<PAGE>
As filed with the Securities and Exchange Commission on November __, 1994
Registration No. 33-55343
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
____________
STORAGE TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 357 84-0593263
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
2270 South 88th Street
Louisville, Colorado 80028-0001
(303) 673-5151
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
_____________
W. Russell Wayman, Esq.
Storage Technology Corporation
2270 South 88th Street
Louisville, Colorado 80028-4309
(303) 673-4920
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Richard A. Strong Malcolm Reid Bruce A. Machmeier
Gibson, Dunn & Crutcher Vice President, General Oppenheimer Wolff &
2029 Century Park East Counsel and Secretary Donnelly
Suite 4000 Network Systems 3400 Plaza VII
Los Angeles, California Corporation 45 S. Seventh Street
90067 7600 Boone Avenue, N. Minneapolis, Minnesota
Minneapolis, Minnesota 55402
55428
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the Registration Statement becomes effective and all other
conditions to the merger of a subsidiary of the Registrant with and into Network
Systems Corporation pursuant to the Agreement and Plan of Merger described in
the enclosed Proxy Statement/Prospectus have been satisfied or waived.
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
-----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
STORAGE TECHNOLOGY CORPORATION
CROSS REFERENCE SHEET
Location or Caption in
Item in Form S-4 Proxy Statement/Prospectus
--------------------------
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus.............................. Outside Front Cover Page of Proxy
Statement/Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus............... Available Information; Information
Incorporated by Reference; Table
of Contents
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information............................. Summary; Information Incorporated
by Reference; Ratio of Earnings to
Fixed Charges Is Not Applicable
4. Terms of the Transaction................ Summary; The Merger; Appendix A
5. Pro Forma Financial..................... Unaudited Pro Forma Condensed
Combined Financial Information
Statements
6. Material Contacts with the Company
Being Acquired.......................... The Merger--Transactions Between
StorageTek and Network Systems
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to Be Underwriters............... Inapplicable
8. Interests of Named Experts and
Counsel................................. Certain Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Inapplicable
10. Information with Respect to S-3
Registrants............................. Available Information;
Information Incorporated by
Reference; Summary
11. Incorporation of Certain Information
by Reference............................ Information Incorporated by
Reference
12. Information with Respect to S-2 or
S-3 Registrants......................... Inapplicable
13. Incorporation of Certain Information
by Reference............................ Inapplicable
14. Information with Respect to Registrants
Other than S-2 or S-3 Registrants....... Inapplicable
15. Information with Respect to
S-3 Companies........................... Information Incorporated by
Reference; Summary
16. Information with Respect to S-2 or
S-3 Companies........................... Inapplicable
17. Information with Respect to Companies
Other than S-2 or S-3 Companies......... Inapplicable
<PAGE>
18. Information if Proxies, Consents or
Other Authorizations are to be
Solicited............................... Outside Front Cover Page of Proxy
Statement/Prospectus; Available
Information; Information
Incorporated by Reference;
Introduction; The Merger--Interests
of Certain Persons in the Merger;
The Merger--No Appraisal Rights;
The Merger--Comparison of
Stockholder Rights
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited or in an Exchange
Offer................................... Inapplicable
<PAGE>
[Network Systems LOGO]
___________, 199
Dear Fellow Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
(the "Meeting") of Network Systems Corporation ("Network Systems") to be held on
_______ _______ 1995 at __:___ local time, at _________, Minneapolis, Minnesota.
At the Meeting you will be asked to consider and vote upon a proposed
Agreement and Plan of Merger, as amended (the "Merger Agreement"), which
provides for the merger (the "Merger") of a newly formed subsidiary of Storage
Technology Corporation ("StorageTek") with and into Network Systems, with
Network Systems as the surviving corporation and a wholly-owned subsidiary of
StorageTek. If the proposed Merger described in the accompanying Proxy
Statement/Prospectus becomes effective, each stockholder of Network Systems will
be entitled to receive 0.2618 shares of StorageTek common stock in exchange for
each share of Network Systems common stock. Any fractional share of StorageTek
resulting from the application of the exchange ratio will be paid in cash. In
connection with the Merger, the Network Systems Board of Directors has ordered
redemption of all rights outstanding under the Network Systems Amended and
Restated Rights Agreement and holders of Network Systems common stock will also
be entitled to receive from Network Systems an additional $.05 per share in cash
at the effective time of the Merger in connection with this redemption.
The proposed Merger has been approved by the Boards of Directors of
Network Systems and StorageTek and is subject to approval by holders of a
majority of the outstanding Network Systems common stock.
THE BOARD OF DIRECTORS OF NETWORK SYSTEMS BELIEVES THAT THE MERGER IS
IN THE BEST INTERESTS OF NETWORK SYSTEMS AND ITS STOCKHOLDERS AND THEREFORE
UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MERGER. Details of the
background and reasons for the proposed Merger appear and are explained in the
attached Proxy Statement/Prospectus. Additional information regarding Network
Systems and StorageTek also is set forth in the Proxy Statement/Prospectus. I
urge you to read this material carefully.
Network Systems' Board of Directors has received an opinion of Needham
& Company, Inc., Network Systems' financial advisor, that the exchange ratio
being offered in the Merger is fair from a financial point of view to Network
Systems' stockholders. A copy of this opinion is included as Appendix B to the
Proxy Statement/Prospectus.
In order to ensure that your vote is represented at the meeting,
please indicate your choice on the enclosed proxy card, date and sign it, and
return it in the enclosed postage-paid envelope. You are welcome to attend the
Meeting, and may revoke your proxy and vote in person even if you have
previously returned the proxy card.
Please do not send in any stock certificates at this time. If the
Merger is adopted you will be sent instructions regarding the surrender of your
existing stock certificates.
Sincerely,
Lyle D. Altman
Chairman of the Board
<PAGE>
[Network Systems Logo]
NETWORK SYSTEMS CORPORATION
7600 Boone Avenue North, Minneapolis, Minnesota 55428
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
_________________, 199_
TO THE STOCKHOLDERS OF NETWORK SYSTEMS CORPORATION:
A Special Meeting (the "Meeting") of the stockholders of Network
Systems Corporation ("Network Systems") will be held at ____________________,
Minneapolis, Minnesota, on __________________, 1995, at ____ a.m., local time,
to consider and act upon:
1. A proposal to approve the Agreement and Plan of Merger, dated as
of August 8, 1994, as amended (the "Merger Agreement"), among Network
Systems, Storage Technology Corporation ("StorageTek") and StorageTek Eagle
Corporation, a wholly-owned subsidiary of StorageTek ("Sub"), pursuant to
which (a) Sub will be merged with and into Network Systems (the "Merger"),
with Network Systems as the surviving corporation and a wholly-owned
subsidiary of StorageTek, and (b) holders of Network Systems common stock
will be entitled to receive 0.2618 shares of StorageTek common stock, in
exchange for each share of Network Systems common stock. Upon the
effectiveness of the Merger, holders of Network Systems common stock will
also be entitled to receive from Network Systems an additional $.05 per
share in cash at the effective time of the Merger in connection with the
redemption of the preferred stock purchase rights outstanding under Network
Systems' Amended and Restated Rights Agreement.
2. A proposal to adjourn the Meeting to a later date to permit
further solicitation of proxies in the event an insufficient number of
shares of Network Systems Common Stock is present in person or by proxy at
the meeting to approve the Merger Agreement.
The Network Systems Board of Directors has fixed the close of business
on _________________, 199_ as the record date for the determination of
stockholders entitled to notice of and to vote at the Meeting or any
adjournments thereof.
BY ORDER OF THE BOARD OF DIRECTORS
Dated: ________, 199_ Malcolm Reid, Vice President, General
Counsel, and Secretary
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. HOWEVER, WHETHER OR NOT
YOU PLAN TO BE PERSONALLY PRESENT AT THE MEETING, PLEASE COMPLETE, DATE,
AND SIGN THE ACCOMPANYING PROXY AND MAIL IT PROMPTLY IN THE RETURN
ENVELOPE. IF YOU LATER DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY
TIME BEFORE IT IS EXERCISED.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ Information contained herein is subject to completion or amendment. A +
+ registration statement relating to these securities has been filed with +
+ the Securities and Exchange Commission. These Securities may not be sold +
+ nor may offers to buy be accepted prior to the time the registration +
+ statement becomes effective. This prospectus shall not constitute +
+ an offer to sell or the solicitation of an offer to buy nor shall there +
+ be any sale of these securities in any State in which such offer, +
+ solicitation or sale would be unlawful prior to registration or +
+ qualification under the securities laws of any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion November 15, 1994
SPECIAL MEETING OF STOCKHOLDERS OF
NETWORK SYSTEMS CORPORATION TO BE HELD ON _______________, 1995
PROXY STATEMENT/PROSPECTUS
This Proxy Statement/Prospectus is being furnished to the holders of
Network Systems Common Stock, $.02 par value ("Network Systems Stock"), in
connection with the solicitation of proxies by the Board of Directors of Network
Systems for use at a special meeting of the stockholders of Network Systems (the
"Meeting") to be held at [location] on [date] at [time]. The Meeting has been
called to consider and vote upon an Agreement and Plan of Merger dated as of
August 8, 1994, as amended (the "Merger Agreement"), by and among Storage
Technology Corporation, a Delaware corporation ("StorageTek"), StorageTek Eagle
Corporation ("Sub"), a Delaware corporation and a newly-formed, wholly-owned
subsidiary of StorageTek, and Network Systems providing for the merger (the
"Merger") of Sub into Network Systems. If the proposed Merger is consummated,
each outstanding share of Network Systems Stock will be converted into 0.2618
shares (the "Exchange Ratio") of StorageTek Common Stock, $.10 par value, and
each full share of StorageTek Stock will be accompanied by a StorageTek
preferred stock purchase right (collectively, "StorageTek Stock"). In addition,
in connection with the Merger, the Network Systems Board of Directors has
ordered the redemption of all preferred stock purchase rights (the "Rights")
outstanding under Network Systems' Amended and Restated Rights Agreement, and
holders of Network Systems stock will also be entitled to receive from Network
Systems an additional $.05 per share in cash at the effective time of the Merger
in connection with the redemption of the Rights. Based on the closing price of
$____________ of StorageTek Stock on the New York Stock Exchange
composite tape on December __, 1994, the Exchange Ratio would have
resulted in Network Systems' stockholders receiving approximately
$____________ in market value of StorageTek Stock plus a payment of $.05
in cash for each share of Network Systems Stock, if the Merger had been
effective on that date. Because the Exchange Ratio is fixed by the
Merger Agreement and the market price of StorageTek Stock is subject to
fluctuation, the market price of StorageTek Stock may increase or decrease prior
to the Merger, thereby increasing or decreasing the market value of the shares
of StorageTek Stock which Network Systems' stockholders will receive in the
Merger. See "The Merger--Exchange of Shares; Fractional Shares; Adjustment of
Exchange Ratio." Upon consummation of the Merger, Network Systems will become a
wholly-owned subsidiary of StorageTek.
StorageTek has filed a registration statement on Form S-4 (including
exhibits and amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with the Securities
and Exchange Commission (the "SEC"), covering the shares of StorageTek Stock to
be issued in the event the proposed Merger is consummated. This document along
with the documents and portions of documents incorporated herein by reference
also constitutes the prospectus of StorageTek filed as a part of the
Registration Statement.
In the event the proposed Merger is consummated, StorageTek will issue
approximately 7,943,076 shares of StorageTek Stock in exchange for all of the
Network Systems Stock outstanding at such time, which would constitute, as of
December __, 1994, approximately ________% of the outstanding shares of
StorageTek Stock after giving effect to such issuance. StorageTek may also issue
up to approximately 547,665 additional shares of StorageTek Stock upon exercise
of outstanding employee stock options granted by Network Systems and pursuant to
Network Systems' employee stock purchase plan, which will be assumed by
StorageTek in the Merger. For more information regarding Network Systems'
outstanding stock options and stock purchase plan, see "The Merger--Treatment of
Network Systems Options and Employee Stock Purchase Plan."
All information concerning StorageTek contained in this Proxy
Statement/Prospectus has been supplied by StorageTek, and all information
concerning Network Systems contained in this Proxy Statement/Prospectus has been
supplied by Network Systems.
THE STORAGETEK STOCK TO BE ISSUED PURSUANT TO THIS PROXY
STATEMENT/PROSPECTUS HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
This Proxy Statement/Prospectus is dated __________, 199 and is
first being mailed to Network Systems' stockholders on or about ___________,
199 .
<PAGE>
No person has been authorized to give any information or to make any
representation other than as contained herein in connection with the matters
described herein, and, if given or made, such information or representation must
not be relied upon as having been authorized by StorageTek or Network Systems.
This Proxy Statement/Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, any securities, or the solicitation of a
proxy, in any jurisdiction in which, or to any person to whom, it is unlawful to
make such offer or solicitation of a proxy, in any jurisdiction in which, or to
any person to whom, it is unlawful to make such offer or solicitation of an
offer or proxy solicitation. Neither the delivery of this Proxy
Statement/Prospectus nor any distribution of the securities offered hereby
shall, under any circumstances, create any implication that there has been no
change in the affairs of StorageTek or Network Systems since the date hereof or
that the information set forth or incorporated by reference herein is correct as
of any time subsequent to its date.
