.06. Indemnification. (a) The Certificate of Incorporation of the
Surviving Corporation shall contain the provisions with respect to
indemnification set forth in the Articles of Incorporation and By-Laws of the
Company, which provisions shall not be amended, repealed or otherwise modified
for a period of six years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who between the date
hereof and the Effective Time were directors or officers of the Company, unless
such modification is required by law.
(b) After the Appointment Date, the Surviving Corporation shall, and
Parent shall cause the Surviving Corporation, to the fullest extent permitted
under applicable law or under the Surviving Corporation's Articles of
Incorporation or By-Laws, to indemnify and hold harmless, each director and
officer of the Company or any of its subsidiaries (collectively, the
"Indemnified Parties") against any costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to any action or omission by such director or officer by
virtue of their holding the office of director or officer occurring at or prior
to the Effective Time (including, without limitation, the transactions
contemplated by this Agreement) for a period of six years after the Effective
Time. In the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), (i) any counsel retained
by the Indemnified Parties for any period after the Effective Time shall be
reasonably satisfactory to the Surviving Corporation and Parent and (ii) neither
the Surviving Corporation nor Parent shall be liable for any settlement effected
without its written consent (which consent shall not be unreasonably withheld).
(c) For a period of six years after the Effective Time, Parent shall cause
to be maintained in effect the current policies of directors' and officers'
liability insurance maintained by the Company (provided that Parent may
substitute therefor policies with reputable and financially sound carriers of at
least the same coverage and amounts containing terms and conditions which are no
less advantageous ) with respect to claims arising from or related to facts or
events that occurred at or before the Effective Time; provided, however, that
Parent shall not be obligated to make annual premium payments for such insurance
to the extent such premiums exceed 150% of the annual premiums paid as of the
date hereof by the Company for such insurance (such 150% amount, the "Maximum
Premium"). If such insurance coverage cannot be obtained at all, or can only be
obtained at an annual premium in excess of the Maximum Premium, Parent shall
maintain the most advantageous policies of directors' and officers' insurance
obtainable for an annual premium equal to the Maximum Premium; provided further,
if such insurance coverage cannot be obtained at all, Parent shall purchase all
available extended reporting periods with respect to pre-existing insurance in
an amount that, together with all other insurance purchased pursuant to this
Section 7.06(c), does not exceed the Maximum Premium. The Company represents to
Parent that the Maximum Premium is $228,321. Parent agrees, and
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will cause the Company not to take any action that would have the effect of
limiting the aggregate amount of insurance coverage required to be maintained
for the individuals referred to in this Section 7.06(c).
SECTION 7.07. Notification of Certain Matters. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate and (ii) any failure of
the Company, Parent or Purchaser, as the case may be, materially to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder; provided, however, that the delivery of any notice pursuant to
this Section shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
SECTION 7.08. Further Action. Upon the terms and subject to the conditions
hereof, each of the parties hereto in good faith shall use all commercially
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all other things necessary, proper or advisable to consummate
and make effective as promptly as practicable the Offer, the Merger and
transactions contemplated by this Agreement and the Stock Option Agreement, to
obtain in a timely manner all necessary waivers, consents and approvals and to
effect all necessary registrations and filings, and to otherwise satisfy or
cause to be satisfied all conditions precedent to its obligations under this
Agreement.
SECTION 7.09. Public Announcements. The initial press release with respect
to the execution of this Agreement shall be a joint press release acceptable to
Parent and the Company. Thereafter, so long as this Agreement is in effect,
Parent and the Company shall consult with each other before issuing any press
release or otherwise making any public statements with respect to the Offer, the
Merger or this Agreement and shall not issue any such press release or make any
such public statement without the prior consent of the other party, which shall
not be unreasonably withheld; provided, however, that a party may, without the
prior consent of the other party, issue such press release or make such public
statement as may upon the advice of counsel be required by law, the NYSE or the
NASDAQ (as applicable) if it has used all reasonable efforts to consult with the
other party.
SECTION 7.10. Listing. Parent shall use its best efforts to cause the
shares of Parent ADSs issuable upon exercise of Options assumed pursuant to
Section 7.03, to be approved for listing on the NYSE.
SECTION 7.11. Expenses. The Surviving Corporation shall pay all charges
and expenses, including those of the Paying Agent, in connection with the
transactions contemplated in Article III. Except as otherwise provided in
Section 9.03, whether or not the Merger is consummated, all other costs and
expenses incurred in connection with this Agreement, the Stock Option Agreement
and the Offer, the Merger and the other transactions contemplated by this
Agreement and the Stock Option Agreement shall be paid by the party incurring
such expense, except that expenses incurred in connection with the filing fee
for the Proxy Statement
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and printing and mailing the Proxy Statement shall be shared equally by Parent
and the Company.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01. Conditions to Obligation of Each Party to Effect the Merger.
The respective obligations of each party to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of each of the following
conditions:
(a) Stockholder Approvals. This Agreement, the Merger and the transactions
contemplated hereby shall have been approved and adopted by the requisite vote
of the shareholders of the Company to the extent required by the CGCL and the
Articles of Incorporation of the Company;
(b) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or Governmental Entity or other similar binding legal
restraint or prohibition preventing the consummation of the Merger shall be in
effect, and there shall not 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; and
(c) Offer. Parent, Purchaser or their affiliates shall have purchased, or
caused to be purchased, the Shares pursuant to the Offer.
ARTICLE IX
TERMINATION
SECTION 9.01. Termination. This Agreement and the Transactions may be
terminated or abandoned at any time prior to the Effective Time, notwithstanding
approval thereof by the shareholders of the Company:
(a) by mutual written consent duly authorized by the respective boards of
directors of Parent and, subject to Section 1.03, the Company; or
(b) by either Parent or the Company if the Merger shall not have been
consummated by September 1, 2000 (provided that the right to terminate this
Agreement under this Section 9.01(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date); or
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(c) by either Parent or the Company if (i) a court of competent
jurisdiction or Governmental Entity shall have issued a non-appealable final
order, decree or ruling or taken any other action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
acceptance for payment of, or payment for, Shares pursuant to the Offer or the
Merger or (ii) any action is taken or any statute, rule, regulation or order is
enacted, entered, enforced or deemed applicable to the Offer or the Merger which
makes the consummation of the Offer or the Merger illegal; or
(d) by either Parent or the Company, if the Company Common Stock has not
been purchased pursuant to the Offer prior to June 30, 1999 (provided that the
right to terminate this Agreement under this Section 9.01(d) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of or resulted in the failure to consummate the
Offer before such date; and provided, further, that if a request for additional
information is received from a Governmental Entity pursuant to the HSR Act or
applicable nonUnited States laws regulating competition, antitrust, investment
or exchange controls, such date shall be extended to the 90th day following
acknowledgment by such Governmental Entity that Parent and the Company have
complied with such request, but in no event shall such date be extended to a
date later than September 30, 1999); or
(e) as long as Company Common Stock has not been purchased pursuant to the
Offer by Parent, if any actions described in paragraph (e) to Annex A have
occurred; or
(f) as long as Company Common Stock has not been purchased pursuant to the
Offer, by Parent, upon a breach of any representation, warranty, covenant or
agreement on the part of the Company set forth in this Agreement or if any
representation or warranty of the Company, shall have become untrue, in either
case, such that the breach would give rise to the failure of a condition set
forth in Annex A (a "Terminating Breach"), provided that, if such Terminating
Breach is curable prior to the expiration of 30 days from its occurrence (but in
no event later than April 30, 1999) by the Company through the exercise of its
reasonable best efforts and for so long as the Company continues to exercise
such reasonable best efforts, Parent may not terminate this Agreement under this
Section 9.01(f) until the expiration of such period without such Terminating
Breach having been cured; or
(g) by Parent, if, due to an occurrence, not involving a breach by Parent
or Purchaser of their obligations hereunder, which makes it impossible to
satisfy any of the conditions set forth in Annex A hereto, Parent, Purchaser, or
any of their Affiliates shall have failed to commence the Offer on or prior to
the fifth business day following the date of the initial public announcement of
the Offer; or
(h) by Parent or the Company, if the Offer has expired or has been
terminated in accordance with the terms set forth in this Agreement (including
Annex A) without any Company Common Stock having been purchased pursuant to the
Offer; or
(i) by the Company, if Parent or Purchaser shall have failed to perform or
comply in any material respect any material obligation, agreement or covenant to
be performed or complied
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with by it under this Agreement, provided that, if such failure of performance
or compliance is curable prior to the expiration of 30 days from its occurrence
(but in no event later than June 30, 1999) by Parent or Purchaser through the
exercise of their respective reasonable best efforts, the Company may not
terminate this Agreement under this Section 9.01(i) until the expiration of such
period without such failure of performance or compliance having been cured; or
(j) by the Company to allow the Company to enter into a definitive
agreement in accordance with Section 6.02(b) with respect to a Superior
Proposal, provided, however, that the Company shall have complied with all the
provisions of Section 6.02 thereof, including the notice provision therein.
SECTION 9.02. Effect of Termination. In the event of the termination of
this Agreement and the abandonment of the Transactions pursuant to Section 9.01,
this Agreement shall forthwith become void and there shall be no liability on
the part of any party hereto (or any of its affiliates, directors, officers,
employees, agents, legal and financial advisors or other representatives) except
(i) as set forth in Sections 7.11, 9.03 and 10.01 and (ii) nothing herein shall
relieve any party from liability or damages resulting from any breach of this
Agreement.
SECTION 9.03. Fees and Expenses. (a) Except as set forth in Section 7.11
and this Section 9.03, all fees and expenses incurred in connection with this
Agreement and the Transactions shall be paid by the party incurring such
expenses, whether or not the Merger is consummated.
(b) The Company shall pay Parent a fee of $54,000,000 USD (the "Fee"),
plus actual, documented and reasonable out-of-pocket expenses of Parent, not in
excess of $3,000,000 USD, relating to the transactions contemplated by this
Agreement (including, but not limited to, fees and expenses of Parent's
counsel), upon the earliest to occur of the following events:
(i) the termination of this Agreement by Parent pursuant to Section
9.01(e); or
(ii) the termination of this Agreement by Parent or the Company
pursuant to Section 9.01(d) or (h) if, at the time of termination an
Acquisition Proposal has been publicly announced and not withdrawn, and
within six months from the date of termination pursuant to Article IX, the
Company enters into an agreement or letter of intent concerning a
transaction that would constitute an Acquisition Proposal and such
transaction is subsequently consummated
(iii) the termination of this Agreement by the Company pursuant to
Section 9.01(j).
(iv) the termination of this Agreement by Parent pursuant to Section
9.01(f) upon a Terminating Breach and (A) such Terminating Breach was
other than a breach of a representation or warranty not within the control
of the Company, (B) at the time of termination an Acquisition Proposal has
been publicly announced and not withdrawn, (C) within six months from the
date of termination pursuant to Article IX, the Company enters into an
agreement or letter of intent
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concerning a transaction that would constitute an Acquisition Proposal and (D)
such transaction is subsequently consummated.
(c) The Fee payable pursuant to (A) Section 9.03(b)(i) or (b) (iii) shall
be paid within one business day after the first to occur of the events described
therein and (B) Section 9.03(b)(ii) or (b) (iv) shall be paid on the date on
which the transactions referred to in such subsections are subsequently
consummated.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. Effectiveness of Representations, Warranties and
Agreements. Except as otherwise provided in this Section 10.01, the
representations, warranties and agreements of each party hereto shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any other party hereto, any person controlling any such party or
any of their officers or directors, whether prior to or after the execution of
this Agreement. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 9.01, as the case may be, except that the agreements set
forth in Article III and in Section 7.03 (Stock Options), 7.06 (Indemnification)
and 7.10 (Listing) shall survive the consummation of the Merger and those set
forth in Section 7.11 (Expenses), Section 9.02 (Effect of Termination) and
Section 9.03 (Fees and Expenses) shall survive termination of this Agreement.
SECTION 10.02. Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered or mailed if delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like changes of address shall be effective upon receipt)
or sent by electronic transmission, with confirmation received, to the telecopy
number specified below:
(a) If to Parent or Purchaser:
Alcatel
54, rue La Boetie
75008 Paris
France
Telecopier No.: 33-1-4076-1486
Attention: Pascal Durand-Barthez, Esq.
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With a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Telecopier No.: (212) 969-2900
Attention: Stanley Komaroff, Esq.
(b) If to the Company:
Xylan Corporation
26679 West Agoura Road
Calabasas, CA 91302
Telecopier No.: (818) 880-3505
Attention: President
With a copy to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94205
Telecopier No.: (650) 233-8386
Attention: Tae Hea Nahm, Esq.
Steven J. Tonsfeldt, Esq.
SECTION 10.03. Amendment. Subject to 1.03(b), this Agreement may be
amended by the parties hereto by action taken by or on behalf of their
respective boards of directors at any time prior to the Effective Time;
provided, however, that, after approval of the Merger by the shareholders of the
Company, no amendment may be made which by law requires further approval by such
shareholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
SECTION 10.04. Waiver. Subject to Section 1.03(b), at any time prior to
the Effective Time, any party hereto may with respect to any other party hereto
(a) extend the time for the performance of any of the obligations or other acts,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto or (c) waive compliance with
any of the agreements or conditions contained herein. Any such extension or
waiver shall be valid if set forth in an instrument in writing signed by the
party or parties to be bound thereby.
SECTION 10.05. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.06. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other
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conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the extent possible.
SECTION 10.07. Entire Agreement. This Agreement (including any exhibits
hereto), the Company Disclosure Schedule, the Parent Disclosure Schedule, and
the Shareholder Agreements and the Stock Option Agreement constitute the entire
agreement and supersede all prior agreements and undertakings both written and
oral, among the parties, or any of them, with respect to the subject matter
thereof.
SECTION 10.08. Assignment, Purchaser. This Agreement shall not be assigned
by operation of law or otherwise, except that Parent and Purchaser may assign
all or any of their rights hereunder to any direct or indirect wholly owned
subsidiary, provided that no such assignment shall relieve the assigning party
of its obligations hereunder.
SECTION 10.09. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and their successors and
assigns, and nothing in this Agreement, express or implied, is intended to or
shall confer upon any other person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement, other than Article III and
Sections 7.03 (Stock Options), and 7.06 (Indemnification).
SECTION 10.10. Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
SECTION 10.11. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.
SECTION 10.12. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 10.13. Waiver of Jury Trial. EACH OF PARENT, PURCHASER AND THE
COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED
UPON CONTRACT, TORT OR
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OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 10.14. Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliates" means, with respect to any specified person, any person
that directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the person specified; including,
without limitation, any partnership or joint venture in which the first
mentioned person (either alone, or through or together with any other
subsidiary) has, directly or indirectly, an interest of 10 percent or more.
(b) "Appointment Date" shall mean the time the persons designated by
Parent have been elected to, and shall constitute a majority of, the Company
Board pursuant to Section 1.03.
(c) "California Merger Agreement" shall mean the Agreement of Merger by
and among the Company, Purchaser and Parent, together with the related officers'
certificates required by Section 1103 of the CGCL.
(d) "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss.9601 et seq.
(e) "CGCL" shall mean the California General Corporation Law.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(g) "Company Board" shall mean the Board of Directors of the Company.
(h) "Company Disclosure Schedule" shall mean the written disclosure
schedule prepared and signed by the Company and previously delivered to
Purchaser.
(i) "Company SEC Reports" shall mean each form, report, schedule,
statement and other document required to be filed by the Company since January
1, 1997 under the Exchange Act or the Securities Act, including any amendment to
such document, whether or not such amendment is required to be so filed.
(j) "Company Material Adverse Effect" means any change or effect that,
individually or when taken together with all other such changes or effects that
have occurred prior to the date of determination of the occurrence of the
Company Material Adverse Effect, is materially adverse to the business, results
of operations or financial condition of the Company and its subsidiaries, taken
as a whole; provided, however, that in determining whether there has been a
Company Material Adverse Effect, any adverse effect attributable to the
following shall be disregarded: (i) general economic or business conditions;
(ii) general industry conditions; (iii) the taking of any action permitted or
required by this Agreement; (iv) a reduction in purchases of products from the
Company by International Business Machines Corporation or Parent; (v) a
reduction or delay in purchases of products from the Company as a direct result
of
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<PAGE> 46
the public announcement or pendency of the Offer; or (vi) the breach by Parent
or Purchaser of this Agreement; and in each case, to the extent that such
adverse effect is attributable to such event; provided, however, that with
respect to clause (v) of this paragraph, the Company shall bear the burden of
proof (which shall be established through documentary evidence) in any
proceeding with regard to establishing that any reduction in purchases was
attributable to or results from the direct effect of the public announcement or
pendency of the Offer.
(k) "Dissenting Shares" shall mean any Shares outstanding immediately
prior to the Effective Time and held by a holder who had not voted in favor of
the Merger or consented thereto in writing, and who has demanded appraisal for
such Shares in accordance with Section 1300 of the CGCL, if such Section 1300
provides for appraisal rights for such Shares in the Merger.
(l) "DOJ" shall mean the United States Department of Justice.
(m) "EC Merger Regulations" shall mean Council Regulation (EEC) No.
