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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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PREMISYS COMMUNICATIONS, INC.
(Name of Subject Company)
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PREMISYS COMMUNICATIONS, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, $0.01 PAR VALUE
(Title of Class of Securities)
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74058410
(CUSIP Number of Class of Securities)
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John J. Hagedorn
Chief Financial Officer
Premisys Communications, Inc.
48664 Milmont Drive
Fremont, CA 94538
(510) 353-7600
(Name, address and telephone number of person authorized
to receive notice and communications on behalf of the person(s) filing
statement)
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WITH COPIES TO:
Gail E. Suniga, Esq.
Eileen Duffy Robinett, Esq.
John Platz, Esq.
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
(650) 494-0600
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Premisys Communications, Inc., a
corporation formed under the laws of the State of Delaware ("Premisys" or the
"Company"). The address of the principal executive offices of the Company is
48664 Milmont Drive, Fremont, California 94538. The title of the class of equity
securities to which this Solicitation/Recommendation Statement on
Schedule 14D-9 (this "Statement" or "Schedule 14D-9") relates is the Company's
Common Stock, $0.01 par value (the "Common Stock" or the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Schedule 14D-9 relates to the tender offer by Zhone
Technologies, Inc., a Delaware corporation ("Parent" or "Zhone"), and Zhone
Acquisition Corp., a Texas corporation and wholly owned subsidiary of Parent
("Purchaser"), to purchase all of the outstanding Shares held by the Company's
stockholders at $10.00 per Share (the "Offer Price" or "Merger Consideration"),
net to the seller in cash, without interest, upon the terms and subject to the
conditions set forth in the Purchaser's Offer to Purchase, dated October 27,
1999 (as amended or supplemented, the "Offer to Purchase") and in the related
Letter of Transmittal (as amended or supplemented, the "Letter of Transmittal,"
which together with the Offer to Purchase, constitute the "Offer"), copies of
which are to be delivered to the Company's stockholders and are to be a part of
Parent's Tender Offer Statement on Schedule 14D-1 dated October 27, 1999 (the
"Schedule 14D-1"), filed with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules promulgated by the Commission thereunder. All
references to the Shares in this Statement include the associated preferred
stock purchase rights (the "Rights") issued pursuant to the Rights Agreement
(the "Rights Agreement"), dated as of September 18, 1998, as amended on
October 20, 1999, between the Company and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent.
The Offer is being made by the Purchaser pursuant to the Agreement and Plan
of Merger, dated as of October 20, 1999 (the "Merger Agreement"), by and among
Parent, Purchaser and the Company. The Merger Agreement provides that, among
other things, as promptly as practicable after the purchase of Shares pursuant
to the Offer (or the expiration of the Offer and subsequent receipt of approval
by the Company's stockholders) and the satisfaction or waiver of the other
conditions set forth in the Merger Agreement, and in accordance with the
applicable provisions of the Texas Business Corporation Act (the "TBCA") and the
General Corporation Law of the State of Delaware (the "DGCL"), the Company will
be merged with and into Purchaser (the "Merger"), the separate corporate
existence of the Company will cease and Purchaser will continue as the surviving
corporation (the "Surviving Corporation") and will continue to be the wholly
owned subsidiary of Parent. Notwithstanding the foregoing, the Merger Agreement
provides that Parent may elect at any time prior to the Merger to merge
Purchaser with and into the Company instead of merging the Company with and into
Purchaser, in which case the Company would be the Surviving Corporation. At the
effective time of the Merger (the "Effective Time"), each outstanding Share
(other than Shares owned by the Company or any subsidiary of the Company or by
Parent, Purchaser or any subsidiary of Parent immediately prior to the Effective
Time (the "Ineligible Shares") and Shares held by Company stockholders who
properly perfect their dissenters' rights under the DGCL (the "Dissenting
Shares")) will be converted automatically into the right to receive the Offer
Price, without interest. The Merger Agreement, a copy of which is incorporated
by reference as Exhibit 7 hereto, is summarized in Item 3(b)(2) below.
Pursuant to a Company Option Agreement dated as of October 20, 1999 among
Parent, Purchaser and the Company (the "Company Option Agreement"), the Company
has granted to Purchaser an option (the "Company Option") to purchase that
number of Shares (the "Company Option Shares") equal to the lowest number of
Shares that, when added to the number of Shares owned by Purchaser at the time
of exercise of the Company Option, constitutes one share more than 90% of the
Shares then outstanding (assuming issuance of the Company Option Shares) at a
price equal to $10.00 per share. The Company
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Option is not exercisable unless at least 85%, but less than 90%, of the Shares
outstanding are tendered to Purchaser in the Offer. The Company Option Agreement
is incorporated by reference as Exhibit 8 hereto and is summarized in
Item 3(b)(2) below.
In order to induce Parent and Purchaser to enter into the Merger Agreement,
Raymond C. Lin, the Chairman of the Company's Board of Directors, Nicholas J.
Williams, the Company's President and Chief Executive Officer, and Boris J.
Auerbuch, the Company's former Chief Technical Officer, have entered into a
Stockholders Agreement dated as of October 20, 1999 with Parent and Purchaser
(the "Stockholders Agreement"). Pursuant to the Stockholders Agreement,
Raymond C. Lin, Boris J. Auerbuch and Nicholas J. Williams (the "Selling
Stockholders") have agreed (i) to tender and sell all of their Shares to
Purchaser in accordance with the terms of the Offer and (ii) not to sell or
otherwise transfer or dispose of any interest in the Shares they hold to any
person other than pursuant to the Offer and the Merger or to take certain other
actions that might affect the Offer or the Merger. The Stockholders Agreement is
incorporated by reference as Exhibit 9 hereto and is summarized in Item 3(b)(2)
below.
The address of the principal executive offices of Parent and Purchaser is
7677 Oakport Street, Suite 1040, Oakland, California 94621.
ITEM 3. IDENTITY AND BACKGROUND.
(A) NAME AND ADDRESS. The name and address of the Company, which is the
person filing this Schedule 14D-9, is set forth in Item 1 above. All information
contained in this Schedule 14D-9 or incorporated herein by reference concerning
Purchaser or Parent, or actions or events with respect to either of them, was
provided by Purchaser or Parent, respectively, and the Company takes no
responsibility for such information. Information contained in this Statement
with respect to the Company and its advisors has been provided by the Company.
(B)(1) AGREEMENTS AND POTENTIAL CONFLICTS OF INTEREST BETWEEN THE COMPANY
AND CERTAIN OF ITS AFFILIATES. Certain contracts, agreements, arrangements or
understandings between the Company and certain of its executive officers,
directors or affiliates are described in the Information Statement, dated
October 27, 1999, included as Annex A to this Schedule 14D-9 and incorporated
into this Statement by reference. The Information Statement is also being
furnished to the Company's stockholders pursuant to Section 14(f) of the
Exchange Act, and Rule 14f-1 issued under the Exchange Act in connection with
Parent's right (after consummation of the Offer) to designate persons to be
appointed to the Board of Directors of the Company (the "Board") other than at a
meeting of the stockholders of the Company. In considering the recommendations
of the Board, the stockholders of the Company should be aware that certain
members of the Board and certain of the Company's officers have interests in the
Merger and the Offer that are described herein and in the Information Statement
and incorporated by reference in this Statement and which may present them with
certain conflicts of interest. For example, the consummation of the Offer and/or
the Merger will accelerate the vesting of unvested stock options for certain
officers and directors of the Company and may result in severance payments to
certain officers if they are terminated in connection with the Offer and/or
Merger. See "Employment Agreements and Change of Control Arrangements" and
"Board Compensation" contained in the Information Statement. Each of the members
of the Board was aware of these potential conflicts at the time the Board
approved the Offer and the Merger, and considered them along with the other
factors described in Item 4(b) below. Other such contracts, agreements,
arrangements and understandings known to the Company are described below.
ACCELERATED VESTING OF CERTAIN UNVESTED STOCK OPTIONS. The consummation of
the Merger will cause all outstanding but unvested options issued pursuant to
the Company's 1995 Directors Stock Option Plan to accelerate vesting and become
exercisable in full. In addition, the options held by John J. Hagedorn, the
Company's Chief Financial Officer, accelerate vesting in full if the Company is
acquired and Mr. Hagedorn is not named Chief Financial Officer of the combined
companies. See "Security Ownership of Certain Beneficial Owners and Management"
contained in the Information Statement for the aggregate number of
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options that will become exercisable as a result of the consummation of the
Offer and/or the Merger for each of the Company's executive officers and
directors.
TREATMENT OF STOCK OPTIONS. Prior to the Effective Time, each option to
purchase Shares granted pursuant to the Company's stock option plans ("Options")
may be exercised to the extent such Option is vested. Simultaneously with the
Merger, each outstanding Option will be canceled, and each holder of any Option,
to the extent the Option is vested, will be paid by the Purchaser promptly after
the Effective Time an amount determined by multiplying (i) the excess, if any,
of the Merger Consideration over the exercise price of the Option by (ii) the
number of shares of the Company's Common Stock the holder could have purchased
had the holder exercised the Option immediately prior to the Effective Time. Any
payment will be subject to all applicable federal, state and local tax
withholding requirements. Unvested Options held by certain of the Company's
executive officers and directors will be accelerated or otherwise become
exercisable as a result of the Offer and/or the Merger as described above.
Except as otherwise agreed to by the Company and Parent, the Company's stock
option plans and stock purchase plan will terminate as of the Effective Time and
any and all rights under any provisions in any other plan, program or
arrangement providing for the issuance or grant of any interest in respect of
the capital stock of the Company or any of the Company's subsidiaries will be
canceled as of the Effective Time.
TERMINATION OF EMPLOYEE STOCK PURCHASE PLAN. Prior to the Effective Time,
the Company will shorten the current offering period under the Company's stock
purchase plan and terminate that plan as of the Effective Time. These actions
will result in current offering period participants, including officers and
directors, if any, receiving benefits under the stock purchase plan earlier than
would be anticipated if the plan had not been terminated.
SEVERANCE PAYMENTS. Certain executive officers are entitled to receive
severance payments in the event their employment with the Company is terminated
by the Company without cause or they resign for good reason pursuant to the
terms of their employment or severance agreements. See "Employment Agreements
and Change of Control Arrangements" contained in the Information Statement
regarding certain severance arrangements the Company has entered into with
John J. Hagedorn, Nicholas J. Williams and Claude Dupuis.
INDEMNITY AND INSURANCE PURSUANT TO THE TERMS OF THE MERGER
AGREEMENT. Parent has agreed, and to cause Purchaser, to maintain in effect for
a period of six years after the Effective Time (i) the current provisions
regarding indemnification that may be in the Company's charter documents or
agreements entered into with current or former officers and directors and
(ii) subject to a cap on premiums, the current directors' and officers'
insurance policies with respect to acts or failures to act prior to or as of the
Effective Time. Each of the officers and directors of the Company have entered
into an Indemnity Agreement with the Company in the form incorporated by
reference as Exhibit 15 to this Statement providing for indemnification of each
such officer or director to the fullest extent allowed by applicable law.
(B)(2) AGREEMENTS AND POTENTIAL CONFLICTS OF INTEREST AMONG THE COMPANY,
PURCHASER AND PURCHASER'S AFFILIATES.
Parent, Purchaser and the Company entered into the Merger Agreement on
October 20, 1999. In connection with the Merger Agreement, Purchaser entered
into the Company Option Agreement and the Stockholders Agreement. The following
is a summary of the material terms of the Merger Agreement, the Company Option
Agreement and the Stockholders Agreement. Such summary is not a complete
description of these agreements and is qualified in its entirety by reference to
the complete texts of the agreements, copies of which are incorporated by
reference as exhibits to this statement and are incorporated by reference
herein. Capitalized terms not otherwise defined herein shall have the meanings
set forth in the agreements.
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THE MERGER AGREEMENT.
GENERAL. The purpose of the Offer, the Company Option Agreement and the
Stockholders Agreement is to enable Purchaser to acquire, in one or more
transactions, control of, and the entire equity interest in, the Company. The
purpose of the Merger is for Purchaser to acquire all Shares not purchased
pursuant to the Offer and the Company Option. The acquisition of the entire
equity interest in the Company is structured as a cash tender offer followed by
a merger in order to provide a prompt and orderly transfer of ownership of the
Company from the public stockholders to Purchaser.
If the Offer is consummated with Purchaser owning at least 90% of the then
outstanding Shares, Purchaser will be able to approve the Merger Agreement and
the Merger and to effect the Merger pursuant to the "short-form" merger
provisions of the TBCA and the DGCL without prior notice to, or any action by,
any other stockholder of the Company. Purchaser need not purchase any shares
unless at least 75% of the Shares on a fully diluted basis are tendered in the
Offer (the "Minimum Condition"). If the Minimum Condition is satisfied,
Purchaser will own at least 75% of the then outstanding Shares on a fully
diluted basis and will be able to cast sufficient votes to approve the Merger at
a special stockholders' meeting called for such purpose.
Upon consummation of the Merger, the Surviving Corporation will be a wholly
owned subsidiary of Parent. The Offer is being made pursuant to the Merger
Agreement.
THE OFFER. The Merger Agreement provides for the commencement of the Offer,
in connection with which Parent and Purchaser have expressly reserved the right
to waive conditions of the Offer (except as set forth below with respect to the
Minimum Condition), in whole or in part, at any time and from time to time in
their sole discretion. Purchaser has agreed that it will not, without the prior
written consent of the Company, (i) decrease the price per Share payable in the
Offer, (ii) decrease the number of Shares sought pursuant to the Offer below a
majority of the total issued and outstanding Shares on a fully diluted basis or
change the form of consideration payable in the Offer, (iii) change or amend the
conditions to the Offer or impose additional conditions to the Offer,
(iv) except as provided below, change the expiration date of the Offer, or
(v) otherwise amend, add or waive any term or condition of the Offer in any
manner adverse to the holders of Shares. The obligation of Purchaser to
consummate the Offer and to accept for payment and to pay for any Shares
tendered pursuant to the Offer will be subject only to the conditions set forth
below under "Certain Conditions of the Offer."
So long as the Merger Agreement is in effect and the conditions to the Offer
have not been satisfied or waived, Purchaser may, from time to time, extend the
expiration of the Offer for up to ten additional business days (but in no event
shall such extensions exceed, in the aggregate, 30 business days without the
Company's prior written consent, and in no event shall Purchaser be required to
extend the Offer beyond March 31, 2000). Additionally, so long as the Merger
Agreement is in effect and the conditions to the Offer (other than the Minimum
Condition) have been satisfied or waived and if the number of Shares that have
been validly tendered and not withdrawn represent at least a majority of the
then issued and outstanding Shares on a fully diluted basis and Purchaser does
not elect to reduce the Minimum Condition and consummate the Offer, Purchaser
shall, at the Company's request on up to three occasions, extend the expiration
date of the Offer for up to ten additional business days (but in no event shall
such extensions exceed, in the aggregate 30 business days, and in no event shall
Purchaser be required to extend the offer beyond March 31, 2000). Moreover, so
long as the Merger Agreement is in effect and the conditions to the Offer have
been satisfied or waived, Purchaser may, without the consent of the Company,
extend the Offer for an aggregate period of not more than ten business days (for
all such extensions) beyond the originally scheduled expiration date of the
Offer if the number of Shares that have been validly tendered and not withdrawn
represent less than 90% of the then issued and outstanding Shares.
Notwithstanding the foregoing, Purchaser may, without the consent of the
Company, extend the Offer for any period required by any rule, regulation,
interpretation or position of the Commission or the staff thereof applicable to
the Offer.
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BOARD REPRESENTATION. Promptly upon the purchase by Purchaser pursuant to
the Offer and the Company Option of a number of Shares at least equal to the
Minimum Condition, Purchaser shall be entitled to designate such number of
directors, rounded up to the next whole number, on the Board as will give
Purchaser representation on the Board equal to the product of the number of
directors on the Board (determined after giving effect to the directors elected
pursuant to this provision) and the percentage that such number of Shares so
purchased bears to the number of Shares outstanding, and the Company shall, upon
request by Purchaser, promptly increase the size of the Board or use its best
efforts to secure the resignations of such number of directors as is necessary
to provide Purchaser with such level of representation and shall cause
Purchaser's designees to be so elected. The Company's obligations to appoint
designees to the Board shall be subject to Section 14(f) of the Exchange Act.
The Company shall take all actions necessary to effect any such election or
appointment of Purchaser's designees, including mailing to its stockholders the
information required by Section 14(f) of the Exchange Act and Rule 14f-l
promulgated thereunder together with the Schedule 14D-9.
Notwithstanding the foregoing, neither Parent nor Purchaser will take any
action to prevent at least one person who is a director of the Company on the
date hereof from remaining as a director of the Company (each a " Continuing
Director") until the Effective Time. Following the election or appointment of
Purchaser's designees pursuant to the preceding paragraph and prior to the
Effective Time, and so long as there shall be at least one Continuing Director,
the approval of a majority of the Continuing Directors shall be required to
authorize any resolution with respect to any amendment or termination of the
Merger Agreement by the Company.
THE MERGER. The Merger Agreement provides that upon the terms and subject
to the conditions of the Merger Agreement, and in accordance with the relevant
provisions of the TBCA and the DGCL, the Company shall be merged with and into
Purchaser as soon as practicable following the satisfaction or waiver, if
permissible, of the conditions to the Merger. Purchaser shall be the Surviving
Corporation and shall continue its existence under the laws of Texas, and the
Articles of Incorporation and the Bylaws of Purchaser as in effect immediately
prior to the Effective Time shall be the Articles of Incorporation and Bylaws of
the Surviving Corporation (except that the name of the Surviving Corporation may
be Premisys Communications, Inc.). Notwithstanding the foregoing, the Merger
Agreement provides that Parent may elect at any time prior to the Merger to
merge Purchaser with and into the Company instead of merging the Company with
and into Purchaser as provided above. The directors and officers of Purchaser
immediately prior to the Effective Time shall be the directors and officers,
respectively, of the Surviving Corporation until their death, permanent
disability, resignation or removal or until their respective successors are duly
elected and qualified. All Shares issued and outstanding immediately prior to
the Effective Time (other than Shares owned by Parent, Purchaser or any
subsidiary of Parent, Purchaser or the Company or held in the treasury of the
Company, all of which shall be canceled, and other than Dissenting Shares)
shall, by virtue of the Merger and without any action on the part of the holder
thereof, be converted into the right to receive in cash the Merger
Consideration, upon the surrender of the certificates representing such Shares.
To effect the Merger, Purchaser and the Company shall file (i) with the
Secretary of State of the State of Delaware, a Certificate of Merger or other
appropriate documents executed in accordance with the relevant provisions of the
DGCL and shall make all other filings, recordings or publications required under
the DGCL in connection with the Merger and (ii) with the Secretary of State of
the State of Texas, Articles of Merger or other appropriate documents executed
in accordance with the relevant provisions of the TBCA and shall make all other
filings, recordings or publications required under the TBCA in connection with
the Merger. The Merger shall become effective at such time as the Certificate of
Merger and the Articles of Merger are duly filed with the Delaware and Texas
Secretaries of State, respectively, or at such other time as the parties may
agree and specify in the Certificate of Merger and the Articles of Merger.
TERMINATION OF STOCK OPTIONS, STOCK OPTION PLANS AND STOCK PURCHASE
PLAN. Simultaneously with the Merger, each outstanding option to purchase a
Share under the Company's stock option plans shall be
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canceled, and each holder of any such vested option shall be paid by the
Surviving Corporation promptly after the Effective Time for each such vested
option an amount determined by multiplying (a) the excess, if any, of the Merger
Consideration over the applicable exercise price of such option by (b) the
number of Shares such holder could have purchased had such holder exercised such
option immediately prior to the Effective Time. Any such payment shall be
subject to all applicable federal, state and local tax withholding requirements.
No unvested options shall be accelerated or otherwise become exercisable as a
result of the Offer or the Merger, except to the extent that the Company's 1995
Directors Stock Option Plan or any of the employment or severance agreements
listed on a schedule to the Merger Agreement provide otherwise. Except as
otherwise agreed to by the parties, the Company's stock option plans and the
Company's employee qualified stock purchase plan shall terminate as of the
Effective Time and any and all rights under any provisions in any other plan,
program or arrangement providing for the issuance or grant of any interest in
respect of the capital stock of the Company or any of its subsidiaries shall be
canceled as of the Effective Time.
The Company has agreed that prior to the Effective Time, the Company will
take all actions necessary to (a) shorten the offering period under the
Company's employee qualified stock purchase plan in which the Effective Time
occurs so that such offering period terminates on the day immediately prior to
the Effective Time and (b) terminate the stock purchase plan effective as of the
Effective Time. Participants in the stock purchase plan will have the
opportunity to exercise their rights to purchase Shares under the stock purchase
plan prior to the termination of the plan.
STOCKHOLDER MEETING; RECOMMENDATION TO STOCKHOLDERS. Unless the Merger is
consummated in accordance with the "short-form" merger provisions under the TBCA
or the DGCL, the Company, acting through the Company Board, shall, in accordance
with applicable law, duly call, give notice of, convene and hold a special
meeting of its stockholders (the "Special Meeting") as soon as practicable
following the consummation of the Offer for the purpose of adopting the
agreement and plan of merger set forth in the Merger Agreement, and subject to
the fiduciary duties of the Company Board under applicable law as determined in
good faith by the Company Board, include in the Company's proxy statement for
the Special Meeting the recommendation of the Company Board that stockholders of
the Company vote in favor of the adoption of the plan of merger set forth in the
Merger Agreement. Parent and Purchaser have agreed that, at the Special Meeting,
all of the Shares acquired pursuant to the Offer or otherwise by Parent or
Purchaser or any of their affiliates will be voted in favor of the Merger.
If Purchaser or any other direct or indirect subsidiary of Parent shall
acquire at least 90% of the outstanding shares of each class of capital stock of
the Company, each of Parent, Purchaser and the Company shall take all necessary
and appropriate action to cause the Merger to become effective, as soon as
practicable after the consummation of the Offer, without a meeting of
stockholders of the Company, in accordance with the TBCA and the DGCL.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations and warranties by the Company with respect to corporate
existence and good standing, subsidiaries, capital structure, authority and no
conflicts, Commission reports and financial statements, information supplied,
title to and condition of assets, real property, compliance with applicable
laws, regulatory matters, litigation, taxes, absence of certain changes or
events, vote required, state takeover statutes, intellectual property,
contracts, insurance, employee benefit plans, labor matters, environmental
matters, Year 2000 compliance, brokers or finders, opinion of financial advisor
and other matters.
Purchaser and Parent have also made certain representations and warranties
with respect to corporate existence and good standing, authority and no
conflicts, information supplied, brokers or finders, availability of funds,
litigation and other matters.
CONDUCT OF BUSINESS AND OTHER COVENANTS PENDING THE MERGER. The Company has
agreed that during the period from the date of the Merger Agreement until the
Effective Time, the Company will conduct,
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and will cause each of its subsidiaries to conduct, its operations according to
its ordinary and usual course of business and consistent with past practice
(except as expressly permitted by the Merger Agreement), and the Company will
use, and will cause each of its subsidiaries to use, its best efforts to
preserve intact its business organization, to keep available the services of its
current officers and employees and to preserve the goodwill of, and maintain
satisfactory relationships with, those having business relationships with the
Company and its subsidiaries. The Company has agreed to promptly advise Parent
and Purchaser in writing of any change in the Company's or any of its
subsidiaries' condition (financial or otherwise), properties, customer or
supplier relationships, assets, liabilities, business prospects or results of
operations which may reasonably be likely to have a material adverse effect on
the Company.