AVAILABLE INFORMATION
StorageTek and Network Systems are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, file reports, proxy statements and other information with
the SEC. The Registration Statement (including the exhibits thereto) as well as
such reports, proxy statements and other information filed by each may be
inspected and copied at the public reference facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the SEC located at 75 Park Place, New York, New York 10007 and 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material can be obtained from
the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. Such reports, proxy statements and other
information filed by StorageTek also may be inspected at the offices of the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. Materials
filed by Network Systems can be inspected at the offices of the National
Association of Securities Dealers, Inc., Reports Section, 1735 K Street, N.W.,
Washington, D.C. 20006.
StorageTek has filed the Registration Statement with the SEC under the
Securities Act with respect to the securities covered by this Proxy
Statement/Prospectus. This Proxy Statement/Prospectus does not contain all of
the information set forth in the Registration Statement, certain portions of
which are contained in or incorporated by reference as exhibits to the
Registration Statement as permitted by the rules and regulations of the SEC.
For further information with respect to StorageTek, Network Systems and the
securities to be issued in the Merger, reference is made to the Registration
Statement, including the exhibits filed or incorporated as a part thereof.
Statements contained herein concerning the provisions of documents filed with,
or incorporated by reference in, the Registration Statement as exhibits are
necessarily summaries of such documents and each such statement is qualified in
its entirety by reference to the copy of the applicable documents filed with the
SEC.
INFORMATION INCORPORATED BY REFERENCE
The following documents, which have been filed with the SEC pursuant to the
Exchange Act, are incorporated herein by reference:
StorageTek
1. Annual Report on Form 10-K for its fiscal year ended December 31,
1993.
2. Quarterly Reports on Form 10-Q for its fiscal quarters ended
April 1, 1994, July 1, 1994 and September 30, 1994 .
3. The description of the StorageTek Stock contained in the
registration statements on Form 8-A, dated August 13, 1981, August
20, 1990 and February 8, 1993.
i
<PAGE>
Network Systems
1. Annual Report on Form 10-K for its fiscal year ended December 31,
1993.
2. Quarterly Reports on Form 10-Q for its fiscal quarters ended
March 31, June 30, and September 30, 1994 .
3. Current Reports on Form 8-K dated January 18, and August 17, 1994.
4. The description of the Network System Stock contained in the
Registration Statement on Form 8-A, as amended.
5. The description of the Rights contained in the Registration
Statement on Form 8-A, as amended.
All documents and reports filed by StorageTek or Network Systems pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement/Prospectus and prior to the date of the Meeting shall be deemed
to be incorporated by reference herein and to be a part hereof from the
respective dates of filing of such documents or reports. All information
appearing in this Proxy Statement/Prospectus or in any document incorporated
herein by reference is not necessarily complete and is qualified in its entirety
by the information and financial statements (including notes thereto) appearing
in the documents incorporated herein by reference and should be read together
with such information and documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement/Prospectus to the
extent that a statement contained herein (or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein) modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed to constitute a part of this Proxy Statement/Prospectus except as
so modified or superseded.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS, OTHER
THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE THEREIN, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY
NETWORK SYSTEMS' STOCKHOLDER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED UPON WRITTEN OR ORAL REQUEST, WITH RESPECT TO DOCUMENTS RELATING TO
STORAGETEK, TO CORPORATE COMMUNICATIONS, STORAGE TECHNOLOGY CORPORATION, 2270
SOUTH 88TH STREET, LOUISVILLE, COLORADO 80028-4310, TELEPHONE NUMBER (303) 673-
5020 OR, WITH RESPECT TO DOCUMENTS RELATING TO NETWORK SYSTEMS, TO INVESTOR
RELATIONS, NETWORK SYSTEMS CORPORATION, 7600 BOONE AVENUE NORTH, MINNEAPOLIS,
MINNESOTA 55428, TELEPHONE NUMBER (612) 424-1649 or (800) 672-7670. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
____________________, 1995.
ii
<PAGE>
Proxy Statement/Prospectus
TABLE OF CONTENTS
Page
----
Available Information..................................................... i
Information Incorporated by Reference..................................... i
Summary................................................................... 1
General Information................................................... 1
Special Meeting of Stockholders of Network Systems.................... 1
The Merger............................................................ 2
Comparative Per Share Market Information.............................. 6
Introduction.............................................................. 13
General............................................................... 13
Record Date; Voting Rights; Vote Required............................. 13
Proxy Solicitation.................................................... 14
The Merger................................................................ 15
General............................................................... 15
Background of the Merger.............................................. 15
Network Systems' Reasons for the Merger; Recommendation of Network
Systems' Board of Directors........................................... 17
Opinion of Network Systems' Financial Advisor......................... 20
StorageTek's Reasons for the Merger................................... 23
Exchange of Shares; Fractional Shares; Adjustment of Exchange Ratio... 24
No Appraisal Rights................................................... 25
Management of Network Systems after the Merger; Interests of Certain
Persons in the Merger................................................. 25
Treatment of Network Systems Options and Employee Stock Purchase Plan. 28
Transactions Between StorageTek and Network Systems................... 29
Certain Federal Income Tax Consequences............................... 29
Comparison of Stockholder Rights...................................... 30
Accounting Treatment.................................................. 31
Conditions for Merger and Other Provisions............................ 31
No Solicitation....................................................... 33
Merger and Consolidation Charges...................................... 33
Expenses; Topping Offer............................................... 33
Regulatory Approvals.................................................. 34
Restrictions on Resale; Affiliate Agreements.......................... 34
Operation Of Business Prior To Merger................................. 35
Unaudited Pro Forma Condensed Combined Financial Statements............... 36
Experts................................................................... 45
Certain Legal Matters..................................................... 45
Adjournment of Meeting.................................................... 45
Appendix A - Restated Agreement and Plan of Merger, by and among Storage
Technology Corporation, StorageTek Eagle Corporation and Network
Systems Corporation, dated as of August 8, 1994, as amended on
August 25, 1994 and September 9, 1994, and Restated on November 15,
1994
Appendix B - Opinion of Network Systems' Financial Advisor
iii
<PAGE>
SUMMARY
Certain significant matters discussed in this Proxy Statement/Prospectus
are summarized below. This Summary is not intended to be complete and is
qualified in all respects by reference to the more detailed information
appearing, or incorporated by reference, in this Proxy Statement/Prospectus.
Stockholders are urged to review carefully the entire Proxy Statement/Prospectus
including the Appendices and the documents incorporated herein by reference.
General Information
Storage Technology Corporation. StorageTek and its subsidiaries design,
------------------------------
manufacture, market and service information storage and retrieval subsystems for
high-performance and midrange computer systems, as well as computer networks.
StorageTek's three principal product lines are serial access storage subsystems,
random access storage subsystems and midrange computer products. Serial access
storage subsystems include tape devices and automated library systems. Random
access storage subsystem products include direct access storage devices ("DASD")
using redundant arrays of inexpensive disks ("RAID") technology. Midrange
computer products include serial access, random access and other products for
the IBM AS/400 and other midrange systems. StorageTek also offers software and
network communication products that expand applications for its library and
random access products for efficient storage management and access.
Storage Technology Corporation was incorporated in Delaware in 1969.
Its principal executive offices are located at 2270 South 88th Street,
Louisville, Colorado 80028-0001, and its telephone number is (303) 673-5151.
Network Systems Corporation. Network Systems designs, manufactures,
----------------------------
markets and services high-performance data communications systems. These
products connect computer systems to other computers of the same or different
manufacture, as well as to peripheral devices such as storage subsystems,
printers and terminals. Network Systems also manufactures and markets fault
tolerant hubs, bridges and routers that connect local area networks to each
other and to wide area networks. Network Systems is a Delaware corporation.
Its principal executive offices are located at 7600 Boone Avenue North,
Minneapolis, Minnesota 55428, and its telephone number is (612) 424-4888.
Merger Agreement. On August 8, 1994, StorageTek, StorageTek Eagle
----------------
Corporation, a Delaware corporation and a wholly-owned subsidiary of StorageTek
("Sub"), and Network Systems entered into an Agreement and Plan of Merger, as
subsequently amended and restated (the "Merger Agreement"), a copy of
which is attached hereto as Appendix A, providing for the Merger (the "Merger")
of Sub into Network Systems. See "The Merger."
Special Meeting of Stockholders of Network Systems
Date, Time and Place of the Meeting. A special meeting of stockholders
-----------------------------------
of Network Systems is to be held on ____________, ____________________,
1995 at ________ a.m., local time, at the offices of
______________________________________________________________________________
(the "Meeting").
Purpose of the Meeting. To consider and vote upon a proposal to approve
----------------------
and adopt the Merger Agreement and, to the extent necessary, a proposal to
adjourn the meeting to a later date to permit the solicitation of proxies.
Record Date. Only holders of record of shares of Network Systems Stock
-----------
at the close of business on _________________, 199_ (the "Record Date"), are
entitled to notice of and to vote at the Meeting. On that date, _______ shares
of Network Systems Stock were outstanding.
1
<PAGE>
Vote Required. Approval of the Merger requires the affirmative vote of
-------------
the holders of a majority of the outstanding shares of Network Systems
Stock, unless the Board of Directors of Network Systems withdraws its
recommendation to vote in favor of the Merger, in which case an affirmative vote
of 80% of the outstanding shares of Network Systems Stock is required.
The presence, in person or by proxy, of the holders of a majority of the Network
Systems Stock is necessary to constitute a quorum at the Meeting for purposes of
the vote of the Network Systems Stock. All directors and executive officers and
certain other stockholders of Network Systems have agreed to vote the shares of
Network Systems Stock they hold for the approval of the Merger Agreement. These
stockholders own an aggregate of 890,786 shares of Network Systems Stock
(approximately 3% of the Network Systems Stock entitled to be voted at the
Meeting). See "Introduction--Record Date; Voting Rights; Vote Required" and
"The Merger--Management of Network Systems after the Merger; Interests of
Certain Persons in the Merger."
The Merger
General. At the Effective Time (as defined below), Sub will be merged
-------
into Network Systems, and each outstanding share of Network Systems Stock will
be converted into 0.2618 shares of StorageTek Stock, subject to adjustment as
set forth below (the "Exchange Ratio"). In addition, in connection with the
Merger, the Network Systems Board of Directors has ordered the redemption of all
Rights outstanding under Network Systems' Amended and Restated Rights Agreement,
and holders of Network Systems common stock will also be entitled to receive
from Network Systems an additional $.05 per share in cash at the effective time
of the Merger in connection with the redemption of the Rights (the "Rights
Payment"). Based on the closing price of $__________ of StorageTek Stock
on the New York Stock Exchange ("NYSE") composite tape on December __,
1994, the Exchange Ratio would have resulted in Network Systems
stockholders receiving approximately $_________ in market value of
StorageTek Stock plus the Rights Payment for each share of Network Systems
Stock, if the Merger had been effective on that date. Because the
Exchange Ratio is fixed by the Merger Agreement and the market price of
StorageTek Stock is subject to fluctuation, the market price of StorageTek Stock
may increase or decrease prior to the Merger, thereby increasing or decreasing
the market value of the shares of StorageTek Stock which Network Systems
stockholders will receive in the Merger. If the average closing price of
StorageTek Stock on the NYSE composite tape for the ten trading-day period
ending two days prior to the Effective Time of the Merger (the
"Average Price") is below $30.37 per share, Network Systems may terminate the
Merger Agreement, unless StorageTek agrees to adjust the amount of StorageTek
Stock or provide cash, or a combination of both, so that the aggregate value to
be received for each share of Network Systems Stock is at least $7.95 (an
"Adjustment to the Exchange Ratio"). For purposes of the foregoing calculation,
the value of the StorageTek Stock shall be the Average Price. StorageTek
does not presently intend to make an Adjustment to the Exchange Ratio if the
Average Price for StorageTek for such period is below $30.37 per share and
Network Systems notifies StorageTek of its intention to terminate the Merger
Agreement. See "The Merger--Exchange of Shares; Fractional Shares; Adjustment of
Exchange Ratio" and "--No Appraisal Rights."
Exchange of Shares; Fractional Shares. If the Merger is consummated,
-------------------------------------
the exchange of Network Systems Stock for shares of StorageTek Stock and the
Rights Payment will be made upon surrender to American Stock Transfer & Trust
Co., New York, New York, as exchange agent (the "Exchange Agent"), of
certificates for the Network Systems Stock.
Fractional shares of StorageTek Stock will not be issued. Instead, each
Network Systems' stockholder will be paid cash equal to the fraction of a share
of StorageTek Stock which such Network Systems stockholder would otherwise be
entitled times the closing sales price of a share of StorageTek Stock as
reported on the New York Stock Exchange composite tape on the business day two
days prior to the date the Merger becomes effective.
NETWORK SYSTEMS STOCKHOLDERS WILL BE PROVIDED WITH TRANSMITTAL FORMS
NEEDED TO EXCHANGE THEIR SHARES PROMPTLY AFTER CONSUMMATION OF THE MERGER AND
SHOULD NOT SURRENDER ANY SHARES AT THIS TIME. See "The Merger--Exchange of
Shares; Fractional Shares; Adjustment of Exchange Ratio."
2
<PAGE>
Recommendation of Network Systems' Board of Directors.