4064/89 of December 21, 1989 on the Control of Concentrations Between
Undertakings, OJ (1989) L 395/1 (as amended) and the regulations and decisions
of the Commission of the European Community or other organs of the European
Union or European Community implementing such regulations.
(n) "Environment" shall mean any surface or subsurface physical medium or
natural resources, including air, land, soil, surface waters, ground waters,
stream and river sediments, biota and any indoor area, surface or physical
medium.
(o) "Environmental Laws" shall mean federal, foreign, state, local or
common law, rule, regulation, ordinance, code, order or judgment (including any
judicial or administrative interpretations, guidances, directives, policy
statements or opinions) relating to the injury to, or the pollution or
protection of, human health and safety or the Environment.
(p) "Environmental Liabilities" shall mean any claims, judgments, damages
(including punitive damages), losses, penalties, fines, liabilities,
encumbrances, liens, violations, costs and expenses (including attorneys' and
consultants' fees) of investigation, remediation, monitoring or defense of any
matter relating to human health, safety or the Environment of whatever kind or
nature by any party, entity or authority, (A) which are incurred as a result of
(i) the existence of Hazardous Substances in, on, under, at or emanating from
any Real Property, (ii) the Company's or any of its subsidiary's offsite
transportation, treatment, storage or disposal of Hazardous Substances or (iii)
the violation of any Environmental Laws or (B) which arise under Environmental
Laws.
(q) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
(r) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
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<PAGE> 47
(s) "Founding Shareholders" shall mean Steve Y. Kim, The Steve Y. Kim
Living Trust, and The Kim Irrevocable Children's Trust, and Yuri Pikover and The
Pikover Trust and The Pikover 1995 Irrevocable Children's Trust.
(t) "FTC" shall mean the United States Federal Trade Commission.
(u) "GAAP" shall mean United States Generally Accepted Accounting
Principles.
(v) "Governmental Entity" shall mean any United States or foreign
governmental, administrative or regulatory authority, commission, body, agency
or other authority.
(w) "Hazardous Substances" shall mean petroleum, petroleum products,
petroleumderived substances, radioactive materials, hazardous wastes,
polychlorinated biphenyls, lead based paint, radon, urea formaldehyde, asbestos
or any materials containing asbestos, and any materials or substances regulated
or defined as or included in the definition of "hazardous substances,"
"hazardous materials," "hazardous constituents," "toxic substances,"
"pollutants," "contaminants" or regulated under any Environmental Law by reason
of toxicity, carcinogenicity, ignitability, corrosivity or reactivity.
(x) "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
(y) "IRS" United States Internal Revenue Service.
(z) "Knowledge" means the following: an individual shall be deemed to have
"knowledge" of a particular fact or other matter if such individual is actually
aware of such fact or other matter, but without having undertaken any
independent investigation to determine the existence or absence of such fact or
other matter. A corporation shall be deemed to have "knowledge" of a particular
fact or matter only if a director or executive officer of such corporation has
"knowledge" of such fact or matter.
(aa) "Minimum Condition" shall mean at least 90% of the outstanding shares
of Company Common Stock (together with the shares of the Company Common Stock,
if any, then owned by Parent or Purchaser or their subsidiaries) shall have been
validly tendered and not withdrawn prior to the expiration of the Offer.
(bb) "NASDAQ" shall mean the NASDAQ Stock Market, Inc.
(cc) "NYSE" shall mean the New York Stock Exchange.
(dd) "Parent Material Adverse Effect" shall mean any change or effect
that, individually or when taken together with all other such changes or effects
that have occurred prior to the date of determination of the occurrence of the
Parent Material Adverse Effect, is materially adverse to the business, results
of operations or financial condition of Parent and its subsidiaries taken as a
whole; provided, however, that in determining whether there has been a Parent
Material Adverse
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<PAGE> 48
Effect, any adverse effect attributable to the following shall be disregarded:
(i) general economic or business conditions; (ii) general industry conditions;
(iii) the taking of any action permitted or required by this Agreement; or (iv)
the breach by the Company of this Agreement; and in case, to the extent that
such adverse effect is attributable to such event.
(ee) "Preferred Shares Rights Agreement" shall mean that certain Preferred
Shares Rights Agreement dated as of April 17, 1997 between the Company and The
First National Bank of Boston, as the Rights Agent.
(ff) "Proxy Statement" shall mean the proxy statement (or information
statement) to be filed by the Company with the SEC pursuant to Section 2.07
hereof, together with all amendments and supplements thereto and including the
exhibits thereto.
(gg) "Purchaser Common Stock" shall mean the common stock, par value $.01
per share, of Purchaser.
(hh) "Revised Minimum Number" shall mean that number of Shares that when
added to the Shares then owned by Purchaser would equal 49.99% of the Shares
then outstanding.
(ii) "SEC" shall mean the United States Securities and Exchange
Commission.
(jj) "Securities Act" shall mean the Securities Act of 1933, as amended.
(kk) "Shares" shall mean shares of Company Common Stock.
(ll) "Stock Option Agreement" shall mean that certain agreement among
Parent, Purchaser and the Company regarding Purchaser's ability to acquire
additional Shares from the Company.
(mm) "Tax" shall mean taxes, fees, levies, duties, tariffs, imposts and
governmental impositions or charges of any kind in the nature of (or similar to)
taxes, payable to any federal, state, provincial, local or foreign taxing
authority, including (without limitation) (i) income, franchise, profits, gross
receipts, ad valorem, net worth, value added, sales, use, service, real or
personal property, special assessments, capital stock, license, payroll,
withholding, employment, social security, workers' compensation, unemployment
compensation, utility, severance, production, excise, stamp, occupation,
premiums, windfall profits, transfer and gains taxes and (ii) interest,
penalties, additional taxes and additions to tax imposed with respect thereto.
(nn) "Tax Returns" shall mean returns, reports and information statements
with respect to Taxes required to be filed with the IRS or any other taxing
authority, domestic or foreign, including, without limitation, consolidated,
combined and unitary tax returns.
(oo) "USD" shall mean United States dollars.
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(pp) "Year 2000 Compliant" shall mean that the computer systems (i) are
capable of recognizing, processing, managing, representing, interpreting and
manipulating correctly date related data for dates earlier and later than
January 1, 2000, including calculating, comparing, sorting, storing, tagging and
sequencing, without resulting in or causing logical or mathematical errors or
inconsistencies in any user-interface functionalities or otherwise, including
data input and retrieval, data storage, data fields, calculations, reports,
processing or any other input or output; (ii) have the ability to provide date
recognition for any data element without limitation (including date-related data
represented without a century designation, date-related data whose year is
represented by only two digits and date fields assigned special values); (iii)
have the ability to function automatically into and beyond the year 2000 without
human intervention and without any change in operations associated with the
advent of the year 2000; (iv) have the ability to interpret data, dates and time
correctly into and beyond the year 2000; (v) have the ability not to produce
noncompliance in existing information, nor otherwise corrupt such data into and
beyond the year 2000; (vi) have the ability to process correctly after January
1, 2000 data containing dates before that date; and (vii) have the ability to
recognize all "leap years," including February 29, 2000.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, all as of
the date first written above.
ALCATEL
By: /s/ Serge Tchuruk
------------------------------------------
Name: Serge Tchuruk
Title: Chairman & Chief Executive Officer
XYLAN CORPORATION
By: /s/ Steve Y. Kim
------------------------------------------
Name: Steve Y. Kim
Title: President & Chief Executive Officer
ZEUS ACQUISITION CORP.
By: /s/ Olivier Houssin
------------------------------------------
Name: Olivier Houssin
Title: Chairman
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<PAGE> 51
Annex A
Certain Conditions of the Offer.
Notwithstanding any other provision of the Offer and in addition to (and
not in limitation of) Purchaser's rights to extend and amend the Offer at any
time in its sole discretion (but subject in all cases to the provisions of the
Merger Agreement), Purchaser shall not be required to accept for payment or,
subject to any applicable rules and regulations of the SEC, including Rule 14e-
1(c) under the Exchange Act (relating to Purchaser's obligation to pay for or
return tendered Shares promptly after termination or withdrawal of the Offer),
pay for, and may delay the acceptance for payment of or, subject to the
restriction referred to above, the payment for, any tendered Shares, and may
terminate the Offer or amend the Offer as to any Shares not then paid for, if
(i) any applicable waiting period under the HSR Act, the EC Merger Regulations
or any applicable non-United States laws regulating competition, antitrust,
investment or exchange controls has not expired or terminated prior to the
expiration of the Offer (the "HSR/Foreign Antitrust Condition"), (ii) the
Minimum Condition shall not have been satisfied or waived (pursuant to the
Merger Agreement) or (iii) at any time on or after the date of the Merger
Agreement and before the time of acceptance of Shares for payment pursuant to
the Offer, any of the following events shall occur or shall be determined by
Purchaser to have occurred (other than as the result of any action or inaction
of Parent or its subsidiaries that would constitute a material breach of the
Merger Agreement (other than Article V)):
(a) there shall be instituted or pending any suit, action or proceeding by
any Governmental Entity seeking, or by any other person which would reasonably
be expected to, (i) prohibit or impose any material limitations on Parent's or
Purchaser's ownership or operation (or that of any of their respective
subsidiaries or affiliates) of all or a material portion of their or the
Company's businesses or assets, or to compel Parent or Purchaser or their
respective subsidiaries and affiliates to dispose of or hold separate any
material portion of the business or assets of the Company or Parent and their
respective subsidiaries, (ii) prohibit the acquisition by Parent or Purchaser of
any Shares under the Offer or pursuant to the Stock Option Agreement or the
Shareholder Agreements, to restrain or prohibit the making or consummation of
the Offer or the Merger or the performance of any of the other transactions
contemplated by this Agreement, the Stock Option Agreement or the Shareholder
Agreements, or to require the Company, Parent or Purchaser to pay any damages
that are material in relation to the Company taken as a whole, (iii) impose
material limitations on the ability of Purchaser, or to render Purchaser unable,
to accept for payment, pay for or purchase some or all of the Shares pursuant to
the Offer and the Merger, (iv) impose material limitations on the ability of
Purchaser or Parent effectively to exercise full rights of ownership of the
Shares, including, without limitation, the right to vote the Shares purchased by
it on all matters properly presented to the Company's shareholders, or (v) have
a Company Material Adverse Effect, or materially adversely affect the ability of
the Company or Parent to consummate the Offer or the Merger, or to perform any
of their obligations under this Agreement or the Stock Option Agreement; or
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<PAGE> 52
(b) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated or deemed applicable to the
Offer or the Merger, or any other action shall be taken by any Governmental
Entity, other than the application to the Offer or the Merger of applicable
waiting periods under the HSR Act, EC Merger Regulations and applicable
non-United States laws regulating competition, antitrust, investment or exchange
controls that would reasonably be expected to result, directly or indirectly, in
any of the consequences referred to in clauses (i) through (v) of paragraph (a)
above; or
(c) there shall have occurred (i) any general suspension of trading in, or
limitation on prices for, securities on the New York Stock Exchange, or in the
Nasdaq National Market System (excluding suspensions or limitations resulting
solely from physical damage or interference with such exchanges not related to
market conditions), (ii) a declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States (whether or not mandatory),
(iii) a commencement of a war, armed hostilities or other international or
national calamity directly or indirectly involving the United States other than
the current hostilities in Iraq, Kosovo, Bosnia or Serbia, (iv) any limitation
(whether or not mandatory) by any United States governmental authority on the
extension of credit by banks or other financial institutions, (v) a change in
general financial bank or capital market conditions which materially and
adversely affects the ability of financial institutions in the United States to
extend credit or syndicate loans, or (vi) in the case of any of the foregoing
existing at the time of the commencement of the Offer, a material acceleration
or worsening thereof; or
(d) there shall have occurred and be continuing any change, condition,
event or development that would reasonably be expected to result in a Company
Material Adverse Effect; or
(e) the Company Board or any committee thereof shall have (i) withdrawn,
modified or changed in a manner adverse to Parent or Purchaser (including by
amendment of the Schedule 14D-9) its approval or recommendation of the Offer,
this Agreement or the Merger or shall have resolved to do so, or (ii)
recommended or taken a "neutral" position with respect to the approval or
acceptance of an Acquisition Proposal from, or similar business combination
with, a person or entity other than Parent, Purchaser or their affiliates or
shall have resolved to do so; or
(f) any of the representations and warranties of the Company set forth in
this Agreement (disregarding for this purpose any qualifications with respect to
materiality or Company Material Adverse Effect) shall not be true and correct as
of the date of this Agreement and as of the scheduled expiration of the Offer
and where the failure to be true and correct would not, together with all other
such failures, have a Company Material Adverse Effect; or
(g) the Company shall have and be continuing to have failed to perform in
any material respect any obligation or to comply in any material respect with
any agreement or covenant of the Company to be performed or complied with by it
under this Agreement; or
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<PAGE> 53
(h) this Agreement shall have been terminated in accordance with its
terms;
which in the reasonable judgment of Parent or Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
Purchaser) giving rise to such condition, makes it inadvisable to proceed with
the Offer and/or with such acceptance for payment of or payment for Shares.
The foregoing conditions are for the sole benefit of Parent and Purchaser,
and may (subject to the terms of the Merger Agreement) be waived by Parent or
Purchaser, in whole or in part, at any time and from time to time in the sole
discretion of Parent or Purchaser. The failure by Parent or Purchaser at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
A-3
<PAGE> 1
Exhibit (c)(2)
SHAREHOLDER AGREEMENT (SK)
THIS SHAREHOLDER AGREEMENT dated as of March 1, 1999 (this
"Agreement") is by and among Alcatel, a French corporation ("Parent"), Zeus
Acquisition Corp., a California corporation ("Purchaser"), Steven Y. Kim
("Shareholder") and Steve Y. Kim Living Trust, and Kim Irrevocable Children's
Trust (collectively, the "Trusts" and, for all purposes under this Agreement
other than Sections 10 and 12, "Shareholder" shall include the Trusts).
W I T N E S S E T H:
WHEREAS, simultaneously with the execution of this Agreement,
Parent, Purchaser and Xylan Corporation, a California corporation (the
"Company"), have entered into an Agreement and Plan of Merger (as amended from
time to time, the "Merger Agreement"), pursuant to which Purchaser has agreed,
among other things, to commence a cash tender offer (as such tender offer may
hereafter be amended from time to time, the "Offer") to purchase all shares of
common stock, $.001 par value, of the Company (the "Company Common Stock");
WHEREAS, as an inducement and a condition to its entering into the
Merger Agreement and incurring the obligations set forth therein, including the
Offer and the Merger, Parent has required that Shareholder enter into this
Agreement;
NOW THEREFORE, in consideration of the foregoing and the mutual
promises, representations, warranties, covenants and agreements contained herein
and in the Merger Agreement, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Certain Definitions. Capitalized terms used and not defined
herein have the respective meanings ascribed to them in the Merger Agreement. In
addition, for purposes of this Agreement:
"Affiliate" means, with respect to any specified Person, any Person
that directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the Person specified; including,
without limitation, any partnership or joint venture in which the Person
specified (either alone, or through or together with any other subsidiary) has,
directly or indirectly, an interest of 10% or more. For purposes of this
Agreement, with respect to Shareholder, "Affiliate" shall not include the
Company and the Persons that directly, or indirectly through one or more
intermediaries, are controlled by the Company.
"Beneficially Own" or "Beneficial Ownership" with respect to any
securities means having "beneficial ownership" of such securities (as determined
pursuant to Rule 13d-3
<PAGE> 2
under the Exchange Act ), including pursuant to any agreement, arrangement or
understanding, whether or not in writing. Without duplicative counting of the
same securities by the same holder, securities Beneficially Owned by a Person
shall include securities Beneficially Owned by all Affiliates of such Person and
all other Persons with whom such Person would constitute a "group" within the
meaning of Section 13(d) of the Exchange Act and the rules promulgated
thereunder.
"Covered Shares" means the Owned Shares and the Shares Under Option.
"Encumbrances" shall mean any and all liens, charges, security
interests, options, claims, mortgages, pledges, proxies, voting trusts or
agreements, obligations, understandings or arrangements or other restrictions of
any nature whatsoever.
"Owned Shares" means all the shares of Company Common Stock
Beneficially Owned by Shareholder on the date hereof (other than Shares Under
Option), including the shares listed on Annex I attached hereto, and any other
securities of the Company entitled, or which may be entitled, to vote generally
in the election of directors that are Beneficially owned by Shareholder.
"Person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
"Representative" means, with respect to any Person, such Person's
officers, directors, employees, agents and representatives (including any
investment banker, financial advisor, agent, representative or expert retained
by or acting on behalf of such Person or its subsidiaries).
"Shares Under Option" means all the shares of Company Common Stock
that are subject to options, securities convertible into exchangeable or
exercisable for any such shares, or any Voting Debt of the Company Beneficially
Owned by Shareholder, including those listed on Annex I attached hereto.
"Transfer" means, with respect to a security, the sale, transfer,
pledge, gift, hypothecation, encumbrance, assignment or disposition of such
security or the Beneficial Ownership thereof, the offer to make such a sale,
transfer or other disposition, and each option, agreement, arrangement or
understanding, whether or not in writing, to effect any of the foregoing. As a
verb, "Transfer" shall have a correlative meaning.
