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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
(Rule 14D-101)
SOLICITATION/RECOMMENDATION STATEMENT
UNDER SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
OBJECTIVE SYSTEMS INTEGRATORS, INC.
(Name of Subject Company)
OBJECTIVE SYSTEMS INTEGRATORS, INC.
(Name of Person(s) Filing Statement)
Common Stock, par value $.00l per share
(Title of Class of Securities)
674424106
(CUSIP Number of Class of Securities)
Philip N. Cardman, Esq.
Vice President, General Counsel and Secretary
Objective Systems Integrators, Inc.
101 Parkshore Drive
Folsom, California 95630
(916) 353-2400
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person(s) Filing Statement)
Copies to:
Charles S. Farman, Esq.
Morrison & Foerster LLP
400 Capitol Mall, 23rd floor
Sacramento California 95814
(916) 448-3200
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Item 1. Subject Company Information.
(a) Name and Address. The name of the subject company to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
relates is Objective Systems Integrators, Inc., a Delaware corporation ("OSI"
or the "Company"). The address of the principal executive offices of the
Company is 101 Parkshore Drive, Folsom, California 95630; telephone number:
(916) 353-2400.
(b) Securities. The title of the classes of equity securities to which this
Schedule 14D-9 relates is the common stock, par value $.001 per share, of the
Company (the "Common Stock" or the "Shares"). As of December 1, 2000, there
were 37,609,227 shares of Common Stock outstanding.
Item 2. Identity and Background of Filing Person.
(a) Name and Address. The name, address and telephone number of the Company,
which is the person filing this Schedule 14D-9, are set forth in Item 1(a)
above.
(b) Tender Offer. This Schedule 14D-9 relates to a tender offer by Tahoe
Acquisition Corp., a Delaware corporation ("Merger Sub"), and a wholly-owned
subsidiary of Agilent Technologies, Inc. ("Parent" or "Agilent"), a Delaware
corporation, disclosed in a Tender Offer Statement on Schedule TO, dated
December 6, 2000 (as amended or supplemented from time to time, the "Schedule
TO"), to purchase all of the issued and outstanding shares of Common Stock at a
purchase price of $17.75 per share, net to the seller in cash, without interest
thereon (the "Offer Price"), upon the terms and subject to the conditions set
forth in the Offer to Purchase dated December 6, 2000 (as amended or
supplemented from time to time, the "Offer to Purchase"), and in the related
Letter of Transmittal (which as amended or supplemented from time to time,
together constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of November 24, 2000 (the "Merger Agreement"), among Merger Sub, Parent and
the Company. The Merger Agreement provides, among other things, that as soon as
practicable after the satisfaction or waiver of the conditions set forth in the
Merger Agreement, Merger Sub will be merged with and into the Company (the
"Merger") and each share of Common Stock then outstanding will be converted
into the right to receive the Offer Price, without interest. The Company will
continue as the surviving corporation (the "Surviving Corporation") and will be
a wholly-owned subsidiary of Parent. The Merger Agreement, a copy of which is
filed as Exhibit (e)(1) to this Schedule 14D-9 is summarized in the Section of
Item 3, below, entitled "The Merger Agreement" and is incorporated herein by
reference.
As set forth in the Schedule TO, the principal executive offices of Parent
are located at 395 Page Mill Road, Palo Alto, California 94303-0870; telephone
number: (650) 752-5000. The principal executive offices of Merger Sub are
located at the same address.
Item 3. Past Contacts, Transactions, Negotiations and Agreements.
Except as set forth in this Item 3, or as incorporated by reference herein,
to the knowledge of the Company, as of the date hereof, there are no material
agreements, arrangements or understandings or any actual or potential conflicts
of interest between the Company or its affiliates and: (i) its executive
officers, directors or affiliates; or (ii) Merger Sub, its executive officers,
directors or affiliates.
Lawrence F. Fiore, the Chief Financial Officer of the Company, entered into
a Severance Agreement in December of 1999. This agreement provides, inter alia,
for the payment of severance compensation in an amount equal to his
compensation for 24 months, payment of 100% of Company-paid benefits for up to
24 months and full vesting of all options he holds before termination, each as
a result of a Change in Control, as defined in the Severance Agreement. Options
are exercisable and will remain exercisable for 12 months after termination and
for 24 months if the termination results from disability, but in no event
longer than the orginal term of the option.
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Bud J. Mullanix, the Vice President, Human Resources of the Company, entered
into a Severance Agreement in March of 1999. This agreement provides, inter
alia, for the payment of severance compensation in an amount equal to his
compensation for 12 months, payment of 100% of Company-paid benefits for up to
12 months and full vesting of all options he holds before termination, each as
a result of a Change in Control, as defined in the Severance Agreement. Options
are exercisable and will remain exercisable for 12 months after termination and
for 24 months if the termination results from disability, but in no event
longer than the orginal term of the option.
Roger A. Hosier, Vice President and Chief Technology Officer of the Company,
entered into a Severance Agreement in December of 1999. This agreement
provides, inter alia, for the full vesting of all options he holds before
termination, as a result of a Change in Control, as defined in the Severance
Agreement. Options are exercisable and will remain exercisable for 12 months
after termination and for 24 months if the termination results from disability,
but in no event longer than the original term of the option.
The Severance Agreements are filed as exhibits to the Company's Form 10-K
for the fiscal year ended June 30, 2000.
Mr. Fiore and Mr. Dan D. Line, Senior Vice President, Worldwide Sales and
Operations of the Company, have also each entered into employment agreements
with the Company. Mr. Fiore's employment agreement provides for a single
payment equal to one year's salary upon termination without cause, provided Mr.
Fiore enters into a standard release and termination agreement. Mr. Line's
employment agreement provides for two years of continuing salary if termination
is without cause.
Certain agreements, arrangements or understandings between the Company or
its affiliates and certain of its directors, executive officers and affiliates
are described in the Information Statement of the Company attached to this
Schedule 14D-9 as Schedule I (the "Information Statement"). The Information
Statement is being furnished to the Company's stockholders pursuant to Section
14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and Rule 14f-1 issued under the Exchange Act in connection with Merger Sub's
right (after acquiring a majority of the Shares pursuant to the Offer) to
designate persons to the Board of Directors of the Company (the "Board") other
than at a meeting of the stockholders of the Company. The Information Statement
is incorporated herein by reference.
The Merger Agreement
The following is a summary of certain provisions of the Merger Agreement.
This summary is not a complete description of the terms and conditions of the
Merger Agreement and is qualified in its entirety by reference to the full text
of the Merger Agreement, which is filed with the Securities and Exchange
Commission (the "SEC") as an exhibit to the Schedule TO and is incorporated
herein by reference. Capitalized terms not otherwise defined below shall have
the meanings set forth in the Merger Agreement. The Merger Agreement may be
examined, and copies obtained, as set forth in Section 8 of the Schedule TO.
The Offer. The Merger Agreement provides that Parent will cause Merger Sub
to commence the Offer and that upon the terms and subject to prior satisfaction
or waiver (to the extent permitted to be waived) of the conditions of the
Offer, as promptly as practicable after expiration of the Offer, Parent will
cause Merger Sub to accept for payment, and pay for, all Shares validly
tendered and not withdrawn pursuant to the Offer that Merger Sub is obligated
to accept for payment and pay for pursuant to the Offer.
Subject to the terms of the Merger Agreement and applicable rules and
regulations of the SEC, Merger Sub expressly reserves the right, in its sole
discretion, at any time or from time to time, (i) to delay acceptance for
payment of or (regardless of whether such Shares were theretofore accepted for
payment) payment for, any tendered Shares or to amend the Offer as to any
Shares not then paid for, on the occurrence of any of the conditions of this
Offer described below, and (ii) to waive any condition and to set forth or
change any other term and condition of the Offer, by giving oral or written
notice of such delay, termination or amendment to the Depositary and by making
a public announcement thereof; provided that, Merger Sub will not, without the
prior written consent of the Company (i) decrease the price per Share, (ii)
change the form of consideration to be paid in the Offer, (iii) reduce the
maximum number of Shares to be purchased in the Offer, (iv) impose any
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additional conditions to the Offer or broaden the scope of the conditions to
the Offer, (v) extend the Offer except as provided below, (vi) amend or waive
the Minimum Condition (as defined below) or (vii) amend any other terms of the
Offer in a manner adverse to the holders of the Shares.
Conditions to the Offer. The obligation of Merger Sub to accept for payment
and to pay for any Shares tendered (and the obligation of Parent to cause
Merger Sub to accept for payment and to pay for any Shares tendered) shall be
subject to the condition that each of (A) a majority of Shares on a fully-
diluted basis (including for purposes of such calculation all Shares issuable
upon exercise of all vested Company Stock Options (as defined below) and
unvested Company Stock Options that vest prior to January 31, 2001 (but
excluding any Shares held by the Company or any of its subsidiaries) and (B) a
majority of those Shares not held by persons who have executed Tender and
Voting Agreements (the "Tender Agreement") be validly tendered (but excluding
any Shares held by Parent, Merger Sub or their respective affiliates)
(collectively, the "Minimum Condition").
In addition, Parent is not 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 the Parent'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 or amend the
Offer as to any Shares not then paid for, if (i) any applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act") or
any the applicable requirements of antitrust or competition laws and
regulations of foreign governmental entities has not expired or terminated (the
"Antitrust Condition"), (ii) the Minimum Condition has not been satisfied or
(iii) at any time on or after November 24, 2000 and before the time of
acceptance for payment for any such Shares, any of the following events shall
occur or shall be determined by Parent to have occurred:
(a) there shall be threatened or pending any suit, action or proceeding
by any governmental entity against Parent, Merger Sub, the Company or any
subsidiary of the Company (i) seeking to prohibit or impose any material
limitations on Parent's or Merger Sub 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, Merger Sub 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, in each case
taken as a whole, (ii) challenging the acquisition by Parent or Merger Sub
of any Shares under the Offer or pursuant to the Tender Agreements, seeking
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 or the Tender Agreements (including the voting
provisions thereunder), or seeking to obtain from the Company, Merger Sub
or the Parent any damages that are material in relation to the Company and
its subsidiaries taken as a whole, (iii) seeking to impose material
limitations on the ability of Merger Sub, or render Merger Sub unable, to
accept for payment, pay for or purchase some or all of the Shares pursuant
to the Offer and the Merger or (iv) seeking to impose material limitations
on the ability of the Parent or Merger Sub 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 stockholders;
(b) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated, or deemed applicable,
pursuant to an authoritative interpretation by or on behalf of a government
entity, 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, that is reasonably
likely to result, directly or indirectly, in any of the consequences
referred to in clauses (i) through (iv) of paragraph (a) above;
(c) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on the NYSE or in the Nasdaq, for a
period in excess of 24 hours (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 declaration of war by the United
States or
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(iv) in the case of any of the foregoing existing at the time of the
commencement of the Offer, a material acceleration or worsening thereof;
(d) there shall have occurred and be continuing any Material Adverse
Effect (as defined below) with respect to the Company;
(e) if, prior to the Effective Time: (i) the Board or any committee
thereof shall have approved or recommended to Company stockholders any
Acquisition Proposal (as defined below); (ii) the Board or any committee
thereof shall for any reason have withdrawn or shall have amended or
modified the Recommendation (as defined below) in a manner adverse to the
Parent; (iii) the Company shall have failed to include the Recommendations
in the Offer Documents or the Schedule 14D-9; (iv) the Company shall have
breached the provisions of the Merger Agreement limiting the solicitation
of third-party acquisition proposals; or (v) an Acquisition Proposal shall
have been commenced or otherwise publicly announced by a person
unaffiliated with the Parent, and the Company shall not, within 10 business
days after such commencement or public announcement, publicly recommended
to the Company's stockholders rejection of such Acquisition Proposal;
(f) any of the representations and warranties of the Company set forth
in the Merger Agreement shall fail to be true and correct or as of the date
of the Merger Agreement or as of the scheduled expiration of the Offer, to
an extent that would entitle Parent to terminate the Merger Agreement
pursuant to Section 8.1(b)(iv)(A) thereof (disregarding for this purpose
the notice and cure provisions thereof);
(g) the Company shall have failed to perform in any material respect any
material obligation or to comply in any material respect with any material
agreement or covenant of the Company to be performed or complied with by it
under the Merger; or
(h) the Merger Agreement shall have been terminated in accordance with
its terms
which in the reasonable good faith judgment of Parent or Merger Sub, in any
such case, and regardless of the circumstances (including any action or
inaction by Parent or Merger Sub) 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 Merger Sub.
Other than the Minimum Condition, these conditions may be waived by Parent or
Merger Sub, in whole or in part at any time and from time to time in the sole
discretion of Parent or Merger Sub. The failure by Parent or Merger Sub 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. All conditions to the Offer,
other than the Antitrust Condition, will be satisfied or waived prior to the
Expiration Date.
Merger Sub may (i) from time to time extend the Offer, if at the scheduled
expiration date of the Offer any of the conditions to the Offer shall not have
been satisfied or waived, until such time as such conditions are satisfied or
waived; (ii) extend the Offer for any period required by any rule, regulation,
interpretation or position of the SEC or the staff thereof applicable to the
Offer; (iii) if the number of Shares tendered pursuant to the Offer is less
than 90% of the outstanding Shares but at least 80% of the outstanding Shares,
extend the Offer for any reason on one or more occasions for an aggregate
period of not more than ten (10) business days beyond the latest expiration
date that would otherwise be permitted under clause (i) or (ii) of this
sentence if on such expiration date there shall not have been tendered (and not
properly withdrawn) at least 90% of the outstanding Shares; or (iv) include a
Subsequent Offering Period (as such term is defined in Rule 14 d-1 under the
Exchange Act) to the Offer for a period up to twenty (20) business days.
If one or more conditions are not satisfied and none of the conditions
described in paragraphs (b), (d), (e) or (h) above have occurred and are
continuing at the time of any scheduled expiration date of the Offer, then,
provided that such conditions are reasonably capable of being satisfied in
Parent and Merger Sub's reasonable judgment, Merger Sub will, at the request of
the Company, extend the Offer from time to time unless any such condition is no
longer reasonably capable of being satisfied or any such event has occurred.
Notwithstanding this, in no event is Merger Sub required to extend the Offer
beyond January 31, 2001.
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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), Merger Sub will accept for payment, and will pay for, all Shares
validly tendered and not withdrawn promptly after the expiration of the
Offering Period. If there is a Subsequent Offering Period, all Shares tendered
during the Subsequent Offering Period will be immediately accepted for payment
and paid for as they are tendered.
Any extension, delay, termination or amendment of the Offer will be followed
as promptly as practicable by public announcement thereof. In the case of an
extension, such an announcement will be issued 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(d), 14d-6(c)
and 14e-1 under the Exchange Act, which require that any material change in the
information published, sent or given to stockholders in connection with the
Offer be promptly disseminated to stockholders in a manner reasonably designed
to inform stockholders of such change) and without limiting the manner in which
Merger Sub may choose to make any public announcement, Merger Sub shall have no
obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a press release or other public
announcement.
Stockholder Approval. 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 thereby have been
duly authorized by all necessary corporate action on the part of the Company;
provided, however that unless the Merger is consummated in accordance with the
short-form merger provisions under the Delaware General Corporation Law (the
"DGCL") described above (in which case no action by the stockholders of the
Company will be required to consummate the Merger), 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 will be required.
Conditions to the Merger. The respective obligations of the Company, Parent
and Merger Sub to consummate the Merger are subject to the fulfillment of
certain conditions set forth in the Merger Agreement, including (i) if required
by applicable law, the approval of the Merger by the holders of a majority of
the outstanding shares of each class of the Company entitled to vote on the
Merger, in accordance with applicable law and the Certificate of Incorporation
and Bylaws of the Company, (ii) the purchase by Merger Sub (or the Parent) of
Shares pursuant to the Offer, and (iii) there being no statute, rule,
regulation, judgment, decree, injunction or other order (whether temporary,
preliminary or permanent) enacted, issued, promulgated, enforced or entered by
any court or other Governmental Entity (as defined in the Merger Agreement) of
competent jurisdiction in effect which prohibits consummation of the Merger.