In addition, without limiting the generality of the foregoing and except as
otherwise expressly provided in or contemplated by the Merger Agreement, during
the period specified in the first sentence of the preceding paragraph, the
Company has agreed that, without the prior written consent of Parent, it will
not (and will not permit any of its subsidiaries to): (a) amend or otherwise
change its certificate of incorporation or bylaws; (b) except as contemplated by
the Merger Agreement, amend the Rights Agreement or take any action with respect
to, or make any determination under, the Rights Agreement, including a
redemption of the Rights to facilitate an Alternative Transaction (as defined
below); (c) issue or sell or authorize for issuance or sale (other than any
issuance of Shares upon the exercise of any outstanding option to purchase
Shares which option was issued prior to the date hereof in accordance with the
terms of the relevant stock option agreement), or grant any options or make
other agreements with respect to, any shares of its capital stock or any other
of its securities; (d) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise with respect to any
of its capital stock; (e) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of its capital stock;
(f) incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person, or make any loans or advances,
except (i) short-term borrowings incurred in the ordinary course of business
consistent with past practice and (ii) intercompany indebtedness between the
Company and any of its subsidiaries or among any of the Company's subsidiaries;
(g) (i) acquire (including, without limitation, by merger, consolidation, or
acquisition of stock or assets) any corporation, partnership, other business
organization or any division thereof or any material amount of assets;
(ii) enter into any contract or agreement other than in the ordinary course of
business consistent with past practice; (iii) authorize any capital commitment
which is in excess of $100,000 or capital expenditures which are, in the
aggregate, in excess of $250,000; or (iv) enter into or amend any contract,
agreement, commitment or arrangement with respect to any indebtedness or
responsibility for the obligations of any person or any matter referenced in
this clause (g); (h) sell, lease, license, mortgage, pledge or otherwise
encumber or subject to any lien or otherwise dispose of any of its properties or
assets, other than sales or licenses of products in the ordinary course of
business consistent with past practice; (i) take any action, other than in the
ordinary course of business consistent with past practice, with respect to
accounting policies or procedures (including, without limitation, procedures
with respect to the payment of accounts payable and collection of accounts
receivable); (j) make any tax election or settle or compromise any federal,
state, local or foreign tax liability; (k) settle or compromise any pending or
threatened suit, action or claim which is material or which relates to any of
the transactions contemplated by the Merger Agreement; (l) pay, discharge or
satisfy any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with past practice,
of liabilities reflected or reserved against in the Company's most recent
quarterly balance sheet or subsequently incurred in the ordinary course of
business consistent with past practice; (m) except in connection with the sale
or license of the Company's products in the ordinary course of business
consistent with past practice, sell, assign, transfer, license, sublicense,
pledge or otherwise encumber any of the Company's intellectual property rights;
(n) except as required by law or as contemplated on a schedule to the Merger
Agreement, enter into, adopt, amend or terminate any Company benefit plan or any
other agreement, arrangement, plan or policy involving the Company or any of its
subsidiaries, and one or more of its directors, officers, employees or
consultants, or materially change
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any actuarial or other assumption used to calculate funding obligations with
respect to any pension plan, or change the manner in which contributions to any
pension plan are made or the basis on which such contributions are determined;
provided, however, that the Company shall be permitted to submit to its
stockholders for their consideration the amendments to the Company's stock
option plan and the Company's employee qualified stock purchase plan described
on a schedule to the Merger Agreement if the Offer has not been consummated
within 50 business days after the commencement date of the Offer; (o) except for
normal increases in the ordinary course of business consistent with past
practice that, in the aggregate, do not materially increase benefits or
compensation expenses of the Company or its subsidiaries, or as contemplated
hereby or by the terms of any employment agreement in existence on the date
hereof, increase the cash compensation of any director, officer or other key
employee or pay any benefit or amount not required by a plan or arrangement as
in effect on the date of the Merger Agreement to any such person; except that
the Company may hire up to 20 persons (none of whom shall be officers of the
Company) on an at will basis (with no employment, severance or similar
agreements) and grant to such persons options to purchase up to 200,000 Shares
in the aggregate; provided that no portion of any such options shall vest or
otherwise become exercisable (including, without limitation, as a result of the
Offer or the Merger) within one year of the date of hire; provided further that
the Company shall notify each such person prior to hiring that the options being
granted shall be canceled for no value upon the consummation of the transactions
contemplated by the Merger Agreement; and provided further that any such hiring
at an annual salary in excess of $110,000 shall be subject to the prior approval
of Parent, which approval shall not be unreasonably withheld; or (p) announce an
intention, commit or agree to do any of the foregoing.
In addition, the Company has agreed that it will not take any action that
would reasonably be expected to result in (i) any of the representations and
warranties of the Company set forth in the Merger Agreement that are qualified
as to materiality becoming untrue, (ii) any of such representations and
warranties that are not so qualified becoming untrue in any material respect or
(iii) any of the conditions to the Offer or the Merger not being satisfied.
NO SOLICITATION. The Merger Agreement provides that the Company and the
Company's subsidiaries and their respective directors and officers shall not,
and the Company shall direct and use its best efforts to cause the employees,
representatives and agents of the Company and the Company's subsidiaries not to,
directly or indirectly, solicit or encourage the initiation of (including by way
of furnishing information) any inquiries or proposals regarding any merger, sale
of assets, sale of shares of capital stock (including without limitation by way
of a tender offer) or similar transactions involving the Company or any of its
subsidiaries that if consummated would constitute an Alternative Transaction (as
defined below) (any of the foregoing inquiries or proposals being referred to
herein as a "Company Takeover Proposal"). Nothing contained in the Merger
Agreement shall prevent the Board from (i) furnishing information to a third
party which has made a bona fide Company Takeover Proposal that is a Superior
Proposal (as defined below) not solicited in violation of the Merger Agreement,
provided that such third party has executed an agreement with confidentiality
provisions substantially similar to those then in effect between the Company and
Parent or (ii) subject to compliance with the other terms of the "no
solicitation" section of the Merger Agreement, considering and negotiating a
bona fide Company Takeover Proposal that is a Superior Proposal not solicited in
violation of the Merger Agreement; provided that, as to each of clauses (i) and
(ii), the Board reasonably determines in good faith (after due consultation with
independent counsel) that it is or is reasonably likely to be required to do so
in order to discharge properly its fiduciary duties. For purposes of the Merger
Agreement, a "Superior Proposal" means any proposal made by a third party to
acquire, directly or indirectly, for consideration consisting of cash and/or
securities, all of the equity securities of the Company entitled to vote
generally in the election of directors or all or substantially all the assets of
the Company, on terms which the Board reasonably believes (after consultation
with a financial advisor of nationally recognized reputation) to be more
favorable from a financial point of view to its stockholders than the Offer and
the Merger taking into account at the time of determination all factors relating
to such proposed transaction deemed relevant by the Board, including, without
limitation, the financing thereof,
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the proposed timing thereof and all other conditions thereto and any changes to
the financial terms of the Merger Agreement proposed by Parent and Purchaser.
"Alternative Transaction" means any of (i) a transaction pursuant to which any
person (or group of persons) other than Parent or its affiliates (a "Third
Party") acquires or would acquire more than 10% of the outstanding shares of any
class of equity securities of the Company, whether from the Company or pursuant
to a tender offer or exchange offer or otherwise, (ii) a merger or other
business combination involving the Company pursuant to which any Third Party
acquires more than 10% of the outstanding equity securities of the Company or
the entity surviving such merger or business combination, (iii) any transaction
pursuant to which any Third Party acquires or would acquire control of assets
(including for this purpose the outstanding equity securities of subsidiaries of
the Company and securities of the entity surviving any merger or business
combination including any of the subsidiaries of the Company) of the Company or
any of its subsidiaries having a fair market value (as determined by the Board
in good faith) equal to more than 10% of the fair market value of all the assets
of the Company and its subsidiaries, taken as a whole, immediately prior to such
transaction, or (iv) any other consolidation, business combination,
recapitalization or similar transaction involving the Company or any of its
subsidiaries, other than the transactions contemplated by the Merger Agreement.
The Company shall immediately notify Parent and Purchaser after receipt of
any Company Takeover Proposal, or any modification of or amendment to any
Company Takeover Proposal, or any request for nonpublic information relating to
the Company or any of its subsidiaries in connection with a Company Takeover
Proposal or for access to the properties, books or records of the Company or any
subsidiary by any person or entity that informs the Board or such subsidiary
that it is considering making, or has made, a Company Takeover Proposal. Such
notice to Parent and Purchaser shall be made orally and in writing, and shall
indicate the identity of the person making the Company Takeover Proposal or
intending to make the Company Takeover Proposal or requesting non-public
information or access to the books and records of the Company, the terms of any
such Company Takeover Proposal or modification or amendment to a Company
Takeover Proposal, and whether the Company is providing or intends to provide
the person making the Company Takeover Proposal with access to information
concerning the Company as provided in the preceding paragraph. The Company shall
also immediately notify Parent and Purchaser, orally and in writing, if it
enters into negotiations concerning any Company Takeover Proposal.
Except as set forth in the "no solicitation" section of the Merger
Agreement, neither the Board nor any committee thereof shall (i) withdraw or
modify, or indicate publicly its intention to withdraw or modify, in a manner
adverse to Parent, the approval or recommendation by the Board or such committee
of the Offer or the Merger and related transactions, (ii) approve or recommend,
or indicate publicly its intention to approve or recommend, any Company Takeover
Proposal or (iii) cause the Company to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar agreement (each,
a "Company Acquisition Agreement") related to any Company Takeover Proposal.
Notwithstanding the foregoing, in the event that prior to the Effective Time the
Board determines in good faith, with the advice of outside counsel, that the
failure to do so could reasonably be determined to be a breach of its fiduciary
duties to the Company's stockholders under applicable law, the Board may
(subject to this and the following sentences) approve or recommend a Superior
Proposal and, in connection therewith, withdraw or modify its approval or
recommendation of the Offer or the Merger and related transactions and/or
terminate the Merger Agreement (and concurrently with or after such termination,
if it so chooses, cause the Company to enter into any Company Acquisition
Agreement with respect to any Superior Proposal); provided that (i) the Company
gives Parent at least five business days advance notice of its intent to take
any of the foregoing actions and (ii) during such five business day period, the
Company, if requested by Parent, negotiates in good faith with Parent to make
such adjustments to the terms and conditions of the Merger Agreement as would
enable the Company to proceed with the Offer and the Merger on such adjusted
terms. After such five business day period, the Board may then (and only then)
withdraw or modify its approval or recommendation of the Offer or the Merger
and/or terminate the Merger Agreement.
For so long as the Merger Agreement shall not have been terminated in
accordance with its terms, the Board shall not redeem the Rights or waive or
amend any provision of the Rights Agreement, in any such case to permit or
facilitate the consummation of any Company Takeover Proposal or Alternative
Transaction.
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RIGHTS AGREEMENT. The Merger Agreement provides that the Board shall take
all further action, if any, necessary to render the Rights inapplicable to the
Offer, the Merger and the other transactions contemplated by the Merger
Agreement, the Company Option Agreement and the Stockholders Agreement in
addition to having taken all actions necessary such that under the Rights
Agreement neither Parent nor Purchaser shall become an "Acquiring Person" (as
defined in the Rights Agreement) and no "Distribution Date" (as defined in the
Rights Agreement) shall be deemed to occur, and the Rights will not separate
from the Shares by reason of the approval, execution, or delivery of the Merger
Agreement or the transactions contemplated thereby and having taken all
necessary action with respect to all of the outstanding Rights so that, as of
immediately prior to the Effective Time and immediately prior to the
consummation of the Offer, the Company will not have any obligations under the
Rights or the Rights Agreement with respect to the Offer, the Merger and/or the
other transactions contemplated hereby or thereby and the holders of Rights will
have no rights under the Rights or the Rights Agreement with respect to the
Offer, the Merger and/or the other transactions contemplated hereby or thereby.
SHORT-TERM INVESTMENTS. The Merger Agreement provides that not later than
five days prior to the earliest expiration date of the Offer, the Company shall
open an account in the name of the Company at CSFB and shall deposit at least
$75 million into such account consisting of cash and all of the short-term
investments of the Company and its subsidiaries (including, without limitation,
municipal bonds and other securities) (collectively, "Short-Term Investments").
The assets held in the CSFBC account shall remain the property of the Company,
and the Company shall have absolute control over such account and shall be
entitled to all interest earned on the Short-Term Investments held in the such
account. The Company shall take all actions necessary to convert all of the
Short-Term Investments into cash or liquid investments readily convertible into
cash on demand not later than the first business day following the expiration
date of the Offer. To the extent that any Short-Term Investments mature prior to
the expiration date of the Offer, the Company shall deposit the funds obtained
thereby into the CSFBC account in the form of cash or liquid investments readily
convertible into cash on demand.
FEES AND EXPENSES. The Merger Agreement provides that all fees and expenses
incurred in connection with the Merger Agreement, the Company Option Agreement,
the Stockholders Agreement and the transactions contemplated by the Merger
Agreement, the Company Option Agreement and the Stockholders Agreement shall be
paid by the party incurring such fees and expenses, except that under certain
circumstances described in "Termination of the Merger Agreement" below, the
Company may be required to pay a termination fee and except that, promptly
following the Effective Time, Parent shall cause the Surviving Corporation to
pay all reasonable legal, accounting and investment banker fees incurred by the
Company in connection with the Merger Agreement and the transactions
contemplated thereby.
CONDITIONS TO THE MERGER. Pursuant to the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction
or waiver, where permissible, prior to the closing date of the Merger, of the
following conditions: (a) the Company shall have obtained all approvals of
holders of shares of capital stock of the Company necessary to approve the
Merger Agreement and all of the transactions contemplated hereby (including the
Merger); provided that this condition shall be deemed satisfied upon the
consummation of the Offer; (b) the waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or shall
have expired; (c) no temporary restraining order, preliminary or permanent
injunction or other order issued by a court or other governmental entity of
competent jurisdiction shall be in effect and have the effect of making the
Merger illegal or otherwise prohibiting consummation of the Merger; provided,
however, that the provisions of this clause shall not be available to any party
whose failure to fulfill its obligations to obtain approvals and consents shall
have been the cause of, or shall have resulted in, such order or injunction;
(d) all authorizations, consents, orders and approvals of, and declarations and
filings with, and all expirations of waiting periods imposed by, any
governmental entity which, if not obtained in connection with the consummation
of the transactions contemplated hereby, could reasonably be expected to have a
material adverse effect on the Company, shall have been obtained, have been
declared or filed or have occurred, as
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the case may be, and all such required regulatory approvals shall be in full
force and effect; (e) Purchaser shall have consummated the Offer; provided,
however, that neither Parent nor Purchaser shall be entitled to rely on this
condition if either of them shall have failed to purchase Shares pursuant to the
Offer in breach of their obligations under the Merger Agreement.
TERMINATION OF THE MERGER AGREEMENT. The Merger Agreement may be terminated
at any time prior to the Effective Time, by action taken or authorized by the
board of directors of the terminating party or parties, whether before or after
approval of the matters presented in connection with the Merger by the
stockholders of the Company: (a) by mutual written consent of Parent and the
Company; (b) by either Parent or the Company if the Merger shall not have been
consummated by March 31, 2000; provided, however, that the right to terminate
the Merger Agreement under this clause shall not be available to any party whose
failure to fulfill any obligation under the Merger Agreement has been the cause
of, or resulted in, the failure of the Merger to occur on or before such date;
(c) by either Parent or the Company if any governmental entity shall have issued
an order, decree or ruling or taken any other action (which order, decree,
ruling or other action the parties shall have used their best efforts to resist,
resolve or lift, as applicable) permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by the Merger Agreement, the Company
Option Agreement or the Stockholders Agreement and such order, decree, ruling or
other action shall have become final and nonappealable; (d) by either Parent or
the Company if any approval by the stockholders of the Company required for the
consummation of the Merger or the other transactions contemplated hereby shall
not have been obtained at a meeting of the Company's stockholders called for
such purpose or any adjournment thereof by reason of the failure to obtain the
required vote at a duly held meeting of stockholders or at any adjournment
thereof; (e) by Parent, prior to the acceptance for payment of the number of
Shares equal to the Minimum Condition (the "Minimum Shares") pursuant to the
Offer, if (i) the Board or any committee thereof shall have withdrawn or
modified in a manner adverse to Parent its approval or recommendation of the
Offer or the Merger, (ii) the Board or any committee thereof shall have approved
or recommended to the stockholders of the Company any Company Takeover Proposal
or Alternative Transaction, (iii) the Board or any committee thereof shall have
approved or recommended that the stockholders of the Company tender their Shares
in any tender or exchange offer that is an Alternative Transaction, (iv) the
Board or any committee thereof shall have resolved to take any of the foregoing
actions, or (v) the Board or any committee thereof shall have redeemed the
Rights, or waived or amended any provision of the Rights Agreement, in any such
case to permit or facilitate the consummation of any Company Takeover Proposal
or Alternative Transaction; (f) by the Company, prior to the acceptance for
payment of the Minimum Shares pursuant to the Offer, in accordance with the
provisions of the Merger Agreement described above under "No Solicitation";
provided, however, that the right to terminate the Merger Agreement pursuant to
this clause shall not be available (i) if the Company has breached in any
material respect its obligations under the provisions of the Merger Agreement
relating to "no solicitation" or (ii) if the Company fails to pay when due the
cash fee described in the next paragraph; (g) by Parent, prior to the acceptance
for payment of the Minimum Shares pursuant to the Offer, upon a breach of any
covenant or agreement on the part of the Company set forth in the Merger
Agreement which could reasonably be expected to have a material adverse effect
on the Company or a material adverse effect on the consummation of the Offer or
the Merger, or if any representation or warranty of the Company shall have
become inaccurate and such inaccuracy could reasonably be expected to have a
material adverse effect on the Company or a material adverse effect on the
consummation of the Offer or the Merger; (h) by the Company, upon a breach of
any covenant or agreement on the part of Parent or Purchaser set forth in the
Merger Agreement which could reasonably be expected to have a material adverse
effect on Parent or a material adverse effect on the consummation of the Offer
or the Merger, or if any representation or warranty of Parent or Purchaser shall
have become inaccurate and such inaccuracy could reasonably be expected to have
a material adverse effect on Parent or a material adverse effect on the
consummation of the Offer or the Merger; or (i) by Parent or the Company, if the
Offer terminates or expires on account of the failure of any condition specified
in Section 15 without Purchaser having purchased any Shares thereunder (provided
that the right to
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terminate the Merger Agreement pursuant to this clause shall not be available to
any party whose failure to fulfill any obligation under the Merger Agreement has
been the cause of, or resulted in, the failure of any such condition).
In the event of termination of the Merger Agreement by either Parent or the
Company, the Merger Agreement shall become void and there shall be no liability
or obligation on the part of Parent or the Company or their respective officers
or directors except (i) with respect to the requirement that the parties pay
certain fees and expenses, including, as applicable, the cash fee described
below, (ii) with respect to any liabilities or damages incurred or suffered by a
party as a result of the willful breach by the other party of any of its
covenants or other agreements set forth in the Merger Agreement and (iii) the
Confidentiality Agreement between Parent and the Company will remain in full
force and effect. In the event that (i) the Merger Agreement is terminated
pursuant to clause (e) or (f) in the preceding paragraph, or pursuant to
clause (g) in the preceding paragraph in the case of a material breach of the
Company's obligations under the "no solicitation" provisions of the Merger
Agreement, or (ii)(A) any Third Party makes a Company Takeover Proposal to the
Company or its stockholders and thereafter the Merger Agreement is terminated by
either party pursuant to the provisions of the Merger Agreement described in
clause (b) or (d) above and (B)(x) within 12 months after the termination of the
Merger Agreement any Alternative Transaction is consummated or the Company
enters into any Company Acquisition Agreement, in either case with the Third
Party (or any affiliate of the Third Party) that made the Company Takeover
Proposal to the Company or its stockholders or (y) within nine months after the
termination of the Merger Agreement any Alternative Transaction is consummated
or the Company enters into any Company Acquisition Agreement, in either case
with any other Third Party, then the Company shall pay Parent a cash fee of
$10,000,000, which amount shall be payable by wire transfer of immediately
available funds no later than (1) two business days after such termination in
the case of a termination described in clause (i) above or (2) the date of
consummation of such Alternative Transaction in the case of a termination
described in clause (ii) above.
CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision of the
Merger Agreement or the Offer, Purchaser will not be required to accept for
payment, purchase or pay for any Shares tendered and may terminate or (subject
to the terms of the Merger Agreement) amend the Offer and may postpone the
acceptance for payment of and payment for any Shares, if prior to the Expiration
Date and if pursuant to the Offer (whether or not any Shares have theretofore
been accepted for payment or paid for pursuant to the Offer) (i) the Minimum
Condition shall not have been satisfied, (ii) any waiting period under the HSR
Act shall not have expired or been terminated, or (iii) any of the following
shall occur:
(a) there shall be instituted or pending by any governmental entity any
suit, action or proceeding (i) challenging the acquisition by Parent or
Purchaser of any Shares pursuant to the Offer, 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, the Company Option Agreement or the Stockholders Agreement or
seeking to obtain from the Company, Parent or Purchaser any damages that are
material in relation to the Company or Parent, (ii) seeking to prohibit or
materially limit the ownership or operation by the Company or Parent of a
material portion of the business or assets of the Company or Parent, or to
compel the Company or Parent to dispose of or hold separate a material
portion of the business or assets of the Company or Parent, in each case as
a result of the Offer or any of the other transactions contemplated by the
Merger Agreement, the Company Option Agreement or the Stockholders
Agreement, (iii) seeking to impose material limitations on the ability of
Parent or Purchaser to acquire or hold, or exercise full rights of ownership
of, any Shares to be accepted for payment pursuant to the Offer including,
without limitation, the right to vote such shares on all matters properly
presented to the stockholders of the Company, (iv) seeking to prohibit
Parent or Purchaser from effectively controlling in any material respect any
material portion of the business or operations of the Company, (v) that
could reasonably be expected
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to require the divestiture by Parent or Purchaser of any Shares, or
(vi) that could reasonably be expected to result in a material adverse
effect on the Company or Parent;
(b) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated or deemed applicable to
the Offer or the Merger, by any governmental entity or court, that would
result in any of the consequences referred to in clauses (i) through
(vi) of paragraph (a) above;
(c) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on Nasdaq, (ii) a
declaration of a banking moratorium or any general suspension of payments in
respect of banks in the United States or (iii) in the case of any of the
foregoing existing at the time of the execution of the Merger Agreement, a
material acceleration or worsening thereof;
(d) there shall have occurred any event or change since September 24,
1999 that could reasonably be expected to have a material adverse effect on
the Company, other than any event or change specifically set forth in the
Company's disclosure schedule attached to the Merger Agreement;
(e) any of the representations and warranties of the Company set forth
in the Merger Agreement shall not be true and correct at the date of the
Merger Agreement and at the scheduled or extended expiration of the Offer,
unless the effect of all such failures to be true and correct could not
reasonably be expected to have a material adverse effect on the Company or a
material adverse effect on the consummation of the Offer or the Merger;
(f) the Company shall have failed to perform any obligation or to comply
with any agreement or covenant of the Company to be performed or complied
with by it under the Merger Agreement or the Company Option Agreement,
unless the effect of all such failures to perform or comply could not
reasonably be expected to have a material adverse effect on the Company or a
material adverse effect on the consummation of the Offer or the Merger;
(g) any required regulatory approval or other third party consent,
authorization or approval which, if not obtained in connection with the
consummation of the transactions contemplated hereby, could reasonably be
expected to have a material adverse effect on the Company, shall not have
been obtained, declared or filed or have occurred, as the case may be, or
any such required regulatory approval or other third party consent,
authorization or approval shall not be in full force and effect;
(h) the Board (i) shall have withdrawn, or modified or changed in a
manner adverse to Parent or Purchaser (including by amendment of the
Schedule 14D-9) its recommendation of the Offer, the Merger Agreement or the
Merger, (ii) shall have recommended a Company Takeover Proposal or
Alternative Transaction, (iii) shall have adopted any resolution to effect
any of the foregoing or (iv) upon the request of Parent or Purchaser, shall
have failed to reaffirm its approval or recommendation of the Offer, the
Merger Agreement or the Merger within two business days;
(i) any person or "group" (within the meaning of Section 13(d)(3) of the
Exchange Act), other than Parent, Purchaser or their affiliates or any group
of which any of them is a member, shall have acquired or announced its
intention to acquire beneficial ownership (as determined pursuant to
Rule 13d-3 promulgated under the Exchange Act) of 10% or more of the Shares
and, in the good faith judgment of Parent or Purchaser in its sole
discretion, made it inadvisable to proceed with such acceptance of shares
for payment or the payment therefor; provided that this condition shall not
apply upon satisfaction and maintenance of the Minimum Condition;
(j) the Company shall have commenced a case under any chapter of Title
XI of the United States Code or any similar law or regulation; or a petition
under any chapter of Title XI of the United States Code or any similar law
or regulation shall have been filed against the Company which is not
dismissed within two days;
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(k) the Stockholders Agreement shall not have been executed by each of
the parties thereto other than Parent and Purchaser;
(l) a Distribution Date shall have occurred under the Rights Agreement;
or
(m) the Merger Agreement shall have been terminated by Parent or the
Company pursuant to its terms.