-----------------------------------------------------
The Network Systems Board believes that the Merger is fair to and in the
best interests of Network Systems and its stockholders and recommends that the
stockholders of Network Systems vote FOR approval of the Merger Agreement. In
reaching its conclusions to enter into the Merger Agreement and to recommend
approval of the Merger Agreement by the Network Systems stockholders, the
Network Systems Board considered, among other things, (i) the recent trends in
the networking industry which the Network Systems Board determined were likely
to result in a more competitive business environment with many of the key
players significantly larger in size and scope of focus as compared to Network
Systems; (ii) that Network Systems would benefit from the greater resources,
broader product lines, larger installed base and economies of scale that a
merger with a larger partner such as StorageTek could provide to meet the
competitive challenges of the marketplace and to take advantage of an
opportunity in the high-growth LAN switching and ATM markets; (iii) the
strategic and operating synergies that would result from a merger with
StorageTek; (iv) that as a result of the Merger, Network Systems would
benefit from increased access to StorageTek's large customer base, increased
credibility in the marketplace and a broader and higher level of contact with
existing and potential customers; (v) the amount of consideration to be received
by the stockholders of Network Systems and the fact that such consideration
represented a premium over the market price of Network Systems Stock prevailing
immediately prior to the announcement of the Merger; (vi) the expectation that
the Merger would afford the Network Systems stockholders the opportunity to
receive StorageTek Stock in a non-taxable transaction; (vii) the fact that the
form of consideration to be received in the Merger would allow the stockholders
of Network Systems to continue to share in potential growth or gains from an
investment in Network Systems through the ownership of StorageTek Stock; (viii)
the opinion of Needham that the consideration to be received in the Merger is
fair, from a financial point of view, to the stockholders of Network Systems;
and (ix) the fact that the structure of the Merger was not designed to exclude
additional bona fide bids to acquire Network Systems. Although the price of
StorageTek Stock is currently significantly below its level on the date on which
the Network Systems Board approved the Merger Agreement, after further
consideration of the Merger and the receipt of an updated opinion from Needham
as to the fairness to the Network Systems stockholders of the consideration to
be received in the Merger, the Board of Directors of Network Systems on November
__, 1994 unanimously reaffirmed its view that the Merger is fair to and in the
best interests of Network Systems and its stockholders. After the mailing of
this proxy statement and prior to the Network Systems stockholder meeting called
to consider the Merger, the Board of Network Systems will consider the fairness
of the Merger to Network Systems and its stockholders in light of circumstances
as they may change during this period and will seek an updated fairness opinion
from Needham. In the event that the Network Systems Board, after the mailing of
this proxy statement in the exercise of its fiduciary duties, determines that it
must withdraw its recommendation and recommend against the approval of the
Merger, it will communicate its changed recommendation to the Network Systems
stockholders in supplemental proxy materials. See "The Merger--Network
Systems' Reasons for the Merger; Recommendation of Network Systems' Board of
Directors."
Opinion of Network Systems' Financial Advisor.
---------------------------------------------
Needham & Company, Inc. ("Needham") was retained by Network Systems to
render its opinion as to the fairness, from a financial point of view, to the
Network Systems stockholders, of the consideration to be received in connection
with the Merger. On August 7, 1994, at the meeting of the Network Systems Board
of Directors at which the Board approved the Merger Agreement, Needham delivered
its opinion, subsequently confirmed in writing, that the consideration to be
received by the Network Systems stockholders pursuant to the Merger Agreement
was fair to the Network Systems stockholders from a financial point of view.
On November __, 1994, Needham delivered to the Board of Directors its updated
opinion that the consideration to be received by the Network Systems
stockholders pursuant to the Merger Agreement is fair to the stockholders from a
financial point of view. The full text of the written opinion of Needham is
set forth as Appendix B to this Proxy Statement/Prospectus and should be read in
its entirety. See "The Merger--Opinion of Network Systems' Financial
Advisor."
No Appraisal Rights. Under Delaware law, Network Systems stockholders
-------------------
will not be entitled to any appraisal or dissenter's rights in connection with
the Merger. See "The Merger--No Appraisal Rights."
3
<PAGE>
Accounting Treatment. It is intended that the Merger qualify as a
--------------------
"pooling of interests" for accounting purposes. It is a condition to the
obligation of StorageTek to consummate the Merger that StorageTek shall have
received from its auditors, Price Waterhouse LLP, a letter confirming that the
Merger, if consummated, can properly be accounted for as a "pooling of
interests" in accordance with generally accepted accounting principles. While
under the terms of the Merger Agreement StorageTek may waive this condition, it
has no current intention of so doing. See "The Merger--Conditions for Merger
and Other Provisions;" and "--Accounting Treatment."
Certain Federal Income Tax Consequences. The Merger is expected to
---------------------------------------
qualify as a tax-free reorganization under Sections 368(a)(1)(A) and
368(a)(2)(E) of the Internal Revenue Code of 1986, as amended. However, no
ruling will be requested from the Internal Revenue Service (the "IRS") as to the
federal income tax consequences of the Merger, and consummation of the Merger is
not conditioned on the receipt of opinions from counsel as to such consequences.
Further, cash received in lieu of fractional shares, pursuant to an Adjustment
to the Exchange Ratio or in connection with the Rights Payment, will be taxable.
Holders of Network Systems Stock should consult with their own tax advisors
regarding the federal, state, local and foreign tax consequences of the Merger.
See "The Merger--Certain Federal Income Tax Considerations."
Management of Network Systems after the Merger; Interests of Certain
--------------------------------------------------------------------
Persons in the Merger. Following the Merger, Network Systems will be the
- ---------------------
surviving corporation and a wholly-owned subsidiary of StorageTek. Upon
consummation of the Merger, the directors of Sub immediately prior to the Merger
will be the initial directors of the surviving corporation and the officers of
Network Systems immediately prior to the Merger will continue initially as the
officers of the surviving corporation to the extent they elect to continue
their employment with Network Systems. StorageTek, in consultation with
senior officers of Network Systems, is currently reviewing the status of Network
Systems' existing officers following the Merger. It is currently anticipated
that the majority of these officers will continue their employment
with Network Systems following the Merger. Each of the executive officers
of Network Systems is party to an agreement that provides for certain payments
and benefits if the employment of such executive officer is terminated
involuntarily or by the executive officer for good reason following approval of
the Merger Agreement by the stockholders of Network Systems. The Merger
Agreement also provides that, upon satisfaction of certain conditions, for at
least six years after the Effective Time, StorageTek shall indemnify, and
advance expenses to the directors and executive officers of Network Systems to
the full extent provided by applicable law and Network Systems' bylaws with
respect to matters arising out of actions or omissions occurring on, or prior
to, the Effective Time, including with respect to the Merger, and that
StorageTek shall cause to be maintained in effect for not less than four years
after the Effective Time the current policies of directors' and officers'
liability insurance maintained by Network Systems and its subsidiaries. No
directors or executive officers of either Network Systems or StorageTek will
have any material interest in the Merger except (i) any interest arising from
the ownership of securities of StorageTek or Network Systems, respectively,
which interests are shared pro rata by all holders of the same class of
--- ----
securities, (ii) the interests of directors and executive officers of Network
Systems in outstanding Network Systems stock options which will become
exercisable in full upon approval of the Merger by the stockholders of Network
Systems and which are to be assumed by StorageTek and become exercisable for
StorageTek Stock, (iii) the payments and benefits to be received by executive
officers under agreements if their employment with Network Systems is
terminated, under certain circumstances, after the Merger, and
(iv) the combination of indemnification and insurance for directors and
executive officers after the Merger. See "The Merger--Management of Network
Systems after the Merger; Interests of Certain Persons in the Merger" and "--
Treatment of Network Systems Options and Employee Stock Purchase Plan."
Conditions to the Merger; Termination.
-------------------------------------
By Either Party. The Merger Agreement may be terminated prior to the
Effective Time (i) by mutual consent of StorageTek and Network Systems, or (ii)
by either party if (a) there has been a material breach of any representation,
warranty or covenant set forth in the Merger Agreement by the other party and
such breach has made it impossible to satisfy the conditions to the Merger which
have not been waived, (b) the Merger has not been consummated on or before
February 28, 1995, other than due to a
4
<PAGE>
breach by the terminating party, (c) any court or governmental entity shall have
prohibited consummation of the Merger Agreement or the transactions contemplated
in connection therewith, or (d) the required approval of the stockholders of
Network Systems is not received at its stockholders' meeting.
By Network Systems. Network Systems may terminate the Merger Agreement
prior to the Effective Time (i) if the Average Price of StorageTek Stock, for
the ten trading day period ending two trading days prior to the Effective
Time, is less than $30.37 per share, and StorageTek does not agree to make
an Adjustment to the Exchange Ratio (a "Market Out") or (ii) the Board of
Directors of Network Systems exercises its right to accept a "Topping Offer"
from a third party (as defined below). StorageTek does not presently intend to
make an Adjustment to the Exchange Ratio if the Average Price for StorageTek
Stock for such period is below $30.37 per share and Network Systems notifies
StorageTek of its intention to terminate the Merger Agreement.
See "The Merger--Conditions for Merger and Other Provisions,"
"--Exchange of Shares; Fractional Shares; Adjustment of Exchange Ratio" and
"--Expenses; Topping Offer."
Fees and Expenses. If (i) the obligation to consummate the Merger is
-----------------
terminated pursuant to the Merger Agreement; (ii) Network Systems has engaged in
any negotiations with a third party for any type of acquisition proposal, merger
or stock sale relating to Network Systems during the period beginning February
22, 1994 and ending on the date of the termination specified in (i); and (iii)
Network Systems completes a transaction with a third party which was initiated
prior to six months after the date of such termination, and when combined with
any dividends or distributions declared after August 8, 1994, and the value of
any rights retained by holders of Network Systems Stock, yields more than $10.00
of value to holders of Network Systems Stock (a "Topping Offer"), then Network
Systems will pay StorageTek a fee of $16 million and reimburse it for all
reasonable expenses and fees incurred in connection with the Merger.
In addition, if Network Systems terminates the obligation to consummate
the Merger because of a Market Out, Network Systems will pay StorageTek a fee of
$5 million. In all other circumstances, the parties have agreed that each party
incurring expenses in connection with the Merger shall pay the respective
expenses incurred by them. See "The Merger--Expenses; Topping Offer."
No Solicitation. Network Systems will not directly or indirectly
---------------
solicit, encourage or, except as may be necessary to fulfill the fiduciary
duties of the directors of Network Systems, recommend the approval of any offer
from, or provide any confidential information to, any entity other than
StorageTek relating to the acquisition of Network Systems. If the Board of
Directors of Network Systems receives a bona fide offer and determines, in the
exercise of its fiduciary duty, that such offer will result in a transaction
more favorable to the Network Systems stockholders from a financial point of
view than the transaction contemplated by the Merger Agreement and StorageTek
does not make, within seven business days after receiving notice of such offer,
an offer that Network Systems deems is superior to such offer, Network Systems
may terminate the Merger Agreement and pay to StorageTek a fee of $16 million
plus reimburse StorageTek for all of its expenses. Network Systems agreed to
promptly notify StorageTek of any such bona fide offer. See "The Merger--No
Solicitation."
Effective Time of the Merger. If the Merger Agreement is approved and
----------------------------
adopted at the Meeting, and all other conditions to the Merger have been met or
waived, the parties expect the Merger to be effective on the day of the Meeting
or shortly thereafter upon the filing of a Certificate of Merger with the
Delaware Secretary of State. The time of such filing is referred to in this
Proxy Statement/Prospectus as the "Effective Time."
Merger and Consolidation Charges. One-time merger and consolidation
--------------------------------
charges of between $6 and $8 million are expected to be recognized at the time
the merger is consummated. These one-time charges may have a material impact on
the results of operations in the quarter the merger is consummated, however, the
charges are not expected to materially impact StorageTek's liquidity. See
"Unaudited Pro Forma Condensed Combined Financial Statements."
5
<PAGE>
Agreement to Vote in Favor of Merger. As an inducement to StorageTek's
------------------------------------
execution of the Merger Agreement, certain directors, executive officers and
stockholders of Network Systems entered into agreements with StorageTek pursuant
to which they will vote in favor of the Merger, unless the Network Systems of
Directors withdraws its recommendation that stockholders vote in favor of the
Merger or the Merger Agreement is terminated. These stockholders have the right
to vote 890,786 shares of Network Systems Stock (approximately 3% of the votes
entitled to be cast at the Meeting). See "Introduction--Record Date; Voting
Rights; Vote Required" and "The Merger--Management of Network Systems After the
Merger; Interests of Certain Persons in the Merger."
Treatment of Network Systems Options and Employee Stock Purchase Plan.
---------------------------------------------------------------------
As of the Record Date, there were outstanding under the 1989 Long-Term Stock
Incentive Plan, the 1988 Non-Employee Director Stock Option Plan, the 1993 Non-
Employee Director Stock Option Plan, the Key Employees 1981 Non-qualified Stock
Option Plan and the Key Employees 1980 Stock Option Plan (collectively, the
"Option Plans"), stock options to purchase an aggregate of 2,054,587 shares of
Network Systems Stock ("Options"). The vesting of the Options will accelerate
upon consummation of the transactions contemplated by the Merger Agreement and,
to the extent not exercised prior to the Effective Time, will be exercisable for
that number of shares of StorageTek Stock (with fractions rounded up to the
nearest full share) equal to the number of shares of Network Systems Stock
issuable with respect to the Option multiplied by the Exchange Ratio, at an
exercise price equal to the exercise price of the Option divided by the Exchange
Ratio. Also, each participant in the Network Systems 1989 Employee Stock
Purchase Plan (the "Stock Purchase Plan") will have the right as of March 31,
1995, to purchase shares of StorageTek Stock pursuant to the terms of the Stock
Purchase Plan (by crediting amounts in each participant's individual account
under the Stock Purchase Plan) at the lesser of 85% of (a) $24.35 (the fair
market value of one share of Network Systems Stock on April 1, 1994, divided by
the Exchange Ratio), and (b) the fair market value of one share of StorageTek
Stock on March 31, 1995. As of the Record Date, there were aggregate individual
contributions under the Stock Purchase Plan to purchase 37,336 shares of
Network Systems Stock (using a purchase price based on the fair market value of
Network Systems Stock on April 1, 1994).