Termination of the Merger Agreement. According to its terms, the Merger
Agreement may be terminated and the Merger may be abandoned at any time prior
to the Effective Time, notwithstanding any approval of the Merger Agreement by
the stockholders of the Company by the mutual consent of Parent and the
Company. The Merger Agreement may be terminated by either the Company or
Parent, if:
. the Offer shall have expired or been terminated without Parent or Merger
Sub having accepted for exchange any Shares pursuant to the Offer,
provided, however, that Parent and Merger Sub shall not be permitted to
terminate the Merger Agreement pursuant to this provision if the Offer
is terminated or expires without Shares having been accepted for
exchange as a result of a breach by Parent or Merger Sub under the
Merger Agreement (a "Non-Tender Termination").
. the Offer has not been consummated on or before January 31, 2001;
provided, however, that this right to terminate pursuant to this
provision shall not be available to any party whose failure to fulfill
any obligation under the Merger Agreement has been the principal cause
of or resulted in the failure of the Offer to have been consummated on
or before such date and such action or failure to act constitutes a
material breach of the Merger Agreement (an "End-Date Termination").
. there shall be any applicable law or regulation that makes consummation
of the Merger illegal or otherwise prohibited or any judgment,
injunction, order or decree of any court or governmental body having
competent jurisdiction enjoining the Company or Parent from consummating
the Merger is entered and such judgment, injunction, judgment or order
shall have become final and nonappealable.
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. prior to the date on which the Parent's designees are appointed to the
Board (A) any of the representations and warranties of a party set forth
in the Merger Agreement shall not be true and correct in all respects
(unless such failures to be true and correct, without giving effect to
any materiality or material adverse effect qualifications or exceptions
contained therein, do not, or could not reasonably be expected to,
constitute a Material Adverse Effect (as defined below) with respect to
the Company), in each case (i) as of the date referred to in any
representation or warranty which addresses matters as of a particular
date, or (ii) as to all other representations and warranties of the
other party, as of the date of the Merger Agreement and as of the
scheduled expiration of the Offer, or (B) the other party shall have
failed to perform in any material respect any material obligation or to
comply in any material respect with any material agreement or covenant
of such party to be performed or complied with by it under the Merger
Agreement; provided, however, that such inaccuracy or failure to perform
has not been or is incapable of being cured by such other party within
30 days following receipt by the terminating party of notice of such
inaccuracy or failure to perform.
For the purpose of the Merger Agreement, "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 Material Adverse Effect, is or is reasonably likely to be
materially adverse to the business, assets (including intangible assets),
financial condition or results of operations of such entity and its
subsidiaries, taken as a whole, or on the ability of such entity to consummate
the Offer or the Merger, but other than those adverse effects occurring
directly and primarily as a result of (i) the execution and public announcement
of the Merger Agreement, the pendency of the Merger Agreement or the
consummation of the transactions contemplated hereby (including, without
limitation, loss of customers, vendors, suppliers or employees directly and
primarily resulting therefrom) or (ii) general market or industry conditions
(including, without limitation, any change in trading prices of the Company's
outstanding publicly-traded equity securities resulting from the events
described in clauses (i) and (ii) above).
The Company may terminate the Merger Agreement if the Offer has not been
commenced by the Parent or Merger Sub on or prior to ten (10) business days
following the date of the initial public announcement of the Offer, provided,
that the Company may not terminate the agreement if the Company is in material
breach of the Merger Agreement.
The Parent may terminate the Merger Agreement if a Triggering Event occurs.
A "Triggering Event" is deemed to have occurred if, prior to the Effective
Time: (i) the Board or any committee thereof shall have approved or recommended
to the Company stockholders any Acquisition Proposal, (ii) the Board or any
committee thereof shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to Parent its recommendation in favor of the
Offer, the adoption and approval of the Agreement or the approval of the Merger
(the "Recommendations"), (iii) the Company shall have failed to include the
Recommendations in the Offer Documents or the Schedule 14D-9, (iv) the Company
shall have breached the provisions of the Merger Agreement relating to
restrictions on soliciting any third-party acquisition proposal, or (v) an
Acquisition Proposal shall have been commenced or otherwise publicly announced
by a person unaffiliated with Parent, and the Company shall not, within 10
business days after such commencement or public announcement, publicly
recommend to the Company's stockholders rejection of such Acquisition Proposal
(a "Triggering Event Termination").
An "Acquisition Proposal" is defined under the Merger Agreement to mean any
expression of interest, offer or proposal (other than an offer or proposal by
Parent) relating to any Acquisition Transaction. "Acquisition Transaction"
means any transaction or series of related transactions other than the
transactions contemplated by the Merger Agreement involving: (A) any
acquisition or purchase from the Company by any person or "group" (as defined
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) of more than a 15% interest in the total outstanding voting
securities of the Company or any of its subsidiaries or any tender offer or
exchange offer that if consummated would result in any person or "group" (as
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) beneficially
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owning 15% or more of the total outstanding voting securities of the Company or
any of its subsidiaries or any merger, consolidation, business combination or
similar transaction involving the Company pursuant to which the shareholders of
the Company immediately preceding such transaction hold less than 85% of the
equity interests in the surviving or resulting entity of such transaction, (B)
any sale, lease (other than in the ordinary course of business), exchange,
transfer, license (other than in the ordinary course of business), acquisition
or disposition of more than 15% of the assets of the Company, or (C) any
liquidation, dissolution, recapitalization or other significant corporate
reorganization of the Company.
Fees and Expenses. In general, all fees and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby are to be
paid by the party incurring such expenses whether or not the Merger is
consummated. Nonetheless, Parent and the Company have agreed to share equally
all fees and expenses, other than attorneys' and accountants fees and expenses,
in relation to the printing, filing and mailing of the Schedule TO and the
Schedule 14D-9 and any amendments or supplements thereto.
In addition, if the Merger Agreement is terminated by Parent or the Company,
as applicable, prior to the Effective Time because of a Non-Tender Termination,
an End-Date Termination or a Triggering Event Termination, the Company shall
promptly, but in any event no later than two days after the date of such
termination, pay Parent a fee equal to $22,600,000 in immediately available
funds (the "Termination Fee"); provided, that in the case of a Non-Tender
Termination or an End-Date Termination prior to which no Triggering Event has
occurred, (i) such payment shall be made only if (A) following the date of the
Merger Agreement and prior to the termination of the Merger Agreement, any
Acquisition Proposal shall have been publicly announced or shall have become
publicly known, and (B) within 12 months following the termination of the
Merger Agreement, either a Company Acquisition (as defined below) is
consummated, or the Company enters into an agreement providing for a Company
Acquisition and such Company Acquisition is later consummated, and (ii) such
payment shall be made promptly, but in any event no later than two days after
the consummation of such Company Acquisition.
For the purposes of the Merger Agreement, "Company Acquisition" means any of
the following transactions (other than the transactions contemplated by the
Merger Agreement): (i) a sale or other disposition by the Company of a business
or assets representing 40% or more of the consolidated net revenues, net income
or assets of the Company immediately prior to such sale, (ii) the acquisition
by any person or group (including by way of a tender offer or an exchange offer
or issuance by the Company), directly or indirectly, of beneficial ownership or
a right to acquire beneficial ownership of shares representing 40% or more of
any class of equity securities of the Company, or (iii) a merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving the Company (other than a transaction in which
the Company is the Parent and in which the current Company stockholders retain
more than 60%, directly or indirectly, of the surviving or successor
corporation); it being understood that a widely distributed offering of Common
Stock shall not constitute a Company Acquisition.
Acquisition Proposal. The Merger Agreement provides that neither the Company
nor its subsidiaries will, nor will they authorize or permit any of their
respective officers, directors, affiliates or employees or any investment
banker, attorney or other advisor or representative retained by any of them to,
directly or indirectly, (i) solicit, initiate, induce or knowingly encourage
the making, submission or announcement of any Acquisition Proposal, (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes or may reasonably
be expected to lead to, any Acquisition Proposal, (iii) engage in discussions
with any person with respect to any Acquisition Proposal, (iv) approve, endorse
or recommend any Acquisition Proposal or (v) enter into any letter of intent or
similar document or any contract, agreement or commitment contemplating or
otherwise relating to any Acquisition Transaction. Nevertheless, the Company,
the Board (or any duly appointed and empowered committee thereof and any
director of the Company are not prohibited from (i) complying with Rule 14d-9
or 14e-2(a) promulgated under the Exchange Act with regard to a tender or
exchange offer not made after a violation of the Merger Agreement's non-
solicitation provisions, (ii) making
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such disclosures to the Company's stockholders as in the good faith judgment of
the Board (or a committee thereof), after consultation with its outside legal
counsel, is required under applicable Law or (iii) in response to an
unsolicited, bona fide written Acquisition Proposal that the Board (or a
committee thereof) concludes in good faith constitutes a Superior Proposal (as
defined below), engaging in discussions or participating in negotiations with
and furnishing information to the party making such Acquisition Proposal to the
extent (A) the Board determines in good faith after consultation with its
outside legal counsel that its fiduciary obligations under applicable Law
require it to do so, (B) (x) at least two business days prior to furnishing any
such nonpublic information to, or entering into discussions or negotiations
with, such party, the Company gives Parent written notice of the Company's
intention to furnish nonpublic information to, or enter into discussions or
negotiations with, such party and (y) the Company receives from such party an
executed confidentiality agreement containing customary limitations on the use
and disclosure of all nonpublic written and oral information furnished to such
party by or on behalf of the Company, and (C) contemporaneously with furnishing
any such nonpublic information to such party, the Company furnishes such
nonpublic information to Parent (to the extent such nonpublic information has
not been previously furnished by the Company to Parent).
A "Superior Proposal" is an Acquisition Proposal relating to the acquisition
(by means of any of the structural means described in clauses (A) or (B) of the
definition of Acquisition Transaction) of a majority of the outstanding voting
securities, or all or substantially all of the assets, of the Company with
respect to which (A) if any cash consideration is involved, no financing
contingency exists or the Company Board shall have concluded in good faith
(after consultation with the Company's financial advisors) that the acquiring
party is reasonably likely to obtain any necessary financing, and (B) the
Company Board shall have concluded in good faith that the proposed Acquisition
Transaction provides greater value to the stockholders of the Company than the
Offer and the Merger (based upon the advice of the Company's financial
advisors).
The Company and its subsidiaries have agreed to cease any and all
activities, discussions or negotiations with any parties conducted prior to the
signing of the Merger Agreement with respect to any Acquisition Proposal.
Covenants; Representations and Warranties. The Merger Agreement also
contains certain other restrictions as to the conduct of business by the
Company pending the Merger, as well as representations and warranties of each
of the parties customary in transactions of this kind.
Amendment of the Merger Agreement. Subject to the applicable provisions of
the DGCL, at any time prior to the Effective Time, the parties to the Merger
Agreement may modify or amend the Merger Agreement by written agreement
executed and delivered by duly authorized officers of the respective parties.
However, if any of Parent's designees have been appointed to the Board, a
majority of the Company's current Board members that are still serving on the
Board will be required to approve any such amendment.
Treatment of Options. The Merger Agreement provides that, at the Effective
Time, each outstanding option to purchase shares of Common Stock (each, a
"Company Stock Option") under the Company Option Plans (as defined in the
Merger Agreement), whether or not vested, will by virtue of the Merger be
substituted with an equivalent option under Parent's option plan. Each Company
Stock Option so substituted by Parent under the Merger Agreement will be
exercisable (or will become exercisable in accordance with its terms) for that
number of whole shares of Parent Common Stock equal to the product of the
number of shares of Common Stock that were issuable upon exercise of such
Company Stock Option immediately prior to the Effective Time multiplied by the
product of that fraction of a share of common stock, $0.01 par value per share,
of Parent (the "Parent Common Stock") obtained by dividing $17.75 by the
average of the closing prices of Parent's Common Stock as quoted on the New
York Stock Exchange ("NYSE") for the five (5) trading days immediately
preceding the closing date (the "Exchange Ratio"), rounded down to the nearest
whole number of shares of Parent Common Stock and (ii) the per share exercise
price for the shares of Parent Common Stock issuable upon exercise of such
substituted Company Stock Option will be equal to the quotient determined by
dividing the exercise price per share of the Common Stock at which such Company
Stock
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Option was exercisable immediately prior to the Effective Time by the product
of the Exchange Ratio, rounded up to the nearest whole cent. Parent shall
comply with the terms of all such substituted Company Stock Options and use its
best efforts to ensure, to the extent required by, and subject to the
provisions of, the Company Option Plans and permitted under the Internal
Revenue Code of 1986, as amended (the "Code") that any Company Stock Options
that qualified for tax treatment under Section 424(b) of the Code prior to the
Effective Time continue to so qualify after the Effective Time.
Treatment of Employee Stock Purchase Plan. Under the Merger Agreement, the
Company agrees that it shall take such actions as is necessary (i) to provide
that the shares of the Common Stock to be purchased under the Company Employee
Stock Purchase Plan shall be purchased under the Company Employee Stock
Purchase Plan on a "New Exercise Date" (as such term is defined in the Company
Employee Stock Purchase Plan) set by the Board, which New Exercise Date shall
be on the last trading day immediately prior to the Effective Time, and (ii) to
provide that immediately following such purchase of shares of the Common Stock
the Company Employee Stock Purchase Plan shall terminate.
Treatment of 401(k) Plan. The Merger Agreement provides that the Company
shall terminate, effective as of the day immediately preceding the Effective
Time, any and all 401(k) plans unless Parent provides notice to the Company
that such 401(k) plan(s) shall not be terminated.
Treatment of Benefit Plans; Credit for Past Service. Parent shall cause
Merger Sub and the Surviving Corporation to provide employees of the Company
and its Subsidiaries with benefits (including welfare benefits) that are
substantially similar as it provides to its similarly-situated employees. To
the extent that service is relevant for eligibility, vesting or allowances
(including flexible time off) under any plan, program or arrangement of the
Merger Sub and/or Surviving Corporation, then Parent shall ensure that such
plan, program or arrangement shall credit employees for service prior to the
Effective Time with the Company and its Subsidiaries; provided, however, no
such service shall be credited for any purpose under Parent's pension plan and
Parent's retiree health plan. Parent, Merger Sub or the Surviving Corporation
reserve the right to terminate employment or change the place of work,
responsibilities, status or description of any employee or group of employees
as the Parent, Merger Sub or Surviving Corporation may determine in its
discretion.
Indemnification of Officers and Directors. The Merger Agreement provides
that from and after the Effective Time, Parent will cause the Surviving
Corporation to fulfill and honor in all respects the obligations of the Company
pursuant to any indemnification agreements between the Company and its
directors and officers in effect immediately prior to the Effective Time (the
"Indemnified Parties") and any indemnification provisions under the Company's
Certificate of Incorporation and Bylaws (the "Company Charter Documents") as in
effect on the date hereof. The Certificate of Incorporation and Bylaws of the
Surviving Corporation will contain provisions with respect to exculpation and
indemnification that are at least as favorable to the Indemnified Parties as
those contained in the Company Charter Documents as in effect on the date
hereof, which provisions will not be amended, repealed or otherwise modified
for a period of six (6) years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who, immediately prior to
the Effective Time, were directors, officers, employees or agents of the
Company, unless such modification is required by law.
For a period of six (6) years after the Effective Time, Parent will cause to
be maintained in effect, if available, directors' and officers' liability
insurance covering those persons who are currently covered by Company's
directors' and officers' liability insurance policy with respect to claims
arising from or related to facts or events which occurred at or before the
Effective Time in an amount and on terms comparable to those applicable to the
current directors and officers of the Company; provided, however, that in no
event will Parent or the Surviving Corporation be required to expend an annual
premium for such coverage in excess of 150% of the annual premium currently
paid by the Company; provided, further, that if the premium for such coverage
exceeds such amount, Parent and/or the Surviving Corporation shall purchase a
policy with the greatest coverage available for 150% of the annual premium
currently paid by the Company.