2. Representations and Warranties of Shareholder. Shareholder hereby
represents and warrants to Parent and Purchaser as follows:
(a) The Covered Shares constitute all of the capital stock of the
Company Beneficially Owned by Shareholder. Without limiting the foregoing, the
Covered Shares
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<PAGE> 3
include all shares of Company Common Stock held of record or Beneficially by any
relative, trust or other Affiliate of Shareholder of which Shareholder has or
shares any voting power or power of disposition. Except as described on Annex I,
Shareholder is the record and Beneficial Owner, has sole voting power, sole
power of disposition and sole power to agree to all of the matters set forth in
this Agreement, in each case with respect to the Covered Shares. Shareholder has
good and marketable title to the Owned Shares, free and clear of all
Encumbrances. As to any shares that Shareholder indicates he does not have such
sole powers, Shareholder shall use his reasonable best efforts to cause all of
his obligations under this Agreement to be complied with by any person having
such powers.
(b) Shareholder has the legal capacity to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Shareholder and, assuming
the due authorization, execution and delivery of this Agreement of each of
Parent and Purchaser, constitutes the legal, valid and binding obligation of
Shareholder, enforceable against such Shareholder in accordance with its terms
except (i) to the extent limited by applicable bankruptcy, insolvency or similar
laws affecting creditors rights and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
(c) Neither of the execution and delivery of this Agreement by
Shareholder, the consummation by Shareholder of the transactions contemplated
hereby nor the compliance by Shareholder with any of the provisions hereof shall
(i) result in any breach of, or constitute a default (or an event which with
notice or lapse of time or both would become a default) (or give rise to any
third party right of termination, cancellation, material modification or
acceleration) under any of the terms, conditions or provisions of any note, loan
agreement, bond, mortgage, indenture, contract, license, agreement, lease,
permit or other instrument or obligation to which Shareholder is a party or by
which Shareholder or any of his properties or assets (including the Covered
Shares) may be bound, except as may be set forth in existing option agreements,
(ii) require on the part of Shareholder any filing with, or permit,
authorization, consent or approval of, any Governmental Entity, or (iii) violate
any order, writ, injunction, decree, judgment, statute, rule or regulation
applicable to Shareholder or any of his properties or assets, excluding from the
foregoing such violations, breaches, defaults or failures to make any filing or
to obtain any permit, authorization, consent or approval which would not,
individually or in the aggregate, impair the ability of Shareholder to
consummate the transactions contemplated hereby.
3. Representations and Warranties of Parent and Purchaser. Parent
and Purchaser hereby represent and warrant to Shareholder as follows:
(a) Each of Parent and Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all necessary corporate power and authority to execute and
deliver this Agreement and perform its
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<PAGE> 4
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery by Parent and Purchaser of this Agreement and the
performance by Parent and Purchaser of their respective obligations hereunder
have been duly and validly authorized by all necessary corporate action on the
part of Parent and Purchaser and no other corporate proceedings on the part of
Parent or Purchaser are necessary to authorize the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby.
(b) This Agreement has been duly and validly executed and delivered
by Parent and Purchaser and, assuming the due authorization, execution and
delivery of this Agreement by Shareholder, constitutes the legal, valid and
binding obligation of each of Parent and Purchaser, enforceable against each of
them in accordance with its terms except (i) to the extent limited by applicable
bankruptcy, insolvency or similar laws affecting creditors rights and (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
(c) Neither the execution and delivery of this Agreement by Parent
or Purchaser, the consummation by Parent or Purchaser of the transactions
contemplated hereby nor the compliance by Parent or Purchaser with any of the
provisions hereof shall (i) conflict with or violate the statuts of Parent or
the articles of incorporation or by-laws of Purchaser, (ii) result in any breach
of or constitute a default (or an event which with notice or lapse of time or
both would become a default) (or give rise to any third party right of
termination, cancellation, material modification or acceleration) under any of
the terms, conditions or provisions of any note, loan agreement, bond, mortgage,
indenture, contract, license, agreement, lease, permit or other instrument or
obligation to which Parent or Purchaser is a party or by which Parent or
Purchaser or any of their respective properties or assets may be bound, (iii)
require on the part of Parent or Purchaser any filing with, or permit,
authorization, consent or approval of, any Governmental Entity, other than any
filings required to be made under the Securities Act, HSR Act, the EC Merger
Regulations or non-United States laws regulating competition, antitrust,
investment and exchange controls or (iv) violate any order, writ, injunction,
decree, judgment, statute, rule or regulation applicable to Parent or Purchaser
or any of their respective properties or assets, excluding from the foregoing
such violations, breaches, defaults or failures to make any filing or to obtain
any permit, authorization, consent or approval which would not, individually or
in the aggregate, materially impair the ability of Parent or Purchaser to
consummate the transactions contemplated hereby.
4. Tender of Shares. Shareholder shall tender or cause the record
owner thereof to tender all the Owned Shares into the Offer promptly, and in any
event no later than the tenth business day following the commencement of the
Offer pursuant to Section 1.01 of the Merger Agreement, and Shareholder shall
not, and shall cause the record owner thereof not to, withdraw any Owned Shares
so tendered unless the Offer is terminated or has expired,
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<PAGE> 5
except for shares that Shareholder is contractually obligated, consistent with
past practice, to withdraw in order to transfer to the Steve Y. Kim Blind Trust.
5. Voting of Owned Shares; Proxy. (a) During the period commencing
on the date hereof and continuing until the earlier of (x) the consummation of
the Offer and (y) the termination of this Agreement (such period being referred
to as the "Voting Period"), at any meeting (whether annual or special, and
whether or not an adjourned or postponed) of the Company's shareholders, however
called, or in connection with any written consent of the Company's shareholders,
subject to the absence of a preliminary or permanent injunction or other
requirement under applicable law by any United States federal, state or foreign
court barring such action, Shareholder shall vote (or cause to be voted) all
Owned Shares: (i) in favor of the Merger, the execution and delivery by the
Company of the Merger Agreement and the approval and adoption of the Merger and
the terms thereof and each of the other actions contemplated by the Merger
Agreement and this Agreement and any actions required in furtherance thereof and
hereof; and (ii) against any action or agreement that would impede, interfere
with, or prevent the Merger, including any Acquisition Proposal. Shareholder
shall not enter into any agreement, arrangement or understanding with any Person
the effect of which would be inconsistent or violative of the provisions and
agreements contained in this Section 5.
(b) By its execution hereof and in order to secure its obligations
under this Agreement, during the Voting Period, Shareholder irrevocably grants
to, and appoints, Parent and Olivier Houssin and Pascal Durand-Barthez, or
either of them, in their respective capacities as employees of Parent, and any
individual who shall hereafter succeed to either of their respective positions
at Parent, and each of them individually, as its true and lawful proxy and
attorney-in-fact (with full power of substitution), for and in the name, place
and stead of such Shareholder to vote the Owned Shares or grant a consent or
approval in respect of the Owned Shares (i) in favor of the Merger, the
execution and delivery by the Company of the Merger Agreement and the approval
and adoption of the Merger and the terms thereof and each of the other actions
contemplated by the Merger Agreement and any action required in furtherance
thereof and hereof and (ii) against any action or agreement that would impede,
interfere with, or prevent the Offer or the Merger, including any Acquisition
Proposal ("Irrevocably Proxy"). Shareholder hereby represents that any proxies
heretofore given in respect of the Owned Shares are not irrevocable, and that
any such proxies are hereby revoked.
(c) Shareholder understands and acknowledges that Parent is entering
into the Merger Agreement in reliance upon its execution and delivery of this
Irrevocable Proxy. Shareholder hereby affirms that this Irrevocable Proxy is
given in connection with the execution of this Agreement and the Merger
Agreement, and further affirms that this Irrevocable Proxy is coupled with an
interest and is intended to be irrevocable in accordance with the provisions of
Section 705 of the CGCL. Shareholder hereby ratifies and confirms all that this
Irrevocable Proxy may lawfully do or cause to be done by virtue hereof.
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<PAGE> 6
(d) In the event of any stock split, stock dividend, merger,
reorganization, recapitalization or other change in the capital structure of the
Company affecting the Company Common Stock or the acquisition of additional
shares of Company Common Stock or other securities or rights of the Company by
the Shareholder (through the exercise of Shares Under Option or otherwise), this
Agreement and the obligations hereunder shall attach to any additional shares of
Company Common Stock or other securities or rights of the Company issued to or
acquired by the Shareholder.
6. Option. (a) Shareholder hereby grants Purchaser an irrevocable
option (the "Option") to purchase any or all Owned Shares and Shares Under
Option (to the extent exercisable on the date that Parent notifies Shareholder
that it intends to exercise the Option) at a price per share equal to the Offer
Price (the "Option Price"). The Option shall become exercisable immediately
prior to, but contingent upon, the consummation of a transaction contemplated by
the Acquisition Proposal referred to in clause (ii), below, if: (i) the Merger
Agreement is terminated and Parent would be entitled, or following such time may
be entitled, to receive the Fee in connection with such termination pursuant to
Section 9.03(b) of the Merger Agreement, and (ii) the Company enters into a
letter of intent or definitive agreement with respect to a transaction
contemplated by an Acquisition Proposal within six (6) months after such
termination, and shall cease to be exercisable immediately following the
consummation of the transaction referred to in clause (ii).
(b) Subject to the other provisions of this Agreement, the Option
shall become and remain exercisable so that Purchaser shall have the right and
ability to exercise the Option and deliver the shares of Company Common Stock
issuable upon such exercise and to receive the consideration payable for such
shares in connection with the consummation of the transaction contemplated by
the Acquisition Proposal. Shareholder shall give Purchaser and Parent notice of
the date scheduled for consummation of a transaction contemplated by the
Acquisition Proposal as far in advance as is reasonably practicable. If
Purchaser wishes to exercise the Option, it or Parent shall send a written
notice to Shareholder specifying the place and date for the closing of the
purchase. Nothing herein shall be construed to limit Purchaser's right to
exercise the Option in a timely manner in connection with such transaction
regardless of when such notice is given by Shareholder or when Parent or
Purchaser delivers a notice of exercise to Shareholder; provided, however, that
if at the scheduled closing date for the transaction contemplated by the
Acquisition Proposal, Parent or the Purchaser shall be legally prohibited from
exercising the Option as to all or a portion of the Owned Shares or Shares Under
Option (including by reason of a failure on the part of Parent and the Purchaser
to fully comply with the requirements of the HSR Act or the EC Merger
Regulations), such legal prohibition shall not serve to delay or otherwise
prevent consummation of such transaction at its scheduled closing date.
(c) It is understood that Purchaser shall not be entitled to
purchase the Covered Shares pursuant to the Option if Purchaser shall have
failed to purchase the Shares pursuant to the Offer in breach of its obligations
under the Merger Agreement.
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(d) Notwithstanding anything herein to the contrary, whenever the
Option is exercisable Purchaser may elect, instead of exercising the Option, to
require Shareholder upon consummation of the transaction contemplated by the
Acquisition Proposal to pay to Purchaser a portion of the consideration per
Covered Share (the "Consideration") received by Shareholder at the consummation
of such transaction equal to the amount of the excess, if any, of the
Consideration over the Offer Price, multiplied by the number of Covered Shares
acquired in such transaction. Such payment shall be made as and when paid in
connection with such transaction.
7. Restrictions on Transfer, Other Proxies; No Solicitation.
(a) Shareholder shall not, until the termination of this Agreement,
directly or indirectly: (i) except as provided in Sections 4, 5 or 6 hereof,
Transfer to any Person any or all Covered Shares; or (ii) grant any proxies or
powers of attorney, deposit any Covered Shares into a voting trust or enter into
a voting agreement, understanding or arrangement with respect to such Covered
Shares. Nothing contained herein shall prevent Shareholder from transferring any
or all of the Covered Shares to an Affiliate of Shareholder which agrees to be
bound by this Agreement; provided that Shareholder shall continue to remain
liable for all its obligations under this Agreement. The Covered Shares and the
certificates represented thereby owned by such Shareholder are now and at all
times during the term hereof will be held by such Shareholder, or by a nominee
or custodian as provided in Section 7(a) hereof, free and clear of all
Encumbrances, except for such Encumbrances arising hereunder.
(b) Shareholder hereby agrees, in its capacity as a Shareholder of
the Company, that it and its Affiliates shall not, and Shareholder shall cause
its Representatives not to, directly or indirectly, (i) initiate, solicit or
encourage (including by way of furnishing non-public information) participate
in, or otherwise facilitate any inquiries or the making of any proposal or offer
that constitutes or is reasonably likely to lead to an Acquisition Proposal or
(ii) engage in any negotiations concerning, or provide any non-public
information or data to, or have any discussions with, any third party relating
to an Acquisition Proposal. Shareholder will notify Parent promptly (but in any
event within 24 hours) if any such inquiries, proposals or offers are received
by, any such information requested from, or any such discussions or negotiations
are sought to be initiated or continued with such Shareholder or its
Representatives (if any) in each case in connection with any Acquisition
Proposal indicating, in connection with such notice, the name of such person and
the material terms and conditions of any proposals or offers and thereafter
shall keep Parent informed, on a current basis, on the status and terms of any
such proposals or offers and the status of any such negotiations or discussions.
Shareholder agrees that it will immediately cease and cause to be terminated any
existing activities or discussion with any parties conducted heretofore with
respect to an Acquisition Proposal and will request from each person that has
heretofore executed a confidentiality agreement in connection with its
consideration of an Acquisition Proposal to return all confidential information
heretofore furnished to such person by or on behalf of it or any of its
subsidiaries. The foregoing shall be subject to Shareholder's fiduciary duties
as a director and/or officer of the Company. Any
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<PAGE> 8
action taken by the Company or any member of the Company Board in his capacity
as such in accordance with the terms of the Merger Agreement shall be deemed not
to violate this Section 7(b).
8. Stop Transfer. Shareholder shall not request that the Company
register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of the Owned Shares, unless such
transfer is made in compliance with this Agreement.
9. Further Assurances. From time to time, at the other party's
request and without further consideration, each party hereto shall execute and
deliver such additional documents and take all such further lawful action as may
be necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement.
10. Non-Competition. In consideration of the transactions
contemplated hereunder and under the Merger Agreement, Shareholder agrees that,
commencing on the Effective Date and for a period ending four (4) years after
the Effective Date, Shareholder shall not, directly or indirectly:
(i) own, manage, control or participate in the ownership,
management, or control of, or be employed or engaged by or otherwise
affiliated or associated as a consultant, independent contractor or
otherwise with any other corporation, partnership, proprietorship,
firm, association or other business entity engaged in the business
of designing, manufacturing and/or selling enterprise data LAN
switching, ATM switching and/or Gigabit Ethernet switching products
to customers in the enterprise and/or carrier markets; provided,
however, that the following shall not be deemed a violation of this
covenant: (A) the ownership of not more than three percent (3%) of
any class of publicly traded securities of any entity; and (B)
passive investments in venture capital funds or similar entities
established by persons who are not affiliated with or related to
Shareholder and over which Shareholder has no power to direct the
management or investment decisions.
(ii) offer to employ or otherwise engage, any Person who is then (or
was at any time within one year prior to the time of such
employment, engagement or offer thereof) an employee, sales
representative or agent of the Company; or
(iii) solicit any business from any Person or entity that is at the
time of such solicitation a customer of the Company in a manner
likely to result in a discontinuance or reduction of the extent of
such Person's or entity's business relationship with the Company, or
induce or influence any customer, supplier or other person that has
a business relationship with the Company to discontinue or reduce
the extent of such relationship with the Company.
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<PAGE> 9
11. Waiver of Appraisal Rights. Shareholder hereby waives any rights
of appraisal or rights to dissent from the Merger that it may have.
12. Cancellation of Change of Control Agreements; Agreement to
Rollover Shares Under Option.
(a) In consideration of the transactions contemplated hereunder and
under the Merger Agreement, Shareholder hereby waives, effective at, and
contingent upon the occurrence of, the Effective Time of the Merger, any and all
claims, rights and entitlements that he has, has had or may ever have with
respect to or arising under the Change of Control Agreement between Shareholder
and the Company (the "CIC Agreement") and releases, effective at, and contingent
upon the occurrence of, the Effective Time of the Merger, the Company and its
officers, directors, shareholders, employees and representatives and any of
their successors and assigns from any and all such claims, rights and
entitlements relating to or arising under the CIC Agreement. Shareholder
acknowledges that the CIC Agreement shall become null and void at the Effective
Time of the Merger. This provision shall survive indefinitely notwithstanding
anything herein to the contrary.
(b) Shareholder shall not exercise, sell or otherwise Transfer (or
attempt to exercise, sell or otherwise Transfer) any of his outstanding options
to purchase shares of the Company (whether vested or unvested). Shareholder
shall take any and all actions necessary to ensure that all of his outstanding
options are converted in accordance with Section 7.03(a) of the Merger Agreement
and shall elect the option conversion under Section 7.03(b)(ii) of the Merger
Agreement.