Except as modified by the provisions described above, the Option Plans
and Stock Purchase Plan shall each remain in full force and effect following the
Effective Time, although StorageTek does not presently intend to grant any
further options pursuant to the Option Plans and intends to terminate the Stock
Purchase Plan on or about April 1, 1995. It is expected that employees of
Network Systems will be eligible to participate in the option plans and employee
stock purchase plan that StorageTek may from time to time make available to
employees of StorageTek and its subsidiaries. See "The Merger--Treatment of
Network Systems Options and Employee Stock Purchase Plan."
Regulatory Approvals. On September 19, 1994, StorageTek and
--------------------
Network Systems each filed a notification and report under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 ("HSR Act")with the Federal Trade Commission
and the Antitrust Division of the Department of Justice. The applicable
waiting period under the HSR Act expired on October 12, 1994. See "The
Merger--Regulatory Approvals." Neither StorageTek nor Network Systems is aware
of any other governmental or regulatory approval required for consummation of
the Merger, other than compliance with applicable securities laws.
Comparative Per Share Market Information
StorageTek Stock is traded on the New York Stock Exchange ("NYSE") under
the symbol STK. Network Systems Stock is traded on the NASDAQ National Market
System ("NMS") under the symbol NSCO. The table below reflects the high and low
closing sales prices of StorageTek Stock on the NYSE composite tape as reported
by The Wall Street Journal (Western Edition) for the periods indicated and the
highest bid and lowest asked prices for Network Systems Stock as reported on the
NMS.
6
<PAGE>
<TABLE>
<CAPTION>
STORAGETEK NETWORK
STOCK SYSTEMS STOCK
---------- -------------
Fiscal Year Ending December 1994 High Low High Low
- -------------------------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
1st Quarter $40.625 $31.250 $ 9.375 $ 7.375
2nd Quarter 34.125 25.125 8.000 6.375
3rd Quarter 39.00 28.75 9.125 6.688
4th Quarter (through November 14, 1994) 29.75 26.625 7.438 6.750
Fiscal Year Ending December 1993
- --------------------------------
1st Quarter $27.250 $18.625 $13.500 $ 9.875
2nd Quarter 44.000 23.375 10.500 8.125
3rd Quarter 41.125 24.500 9.875 6.875
4th Quarter 33.625 25.000 9.375 7.500
Fiscal Year Ending December 1992
- --------------------------------
1st Quarter $76.625 $39.625 $20.000 $12.250
2nd Quarter 63.125 29.125 13.250 8.500
3rd Quarter 37.625 26.625 13.000 9.625
4th Quarter 32.000 19.625 15.750 10.250
</TABLE>
On August 8, 1994, the business day prior to the public announcement of
the execution of the Merger Agreement, the reported closing sale price per share
of StorageTek Stock on the NYSE composite tape was $39.00, and the closing price
per share of Network Systems Stock, as reported by the NMS, was $8.25. Based on
these prices, the Exchange Ratio would have resulted in Network Systems'
stockholders receiving approximately $10.21 in market value of StorageTek Stock
(plus the Rights Payment of $.05) for each share of Network Systems Stock.
On __________________ ___, 1994, the last full trading day prior to the
date of this Proxy Statement/Prospectus, the reported closing sale price of
StorageTek Stock on the NYSE composite tape was $_____________ per share and the
closing price per share of Network Systems Stock as reported by the NMS was
$_____________ per share. Based on these prices, the Exchange Ratio would
have resulted in Network Systems' stockholders receiving approximately
$____________ in market value of StorageTek Stock (plus the Rights Payment of
$.05) for each share of Network Systems Stock.
Stockholders are advised to obtain current market quotations for
StorageTek Stock and Network Systems Stock. No assurance can be given as to the
market price of StorageTek Stock or Network Systems Stock at the Effective Time.
Neither StorageTek nor Network Systems has paid any cash dividends
on its common stock and StorageTek currently plans to continue to retain
earnings for use in its business.
Comparison of Stockholder Rights. Both StorageTek and Network Systems
--------------------------------
are Delaware corporations which do not provide for preemptive rights or
cumulative voting. Network Systems' Certificate of Incorporation, unlike
StorageTek's Certificate of Incorporation, provides for a staggered board of
directors, does not allow shareholders to call a special meeting of shareholders
and contains provisions requiring supermajority approval of certain
transactions.
7
<PAGE>
Selected Unaudited Pro Forma Combined Financial Data
The following selected unaudited pro forma combined financial data has
been derived using the historical consolidated financial statements of
StorageTek and of Network Systems incorporated by reference herein. This
unaudited pro forma combined financial data gives effect to the Merger pursuant
to the Merger Agreement under the pooling of interests method of accounting and
assumes the Merger occurred on the first day of the earliest period presented.
This unaudited pro forma combined financial data is provided for comparative
purposes only and does not purport to be indicative of the results which
actually would have been obtained if the Merger had been effected for the
periods indicated or results which may be obtained in the future.
This unaudited pro forma combined financial data should be read in
conjunction with the historical consolidated financial statements of StorageTek
and Network Systems, and notes thereto, and the Unaudited Pro Forma Condensed
Combined Financial Statements, and notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER YEAR ENDED DECEMBER
---------------------------------- ----------------------------------------------------
1994 1993 1993 1992 1991
---------------- ---------------- ---------------- ---------------- ----------------
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $1,288,854 $1,159,013 $1,617,691 $1,774,325 $1,807,541
Income (loss) before accounting change 17,336 (114,525)* (121,461)* (33,242)* 98,364*
Earnings (loss) per common share, before
accounting change:
Combined per StorageTek common share (a) 0.16 (2.40) (2.59) (0.66) 1.99
Combined per Network Systems Stock
equivalent (b) 0.04 (0.63) (0.68) (0.17) 0.52
Balance Sheet Data:
Total assets 2,105,327 2,034,506 2,064,851 2,011,007 2,055,897
Total debt 501,460 434,709 469,490 477,747 514,089
Book value per common share:
Combined per StorageTek common share (a) 20.56 20.52
Combined per Network Systems Stock
equivalent (b) 5.38 5.37
</TABLE>
[CONTINUED ON NEXT PAGE]
8
<PAGE>
[CONTINUED FROM PREVIOUS PAGE]
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------
1994 1993
----------------------------------- -----------------------------------------------
September June March December September June March
----------- ----------- ----------- ----------- ----------- ----------- -----------
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue $469,562 $421,104 $398,188 $458,678 $ 352,581 $409,948 $396,484
Income (loss) before
accounting change 18,644 15,720 (17,028) (6,936)* (122,599)* (2,044) 10,118
Earnings (loss) per common
share, before accounting
change:
Combined per StorageTek
common share (a) 0.30 0.24 (0.39) (0.20) (2.48) (0.10) 0.18
Combined per Network
Systems Stock equi-
valent (b) 0.08 0.06 (0.10) (0.05) (0.65) (0.03) 0.05
</TABLE>
* In 1993, 1992 and 1991, restructuring, acquisition, and acquired research and
development costs of $90,414,000, $60,310,000 and $5,104,000, respectively,
were recognized on a combined basis.
See additional Notes to Selected Financial Data.
9
<PAGE>
Selected Historical Consolidated Financial Data
The following unaudited selected historical financial data has been derived
using the historical consolidated financial statements of StorageTek and Network
Systems incorporated by reference herein. This unaudited historical financial
data should be read in conjunction with the historical consolidated financial
statements of StorageTek and Network Systems, and notes thereto.
<TABLE>
<CAPTION>
StorageTek
NINE MONTHS
ENDED SEPTEMBER YEAR ENDED DECEMBER
----------------------- -----------------------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
----------- ---------- ------------- ----------- ----------- ----------- -------------
(In thousands except per share amounts)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $1,108,813 $1,004,553 $1,404,752 $1,550,945 $1,619,520 $1,594,804 $1,339,982
Income (loss) before extraordinary
items and accounting change 13,325 (124,141) * (117,796) * 9,334 89,812 * 95,384 56,345
Net income (loss) 13,325 (84,141)(c) (77,796)(c) 9,334 89,812 94,080 (d) 67,645 (e)
Earnings (loss) per common share:
Income (loss) before
extraordinary items and
accounting change 0.10 (3.06) (2.98) 0.22 2.17 2.63 1.85
Net income (loss) 0.10 (2.13) (2.05) 0.22 2.17 2.59 2.22
Balance Sheet Data:
Total assets 1,841,531 1,768,426 1,793,009 1,739,043 1,735,651 1,489,407 1,259,107
Total debt 500,460 433,709 468,490 476,747 511,230 574,496 559,354
Book value per common share 19.70 19.50 19.62 21.79 21.50 17.69 14.60
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------
1994 1993
------------------------------------ --------------------------------------------
September June March December September June March
--------- --------- --------- --------- --------- --------- ---------
(In thousands except per share amounts)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $412,274 $360,916 $335,623 $400,199 $307,058 $358,503 $338,992
Income (loss) before
extraordinary items
and accounting change 18,550 14,363 (19,588) 6,345 (122,877) * (5,281) 4,017
Net income (loss) 18,550 14,363 (19,588) 6,345 (122,877) (5,281) 44,017(c)
Earnings (loss) per common
share:
Income (loss) before
extraordinary items
and accounting change 0.35 0.26 (0.52) 0.08 (2.94) (0.19) 0.08
Net income (loss) 0.35 0.26 (0.52) 0.08 (2.94) (0.19) 1.00
</TABLE>
* In 1993 and 1991, StorageTek recognized restructuring and other charges of
$74,772,000 and $5,104,000, respectively.
See additional Notes to Selected Financial Data.
10
<PAGE>
- --------------------------------------------------------------------------------
Network Systems
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER YEAR ENDED DECEMBER
------------------- ----------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- ------- -------- -------- -------- --------
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $176,426 $148,448 $215,558 $219,118 $198,728 $163,638 $144,789
Net income (loss) 2,705 7,284 2,207* (39,674)* 15,214 21,973 17,327
Earnings (loss) per common share 0.09 0.24 0.07 (1.31) 0.50 0.74 0.59
Balance Sheet Data:
Total assets 295,821 284,223 305,481 293,425 342,811 293,268 263,500
Total debt 1,000 1,000 1,000 1,000 2,859 2,892 2,923
Book value per common share 7.65 7.69 7.52 7.57 9.09 8.38 7.53
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------
1994 1993
------------------------------- -----------------------------------------
September June March December September June March
--------- -------- -------- -------- --------- -------- --------
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $58,024 $60,088 $58,314 $67,110 $53,340 $49,061 $46,047
Net income (loss) 106 1,400 1,199 (5,077)* 2,578 2,314 2,392
Earnings (loss) per common share 0.00 0.05 0.04 (0.17) 0.09 0.08 0.08
</TABLE>
* Network Systems recognized acquisition, restructuring, and acquired research
and development costs in 1993 and 1992 of $15,642,000 and $60,310,000,
respectively.
See additional Notes to Selected Financial Data.
- --------------------------------------------------------------------------------
11
<PAGE>
- --------------------------------------------------------------------------------
Notes to Selected Financial Data
(a) The Combined per StorageTek common share amounts have been derived from the
historical consolidated financial statements of StorageTek and Network
Systems, incorporated by reference herein, and give effect to the Merger
under the pooling of interests method of accounting as if the Merger
occurred on the first day of the earliest period presented with 0.2618
shares of StorageTek common stock issued for each share of Network Systems
Stock.
(b) Reflects the Combined per StorageTek common share amounts multiplied by the
exchange ratio of 0.2618.
(c) Effective as of the beginning of fiscal 1993, StorageTek changed its method
of accounting for income taxes to comply with the provisions of Statement of
Financial Accounting Standards No. 109. A one-time benefit of $40,000,000
was recognized in the first quarter of 1993 as a result of the adoption of
the new income tax accounting standard on a prospective basis.
(d) In 1990, StorageTek recognized a net charge of $1,304,000 associated with
the redemption and repurchase of debentures.
(e) In 1989, StorageTek recognized an extraordinary gain of $11,300,000 from the
liquidation of its wholly-owned subsidiary, Storage Technology Products,
B.V.
- --------------------------------------------------------------------------------
12
<PAGE>
INTRODUCTION
General
This Proxy Statement/Prospectus is being furnished to stockholders of
Network Systems in connection with the solicitation by the Board of Directors of
Network Systems of proxies for use at a special meeting of the stockholders of
Network Systems to be held on ________, _________ __, 1995, at _____ a.m., local
time, at the offices of ___________________________, and at any adjournments or
postponements thereof (the "Meeting").
The Meeting has been called to consider and vote upon the Merger
Agreement, which sets forth the terms and conditions of the Merger, and the
transactions contemplated thereby. If the proposed Merger is consummated, each
outstanding share of Network Systems Stock will be converted into 0.2618 shares
of StorageTek Stock. In addition, in connection with the Merger, the Network
Systems Board of Directors has ordered the redemption of all Rights outstanding
under Network Systems' Amended and Restated Rights Agreement, and holders of
Network Systems Stock will also be entitled to receive from Network Systems the
Rights Payment consisting of an additional $.05 per share in cash at the
Effective Time of the Merger. Because the Exchange Ratio is fixed and will not
increase or decrease by reason of fluctuations in the market price of StorageTek
Stock, the value realized by Network Systems stockholders in connection with the
Merger will depend on the market price of StorageTek Stock at the Effective
Time. See "The Merger--Exchange of Shares; Fractional Shares; Adjustment of
Exchange Ratio." A copy of the Merger Agreement is attached hereto as Appendix
A.