The foregoing conditions are for the sole benefit of Parent and Purchaser
and may be asserted by Parent and Purchaser regardless of the circumstances
giving rise to any such condition or may be waived by Parent and Purchaser in
whole or in part at any time and from time to time; provided, however, that
Purchaser shall not reduce the Minimum Condition below a majority of the
outstanding Shares on a fully diluted basis without the prior written consent of
the Company. The failure by Parent or Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right, the waiver
of any such right with respect to particular facts and other circumstances shall
not be deemed a waiver with respect to any other facts and circumstances, and
each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time.
Should the Offer be terminated pursuant to the foregoing provisions, all
tendered Shares not previously accepted for payment shall forthwith be returned
by the depositary identified in Purchaser's Schedule 14D-1 to the tendering
stockholders.
AMENDMENT. The Merger Agreement may be amended by the parties, by action
taken or authorized by their respective Boards of Directors, at any time before
or after approval of the matters presented in connection with the Merger by the
stockholders of the Company, but, after any such approval, no amendment shall be
made which by law requires further approval by such stockholders without such
further approval. The Merger Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
OTHER AGREEMENTS. The Company and Parent have agreed to cooperate with each
other and use (and shall cause their respective subsidiaries to use) their best
efforts to take or cause to be taken all actions, and do or cause to be done all
things, necessary, proper or advisable on their part under the Merger Agreement
and applicable laws to consummate and make effective the Merger and the other
transactions contemplated by the Merger Agreement, the Company Option Agreement
and the Stockholders Agreement as soon as practicable, including (i) preparing
and filing as promptly as practicable all documentation to effect all necessary
applications, notices, petitions, filings, tax ruling requests and other
documents and to obtain as promptly as practicable all consents, waivers,
licenses, orders, registrations, approvals, permits, tax rulings and
authorizations necessary or advisable to be obtained from any third party and/or
any governmental entity in order to consummate the Merger or any of the other
transactions contemplated by the Merger Agreement, the Company Option Agreement
or the Stockholders Agreement and (ii) taking all reasonable steps as may be
necessary to obtain all such consents, waivers, licenses, registrations,
permits, authorizations, tax rulings, orders and approvals.
TIMING. The exact timing and details of the Merger will depend upon legal
requirements and a variety of other factors, including the number of Shares
acquired by Purchaser pursuant to the Offer. Although Parent has agreed to cause
the Merger to be consummated on the terms and subject to the conditions set
forth above, there can be no assurance as to the timing of the Merger.
THE COMPANY OPTION AGREEMENT.
The Company has granted to Purchaser the Company Option to purchase that
number of Shares (the "Company Option Shares") equal to the lowest number of
Shares that, when added to the number of Shares owned by Purchaser at the time
of such exercise, shall constitute one share more than 90% of the Shares then
outstanding (assuming issuance of the Company Option Shares) at a price equal to
$10.00 per share. Parent may not exercise the Company Option unless and until it
has accepted for payment pursuant
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to the Offer Shares constituting more than 85% but less than 90% of the Shares
then outstanding. In addition, Parent may not exercise the Company Option unless
immediately after such exercise Purchaser would own more than 90% of the Shares
then outstanding. Moreover, Parent may not exercise the Company Option after the
earliest to occur of (i) the Effective Time, (ii) the date which is ten business
days after the occurrence of the Company Option Exercise Event (or such later
date on which the closing of a purchase of Shares pursuant to the Company Option
Agreement may be consummated), or (iii) the termination of the Merger Agreement.
THE STOCKHOLDERS AGREEMENT.
Prior to the execution of the Merger Agreement, Purchaser and Parent entered
into a Stockholders Agreement with the Selling Stockholders. The Selling
Stockholders beneficially own an aggregate of 1,178,869 Shares. Pursuant to the
Stockholders Agreement, each Selling Stockholder has agreed to tender all of his
Shares pursuant to and in accordance with the terms of the Offer not later than
the tenth business day after commencement of the Offer.
During the term of the Stockholders Agreement, no Selling Stockholder may
(a) except pursuant to the Stockholders Agreement, offer for sale, sell,
transfer, tender, pledge, encumber, assign or otherwise dispose of, or enter
into any contract, option or other arrangement with respect to the foregoing,
(b) except as contemplated by the Stockholders Agreement, grant any proxies or
powers of attorney, deposit any Shares into a voting trust or enter into a
voting agreement with respect to such Selling Stockholders' Shares, or (c) take
any action that would reasonably be expected to make any representation or
warranty of such Stockholder contained in the Stockholders Agreement untrue or
incorrect in any material respect or have the effect of preventing or disabling
such Stockholder from performing his or its obligations under the Stockholders
Agreement.
During the term of the Stockholders Agreement, each Selling Stockholder has
agreed not to directly or indirectly, solicit or encourage the initiation of
(including by way of furnishing information) any inquiries or proposals
regarding any merger, sale of assets, sale of shares of capital stock or similar
transaction involving the Company or any of its subsidiaries that if consummated
would constitute an Alternative Transaction.
During the term of the Stockholders Agreement, each Selling Stockholder has
agreed to vote each of his Shares at any annual, special or adjourned meeting of
the stockholders of the Company (a) in favor of the Merger Agreement and the
transactions contemplated thereby, and (b) against (i) any Alternative
Transaction, (ii) any proposal or action that would reasonably be expected to
result in a breach of any covenant, representation or warranty of the Company
set forth in the Merger Agreement, or (iii) any proposal or action that is
intended or would reasonably be expected to impede, interfere with, delay or
materially and adversely affect the Merger or any of the other transactions
contemplated by the Merger Agreement or the Stockholders Agreement. Each Selling
Stockholder also has given Parent an irrevocable proxy with respect to his
Shares.
The Stockholders Agreement will terminate on the earlier of (a) the date on
which the Merger Agreement is terminated in accordance with its terms, and
(b) the Effective Time.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) RECOMMENDATION OF THE BOARD OF DIRECTORS. At meetings held on
October 20, 1999, the Board reviewed the status of the acquisition discussions
with Parent. At those meetings, Broadview International LLC ("Broadview")
delivered its opinion to the Board that, as of the date of such opinion and
based upon and subject to certain matters stated in such opinion, the Offer
Price was fair to the Company's stockholders from a financial point of view. A
copy of Broadview's opinion letter dated October 20, 1999 (the "Fairness
Opinion") is attached as Annex B to this Statement and is incorporated into this
Statement by reference. The Fairness Opinion is described in more detail at
Item 8(b)(3) below. At the conclusion of the meetings, the Board adopted
resolutions (i) approving the Merger Agreement, the Company Option
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Agreement, the Stockholders Agreement, the Offer and the Merger,
(ii) determining, as of the date of the meetings, that the terms of the Offer
and the Merger are fair to, and in the best interests of, the Company's
stockholders, (iii) recommending that the Company's stockholders accept the
Offer, tender their shares pursuant to the Offer and approve the Merger
Agreement (if required), and (iv) approving the acquisition of Shares by
Purchaser pursuant to the Offer and the other transactions contemplated by the
Merger Agreement.
(B) BACKGROUND OF THE OFFER; REASONS FOR RECOMMENDATION.
BACKGROUND. At a Board meeting on January 14, 1999, the Board discussed
engaging Broadview to pursue a proactive corporate development program and
explore alternatives to maximize the stockholder value of the Company and
authorized the Company's management to enter into an engagement letter with
Broadview. The Board discussed at length the increasingly competitive market for
its products, its product development efforts, including certain delays it had
experienced introducing its new products to the market, and its recent shortfall
in revenues and earnings for the quarter ended December 25, 1998. Consideration
was given to mergers, acquisitions, other business combinations and the
potential sale of the Company. Pursuant to a letter agreement, dated
February 24, 1999, Premisys engaged Broadview to pursue these alternatives to
maximize the stockholder value of the Company.
During the course of its engagement, Broadview explored approximately four
possible minority investment opportunities and the acquisition of other
companies and technologies by the Company as a way to increase the value of the
Company. However, no such opportunities were compelling enough for the Company
to pursue. The options available to the Company with respect to minority
investments in, and acquisitions of, other companies were limited due to the
market capitalization of the Company and the significant valuations that many of
the privately held telecommunications companies were receiving in the
marketplace relative to the Company's valuation.
From the commencement of the engagement through October 1999, Broadview also
continued to explore potential business combinations on behalf of the Company.
During the course of its engagement, Broadview made contacts with 14 potential
acquirers. In determining which companies to approach, Broadview considered the
strategic importance of the Company's business to the proposed acquirer and the
financial capability of the proposed acquirer to consummate a business
combination with the Company. Due to the financial performance of the Company's
business, as well as negative competitive considerations related to the
Company's business, most of the prospects declined to seriously consider the
potential of a transaction with the Company. However, direct meetings were held
with four prospects (excluding Parent), culminating in series of discussions
regarding a potential transaction with some of these prospects. No agreement or
commitment to enter into any agreement was made with any of these companies,
because these meetings either did not result in meaningful negotiations or did
not result in a formal offer. The reasons for ending discussions included, but
were not limited to, the failure of the other party to continue to pursue a
transaction, management and its advisors' judgment, in different instances, that
the other party was not likely to be capable of financing its proposed
transaction, that the risk involved in the potential transaction was not
acceptable or that the potential acquirer's business made an attractive
transaction unlikely, as well as a variety of other factors.
During February and March 1999, representatives of management of Company A
had several conversations with management of the Company regarding the
exploration of a possible business combination between their companies. No
specific proposals were pursued at that time.
At a Board meeting on April 14, 1999, the Board discussed the final form of
the Broadview Agreement, as well as the preliminary conversations management and
Broadview had had as of that date regarding possible merger and acquisition
opportunities. The Board also discussed with management the Company's fiscal
2000 operating plan.
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On June 16, 1999, Mory Ejabat, who later became Parent's President and Chief
Executive Officer, met with Nicholas J. Williams, the Company's President and
Chief Executive Officer, at the Company's offices to discuss Mr. Ejabat's
intention to resign as President and Chief Executive Officer of Ascend
Communications, Inc. ("Ascend") following Ascend's then-pending acquisition by
Lucent Technologies, Inc. At this meeting, Mr. Ejabat expressed an interest in
the Company's technology and product offerings.
Mr. Ejabat and certain other members of the former management team of Ascend
formed Parent in June 1999.
On July 13, 1999, Mr. Williams received a telephone call from a third party
who indicated that Mr. Ejabat may be interested in Parent acquiring the Company.
On July 13, 1999, in response to this information, Broadview placed a telephone
call to Mr. Ejabat and informed him of its representation of the Company and
inquired as to Mr. Ejabat's interest in pursuing discussions with the Company
regarding a possible business combination. During this conversation, Mr. Ejabat
indicated an interest in starting a dialogue with Mr. Williams and recommended
that Broadview contact Parent's financial advisor, Credit Suisse First Boston
Corporation ("CSFBC").
On July 16, 1999, representatives of the Company began discussions with
Company B regarding a possible business combination between the two companies.
Between July 16, 1999 and September 21, 1999, representatives of management of
Company B and their financial advisors and representatives of the Company and
Broadview held multiple meetings to discuss a possible business combination and
to perform due diligence regarding the Company. In connection with these
meetings, the Company supplied Company B with information regarding the
Company's business, financial condition and prospects.
On July 16, 1999, Mr. Williams, Mr. Ejabat, Jeanette Symons, Parent's Vice
President Research and Development and Chief Technical Officer, and a
representative of Broadview met at Broadview's offices. The parties exchanged
information on the Company's financial condition, the strategies and prospects
of its business and the possibility of a business combination. A subsequent
telephone conversation was held on July 19, 1999 involving Mr. Ejabat,
Ms. Symons and a representative of Broadview to discuss the synergies between
the companies and the possibility of a business combination.
At a Board meeting on July 22, 1999, the Board discussed the preliminary
conversations management and Broadview had had as of that date regarding the
possible acquisition of the Company. Management indicated that it was pursuing
conversations with a number of possible acquirers. The Board discussed at length
the Company's disappointing financial results for the fourth quarter of fiscal
1999, the increasingly competitive market for the Company's products, the
consolidation within the Company's industry and the Company's product
development efforts. The Board agreed that management should continue to explore
possible merger and acquisition alternatives that could maximize stockholder
value.
From July 19 to September 2, 1999, Mr. Williams, Mr. Ejabat, together with
representatives of Broadview and CSFBC, held multiple meetings and telephone
conversations to discuss a possible business combination between the two
companies.
On August 5, 1999, members of the Company's marketing and engineering
organizations met with members of the marketing and engineering organizations of
Company C to discuss a possible business relationship. During August 1999,
members of management of the Company had various conversations with members of
management of Company C to discuss a possible business combination. At the end
of August 1999, Company C advised the Company that it was not interested in
pursuing a business combination.
On August 27, 1999, representatives of the Company were contacted by
representatives of Company D regarding Company D's desire to explore a possible
business combination. From August 27, 1999 until September 14, 1999, several
meetings and conversations were held between representatives of the Company and
Broadview, on the one hand, and Company D and its financial advisors, on the
other hand. In connection with these meetings, the Company supplied Company D
with information in connection with Company D's due diligence investigation.
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In late August 1999, members of management of Company A again discussed with
members of management of the Company a possible business combination. Between
late August 1999 and early September 1999, representatives of the Company and
Broadview engaged in several conversations with members of management of
Company A regarding the possibility of pursuing such a business combination.
However, in early September 1999, Company A advised management of the Company
that Company A had decided not to pursue a business combination with the
Company.
On September 2, 1999, members of Parent's technical staff met with members
of the Company's technical staff at the Company's offices to conduct due
diligence and to discuss issues related to the Company's organization,
technology and product offerings.
From September 2, 1999 to September 20, 1999, the Company provided Parent
with certain information regarding the Company, as part of Parent's preliminary
due diligence review of the Company and in order to assist Parent in its
valuation analysis of the Company. During the course of this investigation,
representatives of Parent reviewed documentation and conducted discussions with
the Company's management and other representatives concerning the Company's
financial condition, operations, technology, products and other business and
legal matters. During this same period of time, discussions were held between
Mr. Williams and representatives of Broadview, on the one hand, and Mr. Ejabat
and representatives of CSFBC, on the other hand, regarding parameters and terms
of a potential transaction, including price, and the structure of the possible
transaction.
On September 14, 1999, Company D discussed with the Company a possible
business combination in which Company D would make a cash tender offer for the
Company at a price that approximated the then current trading price of the
Company's Common Stock. The Company discussed with Company D its concerns about
the possible price of the proposal and the ability of Company D to consummate
the offer contemplated by the proposal, given Company D's existing cash reserves
and prospects for receiving financing.
Between September 14, 1999 and October 6, 1999, Broadview and
representatives of the financial advisors to Company D discussed a possible
business combination between the Company and Company D, including the Company's
concerns regarding the level of any proposed offer price and the ability of
Company D to finance such an offer.
On September 20, 1999, the Company and Parent executed a non-disclosure
agreement pursuant to which Parent agreed, among other things, to keep the
existence of the parties' discussions confidential, not to disclose financial,
technical and other business information of the Company, and not to solicit or
hire employees of the Company for at least six months.
Also on September 20, 1999, Mr. Williams and Mr. Ejabat, together with their
respective financial advisors, held a meeting to discuss the possible business
combination between the two companies. At this meeting, the parties discussed
the terms of a potential transaction, including price, but did not come to any
agreement.
On September 21, 1999, Company B informed the Company that it had determined
not to pursue further discussions with the Company regarding a possible business
combination.
On September 21, 1999, the Board met telephonically and Broadview reviewed
the status of discussions with potential acquirers. Broadview advised the Board
that Company A, Company B and Company C had each indicated that they were not
interested in pursuing a business combination with the Company and that the only
remaining active discussions with potential acquirers were being held with
Parent and Company D. Broadview summarized the status of discussions with these
two companies. The Board instructed Broadview to proceed with discussions with
interested potential acquirers, including Parent and Company D.
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On September 22, 1999, representatives of CSFBC and Broadview participated
in a conference call to discuss the agenda for the meeting of the Board then
scheduled for September 23, 1999. Broadview indicated that the Board meeting
would be held to allow Broadview to update the Board on Broadview's process of
evaluating possible acquisition transactions, including Parent's proposal.
On September 24, 1999, Broadview reported back to Parent, through its
financial advisor, that the Board meeting had been rescheduled, but that
Broadview had inquired of the Board members' interest in a business combination
with Parent. According to Broadview, the Board was not prepared to respond to
Parent's proposal and needed more time to analyze the Company's revised business
plan. On the same day, Parent received additional due diligence materials from
the Company, including the Company's fiscal 2000 financial projections.
On September 27, 1999, Broadview reported to Parent, through its financial
advisor, that the Company's management would be holding a weekend meeting to
update the Board on discussions with all parties, including the opportunity to
enter into a transaction with Parent.
On September 28, 1999, at the direction of Parent and the Company, the
parties' advisors discussed the proposed terms of an exclusivity agreement under
which the Company would agree to not solicit proposals from other potential
buyers.
From September 28 through October 3, 1999, the parties and their respective
advisors continued to negotiate the terms of a potential transaction, including
price, but did not come to any agreement. During this period, Parent proposed an
acquisition of the Company for $10.00 per share, which was characterized as
Parent's "best and final" offer price, subject to the satisfactory completion of
due diligence, execution of definitive agreements, as well as other customary
conditions.
On October 1, 1999, the Board met to review the Company's revised operating
plan for fiscal 2000 and to consider the status of management's discussions with
potential acquirers, including consideration of Parent's proposal to acquire the
Company for $10.00 per share, in cash, subject to the satisfactory completion of
due diligence and execution of definitive agreements, as well as other customary
conditions to closing. Fenwick & West LLP, counsel to the Company, advised the
Board regarding its fiduciary duties. Broadview summarized the status of its
discussions with the 14 companies with which it had made contact, including the
proposal from Parent and Company D. Broadview discussed its concerns regarding a
possible transaction with Company D given the level of the proposed offer price
which was then being discussed and the difficulties Broadview perceived in
Company D's ability to secure financing to complete any proposed offer.
Broadview also discussed the stock price performance of the Company during the
preceding year, the premiums implied by Parent's proposal and the level of
premiums paid in various merger and acquisition transactions since 1997 for
public companies that market and sell hardware. Broadview indicated that it
believed it had contacted all potential strategic buyers of the Company. The
Board discussed at length the status of the conversations of management,
Broadview and Fenwick & West LLP regarding the preliminary proposal from Parent,
which was perceived by Broadview and the management of the Company as the best
alternative among those that were available. The Board discussed the Company's
financial prospects, including its marketing and new product development
efforts, as well as the challenges facing the Company as an independent entity.
The Board discussed the financial plan for fiscal 2000 that management had
presented to it earlier in the day, and the various risks associated with
achieving the projections included in the financial plan. The Board noted the
Company's inability to achieve operating results that met or exceeded its
operating plan for fiscal 1999, as well as the operating plan for the first
quarter of fiscal 2000. Given this situation, the Board expressed concern about
the ability of the Company to achieve its operating results for the remainder of
fiscal 2000. In particular, the Board discussed the significant competition the
Company had faced recently and the reliance in its fiscal 2000 operating plan on
revenues from the Company's new products, which had not generated significant
revenues to date. The Board noted that the Company had been behind in its
development of its new products, and had therefore been late in introducing
these products to the market, which increased the
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risks associated with achieving its financial plan, especially given the
significant competition in the markets for these products. The Board also
discussed the consolidation in the telecommunications equipment industry and
difficulties it faced competing in this market, given its smaller size. The
Board noted that while some of the largest telecommunications equipment
suppliers, such as Lucent and Motorola, purchased products from the Company,
these companies did not consider the Company strategic enough to partner with on
a larger scale. The Board also discussed the Company's search for technologies
to acquire that would increase its strategic value, and the Company's inability
to locate any such technologies at prices that were affordable, especially given
the recent trading prices of the Company's Common Stock. The Board also
discussed the decline in sales of the Company's core product, the IMACS, and the
likelihood that sales of this product would not grow significantly in the future
and could in fact continue to decline.
The Board agreed that, even though it did not accept the price being
proposed by Parent in connection with the proposed transaction, the Company
should continue to discuss a possible business combination with Parent.
Therefore, based on the foregoing discussions, the Board authorized management
to proceed with the negotiation and execution of an agreement with Parent
regarding a limited period of exclusive discussions between the companies, on
the terms discussed by the Board at the meeting, and to continue negotiations
regarding an acquisition of the Company by Parent.
On October 3, 1999, Parent and the Company signed the exclusivity agreement,
which provided for a 21-day period during which the Company would not solicit
proposals from other potential buyers.
From October 4, 1999 to October 11, 1999, Parent's representatives conducted
on-site financial, accounting and legal due diligence at the Company. They
reported their findings to Parent and its potential investors at a meeting held
on October 11, 1999. Parent continued its diligence process during the following
week, making due diligence calls to certain customers of the Company.
On October 6, 1999, Company D advised the Company that it had determined not
to proceed with a business combination with the Company.
On October 8, 1999 a draft of an agreement with respect to Parent's proposal
was provided to legal counsel for the Company by legal counsel for Parent. Over
the subsequent twelve day period, the parties, through their representatives,
negotiated the terms and conditions of the draft agreement. Extensive
negotiations were conducted regarding the closing conditions, amount of the
break-up fee, the circumstances under which the break-up fee would be payable
and the covenants and representations of the Company, as well as other terms.
On October 13, 1999, at its regularly scheduled meeting, the Board reviewed
the results of the first quarter of fiscal 2000 and its earnings announcement to
be released that day. The Board also discussed with Broadview and legal counsel
the status of the negotiations with Parent.
On October 15, 1999, Parent and the Company and their respective advisors,
as well as certain potential investors in Parent, held a business due diligence
meeting at Broadview's offices. At this meeting, the Company provided further
information on its financial condition, the strategy and prospects for its
business, and synergies between the companies.
On October 15, 1999 and again on October 18, 1999, the Board met
telephonically with Broadview and legal counsel to discuss the status of the
negotiations with Parent.
From October 15, 1999 to October 20, 1999, Parent and its representatives
continued their due diligence investigation.
On October 20, 1999, the Board met telephonically to consider Parent's
proposal, as well as to review Broadview's Fairness Opinion. Broadview indicated
that Parent had sufficient financing available in order to complete the Offer
and the Merger as proposed and indicated that Parent's Board had voted to
approve entering into the Merger Agreement and going forward with the Offer and
the Merger. Broadview
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delivered to the Board its Fairness Opinion to the effect that the Offer Price
of $10.00 per share, was fair, from a financial point of view, to the Company's
stockholders and responded to various questions raised by members of the Board
regarding Broadview's opinion. The Board discussed at length various analyses
performed by Broadview, including the ratios of stock price and equity market
capitalization of comparable public companies, the ratios of equity purchase
price to selected historical operating metrics for comparable transactions, the
premiums paid above the seller's equity market capitalization in comparable
transactions, the Company's recent stock price performance and the present value
of the potential future price of shares of the Company's Common Stock based on
management's projections and analysts' estimates of earnings. Certain of these
analyses are discussed in detail in Item 8(b)(3) of this Schedule 14D-9. The
Board also again discussed the alternative of maintaining the Company as a
stand-alone entity and the risks associated with such a strategy, including the
investments that would be required to complete development of the Company's new
products, the risks associated with completing this development and obtaining
market acceptance of these products, the Company's dependence on revenue
generated from its new products in order to achieve its projections for fiscal
2000 and the risks associated with achieving these revenue projections given the
recent introduction of these products. The Board also discussed the Company's
inconsistent operating performance over the preceding year, its failure to
achieve expected operating results throughout that year and the possibility that
its operating performance could continue to be inconsistent in the future. The
Board discussed the impact of this inconsistency on the Company's stock price
and its expectations that this inconsistency would likely continue to adversely
affect the Company's stock price until the Company is able to demonstrate
sustained revenue growth and more predictable operating results. The Board also
discussed the risks associated with achieving these goals, the volatility of the
stock market in general and the risks that the Company's stock price could be
adversely affected by continued volatility. After considering the terms of the
proposed transaction, the opinion of Broadview and the current trading price of
the Company's Common Stock, the Board instructed Broadview to continue
negotiating the proposed price with Parent.