13. Termination. This Agreement, and all rights and obligations of
the parties hereunder, shall terminate upon the earlier of (a) the date upon
which the Parent shall have purchased and paid for all of the Owned Shares of
Shareholder in accordance with the terms of the Offer, (b) if the Merger
Agreement shall be terminated in circumstances that do not give rise to the
payment of the Fee pursuant to Section 9.03(b) thereof, the date on which the
Merger Agreement shall be terminated, (c) if the Merger Agreement shall be
terminated in circumstances that give rise to the payment of the Fee pursuant to
Section 9.03(b) and the Company shall not have entered into a letter of intent
or definitive agreement with respect to a transaction contemplated by an
Acquisition Proposal within six months following such date of termination, six
months following the date on which the Merger Agreement shall be terminated, and
(d) if the Merger Agreement shall be terminated in circumstances that give rise
to the payment of the Fee pursuant to Section 9.03(b) and the Company shall have
entered into a letter of intent or definitive agreement with respect to a
transaction contemplated by a Acquisition Proposal within six months following
such date of termination, the date on which such transaction shall be
consummated.
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14. Miscellaneous.
(a) This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof.
(b) Shareholder agrees that this Agreement and the respective rights
and obligations of Shareholder hereunder shall attach to all Covered Shares.
(c) All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses.
(d) 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, personal or legal representatives, executors, administrators, heirs,
distributees, devisees, legatees and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by either party (whether by operation of law or otherwise) without the
prior written consent of the other party; provided, that Parent and Purchaser
may assign all or any of their rights and obligations hereunder to any assignee
of such parties' rights and obligations under the Merger Agreement or to any
other subsidiary of Parent. Nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement.
(e) This Agreement may not be amended, changed, supplemented, or
otherwise modified or terminated, except upon the execution and delivery of a
written agreement executed by each of the parties hereto. The parties may waive
compliance by the other parties hereto with any representation, agreement or
condition otherwise required to be complied with by such other party hereunder,
but any such waiver shall be effective only if in writing executed by the
waiving party.
(f) All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered or mailed if delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like changes of address shall be effective upon receipt)
or sent by electronic transmission, with confirmation received, to the telecopy
number specified below:
If to Parent or Purchaser:
Alcatel
54, rue La Boetie
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75008 Paris
France
Telecopier No.: 33-1-4076-1486
Attention: Pascal Durand-Barthez, Esq.
With a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Telecopier No.: (212) 969-2900
Attention: Stanley Komaroff, Esq.
If to Shareholder:
Steven Y. Kim
10380 Wilshire Boulevard, Suite 1803
Los Angeles, CA 90024
Copy to:
Gunderson Dettmer LLP
155 Constitution Drive
Menlo Park, CA 94024
Attention: Shawn Lampron, Esq.
(g) If any term or other provision of this Agreement shall be held
to be invalid, illegal or unenforceable by any rule of law or public policy,
such clause or provision shall be construed and enforced as if it had been more
narrowly drawn so as not to be invalid or unenforceable, and such invalidity or
unenforceability shall not affect or render invalid or unenforceable any other
provision of this Agreement.
(h) Each of the parties hereto acknowledges and agrees that in the
event of any breach of this Agreement, each non-breaching party would be
irreparably and immediately harmed and could not be made whole by monetary
damages. It is accordingly agreed that the parties hereto (a) will waive, in any
action for specific performance, the defense of adequacy of a remedy at law and
(b) shall be entitled, in addition to any other remedy to which they may be
entitled at law or in equity, to compel specific performance of this Agreement.
(i) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise of any thereof by any party shall not
preclude the simultaneous or later exercise of any other such right, power or
remedy by such party. The failure of any party
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hereto to exercise any right, power or remedy provided under this Agreement or
otherwise available in respect hereof at law or in equity, or to insist upon
compliance by any other party hereto with its obligations hereunder, and any
custom or practice of the parties at variance with the terms hereof, shall not
constitute a waiver by such party of its right to exercise any such or other
right, power or remedy or to demand such compliance.
(j) Notwithstanding anything herein to the contrary, nothing set
forth herein shall in any way restrict any director in the exercise of his or
her fiduciary duties as a director of the Company.
(k) This Agreement shall be governed and construed in accordance
with the laws of the State of California without giving effect to the principles
of conflicts of law thereof.
(l) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
(m) This Agreement may be executed in one or more counterparts, and
by the different parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
12
<PAGE> 13
IN WITNESS WHEREOF, Parent, Purchaser and Shareholder have caused
this Agreement to be duly executed as of the day and year first above written.
ALCATEL
By: /s/ Serge Tchuruk
------------------------------------
Name: Serge Tchuruk
Title: Chairman and Chief
Executive Officer
ZEUS ACQUISITION CORP.
By: /s/ Olivier Houssin
------------------------------------
Name: Olivier Houssin
Title: Chairman
Shareholder
/s/ Steve Y. Kim
----------------------------------------
Name: Steve Y. Kim
Title:
AGREED TO FOR PURPOSES
OF SECTION 12
XYLAN CORPORATION
By: /s/ Steve Y. Kim
---------------------------
Name: Steve Y. Kim
Title: President and Chief
Executive Officer
13
<PAGE> 14
STEVE Y. KIM LIVING TRUST
By: /s/ Steve Y. Kim
------------------------------------
Name: Steve Y. Kim
Title: Trustee
KIM IRREVOCABLE CHILDREN'S TRUST
By: /s/ Steve Y. Kim
------------------------------------
Name: Steve Yun Kim
Title: Co-Trustee
By: /s/ Gaylin N. King
------------------------------------
Name: Whittier Trust Company
Title: Co-Trustee
14
<PAGE> 15
ANNEX I (SK)
<TABLE>
<CAPTION>
Owned Shares
<S> <C>
Steve Y. Kim Living Trust 1,957,500
Kim Irrevocable Children's Trust 820,000
Shares Under Option
</TABLE>
15
<PAGE> 1
Exhibit (c)(3)
SHAREHOLDER AGREEMENT (YP)
THIS SHAREHOLDER AGREEMENT dated as of March 1, 1999 (this
"Agreement") is by and among Alcatel, a French corporation ("Parent"), Zeus
Acquisition Corp. a California corporation ("Purchaser"), Yuri Pikover
("Shareholder"), and Pikover 1995 Irrevocable Trust, Pikover Trust, Pikover
Irrevocable Children's Trust (collectively, the "Trusts" and, for all purposes
under this Agreement other than Sections 10 and 12, "Shareholder" shall include
the Trusts).
W I T N E S S E T H:
WHEREAS, simultaneously with the execution of this Agreement,
Parent, Purchaser and Xylan Corporation, a California corporation (the
"Company"), have entered into an Agreement and Plan of Merger (as amended from
time to time, the "Merger Agreement"), pursuant to which Purchaser has agreed,
among other things, to commence a cash tender offer (as such tender offer may
hereafter be amended from time to time, the "Offer") to purchase all shares of
common stock, $.001 par value, of the Company (the "Company Common Stock");
WHEREAS, as an inducement and a condition to its entering into the
Merger Agreement and incurring the obligations set forth therein, including the
Offer and the Merger, Parent has required that Shareholder enter into this
Agreement;
NOW THEREFORE, in consideration of the foregoing and the mutual
promises, representations, warranties, covenants and agreements contained herein
and in the Merger Agreement, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Certain Definitions. Capitalized terms used and not defined
herein have the respective meanings ascribed to them in the Merger Agreement. In
addition, for purposes of this Agreement:
"Affiliate" means, with respect to any specified Person, any Person
that directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the Person specified; including,
without limitation, any partnership or joint venture in which the Person
specified (either alone, or through or together with any other subsidiary) has,
directly or indirectly, an interest of 10% or more. For purposes of this
Agreement, with respect to Shareholder, "Affiliate" shall not include the
Company and the Persons that directly, or indirectly through one or more
intermediaries, are controlled by the Company.
"Beneficially Own" or "Beneficial Ownership" with respect to any
securities means having "beneficial ownership" of such securities (as determined
pursuant to Rule 13d-3
<PAGE> 2
under the Exchange Act ), including pursuant to any agreement, arrangement or
understanding, whether or not in writing. Without duplicative counting of the
same securities by the same holder, securities Beneficially Owned by a Person
shall include securities Beneficially Owned by all Affiliates of such Person and
all other Persons with whom such Person would constitute a "group" within the
meaning of Section 13(d) of the Exchange Act and the rules promulgated
thereunder.
"Covered Shares" means the Owned Shares and the Shares Under Option.
"Encumbrances" shall mean any and all liens, charges, security
interests, options, claims, mortgages, pledges, proxies, voting trusts or
agreements, obligations, understandings or arrangements or other restrictions of
any nature whatsoever.
"Owned Shares" means all the shares of Company Common Stock
Beneficially Owned by Shareholder on the date hereof (other than Shares Under
Option), including the shares listed on Annex I attached hereto, and any other
securities of the Company entitled, or which may be entitled, to vote generally
in the election of directors that are Beneficially Owned by Shareholder.
"Person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
"Representative" means, with respect to any Person, such Person's
officers, directors, employees, agents and representatives (including any
investment banker, financial advisor, agent, representative or expert retained
by or acting on behalf of such Person or its subsidiaries).
"Shares Under Option" means all the shares of Company Common Stock
that are subject to options, securities convertible into exchangeable or
exercisable for any such shares, or any Voting Debt of the Company Beneficially
Owned by Shareholder, including those listed on Annex I attached hereto.
"Transfer" means, with respect to a security, the sale, transfer,
pledge, gift, hypothecation, encumbrance, assignment or disposition of such
security or the Beneficial Ownership thereof, the offer to make such a sale,
transfer or other disposition, and each option, agreement, arrangement or
understanding, whether or not in writing, to effect any of the foregoing. As a
verb, "Transfer" shall have a correlative meaning.
2. Representations and Warranties of Shareholder. Shareholder hereby
represents and warrants to Parent and Purchaser as follows:
(a) The Covered Shares constitute all of the capital stock of the
Company Beneficially Owned by Shareholder. Without limiting the foregoing, the
Covered Shares
2
<PAGE> 3
include all shares of Company Common Stock held of record or Beneficially by any
relative, trust or other Affiliate of Shareholder of which Shareholder has or
shares any voting power or power of disposition. Except as described on Annex I,
Shareholder is the record and Beneficial Owner, has sole voting power, sole
power of disposition and sole power to agree to all of the matters set forth in
this Agreement, in each case with respect to the Covered Shares. Shareholder has
good and marketable title to the Owned Shares, free and clear of all
Encumbrances. As to any shares that Shareholder indicates he does not have such
sole powers, Shareholder shall use his reasonable best efforts to cause all of
his obligations under this Agreement to be complied with by any person having
such powers.
(b) Shareholder has the legal capacity to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by Shareholder and, assuming
the due authorization, execution and delivery of this Agreement of each of
Parent and Purchaser, constitutes the legal, valid and binding obligation of
Shareholder, enforceable against such Shareholder in accordance with its terms
except (i) to the extent limited by applicable bankruptcy, insolvency or similar
laws affecting creditors rights and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
(c) Neither of the execution and delivery of this Agreement by
Shareholder, the consummation by Shareholder of the transactions contemplated
hereby nor the compliance by Shareholder with any of the provisions hereof shall
(i) result in any breach of, or constitute a default (or an event which with
notice or lapse of time or both would become a default) (or give rise to any
third party right of termination, cancellation, material modification or
acceleration) under any of the terms, conditions or provisions of any note, loan
agreement, bond, mortgage, indenture, contract, license, agreement, lease,
permit or other instrument or obligation to which Shareholder is a party or by
which Shareholder or any of his properties or assets (including the Covered
Shares) may be bound, except as may be set forth in existing option agreements,
(ii) require on the part of Shareholder any filing with, or permit,
authorization, consent or approval of, any Governmental Entity, or (iii) violate
any order, writ, injunction, decree, judgment, statute, rule or regulation
applicable to Shareholder or any of his properties or assets, excluding from the
foregoing such violations, breaches, defaults or failures to make any filing or
to obtain any permit, authorization, consent or approval which would not,
individually or in the aggregate, impair the ability of Shareholder to
consummate the transactions contemplated hereby.
3. Representations and Warranties of Parent and Purchaser. Parent
and Purchaser hereby represent and warrant to Shareholder as follows:
(a) Each of Parent and Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all necessary corporate power and authority to execute and
deliver this Agreement and perform its
3
<PAGE> 4
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery by Parent and Purchaser of this Agreement and the
performance by Parent and Purchaser of their respective obligations hereunder
have been duly and validly authorized by all necessary corporate action on the
part of Parent and Purchaser and no other corporate proceedings on the part of
Parent or Purchaser are necessary to authorize the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby.
(b) This Agreement has been duly and validly executed and delivered
by Parent and Purchaser and, assuming the due authorization, execution and
delivery of this Agreement by Shareholder, constitutes the legal, valid and
binding obligation of each of Parent and Purchaser, enforceable against each of
them in accordance with its terms except (i) to the extent limited by applicable
bankruptcy, insolvency or similar laws affecting creditors rights and (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
(c) Neither the execution and delivery of this Agreement by Parent
or Purchaser, the consummation by Parent or Purchaser of the transactions
contemplated hereby nor the compliance by Parent or Purchaser with any of the
provisions hereof shall (i) conflict with or violate the statuts of Parent or
the articles of incorporation or by-laws of Purchaser, (ii) result in any breach
of or constitute a default (or an event which with notice or lapse of time or
both would become a default) (or give rise to any third party right of
termination, cancellation, material modification or acceleration) under any of
the terms, conditions or provisions of any note, loan agreement, bond, mortgage,
indenture, contract, license, agree ment, lease, permit or other instrument or
obligation to which Parent or Purchaser is a party or by which Parent or
Purchaser or any of their respective properties or assets may be bound, (iii)
require on the part of Parent or Purchaser any filing with, or permit,
authorization, consent or approval of, any Governmental Entity, other than any
filing required to be made under the Securities Act, the Exchange Act, the HSR
Act, the EC Merger Regulations or nonUnited States laws regulating competition,
antitrust, investment and exchange controls or (iv) violate any order, writ,
injunction, decree, judgment, statute, rule or regulation applicable to Parent
or Purchaser or any of their respective properties or assets, excluding from the
foregoing such violations, breaches, defaults or failures to make any filing or
to obtain any permit, authorization, consent or approval which would not,
individually or in the aggregate, materially impair the ability of Parent or
Purchaser to consummate the transactions contemplated hereby.
4. Tender of Shares. Shareholder shall tender or cause the record
owner thereof to tender all the Owned Shares into the Offer promptly, and in any
event no later than the tenth business day following the commencement of the
Offer pursuant to Section 1.01 of the Merger Agreement, and Shareholder shall
not, and shall cause the record owner thereof not to, withdraw any Owned Shares
so tendered unless the Offer is terminated or has expired,
4
<PAGE> 5
except for shares that Shareholder is contractually obligated, consistent with
past practice, to withdraw in order to transfer to the Pikover Blind Trust.
5. Voting of Owned Shares; Proxy. (a) During the period commencing
on the date hereof and continuing until the earlier of (x) the consummation of
the Offer and (y) the termination of this Agreement (such period being referred
to as the "Voting Period"), at any meeting (whether annual or special, and
whether or not an adjourned or postponed) of the Company's shareholders, however
called, or in connection with any written consent of the Company's shareholders,
subject to the absence of a preliminary or permanent injunction or other
requirement under applicable law by any United States federal, state or foreign
court barring such action, Shareholder shall vote (or cause to be voted) all
Owned Shares: (i) in favor of the Merger, the execution and delivery by the
Company of the Merger Agreement and the approval and adoption of the Merger and
the terms thereof and each of the other actions contemplated by the Merger
Agreement and this Agreement and any actions required in furtherance thereof and
hereof; and (ii) against any action or agreement that would impede, interfere
with, or prevent the Merger, including any Acquisition Proposal. Shareholder
shall not enter into any agreement, arrangement or understanding with any Person
the effect of which would be inconsistent or violative of the provisions and
agreements contained in this Section 5.
(b) By its execution hereof and in order to secure its obligations
under this Agreement, during the Voting Period, Shareholder irrevocably grants
to, and appoints, Parent and Olivier Houssin and Pascal Durand-Barthez, or
either of them, in their respective capacities as employees of Parent, and any
individual who shall hereafter succeed to either of their respective positions
at Parent, and each of them individually, as its true and lawful proxy and
attorney-in-fact (with full power of substitution), for and in the name, place
and stead of such Shareholder to vote the Owned Shares or grant a consent or
approval in respect of the Owned Shares (i) in favor of the Merger, the
execution and delivery by the Company of the Merger Agreement and the approval
and adoption of the Merger and the terms thereof and each of the other actions
contemplated by the Merger Agreement and any action required in furtherance
thereof and hereof and (ii) against any action or agreement that would impede,
interfere with, or prevent the Offer or the Merger, including any Acquisition
Proposal ("Irrevocably Proxy"). Shareholder hereby represents that any proxies
heretofore given in respect of the Owned Shares are not irrevocable, and that
any such proxies are hereby revoked.