The Board of Directors of Network Systems has approved the Merger. The
Board of Directors of StorageTek also has approved the Merger and the issuance
of shares of StorageTek common stock in the Merger. See "The Merger--Background
of the Merger." Applicable Delaware law does not require that StorageTek
stockholders approve the Merger and no such approval is being sought.
StorageTek, as the sole shareholder of the Sub, has approved the Merger.
This Proxy Statement/Prospectus is first being mailed to Network Systems
stockholders on or about __________________, 1995.
Record Date; Voting Rights; Vote Required
The close of business on _____ 199 (the "Record Date") has been fixed
as the record date for determination of the holders of Network Systems Stock who
are entitled to notice of, and to vote at, the Meeting. As of the Record Date,
there were _______ shares of Network Systems Stock outstanding. The holders of
record on the Record Date of shares of Network Systems Stock are entitled to one
vote per share on each matter submitted to a vote at the Meeting. The presence
at the Meeting in person or by proxy of the holders of a majority of the
outstanding shares of Network Systems Stock entitled to vote (________ shares as
of the Record Date) shall constitute a quorum for the transaction of business.
In general, shares of Network Systems Stock represented by a properly signed and
returned proxy card will be treated as shares present at the Meeting for
purposes of determining a quorum, without regard to whether the card reflects an
abstention (or is left blank) or reflects a "broker non-vote" on a matter (i.e.,
a card returned by a broker on behalf of its beneficial owner customer that is
not voted on a particular matter because voting instructions have not been
received and the broker has no discretionary authority to vote).
The proposal to adjourn the Meeting to a later date in the event that an
insufficient number of shares of Network Systems Stock is present at the Meeting
requires the approval of a majority of the shares voting in person or by proxy
on that proposal. The affirmative vote of the holders of a majority of the
outstanding shares of Network Systems Stock is required for approval and
adoption of the Merger, unless the Board of Directors of Network Systems
withdraws its recommendation to vote for the approval of the Merger
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Agreement, in which case an affirmative vote of 80% of the outstanding Network
Systems Stock is required. Shares voted as abstaining on either of these
proposals will be treated as voting shares that were not cast in favor of the
proposal, and thus will be counted as votes against the particular proposal.
Shares represented by a proxy card including any broker non-vote on a proposal
will be treated as shares not voting on that proposal. For the proposal to
adjourn the Meeting in the event a sufficient number of shares of Network
Systems Stock is not present, such shares will not be counted in determining
whether the matter has been approved, while for the proposal to approve the
Merger Agreement, broker non-votes will have the effect of a vote against the
proposal.
All directors and executive officers and certain other stockholders of
Network Systems have entered into agreements by which they have agreed to vote
for the adoption and approval of the Merger Agreement. These stockholders own
890,786 shares of Network Systems Stock (approximately 3% of the Network Systems
Stock entitled to be voted at the Meeting). See "The Merger--Management of
Network Systems after the Merger; Interests of Certain Persons in the Merger."
Proxy Solicitation
All properly completed proxies received at or prior to the Meeting and
which have not been revoked will be voted at the Meeting in accordance with the
instructions contained therein. Proxies solicited by the Board of Directors of
Network Systems which contain no instructions regarding the proposal specified
in the form of proxy will be voted FOR the approval and adoption of the Merger
Agreement. Execution and delivery of a proxy will not prevent a stockholder
from attending the Meeting and voting in person. A stockholder who has executed
and returned the enclosed proxy may revoke it at any time before it is voted,
but only by executing and returning a proxy bearing a later date, by giving
written notice of revocation to the Secretary of Network Systems bearing a later
date than the proxy, or by attending the Meeting and voting in person.
Attendance at the Meeting will not by itself revoke the proxy. Certain
directors, executive officers and other stockholders of Network Systems have
agreed to vote the shares of Network Systems Stock they hold in favor of the
Merger. See "The Merger-- Management of Network Systems after the Merger;
Interests of Certain Persons in the Merger."
The cost of solicitation of the holders of Network Systems Stock will be
paid by Network Systems. In addition to the solicitation of proxies by use of
mail, the directors, officers and employees of Network Systems may solicit
proxies personally or by telephone, telegraph or facsimile transmission. Such
directors, officers and employees will not be additionally compensated for such
solicitation but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. Network Systems has retained Morrow & Co., Inc. to assist
in the solicitation of proxies at a cost to Network Systems of approximately
$15,000 plus customary expenses.
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THE MERGER
The description of the Merger Agreement and related documents set forth
below does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, which is attached as Appendix A to this Proxy
Statement/Prospectus and incorporated herein by this reference.
General
Network Systems will be the corporation surviving the Merger as a
wholly-owned subsidiary of StorageTek, and will continue to hold and own all of
its properties and assets. As a result of the Merger, the stockholders of
Network Systems, a Delaware corporation, will become stockholders of StorageTek,
a Delaware corporation.
Background of the Merger
In 1992, Network Systems and StorageTek initiated a strategic alliance
to develop and market products to attach mainframe-class storage devices to
networked computing environments (see "The Merger--Transactions Between
StorageTek and Network Systems"). The evolution of the marketplace towards
client-server computing has made this alliance increasingly relevant and
important to both companies' business strategies.
In February 1994, Ryal R. Poppa, Chairman and Chief Executive Officer of
StorageTek, contacted Lyle Altman, Chairman of Network Systems, to discuss
strengthening the relationship between StorageTek and Network Systems. Several
possible actions were discussed, including a possible merger of the two
companies. In early March 1994, senior executive officers of StorageTek and
senior executive officers of Network Systems held a number of exploratory
discussions with respect to the possibility of some type of further business
relationship between Network Systems and StorageTek.
On March 14, 1994, StorageTek and Network Systems entered into a non-
disclosure agreement to facilitate the exchange of information necessary to
further explore a possible transaction involving the two companies. On March
17, 1994, officers of Network Systems and StorageTek met in Minneapolis,
Minnesota to discuss the exchange of information. From that time through early
June 1994, senior executive officers of Network Systems and StorageTek continued
their preliminary discussions with respect to a possible further business
relationship and began the process of gathering and exchanging information. In
conducting its preliminary investigation concerning Network Systems, StorageTek
was assisted by independent consultants and was advised by Salomon Brothers Inc.
("Salomon Brothers").
On April 28, 1994, the Board of Directors of Network Systems authorized
the hiring of an investment banker to assist in valuing Network Systems and its
business segments, advise Network Systems on the values that could be realized
in a merger or sale of the company at this time and to formulate Network
Systems' alternatives for increasing long-term stockholder value. On May 25,
1994, Network Systems retained Needham as its exclusive financial advisor in
connection with the possible merger of Network Systems with StorageTek or
others.
On May 24, 1994, during a regularly scheduled Board of Directors
meeting, StorageTek's Board of Directors were briefed on management's
preliminary due diligence findings and considered various alternatives,
including internal development, joint ventures or acquisitions, to accelerate
StorageTek's entry into the market with advanced network-attached storage
solutions. StorageTek's Board instructed management, in coordination with the
Board's Finance and Acquisition Committee, to continue its investigation and to
develop a plan for comprehensive evaluation of a possible merger with Network
Systems.
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On June 10, 1994, the Network Systems Board of Directors met to consider
the question of whether to proceed with negotiations of a possible merger
transaction with StorageTek or another partner. After a presentation by
management and Network Systems' financial and legal advisors, the Network
Systems Board of Directors determined to continue discussions with StorageTek
and to consider the level of interest in Network Systems from other potential
acquirors.
From June 10, 1994, through mid-July 1994, discussions continued between
executives of Network Systems and StorageTek, as well as their respective
financial advisors, concerning various business, financial and legal
considerations, including preliminary terms of a proposed business combination,
regulatory approvals, operational and technology issues, retention of management
and treatment of benefit plans. On July 1, the Finance and Acquisition
Committee of StorageTek's Board of Directors held a special meeting to discuss
and evaluate the ongoing process and to consider the transaction in general.
The Committee authorized management to complete its investigation of Network
Systems and to formally retain Salomon Brothers as its exclusive financial
advisor with respect to the transaction.
On July 20, 1994, the Network Systems Board of Directors again met to
consider the question of whether to remain independent or, alternatively, to
proceed with a merger transaction with StorageTek or another partner. Also, the
Network Systems Board of Directors and senior executives met with senior
executives of StorageTek, at StorageTek's offices, and received from them a
briefing on StorageTek's operations, finances and strategy. After a
presentation by management and Needham, the Board of Directors of Network
Systems authorized senior management to continue their discussions with
StorageTek in order to determine potential terms on which StorageTek would be
interested in merging with Network Systems. Over the following two weeks, at
the direction of the Board of Directors and senior management of Network
Systems, Needham held numerous discussions with Salomon Brothers regarding
possible terms on which StorageTek would be interested in merging with Network
Systems.
On July 26 and 27, 1994, StorageTek's management presented its findings
concerning the business and prospects of Network Systems to its Board of
Directors and StorageTek's Board of Directors met with senior executives of
Network Systems and received from them a briefing on Network Systems'
operations, finances and strategy. Also, at this meeting Salomon Brothers made
a presentation to StorageTek's Board of Directors regarding valuation and
transaction structuring issues. At the conclusion of the meeting, the
StorageTek Board of Directors authorized management to work with Salomon
Brothers in negotiations with Network Systems and Needham to determine whether
mutually agreeable terms could be reached. Although initial terms suggested by
Salomon Brothers to Needham were rejected by the Network Systems' Board on
August 2, 1994, Network Systems' Board authorized Needham to continue
negotiations with Salomon Brothers to obtain acceptable terms. Following
further discussions between Salomon Brothers and Needham, senior management of
Network Systems and senior management of StorageTek agreed to meet in Denver in
order to continue the negotiations while beginning to prepare the necessary
documentation for a transaction. From August 4, through August 6, 1994, the
companies' senior management, together with their financial and legal advisors,
continued discussions in Denver regarding the price and structure of a proposed
merger and negotiated the terms of a definitive merger agreement and related
documents. As a result of these discussions and negotiations, the parties
agreed to an exchange ratio of 0.2618 along with a redemption by Network Systems
of its poison pill rights for $.05 per right.
On August 6, 1994, StorageTek's Board of Directors held a special
meeting to consider terms of the proposed merger. At this meeting, senior
management of StorageTek, legal counsel and Salomon Brothers reviewed with the
Board the status of negotiations with Network Systems, the status of ongoing due
diligence, and the potential impact of a merger on StorageTek's business,
finances, and stockholders. During this meeting, Salomon Brothers rendered an
oral opinion (which was subsequently confirmed in writing) as to the fairness of
the proposed merger from a financial point of view to StorageTek's stockholders.
StorageTek's Board of Directors authorized management and the company's
financial and legal advisors to
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continue negotiations. Further negotiations ensued between StorageTek and
Network Systems (including their respective legal and financial advisors).
On August 7, 1994, a meeting of the Finance and Acquisition Committee of
StorageTek's Board met again to consider the proposed merger and to comment on
the terms of the Merger Agreement. Later that day, the Finance and Acquisition
Committee recommended that StorageTek's full Board approve the transaction, and
StorageTek's Board of Directors approved the Merger Agreement on August 7, 1994.
On August 7, 1994, a special meeting of the Board of Directors of
Network Systems was also convened to consider the proposed Merger Agreement. At
this meeting, senior management discussed with the Network Systems' Board the
negotiations that had led to the proposal, the status of the due diligence
review of the business of StorageTek, and the benefits to Network Systems and
its stockholders from the proposed combination. Needham discussed the financial
aspects of the proposed business combination and the procedures that it had
undertaken and would continue to undertake to evaluate the proposal from a
financial point of view and addressed questions from the Network Systems' Board
members. Legal counsel made a presentation regarding the structure of the
proposed transaction and the negotiations surrounding the drafting of the Merger
Agreement. At the conclusion of its presentation, Needham delivered its oral
opinion (which it subsequently confirmed in writing) to the effect that, as of
such date, the consideration to be received by the Network Systems stockholders
pursuant to the Merger Agreement was fair to the stockholders of Network Systems
from a financial point of view. Following considerable further discussion of
the terms of the proposed transaction, including the exchange ratio, the Board
of Directors of Network Systems unanimously approved the Merger Agreement,
subject to the resolution of certain remaining issues.
On August 8, 1994, senior management of Network Systems and StorageTek
further negotiated these remaining issues, after which Network Systems' Board
and a special Merger Agreement Committee of the StorageTek Board held telephonic
meetings to consider and discuss the resolution of these issues, and, after
discussion and review with their respective financial and legal advisors, both
Network Systems' Board and the Merger Agreement Committee of StorageTek's Board
approved the recommended resolution of the remaining issues and authorized the
executive officers of their respective companies to finalize and execute the
Merger Agreement.
On August 8, 1994, Network Systems and StorageTek executed the Agreement
and Plan of Merger, which was amended on August 25, 1994 and September 9, 1994
to extend certain deadlines set forth for certain conditions and clarify certain
matters .