Broadview contacted Parent, through its financial advisor, to inform Parent
of the Board's desire to increase the Offer Price. Mr. Ejabat subsequently
contacted Mr. Williams to inform him that Parent was not willing to increase the
Offer Price beyond what had already been offered, noting that the $10.00 offer
price continued to be Parent's "best and final" offer price. CSFBC contacted
Broadview and delivered the same message. The Board reconvened to discuss the
progress in negotiations since its earlier meeting. During this meeting, after
much deliberation about the potential prospects for the Company as described
above, the Board unanimously decided to recommend that the Company accept the
terms and conditions of the Offer, as set forth in the Merger Agreement, the
Company Option Agreement, the Stockholders Agreement, the Offer and the Merger,
determining, as of the date of the meeting, that the terms of the Offer and the
Merger were fair to, and in the best interests of, the Company's stockholders,
recommending that the Company's stockholders accept the Offer, tender their
Shares pursuant to the Offer and approve the Merger Agreement (if required), and
approving the acquisition of Shares by Purchaser pursuant to the Offer and the
other transactions contemplated by the Merger Agreement.
Following this approval, the Company and Parent finalized, executed and
delivered the Merger Agreement, the Company Option Agreement and the
Stockholders Agreement.
On October 21, 1999, the Company and Parent issued a joint press release
announcing the execution of the Merger Agreement and the terms of the Merger.
CERTAIN BUSINESS RELATIONSHIPS. The Company has a strategic relationship
with Paradyne Networks, Inc. ("Paradyne") that involves the joint marketing and
sale of the Company's IMACS products by Paradyne. According to the Company's
10-K, sales to Paradyne accounted for 30%, 15% and 29%, respectively, of the
Company's revenue for fiscal years 1997, 1998 and 1999. Paradyne's largest
stockholder is Texas Pacific Group, which together with certain affiliates,
beneficially owns more than 40% of Paradyne's outstanding common stock. Funds
affiliated with Texas Pacific Group also have made significant equity
commitments to Parent and have designated two directors to serve on Parent's
Board of Directors.
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FACTORS CONSIDERED BY THE BOARD. In making the determinations and
recommendations set forth in Item 4(a) above, the Board considered a number of
factors, including, without limitation, the following:
(i) The Offer Price in the Offer and the Merger.
(ii) The possible alternatives to the Offer and the Merger (including
the possibility of continuing to operate the Company as an independent
entity), the range of possible benefits to the Company's stockholders of
such alternatives and the timing and likelihood of accomplishing the goal of
any of such alternatives.
(iii) The Company's prospects if it were to remain independent,
including:
- the Company's fiscal 2000 operating plan and the inherent
uncertainties and contingencies associated with achieving these
financial projections;
- the increasingly competitive nature of the market for the Company's
products, reflected in part in the decline in the Company's
revenues from fiscal 1998 to fiscal 1999;
- the Company's expected dependence during fiscal 2000 on products it
recently has developed and introduced in the market, in particular
its Q-155 product and to a lesser extent its SlimLine and
StreamLine products, and the risks associated with achieving market
acceptance of these products and deriving significant levels of
revenues from these products during fiscal 2000;
- the further investments required by the Company to be made in its
recently introduced Q-155, SlimLine and StreamLine products, its
ability to complete development of these products on a timely basis
and the impact on the Company of delays in developing, or failures
to develop, these products;
- the decline in sales of the Company's core product, the IMACS,
during fiscal 1999 and the likelihood that sales of this product
would not grow significantly in the future and could in fact
continue to decline; and
- the consolidation in the telecommunications equipment industry and
the fact that the Company is smaller than many of the
telecommunications equipment companies with which it competes. The
Board noted that many of the Company's competitors have
substantially greater resources than the Company. The Board
determined that these companies are better able to expend the
significant resources that are required to design, manufacture and
market integrated access devices.
(iv) The fact that Broadview had contacted 14 companies, including
Parent, and that only one other company had significant continued interest
in pursuing an acquisition of the Company and that the terms of the
potential agreement with that company and the valuation discussed with that
company were less favorable than the terms and valuation contemplated by the
Offer and the Merger. In addition, the Board considered its belief that the
prospects for a transaction between the Company and any other potential
unaffiliated strategic or financial third-party buyers were limited due to
the Company's recent and projected future revenues and results of
operations, the status of its product development efforts and the fact that
many potential acquirers already had an adequate substitute for the
technology offered by the Company. In addition, the Board considered the
provisions of the Merger Agreement, which permit it to engage in
negotiations with third parties who submit unsolicited Superior Proposals if
the Board reasonably determines in good faith after consultation with legal
counsel that the Board is reasonably likely to be required to do so in order
to properly discharge its fiduciary duties. See Item 3(b)(2)--"The Merger
Agreement." As a result, the Board concluded that there were no third
parties interested in purchasing the Company for more than $10.00 per share
and the structure of the proposed transaction allows the Company the
opportunity to pursue an alternative
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transaction with a party that is willing to make a superior offer for the
Company prior to the consummation of the proposed transaction.
(v) The Company's failure to achieve its operating plan during fiscal
1999 and the first quarter of fiscal 2000 and its inability to demonstrate
consistent profitability and revenue growth, which highlighted its inability
to generate and sustain the rate of rapid growth generally expected by the
public equity markets for small capitalization companies. The Board also
determined that these factors were likely to adversely affect the trading
markets for, and the value of, the Company's Common Stock in the future.
(vi) Information with regard to the financial condition, results of
operations, business and prospects of the Company, the approval under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 required to consummate
the Offer and the Merger as well as current economic and market conditions
(including current conditions in the industry in which the Company is
engaged).
(vii) The historical and recent market prices of the Shares and the fact
that the Offer and the Merger will enable the holders of the Shares to
realize a 15% premium over the price at which the Shares traded on the
Nasdaq National Market one day prior to the execution of the Merger
Agreement and a 21% premium over the average of the prices at which the
Shares traded on the Nasdaq National Market twenty trading days prior to the
announcement of the Merger.
(viii) The financial analysis and presentation of Broadview, and the oral
opinion of Broadview delivered on October 20, 1999 and confirmed in writing
as the Fairness Opinion, to the effect that, as of such date and based upon
and subject to certain matters stated in such opinion, the $10.00 per Share
Offer Price to be received by holders of Shares was fair to such holders
from a financial point of view. The full text of the Fairness Opinion, which
sets forth the assumptions made, matters considered and limitations on the
review undertaken by Broadview, is attached hereto as Annex B and is
incorporated herein by reference. Background relating to the Fairness
Opinion is set forth below at Item 8(b)(3) - "Opinion of Premisys Financial
Advisor." Such opinion was directed to the Board in its consideration of the
transactions contemplated by the Merger Agreement and is directed only to
the fairness from a financial point of view as of its date of the
consideration to be received by the holders of Shares pursuant to the Offer
and the Merger. SUCH OPINION DOES NOT CONSTITUTE A RECOMMENDATION AS TO
WHETHER OR NOT STOCKHOLDERS SHOULD TENDER THEIR SHARES IN THE OFFER OR, IF A
STOCKHOLDER VOTE IS REQUIRED, HOW SUCH STOCKHOLDERS SHOULD VOTE ON THE
MERGER OR ANY MATTER RELATED THERETO. HOLDERS OF SHARES ARE ENCOURAGED TO
READ THE FAIRNESS OPINION CAREFULLY IN ITS ENTIRETY.
(ix) The various analyses performed by Broadview, including the ratios
of stock price and equity market capitalization of comparable public
companies, the ratios of equity purchase price to selected historical
operating metrics for comparable transactions, the premiums paid above the
seller's equity market capitalization in comparable transactions, the
Company's recent stock price performance and the present value of the
potential future price of shares of the Company's Common Stock based on
management's projections and analysts' estimates of earnings, as described
in more detail in Item 8(b)(3) of this Schedule 14D-9.
(x) The high likelihood that the proposed acquisition would be
consummated, in light of the experience and reputation of Parent and its
executive officers and Parent's financial capabilities, including the
receipt by Parent of sufficient financing in order to consummate the Offer
and the Merger and the lack of a financing contingency in connection
therewith.
(xi) The strategic value of the Company in the hands of a company with
more significant financial resources, such as Parent, that is positioned to
more optimally exploit the Company's assets and enhance its research and
development efforts.
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(xii) The terms of the Merger Agreement, including the circumstances
under which the Board may terminate the Merger Agreement in accordance with
its fiduciary obligations under applicable law and the parties'
representations, warranties and covenants and the conditions to their
respective obligations.
(xiii) The fact that, if the Offer and the Merger are consummated, the
public stockholders of Premisys may not participate in the earnings or
increased value of the Company, if any. Because of the risks and
uncertainties associated with the Company's future prospects, as well as the
volatility of the Nasdaq National Market, the Board concluded that the
Merger was preferable to enabling the holders of the Company's shares to
have a speculative potential future return.
(xiv) The fact that the negotiations were the product of arm's-length
discussions between the Company and Parent, that the negotiations led to an
increase in Parent's proposed per share offer price from $8.50 to $10.00,
that Parent had indicated to the Board that it would not offer more than
$10.00 per share, that the Board believed $10.00 per share was the highest
price Parent would offer and that further negotiation would not result in an
increase to the proposed per share offer price.
The Board did not assign relative weights to the above factors or determine
that any factor was of special importance. Rather, the Board viewed its position
and recommendations as being based on the totality of the information
considered. In addition, it is possible that different members of the Board
assigned different weights to the various factors described above.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to a letter agreement (the "Engagement Letter") dated February 14,
1999, the Company engaged Broadview as its financial advisor with respect to a
possible transaction between the Company and another entity, including the
possible acquisition by the Company of another company's business (a "Buyside
Transaction") or an investment in the Company by another or the sale of the
Company (a "Change of Control Transaction"). Broadview receives a monthly
retainer of $7,500 pursuant to the Engagement Letter, which will be credited
against any Success Fee described in the following sentence. If, during the
period that Broadview is retained by the Company or within 12 months thereafter,
a Buyside Transaction or a Change of Control Transaction is completed, in whole
or in part, with a party introduced or developed by Broadview prior to the
termination date of the Engagement Letter, the Company will pay Broadview a cash
fee (the "Success Fee"). The minimum Success Fee for a Buyside Transaction is
$250,000 and thereafter increases by 1.5% of the consideration paid in the
transaction. In a Change of Control Transaction, the Success Fee ranges from
0.75% of the first $100,000,000 of consideration paid in the transaction to 1.5%
of the consideration over $400,000,000. Broadview has informed the Company that
Broadview estimates the Change of Control Transaction Success Fee in connection
with the Offer and the Merger to be approximately $2,265,000. See Item 8(b)(3)
- -- "Opinion of Premisys' Financial Advisor." Of the Success Fee, 25% was due
upon the rendering by Broadview of its opinion as to the fairness of the
transaction. In addition, the Company agreed to indemnify Broadview against
certain liabilities, including liabilities arising under federal securities laws
and to reimburse Broadview for certain of its expenses incurred in connection
with the Engagement Letter.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(A) TRANSACTIONS WITH AFFILIATES OF THE COMPANY. Except pursuant to the
Company's stock option plans and employee stock purchase plan and the
transactions contemplated by the Offer, the Merger and the Merger Agreement, no
transactions in the Shares have been effected during the past 60 days by the
Company or, to the knowledge of the Company, any of its executive officers,
directors, affiliates or subsidiaries, other than the cancellation of certain
put warrants and call options described below.
On August 31, 1998, the Board authorized the repurchase, at management's
discretion, of up to 4.0 million shares of the Company's Common Stock at market
prices not to exceed $14.00 per share and as
25
<PAGE>
market and business conditions warrant. The primary purpose of this repurchase
program was to increase stockholder value. In connection with this program, on
September 17, 1998, the Company sold 2.0 million put warrants to, and purchased
1.5 million call options from, Goldman Sachs & Co. The Company used the proceeds
from the sale of the put warrants to purchase the call options in a transaction
not requiring any net cash outlay at the time. The put warrants entitled Goldman
Sachs & Co. to sell shares of the Company's Common Stock to the Company at
specified strike prices and exercise dates, while the call options entitled the
Company to buy from Goldman Sachs & Co. shares of the Company's Common Stock at
specified strike prices and exercise dates. Each of the warrants was exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended. Each
transaction was privately negotiated and each offeree and purchaser was an
accredited investor. No public offering or public solicitation was used by the
Company in the placement of these warrants.
On January 26, 1999, the Company dissolved the obligation for 1.0 million
put warrants and 0.75 million call options that were to expire on January 29,
1999. On September 10, 1999, the Company dissolved the remaining 1.0 million put
warrants and 0.75 million call options which were to expire on September 15,
1999. The Company paid $762,000 and $3.7 million, respectively, to Goldman Sachs
& Co. in connection with the dissolution of these obligations in January and
September 1999. All put warrants and call options have been terminated.
(B) INTENTIONS OF AFFILIATES. To the knowledge of the Company, all of its
executive officers, directors, affiliates and subsidiaries currently intend to
tender pursuant to the Offer all Shares held of record or beneficially owned by
them (other than Shares, if any, which if tendered could cause such persons to
incur liability under the provisions of Section 16(b) of the Exchange Act and
Shares issuable upon exercise of stock options that have an exercise price in
excess of the Offer Price or that will not be exercised prior to the Offer or
the Merger).
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(A) NEGOTIATIONS UNDERTAKEN OR UNDERWAY. Except as described in this
Schedule 14D-9 or the Offer to Purchase, to the knowledge of the Company, no
negotiation is being undertaken or is underway by the Company in response to the
Offer, the Merger or the Merger Agreement which relates to or would result in
(i) an extraordinary transaction, such as a merger or reorganization, involving
the Company or any subsidiary of the Company, (ii) a purchase, sale or transfer
of a material amount of assets by the Company or any subsidiary of the Company,
(iii) a tender offer for or other acquisition of securities by or of the
Company, or (iv) any material change in the present capitalization or dividend
policy of the Company.
(B) RESPONSE TO OFFER. Except as described in this Schedule 14D-9, there are
no transactions, board resolutions, agreements in principle, or signed contracts
in response to the Offer, the Merger or the Merger Agreement which relate to, or
would result in, one or more of the matters referred to in clauses (i) through
(iv) of paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(A) CERTAIN INFORMATION. The Information Statement attached as Annex A
hereto and incorporated herein by reference is being furnished in connection
with the possible designation by the Purchaser, 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.
(B)(1) SECTION 203 OF THE DGCL. As a Delaware corporation, the Company is
subject to Section 203 ("Section 203") of the DGCL. Under Section 203, certain
"Business Combinations" (defined generally to include (i) mergers or
consolidations between a Delaware corporation and an Interested Stockholder (as
defined below), (ii) transactions with an Interested Stockholder involving the
assets or stock of the
26
<PAGE>
corporation or its majority-owned subsidiaries and (iii) transactions which
increase an Interested Stockholder's percentage ownership of stock) between a
Delaware corporation whose stock is publicly traded or has more than 2,000
stockholders of record, and an "Interested Stockholder" (defined generally as a
person that is the beneficial owner of 15% or more of a corporation's
outstanding voting stock) are prohibited for a three-year period following the
date that such a stockholder became an Interested Stockholder, unless (i) the
corporation has elected in its original certificate of incorporation not to be
governed by Section 203 (the Company did not make such an election), (ii) the
transaction in which the stockholder became an Interested Stockholder or the
Business Combination was approved by the Board of Directors of the corporation
before the other party to the Business Combination became an Interested
Stockholder, (iii) upon consummation of the transaction that made it an
Interested Stockholder, the Interested Stockholder owned at least 85% of the
voting stock of the corporation outstanding at the commencement of the
transaction (excluding voting stock owned by directors who are also officers or
held in employee benefit plans in which the employees do not have a confidential
right to tender or vote stock held by the plan) or (iv) the Business Combination
was approved by the Board of Directors of the corporation and ratified by
66 2/3% of the voting stock that the Interested Stockholder did not own.
In accordance with the Merger Agreement and Section 203, the Board approved
the Offer, the Merger and the other transactions contemplated by the Merger
Agreement and, therefore, the restrictions of Section 203 are inapplicable to
the Offer, the Merger and the related transactions.
(B)(2) SHORT FORM MERGER. Under Delaware law, if Purchaser acquires,
pursuant to the Offer or otherwise, at least 90% of the outstanding Shares,
Purchaser will be able to effect the Merger after consummation of the Offer
without the vote of the Company's stockholders. However, if Purchaser does not
acquire at least 90% of the outstanding Shares pursuant to the Offer or
otherwise and a vote of the Company's stockholders is required under Delaware
law, a significantly longer period of time will be required to effect the
Merger.
(B)(3) OPINION OF PREMISYS' FINANCIAL ADVISOR.
The following information has been prepared by Broadview, at the request of
the Company, for inclusion in this Statement.
Pursuant to a letter agreement dated as of February 24, 1999, Broadview was
engaged to act as financial advisor to the Board and to render an opinion to the
Board regarding the fairness of the Offer Price, from a financial point of view,
to Premisys stockholders. The Board selected Broadview to act as financial
advisor based on Broadview's reputation and experience in the information
technology, communication and media sector and the communications equipment
industry in particular. At the meeting of the Board on October 20, 1999,
Broadview rendered its written opinion that, as of October 20, 1999, based upon
and subject to the various factors and assumptions, the Offer Price was fair,
from a financial point of view, to Premisys stockholders.
BROADVIEW'S OPINION, WHICH DESCRIBES THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY BROADVIEW, IS ATTACHED AS
ANNEX B TO THIS STATEMENT. PREMISYS STOCKHOLDERS ARE URGED TO, AND SHOULD, READ
THE BROADVIEW OPINION CAREFULLY AND IN ITS ENTIRETY. THE BROADVIEW OPINION IS
DIRECTED TO THE BOARD AND ADDRESSES ONLY THE FAIRNESS OF THE OFFER PRICE FROM A
FINANCIAL POINT OF VIEW TO THE HOLDERS OF SHARES OF PREMISYS COMMON STOCK AS OF
THE DATE OF THE OPINION. THE BROADVIEW OPINION DOES NOT ADDRESS ANY OTHER ASPECT
OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF PREMISYS
COMMON STOCK AS TO WHETHER SUCH STOCKHOLDER SHOULD TENDER HIS, HER OR ITS SHARES
IN THE OFFER OR AS TO HOW SUCH STOCKHOLDER SHOULD VOTE ON THE MERGER. THE
SUMMARY OF THE BROADVIEW OPINION SET FORTH IN THIS STATEMENT, ALTHOUGH
MATERIALLY COMPLETE, IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
27
<PAGE>
In connection with rendering its opinion, Broadview, among other things:
- reviewed the terms of a draft of the Merger Agreement dated October 19,
1999 furnished to Broadview by Latham & Watkins on October 19, 1999
(which, for the purposes of the opinion, Broadview assumed, with the
Board's permission, to be identical in all material respects to the
agreement that was executed);
- reviewed the Company's annual report on Form 10-K for its fiscal year
ended June 25, 1999, including the audited financial statements included
therein;
- reviewed internal and operating information relating to the Company,
including preliminary results for its fiscal quarter ending September 24,
1999 and certain projections through December 31, 2000, prepared and
furnished to Broadview by Premisys managment;
- participated in discussions with Premisys management concerning the
operations, business strategy, current financial performance and prospects
for Premisys;
- discussed with the Company's management its view of the strategic
rationale for the Merger;
- reviewed the recent reported closing prices and trading activity for
Premisys Common Stock;
- compared certain aspects of the financial performance of Premisys public
companies that Broadview deemed comparable;
- analyzed available information, both public and private, concerning other
mergers and acquisitions that Broadview believed to be comparable in whole
or in part to the Transaction;
- reviewed recent equity research analyst reports covering Premisys;
- assisted in negotiations and discussions related to the proposed agreement
and the transactions described therein (the "Transaction") among Premisys,
Parent and their respective financial and legal advisors; and
- conducted other financial studies, analyses and investigations as
Broadview deemed appropriate for purposes of its opinion.
In rendering its opinion, Broadview relied, without independent
verification, on the accuracy and completeness of all the financial and other
information, including without limitation the representations and warranties
contained in the Merger Agreement, that was publicly available or furnished to
Broadview by Premisys. With respect to the financial projections examined by
Broadview, Broadview assumed that they were reasonably prepared and reflected
the best available estimates and good faith judgments of the management of
Premisys as to the future performance of Premisys. For the purposes of its
opinion, except as disclosed to Broadview by Premisys or as disclosed in the
documents that Broadview reviewed, Broadview also assumed that Premisys was not
currently involved in any material transaction as of the date of Broadview's
opinion other than the Transaction and those activities undertaken in the
ordinary course of conducting its business.
Broadview did not make or obtain any independent appraisal or valuation of
any of Premisys' assets. Broadview's opinion is necessarily based upon market,
economic, financial and other conditions as they existed and could be evaluated
as of October 20, 1999, and any change in such conditions since that date may
impact Broadview's opinion.
The following is a brief summary of some of the sources of information and
valuation methodologies employed by Broadview in rendering Broadview's opinion.
These analyses were delivered and presented to the Board at its meeting on
October 20, 1999. This summary includes the financial analyses used by Broadview
and deemed to be material, but does not purport to be a complete description of
analyses performed by Broadview in arriving at its opinion. Broadview did not
explicitly assign any relative weights to the various factors of analyses
considered. This summary of financial analyses includes information
28
<PAGE>
presented in tabular format. In order to fully understand the financial analyses
used by Broadview, 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.
PUBLIC COMPANY COMPARABLES ANALYSIS--Ratios of a company's Common Stock
Share Price and Equity Market Capitalization ("EMC"), adjusted for cash and debt
when appropriate, to selected historical and projected operating metrics
indicate the value public equity markets place on companies in a particular
market segment. Several companies are comparable to Premisys based on revenue
size, products offered, business model and profitability. Broadview reviewed
eleven public company comparables in the Enterprise LAN and WAN Access Equipment
segment with Trailing Twelve Month ("TTM") revenue between $50 million and $350
million, revenue growth less than 20%, and Earnings Before Interest and Taxes
("EBIT") margin between -20% and 20%, from a financial point of view, including
each company's: TTM Revenue; TTM Revenue Growth; TTM EBIT Margin; TTM Net
Margin; Projected 6/30/2000 ("Projected 2000") Revenue; Equity Market
Capitalization ("EMC"); Total Market Capitalization ("TMC" defined as Equity
Market Capitalization minus net cash)/TTM Revenue ("TTM TMC/R") ratio; Price/TTM
EPS ratio ("TTM P/E"); TMC/Projected 2000 Revenue ("Projected 2000 TMC/R")
ratio; and Price/Projected 2000 EPS ratio ("Projected 2000 P/E"). The public
company comparables were selected from the BROADVIEW BAROMETER, a proprietary
database of publicly-traded Information Technology ("IT"), Communications and
Media companies maintained by Broadview and broken down by industry segment.
In order of descending TTM TMC/R, the public company comparables consist of:
1) Advanced Fibre Communications, Inc.;
2) ADTRAN, Inc.;
3) Paradyne Networks, Inc.;
4) PairGain Communications Technologies, Inc.;
5) Computer Network Technology Corp.;
6) Digi International, Inc.;
7) Teltrend, Inc.;
8) Larscom, Inc.;
9) ACT Networks, Inc.;
10) Verilink Corp.; and
11) Madge Networks N.V.
These comparables exhibit the following medians and ranges for the
applicable multiples:
<TABLE>
<CAPTION>
MEDIAN MULTIPLE RANGE OF MULTIPLES
--------------- ------------------
<S> <C> <C>
TTM TMC/R........................................... 0.87x 0.11x - 6.03x
TTM P/E............................................. 36.31x 13.62x - 120.19x
Projected 2000 TMC/R................................ 2.15x 0.16x - 5.69x
Projected 2000 P/E.................................. 28.73x 10.23x - 92.13x
</TABLE>
These comparables imply the following medians and ranges for per share
value:
<TABLE>
<CAPTION>
IMPLIED MEDIAN
VALUE RANGE OF MULTIPLES
-------------- ------------------
<S> <C> <C>
TTM TMC/R............................................. $ 6.26 $ 3.57 - $24.53
TTM P/E............................................... $ 6.03 $ 2.26 - $19.96
Projected 2000 TMC/R.................................. $12.26 $ 3.86 - $27.14
Projected 2000 P/E.................................... $ 6.61 $ 2.35 - $21.19
</TABLE>
29
<PAGE>
TRANSACTION COMPARABLES ANALYSIS--Ratios of Equity Purchase Price, adjusted
for the seller's cash and debt when appropriate, to selected historical
operating metrics indicate the value strategic and financial acquirers have been
willing to pay for companies in a particular market segment. Several companies
involved in recent transactions are comparable to Premisys based on market
focus, business model and size. Broadview reviewed eight comparable merger and
acquisition ("M&A") transactions from January 1, 1997 through October 20, 1999
involving North American sellers providing Enterprise LAN and WAN Access
Equipment with trailing revenue between $20 million and $350 million, from a
financial point of view including each transaction's Adjusted Price (Equity
Price plus debt minus cash); Seller TTM Revenue; and Adjusted Price/TTM Revenue
("P/R") ratio. Transactions were selected from Broadview's proprietary database
of published and confidential M&A transactions in the IT, Communications and
Media industries. In order of descending P/R multiple, the transactions used
were the acquisition of each of:
1) Yurie Systems, Inc. by Lucent Technologies, Inc.;
2) Livingston Enterprises, Inc. by Lucent Technologies, Inc.;
3) Xylan Corp. by Alcatel Alsthom SA;
4) Crosscomm Corp. by Olicom A/S;
5) Telco Systems, Inc. by World Access, Inc.;
6) Digital Link Corp. by DLZ Corp.;
7) Microcom, Inc. by Compaq Computer Corp.; and
8) Shiva Corp. by Intel Corp.