(c) Shareholder understands and acknowledges that Parent is entering
into the Merger Agreement in reliance upon its execution and delivery of this
Irrevocable Proxy. Shareholder hereby affirms that this Irrevocable Proxy is
given in connection with the execution of this Agreement and the Merger
Agreement, and further affirms that this Irrevocable Proxy is coupled with an
interest and is intended to be irrevocable in accordance with the provisions of
Section 705 of the CGCL. Shareholder hereby ratifies and confirms all that this
Irrevocable Proxy may lawfully do or cause to be done by virtue hereof.
5
<PAGE> 6
(d) In the event of any stock split, stock dividend, merger,
reorganization, recapitalization or other change in the capital structure of the
Company affecting the Company Common Stock or the acquisition of additional
shares of Company Common Stock or other securities or rights of the Company by
the Shareholder (through the exercise of Shares Under Option or otherwise), this
Agreement and the obligations hereunder shall attach to any additional shares of
Company Common Stock or other securities or rights of the Company issued to or
acquired by the Shareholder.
6. Option. (a) Shareholder hereby grants Purchaser an irrevocable
option (the "Option") to purchase any or all Owned Shares and Shares Under
Option (to the extent exercisable on the date that Parent notifies Shareholder
that it intends to exercise the Option) at a price per share equal to the Offer
Price (the "Option Price"). The Option shall become exercisable immediately
prior to, but contingent upon, the consummation of a transaction contemplated by
the Acquisition Proposal referred to in clause (ii), below, if: (i) the Merger
Agreement is terminated and Parent would be entitled, or following such time may
be entitled, to receive the Fee in connection with such termination pursuant to
Section 9.03(b) of the Merger Agreement, and (ii) the Company enters into a
letter of intent or definitive agreement with respect to a transaction
contemplated by an Acquisition Proposal within six (6) months after such
termination, and shall cease to be exercisable immediately following the
consummation of the transaction referred to in clause (ii).
(b) Subject to the other provisions of this Agreement, the Option
shall become and remain exercisable so that Purchaser shall have the right and
ability to exercise the Option and deliver the shares issuable upon such
exercise and to receive the consideration payable for such shares in connection
with the consummation of the transaction contemplated by the Acquisition
Proposal. Shareholder shall give Purchaser and Parent notice of the date
scheduled for consummation of a transaction contemplated by the Acquisition
Proposal as far in advance as is reasonably practicable. If Purchaser wishes to
exercise the Option, it or Parent shall send a written notice to Shareholder
specifying the place and date for the closing of the purchase. Nothing herein
shall be construed to limit Purchaser's right to exercise the Option in a timely
manner in connection with such transaction regardless of when such notice is
given by Shareholder or when Parent or Purchaser delivers a notice of exercise
to Shareholder; provided, however, that if at the scheduled closing date for the
transaction contemplated by the Acquisition Proposal, Parent or the Purchaser
shall be legally prohibited from exercising the Option as to all or a portion of
the Owned Shares or Shares Under Option (including by reason of a failure on the
part of Parent and the Purchaser to fully comply with the requirements of the
HSR Act or the EC Merger Regulations), such legal prohibition shall not serve to
delay or otherwise prevent consummation of such transaction at its scheduled
closing date.
(c) It is understood that Purchaser shall not be entitled to
purchase the Covered Shares pursuant to the Option if Purchaser shall have
failed to purchase the Shares pursuant to the Offer in breach of its obligations
under the Merger Agreement.
6
<PAGE> 7
(d) Notwithstanding anything herein to the contrary, whenever the
Option is exercisable Purchaser may elect, instead of exercising the Option, to
require Shareholder upon consummation of the transaction contemplated by the
Acquisition Proposal to pay to Purchaser a portion of the consideration per
Covered Share (the "Consideration") received by Shareholder at the consummation
of such transaction equal to the amount of the excess, if any, of the
Consideration over the Offer Price, multiplied by the number of Covered Shares
acquired in such transaction. Such payment shall be made as and when paid in
connection with such transaction.
7. Restrictions on Transfer, Other Proxies; No Solicitation.
(a) Shareholder shall not, until the termination of this Agreement,
directly or indirectly: (i) except as provided in Sections 4, 5 or 6 hereof,
Transfer to any Person any or all Covered Shares; or (ii) grant any proxies or
powers of attorney, deposit any Covered Shares into a voting trust or enter into
a voting agreement, understanding or arrangement with respect to such Covered
Shares. Nothing contained herein shall prevent Shareholder from transferring any
or all of the Covered Shares to an Affiliate of Shareholder which agrees to be
bound by this Agreement; provided that Shareholder shall continue to remain
liable for all its obligations under this Agreement. The Covered Shares and the
certificates represented thereby owned by such Shareholder are now and at all
times during the term hereof will be held by such Shareholder, or by a nominee
or custodian as provided in Section 7(a) hereof, free and clear of all
Encumbrances, except for such Encumbrances arising hereunder.
(b) Shareholder hereby agrees, in its capacity as a Shareholder of
the Company, that it and its Affiliates shall not, and Shareholder shall cause
its Representatives not to, directly or indirectly, (i) initiate, solicit or
encourage (including by way of furnishing non-public information) participate
in, or otherwise facilitate any inquiries or the making of any proposal or offer
that constitutes or is reasonably likely to lead to an Acquisition Proposal or
(ii) engage in any negotiations concerning, or provide any non-public
information or data to, or have any discussions with, any third party relating
to an Acquisition Proposal. Shareholder will notify Parent promptly (but in any
event within 24 hours) if any such inquiries, proposals or offers are received
by, any such information requested from, or any such discussions or negotiations
are sought to be initiated or continued with such Shareholder or its
Representatives (if any) in each case in connection with any Acquisition
Proposal indicating, in connection with such notice, the name of such person and
the material terms and conditions of any proposals or offers and thereafter
shall keep Parent informed, on a current basis, on the status and terms of any
such proposals or offers and the status of any such negotiations or discussions.
Shareholder agrees that it will immediately cease and cause to be terminated any
existing activities or discussion with any parties conducted heretofore with
respect to an Acquisition Proposal and will request from each person that has
heretofore executed a confidentiality agreement in connection with its
consideration of an Acquisition Proposal to return all confidential information
heretofore furnished to such person by or on behalf of it or any of its
subsidiaries. The foregoing shall be subject to Shareholder's fiduciary duties
as a director and/or officer of the Company. Any
7
<PAGE> 8
action taken by the Company or any member of the Company Board in his capacity
as such in accordance with the terms of the Merger Agreement shall be deemed not
to violate this Section 7(b).
8. Stop Transfer. Shareholder shall not request that the Company
register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of the Owned Shares, unless such
transfer is made in compliance with this Agreement.
9. Further Assurances. From time to time, at the other party's
request and without further consideration, each party hereto shall execute and
deliver such additional documents and take all such further lawful action as may
be necessary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement.
10. Non-Competition. In consideration of the transactions
contemplated hereunder and under the Merger Agreement, Shareholder agree that,
commencing on the Effective Date and for a period ending two (2) years after the
Effective Date, Shareholder shall not, directly or indirectly:
(i) own, manage, control or participate in the ownership,
management, or control of, or be employed or engaged by or otherwise
affiliated or associated as a consultant, independent contractor or
otherwise with any other corporation, partnership, proprietorship,
firm, association or other business entity engaged in the business
of designing, manufacturing and/or selling enterprise data LAN
switching, ATM switching and/or Gigabit Ethernet switching products
to customers in the enterprise and/or carrier markets; provided,
however, that the following shall not be deemed a violation of this
covenant: (A) the ownership of not more than three percent (3%) of
any class of publicly traded securities of any entity; and (B)
passive investments in venture capital funds or similar entities
established by persons who are not affiliated with or related to
Shareholder and over which Shareholder has no power to direct the
management or investment decisions;
(ii) offer to employ or otherwise engage, any Person who is then (or
was at any time within one year prior to the time of such
employment, engagement or offer thereof) an employee, sales
representative or agent of the Company; or
(iii) solicit any business from any Person or entity that is at the
time of such solicitation a customer of the Company in a manner
likely to result in a discontinuance or reduction of the extent of
such Person's or entity's business relationship with the Company, or
induce or influence any customer, supplier or other person that has
a business relationship with the Company to discontinue or reduce
the extent of such relationship with the Company.
8
<PAGE> 9
11. Waiver of Appraisal Rights. Shareholder hereby waives any rights
of appraisal or rights to dissent from the Merger that it may have.
12. Cancellation of Change of Control Agreements; Agreement to
Rollover Shares Under Option; Option Vesting.
(a) In consideration of the transactions contemplated hereunder and
under the Merger Agreement, Shareholder hereby waives, effective at, and
contingent upon the occurrence of, the Effective Time of the Merger, any and all
claims, rights and entitlements that he has, has had or may ever have with
respect to or arising under the Change of Control Agreement between Shareholder
and the Company (the "CIC Agreement") and releases, effective at, and contingent
upon the occurrence of, the Effective Time of the Merger, the Company and its
officers, directors, shareholders, employees and representatives and any of
their successors and assigns from any and all such claims, rights and
entitlements relating to or arising under the CIC Agreement. Shareholder
acknowledges that the CIC Agreement shall become null and void at the Effective
Time of the Merger. This provision shall survive indefinitely notwithstanding
anything herein to the contrary.
(b) Shareholder shall not exercise, sell or otherwise Transfer (or
attempt to exercise, sell or otherwise Transfer) any of his outstanding options
to purchase shares of the Company (whether vested or unvested) (the "Shareholder
Options"). Shareholder shall take any and all actions necessary to ensure that
all of his Shareholder Options are converted in accordance with Section 7.03(a)
of the Merger Agreement and shall elect the option conversion under Section
7.03(b)(ii) of the Merger Agreement.
(c) As of the Effective Date, the Company and the Shareholder hereby
agree that the Shareholder Options shall be amended to provide that: (I) the
Shareholder Options will not terminate following the termination of the
Shareholder's employment for any reason other than for cause; (II) the
Shareholder shall continue to vest in the Shareholder Options in accordance with
the applicable option plan or agreements for the Shareholder Options on the same
basis as if the Shareholder continued to be employed, provided that the
Shareholder continues to fulfill all obligations with respect to the restrictive
covenant set forth in Section 10 hereof; and (III) if the Shareholder fulfills
such restrictive covenant obligations, the Shareholder shall be entitled to
exercise such Shareholder Options at any time within the thirty (30) day period
following the satisfaction of the restrictive covenant. Notwithstanding anything
herein to the contrary, unless terminated earlier as contemplated hereunder,
under the applicable option plan or under the agreements for the Shareholder
Options, the Shareholder Options shall automatically expire on their
originally-specified expiration dates. For purposes hereof, "cause" shall mean
(1) the Shareholder's fraud, embezzlement or similar activities; or (2) the
Shareholder's conviction of, or plea of guilty or no contest to, any felony or
any crime involving fraud, embezzlement or other defalcation or any crime
involving moral turpitude; or (3) the Shareholder's commission of any act of
dishonesty or series of repeated acts of dishonesty which
9
<PAGE> 10
are not in the best interests of the Company, or which are injurious to the
business reputation of the Company; or (4) the Shareholder's willful and
repeated failure to perform his material duties of employment, which failure has
not been cured within thirty (30) business days after the Company gives written
notice thereof to the Shareholder.
13. Termination. This Agreement, and all rights and obligations of
the parties hereunder, shall terminate upon the earlier of (a) the date upon
which the Parent shall have purchased and paid for all of the Owned Shares of
Shareholder in accordance with the terms of the Offer, (b) if the Merger
Agreement shall be terminated in circumstances that do not give rise to the
payment of the Fee pursuant to Section 9.03(b) thereof, the date on which the
Merger Agreement shall be terminated, (c) if the Merger Agreement shall be
terminated in circumstances that give rise to the payment of the Fee pursuant to
Section 9.03(b) and the Company shall not have entered into a letter of intent
or definitive agreement with respect to a transaction contemplated by an
Acquisition Proposal within six months following such date of termination, six
months following the date on which the Merger Agreement shall be terminated, and
(d) if the Merger Agreement shall be terminated in circumstances that give rise
to the payment of the Fee pursuant to Section 9.03(b) and the Company shall have
entered into a letter of intent or definitive agreement with respect to a
transaction contemplated by a Acquisition Proposal within six months following
such date of termination, the date on which such transaction shall be
consummated.
14. Miscellaneous.
(a) This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof.
(b) Shareholder agrees that this Agreement and the respective rights
and obligations of Shareholder hereunder shall attach to all Covered Shares.
(c) All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses.
(d) 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, personal or legal representatives, executors, administrators, heirs,
distributees, devisees, legatees and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by either party (whether by operation of law or otherwise) without the
prior written consent of the other party; provided, that Parent and Purchaser
may assign all or any of their rights and obligations hereunder to any assignee
of such parties' rights and obligations under the Merger Agreement or to any
other subsidiary of Parent. Nothing in this Agreement,
10
<PAGE> 11
express or implied, is intended to or shall confer upon any other Person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
(e) This Agreement may not be amended, changed, supplemented, or
otherwise modified or terminated, except upon the execution and delivery of a
written agreement executed by each of the parties hereto. The parties may waive
compliance by the other parties hereto with any representation, agreement or
condition otherwise required to be complied with by such other party hereunder,
but any such waiver shall be effective only if in writing executed by the
waiving party.
(f) All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered or mailed if delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like changes of address shall be effective upon receipt)
or sent by electronic transmission, with confirmation received, to the telecopy
number specified below:
If to Parent or Purchaser:
Alcatel
54, rue La Boetie
75008 Paris
France
Telecopier No.: 33-1-4076-1486
Attention: Pascal Durand-Barthez, Esq.
With a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Telecopier No.: (212) 969-2900
Attention: Stanley Komaroff, Esq.
11
<PAGE> 12
If to Shareholder:
Yuri Pikover
3431 Sweetwater Mesa Road
Malibu, CA 90265
Copy to:
Gunderson Dettmer LLP
155 Constitution Drive
Menlo Park, CA 94024
Attention: Shawn Lampron, Esq.
(g) If any term or other provision of this Agreement shall be held
to be invalid, illegal or unenforceable by any rule of law or public policy,
such clause or provision shall be construed and enforced as if it had been more
narrowly drawn so as not to be construed and enforced as if it had been more
narrowly drawn so as not to be invalid or unenforceable, and such invalidity or
unenforceability shall not affect or render invalid or unenforceable any other
provision of this Agreement.
(h) Each of the parties hereto acknowledges and agrees that in the
event of any breach of this Agreement, each non-breaching party would be
irreparably and immediately harmed and could not be made whole by monetary
damages. It is accordingly agreed that the parties hereto (a) will waive, in any
action for specific performance, the defense of adequacy of a remedy at law and
(b) shall be entitled, in addition to any other remedy to which they may be
entitled at law or in equity, to compel specific performance of this Agreement.
(i) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise of any thereof by any party shall not
preclude the simultaneous or later exercise of any other such right, power or
remedy by such party. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(j) Notwithstanding anything herein to the contrary, nothing set
forth herein shall in any way restrict any director in the exercise of his or
her fiduciary duties as a director of the Company.
12
<PAGE> 13
(k) This Agreement shall be governed and construed in accordance
with the laws of the State of California without giving effect to the principles
of conflicts of law thereof.
(l) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
(m) This Agreement may be executed in one or more counterparts, and
by the different parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
13
<PAGE> 14
IN WITNESS WHEREOF, Parent, Purchaser and Shareholder have caused
this Agreement to be duly executed as of the day and year first above written.
ALCATEL
By: /s/ Serge Tchuruk
------------------------------------
Name: Serge Tchuruk
Title: Chairman and Chief
Executive Officer
ZEUS ACQUISITION CORP.
By: /s/ Olivier Houssin
------------------------------------
Name: Olivier Houssin
Title: Chairman
Shareholder
/s/ Yuri Pikover
----------------------------------------
Name: Yuri Pikover
Title:
AGREED TO FOR PURPOSES
OF SECTION 12
XYLAN CORPORATION
By: /s/ Steve Y. Kim
-----------------------------
Name: Steve Y. Kim
Title: President and Chief
Executive Officer
14
<PAGE> 15
PIKOVER 1995 IRREVOCABLE TRUST
By: /s/ Yuri Pikover
------------------------------------
Name: Yuri Pikover
Title: Co-Trustee
By: /s/ Gaylin N. King
------------------------------------
Name: Whittier Trust Company
Title: Co-Trustee
PIKOVER TRUST
By: /s/ Yuri Pikover
------------------------------------
Name: Yuri Pikover
Title: Trustee
PIKOVER IRREVOCABLE
CHILDREN'S TRUST
By: /s/ Yuri Pikover
------------------------------------
Name: Yuri Pikover
Title: Co-Trustee
By: /s/ Gaylin N. King
------------------------------------
Name: Whittier Trust Company
Title: Co-Trustee
15
<PAGE> 16
ANNEX I (YP)
<TABLE>
<CAPTION>
Owned Shares
<S> <C>
Pikover Trust 1,825,000
Pikover Children's Irrevocable Trust 225,000
Pikover 1995 Irrevocable Trust 15,000
Shares Under Option
</TABLE>
16
<PAGE> 1
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT dated as of March 1, 1999 (this "Agreement") is
by and among Alcatel, a French corporation ("Parent"), Zeus Acquisition Corp., a
California corporation ("Purchaser"), and John Walecka ("Shareholder").