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Composition of the Board of Directors and Committees. Promptly upon the
purchase by Merger Sub of Shares pursuant to the Offer and from time to time
thereafter, if the Minimum Condition has been met, and subject to the
conditions described in this paragraph, Parent shall be entitled to designate
up to such number of directors, rounded up to the next whole number, on the
Board as will give Parent representation on the Board equal to the product of
(x) the number of directors on the Board (giving effect to any increase in the
number of directors pursuant to this provision) and (y) the percentage that
such number of Shares so purchased bears to the total number of outstanding
Shares. Upon request by Parent, the Company shall use its best efforts to,
promptly, at the Company's election, either increase the size of the Board or
secure the resignation of such number of directors as is necessary to enable
Parent's designees to be elected to the Board and to cause Parent's designees
to be so elected. At such times, the Company shall use its best efforts to
cause the individuals designated by Parent to constitute the same percentage as
is on the Board of (i) each committee of the Board, (ii) each board of
directors of each subsidiary of the Company and (iii) each committee of each
such board of directors. Notwithstanding the foregoing, the Company shall use
its best efforts to ensure that two of the members of the Board as of the date
hereof (the "Continuing Directors") shall remain members of such Board until
the Effective Time. If a Continuing Director resigns from the Board, Parent,
Merger Sub and the Company shall permit the remaining Continuing Director or
Directors to appoint the resigning Director's successor who shall be deemed to
be a Continuing Director. The Company's obligation to appoint designees to the
Board shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder.
Following the date of the election or appointment of Parent's designees to
the Board pursuant to the Merger Agreement (the "Appointment Date") and prior
to the Effective Time, if there shall be any Continuing Directors, any
amendment of the Merger Agreement, any termination of the Merger Agreement by
the Company, any extension by the Company of the time for the performance of
any of the obligations or other acts of Parent or Merger Sub or any waiver of
any of the Company's rights hereunder or any other determination with respect
to any action to be taken or not to be taken by the Company relating to the
Merger Agreement, will require the concurrence of a majority of such Continuing
Directors.
Appraisal Rights. The holders of Shares do not have appraisal rights as a
result of the Offer. However, if the Merger is consummated, holders of Shares
at the Effective Time will have certain rights pursuant to the provisions of
Section 262 of the DGCL ("Section 262") to demand appraisal of their Shares.
Under Section 262, stockholders who comply with the applicable statutory
procedures will be entitled to receive a judicial determination of the fair
value of their Shares (exclusive of any element of value arising from the
accomplishment or expectation of the Merger) and to receive payment of such
fair value in cash, together with a fair rate of interest, if any. Any such
judicial determination of the fair value of Shares could be based upon factors
other than, or in addition to, the price per Share to be paid in the Merger or
the market value of the Shares. The value so determined could be more or less
than the price per Share to be paid in the Merger.
The foregoing summary of Section 262 does not purport to be complete and is
qualified in its entirety by reference to Section 262. Failure to follow the
steps required by Section 262 of the DGCL for perfecting appraisal rights may
result in the loss of such rights.
Rule 13e-3. The Merger would have to comply with any applicable U.S. federal
law operative at the time of its consummation. Rule 13e-3 under the Exchange
Act is applicable to certain "going private" transactions. In the Schedule TO,
Merger Sub has represented that it does not believe that Rule 13e-3 will be
applicable to the Merger unless the Merger is consummated more than one year
after the termination of the Offer. If applicable, Rule 13e-3 would require,
among other things, that certain financial information concerning the Company
and certain information relating to the fairness of the Merger and the
consideration offered to minority stockholders be filed with the SEC and
disclosed to minority stockholders prior to consummation of the Merger.
Tender Agreement
On November 24, 2000, Tom L. Johnson and Richard G. Vento, Co-Chairmen and
Co-Chief Executive Officers of the Company, on behalf of themselves and
entities of which they are managing members, Lana
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Vento, wife of Richard G. Vento, on behalf of herself and an entity of which
she is managing member, Donna Johnson, wife of Tom L. Johnson on behalf of
herself, and William Bailey, on behalf of entities of which he is managing
member (each, a "Stockholder") entered into a Tender and Voting Agreement with
Merger Sub and Parent (the "Tender Agreement"). Pursuant to the Tender
Agreement, among other things, each Stockholder:
(i) agreed to tender the Shares held by the Stockholder into the Offer
promptly, and in any event no later than the tenth business day following
the commencement of the Offer pursuant to the Merger Agreement, and not to
withdraw any Shares so tendered unless the Offer is terminated or has
expired or the Merger Agreement is terminated.
(ii) agreed, other than a transfer of Shares to a spouse, ancestor,
descendant or a trust for any of their benefit, not to (a) transfer or
consent to any transfer of, any or all of the Shares; (b) enter into any
contract, option or other agreement or understanding with respect to any
transfer of any or all of the Shares or any interest therein; (c) grant any
proxy, power-of-attorney or other authorization or consent in or with
respect to the Shares; (d) deposit the Shares into a voting trust or enter
into a voting agreement or arrangement with respect to the Shares; or (e)
take any other action that would in any way restrict, limit or interfere
with the performance of the Stockholder's obligations under the Tender
Agreement or the transactions contemplated thereby.
(iii) granted to, and appointed, Parent or its nominee, its proxy and
attorney-in-fact (with full power of substitution), for and in the name,
place, and stead of the Stockholder, to vote the Shares, or grant a consent
or approval in respect of the Shares, in connection with any meeting of the
stockholders of the Company (i) in favor of the Merger, and (ii) against
any action or agreement which would impede, interfere with or prevent the
Merger, including any Acquisition Proposal.
(iv) agreed from and after the date of the Tender Agreement until the
Effective Time or termination of the Merger Agreement not to, and not to
authorize or permit any of the Stockholder's affiliates or any investment
banker, attorney or other advisor or representative retained by any of them
to, directly or indirectly, (a) solicit, initiate, encourage or induce the
making, submission or announcement of any Acquisition Proposal,
(b) participate in any discussions or negotiations regarding, or furnish to
any person any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes or
may reasonably be expected to lead to, any Acquisition Proposal, (c) engage
in discussions with any person with respect to any Acquisition Proposal,
(d) approve, endorse or recommend any Acquisition Proposal or (e) enter
into any letter of intent or similar document or any contract, agreement or
commitment contemplating or otherwise relating to any Acquisition
Transaction.
The terms "Acquisition Proposal" and "Acquisition Transaction" have the
meanings given to those terms in the Merger Agreement and are set forth under
the section of this Item 3, above, entitled "The Merger Agreement".
Based on 37,609,227 shares of Common Stock outstanding on December 1, 2000,
the 20,360,546 Shares held by the Stockholders in the aggregate represent
approximately 54% of the total outstanding Common Stock.
The Tender Agreement and the proxies delivered in connection with the Tender
Agreement terminate upon the earlier of (i) the Effective Time or (ii) the
termination of the Merger Agreement in accordance with its terms.
The summary set forth herein does not purport to be complete and is
qualified in its entirety by reference to the complete text of the Tender
Agreement, a copy of which is attached as Exhibit A to the Merger Agreement
filed as Exhibit (e)(1) to this Schedule 14D-9, and is incorporated by
reference in its entirety.
Offer Letters
Pursuant to letters dated December 4, 2000, (each an "Offer Letter"), Parent
has offered employment to certain employees of the Company. Each such offer is
contingent upon the successful closing of the proposed acquisition. Certain
terms of the Offer Letters are summarized below, however, each description is
qualified in its entirety by such Offer Letters, which are attached hereto as
Exhibit(e)(4).
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Jeff Boone. Mr. Boone's Offer Letter provides for an annual base salary of
$200,000 and he has been offered an option to purchase 4,000 shares of Parent
Common Stock, subject to customary vesting. In addition, Parent will honor Mr.
Boone's Severance Agreement, including the treatment of his outstanding Company
Stock Options, which will be converted into options to purchase Parent Common
Stock.
Phil Cardman. Mr. Cardman's Offer Letter provides for a temporary position,
not to exceed two months. Mr. Cardman's monthly base salary will be $20,000.
Larry Fiore. Mr. Fiore's Offer Letter provides for a temporary position, not
to exceed six months. Mr. Fiore's base monthly salary will be $18,500.
Roger Hosier. Mr. Hosier's Offer Letter provides for an annual salary of
$170,000 and he has been offered an option to purchase 3,000 shares of Parent
Common Stock, subject to customary vesting. In addition, Parent will honor Mr.
Hosier's Severance Agreement, including the treatment of his outstanding
Company Stock Options, which will be converted into options to purchase Parent
Common Stock.
Bud Mullanix. Mr. Mullanix's Offer Letter provides for an annual salary of
$150,000 and he has been offered an option to purchase 3,000 shares of Parent
Common Stock, subject to customary vesting. In addition, Parent will honor Mr.
Mullanix's Severance Agreement, including the treatment of his outstanding
Company Stock Options, which will be converted into options to purchase Parent
Common Stock.
Jim Olsen. Mr. Olsen's Offer Letter provides for an annual salary of
$225,000 and he has been offered an option to purchase 30,000 shares of Parent
Common Stock, subject to customary vesting. In addition, Parent will honor Mr.
Olsen's Severance Agreement, including the treatment of his outstanding Company
Stock Options, which will be converted into options to purchase Parent Common
Stock.
For a description of the Severance Agreements referenced above, please see
the description thereof in this Item 3 above and in the Information Statement
attached as Schedule I hereto, under the heading "Employment Contracts and
Change-in-Control Arrangements."
Item 4. The Solicitation or Recommendation.
(a) Recommendation.
At the meeting of the Board held on November 24, 2000, the Board by
unanimous vote of the directors, (1) determined the Offer and the Merger were
fair to, and in the best interests of, the Company's stockholders, (2) approved
the Merger Agreement and the transactions contemplated by the Merger Agreement,
including the Offer and the Merger, and (3) recommended that the Company's
stockholders accept the Offer and tender their Shares thereunder and approve
and adopt the Merger Agreement.
A press release announcing the commencement of the Offer and a letter to the
stockholders communicating the Board's recommendation are filed herewith as
Exhibits (a)(1)(H) and (a)(2), respectively, and are incorporated by reference
herein in their entirety.
(b) Reasons.
Background of the Offer
In early 2000, the Board began to evaluate the strategic direction of the
Company in light of certain factors, including the Company's business and
operations, the position of the Company in its target market, and the rapid
consolidation that was taking place within the telecommunications industry.
Among the alternatives considered by the Board at that time were for the
Company to pursue a series of strategic business acquisitions, merge or
otherwise combine with a larger partner with well-established channels of
distribution into the Company's target market, or enter into some other form of
business combination with a strategic partner or partners.
On February 18, 2000, the Company engaged Gerard Klauer Mattison & Co., Inc.
("GKM") to act as its financial advisor in connection with possible
acquisitions by the Company, acquisitions of the Company or
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other business combinations involving the Company. In early April of 2000, a
member of the GKM investment banking team covering the Company left GKM to join
Adams Harkness & Hill, Inc. ("AHH"). As a result, on April 11, 2000, the
Company, GKM and AHH entered into an engagement letter under which the parties
agreed that AHH and GKM would both provide the Company with financial advisory
services.
Between April and July of 2000, GKM or AHH contacted approximately 70
possible strategic partners and engaged in further preliminary discussions with
over 30 companies that had expressed an interest in a business combination with
the Company, including a large telecommunication equipment provider ("Bidder
A") and Agilent. Of the over 30 companies who initially expressed interest in a
possible business combination with the Company, seven (including Bidder A and
Agilent) engaged in further discussions with the Company. During this time
period, GKM and AHH provided the Board and the Company's senior management with
periodic updates as to the results of these contacts. The Company and Bidder A
entered into a Non-Disclosure Agreement on April 28, 2000.
On July 28, 2000, representatives of AHH presented the Board with a report
on the services that they had provided to date, the status of AHH's preliminary
discussions with Bidder A, Agilent and certain other potential strategic
partners, and various strategic alternatives available to the Company. At this
meeting, the Board determined to form a special committee composed of three
non-management directors (the "Special Committee"). The Board authorized the
Special Committee to pursue a possible business combination involving the
Company and to review, evaluate and negotiate the proposed structure, price and
terms of such a transaction. The Board also authorized the Special Committee to
recommend a possible business combination involving the Company to the Board if
the Special Committee believed such proposal would be in the best interests of
the Company and its stockholders.
At its initial meeting on August 15, 2000, the Special Committee authorized
AHH to pursue further discussions with various potential strategic partners.
The Special Committee also authorized one of its members to contact an officer
of Bidder A to discuss a possible strategic transaction.
From mid-August to October of 2000, the Special Committee held a number of
meetings at which AHH and GKM reported on the status of their discussions with
potential strategic partners, including their discussions with Bidder A and its
financial advisors.
In August 2000, Bidder A conducted a due diligence investigation of the
Company. Following this investigation and other meetings between
representatives of Bidder A and the Company, on August 31, 2000, Bidder A
delivered to the Special Committee a non-binding indication of interest
relating to an acquisition of the Company by Bidder A. AHH provided the Special
Committee with their analysis of the proposed price, structure, terms and
conditions of the proposed offer. Following discussion, the Special Committee
determined that the economic terms in the non-binding indication of interest
were not in the best interests of the Company and its stockholders. The Special
Committee directed AHH to pursue further discussions with the financial
advisors for Bidder A and other potential strategic partners.
At a meeting of the Special Committee on September 6, 2000, AHH reported
that it had not received any further indication from Bidder A as to its
willingness to increase its proposed price. AHH also reported that Agilent had
expressed renewed interest in the possibility of a business combination with
the Company. On September 18, 2000, the Company entered into a Confidential
Disclosure Agreement with Agilent. From mid-September to late-October, members
of Agilent's management and technical organization had numerous meetings and
telephonic conferences with Company representatives. These meetings included
demonstrations of the Company's products, a tour of the Company's facilities,
discussions regarding business plans, customers, and strategies of the
respective companies, and the perceived benefits resulting from a combination
of their businesses.
On September 25, 2000, at a meeting between representatives of Bidder A and
certain members of the Special Committee, Bidder A expressed a potential
interest in acquiring the Company at a per share price that was higher than it
had proposed in its August 31 indication of interest. At that time,
representatives of Bidder A indicated that they would provide a written non-
binding proposal to the Special Committee. From late
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September through the first week of October, Bidder A continued its due
diligence investigation of the Company through a number of meetings at the
Company's offices. Bidder A never delivered a written proposal to the Company
with respect to the acquisition of the Company at the per share price discussed
at the September 25, 2000 meeting.
In mid October 2000, Bidder A orally indicated to AHH and certain members of
the Special Committee that it still might be interested in pursuing an
acquisition of the Company, but at a price substantially below the last price
that had been discussed on September 25, 2000.
The Special Committee had several meetings in late October in which it
discussed the strategic options that might be available to the Company. From
October 30, 2000 through November 1, 2000, a member of the Company's senior
management team, AHH and senior members of Agilent's Communications Management
Solutions Business Unit met in the United Kingdom to discuss the Company's
business strategies, possible synergies in the respective companies product
offerings and possible valuations of the Company.
At a Special Committee meeting on November 2, 2000, AHH reported on the
current status of its ongoing discussions with Agilent and Bidder A, as well as
certain other potential strategic partners. AHH also reported on its analysis
of the price and other terms of the potential transaction that had been
proposed by Bidder A. The Special Committee authorized AHH to pursue further
discussions with Bidder A. On November 2, 2000 and November 3, 2000, Agilent
continued its on-site and off-site due diligence investigation of the Company.
On November 8, 2000, Agilent delivered to AHH a non-binding indication of
interest for the acquisition of the Company at a price of $14.50 per share,
which was higher than Bidder A's last proposal. This letter also stated that
Agilent was prepared to offer up to 50% of the consideration in Agilent stock.
On November 9, 2000, the Special Committee met to discuss its ongoing
negotiations with Bidder A and Agilent and instructed AHH to obtain a more
definitive proposal from each party.
On November 10, 2000, AHH received a non-binding written proposal from
Bidder A for the acquisition of the Company in an all cash tender offer at a
price higher than $14.50 but below the Offer Price. Thereafter, the Special
Committee met to discuss Bidder A's all cash tender offer proposal and
Agilent's stock and cash proposal. AHH reported to the Special Committee the
history and status of negotiations to date with each of Bidder A and Agilent.
AHH also provided the Special Committee a preliminary analysis of the two
proposals in terms of structure and price, and current market evaluations of
each company.
On November 13, 2000 the Special Committee met to further consider the
proposals from Bidder A and Parent. Following extensive discussion regarding
the history and status of negotiations to date with each of Bidder A and
Agilent, the Special Committee instructed AHH to indicate to Agilent that the
Special Committee had an existing proposal at a higher per share purchase price
and requested that Agilent provide a revised proposal.