These comparables exhibit the following median and range for the applicable
multiple:
<TABLE>
<CAPTION>
MEDIAN MULTIPLE RANGE OF MULTIPLES
--------------- ------------------
<S> <C> <C>
P/R................................................... 1.78x 0.77x - 14.91x
</TABLE>
These comparables imply the following median and range for per share value:
<TABLE>
<CAPTION>
MEDIAN IMPLIED
VALUE RANGE OF IMPLIED VALUES
-------------- -----------------------
<S> <C> <C>
P/R............................................... $9.48 $ 5.93 - $55.99
</TABLE>
TRANSACTION PREMIUMS PAID ANALYSIS--Premiums paid above the seller's EMC
indicate the additional value, when compared to public shareholders, strategic
and financial acquirers are willing to pay for companies in a particular market
segment. In this analysis, the value of consideration paid in transactions
involving stock is computed using the buyer's last reported closing price (on
the appropriate exchange) prior to announcement. The seller's EMC one trading
day prior to announcement is calculated using the seller's last reported closing
price (on the appropriate exchange) prior to announcement. The seller's EMC
twenty trading days prior to announcement is calculated using the seller's
closing price (on the appropriate exchange) on the first day of that period
which: (i) consists of twenty consecutive days during which the appropriate
exchange conducts trading activity, and (ii) ends on the day of the last
reported closing price prior to announcement. Broadview reviewed 34 comparable
M&A transactions involving North American hardware vendors from January 1, 1997
to October 20, 1999 with equity consideration between $100 million and $500
million. Transactions were selected from Broadview's proprietary database of
published and confidential M&A transactions in the IT, Communications and Media
industries. In order of descending premium paid to seller's equity market
capitalization 20 trading days prior to the date of announcement, the hardware
transactions used were the acquisition of:
1) SEEQ Technology, Inc. by LSI Logic Corp.;
30
<PAGE>
2) ILC Technology, Inc. by BEC Group Inc.;
3) Mylex Corp. by IBM Corp.;
4) Norand Corp. by Western Atlas, Inc.;
5) Summa Four, Inc. by Cisco Systems, Inc.;
6) STB Systems, Inc. by 3Dfx Interactive, Inc.;
7) Trident International, Inc. by Illinois Tool Works, Inc.;
8) Texas Micro, Inc. by RadiSys Corp.;
9) BENCHMARQ Microelectronics, Inc. by Unitrode Corp.;
10) Chips and Technologies, Inc. by Intel Corp.;
11) Brite Voice Systems, Inc. by InterVoice, Inc.;
12) Continental Circuits Corp. by Hadco Corp.;
13) Computational Systems, Inc. by Emerson Electric Co.;
14) Positron Fiber Systems Corp. by Reltec Corp.;
15) DH Technology, Inc. by Axiohm SA;
16) Eltron International, Inc. by Zebra Technologies Corp.;
17) Powerhouse Technologies, Inc. by Anchor Gaming;
18) Shiva Corp. by Intel Corp.;
19) ATL Products, Inc. by Quantum Corp.;
20) Microcom, Inc. by Compaq Computer Corp.;
21) Periphonics Corp. by Nortel Networks Corp.;
22) Advanced Logic Research, Inc. by Gateway 2000, Inc.;
23) Integrated Circuit Systems, Inc. by Bain Capital, Inc. and Bear,
Stearns & Co., Inc.;
24) Exide Electronics Group, Inc. by BTR plc;
25) NetVantage, Inc. by Cabletron Systems, Inc.;
26) Fusion Systems Corp. by Eaton Corp.;
27) Zero Corp. by Applied Power, Inc.;
28) Banctec, Inc. by Welsh, Carson, Anderson & Stowe;
29) Integrated Process Equipment Corp. by SpeedFam International, Inc.;
30) NACT Telecommunications, Inc. by World Access, Inc.;
31) Amati Communications Corp. by Texas Instruments, Inc.;
32) Control Devices, Inc. by First Technology plc;
33) OnTrak Systems, Inc. by Lam Research Corp.; and
34) Diamond Multimedia Systems, Inc. by S3 Inc.;
These comparables exhibit the following medians and ranges for the
applicable premiums (discounts):
<TABLE>
<CAPTION>
MEDIAN MULTIPLE RANGE OF MULTIPLES
--------------- ------------------
<S> <C> <C>
Premium Paid to Seller's EMC One Trading Day
Prior to Announcement..................... 29.8% (13.7%) - 108.7%
Premium Paid to Seller's EMC 20 Trading Days
Prior to Announcement..................... 48.8% (2.5%) - 132.9%
</TABLE>
31
<PAGE>
These comparables imply the following medians and ranges for per share
value:
<TABLE>
<CAPTION>
MEDIAN IMPLIED RANGE OF IMPLIED
VALUE VALUES
-------------- ------------------
<S> <C> <C>
Premium Paid to Seller's per Share Value
One Trading Day Prior to Announcement.... $11.27 $ 7.50 - $18.13
Premium Paid to Seller's per Share Value 20
Trading Days Prior to Announcement....... $13.21 $ 8.66 - $20.67
</TABLE>
PREMISYS STOCK PERFORMANCE ANALYSIS--For comparative purposes, Broadview
examined the following:
1) Premisys Common Stock weekly historical volume and trading prices from
October 16, 1998 through October 15, 1999; and
2) Weekly relative closing prices for an index of the Public Company
Comparables vs. Premisys and the S&P 500 from October 16, 1998 through
October 15, 1999.
PRESENT VALUE OF PROJECTED SHARE PRICE ANALYSIS--Broadview calculated the
present value of the potential future price of shares of Premisys Common Stock
on a standalone basis using both Premisys management projections and analyst
earnings estimates for the twelve months ending June 30, 2000 discounted to
October 20, 1999. The implied share price calculated using the median P/E for
the public company comparables and discounted based on the Capital Asset Pricing
Model ("CAPM") using the median capital structure-adjusted beta for the public
company comparables is $12.88 using Premisys management projections and $8.05
using analyst projections. The implied share price calculated using the median
P/E for the public company comparables and discounted based on CAPM using the
Premisys 60 month historical beta is $12.11 using Premisys management
projections and $7.57 using analyst projections.
CONSIDERATION OF THE DISCOUNTED CASH FLOW VALUATION METHODOLOGY--While
discounted cash flow is a commonly used valuation methodology, Broadview did not
employ such an analysis for the purposes of this opinion. Discounted cash flow
analysis is most appropriate for companies which exhibit relatively steady or
somewhat predictable streams of future cash flow. For a company such as
Premisys, a preponderance of the value in a valuation based on discounted cash
flow will be in the terminal value of the entity, which is extremely sensitive
to assumptions about the sustainable long-term growth rate of the company. Given
the uncertainty in estimating both the future cash flows and a sustainable
long-term growth rate for the Company, Broadview considered a discounted cash
flow analysis inappropriate for valuing Premisys.
In connection with the review of the Merger by the Board, Broadview
performed a variety of financial and comparative analyses. The summary set forth
above does not purport to be a complete description of the analyses performed by
Broadview in connection with the Merger.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Broadview considered the results of all of its analyses as a
whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Broadview believes that selecting any portion of
its analyses, without considering all analyses, would create an incomplete view
of the process underlying its opinion.
In performing its analyses, Broadview made numerous assumptions with respect
to industry performance and general business and economic conditions and other
matters, many of which are beyond the control of Premisys. The analyses
performed by Broadview are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than suggested
by such analyses. The Offer Price to be paid pursuant to the Merger Agreement
and other terms of the Merger Agreement were determined through arm's length
negotiations between Premisys and Zhone, and were approved by the Board.
Broadview provided advice to the Board during such negotiations; however,
Broadview did not recommend any specific Offer Price to the Board or state that
any specific Offer Price constituted the only appropriate Offer Price for the
Merger. In addition, Broadview's opinion and presentation to the Board
32
<PAGE>
was one of many factors taken into consideration by the Board in making its
decision to approve the Merger. Consequently, the Broadview analyses described
above should not be viewed as determinative of the opinion of the Board with
respect to the value of Premisys or of whether the Board would have been willing
to agree to a different Offer Price.
Upon consummation of the Merger, Premisys will be obligated to pay Broadview
a transaction fee of approximately $2,264,550. Premisys has already been
invoiced by Broadview for a fairness opinion fee of $566,000 and monthly
retainer fees. The fairness opinion fee and the monthly retainer fees will be
credited against the transaction fee payable by Premisys upon completion of the
Merger. In addition, Premisys has agreed to reimburse Broadview for its
reasonable expenses, including fees and expenses of its counsel, and to
indemnify Broadview and its affiliates against certain liabilities and expenses
related to their engagement, including liabilities under the federal securities
laws. The terms of the fee arrangement with Broadview, which Premisys and
Broadview believe are customary in transactions of this nature, were negotiated
at arm's-length between Premisys and Broadview, and the Board was aware of the
nature of the fee arrangement, including the fact that a significant portion of
the fees payable to Broadview is contingent upon completion of the Merger.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
Exhibit 1 Letter to Stockholders of Premisys Communications, Inc.,
dated October 27, 1999.*
Exhibit 2 Text of Joint Press Release issued by Zhone
Technologies, Inc. and the Company on October 21, 1999
(incorporated by reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K (File No. 0-25684) dated
October 20, 1999, filed with the Commission on October 26,
1999 (the "Form 8-K")).
Exhibit 3 Summary Advertisement as published in the Wall Street
Journal on October 27, 1999 (incorporated by reference to
Exhibit (a)(8) of the Schedule 14D-1 of Parent).
Exhibit 4 Opinion of Broadview International LLC (included as Annex B
to this Schedule 14D-9).*
Exhibit 5 Non-disclosure Agreement between Premisys
Communications, Inc. and Zhone Technologies, Inc., dated as
of September 20, 1999.
Exhibit 6 Information Statement (included as Annex A to this
Schedule 14D-9).*
Exhibit 7 Agreement and Plan of Merger, dated as of October 20, 1999,
among Premisys Communications, Inc., Zhone
Technologies, Inc. and Zhone Acquisition Corp. (incorporated
by reference to Exhibit 2.1 to the Form 8-K).
Exhibit 8 Company Option Agreement, dated October 20, 1999 among Zhone
Technologies, Inc., Zhone Acquisition Corp. and Premisys
Communications, Inc. (incorporated by reference to
Exhibit 2.2 to the Form 8-K).
Exhibit 9 The Stockholders Agreement, dated October 20, 1999, among
Zhone Technologies, Inc., Zhone Acquisition Corp., Raymond
C. Lin, Boris J. Auerbuch and Nicholas J. Williams
(incorporated by reference to Exhibit 2.3 to the Form 8-K).
Exhibit Employment Agreement, dated March 25, 1999, and related
10 Secured Promissory Note, dated April 29, 1999, between
Premisys Communications, Inc. and Claude DuPuis.
Exhibit Employment Agreement by and between Premisys Communications,
11 Inc. and John J. Hagedorn, dated as of June 1, 1998
(incorporated by reference to Exhibit 10.45 to the Company's
Annual Report on Form 10-K (File No. 0-25684) filed with the
Commission for the fiscal year ended June 26, 1998 (the
"Form 10-K")).
</TABLE>
33
<PAGE>
<TABLE>
<S> <C>
Exhibit Amendment to Employment Agreement by and between Premisys
12 Communications, Inc. and John J. Hagedorn, dated as of
July 14, 1998 (incorporated by reference to Exhibit 10.46 to
the Form 10-K).
Exhibit Employment Agreement by and between Premisys Communications,
13 Inc. and Nicholas Williams dated as of March 31, 1997
(incorporated by reference to Exhibit 10.38 to the Company's
Annual Report on Form 10-K (File No. 0-25684) filed with the
Commission for the fiscal year ended June 27, 1997).
Exhibit 14 The 1995 Directors Stock Option Plan (incorporated by
reference to Exhibit 10.03 to the Company's Registration
Statement on Form S-1 declared effective April 15, 1995
(File No. 33-89598) (the "Registration Statement")).
Exhibit Form of Indemnity Agreement entered into by Premisys
15 Communications, Inc. with its officers and directors
(incorporated by reference to Exhibit 10.08 to the
Registration Statement).
ANNEX A INFORMATION STATEMENT
ANNEX B OPINION OF BROADVIEW INTERNATIONAL LLC
</TABLE>
- ------------------------
* Included with Schedule 14D-9 mailed to stockholders.
34
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
<TABLE>
<S> <C> <C>
PREMISYS COMMUNICATIONS, INC.
By: /s/ John J. Hagedorn
---------------------------------------------
John J. Hagedorn
CHIEF FINANCIAL OFFICER
Dated: October 27, 1999
</TABLE>
35
<PAGE>
ANNEX A
PREMISYS COMMUNICATIONS, INC.
48664 MILMONT DRIVE
FREMONT, CALIFORNIA 94538
------------------------
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED, AND RULE 14F-1
This Information Statement is being mailed on or about October 27 , 1999 as
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Premisys Communications, Inc., a Delaware corporation
("Premisys" or the "Company"), to the holders of record of shares of Common
Stock, par value $0.01 per share, of the Company (the "Shares") at the close of
business on or about October 27, 1999. All references to the Shares in the
Statement include the associated preferred stock purchase rights (the "Rights")
issued pursuant to the Rights Agreement (the "Rights Agreement"), dated as of
September 18, 1998, as amended on October 20, 1999, between the Company and
ChaseMellon Shareholder Services, L.L.C., as Rights Agent. You are receiving
this Information Statement in connection with the possible appointment of
persons designated by Zhone Acquisition Corp., the "Purchaser" described below,
to at least a majority of the seats on the Board of Directors of the Company
(the "Board").
On October 20, 1999, the Company, Zhone Technologies, Inc., a Delaware
corporation ("Parent"), and Zhone Acquisition Corp., a Texas corporation and
wholly owned subsidiary of Parent ("Purchaser"), entered into an Agreement and
Plan of Merger (the "Merger Agreement") in accordance with the terms and subject
to the conditions of which (i) Parent will cause Purchaser, on Parent's behalf,
to commence a tender offer (the "Offer") for all of the outstanding Shares at a
price of $10.00 per Share, net to the seller in cash and without interest
thereon and (ii) the Company will be merged with and into Purchaser (the
"Merger"), with Purchaser to be the surviving corporation at the effective time
of the Merger (the "Effective Time"). As a result of the Offer and the Merger,
the Company will become a wholly owned subsidiary of Parent.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
thereunder. You are urged to read this Information Statement carefully. You are
not, however, required to take any action at this time. Capitalized terms used
in this Information Statement and not otherwise defined herein shall have the
meaning set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, Purchaser commenced the Offer on
October 27, 1999. The Offer is scheduled to expire at Midnight, New York City
time, on November 29, 1999, unless the Offer is extended.
GENERAL INFORMATION REGARDING THE COMPANY.
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of October 15, 1999, there were
24,215,117 Shares outstanding. The Board currently consists of six members. At
each annual meeting of stockholders, each director is elected to hold office
until the next annual meeting of stockholders and until his or her successor has
been elected and qualified or until such director's earlier resignation or
removal. The officers of the Company serve at the discretion of the Board.
A-1
<PAGE>
PROPOSED CHANGES TO THE COMPANY'S BOARD OF DIRECTORS.
Pursuant to the Merger Agreement, promptly upon the acceptance for payment
of, and payment by Purchaser in accordance with the Offer and the Company Option
Agreement provided for in the Merger Agreement for not less than 75% of the
Shares on a fully diluted basis (the "Minimum Condition"), Purchaser will be
entitled to designate such number of members of the Board (the "Purchaser
Designees"), rounded up to the next whole number, that equals (i) the total
number of directors on the Board (giving effect to the directors elected
pursuant to this sentence) multiplied by (ii) the percentage that such number of
Shares owned in the aggregate by Parent or Purchaser, upon such acceptance for
payment, bears to the number of Shares outstanding. However, until the Effective
Time, there shall be at least one Continuing Director (defined below). To effect
the foregoing, the Company will, on the expiration date of the Offer,
(i) either increase the size of the Board or secure the resignations of such
number of its incumbent directors as is necessary to enable the Purchaser
Designees to be so elected to the Board, and (ii) cause the Purchaser Designees
to be so elected, in each case as may be necessary to comply with the foregoing
provisions.
After the time that the Purchaser Designees constitute at least a majority
of the Board and until the Effective Time, any amendment or termination of the
Merger Agreement will require the approval of a majority of the then serving
directors, if any, who are directors as of the date of the Merger Agreement (the
"Continuing Directors"), except to the extent that applicable law requires that
such action be acted upon by the full Board, in which case such action shall
require the concurrence of a majority of the Board, which majority shall include
each of the Continuing Directors. If there is more than one Continuing Director
and prior to the Effective Time, the number of Continuing Directors is reduced
for any reason, the remaining Continuing Director or Directors shall be entitled
to designate persons to fill such vacancies who shall be deemed Continuing
Directors for purposes of the Merger Agreement. In the event there is only one
Continuing Director and he or she resigns or is removed, or if all Continuing
Directors resign or are removed, he, she or they, as applicable, shall be
entitled to designate his, her or their successors, as the case may be, each of
whom shall be deemed a Continuing Director for purposes of the Merger Agreement.
ZHONE DESIGNEES.
Purchaser has informed the Company that it will choose the Purchaser
Designees from the persons listed below. Purchaser has also informed the Company
that each of the Purchaser Designees has consented to act as a director, if so
designated. Biographical information concerning each of the Purchaser Designees
is presented below. Unless otherwise indicated below, the business address of
each person is c/o Zhone Technologies, Inc., 7677 Oakport Street, Suite 1040,
Oakland, California 94621. The following biographical information has been
furnished by Parent, and the Company assumes no responsibility for the accuracy
of completeness of such information.
Mory Ejabat has served as President, Chief Executive Officer and director of
Parent since June 1999. Mr. Ejabat previously served as President, Chief
Executive Officer and director of Ascend Communications, Inc. ("Ascend") from
June 1995 until June 1999. Prior to that, Mr. Ejabat served as Ascend's
President, Chief Operating Officer and director from March 1994 to June 1995, as
Executive Vice President from December 1992 to March 1994 and as Vice President,
Operations from January 1990 to December 1992.
Robert K. Dahl has served as Vice President, Finance, Chief Financial
Officer, Secretary and as a director of Parent since June 1999. Prior to that
time, Mr. Dahl served as a director of Ascend from July 1995 to June 1999. In
addition, Mr. Dahl served as Executive Vice President, Planning of Ascend from
October 1997 to January 1998 and as Vice President of Finance and Chief
Financial Officer of Ascend from January 1994 to October 1997. Mr. Dahl also
serves on the Board of Directors of the Bank of Alameda, Timesink, Inc., Spear
Technologies, Inc. and Northpoint Communications, Inc.
A-2
<PAGE>
Jeanette A. Symons has served as Vice President, Research and Development,
Chief Technical Officer and as a director of Parent since June 1999. Prior to
that time, Ms. Symons served as Executive Vice President of Advanced Products
and Chief Technical Officer of Ascend from June 1995 to June 1999, as Vice
President of Engineering for Ascend from January 1994 to June 1995 and in
various other management positions with Ascend from 1989 to 1993.
James G. Coulter has served as a director of Parent since October 1999. Mr.
Coulter was a founding partner of Texas Pacific Group ("TPG") in 1992 and
continues to hold that position. Mr. Coulter serves on the boards of directors
of Beringer Wine Estates Holdings, Inc., Genesis ElderCare Corporation,
GlobeSpan, Inc., Northwest Airlines, Inc., Oxford Health Plans Inc. and Virgin
Entertainment Group Limited.
James H. Greene, Jr. has served as a director of Parent since October 1999.
Mr. Greene is a member of KKR & Co., LLC, the limited liability company which
serves as the General Partner of Kohlberg Kravis Roberts & Co., L.P. ("KKR").
From January 1, 1993 until January 1, 1996, he was a general partner of KKR. Mr.
Greene also is a director of Accuride Corporation, Birch Telecom, Inc.,
Owens-Illinois, Inc. and Safeway Inc.
Alexander Navab, Jr. has served as a director of Parent since October 1999.
Mr. Navab has been an Executive of KKR since 1993. Mr. Navab is a director of
Borden, Inc., Corning Consumer Products, KSL Recreation Corporation, Birch
Telecom, Inc. and Regal Cinemas.
Robert K. Packard has served as a director of Parent since October 1999.
Mr. Packard has served as a partner of TPG since June 1999. Prior to joining
TPG, Mr. Packard was at BT Alex. Brown Inc. from July 1989 to June 1999, most
recently as a managing director and co-head of its global technology investment
banking group.
John W. Sidgemore has served as a director of Parent since October 1999.
Since June 1994, Mr. Sidgemore has served as President and Chief Executive
Officer of UUNET Technologies, Inc., which is now a subsidiary of MCI WorldCom.
None of the Purchaser Designees (i) is currently a director of, or holds any
position with, the Company, (ii) has a familial relationship with any of the
directors or executive officers of the Company or (iii) to the Company's
knowledge, beneficially owns any securities (or other rights to acquire any
securities) of the Company. The Company has been advised by Parent that, to
Parent's knowledge, none of the Purchaser Designees has been involved in any
transaction with the Company or any of its directors, executive officers or
affiliates that is required to be disclosed pursuant to the rules and
regulations of the Commission, except as may be disclosed herein or in the
Schedule 14D-9.
A-3
<PAGE>
CURRENT DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
DIRECTORS. The names of the Company's directors, and certain information
about them as of October 22, 1999, are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- -------------------------- -------- --------------------------------------------------- --------
<S> <C> <C> <C>
Boris J. Auerbuch 53 Vice President and Chief Technical Officer of 1990
Terawave Communications, Inc.
Patti S. Hart (1) 43 President and Chief Executive Officer of 1999
Telocity, Inc.
Edward A. Keible, Jr. (2) 56 President and Chief Executive Officer of Endgate 1994
Technology Corporation
Raymond C. Lin (1) 45 President and Chief Executive Officer of Terawave 1990
Communications, Inc.
Carol Herod Sharer (2) 48 President, McKinley Marketing Partners 1999
Nicholas J. Williams 52 President and Chief Executive Officer of the 1998
Company
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Mr. Auerbuch has been Vice President and Chief Technical Officer of Terawave
Communications, Inc., a manufacturer of intelligent wave division multiplexing
equipment targeted at local access networks, since July 1999. He had been Senior
Vice President and Chief Technical Officer and a director of the Company since
co-founding the Company in July 1990 until June 1999 and was Senior Vice
President, Engineering of the Company between September 1993 and October 1996
and also between November 1998 and April 1999. Mr. Auerbuch holds Bachelor of
Science and Master of Science degrees in electrical engineering from the Moscow
Institute of Information and Technology, Russia. He is also a member of the
Board of Directors of Terawave Communications, Inc.
Ms. Hart has been a director of the Company since September 1999. Ms. Hart
has been President and Chief Executive Officer of Telocity, Inc. since
May 1999. Prior to joining Telocity, Inc., Ms. Hart was President and Chief
Operating Officer of Sprint Corporation's long distance division from 1998 to
1999. Prior to taking that position, Ms. Hart held numerous marketing and sales
posts at Sprint from 1986 to 1998. She has also held positions at Intecom/Wang,
United Technologies and GTE Corporation from 1978 to 1986. Ms. Hart holds a
Bachelor of Science degree in marketing and economics from Illinois State
University. She is also a member of the Board of Directors of Vantive
Corporation, a provider of e-customer relationship management solutions for
companies.