WITNESSETH:
WHEREAS, simultaneously with the execution of this Agreement, Parent,
Purchaser and Xylan Corporation, a California corporation (the "Company"), have
entered into an Agreement and Plan of Merger (as amended from time to time, the
"Merger Agreement"), pursuant to which Purchaser has agreed, among other things,
to commence a cash tender offer (as such tender offer may hereafter be amended
from time to time, the "Offer") to purchase all shares of common stock, $.001
par value, of the Company (the "Company Common Stock");
WHEREAS, as an inducement and a condition to its entering into the Merger
Agreement and incurring the obligations set forth therein, including the Offer
and the Merger, Parent has required that Shareholder enter into this Agreement;
NOW THEREFORE, in consideration of the foregoing and the mutual promises
and agreements contained herein and in the Merger Agreement, the parties hereto,
intending to be legally bound hereby, agree as follows:
1. Certain Definitions. Capitalized terms used and not defined herein have
the respective meanings ascribed to them in the Merger Agreement.
2. Tender of Shares. Shareholder shall tender or cause the record owner
thereof to tender all shares of Company Common Stock owned of record by
Shareholder ("Owned Shares") into the Offer promptly, and in any event no later
than the tenth business day following the commencement of the Offer pursuant to
Section 1.01 of the Merger Agreement, and Shareholder shall not, and shall cause
the record owner thereof not to, withdraw any Owned Shares so tendered unless
the Offer is terminated or has expired.
3. Voting of Owned Shares; Proxy.
(a) During the period commencing on the date hereof and continuing
until the earlier of (x) the consummation of the Offer and (y) the termination
of this Agreement (such period being referred to as the "Voting Period"), at any
meeting (whether annual or special, and whether or not an adjourned or
postponed) of the Company's shareholders, however called, or in connection with
any written consent of the Company's shareholders, subject to the absence of a
preliminary or permanent injunction or other requirement under applicable law by
any United States federal, state or foreign court barring such action,
Shareholder shall vote (or cause to be voted) all Owned Shares: (i) in favor of
the Merger, the execution and delivery by the Company of the Merger Agreement
and the approval and adoption of the Merger and the terms thereof and each of
the other actions contemplated by the Merger Agreement and this Agreement and
any
1
<PAGE> 2
actions required in furtherance thereof and hereof; and (ii) against any action
or agreement that would impede, interfere with, or prevent the Merger, including
any Acquisition Proposal. Shareholder shall not enter into any agreement,
arrangement or understanding with any Person the effect of which would be
inconsistent or violative of the provisions and agreements contained in this
Section 3.
(b) By its execution hereof and in order to secure its obligations
under this Agreement, during the Voting Period, Shareholder irrevocably grants
to, and appoints, Parent and Olivier Houssin and Pascal Durand-Barthez, or
either of them, in their respective capacities as employees of Parent, and any
individual who shall hereafter succeed to either of their respective positions
at Parent, and each of them individually, as his true and lawful proxy and
attorney-in-fact (with full power of substitution), for and in the name, place
and stead of such Shareholder to vote the Owned Shares or grant a consent or
approval in respect of the Owned Shares (i) in favor of the Merger, the
execution and delivery by the Company of the Merger Agreement and the approval
and adoption of the Merger and the terms thereof and each of the other actions
contemplated by the Merger Agreement and this Agreement and any actions required
in furtherance thereof and hereof; and (ii) against any action or agreement that
would impede, interfere with, or prevent the Merger, including any Acquisition
Proposal ("Irrevocable Proxy"). Shareholder hereby represents that any proxies
heretofore given in respect of the Owned Shares are not irrevocable, and that
any such proxies are hereby revoked.
(c) Shareholder understands and acknowledges that Parent is entering
into the Merger Agreement in reliance upon its execution and delivery of this
Irrevocable Proxy. Shareholder hereby affirms that this Irrevocable Proxy is
given in connection with the execution of this Agreement and the Merger
Agreement, and further affirms that this Irrevocable Proxy is coupled with an
interest and is intended to be irrevocable in accordance with the provisions of
Section 705 of the CGCL. Shareholder hereby ratifies and confirms all that this
Irrevocable Proxy may lawfully do or cause to be done by virtue hereof.
(d) In the event of any stock split, stock dividend, merger,
reorganization, recapitalization or other change in the capital structure of the
Company affecting the Company Common Stock or the acquisition of additional
shares of Company Common Stock or other securities or rights of the Company by
the Shareholder, this Agreement and the obligations hereunder shall attach to
any additional shares of Company Common Stock or other securities or rights of
the Company issued to or acquired by the Shareholder.
4. Further Assurances. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional documents and take all such further lawful action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
5. Waiver of Appraisal Rights. Shareholder hereby waives any rights of
appraisal or rights to dissent from the Merger that he may have.
2
<PAGE> 3
6. Termination. This Agreement, and all rights and obligations of the
parties hereunder, shall terminate upon the earlier of (a) the date upon which
the Parent shall have purchased and paid for all of the Owned Shares of
Shareholder in accordance with the terms of the Offer and (b) the date on which
the Merger Agreement is terminated.
7. Miscellaneous.
(a) This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof.
(b) Shareholder agrees that this Agreement and the respective rights
and obligations of Shareholder hereunder shall attach to all Owned Shares.
(c) All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses.
(d) 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, personal or legal representatives, executors, administrators, heirs,
distributees, devisees, legatees and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by either party (whether by operation of law or otherwise) without the
prior written consent of the other party; provided, that Parent and Purchaser
may assign all or any of their rights and obligations hereunder to any assignee
of such parties' rights and obligations under the Merger Agreement or to any
other subsidiary of Parent. Nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement.
(e) This Agreement may not be amended, changed, supplemented, or
otherwise modified or terminated, except upon the execution and delivery of a
written agreement executed by each of the parties hereto. The parties may waive
compliance by the other parties hereto with any representation, agreement or
condition otherwise required to be complied with by such other party hereunder,
but any such waiver shall be effective only if in writing executed by the
waiving party.
(f) All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered or mailed if delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like changes of address shall be effective upon receipt)
or sent by electronic transmission, with confirmation received, to the telecopy
number specified below:
3
<PAGE> 4
If to Parent or Purchaser:
Alcatel
54, rue La Boetie
75008 Paris
France
Telecopier No.: 33-1-4076-1486
Attention: Pascal Durand-Barthez, Esq.
Copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Telecopier No.: (212) 969-2900
Attention: Stanley Komaroff, Esq.
If to Shareholder:
John Walecka
c/o Brentwood Venture Capital
3000 Sand Hill Road
Building 1, Suite 260
Menlo Park, CA 94025
Copy to:
Tae Hea Nahm
Venture Law Group
2775 Sand Hill Road
Menlo Park, CA 94025
(g) If any term or other provision of this Agreement shall be held
to be invalid, illegal or unenforceable by any rule of law or public policy,
such clause or provision shall be construed and enforced as if it had been more
narrowly drawn so as not to be invalid or unenforceable, and such invalidity or
unenforceability shall not affect or render invalid or unenforceable any other
provision of this Agreement.
(h) Each of the parties hereto acknowledges and agrees that in the
event of any breach of this Agreement, each non-breaching party would be
irreparably and immediately harmed and could not be made whole by monetary
damages. It is accordingly agreed that the parties hereto (a) will waive, in any
action for specific performance, the defense of adequacy of a remedy at law and
(b) shall be entitled, in addition to any other remedy to which they may be
entitled at law or in equity, to compel specific performance of this Agreement.
4
<PAGE> 5
(i) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise of any thereof by any party shall not
preclude the simultaneous or later exercise of any other such right, power or
remedy by such party. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(j) Notwithstanding anything herein to the contrary, nothing set
forth herein shall in any way restrict Shareholder in the exercise of his
fiduciary duties as a director of the Company.
(k) This Agreement shall be governed and construed in accordance
with the laws of the State of California without giving effect to the principles
of conflicts of law thereof.
(l) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
(m) This Agreement may be executed in one or more counterparts, and
by the different parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
5
<PAGE> 6
IN WITNESS WHEREOF, Parent, Purchaser and Shareholder have caused this
Agreement to be duly executed as of the day and year first above written.
ALCATEL
By: /s/ Serge Tchuruk
----------------------------------
Name: Serge Tchuruk
Title: Chairman and Chief
Executive Officer
ZEUS ACQUISITION CORP.
By: /s/ Olivier Houssin
----------------------------------
Name: Olivier Houssin
Title: Chairman
John Walecka
/s/ John Walecka
--------------------------------------
AGREED TO FOR PURPOSES
OF SECTION 12
XYLAN CORPORATION
By: /s/ Steve Y. Kim
-----------------------------------
Name: Steve Y. Kim
Title: President and Chief Executive Officer
6
<PAGE> 1
Exhibit (c)(5)
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated March 1, 1999 (this "Agreement"), by
and among Alcatel, a French corporation ("Parent"), Zeus Acquisition Corp., a
California corporation and wholly-owned indirect subsidiary of Parent
("Purchaser"), and Xylan Corporation, a California corporation (the "Company").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this
Agreement, the parties hereto are entering into an Agreement and Plan of Merger
(as such agreement may hereafter be amended from time to time, the "Merger
Agreement"; capitalized terms used but not defined in this Agreement shall have
the meanings ascribed to them in the Merger Agreement), which provides, upon the
terms and subject to the conditions thereto, for (i) the commencement by
Purchaser of a cash tender offer (the "Offer") to acquire all of the outstanding
Company Common Stock at the applicable Offer Price, and (ii) the subsequent
merger of Purchaser with and into the Company (the "Merger"), following the
consummation of the Offer; and
WHEREAS, as a condition to the willingness of Parent and Purchaser
to enter into the Merger Agreement, Parent and Purchaser have required that the
Company agree, and in order to induce Parent and Purchaser to enter into the
Merger Agreement, the Company has agreed, to grant to Purchaser certain options
to purchase shares of Company Common Stock, upon the terms and subject to the
conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement and in the Merger Agreement, the parties hereto agree as follows:
ARTICLE I
THE TOP-UP OPTION
SECTION 1.1 Grant of Top-Up Stock Option. Subject to the terms and
conditions set forth herein, the Company hereby grants to Purchaser, an
irrevocable option (the "Top-Up Stock Option") to purchase that number of shares
of Company Common Stock (the "Top-Up Option Shares") equal to the number of
shares of Company Common Stock that, when added to the number of shares of
Company Common Stock owned by Purchaser, Parent and their subsidiaries
immediately following consummation of the Offer, shall constitute 90% of the
shares of Company Common Stock then outstanding (assuming the issuance of the
Top-Up Option Shares) at a purchase price per Top-Up Option Share equal to the
Offer Price; provided,
<PAGE> 2
however, that the Top-Up Stock Option shall not be exercisable if the number of
shares of Company Common Stock subject thereto exceeds the number of authorized
shares of Company Common Stock available for issuance. The Company agrees to
provide Parent and Purchaser with information regarding the number of shares of
Company Common Stock available for issuance on an ongoing basis.
SECTION 1.2. Exercise of Top-Up Stock Option. (a) Subject to the
conditions set forth in Section 2.1 and any additional requirements of
applicable law, the Top-Up Stock Option may be exercised by Purchaser, in whole,
but not in part, at any one time after the occurrence of a Top-Up Exercise Event
(as defined below) and prior to the Top-Up Termination Date (as defined below).
(b) A "Top-Up Exercise Event" shall occur for purposes of this
Agreement at such time as such number of shares of Company Common Stock that
have been validly tendered and not withdrawn when added to such number of Shares
issuable pursuant to this Agreement would constitute at least 90% of the shares
of Company Common Stock then outstanding.
(c) Except as provided in the last sentence of this Section 1.2(c),
the "Top-Up Termination Date" shall occur for purposes of this Agreement upon
the earliest to occur of: (i) the Effective Time; (ii) the date which is ten
(10) business days after the occurrence of a Top-Up Exercise Event; (iii) the
termination of the Merger Agreement; and (iv) the date on which Purchaser waives
the Minimum Condition and accepts for payment the Revised Minimum Number of
Shares.
Notwithstanding the occurrence of the Top-Up Termination Date, Purchaser shall
be entitled to purchase the Top-Up Option Shares if it has exercised the Top-Up
Stock Option in accordance with the terms hereof prior to such occurrence, and
the occurrence of the Top-Up Termination Date shall not affect any rights
hereunder which by their terms do not terminate or expire prior to or as of such
date.
(d) In the event Purchaser wishes to exercise the Top-Up Stock
Option, Purchaser shall send to the Company a written notice (a "Top-Up Exercise
Notice," the date of which notice is referred to herein as the "Top-Up Notice
Date") specifying the denominations of the certificate or certificates
evidencing the Top-Up Option Shares which Purchaser wishes to receive, the place
for the closing of the purchase and sale pursuant to the Top-Up Stock Option
(the "Top-Up Closing") and a date not earlier than one (1) day nor later than
ten (10) business days from the Top-Up Notice Date for the Top-Up Closing (the
"Top-Up Closing Date"); provided, however, that (i) the Top-Up Closing shall
occur concurrently with the consummation of the Offer, (ii) if the Top-Up
Closing cannot be consummated by reason of any applicable laws or orders, the
period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which such restriction on consummation has expired or
been terminated, and (iii) without limiting the foregoing, if prior notification
to or approval of any Governmental Entity is required in connection with such
purchase, Purchaser and the Company shall promptly file the required notice or
application for approval and shall cooperate in the expeditious filing of such
notice or
-2-
<PAGE> 3
application, and the period of time that otherwise would run pursuant to this
sentence shall run instead from the date on which, as the case may be, (A) any
required notification period has expired or been terminated or (B) any required
approval has been obtained, and in either event, any requisite waiting period
has expired or been terminated.
ARTICLE II
CLOSING
SECTION 2.1. Conditions to Closing. The obligation of the Company to
deliver Top-Up Option Shares upon the exercise of the Top-Up Stock Option is
subject to the following conditions:
(a) All waiting periods, if any, under the HSR Act, the EC Merger
Regulations or other applicable non-United States laws regulating competition,
antitrust, investment or exchange controls applicable to the issuance of the
Top-Up Option Shares hereunder shall have expired, have been terminated or
waived; and
(b) There shall be no temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or Governmental Entity or similar binding legal restraint
preventing or prohibiting the exercise of the Top-Up Stock Option or the
delivery of the Top-Up Option Shares in respect of any such exercise.
SECTION 2.2 Closing. (a) At the Top-Up Closing (i) the Company shall
deliver to Purchaser or Parent, as applicable, a certificate or certificates
evidencing the applicable number of Top-Up Option Shares (in the denominations
designated by Purchaser or Parent in the Top-Up Exercise Notice) and (ii)
Purchaser or Parent shall purchase each Top-Up Option Share from the Company at
the Offer Price. Payment by Purchaser of the Offer Price for the Top-Up Option
Shares shall be made by wire transfer of immediately available funds to an
account designated by the Company.
(b) The Company shall pay all expenses that may be payable in
connection with the preparation, issuance and delivery of stock certificates
under this Section 2.2.
(c) Certificates evidencing Top-Up Option Shares delivered hereunder
may include legends legally required including the 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.
-3-
<PAGE> 4
It is understood and agreed that the foregoing legend shall be removed by
delivery of substitute certificate(s) without such legend upon the sale of the
Top-Up Option Shares pursuant to a registered public offering or Rule 144 under
the Securities Act, or any other sale as a result of which such legend is no
longer required.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Purchaser
(except as otherwise disclosed in writing on the date hereof) as follows:
SECTION 3.1. Organization; Authority Relative to this Agreement. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of California. The Company has all necessary
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered by
the Company and, assuming the due authorization, execution and delivery of this
Agreement by Parent and Purchaser, constitutes the legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights generally, and by general equitable principles.
SECTION 3.2. Authority to Issue Shares. The Company has taken all
necessary corporate action to authorize and reserve and permit it to issue, and
at all times from the date hereof through the Top-Up Termination Date shall have
reserved, all the Top-Up Option Shares issuable pursuant to this Agreement. All
of the Top-Up Option Shares issuable upon exercise of the Top-Up Stock Option,
upon their issuance and delivery in accordance with the terms of this Agreement,
will be duly authorized, validly issued, fully paid and nonassessable, will be
delivered free and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on Purchaser's or
Parent's voting rights, charges, adverse rights and other encumbrances of any
nature whatsoever (other than this Agreement) and will not be subject to any
preemptive rights.
SECTION 3.3. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by the Company does not, and the
performance by the Company of its obligations hereunder and the consummation of
the transactions contemplated hereby will not, (i) conflict with or violate the
articles of incorporation or bylaws of the Company, (ii) assuming that all
consents and filings described in Section 3.3(b) have been obtained or made,
-4-
<PAGE> 5
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to the Company or by which any property or asset of the Company is
bound or affected, or (iii) result in any material breach of or constitute a
material default (or an event that with notice or lapse of time or both would
become a material default) under, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company is a party or by which the Company or any of its
properties may be bound or affected.