Network Systems' Reasons for the Merger; Recommendation of Network Systems'
Board of Directors
The Board of Directors of Network Systems believes that the Merger is
fair to and in the best interests of Network Systems and its stockholders. THE
MEMBERS OF THE NETWORK SYSTEMS BOARD ALSO RECOMMENDED THAT STOCKHOLDERS OF
NETWORK SYSTEMS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
In reaching its conclusions to enter into the Merger Agreement and to
recommend approval of the Merger Agreement by the Network Systems stockholders,
the Network Systems Board considered a number of factors of which Network
Systems stockholders should be aware in determining whether to vote for approval
of the Merger Agreement, including, without limitation, the following:
1. The Network Systems Board considered the recent trends in the
networking industry involving consolidation of competitors, the merging of
previously distinct market segments such as routers, hubs and bridges, slower
overall growth as networking markets mature and increasing focus on the high-
growth LAN switching and ATM markets. The Network Systems Board determined that
these trends were likely to continue and would result in a more competitive
business environment, with many of the key players
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significantly larger in size and scope of focus compared to Network Systems. To
compete effectively in this environment, the Network Systems Board concluded
that it would be necessary to reduce costs and make further investments in
research and development. While the Network Systems Board considered these
competitive challenges in the context of remaining independent, the Network
Systems Board believed that Network Systems would benefit from the greater
resources, broader product lines, larger installed base and economies of scale
that a merger with a larger partner such as StorageTek could provide to meet
these competitive challenges and to take advantage of an opportunity in the high
growth LAN switching and ATM markets.
2. The Network Systems Board considered the strategic and operating
synergies as well as other benefits that would result from the Merger. The
Network Systems Board considered StorageTek's financial, technical,
distribution, customer service and management resources to be of significant
value and to provide the opportunity for significant economies of scale. The
Network Systems Board also determined that as a result of the Merger, Network
Systems would benefit from increased access to StorageTek's large customer base,
increased credibility in the marketplace, a broader and higher level of contact
with existing and potential customers, an increase in the level and range of
support and service that could be provided to customers and differentiation from
other channel and internetworking vendors in the marketplace. The Network
Systems Board also considered that StorageTek's commitment to bring network-
attached storage products to the marketplace would be highly complementary to
Network Systems' competitive strategy.
3. The amount of consideration to be received by the stockholders of
Network Systems in the Merger was considered in conjunction with the Network
Systems Board's review of the analysis presented by Needham, which is discussed
in greater detail below, regarding the fairness, from a financial point of view,
to the stockholders of Network Systems of the consideration to be received in
connection with the Merger. See "The Merger--Opinion of Network Systems'
Financial Advisor."
4. In addition to the analysis and fairness opinion of Needham, the
Network Systems Board reviewed the historical market trends and prices of
Network Systems Stock and StorageTek Stock in its review of the Exchange Ratio
proposed in the Merger Agreement. The Network Systems Board considered the fact
that the consideration to be received by holders of Network Systems Stock in the
Merger represented a significant premium over the market price of Network
Systems Stock prevailing immediately prior to the announcement of the Merger.
5. The Network Systems Board considered the fact that holders of
Network Systems Stock will receive StorageTek Stock in the Merger, which will
represent a continuing equity interest in a merged enterprise which is a larger
and more diversified company that is expected to benefit strategically and
competitively from the Merger.
6. The Network Systems Board also believes the tax structure of the
transaction is favorable to stockholders of Network Systems, allowing them to
participate in the synergies of the combined enterprise on a tax-free basis.
Business combination transactions in which there is a material cash component as
part of the consideration to be received by stockholders, as opposed to an
exchange of shares as in the Merger, may result in a taxable event to
stockholders upon the consummation of the transaction. See "The Merger--Certain
Federal Income Tax Consequences."
7. The Network Systems Board also considered that the structure of the
Merger was not designed to exclude other bona fide bids to acquire Network
Systems. While the Merger Agreement prohibits Network Systems from soliciting
another offer, the Merger would be publicly announced and well known in the
marketplace. As a result, any party interested in approaching Network Systems
would be fully aware of the Merger. The Merger Agreement also specifically
contemplates that the Network Systems Board may withdraw its recommendation that
the stockholders approve the Merger Agreement if it deems necessary in the
exercise of its fiduciary duties. See "The Merger--No Solicitation."
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In its evaluation of the Merger Agreement, the Network Systems Board was
advised by Needham. On August 7, 1994, Needham rendered an oral opinion
regarding the fairness, from a financial point of view, to the stockholders of
Network Systems of the consideration to be received in the Merger. Such opinion
was subsequently confirmed in writing. See "The Merger--Opinion of Network
Systems' Financial Advisor."
Subsequent to the execution of the Merger Agreement on August 8, 1994, the
price of StorageTek Stock has dropped significantly. While the closing price of
StorageTek Stock on August 8, 1994 was $39.00, indicating that the then value of
the Merger consideration was $10.21 for each share of Network Systems Stock, on
November __, 1994 the closing price of StorageTek Stock was $___________,
indicating that the value of the Merger consideration currently is $__________
per Network Systems share. Because of these and other changed circumstances
since the execution of the Merger Agreement, the Board of Directors of Network
Systems prior to the mailing of this proxy statement again considered the value
of the consideration offered by StorageTek in the Merger.
In considering the value of the Merger consideration in light of these changed
circumstances, the Board considered that StorageTek has stated that it does not
presently intend to increase the value of the Merger consideration. If the
Average Price of StorageTek Stock during the period before the Effective Time of
the Merger is less than $30.37 per share, Network Systems could notify
StorageTek of Network Systems' intent to terminate the Merger. Although
StorageTek would then have the right to avoid such termination by increasing the
value received for each share of Network Systems Stock to at least $7.95,
StorageTek has stated that it does not presently intend to make such an
adjustment. Thus, it appears likely that the value to be received by Network
Systems' stockholders in the Merger will not be any greater than the value of
the shares of StorageTek Stock to be received under the existing Exchange Ratio
at the Effective Time of the Merger (plus the Rights Payment of $.05 per
share).
Based on its further consideration of the Merger and the receipt of an updated
opinion from Needham that, as of November __, 1994, the consideration to be
received by the Network Systems stockholders pursuant to the Merger Agreement is
fair to the stockholders from a financial point of view, the Network Systems
Board on November __, 1994 unanimously reaffirmed its view that the Merger is
fair to and in the best interests of Network Systems and its stockholders.
AFTER CONSIDERING ALL OF THE FACTORS DISCUSSED ABOVE THE BOARD OF DIRECTORS
DETERMINED TO APPROVE THE MERGER AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
After the mailing of this proxy statement and prior to the Network Systems
stockholder meeting called to consider the Merger, the Board of Network Systems
will consider the fairness of the Merger to Network Systems and its stockholders
in light of circumstances as they may change during this period. The Network
Systems Board's further consideration of the fairness of the Merger will include
seeking an updated opinion from Needham on or about the Effective Time of the
Merger to the effect that, at such time, the consideration to be received by the
Network Systems stockholders pursuant to the Merger Agreement is fair to the
stockholders from a financial point of view.
In the event that the Network Systems Board, after the mailing of this proxy
statement, in the exercise of its fiduciary duties determines that it must
withdraw its recommendation and recommend against the approval of the Merger, it
will communicate its changed recommendation to the stockholders in supplemental
proxy materials. If the Board were to recommend against the approval of the
Merger, approval of the Merger would require the affirmative vote of 80% of the
outstanding shares of Network Systems Stock. In the event
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that the Network Systems stockholders did not approve the Merger, Network
Systems would be entitled to terminate the Merger Agreement (and would not be
required to pay any termination fee to StorageTek). See "The Merger--Conditions
for Merger and Other Provisions" and "--Expenses: Topping Offer."
Opinion of Network Systems' Financial Advisor
Pursuant to an engagement letter entered into on May 25, 1994, Network
Systems retained Needham to furnish financial advisory and investment banking
services with respect to a possible merger and to render an opinion as to the
fairness, from a financial point of view, to the Network Systems stockholders,
of the consideration offered in any proposed merger. The amount of
consideration to be exchanged in the Merger was determined through negotiations
between Network Systems management and StorageTek management and not by Needham,
although Needham did assist Network Systems management in certain of these
negotiations.
At a meeting of the Board of Directors of Network Systems on August 7,
1994, Needham delivered its oral opinion that, as of such date and based upon
the matters described therein, the consideration to be received by the
stockholders of Network Systems in the Merger is fair to the stockholders of
Network Systems from a financial point of view. Needham has subsequently
delivered its written opinion, reaffirming its opinion, that as of the date of
this Proxy Statement/Prospectus and based upon the matters described therein,
the consideration to be received by the stockholders of Network Systems in the
Merger is fair to the stockholders of Network Systems from a financial point of
view. Needham's opinion is directed only to the financial terms of the Merger
Agreement and does not constitute a recommendation to any stockholder of Network
Systems as to how such stockholder should vote at the Network Systems Special
Meeting. The complete text of the November __, 1994 opinion (the "Needham
Opinion") is attached to this Proxy Statement/Prospectus as Appendix B, and the
summary of the Needham Opinion set forth in this Proxy Statement/Prospectus is
qualified in its entirety by reference to the Needham Opinion. Network Systems
stockholders are urged to read the Needham Opinion carefully and in its entirety
for a description of the procedures followed, the factors considered and the
assumptions made by Needham.
In arriving at its opinion, Needham reviewed and analyzed, among other
things, (i) the Merger Agreement; (ii) certain other documents related to the
Merger including the Proxy Statement/Prospectus; (iii) certain publicly
available information concerning Network Systems and StorageTek; (iv) the
historical stock prices and trading volumes of Network Systems' and StorageTek's
Common Stock; (v) publicly available financial data of public companies which it
deemed generally comparable to Network Systems; (vi) the financial terms of
certain other recent business combinations, which it deemed generally relevant;
and (vii) certain financial forecasts and projections prepared by Network
Systems' and StorageTek's respective managements. In addition, Needham held
discussions with certain members of both Network Systems' and StorageTek's
senior managements concerning their current and future business prospects and
participated in the discussions and negotiations among representatives of
Network Systems and StorageTek and their legal advisors and independent
auditors. Needham visited the Network Systems' facility in Minneapolis, and
performed such other studies, analyses, inquiries and investigations as it
deemed appropriate. Needham assumed and relied upon, without independent
verification, the accuracy and completeness of the information it reviewed for
purposes of its opinion. With respect to Network Systems' and StorageTek's
financial forecasts provided to Needham by their respective managements, Needham
has assumed that such forecasts have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of such
managements, at the time of preparation, of the future operating and financial
performance of Network Systems and StorageTek. Needham's opinion stated that it
is necessarily based on economic, monetary and market conditions existing as of
the date of such opinion.
Based on this information, Needham performed a variety of financial
analyses of the Merger and the Merger consideration. The following paragraphs
summarize the significant quantitative and
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qualitative analyses performed by Needham in arriving at its opinion presented
to the Network Systems Board of Directors.
Comparable Company Analysis
Needham compared selected historical and projected operating and stock
market data and operating and financial ratios for Network Systems to the
corresponding data and ratios of certain other publicly traded networking
companies, including CPU connection, router/switch and intelligent hub
companies, which it deemed comparable to the business of Network Systems. Such
data and ratios included total market capitalization to historical and projected
revenue, price per share to historical and projected earnings per share and
market value to historical book value.
Companies deemed to be generally comparable to the CPU connection
business of Network Systems included Apertus Technologies Incorporated, Computer
Network Technology and Data Switch Corporation. For these companies the
multiples of projected 1995 revenues ranged from 0.5 to 1.4 with a mean of 1.1
and a median of 1.3; the multiples of projected 1995 net income ranged from 7.5
to 13.8 with a mean of 10.0 and a median of 8.7; and the multiples of historical
book value ranged from 1.4 to 3.8 with a mean of 2.7 and a median of 3.1.
Companies deemed to be generally comparable to the router/switch
business of Network Systems included Cisco Systems, Inc., CrossComm Corporation,
Retix, 3Com Corporation, Wellfleet Communications, Inc. and Xyplex, Inc. For
these companies the multiples of projected 1995 revenues ranged from 0.2 to 2.6
with a mean of 1.2 and a median of 1.0; the multiples of projected 1995 net
income ranged from 8.8 to 14.1 with a mean of 11.0 and a median of 10.9; and the
multiples of historical book value ranged from 1.0 to 8.2 with a mean of 4.4 and
a median of 4.2.
Companies deemed to be generally comparable to the intelligent hub
business of Network Systems included Cabletron Systems, Inc., Chipcom
Corporation, SynOptics Communications, Inc. and 3Com Corporation. For these
companies the multiples of projected 1995 revenues ranged from 0.7 to 2.9 with a
mean of 1.6 and a median of 1.4; the multiples of projected 1995 net income
ranged from 8.0 to 18.0 with a mean of 13.9 and a median of 14.8; and the
multiples of historical book value ranged from 2.4 to 6.8 with a mean of 4.9 and
a median of 5.2.
Comparable Transaction Analysis
Needham also analyzed publicly available financial information for
nineteen selected mergers and acquisitions of companies in the computer
technology industry and eight selected mergers and acquisitions of companies in
the networking industry. In examining these transactions, Needham analyzed
certain income statement and balance sheet parameters of the acquired companies
relative to the consideration offered. Multiples analyzed included
consideration offered plus debt assumed to historical revenue, consideration
offered plus debt assumed to historical earnings before interest and taxes,
consideration offered to historical net income and consideration offered to
historical book value. In certain cases, complete financial data was not
publicly available for these transactions and only partial information was used
in such instances.