On November 14, 2000, AHH reported to the Special Committee that it had
received an oral proposal from the financial advisors for Agilent that Agilent
potentially was prepared to offer $16.25 per share, with 50% of the purchase
price in Agilent stock. The Special Committee discussed the procedure and
timing for negotiating definitive agreements with Bidder A and Agilent. The
Special Committee then instructed AHH to advise the financial advisors to both
Bidder A and Agilent that the Company had received competitive bids and that
the Special Committee was requesting each bidder to submit a final proposal and
a proposed definitive acquisition agreement by the close of business on
November 16, 2000.
On November 16, 2000, counsel for Agilent delivered to the Special Committee
a revised non-binding proposal and draft definitive agreement, providing for,
among other things, an all cash tender offer of the outstanding shares of the
Company at the purchase price of $17.75 per share to be followed by a second-
step merger. The proposal stated that execution of a definitive agreement was
subject to the approval of Agilent's
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Board of Directors and satisfactory completion of due diligence. Counsel for
Bidder A also delivered a draft definitive agreement, providing for, among
other things, an all cash tender offer for the outstanding shares of the
Company at an orally expressed per share price less than that offered by
Agilent.
At a meeting of the Special Committee on the afternoon of November 16, 2000,
AHH and GKM reviewed and analyzed the principal terms and relative merits of
the final proposals from Bidder A and Agilent. They also reviewed with the
Special Committee the perceived likelihood and timing of closing a transaction
with both parties. The Special Committee instructed counsel to review the
proposed agreements submitted by Bidder A and Agilent and to provide the
Special Committee with a comparison of the principal terms of the agreements.
The Special Committee met on the afternoon of November 17, 2000, at which
time Company counsel, AHH and GKM reviewed the principal terms and conditions
of the agreements submitted by Bidder A and Agilent with the Special Committee.
AHH and GKM again analyzed the relative merits of the final proposals from
Bidder A and Agilent, as well as the perceived likelihood and timing of closing
a transaction with each of the parties. The Special Committee discussed the
various alternatives for responding to these proposals in order to maximize
shareholder value. Following this discussion, the Special Committee unanimously
determined to proceed with immediate negotiation and finalization of the draft
merger agreement with Agilent. The Special Committee also instructed AHH to
inform the financial advisors for Bidder A that another party had proposed the
acquisition of the Company at a higher per share price than that proposed by
Bidder A. That evening, the financial advisors to Bidder A informed AHH that
Bidder A had delivered its best and final offer.
During the period from November 16 through November 21, Agilent continued
its due diligence investigation of the Company. During that period, counsel for
the Company and counsel for Agilent also negotiated the terms of the merger
agreement and related documents. On November 21, 2000, at a meeting of the
Special Committee, AHH and GKM reviewed the history of negotiations between the
Company and Agilent, and GKM presented its financial analysis of the proposed
transaction. Counsel for the Company summarized the key terms of the merger
agreement and related documents with Agilent. At this meeting, the Special
Committee unanimously approved recommending the Agilent proposal to the Board,
subject to finalization of the draft merger agreement and receipt of a fairness
opinion from GKM.
At the Board meeting immediately following the meeting of the Special
Committee, the Board reviewed the terms of the draft merger agreement with AHH,
GKM and Company counsel. At this meeting, AHH reviewed the course of
negotiations with certain potential acquirers and particularly, Bidder A and
Agilent. GKM presented its financial analysis of the proposed transaction and
its written opinion that, as of that date, the Offer Price to be received by
holders of Common Stock in connection with the Offer and the Merger was fair to
such holders from a financial point of view. The Special Committee then
presented its recommendation to the Board that the Offer and the Merger are in
the best interests of the Company's stockholders. After further discussion, the
Board approved, by unanimous vote of the directors, the transaction and the
entry into the definitive agreements by the Company, subject to finalization of
the merger agreement and the receipt of an updated fairness opinion from GKM on
the date that the draft merger agreement was finalized.
On November 24, 2000, the Board met via teleconference call with its counsel
and financial advisors also present. Counsel to the Company provided the Board
with a report on the revised terms of the proposed merger agreement. GKM
reiterated its oral opinion, later confirmed in writing as of the same date,
that, as of that date, the Offer Price to be received by holders of Common
Stock in connection with the Offer and the Merger was fair to such holders from
a financial point of view. The Board then approved, by unanimous vote of the
directors, the transaction and the entry into the definitive agreements by the
Company. On the afternoon of November 24, 2000, the Company, Merger Sub and
Agilent executed the Merger Agreement. On November 27, 2000, Agilent and the
Company each issued a press release announcing the transaction.
15
<PAGE>
Reasons for the Recommendation of the Board
The Board consulted with the Company's senior management, as well as its
legal counsel, independent accountants and financial advisors, in reaching its
decision to approve the Offer and the Merger and the Merger Agreement. Among
the factors considered by the Board in its deliberations were the following:
. The historical and recent trading activity and market prices of Shares,
and the fact that the Offer and the Merger will enable the holders of
Shares to realize (1) a premium of 31% over the last sale price of Shares
reported on the Nasdaq National Market on November 24, 2000, prior to the
decision by the Board to approve the transaction, and (2) a premium of
77% over the last sale price of Shares reported on the Nasdaq National
Market over a 30 day mean prior to the decision by the Board to approve
the transaction.
. The purchase price in the Offer and the Merger would be payable in cash,
thus eliminating any uncertainties in valuing the consideration to be
received by the Company's stockholders, which were particularly acute in
light of the recent volatility in the price of the Common Stock, as well
as volatility in the market prices of shares of other telecommunications
software companies and in the Nasdaq Stock Market in general.
. The Offer provides stockholders who are considering selling their Shares
with the opportunity to sell their Shares at the Offer Price without
incurring the transaction costs typically associated with open market
sales.
. The Offer and the Merger provide for a prompt cash tender offer for all
Shares to be followed by a merger for the same consideration, thereby
enabling the Company's stockholders to obtain cash in exchange for their
Shares at the earliest possible time.
. The judgment of the Special Committee and the Board, based on the
extended arm's-length negotiations with Merger Sub and Parent, that the
Offer Price represented the highest price that Merger Sub would be
willing to pay in acquiring the Shares.
. The recommendation of the Special Committee that the Offer and the Merger
are in the best interests of the Company and its stockholders.
. The Company's financial performance and outlook, and the Company's
assets, business, financial condition, business strategy, results of
operations and the Company's prospects if it were to remain an
independent, publicly traded entity, including the risks of competing
against companies that have far greater resources, distribution capacity
and product offerings than the Company.
. Discussions with and presentations by financial advisors AHH and GKM as
to the Company's alternatives (including the possibility of pursuing a
sale to a strategic buyer, making a series of strategic acquisitions, or
entering into a strategic partnership with a larger company) and the
range of possible benefits to the Company's stockholders of those
alternatives and the timing and likelihood of accomplishing any of those
alternatives.
. The financial analysis and presentation of GKM to the Board on November
21, 2000, and the opinion of GKM on November 24, 2000 to the effect that,
as of those dates, and based upon and subject to certain matters stated
in its opinion, the $17.75 per Share cash consideration to be received by
holders of Shares was fair, from a financial point of view, to the
holders of Shares. The full text of GKM's written opinion, which sets
forth the assumptions made, matters considered and limitations on the
review undertaken by GKM, is attached as Schedule II to this Schedule
14D-9 and is incorporated herein by reference in its entirety.
. The Merger Agreement permits the Company to furnish information to, and
enter into discussions or negotiations with, any person that makes an
unsolicited bona fide expression of interest, offer or proposal to
acquire more than 15% of the Company pursuant to a merger, consolidation,
business combination, asset sale, reorganization or other similar
transaction, subject to the terms of the Merger Agreement.
16
<PAGE>
. The Merger Agreement permits the Board or the Special Committee to
disclose alternative proposals to the Company's stockholders if the Board
or the Special Committee determines in good faith, after consultation
with outside legal counsel, that the failure to take such action would be
inconsistent with its fiduciary duties under applicable law or (ii) in
response to an unsolicited, bona fide alternative proposal that the Board
or Special Committee concludes in good faith constitutes a Superior
Proposal (as defined in the Merger Agreement).
. The fact that a rigorous market check of the Company was undertaken in
that financial advisors to the Company contacted numerous potential
acquires and partners regarding a possible business combination with the
Company.
. The Board's judgment that the termination fee would not materially impair
the ability of a third party to make a competing proposal.
. The Merger Agreement does not condition Merger Sub's obligations to
consummate the Merger on Merger Sub's or Parent's ability to obtain
financing for the Merger.
. Parent's representations in the Merger Agreement that it will have
sufficient funds available to it to satisfy its and Merger Sub's
obligation to consummate the Offer and the Merger.
The Board also considered a number of uncertainties and risks in their
deliberations concerning the Offer and the Merger, including the following:
. The possibility that, although the Offer gives the Company's stockholders
the opportunity to realize a premium over the price at which the Common
Stock traded prior to the public announcement of the Offer and the
Merger, the price or value of the Common Stock may increase in the
future, and the Company's stockholders would not benefit from those
future increases.
. The circumstances under the Merger Agreement under which the termination
fee becomes payable by the Company.
. Pursuant to the Merger Agreement, between the execution of the Merger
Agreement and Effective Time, the Company is required to obtain Parent's
consent before it can take certain actions.
. The conditions to Merger Sub's and Parent's obligations to purchase
Shares in the Offer, and the possibility that such conditions might not
be satisfied.
. The Merger Agreement requires that there have been tendered and not
withdrawn Shares which represent more than a majority of the outstanding
Shares on a fully-diluted basis as well as a majority of Shares not held
by persons who have executed the Tender Agreement as a condition to the
Offer.
In view of the variety of factors considered in connection with its
evaluation of the Merger Agreement, the Board found it impracticable to, and
did not, quantify, rank or otherwise assign relative weights to the factors
considered or determine that any factor was of particular importance in
reaching its determination that the Merger Agreement and the transactions
contemplated thereby are fair to, and in the best interests of, the Company's
stockholders. Rather, the Board each viewed their respective recommendations as
being based upon their own judgment, in light of the totality of the
information presented and considered, of the overall effect of the Merger
Agreement and the transactions contemplated thereby, including the Offer and
the Merger, on the Company's stockholders compared to any alternative
transaction.
The Special Committee was composed of three non-management directors, none
of whom had or have any interest in Merger Sub or Parent. Furthermore, none of
the members of the Special Committee were currently employed by or affiliated
with the Company, other than in their capacities as directors.
Opinion of Gerard Klauer Mattison & Co., Inc.
Under an engagement letter dated February 18, 2000 (the "Engagement
Letter"), the Company retained GKM to provide it with certain financial
advisory services, including in connection with (i) a potential
17
<PAGE>
transaction or series or combination of transactions involving (A) a sale of
more than 50% of the Company's outstanding capital stock to a third party, (B)
a sale of all or substantially all of the Company's assets to a third party or
(C) a merger, consolidation or similar business combination between the
Company and a third party in which the existing stockholders of the Company
own less than 50% of the voting stock of the surviving entity. At the meeting
of the Board on November 21, 2000, GKM rendered its opinion that as of
November 21, 2000, based upon and subject to the various considerations set
forth in the opinion, the consideration to be received by holders of Shares in
the Offer and Merger, pursuant to the Merger Agreement, was fair from a
financial point of view to such holders. At a telephonic Board meeting on
November 24, 2000, GKM re-confirmed orally, and subsequently in writing, its
earlier opinion as of such date. GKM has consented to the inclusion of its
opinion and the following summary thereof in this Schedule 14D-9.
THE FULL TEXT OF THE WRITTEN OPINION OF GKM DATED NOVEMBER 24, 2000 IS
ATTACHED AS ANNEX II TO THIS SCHEDULE 14D-9. THE OPINION SETS FORTH, AMONG
OTHER THINGS, THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED
AND LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY GKM IN RENDERING ITS
OPINION. WE URGE YOU TO READ THE ENTIRE OPINION CAREFULLY. GKM'S OPINION IS
DIRECTED TO THE BOARD AND ADDRESSES ONLY THE FAIRNESS OF THE CONSIDERATION
FROM A FINANCIAL POINT OF VIEW TO HOLDERS OF SHARES OF COMMON STOCK AS OF THE
DATE OF THE OPINION. GKM'S OPINION DOES NOT ADDRESS ANY OTHER ASPECT OF THE
OFFER OR THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF
COMMON STOCK AS TO WHETHER SUCH HOLDER SHOULD CONTINUE TO HOLD SUCH
SECURITIES, TENDER SHARES PURSUANT TO THE OFFER OR VOTE IN FAVOR OF THE
MERGER. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF GKM'S OPINION.
In connection with rendering its opinion, GKM reviewed and analyzed, among
other things, the following:
. a draft dated November 21, 2000 of the Merger Agreement and drafts of
other transaction documents;
. selected publicly available financial statements and other information of
the Company and Parent;
. selected internal business, operating and financial information,
including financial forecasts and projections, furnished to GKM by the
Company;
. the historical and projected financial results and financial condition of
the Company and compared the Company's financial results with those of
other companies and businesses that GKM deemed relevant;
. the reported prices and trading activity of the Common Stock and compared
its performance with those of other publicly traded companies that GKM
deemed relevant; and
. the financial terms of the Offer and the Merger and compared them with
the financial terms, to the extent publicly available, of selected other
recent transactions that GKM deemed relevant.
In addition, in arriving at its opinion, GKM held discussions with the
Company's management regarding the business, operations, financial condition
and prospects of the Company, as well as other matters GKM considered relevant
to its inquiry.
GKM also conducted other such analyses and performed other such
investigations and considered other such matters as it deemed necessary to
arrive at its opinion, including its assessment of general economic, market
and monetary conditions.
GKM relied upon and assumed, without independent verification, the accuracy
and completeness of all of the financial and other information publicly
available or furnished or otherwise communicated to it for the purposes of its
opinion. With respect to the financial forecasts, projections and other
information provided or otherwise reviewed, GKM assumed that such forecasts,
projections and other information were reasonably prepared on bases reflecting
the best currently available estimates and good faith judgments of the
Company's
18
<PAGE>
management as to the expected future competitive, operating and financial
performance of the Company. GKM further assumed that the Merger will be
completed as set forth in the Merger Agreement. GKM was not furnished, and did
not independently make, any evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Company and did not perform a
physical inspection of the properties or assets of the Company. GKM's opinion
is necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to it as of, the date of its
opinion. GKM's opinion does not address the underlying business decision of the
Company to engage in the Offer and the Merger or any other transaction in which
the Company might engage.
GKM has assumed that the representations and warranties of each party to the
Merger Agreement and all related documents are true and correct, that each
party to such documents will perform all covenants and agreements required to
be performed by such party under the documents and that all conditions to the
consummation of the Offer and the Merger will be satisfied without waiver
thereof. GKM has also assumed that all governmental, regulatory or other
consents or approvals (if any) will be obtained and that in the course of
obtaining any such consents or approvals, no restrictions will be imposed or
amendments or modifications made that would have a material adverse effect on
the Offer or the Merger.
The following is a brief summary of some of the material financial analyses
performed by GKM in connection with its oral opinion and the preparation of its
opinion letter dated November 24, 2000. Some of these summaries of financial
analyses include information presented in tabular format. In order to fully
understand the financial analyses used by GKM, the tables must be read together
with the text of each summary. The tables alone do not constitute a complete
description of the financial analyses. Considering the data set forth below in
the tables without considering the full narrative description of the financial
analyses, including the methodologies and assumptions underlying the analyses,
could create a misleading or incomplete view of GKM's financial analyses.
The Company's Stock Trading History. GKM reviewed the recent stock price
performance of the Common Stock over various time periods ended November 24,
2000. GKM observed the following:
<TABLE>
<CAPTION>
The Company's
Common Stock
Closing Price
--------------------
Low Mean High
----- ------ ------
<S> <C> <C> <C>
Last twelve months..................................... $2.94 $11.54 $21.75
Last 90 trading days................................... 8.00 11.40 14.81
Last 30 trading days................................... 8.13 10.02 13.50
November 24, 2000 close................................ $13.50
Offer Price............................................ 17.75
Premium to Nov. 24th close............................. 31%
Premium to 30 day mean................................. 77
</TABLE>
Comparative Stock Price Performance. GKM reviewed the recent stock price
performance of the Common Stock and compared it with the performance of the
Nasdaq National Market as well as a stock price index comprised of ten publicly
traded companies deemed by GKM to be reasonably comparable to the Company.