(b) No consent of, or filing with, any Government Entity is required
by the Company in connection with the execution and delivery of this Agreement,
the performance by the Company of its obligations hereunder or the consummation
by the Company of the transactions contemplated hereby, except for (i)
compliance with the Securities Act, the Exchange Act, Blue Sky Laws, the HSR
Act, the EC Merger Regulations or any non-United States laws regulating
competition, antitrust, investment or exchange controls and (ii) consents or
filings the failure of which to be obtained or made would not, individually or
in the aggregate, prevent or materially delay the consummation of the
transactions contemplated hereby or the performance by the Company of any of its
obligations hereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Each of Parent and Purchaser hereby represents and warrants to the
Company as follows:
SECTION 4.1 Organization; Authority Relative to this Agreement. Each
of Parent and Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation. Each of
Parent and Purchaser has all necessary corporate power and authority to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and Purchaser and the consummation by Parent and
Purchaser of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of Parent and Purchaser
and no other corporate proceedings on the part of Parent or Purchaser are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered by
Parent and Purchaser and, assuming the due authorization, execution and delivery
of this Agreement by the Company, constitutes the legal, valid and binding
obligation of Parent and Purchaser, enforceable against Parent and Purchaser in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally, and by general equitable principles.
SECTION 4.2. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Parent and Purchaser does not, and
the performance by each of Parent and Purchaser of its obligations hereunder and
the consummation of the transactions
-5-
<PAGE> 6
contemplated hereby will not, (i) conflict with or violate the articles of
incorporation or bylaws or equivalent organizational documents of Parent or
Purchaser, (ii) assuming that all consents and filings described in Section
4.2(b) have been obtained or made, conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Parent or Purchaser or by
which any property or asset of Parent or Purchaser is bound or affected or (iii)
result in any material breach of or constitute a material default (or an event
that with notice or lapse of time or both would become a material default)
under, any material note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Parent or
Purchaser is a party or by which Parent or Purchaser of any of their respective
properties are bound or affected.
(b) No consent of, or filing with, any Governmental Entity is
required by Parent or Purchaser in connection with the execution and delivery of
this Agreement, the performance by Parent and Purchaser of any of their
obligations hereunder or the consummation by Parent and Purchaser of the
transactions contemplated hereby, except for (i) compliance with the Securities
Act, the Exchange Act, Blue Sky Laws, the HSR Act, EC Merger Regulations, or any
non-United States laws regulating competition, antitrust, investment or exchange
controls, and (ii) consents or filings the failure of which to be obtained or
made would not, individually or in the aggregate, prevent or materially delay
the consummation of the transactions contemplated hereby or the performance by
Parent or Purchaser of any of their obligations hereunder.
SECTION 4.3. Investment Intent. The purchase of shares of Company
Common Stock pursuant to this Agreement is for the account of the Purchaser or
Parent, as applicable, for the purpose of investment and not with a view to or
for sale in connection with any distribution thereof within the meaning of the
Securities Act, and the rules and regulations populated thereunder.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1. Reasonable Best Efforts. Subject to the terms and
conditions of this Agreement, Parent, Purchaser and the Company shall each 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, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement. Each party shall promptly consult
with the other and provide any necessary information and material with respect
to all filings made by such party with any Governmental Entity in connection
with this Agreement or the transactions contemplated hereby.
SECTION 5.2. Further Assurances. The Company shall perform such
further acts and execute such further documents and instruments as may
reasonably be required to vest in Purchaser and Parent the power to carry out
the provisions of this Agreement. If Purchaser or
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Parent shall exercise the Top-Up Stock Option granted hereunder in accordance
with the terms of this Agreement, the Company shall, without additional
consideration, execute and deliver all such further documents and instruments
and take all such further action as Purchaser or Parent may reasonably request
to carry out the transactions contemplated by this Agreement.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. Amendment. This Agreement may not be amended except by
an instrument in writing signed by the parties thereto.
SECTION 6.2. Waiver. Any party hereto may (a) extend the time for or
waive compliance with the performance of any obligation or other act of any
other party hereto or (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto. Any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party or parties to be bound thereby. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
SECTION 6.3. Fees and Expenses. Except as otherwise provided herein
or in Section 9.03 of the Merger Agreement, all costs, fees and expenses
incurred in connection with this Agreement shall be paid by the party incurring
such expenses; provided, that if any legal action is instituted to enforce or
interpret the terms of this Agreement, the prevailing party in such action shall
be entitled, in addition to any other relief to which the party is entitled, to
reimbursement of its actual attorneys fees.
SECTION 6.4. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be deemed given if
delivered personally or sent by telecopy or by overnight courier (providing
proof of delivery) to the respective parties at their addresses as specified in
Section 10.02 of the Merger Agreement.
SECTION 6.5. Severability. If any term or other provision of this
Agreement shall be held to be invalid, illegal or unenforceable by any rule of
law or public policy, such clause or provision shall be construed and enforced
as if it had been more narrowly drawn so as not to be invalid or unenforceable,
and such invalidity or unenforceability shall not affect or render invalid or
unenforceable any other provision of this Agreement.
SECTION 6.6. Assignment; Binding Effect; Benefit. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned, in whole or in part, by operation of law or otherwise, by any of the
parties hereto without the prior written consent of the other parties, except
that Parent or Purchaser may assign, in its discretion, any or all of their
rights, interests and obligations hereunder to any direct or indirect subsidiary
of Parent (or, in the case of Purchaser, to Parent), but no such assignment
shall relieve Parent or Purchaser of any of its respective obligations
hereunder. Subject to the preceding sentence, this Agreement shall be
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<PAGE> 8
binding upon, inure to the benefit of, and be enforceable by, the parties hereto
and their respective successors and permitted assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement, express
or implied, is intended to confer on any person other than the parties hereto or
their respective successors and permitted assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
SECTION 6.7. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to the principles of conflicts of laws thereof.
SECTION 6.8. Headings. The descriptive headings contained in this
Agreement are included for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
SECTION 6.9. Counterparts. This Agreement may be executed and
delivered (including by facsimile transmission) in two or more counterparts, all
of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties,
it being understood that all parties need not sign the same counterpart.
SECTION 6.10. Entire Agreement. This Agreement constitutes the
entire agreement, and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter of this
Agreement.
SECTION 6.11. Specific Performance. Each of the parties hereto
acknowledges and agrees that in the event of any breach of this Agreement, each
non-breaching party would be irreparably and immediately harmed and could not be
made whole by monetary damages. It is accordingly agreed that the parties hereto
(i) will waive, in any action for specific performance, the defense of adequacy
of a remedy a law, and (ii) shall be entitled, in addition to any other remedy
to which they may be entitled at law or in equity, to compel specific
performance of this Agreement.
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, all as of
the date first written above.
ALCATEL
By: /s/ Serge Tchuruk
-------------------------------------
Name: Serge Tchuruk
Title: Chairman & Chief Executive Officer
XYLAN CORPORATION
By: /s/ Steve Y. Kim
-------------------------------------
Name: Steve Y. Kim
Title: President & Chief Executive Officer
ZEUS ACQUISITION CORP.
By: /s/ Olivier Houssin
-------------------------------------
Name: Olivier Houssin
Title: Chairman
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<PAGE> 1
1995 SHAREHOLDER AGREEMENT
THIS 1995 SHAREHOLDER AGREEMENT is entered into as of March 13, 1995,
among Xylan Corporation, a California corporation (the "COMPANY"), the
undersigned Shareholders of the Company (the "SHAREHOLDERS") and Alcatel Data
Networks S.A., a French corporation ("ADN").
WHEREAS, the Shareholders own those number of shares of Common Stock,
Series A Preferred Stock and/or Series B Preferred Stock of the Company
("SHARES"), listed opposite their names on Exhibit A attached hereto;
WHEREAS, ADN and the Company, propose to enter into a Series C
Preferred Stock Purchase Agreement of even date herewith (the "PURCHASE
AGREEMENT") a copy of which is attached hereto as Exhibit B, pursuant to which
ADN will purchase shares of the Company's Series C Preferred Stock;
WHEREAS, the Purchase Agreement contemplates as a precondition to the
sale of Series C Preferred Stock to ADN that the Company's Articles of
Incorporation be amended and restated in the form attached as Exhibit A to the
Purchase Agreement (the "RESTATED ARTICLES");
WHEREAS, simultaneous with the execution of this Agreement and the
Purchase Agreement, (a) the Company, ADN and certain other shareholders will
enter into a Second Restated Rights Agreement in the form attached as Exhibit C
to the Purchase Agreement (the "RIGHTS AGREEMENT") and a Second Restated Co-Sale
Agreement in the form attached as Exhibit G to the Purchase Agreement (the
"CO-SALE AGREEMENT"), (b) the Company and Alcatel N.V. will enter into an
International Distributor Agreement in the form attached as Exhibit E to the
Purchase Agreement (the "DISTRIBUTION AGREEMENT"), and (c) the Company and ADN
will enter into a Product and Technology Agreement in the form attached as
Exhibit F to the Purchase Agreement (the "PRODUCT AND TECHNOLOGY AGREEMENT");
and
WHEREAS, as a condition to its willingness to enter into the Purchase
Agreement, ADN has requested that the Shareholders agree, and the Shareholders
have agreed, severally and not jointly, to the terms and conditions pursuant to
which ADN will become a shareholder in the Company;
NOW, THEREFORE, to induce ADN to enter into, and in consideration of it
entering into, the Purchase Agreement, and in consideration of the premises and
the representations, warranties and agreements herein contained, the parties
agree as follows:
1. Approval of ADN as Company Shareholder. Each Shareholder hereby
acknowledges, consents to and approves all terms and conditions of the Purchase
Agreement, the Restated Articles, the Rights Agreement, the Co-Sale Agreement,
the Distribution Agreement and the Product and Technology Agreement and all
transactions contemplated thereby. Each Shareholder hereby waives and forever
relinquishes any and all pre-emptive rights, rights of first refusal or other
rights to acquire any shares of capital stock of the Company issued or to be
issued by the Company to ADN under the Purchase Agreement which rights such
Shareholder has
<PAGE> 2
pursuant to any agreement, document or instrument, or otherwise including,
without limitation, any such rights of such Shareholder under that certain
Series B Preferred Stock Purchase Agreement dated September 2, 1994, as amended
and supplemented, among the Company and certain holders of its capital stock
(including certain Shareholders) (the "SERIES B AGREEMENT").
2. Restrictions on Transfers and Right of First Refusal.
(a) Definitions.
(i) The term "TOTAL VOTING POWER OF THE COMPANY" means the total
number of votes which may be cast in the election of directors of the Company at
any meeting of shareholders of the Company if all securities entitled to vote in
the election of directors of the Company were present and voted at such meeting,
other than votes that may be cast only upon the happening of a contingency.
(ii) The term "VOTING STOCK" means the Common Stock, Preferred
Stock and any other securities issued by the Company having the ordinary power
to vote in the election of directors of the Company (other than securities
having such power only upon the happening of a contingency).
(iii) The term "RIGHTHOLDER" means (i) with respect to transfers
of Voting Stock by ADN, the Company, and (ii) with respect to transfers of
Voting Stock by any Shareholder, ADN.
(iv) The term "INVESTOR" means any party to this Agreement other
than the Company that desires to transfer Voting Stock.
(v) The term "ADN AFFILIATE" means any person that, directly or
indirectly, controls or is controlled by or is under common control with ADN.
For purposes of this definition, control of a person means the power, directly
or indirectly, to direct or cause the direction of the management and policies
of such person, whether by contract or otherwise, and, in any event and without
limiting the foregoing, any person owning fifty percent (50%) or more of the
voting securities of another person shall be deemed to control that person.
(vi) The term "PERSON" means any natural person, corporation,
partnership, proprietorship, limited liability company, joint venture or other
business organization.
(vii) The term "FINANCIAL INVESTOR" means a Person meeting the
requirements of Rule 13d-1(b)(1)(i) under the Securities Exchange Act of 1934.
(viii) The term "RESTRICTED INVESTOR" means any Person, other
than a Financial Investor or any holder of outstanding securities of the Company
as of the date of this Agreement, who proposes to acquire Voting Stock if either
(i) such Person owns ten percent (10%) or more of the Total Voting Power of the
Company prior to such acquisition or (ii) as a result of such acquisition such
Person would own ten percent (10%) or more of the Total Voting Power of the
Company immediately following such acquisition.
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<PAGE> 3
(b) Restrictions on Transfer of Voting Stock by ADN. ADN shall not,
directly or indirectly, sell or transfer any Voting Stock except (i) to the
Company or any person or group approved by the Company; or (ii) to an ADN
Affiliate so long as such ADN Affiliate agrees to hold such Voting Stock subject
to all provisions of this Agreement, including this Section 2.1(b); or (iii)
pursuant to a bona fide public offering registered under the Securities Act of
1933, as amended (the "SECURITIES ACT") of either Voting Stock or securities
exchangeable or exercisable for Voting Stock or pursuant to a rights offering or
a dividend or other distribution to shareholders of ADN; or (iv) pursuant to
Rule 144 under the Securities Act (but excluding Rule 144A under the Securities
Act); or (v) pursuant to a transaction subject to the Company's right of first
refusal as set forth in Section 2(d) hereof and in compliance with the terms
thereof.
(c) Restrictions on Transfer of Voting Stock by the Shareholders. No
Shareholder shall directly or indirectly, sell or transfer any Voting Stock
except (i) to ADN or an ADN Affiliate; or (ii) pursuant to a bona fide public
offering registered under the Securities Act of either Voting Stock or
securities exchangeable or exercisable for Voting Stock; or (iii) pursuant to
Rule 144 under the Securities Act (but excluding Rule 144A under the Securities
Act); or (iv) pursuant to any pledge of Company's Common Stock made by a
Shareholder pursuant to a bona fide loan transaction which creates a mere
security interest; (v) pursuant to any repurchase of Common Stock by the
Company; (vi) pursuant to any bona fide gift; or (vii) pursuant to any transfer
to a Shareholder's ancestors, descendants, spouse or partners or to a trustee
for their benefit, (viii) pursuant to community property or similar domestic
relations laws, or (ix) pursuant to a transaction subject to ADN's right of
first refusal as set forth in Section 2(d) hereof and in compliance with the
terms thereof; provided that the exceptions in subparagraphs (ii) and (iii)
shall not be applicable if the Shareholder solicits or arranges for the
solicitation of orders to purchase Voting Stock by a Restricted Investor from an
underwriter in anticipation of or in connection with a registered public
offering or from or through a broker in anticipation of or in connection with a
Rule 144 transaction. For purposes of the preceding proviso, the execution and
performance of an underwriting agreement by the Shareholder in connection with a
registered public offering shall not in and of itself be considered soliciting
or arranging for the solicitation of orders to purchase Voting Stock.
Furthermore, ADN's right of first refusal shall not apply to transfers of those
shares of the Company's Common Stock, not to exceed 110,000 shares, that are
subject to (A) Loan and Pledge Agreements between Mr. Yuri Pikover and certain
third parties, or (B) Option to Purchase Stock Agreements between Mr. Yuri
Pikover and such third parties, which agreements have been entered into prior to
the date of this Agreement.
(d) Rights of First Refusal. Notwithstanding the restrictions on
transfer set out in Sections 2(b) and (c) above, any Investor may sell or
transfer Voting Stock to any person provided that the procedures contained in
this Section 2(d) are followed.
(i) Prior to making any sale or transfer of the Voting Stock
pursuant to Section 2(b)(v) or Section 2(c)(ix) above, the Investor shall give
the Rightholder the opportunity to purchase such stock in the following manner:
(A) The Investor shall give a preliminary notice (the
"PRELIMINARY NOTICE") to the Rightholder in writing of the Investor's
preliminary intention to transfer Voting Stock, specifying the approximate
amount of Voting Stock proposed to be sold or
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<PAGE> 4
transferred, the approximate proposed price per share therefor, the proposed
purchaser(s) thereof and the other material terms upon which such disposition is
intended to be made.
(B) The Investor shall give an irrevocable notice (the
"TRANSFER NOTICE") to the Rightholder (including any representative of the
Rightholder as such Rightholder may designate in writing to the Investor after
the Rightholder's receipt of the Preliminary Notice) in writing of the
Investor's immediate intention to transfer Voting Stock, specifying the amount
of Voting Stock proposed to be sold or transferred, the proposed price per share
therefor (the "TRANSFER PRICE"), the proposed purchaser(s) and the other
material terms upon which such disposition is intended to be made, provided that
the Transfer Notice shall not be given by the Investor any sooner than the
expiration of thirty (30) days after the Rightholders receipt of the Preliminary
Notice.
(C) The Rightholder shall have the right, exercisable by an
irrevocable written notice given by the Rightholder to the Investor within two
(2) U.S. business days after receipt by the Rightholder of the Transfer Notice,
to purchase all of the Voting Stock specified in such Notice for cash per share
equal to the Transfer Price and under the terms set forth in the Transfer
Notice.
(D) If the Rightholder exercises its right of first refusal
hereunder, the closing of the purchase of the Voting Stock with respect to which
such right has been exercised shall take place within thirty (30) calendar days
after the Rightholder gives notice of such exercise, which period of time shall
be extended, if required, in order to comply with applicable laws and
regulations. Upon exercise of its right of first refusal by the Rightholder, the
Rightholder and the Investor shall be legally obligated to consummate the
purchase contemplated thereby and shall use their best efforts to secure any
approvals required in connection therewith.