Mr. Keible has been a director of the Company since November 1994. Since
January 1994, he has been President, Chief Executive Officer and a director of
Endgate Technology Corporation, a telecommunications equipment manufacturer.
From 1973 to June 1993, Mr. Keible held various positions at Raychem
Corporation, an electronics manufacturer, most recently as Senior Vice President
and General Manager, International Sector. Mr. Keible holds a Bachelor of Arts
degree in engineering science, a Bachelor of Engineering degree in materials
science and a Master of Engineering degree in materials science, all from
Dartmouth College, and a Master in Business Administration degree from Harvard
University. Mr. Keible is also a director of the American Electronics
Association, an industry trade association.
Mr. Lin has been a director of the Company since co-founding the Company in
July 1990 and has served as Chairman of the Board of the Company since July
1998. Mr. Lin has been President, Chief Executive Officer and Chairman of
Terawave Communications, Inc., a manufacturer of intelligent wave division
multiplexing equipment, targeted at local access networks, since December 1998.
Mr. Lin was Chief Executive Officer of the Company between July 1990 and July
1998 and served as an employee Chairman of the Board from August 1998 to
December 1998. Mr. Lin holds a Bachelor of Science degree
A-4
<PAGE>
in civil engineering and a Master of Science degree in geotechnical engineering
from the University of California, Berkeley.
Ms. Sharer has been a director of the Company since August 1999. Ms. Sharer
has been President of McKinley Marketing Partners, a professional services firm,
since it was founded by Ms. Sharer in 1996. She was President of McLean Group, a
marketing consulting company specializing in information and telecommunications
technologies, from 1993 to 1995. Prior to entering the consulting field,
Ms. Sharer held several senior vice president positions in marketing at MCI
Telecommunications Corporation from 1991 to 1993. She also has held management
roles in a variety of marketing positions at MCI, US Sprint and AT&T.
Ms. Sharer is a member of the boards of Affinity Media Corporation and TPS Call
Sciences. She holds a Bachelor or Arts degree in economics from Florida
International University and a Master of Business Administration degree in
finance from George Washington University.
Mr. Williams has been Chief Executive Officer and a member of the Board of
Directors of the Company since July 1998 and President of the Company since
April 1997. Mr. Williams also served as Chief Operating Officer of the Company
between April 1997 and July 1998. From 1993 until his move to Premisys,
Mr. Williams was Vice President and General Manager, International of
Tellabs, Inc., a telecommunications company, where he contributed to the growth
of multiple product lines, including the DXX and wireless products. Prior to
joining Tellabs in 1993, he held positions of Vice President and General Manager
of Advanced Technology Division and Vice President of North American Sales at
AT&T Paradyne, a telecommunications equipment company, and his earlier
experience included management positions at IBM. Mr. Williams holds a Bachelor
of Science degree in operations analysis and math from the U.S. Naval Academy.
EXECUTIVE OFFICERS. The current executive officers of the Company, and
their ages, as of October 22, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- --------------------------------------------------------
<S> <C> <C>
Nicholas J. Williams........ 52 President and Chief Executive Officer, Director
Claude Dupuis............... 40 Senior Vice President, Engineering
Robert A. Fyffe............. 45 Senior Vice President, Sales and Marketing
John J. Hagedorn............ 58 Senior Vice President, Finance and Administration, Chief
Financial Officer and Secretary
Robert W. Dilfer............ 55 Vice President and Controller
Stephen Gleave.............. 34 Vice President, Marketing
</TABLE>
For information regarding the positions and offices with the Company held by
Mr. Williams please refer to the discussion regarding directors under
"Directors" above.
Claude Dupuis became Senior Vice President, Engineering in April 1999. He
joined Premisys in July 1997 as Vice President, Engineering for the Company's
Ottawa R&D Center. Prior to joining Premisys, Mr. Dupuis was employed by Nortel
Networks in Ottawa as Director of the SS7 Signaling product line from 1994 to
1997 and by Bell Northern Research from 1981 to 1994 in various staff and
management positions including Senior Manager for both hardware and software
development teams. Mr. Dupuis holds a Bachelor of Science degree in Electrical
Engineering from the University of Ottawa.
Mr. Fyffe has been the Company's Senior Vice President, Sales and Marketing
since July 1998 and was the Company's Vice President North America Sales from
October 1997 to July 1998. He was the Company's Vice President, U.S. Sales from
July 1996 until September 1997. From September 1990 to July 1993, he was Area
Vice President of Sales of Telco Systems, Inc., a telecommunications equipment
manufacturing company. Mr. Fyffe has resigned from the Company effective as of
October 29, 1999. Mr. Fyffe holds a Bachelor of Computer Science degree from ITT
Technical Institute.
A-5
<PAGE>
Mr. Hagedorn joined the Company as Senior Vice President, Finance and
Administration and Chief Financial Officer and Secretary in August 1998. He was
previously the Chief Financial Officer of C-Cube Microsystems Inc. ("C-Cube"), a
manufacturer of digital video semiconductors and systems, from April 1997 to
July 1998. Prior to joining C-Cube, he held CFO positions at IC WORKS, a
semiconductor manufacturing company, from 1994 to 1997 and at Data I/O, a
manufacturer of electronic programming systems, from 1987 to 1993. Mr. Hagedorn
began his high tech career at Intel in 1983. He served as Chief Financial
Officer for Intel Europe from 1986 to 1987. Mr. Hagedorn holds a Bachelor of
Science degree in Industrial Administration from Yale University and a Master of
Business Administration degree from Harvard University.
Mr. Dilfer has been Vice President and Controller of the Company since
July 1992. From July 1980 to June 1992, he held various controller positions at
Signetics Corporation, a semiconductor company. Mr. Dilfer holds a Bachelor of
Science degree in industrial engineering, a Master of Science degree in
industrial engineering and a Master of Business Administration degree, all from
Stanford University.
Mr. Gleave joined the Company in January 1999 as Vice President, Marketing.
Prior to January 1999, Mr. Gleave was Director of Business Development, USA for
Advanced Computer Communications, a division of Ericsson, Inc. from June 1998 to
December 1998. He held several sales and marketing positions at Premisys from
April 1994 to June 1998, including Director of Sales, Western Region and
Director, Corporate Product Marketing. He also held sales and engineering
positions with Newbridge Networks, Ltd. and GEC Plessey Telecommunications, Ltd.
between 1983 and 1994. Mr. Gleave holds a Bachelor of Engineering, Electrical
and Electronic degree from the University of Bristol, Bristol, England.
Effective October 29, 1999, the Company has appointed Larry Asten to Senior
Vice President, Sales to fill the vacancy created by Mr. Fyffe's resignation.
Mr. Asten has been employed by the Company as Vice President, Carrier Sales
since June 1999. Prior to his employment with Premisys, Mr. Asten served as
president and chief executive officer of NETMANSYS Inc., a subsidiary of
NETMANSYS S.A., based in Grenoble, France, a leading supplier of network
management systems for the telecommunications industry from May 1998 to May
1999. From November 1995 to May 1998, he was Senior Vice President, Global Sales
of Vertel Corporation. He has held sales and marketing positions at ADC
Telecommunications, Telco Systems, Alston/Conrac and Northern Telecom since
starting his career with GTE.
BOARD MEETINGS AND COMMITTEES.
The Board met 11 times, including telephone conference meetings, during
fiscal 1999. Only one director, Marino Polestra, attended fewer than 75% of the
aggregate of the total number of meetings of the Board (held during the period
for which he was a director) and the total number of meetings held by all
committees of the Board on which such director served (during the period that
such director served).
Standing committees of the Board include an Audit Committee and a
Compensation Committee. The Board does not have a nominating committee or a
committee performing similar functions.
Mr. Lin and Ms. Hart are the current members of the Audit Committee. Mr.
Polestra and Mr. Morgenthaler served on the Company's Audit Committee from July
1998 to December 1998. Mr. Lin was appointed at that time to fill the vacancy on
the Audit Committee that was created by Mr. Morgenthaler's resignation and
continues to serve on that committee. Ms. Hart was appointed to the Audit
Committee in September 1999 to fill the vacancy created by Marino Polestra's
resignation from the Board and from the Audit Committee in August 1999. The
Audit Committee met four times during fiscal 1999. The Audit Committee meets
with the Company's independent accountants: to review the adequacy of the
Company's internal control systems and financial reporting procedures; to review
the general scope of the Company's annual audit and the fees charged by the
independent accountants; to review and monitor the performance of non-audit
services by the Company's auditors; to review the fairness of any proposed
transaction between any officer, director or other affiliate of the Company and
the Company, and after such review,
A-6
<PAGE>
make recommendations to the full Board; and to perform such further functions as
may be required by any stock exchange or over-the-counter market upon which the
Company's Common Stock may be listed.
Mr. Keible and Ms. Sharer are the current members of the Compensation
Committee. The Compensation Committee consisted of Messrs. Morgenthaler and Tan
from June 1998 to December 1998 and Messrs. Tan and Keible from December 1998
until July 1999. Following Mr. Tan's resignation from the Board in July 1999,
the Compensation Committee consisted of Messrs. Keible and Polestra until
Mr. Polestra's resignation from the Board in August 1999, following which time
the Compensation Committee has consisted of Mr. Keible and Ms. Sharer. The
Compensation Committee met four times during fiscal 1999. The Compensation
Committee recommends compensation for officers and certain other employees of
the Company, grants options and stock awards under the Company's employee
benefit plans (other than grants to non-officers of options to purchase no more
than 25,000 shares in a fiscal year, pursuant to guidelines established by the
Compensation Committee, which may be made by Mr. Williams, the Company's
President and Chief Executive Officer) and reviews and recommends adoption of
and amendments to stock option and employee benefit plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1999, the Compensation Committee consisted of Messrs. Keible
and Tan. Neither of such directors has ever been an officer of the Company.
During fiscal 1999, no executive officer of the Company served on the Board of
Directors, Compensation Committee or any other committee of the Board of
Directors performing similar functions of an entity of which entity either
Mr. Keible or Mr. Tan was an executive officer.
BOARD COMPENSATION.
Director compensation was revised during fiscal 1999 to include cash
compensation to directors for their services in addition to reimbursement for
their reasonable expenses in attending meetings of the board of directors. The
schedule of compensation includes a $12,000 annual retainer, $1,000 per board
meeting fee, $750 per committee meeting fee on the same day as a board meeting,
$1,000 committee meeting fee for meetings not held in conjunction with a board
of directors meeting, and a $2,500 committee chairman retainer. During fiscal
1999, the following cash compensation was paid to the Company's directors.
DIRECTOR CASH COMPENSATION DURING FISCAL 1999
<TABLE>
<CAPTION>
DIRECTOR COMPENSATION
- -------- ------------
<S> <C>
Raymond Lin................................................. $16,125
Edward Keible............................................... 16,000
Patti S. Hart............................................... --
Carol H. Sharer............................................. --
Marino Polestra............................................. 13,250
Lip-Bu Tan.................................................. 13,500
</TABLE>
Non-employee members of the board of directors are also entitled to receive
automatic grants of stock options under the Company's 1995 Directors Stock
Option Plan (the "Directors Plan") as described in more detail below. During
fiscal 1999, the following stock options to purchase shares of the Company's
Common Stock were granted under the Directors Plan to the Company's directors.
A-7
<PAGE>
OPTION GRANTS DURING FISCAL 1999
<TABLE>
<CAPTION>
DIRECTOR NO. OF OPTIONS OPTION EXERCISE PRICE DATE OF GRANT
- -------- -------------- --------------------- --------------
<S> <C> <C> <C>
Patti S. Hart................................. -- -- --
Edward Keible................................. 6,000 $12.9375 Nov. 23, 1998
Raymond Lin................................... -- -- --
Carol H. Sharer............................... -- -- --
Marino Polestra............................... 6,000 $ 8.375 April 6, 1999
Lip-Bu Tan.................................... 6,000 $ 8.375 April 6, 1999
</TABLE>
All shares granted under the Directors Plan vest in four equal annual
increments on the anniversary of the grant date. The vesting of options granted
under the Directors Plan accelerate upon certain change in control transactions,
including a merger in which the Company is not the surviving corporation.
Therefore, the options held by the Company's directors that were granted under
the Directors Plan will accelerate upon the Merger of the Company with and into
Purchaser, if the Offer and the Merger are completed.
Subsequent to the end of fiscal 1999, Carol Sharer and Patti S. Hart were
elected to fill vacancies on the Board of Directors created by the resignations
of Marino Polestra and Lip-Bu Tan. Both Ms. Sharer and Ms. Hart were granted
options to purchase 25,000 shares of the Company's Common Stock. Ms. Sharer was
automatically granted options to purchase 24,000 shares of the Company's Common
Stock under the Directors Plan and was granted options to purchase 1,000 shares
of the Company's Common Stock under the 1994 Stock Option Plan at exercise
prices of $6.50 and $6.9375 per share, respectively. Ms. Hart was automatically
granted options to purchase 24,000 shares of the Company's Common Stock under
the Directors Plan and options to purchase 1,000 shares of the Company's Common
Stock under the 1994 Stock Option Plan exercise prices of $8.625 per share. The
shares granted under the 1994 Stock Option Plan vest 25% on the first
anniversary of the grant date and at the rate of 2.083% monthly thereafter.
During fiscal 1999, the Board recommended that the initial grant upon
election to the Board under the Directors Plan be increased to 25,000 shares
from 24,000 shares, that annual re-election grants be increased to 10,000 shares
from 6,000 shares and that annual re-election grants be granted at the re-
election of board members at the annual stockholder meeting rather than on the
anniversary of the date of the board member's initial election to the Board. All
of these changes are subject to stockholders approval at the next meeting of
stockholders.
EXECUTIVE COMPENSATION.
The following table sets forth all compensation awarded to or earned or paid
for services rendered in all capacities to the Company by the Company's Named
Executive Officers (as defined below under "Security Ownership of Certain
Beneficial Owners and Management") during fiscal 1996, 1997 and 1998. This
information includes the dollar values of base salaries and bonus awards, the
number of shares subject to stock options granted and certain other
compensation, whether paid or deferred.
A-8
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
-------------------------------------------- SECURITIES
NAME AND PRINCIPAL POSITION OTHER ANNUAL UNDERLYING ALL OTHER
DURING FISCAL 1999 YEAR SALARY($) BONUS (1) ($) COMPENSATION(2) OPTIONS COMPENSATION(3) ($)
- --------------------------- -------- --------- ------------- ---------------- ------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Nicholas J. Williams.......... 1999 $272,000 -- $ 375,000 125,000 --
President and Chief Executive 1998 225,000 $105,000 375,000 -- --
Officer 1997 34,615 -- 81,250 300,000 --
Raymond C. Lin (4)............ 1999 74,680 -- -- -- $800
Chief Executive Officer 1998 275,000 160,000 -- 220,000 800
1997 275,000 110,213 -- 230,000 800
Antonio Flores (5)............ 1999 190,000 50,000 -- 175,000 800
Senior Vice President, 1998 160,000 62,370 -- 110,000 800
Operations 1997 150,000 29,235 -- 95,000 800
Robert A. Fyffe (6)........... 1999 185,000 53,008 -- 300,000 800
Senior Vice President, Sales 1998 158,712 90,697 -- 140,000 800
and Marketing 1997 130,000 79,185 -- 66,193 800
Boris J. Auerbuch (7)......... 1999 190,000 -- -- -- 800
Senior Vice President and 1998 180,000 70,166 -- 105,000 800
Chief Technology Officer 1997 180,000 35,082 -- 110,000 800
John Hagedorn (8)............. 1999 169,231 -- -- 425,000 800
Senior Vice President, 1998 -- -- -- -- --
Finance and Administration, 1997 -- -- -- -- --
Chief Financial Officer and -- -- -- -- -- --
Secretary
</TABLE>
- ------------------------------
(1) Bonus amounts in respect of the fiscal years indicated are paid in two
installments in the month of January of the relevant fiscal year and the
month of July following the end of such fiscal year. The Company did not pay
a bonus in July 1997 for the second half of fiscal 1997, and it did not pay
a bonus for any portion of fiscal 1999 based on Company performance in
failing to meet its goals for fiscal 1999. A stay-on-board bonus of $50,000
was awarded to Mr. Flores in February of 1999 and is subject to repayment on
a prorated basis if Mr. Flores voluntarily terminates his employment with
the Company before February 2000. Mr. Flores resigned effective October 13,
1999 and will repay the Company the prorated portion of the bonus.
(2) The amounts paid to Mr. Williams in fiscal 1997, 1998 and 1999 represent
compensation of $81,250 per quarter provided under Mr. Williams' employment
contract for relinquishment by Mr. Williams of certain unvested options in
another entity when Mr. Williams joined the Company. Mr. Williams also was
paid mortgage assistance in the amount of $50,000 in fiscal 1998 and 1999
pursuant to his employment contract. See "Employment Contracts and Change of
Control Arrangements."
(3) Represents the Company's 401(k) Plan matching contribution of $800 per
employee participating in the plan per plan year.
(4) Mr. Lin served as Chief Executive Officer of the Company until August 3,
1998 and as the full-time Chairman of the Board of the Company until
December 1998. Mr. Lin remains Chairman of the Board of Directors of the
Company.
(5) Mr. Flores resigned as Senior Vice President, Operations in October 1999.
The duties of his position have been assumed by Mr. David Newell, Senior
Director Operations. Mr. Flores will reimburse the Company for the prorated
portion of his stay-on-board bonus.
(6) Mr. Fyffe has resigned as Senior Vice President, Sales and Marketing of the
Company effective October 29, 1999.
(7) Mr. Auerbuch resigned as Senior Vice President and Chief Technology Officer
in June 1999. Mr. Auerbuch is a director of the Company.
(8) Mr. Hagedorn was named Senior Vice President, Finance and Administration,
Chief Financial Officer and Secretary in August 1998.
A-9
<PAGE>
OPTION GRANTS IN FISCAL 1999.
The following table sets forth information regarding option grants to Named
Executive Officers in fiscal 1999. In accordance with the rules of the
Commission, the table sets forth the hypothetical gains or "option spreads" that
would exist for the options at the end of their ten-year term. These gains are
based on assumed rates of annual compound stock price appreciation of 5% and 10%
from the date the options were granted to the end of the option terms.
OPTION GRANTS IN FISCAL 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM (2)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION -----------------------------
NAME GRANTED (1) FISCAL 1999 PER SHARE DATE 5% 10%
- ---------------------- ----------- ------------- -------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Nicholas J.
Williams............ 125,000 4.2% $18.9375 7/28/2008 $1,488,712 $3,772,687
Raymond Lin........... -- -- -- -- -- --
Antonio Flores........ 25,000 0.8% $18.9375 7/28/2008 $ 297,742 $ 754,537
50,000 1.7 9.1875 9/18/2008 288,898 732,125
70,000 2.3 11.0000 12/15/2008 484,249 1,227,182
30,000 1.0 8.2500 2/11/2009 155,651 394,451
Robert A. Fyffe....... 25,000 0.8% $21.6875 7/23/2008 $ 340,979 $ 864,107
40,000 1.3 9.1875 9/18/2008 231,119 585,700
60,000 2.0 11.0000 12/15/2008 415,070 1,051,870
25,000 0.8 9.2500 3/29/2009 145,432 368,553
150,000 5.0 8.6875 6/1/2009 819,528 2,076,846
Boris J. Auerbuch..... -- -- -- -- -- --
John Hagedorn......... 200,000 6.7% $17.2500 8/3/2008 $2,169,686 $5,498,411
50,000 1.3 9.1875 9/18/2008 231,119 585,700
60,000 2.0 11.0000 12/15/2008 415,070 1,051,870
25,000 0.8 9.2500 3/29/2009 145,432 368,553
</TABLE>
- ------------------------
(1) The options shown in the table were granted at fair market value and become
exercisable with respect to 2.083% of the shares for each full month that
the optionee renders services to the Company after the date of grant. The
options shown in the table will expire ten years from the date of grant,
subject to earlier termination upon termination of employment. Vesting of
Mr. Hagedorn's options is accelerated under certain circumstances in
connection with a change in control. See "Employment Agreements."
(2) The assumed annual compound rates of stock price appreciation included in
the table are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
future stock prices.
Subsequent to the end of fiscal 1999, Mr. Hagedorn was granted options to
purchase 100,000 shares of the Company's Common Stock at a price of $7.0625 per
share. In addition, in connection with his appointment as Vice President, Sales,
Mr. Asten is being granted options to purchase 100,000 shares of the Company's
Common Stock. Other executive officers were also granted options to purchase an
aggregate of 10,000 shares of the Company's Common Stock following the end of
fiscal 1999. On September 1, 1998, Mr. Williams voluntarily surrendered, for no
value or exchange of options, options to purchase 100,000 shares of the
Company's Common Stock which had been granted on July 28, 1998. Mr. Williams
also voluntarily surrendered on March 23, 1999 options to purchase 25,000 shares
which had been granted on July 28, 1998, for no value or exchange of options,
with an exercise price of $18.9375 per share. In addition,
A-10
<PAGE>
on September 1, 1998, Mr. Auerbuch voluntarily surrendered, for no value or
exchange of options, options to purchase 80,000 shares, all of which had been
granted on August 21, 1996, and had exercise prices of $32.00 per share.
Mr. Auerbuch also voluntarily surrendered, for no value or exchange of options,
options to purchase 105,000 shares on March 23, 1999. Of the options surrendered
on such date, options to purchase 25,000 shares were granted on October 1, 1997
at a price of $25.4375 per share and 80,000 shares were granted June 1, 1998 at
a price of $24.90625 per share. In addition, on August 17, 1999, Mr. Flores
voluntarily surrendered, for no value or exchange of options, options to
purchase a total of 160,000 shares of the Company's Common Stock. Of the options
surrendered by Mr. Flores, 50,000 were granted on August 21, 1996 at a price of
$32.00 per share, 25,000 were granted on September 30, 1997 at a price of $24.50
per share, 25,000 were granted on October 1, 1997 at a price of $25.4375 per
share and the remaining 60,000 were granted on June 1, 1998 at a price of
$24.9063 per share. Officers other than the named officers voluntarily
surrendered, for no value or exchange of options, options to purchase 95,000
shares at prices ranging from $24.50 to $32.00 per share.
AGGREGATE OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR-END VALUES.
The following table sets forth certain information concerning the exercise
of options by each of the Named Executive Officers during fiscal 1999, including
the aggregate amount of gains realized on the date of exercise. In addition, the
table includes the number of shares covered by both exercisable and
unexercisable stock options as of June 25, 1999. Also reported are values of
"in-the-money" options that represent the positive spread between the respective
exercise prices of outstanding stock options and $7.21875 per share, which was
the closing price of the Company's Common Stock as reported on the Nasdaq
National Market on June 25, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Nicholas J. Williams..... -- -- 152,501 137,499 -- --
Raymond Lin.............. -- -- 306,563 87,083 $1,049,838 --
Boris J. Auerbuch........ 112,085 $786,355 27,875 13,750 $ 53,813 --
Antonio Flores........... -- -- 147,098 258,540 $ 132,927 --
Robert A. Fyffe.......... -- -- 100,175 392,525 $ 35,719 --
John Hagedorn............ -- -- 16,042 308,958 -- --
</TABLE>
- ------------------------
(1) "Value Realized" represents the fair market value of the shares of Common
Stock underlying the option on the date of exercise less the aggregate
exercise price of the option.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS.
On March 12, 1992, Premisys Communications Holdings, Inc. ("Premisys
Holdings") entered into a Founders Agreement with Raymond C. Lin and Boris J.
Auerbuch, which replaced earlier agreements dated September 10, 1990 between
Messrs. Lin and Auerbuch and Premisys Communications, Inc., a California
corporation. The Founders Agreement prohibits them for three years following
termination of employment from interfering with any of the Company's supply
relationships and from soliciting any employees of the Company to leave. Both
Messrs. Lin and Auerbuch have terminated their employment with the Company.