Specifically, the comparable company index consisted of Concord Communications,
Crosskeys Systems, DSET, Evolving Systems, MetaSolv, Micromuse, Portal
Software, TTI Team Telecom, Vertel and Visual Networks.
GKM observed the following percentage changes in the price of the Common
Stock and the level of the indices referred to above, as of November 24, 2000:
<TABLE>
<CAPTION>
Percentage Price Change
-------------------------
Last Twelve Since July 3,
Months 2000
----------- -------------
<S> <C> <C>
The Company........................................ 360 % 26 %
Comparable Company Index........................... (68) (72)
Nasdaq Index....................................... (16) (27)
</TABLE>
19
<PAGE>
GKM noted that the Company's share price had outperformed both of the
specified indices on a relative basis over the last twelve months, and had
outperformed both of the indices since July 3, 2000, the first trading day of
the (calendar year) third quarter.
Comparable Publicly Traded Companies Analysis. GKM compared selected
financial information for the Company with publicly available information for
the companies included in the comparable index described above. Based on
estimates from securities research analysts and the management of the Company,
and using the offered purchase price of $17.75 per share of the Common Stock,
GKM's analysis produced enterprise value multiples of selected financial data
as follows:
<TABLE>
<CAPTION>
Implied
Company
Multiple Low High Mean Median
-------- --- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Enterprise Value/LTM Revenue(a,b,d)........... 8.6x .2x 6.1x 2.7x 3.1x
Enterprise Value/LTM EBITDA(a,b,c,d).......... 68.7 1.1 30.4 16.3 21.0
Enterprise Value/CY2000E Revenue(a,d,e)....... 7.7 .2 4.3 2.0 1.8
Enterprise Value/CY2001E Revenue(a,d,e)....... 4.9 .2 3.0 1.4 1.2
</TABLE>
--------
(a) Enterprise value equals total market capitalization plus long term debt
less cash and equivalents.
(b) LTM refers to last twelve months.
(c) EBITDA refers to earnings before interest, taxes, depreciation and
amortization.
(d) Calculation excludes Micromuse.
(e) CY2000E and CY2001E refer to calendar year revenue estimates for each
respective period.
GKM noted that the Company's implied transaction multiples were above the
range of the selected valuation parameters. Based on the observed LTM revenue,
LTM EBITDA, CY2000E revenue and CY2001E revenue high multiples of these
selected companies, GKM estimated an implied equity value range for the Common
Stock of $8.60-$12.90 per share.
No company included in the peer group is identical to the Company. In
selecting and evaluating the comparable companies, GKM made judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters. Many of these matters are
beyond the control of the Company, such as the impact of competition on the
business of the Company, industry growth and the absence of any material
adverse changes in the financial condition and prospects of the Company, the
industry or in the financial markets in general. Mathematical analysis, such as
determining the mean or median, is not in itself a meaningful method of using
peer group data.
Comparable Transactions Analysis. GKM compared statistics based on publicly
available information for selected transactions in the operations supports
systems and other related sectors to the relevant financial statistics for the
Company based on the implied value of the Company by the offered purchase price
of $17.75 per share of the Common Stock. The following table presents the
selected transactions utilized in GKM's analysis sorted in reverse
chronological order. The first two transactions listed have not closed as of
the date of this Schedule 14D-9.
<TABLE>
<CAPTION>
Acquiror Target
-------- ------
<S> <C>
Spirent (pending) Hekimian Laboratories
TeleCommunication Systems (pending) Xypoint
Micromuse NetOps
ADC Telecommunications Centigram Communications
Nortel Networks Architel Systems
Sema Group LHS Group
Nortel Networks Clarify
Level 8 Systems Template Software
PeopleSoft Vantive
Amdocs ITDS
ADC Telecommunications Saville Systems
Lucent Technologies Kenan Systems
</TABLE>
20
<PAGE>
The following table summarizes the range of implied enterprise values as a
multiple of the last twelve months ("LTM") revenue and as a multiple of forward
twelve months ("FTM") revenue for the selected comparable transactions as
compared to the Company's implied transaction multiples:
<TABLE>
<CAPTION>
Implied
Company
Multiple Low High Mean Median
-------- --- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Enterprise Value/LTM Revenue................ 8.6x 1.4x 9.9x 6.0x 7.2x
Enterprise Value/FTM Revenue................ 5.4 1.2 6.7 3.7 3.0
</TABLE>
GKM noted that based on the implied transaction multiples of the Company,
the ratios of transaction enterprise value to estimated LTM revenue (8.6x) and
to FTM revenue (5.4x) were within the observed range but higher than the
observed median than those calculated by GKM for these selected comparable
transactions. Based on the observed LTM and FTM median multiples of these
selected transactions, GKM estimated an implied equity value range for the
Common Stock of $10.50-$15.10 per share. GKM observed that the implied
transaction value of $17.75 per share of the Common Stock was greater than the
implied value range based on this analysis.
No transaction included in the comparable transactions analysis is identical
to the Offer or the Merger. GKM made judgments and assumptions with regard to
industry performance, general business, economic, market and financial
conditions and other matters. Many of these matters are beyond the control of
the Company, such as the impact of competition on the business of the Company,
industry growth and the absence of any material adverse changes in the
financial condition and prospects of the Company, the industry or in the
financial markets in general. Mathematical analysis, such as determining the
mean or median, is not in itself a meaningful method of using comparable
transactions data.
Discounted Cash Flow Analysis. GKM performed a discounted cash flow analysis
for the Company in which it calculated the present value of the projected
future cash flows of the Company using internal financial planning data
prepared by the management of the Company. GKM estimated a range of theoretical
values for the Company based on the net present value of its implied annual
cash flows and a terminal value for the Company in 2005 based upon a multiple
of earnings before interest and taxes. GKM applied a range of discount rates of
14.0% to 22.0% and a range of terminal value multiples of 12.0x to 18.0x times
forecasted 2005 earnings before interest and taxes. This analysis yielded the
following results (rounded to the nearest tenth):
<TABLE>
<CAPTION>
Low High Mean Median
------ ------ ------ ------
<S> <C> <C> <C> <C>
Per Share Equity Value of the Company............ $13.50 $24.20 $18.30 $18.20
</TABLE>
GKM observed that the offered purchase price of $17.75 per share of the
Common Stock was within the range of observed equity values resulting from its
discounted cash flow analysis.
The preparation of a fairness opinion is a complex process. Because of this,
a fairness opinion is not easily summarized. In arriving at its opinion, GKM
considered the results of all of its analyses as a whole and did not attribute
any particular weight to any analysis or factor it considered. GKM believes
that selecting any portion of its analyses, without considering all of its
analyses, would create an incomplete view of the process underlying its
opinion. In addition, GKM may have given various analyses and factors more or
less weight than other analyses and factors, and may have deemed various
assumptions more or less probable than other assumptions. As a result, the
ranges of valuations resulting from any particular analysis described above
should not be taken to be GKM's view of the actual value of the Company. In
performing its analyses, GKM made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters. Many
of these matters are beyond the control of the Company. Any estimates contained
in GKM's analyses are not necessarily indicative of future results or actual
values, which may be significantly more or less favorable than those suggested
by such estimates.
21
<PAGE>
GKM conducted the analyses described above solely as part of its analysis of
the fairness of the consideration to be received by holders of shares of the
Common Stock pursuant to the Offer and the Merger from a financial point of
view and in connection with the delivery of its opinion to the Board. These
analyses do not purport to be appraisals or to reflect the prices at which the
Company might actually be sold.
The type and amount of consideration payable in the Offer and the Merger
were determined through arm's-length negotiations between the Company and
Parent and were approved by the Board. GKM provided advice to the Company
during these negotiations. GKM did not, however, recommend any specific
purchase price to the Company or that any specific purchase price constituted
the only appropriate purchase price for the Offer or the Merger.
In addition, GKM's opinion and its presentation to the Board were only two
of the many factors taken into consideration by the Board in deciding to
approve the Offer and the Merger. Consequently, the analyses as described above
should not be viewed as determinative of the opinion of the Board with respect
to the offered purchase price or of whether the Board would have been willing
to agree to a different purchase price.
The Board retained GKM based upon GKM's qualifications, experience and
expertise. As part of GKM's investment banking business, it is regularly
engaged in the valuation of businesses and their securities in connection with
mergers, acquisitions, divestitures, restructurings, recapitalizations,
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. In the
ordinary course of business, GKM may actively trade the securities of the
Company, Parent or any other parties involved in the transaction, for its own
account and for the accounts of its customers and, accordingly, may at any time
hold a long or short position in such securities.
Fees and Expenses
On the closing date of a "Transaction", which would include the Offer, the
Company will pay to GKM a Transaction Fee equal to one percent of the first
$400 million of the Transaction Value plus one and one half percent of the
Transaction Value in excess of $400 million. "Transaction Value" reflects the
sum of the aggregate fair market value of any securities and non-cash
consideration, and the aggregate amount of any cash consideration, received by
the Company or holders of its securities. The Company paid GKM $75,000 at the
time of its initial engagement, which amount will be offset against any
Transaction Fee paid by the Company. The Company has received an invoice from
GKM for a fee of $250,000, which, as provided in the Engagement Letter, as
amended, is to be paid at the time GKM rendered its fairness opinion. Any fee
paid in connection with a fairness opinion will be offset against a Transaction
Fee.
On April 11, 2000, the Company entered into an agreement (the "Engagement
Amendment") with GKM and AHH, an investment bank to which a key member of the
GKM investment banking team covering the Company moved, which amended the
Engagement Letter. The Engagement Amendment, as subsequently amended, provided
that GKM would have the right to delegate specified duties under the Engagement
Letter to AHH and AHH would have the benefit of the Company's obligations under
the Engagement Letter relating to those delegated duties. The Engagement
Amendment also provided for GKM and AHH to share the fees to be paid by the
Company for a completed transaction. AHH also agreed to be bound by the
confidentiality provision of the Engagement Letter and the Company agreed that
AHH, in its capacity as a delegee of obligations of GKM under the Engagement
Letter, would be entitled to indemnity rights under the Engagement Letter.
GKM's engagement under the Engagement Letter terminated 180 days after
February 18, 2000. The Engagement Letter provides, however, that if a
Transaction occurs within a one year period after the termination of the
engagement, the Company must pay the transaction fee set forth in the
Engagement Letter.
Under the Engagement Letter, the Company has also agreed to reimburse GKM
for all reasonable out-of-pocket expenses (including reasonable fees,
disbursements and other charges of legal counsel) provided that the
22
<PAGE>
total amount of expenses reimbursed by the Company shall not exceed $25,000
except for specified expenses to indemnify GKM and related parties against
specified liabilities, including liabilities under the federal securities laws,
relating to or arising out of GKM's engagement.
(c) Intent to Tender.
To the Company's knowledge after reasonable inquiry, except as set forth
below, the Company and all of the Company's executive officers, directors,
affiliates and subsidiaries currently intend to tender all Shares held of
record or beneficially (other than Shares held directly or indirectly by other
public companies, as to which the Company has no knowledge) by them pursuant to
the Offer or to vote in favor of the Merger. The foregoing does not include any
Shares over which, or with respect to which, any such executive officer,
director, affiliate or subsidiary acts in a fiduciary or representative
capacity or is subject to the instructions of a third party with respect to
such tender.
Roger Hosier, Chief Technology Officer of the Company, intends to dispose of
all shares of Common Stock owned by him by way of gift or sale before December
15, 2000, including any shares of Common Stock obtained upon the exercise of
options.
Item 5. Persons/Assets Retained, Employed, Compensated or Used.
The Board retained GKM pursuant to the Engagement Letter, dated February 18,
2000. GKM agreed to share its fees with AHH pursuant to the Engagement
Amendment dated April 11, 2000. The terms of the Engagement Letter and the
Engagement Amendment are summarized in the section of Item 4(b), above,
entitled "Opinion of Gerard Klauer Mattison & Co., Inc. Fees and Expenses," and
are incorporated herein by reference.
Neither the Company nor any person acting on its behalf currently intends to
employ, retain or compensate any person to make solicitations or
recommendations to stockholders on its behalf concerning the Offer.
Item 6. Interest in Securities of the Subject Company.
Other than the transactions listed below, no transactions in the Shares have
been effected during the past 60 days by the Company or, to the best of the
Company's knowledge, by any executive officer, director, affiliate or
subsidiary of the Company. All of the sales below were open-market transactions
executed by a traditional or online broker:
(a) the Tender Agreement executed by Tom L. Johnson and Richard G.
Vento, Co-Chairmen and Co-Chief Executive Officers of the Company and
William Bailey;
(b) a purchase by Lawrence F. Fiore, Chief Financial Officer of the
Company, on October 31, 2000 of 84 shares of Common Stock at $7.65 per
share under the Company's 1995 Employee Stock Purchase Plan;
(c) a transfer on October 8, 2000 of 2,500,000 shares or Common Stock
from Richard G. Vento to DTDV L.L.C., an entity managed by Mr. Vento and
his wife;
(d) a sale by Dan Line, Senior Vice President of the Company, on
November 28, 2000 of 82,499 shares of Common Stock at a price of $17.50 per
share;
(e) a sale by George Schmitt, a director of the Company, on November 30,
2000 of 126,458 shares of Common Stock at a price of $17.50 per share; and
(f) a sale by Roger Hosier, Vice President and Chief Technology Officer
of the Company, on December 5, 2000 of 108,065 shares of Common Stock at a
price of $17.625 per share.
23
<PAGE>
Item 7. Purposes of the Transaction and Plans or Proposals.
(1) (i) Except as indicated in Items 3 and 4 above, no negotiations are
being undertaken or are underway by the Company in response to the
Offer which relate to a tender offer or other acquisition of the
Company's securities by the Company, any subsidiary of the Company or
any other person.
(ii) Except as indicated in Items 3 and 4 above, no negotiations are
being undertaken or are underway by the Company in response to the
Offer which relate to, or would result in, (1) any extraordinary
transaction, such as a merger, reorganization or liquidation, involving
the Company or any subsidiary of the Company, (2) any purchase, sale or
transfer of a material amount of assets by the Company or any
subsidiary of the Company, or (3) any material change in the present
dividend rate or policy, or indebtedness or capitalization of the
Company.
(2) Except as indicated in Items 3 and 4 above, there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Offer that relate to or would result in one or more of the matters referred
to in this Item 7.
Item 8. Additional Information.
Information Statement
The Information Statement attached as Schedule I to this Schedule 14D-9 is
being furnished in connection with the possible designation by Merger Sub,
pursuant to the Merger Agreement, of certain persons to be appointed to the
Board other than at a meeting of the Company's stockholders as described in
Item 3 above, and is incorporated herein by reference.
State Takeover Laws
The Company is incorporated under the laws of the State of Delaware. In
general, Section 203 of the DGCL ("Section 203") prevents an "interested
stockholder" (including a person who owns or has the right to acquire 15% or
more of a corporation's outstanding voting stock) from engaging in a "business
combination" (defined to include mergers and certain other actions) with a
Delaware corporation for a period of three years following the date such person
became an interested stockholder unless, among other things, the "business
combination" is approved by the Board of Directors of such corporation prior to
such time. The Board has approved the Offer and the Merger. Accordingly,
Section 203 is inapplicable to the Offer and the Merger.
DGCL Section 253
Under Section 253 of the DGCL, if Merger Sub acquires, pursuant to the Offer
or otherwise, at least 90% of the outstanding Shares, Merger Sub will be able
to effect the Merger after consummation of the Offer without a vote by the
Company's stockholders (a "Short Form Merger"). However, if Merger Sub does not
acquire at least 90% of the outstanding Shares pursuant to the Offer or
otherwise, a vote by the Company's stockholders will be required under the DGCL
to effect the Merger.
Antitrust
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the related rules and regulations that have been issued by
the Federal Trade Commission (the "FTC"), certain acquisition transactions may
not be consummated until notifications have been given and certain information
has been furnished for review by the FTC and the Antitrust Division of the
Department of Justice (the "Antitrust Division") and certain waiting period
requirements have been satisfied. These requirements apply to Merger Sub's
acquisition of Shares in the Offer and the Merger.
Under the HSR Act, the purchase of Shares in the Offer may not be completed
until the expiration of a 15-calendar-day waiting period following the filing
of certain required information and documentary material
24
<PAGE>
concerning the Offer with the FTC and the Antitrust Division, unless the
waiting period is earlier terminated by the FTC and the Antitrust Division.