Proposed and completed computer technology deals analyzed by Needham
included Prime Computer, Inc./Computervision Corporation; Tandem Computers
Incorporated/Ungermann-Bass, Inc.; Anacomp, Inc./Xidex Corporation;
Massachusetts Computer Corporation/Concurrent Computer Corporation; Unisys
Corporation/Convergent, Inc.; STC PLC/Computer Consoles, Inc.; Olivetti USA,
Inc./ISC Systems Corporation; Novell, Inc./Excelan, Inc.; Hewlett-Packard
Company/Apollo Computer, Inc.; Archive Corporation/Cipher Data Products, Inc.;
HND Corporation/Dataproducts Corporation; Acer America Corporation/Altos
Computer Corporation; American Telephone & Telegraph Company/NCR Corporation;
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NCR Corporation/Teradata Corporation; Conner Peripherals, Inc./Archive
Corporation; Network Systems Corporation/Bytex Corporation; DCA Holdings,
Inc./Digital Communications Associates; The MacNeal-Schwendler Corporation/PDA
Engineering; and Cirrus Logic, Inc./PicoPower Technology, Inc. For these
transactions the multiples of last twelve months' revenues ranged from 0.4 to
3.6 with a mean of 1.2 and a median of 0.9; the multiples of last twelve months'
earnings before interest and taxes ranged from 6.5 to 61.4 with a mean of 20.5
and a median of 19.3; the multiples of last twelve months net income ranged from
3.6 to 263.8 with a mean of 48.1 and a median of 30.1; and the multiples of
historical book value ranged from 0.7 to 7.7 with a mean of 2.5 and a median of
2.2.
Proposed and completed networking deals analyzed by Needham included
Tandem Computers Incorporated/Ungermann-Bass, Inc.; Novell, Inc./Excelan, Inc.;
3Com Corporation/BICC plc; Cisco Systems, Inc./Crescendo Communications, Inc.;
Network Systems Corporation/Bytex Corporation; Chipcom Corporation/Artel
Communications Corporation; DCA Holdings, Inc./Digital Communications
Association; and 3Com Corporation/Synernetics, Inc. For these transactions the
multiples of last twelve months' revenues (for those transactions where
multiples were available) ranged from 0.7 to 6.9 with a mean of 3.1 and a median
of 2.0; the multiples of last twelve months' earnings before interest and taxes
(for those transactions where multiples were available) ranged from 6.5 to 22.5
with a mean of 16.6 and a median of 20.9; the multiples of last twelve months
net income (for those transaction where multiples were available) ranged from
3.6 to 39.4 with a mean of 24.7 and a median of 31.0; and the multiples of
historical book value (for those transactions where multiples were available)
ranged from 1.2 to 4.3 with a mean of 2.5 and a median of 2.2.
Premiums Paid in Mergers
Needham analyzed the premiums (for those transactions where premiums
were available) for nineteen selected mergers and acquisitions of companies in
the computer technology industry, and eight selected mergers and acquisitions of
companies in the networking industry. Based on stock prices four weeks prior to
the announcement date (a) the range of premiums in the computer technology
industry was 15.9% to 125.5%, with a median 60.4%; and (b) the range of premiums
in the networking industry alone was 33.9% to 66.7%, with a median of 41.7%.
Stock Trading History
Needham examined the history of trading prices and volumes for Network
Systems Stock and StorageTek Stock, both separately and in relation to each
other, and the relationship between movements of Network Systems Stock and
StorageTek Stock and movements in composite indices such as the Standard &
Poor's 500, NASDAQ Composite and the Dow Jones Industrials.
No company or transaction used in any comparable analysis as a
comparison is identical in the case of Network Systems. Accordingly, these
analyses are not mathematical; rather they involve complex considerations and
judgments concerning differences in financial characteristics of the comparable
companies and other factors that could affect the public trading value of the
comparable companies to which they are being compared.
The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant quantitative and qualitative methods of
financial analyses and the application of those methods to the particular
circumstances and therefore, such an opinion is not readily susceptible to
summary description. Accordingly, Needham believes that its analyses must be
considered as a whole and that considering any portions of such analyses and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying its opinion.
In its analyses, Needham made numerous assumptions with respect to industry
performance, general business and economic and other matters, many of which are
beyond the control of either Network Systems or StorageTek. Any
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estimates contained in these analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable as set forth therein.
Needham has been paid $300,000, and will receive an additional fee, due
and payable upon the closing of the Merger based upon the amount by which the
aggregate consideration to be exchanged in the Merger exceeds the aggregate
market value of Network Systems Stock on May 24, 1994. Needham will receive a
transaction fee of 0.5% of the amount by which the aggregate consideration
received by Network Systems shareholders exceeds $8.28 per share (125% of the
closing price of Network Systems Stock on May 24, 1994 on the NASDAQ) and an
additional 0.5% by which the aggregate consideration exceeds $9.94 per share
(150% of the closing price of Network Systems Stock on May 24, 1994 on the
NASDAQ). For example, the closing price of the StorageTek Stock on the NYSE was
$35.938, on August 30, 1994, if this was the price at the Effective Time of the
Merger such additional fee would be approximately $177,590. Network Systems has
also agreed to reimburse Needham for its reasonable out-of-pocket expenses and
to indemnify it against certain liabilities relating to or arising out of
services performed by Needham as financial advisor to Network Systems.
Needham is a nationally recognized investment banking firm. As part of
its investment banking services Needham is frequently engaged in the evaluation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and other purposes. During the first seven months of 1994, based
upon information published by AutEx, Needham was not a significant market maker
for Network Systems Common Stock. However, in the normal course of its market-
making activities Needham may, from time to time, have a long or short position
in, and buy or sell, Network Systems securities, which positions on occasion,
may be material in size relative to the volume of trading activity. Needham was
retained by the Network Systems Board of Directors to act as Network Systems'
financial advisor in connection with the Merger based on Needham's experience as
a financial advisor in mergers and acquisitions as well as Needham's familiarity
with the networking industry. In the normal course of its business, Needham may
actively trade the equity securities of StorageTek for its own account or for
the account of its customers and, therefore, may at any time hold a long or
short position in such securities. In addition, Needham has previously provided
investment banking services to StorageTek on matters unrelated to the Merger,
including acting as (i) a managing underwriter on the offerings by StorageTek
of: (a) 6.0 million shares of Common Stock on March 21, 1990; (b) 2.25 million
shares of Common Stock on May 3, 1991; and (c) 3.45 million shares of
Convertible Preferred Stock on February 25, 1993; and (ii) as financial advisor
in connection with StorageTek's acquisition of Amperif Corporation and
StorageTek's partnership with Epoch Systems.
StorageTek's Reasons for the Merger
StorageTek historically has been a producer and seller of tape and disk
subsystems in the mainframe computer marketplace, primarily through its
attachment to IBM operating systems. With the introduction of StorageTek's
Automated Cartridge System Library, StorageTek began to significantly expand the
connectivity of its products into the non-IBM operating system environment. The
majority of the early work done in this area involved connection of its products
to other mainframe computers. However, with the ongoing increase in the
percentage of computing which is done on mini-computers, computer workstations
and personal computers, it gradually became clear that StorageTek would
materially benefit by improving the connectivity of its products to these
smaller computing platforms.
While it is not economical to attach the high-capacity storage subsystem
products supplied by StorageTek to individual workstations or personal
computers, the growing importance of the networked environment provided an
opportunity for StorageTek to use its larger, more sophisticated devices in
these network environments to become the storage provider for not only the
mainframe, but also the network.
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In order to expand its technical capabilities into the network
environment, StorageTek had three possible alternatives to acquire such
expertise. First, it could develop its own internal capabilities with regard to
these skills. Second, it could enter into so-called strategic alliances, such
as the joint development and marketing agreement it has with Network Systems
(see "The Merger--Transactions Between StorageTek and Network Systems"), to
leverage other companies' expertise in this area. The third potential way of
increasing its technical skills in the network environment was to merge with a
company with significant expertise.
Of the three possible ways of increasing its presence in the network
environment, the possibility of a merger appeared most attractive. Internal
development would necessitate a much longer lead time to entry, and potentially
much higher costs and uncertainty of success. Strategic alliances carry the
risk of lack of control of the technology and the possibility of unfriendly
takeover of the strategic partner, leading to risk of loss of future benefit.
Of the potential merger candidates, StorageTek believes that Network
Systems offers significant expertise in networking at the high end of the
computing spectrum, that is, the mainframe. While there are many other
companies engaged in the computer networking business, Network Systems appears
to have a significant breadth of expertise ranging from the mainframe to
personal computer networking. Other companies are more successful in particular
niches of this market, but the overall offerings available from Network Systems
more closely match the broad spectrum of networking which StorageTek has as its
strategic goal.
In addition, during the process of due diligence, StorageTek realized
that the basic philosophies and approaches of Network Systems, both from a
technological and a managerial point of view, closely match its own strategies
and cultural attributes.
StorageTek believes that by combining the capabilities of StorageTek and
Network Systems, improved solutions can be delivered to the network marketplace
on an accelerated basis.
Exchange of Shares; Fractional Shares; Adjustment of Exchange Ratio
At the Effective Time, Sub will be merged into Network Systems, and
outstanding shares of Network Systems Stock will be converted into shares of
StorageTek Stock at the Exchange Ratio. Based on the closing price of $________
of StorageTek Stock on the NYSE composite tape on December __, 1994, the last
trading day before the date of this Proxy Statement/Prospectus, the foregoing
exchange ratio would have resulted in Network Systems' stockholders receiving
approximately $_____ in market value of StorageTek Stock (plus the Rights
Payment of $.05) for each share of Network Systems Stock, if the Merger had been
effective on that date. Because the Exchange Ratio is fixed by the Merger
Agreement and the market price of StorageTek Stock is subject to fluctuation,
the market price of StorageTek Stock may increase or decrease prior to the
Merger, thereby increasing or decreasing the market value of the shares of
StorageTek Stock which Network Systems' stockholders will receive in the Merger.
If the Average Price of the StorageTek Stock is below $30.37 per share, for the
ten trading day period ending two trading days before the Effective Time,
Network Systems may terminate the obligation to consummate the Merger, unless
StorageTek agrees to make an Adjustment to the Exchange Ratio. StorageTek does
not presently intend to make an Adjustment to the Exchange Ratio if the Average
Price for StorageTek Stock for such period is below $30.37 per share and Network
Systems notifies StorageTek of its intention to terminate the Merger Agreement.
If the Merger becomes effective, StorageTek will issue to each
holder of outstanding Network Systems Stock certificates representing the number
of whole shares of StorageTek Stock which such Network Systems' stockholder
shall be entitled to receive pursuant to the terms of the Merger Agreement. The
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Exchange Agent will distribute certificates to each Network Systems' stockholder
representing the number of whole shares of StorageTek Stock (and cash for any
fractional share interests, as described below, and for the Rights Payment) upon
the surrender to the Exchange Agent for cancellation of the certificates
representing such holder's Network Systems Stock accompanied by transmittal
forms. The approval of the Merger by the stockholders of Network Systems will
constitute approval of the appointment of the Exchange Agent.
All of the shares of StorageTek Stock to be issued to Network Systems'
stockholders will be fully paid and non-assessable and will include the right to
purchase Series B Junior Participating Preferred Stock pursuant to a Rights
Agreement dated August 20, 1990 each right entitles the registered holder to
purchase from StorageTek one one-hundredth of a share of Series B Junior
Participating Preferred Stock at a price of $150.00, subject to adjustment. Each
whole share of StorageTek Stock issued in the Merger will be accompanied by one
such right. The NYSE has approved for listing the shares of StorageTek Stock to
be issued in the Merger, or reserved for issuance upon exercise of the Options
under the Option Plans and Stock Purchase Plan, which are being assumed by
StorageTek. The obligations of StorageTek and Network Systems to consummate the
Merger were conditioned upon such listing.
No scrip or fractional share certificates of StorageTek will be issued.
In lieu thereof, each Network Systems' stockholder will be paid cash in an
amount equal to such fractional interest times the closing sale price of a share
of StorageTek Stock on the NYSE composite tape on the business day two days
prior to the date the Merger becomes effective.
Promptly after the Effective Time, transmittal forms will be sent to the
Network Systems stockholders for use in effecting the surrender of their Network
Systems certificates to the Exchange Agent in exchange for certificates
representing StorageTek Stock and cash for fractional share interests, and for
the Rights Payment. Shares of Network Systems Stock should not be surrendered
for exchange prior to the receipt by stockholders of transmittal forms and
instructions. It is important for Network Systems' stockholders to exchange
their Network Systems certificates for StorageTek certificates promptly after
the Effective Time because all trading of Network Systems Stock on NASDAQ will
terminate at the Effective Time. Moreover, no dividends or other distributions
payable by StorageTek will be paid on outstanding Network Systems certificates
until surrendered for exchange, but upon surrender of Network Systems
certificates, any unpaid dividends or distributions will be paid, without
interest. Until so exchanged, Network Systems stock certificates will evidence
for all other purposes (including voting rights) the number of whole shares of
StorageTek Stock into which they were converted at the Effective Time.
For information concerning the substitution and assumption by StorageTek
of Network Systems' outstanding Options and obligations under the Stock Purchase
Plan, see "The Merger--Treatment of Options and Employee Stock Purchase Plan."
No Appraisal Rights
Under Delaware law, Network Systems' stockholders will not be entitled
to any appraisal or dissenter's rights in connection with the Merger.