In April 1997, the Company hired Nicholas J. Williams as President and Chief
Operating Officer of the Company, commencing on April 21, 1997. Mr. Williams'
employment agreement provided for the payment of an annual base salary of
$225,000 through fiscal 1997, and participation in the management incentive
bonus program commencing in fiscal 1998 at 40% of his base salary contingent
upon the
A-11
<PAGE>
Company achieving its goals for fiscal 1998. Mr. Williams' employment agreement
also included payment of various expenses associated with his relocation to
California, including $162,500 of mortgage assistance over four years while he
remains an employee. Mr. Williams is also entitled to participate in the other
employee benefit programs offered by the Company. In addition, the Company
agreed to pay Mr. Williams a total of $1,300,000 on a quarterly basis over four
years ($81,250 per quarter) as compensation for relinquishing certain unvested
stock options granted to Mr. Williams by his prior employer so long as he does
not resign or is not terminated with cause. In connection with his initial
employment, Mr. Williams was also granted 300,000 options to purchase shares of
the Company's Common Stock at a price of $8.875, as contemplated by the
agreement.
In July 1998, the Company hired John J. Hagedorn as Senior Vice President,
Finance and Administration, Chief Financial Officer and Secretary of the Company
commencing on August 3, 1998. Mr. Hagedorn's employment agreement provided for
the payment of an annual base salary of $200,000 through fiscal 1999,
participation in the management incentive bonus program for 1999 at 45% of his
salary and participation in the Company's other employee benefits programs. In
addition, the employment agreement provided for the grant of stock options to
purchase 200,000 shares of the Company's Common Stock that vest 25% after his
first year of service and monthly thereafter until fully vested after four
years. The Company has agreed to provide Mr. Hagedorn with a twelve-month salary
extension and to accelerate vesting of his stock options in the event his
employment with the Company is terminated due to an acquisition in which he is
not named Chief Financial Officer of the combined companies.
The Company promoted Claude Dupuis to the position of Senior Vice President,
Engineering effective April 1, 1999. Mr. Dupuis' employment agreement provided
for the payment of an annual base salary of $180,000 through fiscal 1999, and
participation in the management incentive bonus program at 30% of his base
salary contingent upon the Company achieving its goals for fiscal 1999.
Mr. Dupuis' employment agreement also included payment of various expenses
associated with his relocation to California, including $108,000 of mortgage
assistance over three years, assistance with tuition in the amount of $35,000
for his children's or spouse's schooling for one year, and a bridge loan of
$200,000 at 6% interest to assist in the purchase of a home. The bridge loan is
secured by the vested and/or exercised portion of Mr. Dupuis' options to
purchase the Company's Common Stock. The loan must be repaid on the earlier of
(i) 60 months after April 29, 1999, (ii) 30 days after Mr. Dupuis' voluntary
resignation of employment or (iii) 24 months after Mr. Dupuis' involuntary
termination of employment for a reason other than a reorganization, sale or
merger of the Company in which Mr. Dupuis' job is eliminated. Mr. Dupuis'
obligation to repay the bridge loan shall be forgiven if his employment is
terminated because of a reorganization, sale or merger of the Company prior to
the date that is 60 months after April 29, 1999. The employment agreement also
provides for severance payments equal to six months of his salary if his
employment is terminated without cause. Mr. Dupuis also received a sign-on bonus
of $20,000 prorated over 24 months. Mr. Dupuis is also entitled to participate
in the other employee benefit programs offered by the Company. In connection
with his new position, Mr. Dupuis was also granted 100,000 options to purchase
shares of the Company's Common Stock at a price of $7.125, as contemplated by
the agreement. If Mr. Dupuis' employment is terminated for cause, or if he
voluntarily resigns within 24 months of April 1, 1999, he is required to repay
the special bonus, relocation expenses, tuition allowance and mortgage
assistance on a pro rata basis.
On October 22, 1999, the Company and Al Fyffe entered into a separation
agreement in connection with Mr. Fyffe's termination of employment effective
October 29, 1999. Under the agreement, the Company agreed to pay Mr. Fyffe a
lump sum amount equal to 12 months' salary and to pay his medical and dental
coverage under COBRA for 12 months. Under the separation agreement, Mr. Fyffe
agreed not to become an employee, director or consultant to a company which
offers products or services that are directly in competition with those
developed, manufactured or sold by the Company for a period of one year and not
to solicit or hire any employees of the Company during that period, with certain
limited exceptions.
A-12
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT.
Section 16 of the Exchange Act requires the Company's directors and
officers, and persons who own more than 10% of the Company's Common Stock to
file initial reports of ownership and reports of changes in ownership with the
Commission and the Nasdaq National Market. Such persons are required by
Commission regulation to furnish the Company with copies of all Section
16(a) forms that they file.
Based solely on its review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements were met during
fiscal 1999. However, since the end of fiscal 1999, Patti S. Hart filed her Form
3 30 days, rather than 10 days, after her election to the Board of Directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information, as of October 13, 1999,
with respect to the beneficial ownership of the Company's Common Stock by
(i) each stockholder known by the Company to be the beneficial owner of more
than 5% of the Company's Common Stock, (ii) each director and nominee, (iii)
each person who has served as the Chief Executive Officer of the Company during
fiscal 1999 and each of the Company's four most highly compensated executive
officers (other than anyone who served as Chief Executive Officer) who were
serving as executive officers at the end of fiscal 1999 (together, the "Named
Executive Officers") and (iv) all current directors and executive officers as a
group.
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT AND NATURE OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) COMMON STOCK(1)
- --------------------------------------------------------- ----------------------- ---------------
<S> <C> <C>
T. Rowe Price Associates, Inc.(2)........................ 1,876,500 7.8%
State of Wisconsin Investment Board (3).................. 1,571,000 6.5
Raymond C. Lin (4)....................................... 732,852 3.0
Boris J. Auerbuch (5).................................... 262,267 1.1
Nicholas J. Williams (6)................................. 183,750 *
Robert A. Fyffe (7)...................................... 156,341 *
John Hagedorn (8)........................................ 106,220 *
Antonio Flores (9)....................................... 99,909 *
Edward A. Keible, Jr. (10)............................... 16,430 *
Patti S. Hart (11)....................................... -- *
Carol Sharer (11)........................................ -- *
All current executive officers and directors as a group
(11 persons) (12)...................................... 1,688,977 7.0
</TABLE>
- ------------------------
* Less than 1%
(1) Unless otherwise indicated below, the persons and entities named in the
table have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Shares of Common Stock subject to options that are currently exercisable or
exercisable within 60 days of October 13, 1999, are deemed to be outstanding
and to be beneficially owned by the person holding such option for the
purpose of computing the percentage ownership of such person but are not
treated as outstanding for the purpose of computing the percentage ownership
of any other person.
(2) Represents 1,876,000 shares held of record by T. Rowe Price Associates, Inc.
The address of T. Rowe Price Associates, Inc. is 100 East Pratt Street,
Baltimore, MD 21202. The aforementioned entity filed a Form 13G with the
Securities and Exchange Commission on July 9, 1999 with respect to the
shares set forth herein and upon which the information included herein is
based.
A-13
<PAGE>
(3) Based on information made available to the Company through filings on
Form 13F as of June 30, 1999. The address of the State of Wisconsin
Investment Board is 121 East Wilson Street, Madison, Wisconsin 53702.
(4) Includes 333,855 shares subject to options exercisable within 60 days of
October 13, 1999. Mr. Lin is Chairman of the Board of the Company.
(5) Includes 31,000 shares subject to options exercisable within 60 days of
October 13, 1999. Mr. Auerbuch is a director of the Company. He resigned as
Chief Technical Officer and Senior Vice President of the Company on
June 30, 1999.
(6) Represents 183,750 shares subject to options exercisable within 60 days of
October 13, 1999. Mr. Williams is President and Chief Executive Officer of
the Company.
(7) Represents 156,341 shares subject to options exercisable within 60 days of
October 13, 1999. Mr. Fyffe has resigned as Senior Vice President, Sales and
Marketing of the Company effective October 29, 1999.
(8) Represents 104,584 shares subject to options exercisable within 60 days of
October 13, 1999. Mr. Hagedorn is Senior Vice President, Finance and
Administration, Chief Financial Officer and Secretary of the Company.
Mr. Hagedorn's employment agreement provides for acceleration of vesting for
all of his options as a result of a change in control of the Company
following which he is not named Chief Financial Officer of the combined
companies. It is expected that the vesting of all of his options to purchase
425,000 shares of the Company's Common Stock will accelerate in connection
with the Offer and/or Merger related to the acquisition of the Company by
Parent. Of these options, options to purchase 165,000 shares will have an
exercise price that is less than the $10.00 per share Offer Price. See
"Employment Contracts and Change of Control Arrangements."
(9) Represents 99,909 shares subject to options exercisable within 60 days of
October 13, 1999. Mr. Flores resigned as the Company's Senior Vice
President, Operations effective October 13, 1999.
(10) Represents shares subject to options exercisable within 60 days of October
13, 1999 and 130 shares held of record. Mr. Keible is a director of the
Company. In connection with certain change in control transactions
(including the Merger of the Company with and into Purchaser) the vesting of
options to purchase an additional 15,000 shares of the Company's Common
Stock will accelerate pursuant to the provisions of the Directors Plan. Of
the options held by Mr. Keible, options to purchase 7,300 shares have an
exercise price that is less than the $10.00 per share Offer Price.
(11) Represents shares subject to options exercisable within 60 days of October
13, 1999. Ms. Hart and Ms. Sharer, directors of the Company, each hold
options to purchase 25,000 shares of the Company's Common Stock, of which
the options to purchase 24,000 shares that were automatically granted under
the Directors Plan will vest in connection with certain change of control
transactions (including the Merger of the Company with and into Purchaser)
pursuant to the provisions of the Directors Plan. All of the options to
purchase 24,000 shares held by each of Ms. Sharer and Ms. Hart whose vesting
would be accelerated have exercise prices that are less than the $10.00 per
share Offer Price.
(12) Includes the shares referenced in footnotes (4) through (8), (10) and (11),
28,039 additional shares and 125,208 additional shares subject to options
exercisable within 60 days of October 13, 1999. Should the accelerated
vesting that is described in those footnotes be triggered, current executive
officers and directors as a group will beneficially own 2,072,393 shares, of
which options to purchase 865,870 shares will have an exercise price that is
less than the $10.00 Offer Price and options to purchase 468,584 shares will
have an exercise price that exceeds the $10.00 per share Offer Price.
A-14
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Since July 1, 1998, there has not been, nor is there currently proposed, any
transaction or series of transactions to which the Company (or any of its
predecessor corporations) was or is to be a party in which the amount involved
exceeds $60,000 and in which any director, executive officer, or holder of more
than 5% of the Company's Common Stock had or will have a direct or indirect
material interest other than normal compensation arrangements, which are
described where required in the executive compensation disclosures and "Director
Compensation" above, and the transactions described below.
As referenced under "Employment Contracts and Change of Control
Arrangements," the Company loaned Claude Dupuis, its Senior Vice President,
Engineering, $200,000 on April 29, 1999 (bearing interest at 6%), which amount
continues to remain outstanding plus accrued interest.
REPORT ON EXECUTIVE COMPENSATION.
This Report of the Compensation Committee is required by the Commission and
shall not be deemed to be incorporated by reference by any general statement
incorporating by reference this Information Statement into any filing under the
Securities Act of 1933, as amended, or under the Exchange Act, except to the
extent that the Company specifically incorporates this information by reference,
and shall not otherwise be deemed soliciting material or filed under such Acts.
Final decisions regarding executive compensation and stock option grants to
executives are made by the Compensation Committee of the Board of Directors (the
"Committee"). The Committee is composed of two independent non-employee
directors, neither of whom have any interlocking relationships as defined by the
Commission. The Compensation Committee consisted of Messrs. Morgenthaler and Tan
from June 1998 to December 1998 and Messrs. Tan and Keible from December 1998
until July 1999. Following Mr. Tan's resignation from the Board in July 1999,
the Compensation Committee consisted of Messrs. Keible and Polestra until
Mr. Polestra's resignation from the Board in August 1999, following which time
the Compensation Committee has consisted of Mr. Keible and Ms. Sharer. Although
Mr. Williams and Mr. Hagedorn attended the meetings of the Committee during
fiscal 1999, they did not participate in deliberations that related to their own
compensation.
GENERAL COMPENSATION POLICY The Committee acts on behalf of the Board to
establish the general compensation policy of the Company for all employees of
the Company. The Committee typically reviews base salary levels and target
bonuses for the Chief Executive Officer ("CEO"), other executive officers and
certain other employees of the Company at or about the beginning of each fiscal
year. The Committee administers the Company's incentive and equity plans,
including the 1992 Stock Option Plan, the 1994 Stock Option Plan, the Management
Incentive Plan (the "Incentive Plan"), the Profit Sharing Plan and the 1995
Employee Stock Purchase Plan. The Company no longer grants options under the
1992 Stock Option Plan.
The Committee's philosophy in compensating executive officers, including the
CEO, is to relate compensation directly to corporate performance. Thus, the
Company's compensation policy, which applies to executive officers and other key
employees of the Company, relates a portion of each individual's total
compensation to the Company profit objectives and individual objectives set
forth at the beginning of the Company's fiscal year. Consistent with this
policy, a designated portion of the compensation of the executive officers of
the Company is contingent on corporate performance and, in the case of certain
executive officers, is also based on the individual officer's performance as
measured against individual objectives established under the Incentive Plan, as
determined by the Committee in its discretion. Long-term equity incentives for
executive officers are effected through the granting of stock options under the
1994 Stock Option Plan. Stock options have value for the executive only if the
price of the Company's stock increases above the fair market value on the grant
date and the executive remains in the Company's employ for the period required
for the shares to vest.
A-15
<PAGE>
The base salaries, incentive compensation and stock option grants of the
executive officers are determined in part by the Committee reviewing data on
prevailing compensation practices in technology companies with whom the Company
competes for executive talent and by their evaluating such information in
connection with the Company's corporate goals. To this end, the Committee
attempts to compare the compensation of the Company's executive officers with
the compensation practices of comparable companies to determine base salary,
target bonuses and target total cash compensation. In addition to their base
salaries, the Company's executive officers, including the CEO, are each eligible
to receive cash bonuses under the Incentive Plan and to participate in the 1994
Stock Option Plan.
FISCAL 1999 EXECUTIVE COMPENSATION
BASE COMPENSATION. The Committee reviewed the recommendations and
performance and market data outlined above and established a base salary level
to be effective July 1, 1998 for each executive officer, including the CEO.
INCENTIVE COMPENSATION. Under the Incentive Plan, cash bonuses are awarded
to the extent that an executive officer achieved predetermined individual
objectives and the Company met predetermined profit objectives set by the Board
at the beginning of the year. The CEO's subjective judgment of executives'
performance (other than his own) is taken into account in determining whether
those objectives have been satisfied. Cash bonuses to individuals are limited to
twice the amount of the relevant individual's target cash bonus. Performance is
measured at the end of the first half and the second half of the fiscal year.
For fiscal 1999, the bases of incentive compensation were Company operating
profits, which represented between 30% to 100% of an individual's target
incentive compensation, with the balance, if any, based on individual
objectives, depending on the individual executive. The targets and actual bonus
payments are determined by the Committee, in its discretion. Bonuses were not
paid to the Company's officers for either half of fiscal 1999 as corporate
operating profit objectives were not attained. However, a bonus of $50,000 was
granted to Mr. Flores in February 1999 as an incentive for Mr. Flores to remain
in the employment of the Company. The bonus was subject to repayment on a
prorated basis if Mr. Flores terminated his employment with the Company within
one year. Mr. Flores resigned from the Company effective October 13, 1999 and
will repay the Company the prorated portion of the bonus.
STOCK OPTIONS. Stock options typically have been granted to executive
officers when the executive first joins the Company, in connection with a
significant change in responsibilities, to provide greater incentives to
continue their employment with the Company, to strive to increase the value of
the Company's Common Stock and, occasionally, to achieve equity within a peer
group. The Committee may, however, grant additional stock options to executives
for other reasons. The number of shares subject to each stock option granted is
within the discretion of the Committee and is based on anticipated future
contribution and ability to impact corporate and/or business unit results, past
performance or consistency within the executive's peer group as well as the
total number of other options held by the executive that remain unvested at the
time of the grant and the value of those unvested options. The stock options
generally become exercisable over a four-year period with initial grants vesting
25% after the first year and monthly thereafter. Until July 22, 1999, the
Company generally provided that subsequent grants of stock options would vest
monthly over a 48 month period beginning one month from the date of the grant
and after July 22, 1999, the Company has generally provided that subsequent
grants of stock options would vest over a 48-month period, with 6.25% of the
shares vesting on the third month from the date of grant and the remaining
shares vesting monthly thereafter. Stock options are generally granted at a
price that is equal to the fair market value of the Company's Common Stock on
the date of grant.
The Company granted stock options to its then executive officers and key
employees in September and December 1998 and in March 1999. This followed a
significant decline in the Company's stock price which was due, in part, to the
loss in the first quarter of fiscal 1998 of substantially all of the Company's
on-going revenues from its then-largest end carrier customer, MCI, in connection
with the purchase of MCI by WorldCom. As a result of the decline in the
Company's stock price, the options which were then held by
A-16
<PAGE>
the Company's executive officers and other key employees had exercise prices
significantly in excess of the Company's stock price, which persisted during
fiscal 1999. Rather than reprice options and cause the Company to incur a large
potential charge to compensation expense, new options were granted to executive
officers and key employees in September and December 1998 and in March 1999 at
the then market prices. The purpose of these new option grants was to provide
the incentive for the officers and key employees to continue employment with the
Company, and increase the value of the Company's Common Stock which the
Compensation Committee intended when the grants at higher exercise prices were
made. To enable these new options to be granted without depleting the
shareholder approved option pool, certain of the Company's officers and
directors surrendered a significant number of options in September 1998 and
March 1999.
In addition, the Company granted options during fiscal 1999 and shortly
after the end of that fiscal year (i) to Stephen Gleave in connection with his
commencement of employment with the Company in January 1999, and in July 1999 in
connection with his promotion, (ii) to Claude Dupuis in March 1999 in connection
with his promotion to Senior Vice President, Engineering, (iii) to Tony Flores
in February 1999 as part of the Company's attempts to maintain Mr. Flores in its
employment, (iv) to John Hagedorn in July 1999 as part of an effort to maintain
Mr. Hagedorn in the Company's employment and (v) to Al Fyffe in June 1999 as
part of an effort to maintain Mr. Fyffe in the Company's employment and to
reflect the enlargement of his responsibilities to include international sales.
COMPANY PERFORMANCE AND CEO COMPENSATION. Upon his appointment to CEO in
August 1998, Mr. Williams' base salary was set at $275,000, the same base salary
that had applied to Mr. Lin prior to his resignation as CEO. Based upon the
criteria set forth for fiscal 1999 under the discussion of Incentive
Compensation above, the Committee did not award Mr. Williams incentive
compensation for fiscal 1999 because the Company did not attain the operating
profit objectives set for fiscal 1999. Pursuant to his employment agreement, as
described in "Employment Contracts and Charge of Control Arrangements" in this
Information Statement, the Company also paid Mr. Williams compensation of
$81,250 per quarter for relinquishing certain unvested option in another entity
when he joined the Company (representing $325,000 during fiscal 1999) and
mortgage assistance of $50,000 during fiscal 1999.
The Committee granted Mr. Williams options to purchase 125,000 shares of
Common Stock in July 1998 largely as an incentive to achieve the Company's
fiscal 1999 objectives and to ensure that there existed adequate stock
incentives for Mr. Williams given the increasingly competitive employment
market. Given the decline in the market price of the Company's Common Stock
shortly thereafter and the Company's need for additional shares of stock under
its 1994 Stock Option Plan, Mr. Williams voluntarily surrendered, for no value
or exchange of options, options to purchase 25,000 of these shares on
September 1, 1998 and options to purchase 100,000 of these shares on March 23,
1999.
COMPLIANCE WITH SECTION 162(M) OF THE INTERNAL REVENUE CODE OF 1986. The
Company intends to comply with the requirements of Section 162(m) of the
Internal Revenue Code of 1986 for fiscal 2000. The 1994 Plan is already in
compliance with Section 162(m) by limiting stock awards to named executive
officers. The Company does not expect cash compensation for any individual
executive officer in fiscal 2000 to be in excess of $1,000,000 or consequently
affected by the requirements of Section 162(m).
COMPENSATION COMMITTEE
EDWARD A. KEIBLE, JR.
CAROL H. SHARER
COMPANY STOCK PRICE PERFORMANCE.
The stock price performance graph below is required by the Commission and
shall not be deemed to be incorporated by reference by any general statement
incorporating by reference this Information Statement into any filing under the
Securities Act of 1933, as amended, or under the Exchange Act, except
A-17
<PAGE>
to the extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed soliciting material or filed under
such Acts.
The graph below compares the cumulative total stockholder return on the
Common Stock of the Company on the effective date of the Company's Registration
Statement with respect to the Company's initial public offering (April 5, 1995)
to June 30, 1995, June 28, 1996, June 27, 1997, June 26, 1998 and June 25, 1999
with the cumulative total return on the Nasdaq Stock Market and the Hambrecht &
Quist Technology Index (assuming the investment of $100 in the Company's Common
Stock and in each of the indexes on the date of the Company's initial public
offering, reinvestment of all dividends and adjustment for the 100% stock
dividend effected by the Company in December 1995).
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PREMISYS COMMUNICATIONS, INC. H&Q TECHNOLOGY INDEX NASDAQ STOCK MARKET-U.S. INDEX
<S> <C> <C> <C>
4/5/95 $100.00 $100.00 $100.00
6/30/95 $403.52 $122.28 $114.37
6/28/96 $762.50 $145.06 $149.58
6/27/97 $196.88 $200.23 $182.00
6/26/98 $310.94 $265.19 $239.74
6/25/99 $91.41 $342.55 $429.20
</TABLE>
<TABLE>
<CAPTION>
NASDAQ STOCK MARKET-US
PREMISYS COMMUNICATIONS, INC. INDEX H&Q TECHNOLOGY INDEX
------------------------------- --------------------------- ----------------------------
MARKET PRICE INVESTMENT VALUE INDEX INVESTMENT VALUE INDEX INVESTMENT VALUE
------------ ---------------- -------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
4/5/95............... $ 8.00 $100.00 261.644 $100.00 569.95 $100.00
6/30/95.............. $ 32.28 $403.52 299.244 $114.37 696.94 $122.28
6/28/96.............. $ 61.00 $762.50 391.360 $149.58 826.80 $145.06
6/27/97.............. $ 15.75 $196.88 462.031 $182.00 1,141.24 $200.23
6/26/98.............. $ 26.00 $310.94 627.266 $239.74 1,151.43 $265.19
6/25/99.............. $7.3125 $ 91.41 896.27 $429.20 2,446.24 $342.55
</TABLE>
A-18
<PAGE>
[BROADVIEW LETTERHEAD]
ANNEX B
October 20, 1999
CONFIDENTIAL
Board of Directors
Premisys Communications, Inc.
48664 Milmont Drive
Fremont, California 94538
Dear Members of the Board:
We understand that Premisys Communications, Inc. ("Premisys" or the "Company"),
Zhone Technologies, Inc. ("Zhone" or the "Parent"), and Merger Sub, a wholly
owned subsidiary of Zhone (the "Merger Sub"), propose to enter into an Agreement
and Plan of Merger (the "Agreement") pursuant to which the Parent will cause the
Merger Sub to make a tender offer (the "Offer") to purchase all of the issued
and outstanding shares of Common Stock of Premisys together with the associated
rights ("Premisys Common Stock"), at a price per share of $10.00 in cash (the
"Offer Price"), and subsequently merge with and into Premisys (the "Merger").
Pursuant to the Merger, each issued and outstanding share of Premisys Common
Stock not acquired in the Offer will be converted into the right to receive an
amount of cash equal to the Offer Price. The terms and conditions of the Offer
and Merger (together the "Transaction") are more fully detailed in the
Agreement.
You have requested our opinion as to whether the Offer Price is fair, from a
financial point of view, to Premisys stockholders.
Broadview International LLC ("Broadview") focuses on providing merger and
acquisition advisory services to information technology ("IT") companies. In
this capacity, we are continually engaged in valuing such businesses, and we
maintain an extensive database of IT mergers and acquisitions for comparative
purposes. We are currently acting as financial advisor to Premisys' Board of
Directors and will receive a fee from Premisys upon the successful conclusion of
the Transaction.