Parent expects to file a Premerger Notification and Report Form under the HSR
Act with the FTC and the Antitrust Division in connection with the purchase of
Shares in the Offer and the Merger in December 2000, and the required waiting
period with respect to the Offer and the Merger will expire at 11:59 p.m., New
York City time, on the fifteenth calendar day after the date Parent files the
Premerger Notification and Report Form, unless earlier terminated by the FTC or
the Antitrust Division or Parent receives a request for additional information
or documentary material prior to that time. If within the 15-calendar-day
waiting period either the FTC or the Antitrust Division requests additional
information or documentary material from Parent, the waiting period with
respect to the Offer and the Merger would be extended for an additional period
of 10 calendar days following the date of our substantial compliance with that
request, unless the waiting period is sooner terminated by the FTC or the
Antitrust Division. Only one extension of the waiting period pursuant to a
request for additional information is authorized by the HSR Act rules. After
that time, the waiting period could be extended only by court order or by
agreement. The FTC or the Antitrust Division may terminate the additional 10-
calendar-day waiting period before its expiration. In practice, complying with
a request for additional information or documentary material can take a
significant period of time.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as Merger Sub's acquisition of Shares
in the Offer and the Merger. At any time before or after Merger Sub's purchase
of Shares, the FTC or the Antitrust Division could take any action under the
antitrust laws that either considers necessary or desirable in the public
interest, including seeking to enjoin the purchase of Shares in the Offer and
the Merger, the divestiture of Shares purchased in the Offer or the divestiture
of substantial assets of Parent, the Company or any of their respective
subsidiaries or affiliates. Private parties as well as state attorneys general
may also bring legal actions under the antitrust laws under certain
circumstances.
Based upon an examination of publicly available information relating to the
businesses in which the Company is engaged, the Company believes that the
acquisition of Shares in the Offer and the Merger should not violate the
applicable antitrust laws. Nevertheless, the Company cannot be certain that a
challenge to the Offer and the Merger on antitrust grounds will not be made,
or, if such challenge is made, what the result will be.
Parent and the Company each conduct operations in a number of foreign
jurisdictions where regulatory filings or approvals may be required or
desirable in connection with the Offer. Parent and the Company are currently in
the process of analysing whether filings or approvals are in fact required or
desirable in certain of these jurisdictions and, where necessary, the parties
intend to make such filings. It is possible that one or more of any such
filings may not be made, or one or more of such approvals, which are not as a
matter of law or practice required to be obtained prior to consummation of the
Merger, may not be obtained prior to consummation of the Merger.
25
<PAGE>
Item 9. Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
(a)(1)(A) Offer to Purchase dated December 6, 2000*+
(a)(1)(B) Letter of Transmittal*+
(a)(1)(C) Notice of Guaranteed Delivery*+
(a)(1)(D) Letter from the Dealer Manager to Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees*+
(a)(1)(E) Letter to clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees*+
(a)(1)(F) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9*+
(a)(1)(G) Summary of Newspaper Advertisement, dated December 6, 2000, as
published in The Wall Street Journal*
(a)(1)(H) Press Release of the Company dated November 27, 2000**
(a)(2) Letter to Stockholders from Tom L. Johnson and Richard G. Vento, Co-
Chairmen and Co-Chief Executive Officers of the Company, dated
December 6, 2000+
(a)(5) Opinion of Gerard Klauer Mattison & Co., Inc. to the Board of
Directors of the Company, dated November 24, 2000 (incorporated by
reference to Schedule II attached to this Schedule 14D-9)+
(e)(1) Agreement and Plan of Merger, dated as of November 24, 2000, by and
among Tahoe Acquisition Corp., Agilent Technologies, Inc. and the
Company**
(e)(2) Tender and Voting Agreement, dated as of November 24, 2000, by and
among Tahoe Acquisition Corp., Agilent Technologies, Inc. and
certain stockholders of the Company*
(e)(3) Information Statement Pursuant to Section 14(f) of the Securities
Exchange Act of 1934 and Rule 14f-1 thereunder (incorporated by
reference to Schedule I attached to this Schedule 14D-9)+
(e)(4) Offer Letters from Agilent Technologies, Inc. to each of Jeffrey
Boone, Philip Cardman, Lawrence Fiore, Roger Hosier, Bud Mullanix
and Jim Olsen, dated December 4, 2000*
(g) None
</TABLE>
--------
* Incorporated by reference to Schedule TO filed by Tahoe Acquisition Corp.
and Agilent Technologies, Inc. on December 6, 2000
** Incorporated by reference to Form 8-K filed by the Company on November 27,
2000
+ Included in copies mailed to the Company's stockholders
26
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this Schedule 14D-9 is true, complete and correct.
Dated: December 6, 2000
/s/ Philip N. Cardman
By: ________________________________
Philip N. Cardman
Vice President, General Counsel
and Secretary
27
<PAGE>
SCHEDULE I
OBJECTIVE SYSTEMS INTEGRATORS, INC.
101 PARKSHORE DRIVE
FOLSOM, CALIFORNIA 95630
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES EXCHANGE
ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about December 6, 2000, as
a part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Objective Systems Integrators, Inc. ("OSI" or the
"Company") with respect to the tender offer by Tahoe Acquisition Corp. ("Merger
Sub"), a Delaware corporation and a direct wholly-owned subsidiary of Agilent
Technologies, Inc., a Delaware corporation ("Agilent"), to the holders of
record of shares of Common Stock, par value $.001 per share, of the Company
(the "Common Stock" or the "Shares"). Capitalized terms used and not otherwise
defined herein shall have the meaning set forth in the Schedule 14D-9. You are
receiving this Information Statement in connection with the possible election
of persons designated by Parent to a majority of the seats on the Board of
Directors of the Company (the "Board").
The Merger Agreement provides that promptly upon the purchase by Merger Sub
of Shares pursuant to the Offer and from time to time thereafter, if the
Minimum Condition has been met, and subject to compliance with Section 14(f) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), Parent
shall be entitled to designate up to such number of directors, rounded up to
the next whole number, on the Board as will give Parent representation on the
Board equal to the product of the number of directors on the Board and the
percentage that such number of Shares so purchased bears to the total number of
outstanding Shares, and, upon request by Parent, the Company shall use its best
efforts to promptly, at the Company's election, either increase the size of the
Board or secure the resignation of such number of directors as is necessary to
enable Parent's designees (the "Designees") to be elected to the Board and to
cause the Designees to be so elected. The Company shall use its best efforts to
cause the individuals designated by Parent to constitute the same percentage as
is on the Board of (i) each committee of the Board, (ii) each board of
directors of each subsidiary of the Company and (iii) each committee of each
such board of directors. Notwithstanding the foregoing, the Company shall use
its best efforts to ensure that two of the members of the Board as of the date
of the Merger Agreement (the "Continuing Directors") shall remain members of
the Board until the Effective Time. If a Continuing Director resigns from the
Board, Parent, Merger Sub and the Company shall permit the remaining Continuing
Director or Directors to appoint the resigning director's successor who shall
be deemed to be a Continuing Director. The Merger Agreement requires the
Company to promptly take all action required to fulfill its obligations to
appoint the directors designated by Parent.
Following the date of the election or appointment of the Designees to the
Board and prior to the Effective Time (as such term is defined in the Merger
Agreement), if there shall be any Continuing Directors, any amendment of the
Merger Agreement, any termination of the Merger Agreement by the Company, any
extension by the Company of the time for the performance of any of the
obligations or other acts of Parent or Merger Sub or any waiver of any of the
Company's rights under the Merger Agreement or any other determination with
respect to any action to be taken or not to be taken by the Company relating to
the Merger Agreement, will require the concurrence of a majority of the
Continuing Directors.
This Information Statement is required by Section 14(f) of the Exchange Act
and Rule 14f-1 thereunder in connection with the appointment of the Designees
to the Board.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action.
I-1
<PAGE>
Pursuant to the Merger Agreement, Merger Sub commenced the Offer on December
6, 2000. The Offer is scheduled to expire at midnight, New York City time, on
January 4, 2001, unless the Offer is extended, at which time, if all conditions
to the Offer have been satisfied or waived, Merger Sub will purchase all of the
Shares validly tendered pursuant to the Offer and not properly withdrawn.
The information contained in this Information Statement (including
information incorporated by reference) concerning Parent, Merger Sub and the
Designees has been furnished to the Company by Parent, and the Company assumes
no responsibility for the accuracy or completeness of such information.
THE DESIGNEES
Parent has informed the Company that it will choose the Designees from the
following list, who are among executive officers of Parent listed in Schedule A
of the Offer to Purchase, a copy of which is being mailed to stockholders of
the Company: Edward W. Barnholt, Alain Couder, Robert R. Walker, Byron
Anderson, William R. Hahn, Jean M. Halloran, D. Craig Nordlund, Thomas A.
Saponas, John E. Scruggs, William P. Sullivan, Thomas White and Dorothy D.
Hayes. The information with respect to such officers in Schedule A is hereby
incorporated by reference. Parent has informed the Company that each of the
officers listed above has consented to act as a director of the Company, if so
designated.
Based solely on the information set forth in Item 9 of the Offer to Purchase
filed by Merger Sub, none of the executive officers and directors of Parent or
Merger Sub (i) is currently a director of, or holds any position with, the
Company, or (ii) has a familial relationship with any directors or executive
officers of the Company. The Company has been advised that, to the best
knowledge of Parent and Merger Sub, except for 20,360,546 Shares which may be
deemed to be beneficially owned by Parent by virtue of a Tender and Voting
Agreement among Parent, Merger Sub and each of Tom L. Johnson and Richard G.
Vento, Co-Chairmen and Co-Chief Executive Officers of the Company, on behalf of
themselves and entities of which they are managing members, Lana Vento, the
wife of Richard G. Vento, on behalf of herself and an entity of which she is
managing member, Donna Johnson, wife of Tom L. Johnson, on behalf of herself,
and William Bailey, on behalf of entities of which he is managing member, none
of Parent's or Merger Sub's directors or executive officers beneficially owns
any equity securities (or rights to acquire such equity securities) of the
Company and none have been involved in any transactions with the Company or any
of its directors, executive officers, affiliates or associates which are
required to be disclosed pursuant to the rules and regulations of the
Securities and Exchange Commission.
Parent has informed the Company that, to the best of its knowledge, none of
the executive officers and directors of Parent or Merger Sub has been convicted
in a criminal proceeding (excluding traffic violations or similar misdemeanors)
or has been a party to any judicial or administrative proceeding during the
past five years (except for matters that were dismissed without sanction or
settlement) that resulted in a judgment, decree or final order enjoining the
person from future violations of, or prohibiting activities subject to, federal
or state securities laws, or a finding of any violation of federal or state
securities laws.
It is expected that the Designees may assume office at any time following
the purchase by Merger Sub of a specified minimum number of Shares pursuant to
the Offer, which purchase cannot be earlier than January 4, 2001, and that,
upon assuming office, the Designees will thereafter constitute at least a
majority of the Board. This step will be accomplished at a meeting or by
written consent of the Board providing that the size of the Board will be
increased and/or sufficient numbers of current directors will resign such that,
immediately following such action, the number of vacancies to be filled by
Merger Sub's designees will constitute at least a majority of the available
positions on the Board. It is currently not known which of the current
directors of the Company will resign.
I-2
<PAGE>
CERTAIN INFORMATION CONCERNING THE COMPANY
The authorized capital stock of the Company consists of (a) 100,000,000
shares of Common Stock and (b) 5,000,000 shares of Preferred Stock. As of the
close of business on December 1, 2000, there were 37,609,227 shares of Common
Stock and no shares of Preferred Stock outstanding. Each share of Common Stock
entitles the record holder to one vote.
The Company's Bylaws authorize the number of directors to be not less than
four nor more than seven directors, and fix the current number of directors at
six until changed by an amendment to the Bylaws by the Board or stockholders.
The Board currently consists of five members, with one vacancy. The Board is
currently composed of Tom L. Johnson, Richard G. Vento, George F. Schmitt, Gary
D. Cuccio and Dr. Kornel Terplan, whose terms will expire upon the election and
qualification of directors at the annual meeting of stockholders to be held on
December 13, 2000. Each of these directors has been nominated for re-election
at the December 13, 2000 annual meeting.
Set forth below are the name, age and position of each director and
executive officer of the Company.
<TABLE>
<CAPTION>
Name Age Position(s) with Company
---- --- ------------------------
<C> <C> <S>
Tom L. Johnson.......... 55 Co-CEO and Co-Chairman of the Board of Directors
Richard G. Vento........ 60 Co-CEO and Co-Chairman of the Board of Directors
George F. Schmitt(1).... 57 Director
Gary D. Cuccio(1)....... 54 Director
Dr. Kornel Terplan(1)... 56 Director
Jeffrey T. Boone........ 36 Vice President and Chief Information Officer
Philip N. Cardman....... 52 Vice President, General Counsel and Secretary
Lawrence F. Fiore....... 45 Vice President and Chief Financial Officer
Roger A. Hosier......... 43 Vice President and Chief Technology Officer
Dan D. Line............. 49 Senior Vice President, Worldwide Sales and
Operations
Bud J. Mullanix......... 42 Vice President, Human Resources
James T. Olsen.......... 53 Executive Vice President
</TABLE>
--------
(1)Member of Audit Committee
There are no family relationships among the directors or executive officers.
There are no material proceedings to which any director or executive officer,
or any associate of any such director or executive officer, is a party adverse
to the Company or any subsidiary of the Company or has a material interest
adverse to the Company or any subsidiary of the Company.
The following are brief biographies of each director and executive officer
of the Company (including present principal occupation or employment, and
material occupations, positions, offices or employments for the past five
years). Unless otherwise indicated, to the knowledge of the Company no director
or executive officer of the Company has been convicted in a criminal proceeding
during the last five years (excluding traffic violations or similar
misdemeanors) and no director or executive officer of the Company was a party
to any judicial or administrative proceeding during the last five years (except
for any matters that were dismissed without sanction or settlement) that
resulted in a judgment, decree or final order enjoining the person from future
violations of, or prohibiting activities subject to, federal or state
securities laws, or a finding of any violation of federal or state securities
laws. Each such person is a citizen of the United States and each individual's
business address is 101 Parkshore Drive, Folsom, California, 96630.
Tom L. Johnson is the Company's Co-CEO and Co-Chairman of the Board of
Directors. Mr. Johnson has served as a Director of the Company since 1989. He
co-founded Objective Systems Integrators, a partnership and the predecessor to
the Company, in January 1989. He has been Co-Chairman of the Board since 1996
and Co-CEO since 1997. He served as Co-CEO of the Company from 1989 through
1995. Mr. Johnson received a B.S. degree in Abstract Mathematics with a minor
in Business Management from the University of Houston.
I-3
<PAGE>
Richard G. Vento is the Company's Co-CEO and Co-Chairman of the Board of
Directors. Mr. Vento has served as a Director of the Company since 1989. He co-
founded Objective Systems Integrators, a partnership and the predecessor to the
Company in January, 1989. He has been Co-Chairman of the Board since 1996 and
Co-CEO since 1997. He served as Co-CEO of the Company from 1989 through 1995.
Mr. Vento received a B.A. degree in Mathematics and a B.S. degree in Business
and Economic Statistics from San Francisco State University and an A.A. degree
in Liberal Arts from Foothill College.
Gary D. Cuccio has been a director of the Company since July 1999. Mr.
Cuccio has been a director of Wired Business and Phaetheon Communications since
September 2000. He was a director of LHS Group, now SEMA Group PLC, from
November 1999 to July 2000. He is currently President and CEO of Phaetheon
Communications. Mr. Cuccio was President and CEO of LHS Group from November
1999 to August 2000 and President of AirTouch Paging from August 1998 to
October 1999. From September 1996 to July 1998, he was the Chief Operating
Officer of Omnipoint Communications, Inc. From 1994 to 1996, he held a number
of senior operations positions with AirTouch International in Europe and in
Asia. Mr. Cuccio holds a B.A. degree from California State University, Los
Angeles, and an M.B.A. from St. Mary's College. He is also a graduate of the
Advanced Management Program at Harvard.
George F. Schmitt has been a director of the Company since October 1995. Mr.
Schmitt has been a director of Telesoft Partners since September 1997, and has
been a director of LHS Group, now SEMA Group PLC, since October 1996. Mr.