(E) If the Rightholder does not exercise its right of first
refusal hereunder within the time specified for such exercise, the Investor
shall be free, during the period of ninety (90) calendar days following the
expiration of such time for exercise, which period of time shall be extended, if
required, in order to comply with applicable laws and regulations, to sell or
transfer the Voting Stock specified in such Transfer Notice to the proposed
purchaser(s) described in such notice and on terms no less favorable to the
Rightholder than the terms specified in such notice. The proposed sale of any
such Voting Stock not sold or transferred within such ninety (90) day period
shall again be subject to the restrictions set forth in this Section 2.
(F) If the Investor does not deliver to the Rightholder a
Transfer Notice within one hundred eighty (180) days after delivery to the
Rightholder of a Preliminary Notice with respect to any Voting Stock, the
Rightholder shall once again be entitled to receive a Preliminary Notice, and
the processes set forth above following such notice shall be followed, prior to
any proposed transfer of such Voting Stock by the Investor.
3. Board of Directors of the Company.
(a) Voting for Nominees. ADN shall have the right, but not the
obligation, to nominate one member (the "ADN NOMINEE") to the Board of Directors
of the Company (the
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<PAGE> 5
"BOARD"). ADN and each Shareholder hereby agree to vote all shares of capital
stock of the Company owned or held of record by such party at any meeting of the
shareholders of the Company called for the purpose of electing or appointing
directors to the Board, and agrees to take all actions otherwise necessary
(including, without limitation, the execution of written consents and the
amendment of the Bylaws of the Company), to ensure the election to the Board of
(i) the ADN Nominee at such time as ADN has so nominated the ADN Nominee and
notified the Shareholders of such nomination and (ii) a nominee of management of
the Company (the "MANAGEMENT NOMINEE"), which nominee shall initially be Steve
Y. Kim.
(b) Removal of ADN Nominee. ADN and each Shareholder hereby agree to
use reasonable commercial efforts to call, or cause the appropriate officers and
directors of the Company to call, a special meeting of shareholders of the
Company and to vote all of the shares of capital stock of the Company owned or
held of record by such party for the removal (with or without cause) of any ADN
Nominee if ADN requests the removal of such director in writing for any reason,
or of any Management Nominee, if the President of the Company requests the
removal of such director in writing for any reason. ADN and each Shareholder
hereby agree that, at any time it is entitled to vote for the removal of
directors, it will not vote in favor of the removal of any ADN Nominee or
Management Nominee unless such removal shall be at the request of ADN, with
respect to the ADN Nominee, or the President of the Company, with respect to the
Management Nominee, or for Cause. For the purposes of this Section 3(b) "Cause"
shall mean the willful engaging by a director in conduct which is demonstrably
and materially injurious to the Company or the director's conviction of any
crime constituting a felony. ADN shall have the right to designate a new ADN
Nominee in the event any ADN Nominee shall be removed under this Section 3(b) or
shall vacate his directorship for any reason, and the President of the Company
shall have an identical right with respect to the Management Nominee.
(c) No Acting During Vacancy. Once the ADN Nominee has been
designated, the Company shall use reasonable commercial efforts to prevent any
action from being taken by the Board during the pendency of any vacancy on the
Board due to the death, resignation or removal of the ADN Nominee, unless ADN
shall have failed, for a period of thirty (30) days after notice of such
vacancy, to designate a replacement; provided, however, that the provisions of
this sentence shall not apply in circumstances in which action must be taken by
the Board to protect the best interests of the Company.
(d) Observation Rights. If ADN is not represented on the Board, ADN
shall have the right to have a representative designated by it attend all
meetings of the Board and observe all proceedings transacted at such meetings,
and the Company shall give a representative of ADN copies of all notices,
minutes, consents, and other material that it provides to its directors,
provided, however, that the Company reserves the right to exclude such
representative from any meeting or access to any material or portion thereof if
the Company believes upon advice of counsel that such exclusion is reasonably
necessary to preserve the attorney-client privilege, to protect highly
confidential proprietary information or for other similar reasons. ADN agrees,
and any representative of ADN will agree, to hold in confidence and trust and
not use or disclose any confidential information provided to or learned by it in
connection with its rights under this Section 3(d).
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<PAGE> 6
(e) Termination of Rights. All rights in favor of ADN set forth in
this Section 3 shall terminate and be of no further force or effect immediately
upon the consummation of the Company's initial public offering of its Common
Stock in a bona fide, firm commitment underwriting pursuant to a registration
statement on Form S-1 under the Securities Act (other than a registration
statement relating either to the sale of securities to employees of the Company
pursuant to a stock option, stock purchase or similar plan or an SEC Rule 145
transaction).
4. Representations and Warranties of the Shareholders. Each of the
Shareholders hereby represents and warrants to ADN, severally and not jointly,
as follows:
(a) Ownership. Such Shareholder is the sole, true, lawful and
beneficial owner of the number class and/or series of Shares set forth opposite
his name on Exhibit A attached hereto with no restrictions on such Shareholder's
voting rights or disposition pertaining thereto, except for the restrictions
pursuant to this Agreement. None of such Shareholder's Shares is subject to any
voting trust or other agreement or arrangement with respect to the voting of
such Shares.
(b) Authority. Such Shareholder has all requisite power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery and performance of this
Agreement by such Shareholder and the consummation by the Shareholder of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of the Shareholder. This Agreement has been duly executed and
delivered by such Shareholder and is valid, binding and enforceable against such
Shareholder in accordance with its terms, except as enforcement hereof may be
limited by applicable bankruptcy, insolvency, or other similar laws affecting
the enforcement of creditors' rights generally and except that the availability
of equitable remedies, including specific performance, is subject to the
discretion of the court before which any proceeding therefor may be brought.
(c) Agreements Regarding Shares. Except as described opposite such
Shareholder's name on Exhibit A hereto or as otherwise provided in this
Agreement, the Series B Agreement, the Rights Agreement or the Co-Sale
Agreement, such Shareholder is not a party to, or the beneficiary of, any
agreement, instrument or document relating to or affecting any capital stock of
the Company or any interests therein.
(d) No Violations. The execution, delivery and performance by such
Shareholder of this Agreement, the Rights Agreement and the Co-Sale Agreement
(to the extent that such Shareholder is a party to such Agreements) and the
consummation of the transactions contemplated hereby and thereby by such
Shareholder do not and will not, (i) violate the applicable provisions of any
law, rule, regulation, order or decree of which such Shareholder is aware and to
which such Shareholder is subject, (ii) conflict with or constitute a default or
require a consent under any contract, agreement or license to which such
Shareholder is a party, (iii) violate any provision of the formation, governing
or charter documents of such Shareholder (if applicable) or (iv) to the best of
its knowledge, require the consent or approval of, or filing with, any
governmental authority.
5. Representations and Warranties of ADN. ADN hereby represents and
warrants to the Company and the Shareholders as follows:
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<PAGE> 7
(a) Authority. ADN has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery and performance of this Agreement by ADN and
the consummation by ADN of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of ADN. This Agreement
has been duly executed and delivered by ADN and constitutes a valid and binding
obligation of ADN enforceable in accordance with its terms except as enforcement
may be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding therefor may be brought.
(b) Agreements Regarding Shares. Other than as set forth in this
Agreement, the Purchase Agreement, the Rights Agreement or the Co-Sale
Agreement, ADN is not a party to or the beneficiary of, any agreement,
instrument or document relating to or affecting any capital stock of the Company
or any interests therein.
(c) No Violations. The execution, delivery and performance by ADN of
this Agreement, the Rights Agreement and the Co-Sale Agreement and the
consummation of the transactions contemplated hereby and thereby by ADN do not
and will not, (i) violate the applicable provisions of any law, rule,
regulation, order or decree of which ADN is aware and to which ADN is subject,
(ii) conflict with or constitute a default or require a consent under any
contract, agreement or license to which ADN is a party, (iii) violate any
provision of the formation, governing or charter documents of ADN, or (iv) to
the best of its knowledge, require the consent or approval of, or filing with,
any governmental authority, other than any such consent, approval or filing that
has already been obtained or completed.
6. Term. This Agreement shall terminate upon the earlier to occur of
(a) the termination of the Product and Technology Agreement, or (b) the date on
which ADN and the ADN Affiliates collectively hold less than twenty-five percent
(25%) of the Common Stock issued or issuable upon conversion of the Preferred
Stock purchased by ADN under the Purchase Agreement.
7. Violations and Legends.
(a) Any attempt to transfer shares of Voting Stock in violation of
Section 2 hereof shall be void and the Company agrees it will not effect such a
transfer nor will it treat any alleged transferee as the holder of such shares.
(b) Legends. Each certificate representing shares of the capital
stock of the Company now or hereafter owned by ADN or any Shareholder shall be
endorsed with the following legend:
THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SHAREHOLDER
AGREEMENT BY AND BETWEEN THE SHAREHOLDER, THE CORPORATION AND CERTAIN
HOLDERS OF COMMON AND PREFERRED STOCK OF THE CORPORATION. COPIES OF
SUCH AGREEMENT MAY BE
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<PAGE> 8
OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.
(c) Simultaneous with the execution of this Agreement the
Shareholders shall surrender their existing certificates for the purposes of
being so legended. The foregoing legend shall be removed from all relevant
certificates upon termination of this Agreement in accordance with the
provisions of Section 6.
8. Assignment. Neither this Agreement nor any of the rights, interests
or obligations under this Agreement shall be assigned by any of the parties
without the prior written consent of the other parties, except that ADN may
assign, in its sole discretion, any or all of its rights, interests and
obligations under this Agreement to any ADN Affiliate. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by, the parties and their respective successors and assigns.
9. General Provisions.
(a) Interaction With Other Rights. The parties acknowledge and agree
that as of the date of this Agreement, transfers by Steve Y. Kim or Yuri Pikover
are subject to (i) a right of first refusal by the Company pursuant to a
Shareholder Agreement dated February 4, 1994, as amended September 2, 1994, by
and among the Company, Mr. Kim and Mr. Pikover (the "1994 SHAREHOLDER
AGREEMENT"), as well as (ii) certain rights of co-sale as set forth in the
Co-Sale Agreement. The parties further acknowledge and agree that (A) the
Company's right of first refusal with respect to transfers by Mr. Kim and Mr.
Pikover and the Company's repurchase rights with respect to shares held by Mr.
Kim and Mr. Pikover, each under the 1994 Shareholder Agreement, shall be prior
and in preference to ADN's rights with respect such transfers under this
Agreement, (B) ADN's right of first refusal with respect to transfers by Mr. Kim
or Mr. Pikover shall be prior and in preference to the co-sale rights of the
Shareholders set forth in the Co-Sale Agreement and, as a result thereof, all
rights of each Shareholder pursuant to the Co-Sale Agreement are subject to the
rights of ADN hereunder, and (C) ADN's co-sale rights under the Co-Sale
Agreement shall be subject to the Company's right of first refusal with respect
to transfers by ADN as set forth herein.
(b) Applicable Law. This Agreement shall be construed in accordance
with, and all the rights, powers and liabilities of the parties hereunder shall
be governed by, the laws of the State of California, other than its rules
regarding conflicts of law.
(c) Arbitration. The parties shall attempt to settle all disputes
arising in connection with this Agreement through good faith consultation. In
the event no agreement can be reached on such dispute within sixty (60) days
after notification in writing by any party to the others concerning such
dispute, any party may submit such dispute to arbitration by three arbitrators
under the Rules of the American Arbitration Association. One arbitrator shall be
selected by each opposing party or group of parties and the third arbitrator
shall be selected by the first two arbitrators. The place of arbitration shall
be Los Angeles, California. The arbitrator's decision shall be final and binding
and any arbitration award or decision may be entered in any court of competent
jurisdiction. Expenses and fees of such arbitration shall be borne by the
non-prevailing party in such arbitration as provided in Section 8(g) below.
-8-
<PAGE> 9
(d) Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties relating to its subject matter and merges all
prior discussions and agreements among them, including without limitation any
non-disclosure or confidentiality agreement entered into prior to the date
hereof. No modification or amendment to this Agreement, nor any waiver of any
rights under this Agreement, will be effective unless in writing signed by all
parties hereto.
(e) Severability. If any provision of this Agreement is found
invalid or unenforceable, that provision will be enforced to the maximum extent
permissible under applicable law, and the remaining provisions of this Agreement
will stay in force. In addition, the parties agree to negotiate in good faith a
provision to replace the provision found invalid or unenforceable that will
have, to the extent possible, the same economic effect.
(f) Notices. All notices required or to be given pursuant to this
Agreement shall be in writing, shall be effective upon receipt and shall be
delivered in person or by first class mail, postage prepaid,
If to the Company, to: If to ADN, to:
Xylan Corporation Alcatel Data Networks S.A.
26679 W. Agoura Road c/o Alcatel Data Networks, Inc.
Calabasas, CA 91302 12502 Sunrise Valley Drive
Attn: President Reston, VA 22096
Attn: President
and if to a Shareholder, to such Shareholder's address as set forth on Exhibit A
hereto or as otherwise provided from time to time in the Company's records.
(g) Attorney's Fees. If a dispute arises pursuant to this Agreement,
the prevailing party shall be entitled to receive its attorney's fees and costs
in connection with such dispute, as determined by the arbitrator or court.
(h) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY: ADN:
XYLAN CORPORATION, ALCATEL DATA NETWORKS S.A.,
a California corporation a French corporation
By: /s/ Steve Y. Kim By: /s/ Jacques Dunogue
--------------------------------- ---------------------------------
Title: President Title: President Directent General
------------------------------ ------------------------------
SHAREHOLDERS:
Steve Y. Kim Yuri Pikover
- ------------------------------------- -------------------------------------
(Print Name) (Print Name)
By: /s/ Steve Y. Kim By: /s/ Yuri Pikover
--------------------------------- ---------------------------------
Title: Title:
------------------------------ ------------------------------
CROSSPOINT VENTURE PARTNERS 93 BRENTWOOD ASSOCIATES VI, L.P.
CROSSPOINT 1993 ENTREPRENEURS FUND By: Brentwood VI Ventures, L.P.
Its General Partner
-------------------------------------
(Print Name)
By: /s/ By: /s/
--------------------------------- ---------------------------------
Title: General Partner Title: General Partner
------------------------------ ------------------------------
NORWEST EQUITY PARTNERS, IV U.S. VENTURE PARTNERS IV, L.P.
- ------------------------------------- -------------------------------------
(Print Name) (Print Name)
A Minnesota Limited Partnership SECOND VENTURE PARTNERS II, L.P.
By: Itasca Partners, General Partner USVP ENTREPRENEUR PARTNERS II, L.P.
By: /s/ Kevin G. Hall By: /s/ Steven M. Krausz
--------------------------------- ---------------------------------
Kevin G. Hall Steven M. Krausz
Title: Partner Title: General Partner
------------------------------ ------------------------------
COMMUNITY PROPERTY ACKNOWLEDGMENT
The undersigned, as the spouses of Steve Y. Kim and Yuri Pikover,
respectively, hereby acknowledge that they have read the foregoing 1995
Shareholders Agreement and consent to the terms thereof, including, without
limitation, the restrictions on transfer of the shares held in the name of their
spouse.
/s/ Jung Kim /s/ Deana Pikover
- ------------------------------------- -------------------------------------
Jung Kim Deana Pikover
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<PAGE> 11
EXHIBIT A
SCHEDULE OF SHAREHOLDERS
<TABLE>
<CAPTION>
SHAREHOLDER CLASS/SERIES SHARES
- -------------------------------------------------------------------------------
<S> <C> <C>
BRENTWOOD ASSOCIATES VI, L.P. Series A Preferred 2,500,000
2730 Sand Hill Road, Suite 250 Series B Preferred 625,000
Menlo Park, CA 94025
Attn: John L. Walecka
CROSSPOINT VENTURE PARTNERS 93 Series A Preferred 808,236
One First Street Series B Preferred 303,050
Los Altos, CA 94022
Attn: Rich Shapero
CROSSPOINT 1993 ENTREPRENEURS FUND Series A Preferred 25,097
One First Street Series B Preferred 9,450
Los Altos, CA 94022
Attn: Rich Shapero
NORWEST EQUITY PARTNERS IV Series B Preferred 1,687,500
3000 Sand Hill Road
Building 3, Suite 245
Menlo Park, CA 94025
Attn: Kevin G. Hall
U.S. VENTURE PARTNERS IV, L.P. Series B Preferred 540,625
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
Attn: Mike Maher
SECOND VENTURES II, L.P. Series B Preferred 65,625
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
Attn: Mike Maher
USVP ENTREPRENEUR PARTNERS II, L.P. Series B Preferred 18,750
2180 Sand Hill Road, Suite 300
Menlo Park, CA 94025
Attn: Mike Maher
STEVE Y. KIM Common 3,250,000
c/o Xylan Corporation
26679 W. Agoura Road
Calabasas, CA 91302
</TABLE>
<PAGE> 12
<TABLE>
<S> <C> <C>
YURI PIKOVER Common 1,500,000
c/o Xylan Corporation
26679 W. Agoura Road
Calabasas, CA 91302
</TABLE>