In rendering our opinion, we have, among other things:
1.) reviewed the terms of a draft of the Agreement dated October 19, 1999
furnished to us by Latham & Watkins on October 19, 1999 (which, for the
purposes of this opinion, we have assumed, with your permission, to be
identical in all material respects to the agreement to be executed);
2.) reviewed Premisys' annual report on Form 10-K for its fiscal year ended
June 30, 1999, including the audited financial statements included therein;
3.) reviewed certain internal financial and operating information relating to
Premisys, including preliminary results for its fiscal quarter ending
September 30, 1999 and certain projections through December 31, 2000,
prepared and furnished to us by Premisys management;
4.) participated in discussions with Premisys management concerning the
operations, business strategy, current financial performance and prospects
for Premisys;
5.) discussed with Premisys management its view of the strategic rationale for
the Merger;
B-1
<PAGE>
6.) reviewed the recent reported closing prices and trading activity for
Premisys Common Stock;
7.) compared certain aspects of the financial performance of Premisys with
public companies we deemed comparable;
8.) analyzed available information, both public and private, concerning other
mergers and acquisitions we believe to be comparable in whole or in part to
the Transaction;
9.) reviewed recent equity research analyst reports covering Premisys;
10.) assisted in negotiations and discussions related to the Transaction among
Premisys, Zhone, and their respective financial and legal advisors; and
11.) conducted other financial studies, analyses and investigations as we deemed
appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent verification, on
the accuracy and completeness of all the financial and other information
(including without limitation the representations and warranties contained in
the Agreement) that was publicly available or furnished to us by Premisys. With
respect to the financial projections examined by us, we have assumed that they
were reasonably prepared and reflected the best available estimates and good
faith judgments of the management of Premisys as to the future performance of
Premisys. We have neither made nor obtained an independent appraisal or
valuation of any of Premisys' assets.
Based upon and subject to the foregoing, we are of the opinion that the Offer
Price is fair, from a financial point of view, to Premisys stockholders.
For purposes of this opinion, except as disclosed to us by Premisys or as
disclosed in the documents we have reviewed, we have assumed that Premisys is
not currently involved in any material transaction other than the Transaction
and those activities undertaken in the ordinary course of conducting its
business. Our opinion is necessarily based upon market, economic, financial and
other conditions as they exist and can be evaluated only as of the date of this
opinion, and any change in such conditions may impact this opinion.
This opinion speaks only as of the date hereof. It is understood that this
opinion is for the information of the Board of Directors of Premisys in
connection with its consideration of the Transaction and does not constitute a
recommendation to any Premisys stockholder as to whether such stockholder should
tender its shares in the Offer or as to how such stockholder should vote on the
Merger. This opinion may not be published or referred to, in whole or part,
without our prior written permission, which shall not be unreasonably withheld.
Broadview hereby consents to references to, and the inclusion of, this opinion
in its entirety in the Solicitation/Recommendation Statement on Schedule 14D-9
and Proxy Statement (if any) to be distributed to Premisys stockholders in
connection with the Transaction.
Sincerely,
/s/ BROADVIEW INTERNATIONAL LLC
Broadview International LLC
B-2
<PAGE>
[PREMISYS LOGO]
October 27, 1999
To Our Stockholders:
I am pleased to inform you that on October 20, 1999, Premisys
Communications, Inc., a Delaware corporation (the "Company" or "Premisys"),
entered into an Agreement and Plan of Merger (the "Merger Agreement") with Zhone
Technologies, Inc., a Delaware corporation ("Parent" or "Zhone"), and Zhone
Acquisition Corp., a Texas corporation and wholly owned subsidiary of Parent
("Purchaser"). Pursuant to the Merger Agreement, Purchaser has commenced a cash
tender offer (the "Offer") to purchase all of the outstanding shares of the
Company's Common Stock, $0.01 par value (the "Shares"), for $10.00 per share,
net to the seller in cash without interest. Under the Merger Agreement, the
Offer will be followed by a merger (the "Merger") in which, among other things,
any and all remaining Shares of Premisys Common Stock, other than Shares
purchased by Purchaser, will be converted into the right to receive $10.00 per
share in cash, without interest.
YOUR BOARD OF DIRECTORS (I) HAS UNANIMOUSLY DECIDED TO RECOMMEND THAT THE
COMPANY ACCEPT THE TERMS AND CONDITIONS OF THE OFFER, AS SET FORTH IN THE MERGER
AGREEMENT AND RELATED DOCUMENTS, (II) HAS UNANIMOUSLY DECIDED TO RECOMMEND THE
OFFER AND THE MERGER, (III) HAS DETERMINED AS OF THE DATE OF THE MEETING AT
WHICH THE BOARD TOOK ACTION THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR
TO, AND IN THE BEST INTERESTS OF, THE COMPANY'S STOCKHOLDERS, RECOMMENDING THAT
THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER, TENDER THEIR SHARES PURSUANT TO THE
OFFER AND APPROVE THE MERGER AGREEMENT (IF REQUIRED) AND (IV) HAS UNANIMOULSY
APPROVED THE ACQUISITION OF SHARES BY PURCHASER PURSUANT TO THE OFFER AND THE
OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.
In arriving at its decision, your Board of Directors gave careful
consideration to a number of factors, including, among other things, the opinion
of Broadview International LLC, the Company's financial advisor, that the offer
price for the Company's Common Stock in the Offer and the Merger (referred to in
the Merger Agreement as the "Merger Consideration") is fair to the Company's
stockholders from a financial point of view. A more complete description of the
factors considered by the Board of Directors is set forth in the attached
Solicitation/Recommendation Statement on Schedule 14D-9.
A more complete description of the Offer and the Merger are set forth in the
accompanying Offer to Purchase, dated October 27, 1999, together with related
materials, including a Letter of Transmittal to be used for tendering your
Shares. These documents set forth the terms and conditions of the Offer and the
Merger and provide instructions as to how to tender your Shares. I urge you to
read the enclosed material carefully before making a decision with respect to
tendering your Shares in the Offer.
Sincerely,
/s/ RAYMOND C. LIN
Raymond C. Lin
CHAIRMAN OF THE BOARD
<PAGE>
NON-DISCLOSURE AGREEMENT
This Non-Disclosure Agreement (this "AGREEMENT") is entered into as of
September 20, 1999 (the "EFFECTIVE DATE") by and between Premisys
Communications, Inc. ("PREMISYS") and Zhone Corporation ("RECIPIENT").
The parties desire to pursue certain business discussions solely for the
purpose (the "BUSINESS PURPOSE") of evaluating a possible business transaction
between themselves, including discussions regarding (i) the strategic importance
and value of Premisys or any of its products or technology to Recipient's
business, and (ii) the possible structures of any business transaction between
Premisys and Recipient. In connection with such discussions, Premisys may elect
to make available and disclose to Recipient certain of its confidential
information solely for the Business Purpose.
Accordingly, in consideration of the disclosure of any such confidential
information by Premisys to Recipient, and the mutual agreements of the parties
set forth in this Agreement, and in order to facilitate the evaluation of the
possible business transaction described above, the parties agree as follows:
1. DEFINITION OF "CONFIDENTIAL INFORMATION. As used in this Agreement,
"CONFIDENTIAL INFORMATION" means all information disclosed by Premisys or its
agents to Recipient (or to Recipient's attorneys, accountants or other
professional advisors, collectively, its "REPRESENTATIVES") in connection with
the Business Purpose, including without limitation, information regarding
Premisys' products, computer software, technology, agreements, customers,
suppliers, financial condition, business plans or strategies and also includes
all information contained in any notes, analyses, compilations, studies,
interpretations or other documents prepared by Recipient or its Representatives
which contain, reflect or are based upon, in whole or in part, the information
furnished by Premisys or its agents; PROVIDED, HOWEVER, that Confidential
Information will NOT include information that:
(a) is as of the Effective Date, or hereafter becomes, through no act
or failure to act on the part of Recipient, generally known or readily
ascertainable through proper means to persons knowledgeable in the relevant
industry;
(b) was acquired by Recipient by proper means without restriction as to
use or disclosure BEFORE receiving such information from Premisys;
(c) is hereafter rightfully furnished to Recipient by a third party,
without restriction as to use or disclosure; or
(d) was independently developed by Recipient without use of Premisys'
Confidential Information.
2. RESTRICTIONS ON USE AND DISCLOSURE. Recipient agrees: (a) to hold
Premisys' Confidential Information in strict confidence; (b) not to disclose
such Confidential Information to any third parties (other than on a confidential
basis to its Representatives in furtherance of the
<PAGE>
Business Purpose); and (c) not to use any Confidential Information for any
purpose except for the Business Purpose. Recipient may disclose Premisys'
Confidential Information to its employees with a bona fide need to know, but
only to the extent reasonably necessary to carry out the Business Purpose.
Recipient agrees to instruct all such employees that they may not use such
Confidential Information for any purpose other than the Business Purpose and
(except as permitted by the terms of this Agreement) not to disclose such
Confidential Information to third parties, including consultants, without the
prior written consent of Premisys.
3. NON-DISCLOSURE OF TRANSACTION. Recipient will not, without the prior
written consent of Premisys, disclose to any third party (except as permitted by
the terms of this Agreement) the fact that any Confidential Information has been
disclosed hereunder, that discussions or negotiations are taking place
concerning a possible transaction involving the parties or any of the terms,
conditions or other facts with respect thereto (including the status thereof);
PROVIDED, HOWEVER, that Recipient (and its Representatives) may make such
disclosure if, in the reasonable opinion of counsel for such party, such
disclosure is required by law, regulation or any stock exchange or the Nasdaq
National Market.
4. REQUIRED DISCLOSURE. In the event that Recipient or any of its
Representatives is requested or required (by oral questions, interrogatories,
requests for information or documents in legal proceedings, subpoena, civil
investigative demand or other similar process) to disclose any of the
Confidential Information of Premisys, Recipient shall provide Premisys with
prompt written notice of any such request or requirement so that Premisys may
seek a protective order, confidential treatment or other appropriate remedy
and/or waive compliance with the provisions of this Agreement. If, in the
absence of a protective order, confidential treatment or other remedy or the
receipt of a waiver by Premisys, Recipient or its Representatives are requested
or required to make the disclosure and, in the reasonable opinion of legal
counsel for Recipient, legally compelled to disclose Premisys' Confidential
Information to any court, tribunal or agency or else stand liable for contempt
or suffer other censure or penalty, Recipient or its Representatives may,
without liability hereunder, disclose to such tribunal or agency only that
portion of Premisys' Confidential Information which such counsel advises is
legally required to be disclosed, provided that Recipient and its Representative
exercise their best efforts to preserve the confidentiality of Premisys'
Confidential Information, including, without limitation, by cooperating with
Premisys to obtain an appropriate protective order or other assurance that
confidential treatment will be accorded Premisys' Confidential Information by
such tribunal or agency.
5. RETURN/DESTRUCTION OF CONFIDENTIAL INFORMATION. Premisys may, at any
time, deliver written notice (a "TERMINATION NOTICE") to Recipient of Premisys'
election to have all tangible materials (including without limitation paper and
magnetic storage media) in the possession of Recipient (or its Representatives)
which contain, reflect, are based upon or derived from, in whole or in part, any
of Premisys' Confidential Information ("CONFIDENTIAL MATERIALS") either returned
to Premisys or, at Premisys' election, destroyed. Upon receipt of a Termination
Notice, Recipient shall, within twenty (20) calendar days, either: (i) return
the Confidential Materials in its possession to Premisys and instruct its
Representatives to do the same; (ii) destroy the Confidential Materials in a
secure manner and instruct its Representatives to do the same; or (iii) at
Premisys' election, take any combination of steps (i) and (ii). Prior to the
expiration of the foregoing twenty (20) period, Recipient shall certify in
writing to Premisys that it has complied with its obligations under this Section
5 (a "COMPLIANCE CERTIFICATE"). Notwithstanding the
-2-
<PAGE>
provisions of this Section 5, if Recipient receives a Termination Notice, it
shall not be required to return or destroy Confidential Materials to the
extent that, in the reasonable opinion of legal counsel for such party, such
return or destruction violates any law or regulation; PROVIDED, HOWEVER, that
in such event Recipient shall describe in its Compliance Certificate the
extent to which it is not returning or destroying Confidential Materials.
Notwithstanding any return or destruction of Confidential Materials,
Recipient will continue to be bound by its obligations under this Agreement
with respect to Confidential Information contained or reflected in such
Confidential Materials.
6. NO LICENSE OR OTHER RIGHTS. Nothing contained in this Agreement will be
construed as granting any rights to Recipient, by license or otherwise, to any
of Premisys' Confidential Information except as expressly specified in this
Agreement.
7. NO REPRESENTATION OF ACCURACY. Recipient acknowledges and agrees that
Premisys makes no representation or warranty, express or implied, as to the
accuracy or completeness of the Confidential Information disclosed to Recipient
in connection with the Business Purpose. Recipient agrees that neither Premisys
nor its agents, shall have any liability to Recipient or its Representatives
relating to or resulting from the use of the Confidential Information or any
errors therein or omissions therefrom. Only those representations and warranties
which are made in the final definitive agreement between the parties hereto
regarding any transactions contemplated hereby, when, as and if executed, and
subject to such limitations and restrictions as may be specified therein, will
have any legal effect.
8. NO OBLIGATION REGARDING BUSINESS PURPOSE. Each party acknowledges that
(i) neither party will be under any obligation of any kind by virtue of this
Agreement to enter into any agreement relating to the Business Purpose or the
possible transaction referred to herein and (ii) unless and until a binding
written agreement to the contrary is executed and delivered by the parties
hereto, each party reserves the absolute right, in its sole discretion, to
reject any and all proposals made by the other party with regard to any possible
transaction relating to the Business Purpose and to terminate discussions
relating to such a possible transaction at any time.
9. NONSOLICITATION OF EMPLOYEES. Beginning on Effective Date and
continuing for a period of six months thereafter, Recipient will not, either
for itself or for any other person or entity, directly or indirectly,
solicit, induce or attempt to induce any employee of Premisys to terminate
his or her employment with Premisys. The parties agree that general
solicitation or recruitment of prospective employees through newspaper
advertising or job fairs shall not be deemed a violation of this provision.
10. STANDSTILL. Beginning on the Effective Date and continuing for a period
of one (1) year thereafter, neither Recipient nor any of its affiliates will
(and neither party nor any of its affiliates will assist or encourage others
to), directly or indirectly, unless specifically requested to do so in writing
in advance by Premisys' Board of Directors:
(a) acquire or agree, offer, seek or propose to acquire, or cause to be
acquired, ownership (including, but not limited to, beneficial ownership as
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT")) of any of Premisys' assets
-3-
<PAGE>
or businesses or any securities issued by Premisys, or any rights or options
to acquire such ownership, including from a third party; or
(b) make, or in any way participate, in any solicitation of proxies or
consents with respect to any securities of Premisys which are, or may be,
entitled to vote in the election of Premisys' directors ("VOTING SECURITIES"),
become a "participant" in any "election contest" (as such terms are defined or
used in Rule 14a-11 under the Exchange Act) with respect to Premisys; or seek to
advise, encourage or influence any person or entity with respect to the voting
of any Voting Securities; or demand a copy of Premisys' stock ledger, list of
its stockholders or other books and records; or call or attempt to call any
meeting of the stockholders of Premisys; or
(c) form, join, or in any way participate, directly or indirectly, in a
"group" within the meaning of Section 13(d)(3) of the Exchange Act with respect
to any securities of Premisys.
11. INJUNCTIVE RELIEF; LEGAL FEES AND EXPENSES. Recipient acknowledges that
any violation of the terms of this Agreement would cause irreparable harm and
significant injury, the degree of which may be difficult to ascertain.
Accordingly, Recipient agrees that Premisys will have the right to obtain
equitable relief, including an injunction or specific performance, as a remedy
for any breach of the terms of this Agreement, as well as the right to pursue
any and all other rights and remedies available at law or in equity for such a
breach. In the event of litigation arising from or relating to this Agreement,
the party which is found to be the prevailing party by a court of competent
jurisdiction in a final, non-appealable order shall receive from the
non-prevailing party the reasonable legal fees and expenses, including attorney
fees, incurred by the prevailing party in connection with such litigation,
including any appeal therefrom.
12. GOVERNING LAW; JURISDICTION AND VENUE. The internal laws of the State
of California (irrespective of its choice of law principles) will govern the
validity of this Agreement, the construction of its terms, and the
interpretation and enforcement of the rights and duties of the parties hereto.
Each of the parties hereby irrevocably consents to the exclusive jurisdiction of
and venue in the United States District Court for the Northern District of
California in connection with any litigation of a dispute between them arising
from or relating to this Agreement and waives any and all right to object to the
jurisdiction of such court or to claim that venue in such court is not proper.
13. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding
and agreement of the parties hereto with respect to the subject matter hereof
and supersedes all prior and contemporaneous agreements or understandings,
inducements or conditions, express or implied, written or oral, between the
parties with respect to such subject matter.
14. AMENDMENT AND WAIVERS. Any term or provision of this Agreement may be
amended only by the written consent of each of the parties hereto. The
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) only by a writing
signed by the party to be bound by such waiver. The waiver by a party of any
breach hereof or default in the performance hereof will not be deemed to
constitute a waiver of any other default or any succeeding breach or default.
-4-
<PAGE>
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all parties reflected hereon as signatories.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers or representatives.
PREMISYS COMMUNICATIONS, INC. ZHONE CORPORATION
By: /s/ John J. Hagedorn By: /s/ Mory Ejabat
---------------------------- ---------------------------------------
Typed Name: JOHN J. HAGEDORN Typed Name: MORY EJABAT
-------------------- -------------------------------
Title: Sr. VP/Chief Financial Title: Chairman and Chief Executive Officer
------------------------- ------------------------------------
Officer
-------------------------
By:
-------------------------------
Typed Name: JEANNETTE SIMONDS
-----------------------
Title:
----------------------------
-5-
<PAGE>
Exhibit 99.10
[Premisys Letterhead]
March 25, 1999
Mr. Claude Dupuis
638 Chapel
Ottawa Ontario
Canada
K1N 7Z9
Dear Claude:
This is to confirm our offer to you as the Senior Vice President of
Engineering based in Corporate Office. As a corporate officer of the company,
you will report directly to Nick Williams, President and CEO. The following
are the details of your compensation plan:
CASH COMPENSATION
- Annual Base Salary of $180,000.00 ($6,923.08 Bi-weekly)
- In addition to your base salary, you will be eligible to participate
in our Management Incentive Plan (MIP). Your participation will be
$85,000-70% based upon achieving operating profit and 30% based upon
achieving performance objectives. This will be pro-rated for Fiscal
Year '99.
- We will also recommend to the Board of Directors or its designee that
they issue you options for 100,000 shares of Premisys stock as
governed by the Premisys Employee Stock Plan, which will vest as set
forth in the Plan.
- During your first month as Senior Vice President of Engineering, you
will receive a special bonus of $20,000.00 (less appropriate
deductions).
- The effective date of your promotion will be April 1, 1999.
RELOCATION EXPENSES
Premisys will offer the following relocation expenses associated with the
move to California:
- Premisys will cover the entire cost to move your personal/household
items from Canada to the Bay Area. Relocation must be completed within
90 days.
SCHOOLING
- Premisys will provide tuition allowance for your children/spouse not
to exceed $35,000.00. This allowance will only be provided for 1 full
year from your promotion date. Reimbursement will be paid to you based
upon presentation of itemized receipts.
<PAGE>
MORTGAGE ASSISTANCE
- Premisys will provide mortgage assistance of $3,000.00 per month for a
three-year period.
BRIDGE LOAN
- Premisys will also provide a $200,000 bridge loan to assist with the
down payment of a home in the Bay Area at 6 (six) percent interest.
The appropriate loan documentation will be provided to you prior to
the close of your new home.
- If your employment is terminated without cause, you will be paid a
severance equal to six months of your salary, less appropriate
deductions.
Furthermore, if your employment is terminated for cause, or if you
voluntarily resign from Premisys within 24 months of the effective date of
your promotion, you will be required to repay the special bonus, relocation
expenses, tuition allowance, and mortgage assistance to Premisys on a
pro-rata basis.
You will be eligible to participate in the benefits program offered by
Premisys in accordance with our policies, which may change form time to time,
and after meeting the applicable eligibility requirements, if any. The
benefits program includes medical, dental, life, long term disability
coverage, employee stock purchase plan and a 401(k) plan. Additionally, you
will be entitled to paid holidays and vacation in accordance with our policy.
Your employment with Premisys will be at-will, thus, either you or the
Company may terminate the employment relationship at any time with or
without cause. You will also assist in safeguarding the Company's trade
secrets and related sensitive information as part of the Company's effort to
protect its proprietary information.
Again, I am pleased to offer you this challenging opportunity to contribute
to the success of Premisys.
Sincerely,
/s/ John Hagedorn
John Hagedorn
Chief Financial Officer and Sr. Vice President
I accept the above offer of employment, pursuant to the items and conditions
set forth in this letter.
Signature: /s/ Claude Dupuis Date: 26/03/99
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Attachment: Copy of offer letter
Benefit Summary
<PAGE>
SECURED PROMISSORY LOAN AGREEMENT
BETWEEN
CLAUDE DUPUIS
AND PREMISYS COMMUNICATIONS, INC.
This Loan Agreement (the "Agreement") is made as of April 29, 1999, (the
Agreement Date") by and between CLAUDE DUPUIS of 112 Elsie, Street, San
Francisco, California 94110-5149 (the "Borrower") and PREMISYS
COMMUNICATIONS, INC. a Delaware corporation with its principal place of
business at 48664 Milmont Drive, Fremont, California 94538 (the "Lender").
WHEREAS, The Lender wishes to secure the services of Borrower as it
Senior Vice President of Engineering;
WHEREAS, The Lender wishes to facilitate the Borrower's purchase of a
home in a location which is proximate to transportation to his place of work,
and to the schools to be attended by his wife and children; and
WHEREAS, The Borrower's equity in his current home in Ottawa is small by
comparison with that required as a down payment on a home near his place of
work in California.
NOW THEREFORE, in consideration of the foregoing and the covenants
contained below, the Lender and Borrower agree as follows:
1. CONSIDERATION. In consideration of the promises and covenants
contained herein, the Lender agrees to loan to the Borrower, the sum of Two
Hundred Thousand Dollars ($200,000). On April 30, 1999, such funds are to be
transferred by wire into Borrower's checking account number 16626-12631 at
Bank of America in Fremont, California (Transit No. 121000358).
2. SECURITY. This loan shall be secured by the vested and/or exercised
portion of Borrower's options to purchase the common stock of the Lender. The
certificates issued from any such stock options exercised or purchased shall
be held in escrow by the Lender.
3. REPAYMENT OF LOAN. The borrower agrees to repay the loan to the
Lender at the above address of the Lender or at any other address designated
in writing by the Lender at the earliest of the following dates:
(a) Sixty (60) months after the Agreement Date.
(b) Thirty (30) days after the Borrower's voluntary resignation of
employment at the Lender for any reason.
(c) Twenty-four (24) months after the Borrower's involuntary termination
of employment at the Lender for any reason other than a
reorganization, sale or merger in which Borrower's job is eliminated.
-1- April 29, 1999
<PAGE>
4. LOAN FORGIVENESS. Should Borrower's employment at Lender be
terminated because of a reorganization, sale or merger of the lender prior to
the date in 3(a) above, Lender shall forgive Borrower the repayment of the
loan as a severance consideration.
5. INTEREST. Interest shall accrue at the rate of six percent (6%) per
annum compounded and prorated based upon the number of days for any periods
less than one year based on three hundred and sixty-five (365) days. Interest
so calculated shall be paid at the time of the repayment of the loan.
6. PREPAYMENT. Borrower may pay all or part of this loan at a date
earlier than provided for in paragraph 3 and interest shall be prorate based
on the reduced amount and term of the loan as provided for in section 4.
7. ASSIGNABILITY. Neither this Agreement nor any rights under it may be
assigned, pledged, hypothecated, or otherwise aliened by either of the
parties, without the written consent of all parties to this Agreement.
8. BENEFIT. This Agreement shall be binding upon and insure to the
benefits of the parties, their respective heirs, executors, administrators,
and assigns.
IN WITNESS WHEREOF, the parties do execute and deliver this agreement in
Fremont, California, this April 29, 1999.
PREMISYS COMMUNICATIONS, CLAUDE DUPUIS,
LENDER BORROWER
By: /s/ John J. Hagedorn By /s/ Claude Dupuis
----------------------------- -----------------------
Name: John J. Hagedorn
---------------------------
Title: Sr. Vice President & Chief Witness: /s/ Linda D. Ward
Financial Officer -----------------
--------------------------
Witness: /s/ [illegible]
-----------------
-2- April 29, 1999