Schmitt is currently Sr. Advisor to the Chairman of VoiceStream and Chairman of
the Board, Director and Acting CEO at e.Spire Communications, Inc.. He was
President of Omnipoint Communications, Inc. and Executive Vice President of
Omnipoint Corporation (now, Voicestream) from October 1995 to February 2000.
Mr. Schmitt has a B.A. degree from St. Mary's College of California and an
M.S.M. degree from Stanford University School of Business.
Dr. Kornel Terplan has been a director of the Company since August 1992.
Since 1983, Dr. Terplan has served as President of Performance Navigations,
Inc., a telecommunications consulting company. For more than 25 years, he has
served as a corporate consultant providing consulting, training and product
development services to various national and multinational corporations in the
telecommunications industry, including AT&T, France Telecom and Siemens. Dr.
Terplan has a B.A. degree in Electronics, an M.S. degree in Electronics and a
Ph.D. degree in Operational Research from the University of Dresden, Germany.
Jeffrey T. Boone joined the Company in 1993. Mr. Boone has held a series of
technical and managerial roles. In fiscal 1997, he was named Vice President,
products and technology. In fiscal 2000, he was made the Company's Chief
Information Officer. He holds a degree in computer science from California
State University, Sacramento.
Phillip N. Cardman joined the Company in 1996 as the Company's Vice
President, General Counsel, and Secretary. Before joining the Company, he held
various legal and business development positions with Convex Computer
Corporation. He holds a bachelor's degree from Washington University and a law
degree from Duke University.
Lawrence F. Fiore joined the Company in 1995 as the Company's Corporate
Controller. He was promoted to Vice President of Finance in March 1999, and was
named Chief Financial Officer in June 1999. Before joining the Company, Mr.
Fiore was responsible for revenue, contracts, budgeting, and planning as
Director of Financial Operations at Unify Corporation. He holds a Bachelor's
degree in business from Texas Tech University and is a Certified Public
Accountant.
Roger A. Hosier joined the Company in 1991 and has held a number of
positions before being named Chief Technology Officer in December, 1999. He has
been involved in product development and installation, pre- and post-sales,
professional services, custom software development, and training. Before
joining the Company, Roger worked on MRP, network management, and call
accounting software.
I-4
<PAGE>
Dan D. Line joined the Company in 1993. In 1996, he became the Company's
Vice President of Global Accounts and Partner Alliances. In 1999, he was
promoted to Vice President of Global Sales and in fiscal 2000 was promoted to
his current position. His university studies were in international business.
Bud J. Mullanix joined the Company in fiscal 2000. Before joining the
Company, he held a number of Human Resources executive positions with Degussa
Electronics, Hewlett-Packard, and Hitachi. He holds a degree in business
administration from Stanton University.
James T. Olsen joined the Company in 1998 as Vice President of Marketing. He
was promoted to his current position in fiscal 2000. Before joining the
Company, he spent 15 years developing and directing marketing programs targeted
at the telecom industry. Most recently, Mr. Olsen was Vice President of
Marketing for the switch and intelligent network divisions at DSC
Communications. His university studies were in business administration, with
post-graduate studies in managing critical resources at the University of
Virgina's Darden School of Business.
Meetings and Committees of the Board of Directors
During the fiscal year 2000, which ended June 30, 2000, the Board met five
times. No director attended fewer than 75% of the aggregate of either (1) the
total number of Board meetings held during the period for which he was a
director, or (2) the total number of committee meetings of the Board, on which
he served, held during the period for which he was a director.
The Board has a standing Audit Committee. In fiscal 2000, the Audit
Committee consisted of Messrs. Schmitt, Cuccio and Terplan. The Audit Committee
oversees the Company's independent auditors and reviews the Company's internal
financial procedures and controls. The Audit Committee met three times in
fiscal 2000.
The Board adopted and approved a charter for the Audit Committee on April
29, 2000. The Board has determined that all members of the Audit Committee are
"independent" as that term is defined in Rule 4200 of the listing standards of
the National Association of Securities Dealers.
Compensation of Directors
Members of the Board do not receive compensation for their services as a
director. The 1995 Director Option Plan, which was terminated on July 24, 1999,
provided stock options to be granted to nonemployee directors ("Outside
Directors"). Each Outside Director automatically received an option to purchase
50,000 shares ("First Option") on the date he became an Outside Director.
Thereafter, if he had then served on the Board for at least six months, he was
automatically granted an option to purchase 12,500 shares at the first meeting
of the Board after each year's Annual Meeting of Stockholders. The options
could be exercised only while the Outside Director remained a director. The
First Option vested as to 25% of the shares on the first anniversary of the
grant date and at the rate of 1/48th of the shares per month thereafter.
Subsequent option grants vested as to 50% of the shares six months after the
date of grant and as to 1/12th of the shares per month thereafter. If, in the
event of a merger of the Company with or into another corporation, options
granted under the 1995 Director Option Plan are not assumed by the successor
corporation or substituted for equivalent options or, upon the termination of
status as a director of the Company, such options become fully exercisable upon
the merger. On July 24, 1999, the 1994 Stock Option Plan was amended to permit
option grants to Outside Directors. All grants under the 1994 Stock Option Plan
are discretionary.
I-5
<PAGE>
Executive Compensation
The following Summary Compensation Table contains information regarding the
compensation of the Company's Chief Executive Officers, the Company's other
four most highly compensated officers for the fiscal years ended June 30, 2000,
1999 and 1998, and a former officer, who would have been among the Company's
four most highly compensated officers had he not left the Company before the
end of the fiscal year 2000 (the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
-------------------------- ---------------------
Securities
Restricted Underlying
Name and Principal Fiscal Salary Bonus Commission Stock Options All Other
Position Year ($) ($) ($) Awards ($) ($) Commission
------------------ ------ ------- ------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Tom L. Johnson(1)....... 2000 -- -- -- -- -- --
Co-Chairman of the
Board, Co-CEO 1999 -- -- -- -- -- --
1998 -- -- -- -- -- --
Richard V. Vento(1)..... 2000 -- -- -- -- -- --
Co-Chairman of the
Board, Co-CEO 1999 -- -- -- -- -- --
1998 -- -- -- -- -- --
Philip N. Cardman....... 2000 -- -- -- -- -- --
Vice President, General 1999
Counsel and -- -- -- -- -- --
Secretary 1998 -- -- -- -- -- --
Dan D. Line............. 2000 214,181 2,276 -- -- 40,000 3,979(2)
Sr. Vice President,
Worldwide Sales 1999 205,384 -- -- -- 65,000 4,041(2)
1998 203,750 155 -- -- -- 4,075(2)
James T. Olsen(4)....... 2000 184,999 32,017 -- -- 40,000 3,9509(2)
Executive Vice
President 1999 115,625 -- -- -- 100,000 72,224(5)
1998 -- -- -- -- -- --
Jeffrey T. Boone(6)..... 2000 177,121 20,912 -- -- 25,000 3,430(2)
Vice President and
Chief Information 1999 155,000 22,200 -- -- 50,000 3,247(2)
Officer 1998 -- -- -- -- -- --
James K.R. Souders(7)... 2000 204,039 28,000 -- -- -- --
Exec. Vice President,
Sales and 1999 175,000 193,750 -- -- 25,000 1,684(2)
Marketing 1998 132,500 3,179 180,695 -- 200,000 83,024(3)
</TABLE>
--------
(1) Messrs. Johnson and Vento resigned as the Company's Co-CEO's in December
1995, but resumed those offices in April 1997. Both serve without
compensation.
(2) Includes matching and other contributions for the benefit of the named
individuals under the Company's 401(k) savings plan.
(3) Includes a relocation expense reimbursement of $81,264 and a matching
contribution of $1,760 under the Company's 401(k) savings plan.
(4) Mr. Olsen became Executive Vice President in May 2000.
(5) Includes a relocation expense reimbursement of $70,991 and a matching
contribution of $1,233 under the Company's 401(k) savings plan.
(6) Mr. Boone became Vice President and Chief Information Officer in July 2000.
(7) Mr. Souders resigned from his position as Executive Vice President, Sales
and Marketing, on November 4, 1999.
I-6
<PAGE>
OPTION GRANTS IN FISCAL YEAR 2000
The following table has information about options that were granted to the
Named Executive Officers during the Company's fiscal year ended June 30, 2000.
Individual Grants
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Number of Percentage of Exercise Price
Securities Total Options Price Appreciation for
Underlying Granted to Per Option Term(1)
Options Employees in Share Expiration -----------------
Name Granted(2) Fiscal 2000(3) (4)(5) Date 5% 10%
---- ---------- -------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Tom L. Johnson.......... -- -- -- -- -- --
Richard G. Vento........ -- -- -- -- -- --
Philip N. Cardman....... 40,000 1.38% $ 2.5000 11/01/09 $ 62,889 $ 59,374
Dan D. Line............. 150,000 5.18% $ 2.5000 11/01/09 $235,835 $597,653
Dan D. Line............. 50,000 1.73% $12.3125 05/16/10 $387,163 $981,148
Jeffrey T. Boone........ 40,000 1.38% $ 2.5000 11/01/09 $ 62,889 $159,374
Jeffrey T. Boone........ 25,000 0.86% $ 2.6250 10/25/09 $ 41,271 $104,589
James T. Olsen.......... 40,000 1.38% $ 2.5000 11/01/09 $ 62,889 $159,374
James T. Olsen.......... 75,000 2.59% $ 7.3130 04/14/10 $344,933 $874,128
James K.R. Souders...... -- -- -- -- -- --
</TABLE>
--------
(1) Potential realizable value is based on the assumption that Common Stock
appreciates at the rate shown (compounded annually) from the date of grant
until the ten year option term expires. These numbers are calculated based
on SEC requirements and do not reflect the Company's estimate of future
stock price growth.
(2) Except in the event of a change in control of the Company, options become
exercisable as to 1/4 of the option shares on the 12-month anniversary of
the vesting start date and as to 1/48 of the option shares each month
thereafter.
(3) Based on a total of 2,895,247 options granted to employees of the Company
in fiscal 2000, including the Named Executive Officers.
(4) Options have an exercise price equal to the fair market value of Common
Stock on the date the options were granted.
(5) The exercise price may be paid in cash, by promissory note, by delivery of
already-owned shares (subject to certain conditions) or under a cashless
exercise procedure. Under the Company's cashless exercise procedure, the
option holder gives irrevocable instructions to his broker to sell the
purchased shares and to remit to us, out of the proceeds, the exercise
price plus applicable withholding taxes.
I-7
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table has information about the exercise of stock options in
the last fiscal year by the Named Executive Officers and the value of options
held by them as of June 30, 2000.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-
Underlying Unexercised The-Money Options at
Shares Options at June 30, 2000 Fiscal Year End(2)
Acquired on Value ------------------------- -------------------------
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Tom L. Johnson.......... -- $ -- -- -- $ -- $ --
Richard G. Vento........ -- $ -- -- -- $ -- $ --
Philip N. Cardman....... -- $ -- 175,313 94,687 $ 893,317 $ 650,121
Dan D. Line............. 15,000 $ 77,653 388,870 144,879 $2,224,177 $1,075,853
Jeffrey T. Boone........ -- $ -- 75,585 108,644 $ 440,551 $ 755,564
James T. Olsen.......... -- $ -- 32,813 182,187 $ 221,976 $1,041,424
James K. R. Souders..... 425,000 $2,566,967 -- -- $ -- $ --
</TABLE>
--------
(1) Value represents the market value of Common Stock at the exercise date
minus the exercise price.
(2) Value represents the market value of Common Stock on June 30, 2000
($10.6875) minus the exercise price. An option is "in-the-money" if the
market value of the Common Stock exceeds the exercise price.
Employment Contracts and Change-in-Control Arrangements
Jeffrey T. Boone entered into a Severance Agreement with the Company in
December of 1999. This agreement provides, inter alia, for payment of severance
compensation in an amount equal to his compensation for 12 months, payment of
100% of Company-paid benefits for up to 12 months and full vesting of all
options he holds before termination, each as a result of a Change in Control,
as defined in the Severance Agreement. Options are exercisable and will remain
exercisable for 12 months after termination and for 24 months if the
termination results from disability, but in no event longer than the original
term of the option.
Philip N. Cardman entered into an employment agreement, as amended, with the
Company in May of 1996. This agreement includes, inter alia, payment of base
salary for two years from termination in the event of involuntary termination
without cause and payment of base salary for 18 months from termination in the
event of voluntary termination. Mr. Cardman also entered into a Severance
Agreement with the Company in December of 1999. This agreement provides, inter
alia, for payment of severance compensation in an amount equal to his
compensation for 24 months, payment of 100% of Company-paid benefits for
24 months and full vesting of all options he holds before termination, each as
a result of a Change in Control, as defined in the Severance Agreement. Options
are exercisable and will remain exercisable for 12 months after termination and
for 24 months if the termination results from disability, but in no event
longer than the original term of the option.
Dan D. Line entered into a Severance Agreement with the Company in December
of 1999. This agreement provides, inter alia, for payment of severance
compensation in an amount equal to his compensation for 12 months, payment of
100% of Company-paid benefits for up to 12 months and full vesting of all
options he holds before termination, each as a result of a Change in Control,
as defined in the Severance Agreement. Options are exercisable and will remain
exercisable for up to 12 months after termination and for 24 months if the
termination results from disability, but in no event longer than the original
term of the option.
James T. Olsen entered into a Severance Agreement with the Company in
December of 1999. This agreement provides, inter alia, for payment of severance
compensation in an amount equal to his compensation for up to 12 months,
payment of 100% of Company-paid benefits for up to 12 months and full vesting
of all options he holds before termination, each as a result of a Change in
Control, as defined in the Severance Agreement. Options are exercisable and
will remain exercisable for up to 12 months after termination and for up to
24 months if the termination results from disability, but in no event longer
than the original term of the option.
I-8
<PAGE>
James K.R. Souders entered into an employment agreement in January of 1998,
accepting the position of Executive Vice President, Sales and Marketing. the
Company's agreement with Mr. Souders was a two year employment contract to be
renewed annually with annual target compensation to be determined by the Board.
It also included the following terms: base salary of $175,000 per annum; target
annual MBO bonus of $100,000, paid quarterly; target annual bookings bonus of
$90,000, paid quarterly; annual revenue commission at target sales of $135,000,
earned at billing but paid on receipt of cash; grant of an option to purchase
200,000 shares of stock vesting over 7 years; a maximum MBO bonus of $100,000
for calendar year 1998, subject to certain adjustments; reimbursement of
certain relocation expenses; payment of certain additional relocation expenses
in the event of involuntary termination before January 13, 2000; and, in the
event of termination or a failure to renew the contract within 30 days of its
anniversary date, payment of base salary for the then remaining term and
acceleration of option vesting for options that would have vested during the
then remaining term.
The Severance Agreements are filed as exhibits to the Company's Form 10-K
for the fiscal year ended June 30, 2000.
Compensation Committee Interlocks and Insider Participation
In fiscal 2000, the full Board performed the functions of a compensation
committee. Tom L. Johnson and Richard G. Vento, the Co-CEOs, serve on the
Board. Neither received any compensation from the Company in fiscal 2000. No
interlocking relationship exists between any member of the Board and any member
of the Board of Directors or compensation committee of any other company, nor
has such interlocking relationship existed in the past.
Report of the Board Regarding Executive Compensation Policies
The Board reviews and approves the Company's executive compensation
policies. It administers the various incentive plans, including the 1994 Stock
Option Plan and 1995 Employee Stock Purchase Plan. It also sets compensation
policies that apply to the Company's executive officers and evaluates their
performance. Compensation for executive officers, including base salary levels,
potential bonuses and stock option grants are determined by the Board at the
beginning of each fiscal year. The following is a description of the policies
and rationale it applied in setting compensation during the fiscal year ended
June 30, 2000.
Compensation Philosophy
The underlying philosophy of the Company's executive compensation is to
maximize stockholder value over time. The primary goal of this program is,
therefore, to align closely the interests of the executive officers with those
of the Company's stockholders. To achieve this, the Company attempts to (1)
offer compensation opportunities that attract and retain executives whose
abilities are critical to the Company's long-term success, (2) motivate
individuals to perform at their highest level and reward outstanding
achievement, (3) maintain a portion of an executive's total compensation at
risk, tied to achieving financial, organizational and management performance
goals, and (4) encourage executives to manage from the perspective of owners.
The Company currently uses base salary, cash incentives and stock options to
meet these goals.
Base Salary and Commissions
The Company uses base salary primarily as a device to attract, motivate,
reward and retain highly skilled executives. The Board reviewed and approved
fiscal 2000 base salaries for the executive officers at the beginning of the
fiscal year. Salaries were set based on the officer's job responsibilities,
level of experience, individual performance, contribution to the Company's
business, financial performance for the past year and recommendations from
management. The Board also took into account the salaries for similar positions
at comparable companies, based on their industry experience and validated,
published industry compensation survey data. In reviewing base salaries, the
Board focused significantly on each officer's prior performance and expected
contribution to the Company's future success. The Board also focused on a group
of comparable companies in the high technology sector. In making its decisions,
the Board exercised its discretion and judgment using the factors described
above. No specific formula was applied to determine the weight of any given
factor. The Company's Co-CEOs each waived his right to receive compensation for
his services.
I-9
<PAGE>
Commissions are paid only to those officers who have a direct responsibility
for sales. In setting commission rates for sales executives, the Board
evaluated both what we had done in the past and the approach taken by
comparable high technology companies. Here again, comparable companies were
identified based on the industry experience of each individual Board member and
on information published by validated consulting organizations specializing in
executive compensation research.
Annual Cash Incentives
Bonuses for executive officers are currently based on quantitative factors.
They are intended to motivate and reward executive officers by directly linking
the amount of their bonus to specific Company-based performance targets. The
factors are also intended to reflect the Board's belief that a portion of each
executive's compensation should be contingent on performance. To carry out this
philosophy, at the beginning of the fiscal year the Board reviewed and approved
the financial budget for the year and established performance targets. The
Board then set target bonuses for each executive officer as a percentage of the
officer's base salary. Bonuses are dependent on the achievement of performance
targets that are tied to overall profitability. The Board believes that this
bonus structure provides an excellent link between the Company's earnings
performance and the incentives that are received by its executives. The Co-CEOs
each waived his eligibility to receive bonuses.
Stock Options
The Board provides executive officers with long-term incentive compensation
through grants of stock options under the 1994 Stock Option Plan. Stock options
provide an opportunity to share in any appreciation in the value of the Common
Stock. The Board believes that stock options directly motivate an executive to
maximize long-term stockholder value. In addition, vesting periods are set to
encourage the retention of key executives. To date, all options have been at
fair market value on the date of the option grant. Option grants are
subjective, but are based on factors such as the executive's relative position,
responsibilities, individual performance over the previous fiscal year and
anticipated contribution to the attainment of the Company's long-term strategic
goals. Stock options granted in prior years are also taken into consideration.
The Board views stock option grants as an important component of its long-term,
performance-based compensation philosophy. The Co-CEOs received no stock
options during fiscal year 2000.
Section 162(m)
The Board has considered the potential future effects of Section 162(m) of
the Code on the compensation paid to executive officers. Section 162(m)
disallows us from taking a tax deduction for compensation paid to an executive
officer who is named in the Proxy Statement to the extent the compensation
exceeds $1 million in any taxable year. The only exception is if the
compensation is performance-based. The Company has adopted a policy that, where
reasonably practicable, the Company will seek to qualify the variable
compensation paid to executive officers for an exemption from the deductibility
limitations of Section 162(m).
Tom L. Johnson
Richard G. Vento
George F. Schmitt
Gary D. Cuccio
Dr. Kornel Terplan
Members of the Board of Directors of
Objective Systems Integrators, Inc.
I-10
<PAGE>
PERFORMANCE GRAPH
The following graph compares the annual percentage change in the cumulative
return to the holders of Common Stock with the cumulative return of The Nasdaq
Stock Market--US Index and of the Chase H & Q Communications Index. The period
shown begins December 1, 1995, the date the Company began reporting under the
Securities Exchange Act of 1934, as amended and, ending on June 30, 2000.
Returns are weighted based on market capitalization at the beginning of each
fiscal year.
COMPARISON OF 55 MONTH CUMULATIVE TOTAL RETURN*
AMONG OBJECTIVE SYSTEMS INTEGRATORS, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX,
AND THE CHASE H & Q COMMUNICATIONS INDEX
OBJECTIVE SYS INTEGRATORS INC
Cumulative Total Return
------------------------------------------------
12/1/1995 6/96 6/97 6/98 6/99 6/00
OBJECTIVE SYSTEMS
INTEGRATORS, INC. 100.00 192.11 45.39 38.82 14.47 56.25
NASDAQ STOCK MARKET (U.S.) 100.00 113.03 137.47 180.99 260.60 384.98
CHASE H & Q COMMUNICATIONS 100.00 110.00 109.94 133.14 250.14 492.50
--------
* $100 Invested on 12/1/95 in stock or index-including reinvestment of
dividends. Fiscal year ending June 30, 2000.
The graph assumes that on December 1, 1995, $100 was invested in each of the
Common Stock, The Nasdaq Stock Market--US Index and the Chase H & Q
Communications Index. It also assumes that all dividends were reinvested. No
dividends have been declared or paid on the Common Stock. Stockholder returns
over the indicated period should not be considered indicative of future
stockholder returns.
The information under the headings "Executive Compensation" and "Performance
Graph" will not be deemed to be "soliciting material" or to be "filed" with the
SEC, nor will it be incorporated by reference into any future filing under the
Securities Act of 1933, as amended, or the 1934 Securities Exchange Act, as
amended, except to the extent that we specifically incorporate it by reference.
I-11
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table has information on the beneficial ownership of the
Common Stock as of December 1, 2000, for (a) each person that we know
beneficially owns more than 5% of the outstanding shares of the Common Stock,
(b) each director, (c) each Named Executive Officer, and (d) all of the
directors and executive officers as a group. Except as otherwise indicated, the
address of each of the people in this table is as follows: c/o Objective
Systems Integrators, Inc., 101 Parkshore Drive, Folsom, California 95630.
<TABLE>
<CAPTION>
Common Stock Approximate
Five Percent Stockholders, Beneficially Percentage
Directors, and Certain Executive Officers Owned** Owned(1)
----------------------------------------- ------------ -----------
<S> <C> <C>
Richard G. Vento(2)............................... 10,180,273 27.31%
Tom L. Johnson(3)................................. 5,427,799 14.56%
William Bailey(4)................................. 4,752,474 12.75%
Dr. Kornel Terplan(5)............................. 399,421 1.07%
Dan D. Line(6).................................... 363,126 *
Philip N. Cardman(7).............................. 201,077 *
George F. Schmitt(8).............................. 1,042 *
Jeffrey T. Boone(9)............................... 109,021 *
James K.R. Souders(10)............................ 89,538 *
James T. Olsen(11)................................ 60,105 *
Gary D. Cuccio(12)................................ 28,750 *
All directors and executive officers as a group
(13 persons)(13)................................. 21,811,442 58.51%
</TABLE>
--------
* Less than 1% of the outstanding shares.
** Does not take into account options which may become exercisable as a result
of acceleration pursuant to Severance Agreements between the Company and
the executive officers listed above.
(1) Shares subject to options held by a person that are currently exercisable
or exercisable within 60 days of December 1, 2000, are treated as being
outstanding in computing both ownership and percentage ownership for that
person, but not in computing the percentage of any other person.
Percentage ownership is based on 37,609,227 shares of Common Stock
outstanding as of December 1, 2000, together with options held by each
person, as described in the footnotes below. Beneficial ownership is
determined according to SEC Rule 13d-3, and includes voting and investment
power.
(2) The shares of Common Stock held by Mr. Vento includes (a) 2,500,000 shares
held by DTDV L.L.C., (b) 2,500,000 held by DTLV L.L.C., (c) 49,506 shares
held by each of Mr. Vento and Mr. Vento's spouse, Lana Vento. (d) 328,789
shares held by Vento L.L.C., and (e) 1,584,157 shares held by each of Gail
Vento L.L.C., Nicole Vento L.L.C., and Renee Vento L.L.C.
(3) The shares of Common Stock held by Mr. Johnson includes 2,549,505 shares
held by Mr. Johnson's spouse, Donna Johnson and 328,789 shares held by
Johnson L.L.C.
(4) The shares of Common Stock held by Mr. Bailey is comprised of 2,376,237
shares held by each of Kevin Johnson L.L.C. and Kari Anne Johnson L.L.C.,
over which Mr. Bailey is deemed to have voting and investment power.
(5) The shares of Common Stock held by Mr. Terplan includes 37,500 shares of
Common Stock subject to options currently exercisable or exercisable
within 60 days of December 1, 2000.
(6) The shares of Common Stock held by Mr. Line includes 363,126 shares of
Common Stock subject to options currently exercisable or exercisable
within 60 days of December 1, 2000.
(7) The shares of Common Stock held by Mr. Cardman includes 201,077 shares of
Common Stock subject to options currently exercisable or exercisable
within 60 days of December 1, 2000.
(8) The shares of Common Stock held by Mr. Schmitt includes 1,042 shares of
Common Stock subject to options currently exercisable or exercisable
within 60 days of December 1, 2000.
I-12
<PAGE>
(9) The shares of Common Stock held by Mr. Boone includes 109,021 shares of
Common Stock subject to options currently exercisable or exercisable
within 60 days of December 1, 2000.
(10) Mr. James K.R. Souders resigned from the Company on November 4, 1999.
(11) The shares of Common Stock held by Mr. Olsen includes 60,105 shares of
Common Stock subject to options currently exercisable or exercisable
within 60 days of December 1, 2000.
(12) The shares of Common Stock held by Mr. Cuccio includes 18,750 shares of
Common Stock subject to options currently exercisable or exercisable
within 60 days of December 1, 2000.
(13) The shares of Common Stock held by all executive officers and directors as
a group includes 924,811 shares of Common Stock subject to options
currently exercisable or exercisable within 60 days of December 1, 2000.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires executive officers and directors,
and people who beneficially own more than ten percent of a registered class of
the Company's equity securities, to file reports of ownership and changes in
ownership with the SEC and the National Association of Securities Dealers, Inc.
Executive officers, directors and greater-than-ten-percent stockholders are
required by SEC regulation to furnish us with copies of all Section 16(a) forms
that they file. Based solely on the review of the forms we have received, or
written representations from various reporting persons, we believe that all of
the executive officers, directors and greater-than-ten-percent stockholders
complied with applicable filing requirements in fiscal 2000.
I-13
<PAGE>
SCHEDULE II
November 24, 2000
Board of Directors
Objective Systems Integrators, Inc.
101 Parkshore Drive
Folsom, CA 95630
Gentlemen:
We understand that Agilent Technologies, Inc., a Delaware corporation
("Parent"), Tahoe Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Merger Sub"), and Objective Systems Integrators, Inc.,
a Delaware corporation (the "Company") are considering entering into an
Agreement and Plan of Merger (the "Merger Agreement") to be dated on or about
November 24, 2000, whereby, among other things, Merger Sub shall be merged
with and into the Company (the "Merger"), the separate corporate existence of
Merger Sub shall cease and the Company shall continue as the surviving
corporation. The Merger Agreement provides that Merger Sub shall, as promptly
as practicable, commence a tender offer (the "Offer") to acquire all the
outstanding shares of common stock, $0.001 par value, of the Company (the
"Company Common Stock") for $17.75 per Share, net to the seller in cash (such
amount being hereinafter referred to as the "Offer Price"). Concurrently with
the execution of the Merger Agreement, three affiliates of the Company are
entering into Tender and Voting Agreements substantially in the forms attached
as exhibits to the Merger Agreement (the Merger Agreement and the Tender and
Voting Agreements being collectively referred to hereafter as the "Transaction
Documents").
The Merger Agreement also provides that, at the effective time of the
Merger, each issued and outstanding share of Company Common Stock (other than
shares owned by Parent, Merger Sub or any other subsidiary of Parent or shares
which are held by stockholders exercising dissenters' rights pursuant to
Section 262 of the Delaware General Corporations Law) will be converted into
the right to receive cash in the amount of the Offer Price. The terms and
conditions of the Offer and the Merger are set forth in more detail in the
Offer to Purchase relating to the Offer and the Merger Agreement.
You have requested the opinion of Gerard Klauer Mattison & Co., Inc.
("Gerard Klauer"), as of this date, as to the fairness, from a financial point
of view, to the holders of Company Common Stock, of the Offer Price to be
received by such holders in the Offer and the Merger.
In arriving at our opinion set forth below, we have reviewed and analyzed,
among other things, the following:
(i) a draft dated November 21, 2000 of the Merger Agreement and drafts
of the other Transaction Documents, and have assumed that the final form of
the Merger Agreement and the other Transaction Documents will not vary in
any regard that is material to our analysis;
(ii) certain publicly available financial statements and other
information of Parent and the Company;
(iii) certain internal business, operating and financial information,
including financial forecasts and projections, furnished to us by the
Company;
(iv) the historical and projected financial results and financial
condition of the Company and compared the Company's financial results with
those of other companies and businesses that we deemed relevant;
(v) the reported prices and trading activity of Company Common Stock and
compared its performance with those of other publicly traded companies that
we deemed relevant; and
II-1
<PAGE>
(vi) the financial terms of the Offer and the Merger and compared them
with the financial terms, to the extent publicly available, of certain
other recent transactions that we deemed relevant.
In addition, in arriving at our opinion, we have held discussions with the
Company's management regarding the business, operations, financial condition
and prospects of the Company, as well as other matters we considered relevant
to our inquiry.
We have also conducted other such analyses and performed such other
investigations and considered such other matters as we deemed necessary to
arrive at our opinion, including our assessment of general economic, market and
monetary conditions.
In our review and analysis and in formulating our opinion, we have relied
upon and assumed, without independent verification, the accuracy and
completeness of all of the financial and other information publicly available
or furnished or otherwise communicated to us. With respect to the financial
forecasts, projections and other information provided to or otherwise reviewed
by us, we assumed that such forecasts, projections and other information were
reasonably prepared on bases reflecting the best currently available estimates
and good faith judgments of the Company's management as to the expected future
competitive, operating and financial performance of the Company. We assume no
responsibility for and express no view as to such forecasts and projections or
the assumptions on which they are based. We have further assumed that the final
form of the Merger Agreement will not vary in any regard that is material to
our analysis and that the transactions contemplated thereby and the Transaction
Documents will be consummated in accordance with their respective terms. We
have not made or been provided with an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of the Company and we have
not made a physical inspection of the properties or assets of the Company. We
have relied on the Company as to all legal matters.
Our opinion is necessarily based upon information made available to us and
business, market, economic, monetary and other conditions as they exist on, and
can be evaluated as of, the date of this letter and does not address the
underlying business decision of the Company to affect the transactions
contemplated by the Merger Agreement or any other transaction in which the
Company might engage. This opinion does not constitute a recommendation to any
holder of Company Common Stock as to whether such holder should continue to
hold such securities. Furthermore, this letter does not constitute a
recommendation by our firm to any stockholders to tender shares of Company
Common Stock pursuant to the Offer or to vote in favor of the Merger, and
should not be relied upon by any stockholder as such.
Gerard Klauer has acted as financial advisor to the Board of Directors of
the Company in connection with this transaction and will receive a fee for our
services. As part of Gerard Klauer's investment banking services, we are
regularly engaged in the valuation of businesses and their securities in
connection with mergers, acquisitions, divestitures, restructurings,
recapitalizations, underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. We have been engaged to render the financial opinion as expressed
herein and we will receive a fee upon the delivery of this opinion. We also,
from time to time, may in the future perform certain financial advisory
services for the Company for which we may receive a fee. In the ordinary course
of business, we may actively trade the securities of the Company for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a short or long position in such securities. The Company has agreed to
indemnify us for certain liabilities that may arise out of the rendering of
this opinion.
This opinion has been prepared for the confidential use and benefit of the
Board of Directors of the Company in its consideration of the Merger, and
supersedes any previously rendered opinion and, except for inclusion of this
letter in its entirety in any filing made by the Company with the Securities
and Exchange Commission in respect of the Offer or Merger, may not be
reproduced, summarized, described or referred to or given to any other person
or otherwise made public without our prior written consent.
II-2
<PAGE>
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, we are of the opinion that, as of the date
hereof, the Offer Price to be received by holders of Company Common Stock in
connection with the Offer and the Merger is fair to such holders from a
financial point of view.
Very truly yours,
GERARD KLAUER MATTISON & CO., INC.
/s/ Dominic A. Petito
By: _________________________________
Dominic A. Petito
Senior Managing Director
II-3