Management of Network Systems after the Merger; Interests of Certain Persons in
the Merger
Following the Merger, Network Systems will be the surviving corporation
and a wholly-owned subsidiary of StorageTek. Upon consummation of the Merger,
the directors of Sub immediately prior to the Merger will initially continue as
the initial directors of the surviving corporation and the officers of Network
Systems immediately prior to the Merger will initially continue as the officers
of the surviving corporation to the extent they elect to continue their
employment with Network Systems. StorageTek, in consultation with senior
officers of Network Systems, is currently reviewing the status of Network
Systems' existing officers following the Merger. It is currently anticipated
that the majority of these officers
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will continue their employment with Network Systems following the Merger. The
Certificate of Incorporation and bylaws of Network Systems as in effect at the
Effective Time will be the Certificate of Incorporation and bylaws of the
surviving corporation after the Merger, in each case until amended in accordance
with their terms and applicable law.
No officers, directors or persons holding more than 5% of the voting
power of either StorageTek or Network Systems will have any material interest in
the Merger except as described below and any interest arising from the ownership
of securities of StorageTek or Network Systems, respectively, which interests
are shared pro rata by all holders of the same class of securities.
--- ----
Each of the executive officers of Network Systems is a party to an
agreement with Network Systems which will be operative if a change of control of
Network Systems occurs (the "Change of Control Agreement"). The Change of
Control Agreements provide for certain payments in the event that, subsequent to
a change in control of Network Systems, the executive officer's employment is
terminated involuntarily for reasons other than "cause" or the executive
officer's death or disability or by the executive officer for "good reason,"
including, among other reasons, a material change in the position, duties or
benefits of the executive officer (a "Qualifying Termination"). For the
purposes of these Change of Control Agreements, approval by the stockholders of
Network Systems of the Merger Agreement will constitute such a change in
control. Upon a Qualifying Termination, in addition to salary and benefits then
due and in addition to any other benefits due under Network Systems'
compensation and benefit plans, the terminated executive officer shall be
entitled to: (a) a lump sum payment equal to 200% of the executive officer's
base salary; (b) a cash payment equal to the value (at the time of the change in
control or the termination of employment, whichever is greater) of the executive
officer's outstanding options granted under the Stock Option Plans in lieu of
such options; (c) reimbursement for all legal fees and expenses incurred by the
executive officer as a result of such termination; (d) for a 24-month period
following such termination or, if earlier, until an equivalent benefit is
received, life and health insurance benefits substantially similar to those the
executive officer was receiving at the time of notice of the termination; and
(e) all costs, fees, and expenses of reasonable out-placement assistance
services.
In addition to these payments and benefits, the Change in Control
Agreements with Lyle D. Altman, Michael F. G. Ashby, Gary S. Christensen and
Malcolm Reid provide for: (a) a lump sum payment equal to the present value of
the executive officer's benefit under Network Systems' deferred compensation
plan, calculated in the manner specified in the Change of Control Agreements as
if the executive officer had continued to be employed by Network Systems and
remained a participant in the plan for two years immediately following the
termination; and (b) a lump sum payment equal to the present value of a normal
retirement benefit payable at age 65 under Network Systems' supplemental
retirement plan, calculated in the manner specified in the Change of Control
Agreements as if the executive officer had attained age 55 and either continued
to be employed by Network Systems and remained a participant in the plan for two
years immediately following the termination or participated in the plan for ten
years. These lump sum payments are in lieu of all rights the executive officer
may have under Network Systems' deferred compensation and supplemental
retirement plans pursuant to these Change of Control Agreements. In the event
that severance payments under these four Change in Control Agreements are
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code"), Network Systems will pay the executive officer
an additional amount such that the net amount retained by the executive officer
after the deduction of the excise tax, and income tax on the additional amount
will be equal to the total amount of the severance payments.
The Change of Control Agreements for executive officers other than those
mentioned in the preceding paragraph provide that in the event that any payment
or benefit received by the executive officer pursuant to the Change of Control
Agreement or any other payments the officer has the right to receive from
Network Systems or an affiliate or successor in connection with a change in
control of Network Systems would not be deductible under Section 280G of the
Code, payments and benefits pursuant to the Change of
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Control Agreement will be reduced (but not below zero) so that no portion of
such payments and benefits is not deductible by reason of Section 280G of the
Code. In general, Section 280G limits the total value of such payments and
benefits to three times the average of the executive officer's annualized
includable compensation received from Network Systems and its subsidiaries
during the five-year period prior to the year in which the change in control
occurs.
StorageTek has entered into a "Supplemental Compensation Agreement" with
certain Network Systems executive officers who StorageTek would like to remain
with Network Systems Corporation following the Merger. The Supplemental
Compensation Agreements provide that StorageTek will make payments equal to one
year's salary, as a one-time special bonus, payable one-half at the Effective
Time and one-half one year from the Effective Time. Any payments made under the
Supplemental Compensation Agreement would be deducted from payments which might
otherwise become payable under the Change of Control Agreements. In addition,
the Supplemental Compensation Agreements generally provide that certain other
benefit plans would be continued during the two-year term of the Supplemental
Compensation Agreement, and that any payments made under the Supplemental
Compensation Agreement, or under the Change of Control Agreement, would be
deducted from amounts which could become payable to the employee on his
termination pursuant to his original employment agreement with Network Systems.
Furthermore, the Supplemental Compensation Agreements provide that the employee
would not claim any rights under the Change of Control Agreement merely by
virtue of Network Systems becoming a subsidiary of StorageTek. StorageTek has
entered into Supplemental Compensation Agreements with Gary Chastelet, Bill
Franta, Malcolm Hopping, Carl Russo, Roger Weingarth, Warren Pillsbury, Donald
Pierce, Michael Mancusi, Donald Haeny and Jeffrey Jacobsen.
The maximum estimated value (assuming that (i) the Merger is approved by
the stockholders of Network Systems in December l994, and (ii) all options and
restricted stock are cashed out at a price of $27.875 per share for StorageTek
Stock) that each such executive officer would be entitled to receive if such
officer was terminated immediately after the Merger in a manner entitling the
officer to benefits pursuant to such officer's Change of Control Agreement is as
follows: Lyle D. Altman, $876,308; Michael F. G. Ashby, $676,932; Gary S.
Christensen, $594,982; Malcolm Reid, $495,044; Gerry Chastelet, $423,101;
William R. Franta, $384,611; Donald Haeny, $391,032; Malcolm Hopping, $462,280;
Jeffrey Jacobsen, $251,195; Michael D. Mancusi, $357,708; Donald T. Pierce,
$335,984; Warren L. Pillsbury, $383,129; Carl Russo, $347,624; and Roger E.
Weingarth, $353,454. The actual value that each executive officer will be
entitled to receive will vary significantly depending upon, among other things,
the price of StorageTek Stock at the Effective Time.
Each of the non-employee directors of Network Systems holds options to
purchase 20,000 shares of Network Systems stock which were granted under the
Network Systems 1993 Non-Employee Director Stock Option Plan and its predecessor
Non-Employee Director Stock Option Plan. The options generally become
exercisable in three annual installments from the date of grant but will
automatically become exercisable in full upon the effectiveness of the Merger.
The weighted average exercise price of the options held by Messrs. Barth,
Fedderson, and Haggerty each equals $7.5234 per share; those held by Mr. Castle
equals $7.6875 per share; and those held by Messrs. Fitzpatrick and Thorton each
equals $7.8750 per share.
Network Systems has previously entered into indemnification agreements
with each of its directors and executive officers pursuant to which Network
Systems has agreed to indemnify, and advance expenses to each of them to the
full extent provided by applicable law and Network Systems' bylaws. The Merger
Agreement provides that StorageTek shall indemnify, and advance expenses to,
such directors and executive officers with respect to any matters arising out of
actions or omissions occurring on or prior to the Effective Time, including with
respect to the Merger, in each case to the full extent provided by applicable
law and Network Systems' bylaws. This obligation by StorageTek to indemnify and
advance expenses shall continue for a period of six years from the Effective
Time. In addition, StorageTek has agreed to assume all
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of the obligations of Networks Systems pursuant to each indemnification
agreement entered into with such directors and executive officers, provided that
such director or executive officer agrees to amend their indemnification
agreement to remove the provisions relating to the retention of independent
counsel and the establishment of a trust for the payment of expenses.
The Merger Agreement also provides that StorageTek shall cause to be
maintained in effect for not less than four years from the Effective Time the
current policies of directors' and officers' liability insurance maintained by
Network Systems and its subsidiaries (or substitute policies providing the same
coverage on terms and conditions no less advantageous to the beneficiaries of
such policies) with respect to all matters, including matters contemplated by
the Merger Agreement, occurring prior to and including the Effective Time,
provided that such director and officer agrees to amend their indemnification
agreement in the manner described above.
As an inducement to StorageTek's execution of the Merger Agreement,
certain directors, executive officers and stockholders of Network Systems
entered into agreements with StorageTek pursuant to which they will vote in
favor of the Merger, unless the Network Systems Board withdraws its
recommendation that stockholders vote in favor of the Merger or the Merger
Agreement is terminated. These stockholders have the right to vote 890,786
shares of Network Systems Stock, which represents 3% of the votes entitled to be
cast at the Meeting. See "Introduction--Record Date; Voting Rights; Votes
Required."
Treatment of Network Systems Options and Employee Stock Purchase Plan
As of the Record Date, there were outstanding under (i) the Option
Plans, stock options to purchase an aggregate of 2,054,587 shares of Network
Systems Stock ("Options"), and (ii) the Stock Purchase Plan obligations of
Network Systems to issue 37,336 shares of Network Systems Stock on March 31,
1995, based on a purchase price of $5.42 per share and the aggregate individual
contributions as of the Record Date. The vesting of the Options will accelerate
upon consummation of the transactions contemplated by the Merger Agreement and,
to the extent not exercised prior to the Effective Time, shall be exercisable
for that number of shares of StorageTek Stock (with fractions rounded up to the
nearest full share) equal to the number of shares of Network Systems Stock
issuable with respect to the Option multiplied by the Exchange Ratio, at an
exercise price equal to the exercise price of the Option divided by the Exchange
Ratio.
Also, each participant in the Stock Purchase Plan shall have the right
as of March 31, 1995, to purchase shares of StorageTek Stock pursuant to the
terms of the Stock Purchase Plan (by crediting amounts in each participant's
individual account under the Stock Purchase Plan) at the lesser of 85% of (a)
$24.35 (the $6.375 fair market value of one share of Network Systems Stock on
April 1, 1994 divided by the Exchange Ratio), and (b) the fair market value of
one share of StorageTek Stock on March 31, 1995. Except as modified by the
provisions described above, the Option Plans and Stock Purchase Plan shall each
remain in full force and effect following the Effective Time, although
StorageTek does not presently intend to grant any further options pursuant to
the Option Plans and intends to terminate the Stock Purchase Plan after the
current offering period expires on March 31, 1995. It is expected that
employees of Network Systems will be eligible to participate in the option plans
and employee stock purchase plan that StorageTek may from time to time make
available to employees of StorageTek and its subsidiaries.
Stockholders are advised to obtain current market quotations for
StorageTek Stock and Network Systems Stock. No assurance can be given as to the
market price of StorageTek Stock or Network Systems Stock at the Effective Time.
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Transactions Between StorageTek and Network Systems
StorageTek and Network Systems are parties to a joint development and
marketing agreement, dated April 22, 1993. Under the terms of the agreement,
each party bears its own cost of developing new products. Upon completion of
development, StorageTek and Network Systems separately market the products, with
each party paying a royalty to the other based on its sales of the jointly
developed product. Two products are currently under development pursuant to
this agreement.
Certain Federal Income Tax Consequences
The following discussion summarizes the material United States federal
income tax consequences of the Merger to the holders of Network Systems Stock,
and Network Systems. This discussion is based on the current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury
Regulations, judicial authority and administrative rulings and practice.
Consummation of the Merger is not conditioned on the receipt of opinions from
counsel as to the tax consequences of the Merger. In addition, no ruling from
the IRS has been or will be sought with respect to any aspect of the Merger.
Therefore, there can be no assurance that the IRS will not take a contrary view
as to the tax consequences described herein. Furthermore, legislative, judicial
or administrative changes or interpretations may be forthcoming that could alter
or modify the statements set forth herein.
The following does not consider the tax consequences of the Merger under
state, local and foreign law. Moreover, special considerations not described
herein may apply to certain taxpayers, such as financial institutions, broker-
dealers, insurance companies, tax-exempt organizations, investment companies and
persons who are neither citizens nor residents of the United States, or who are
foreign corporations, foreign partnerships or foreign estates or trusts as to
the United States.
EACH HOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER.
Subject to the qualifications set forth above, the Merger is expected to
qualify as a tax-free reorganization under Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code, with the following results:
(i) Except for cash received in lieu of fractional shares or
pursuant to an Adjustment to the Exchange Ratio, no gain or loss
will be recognized by the stockholders of Network Systems for tax
purposes upon the conversion of their shares of Network Systems
Stock into shares of StorageTek Stock pursuant to the Merger.
(ii) The tax basis of the shares of StorageTek Stock received by each
stockholder of Network Systems, including any fractional share
for which cash is received, will be the same as the tax basis of
the shares of Network Systems Stock held by such stockholder
immediately prior to the Merger, decreased by the amount of cash
received by such stockholder pursuant to an Adjustment to the
Exchange Ratio and increased by the amount of any gain recognized
by such stockholder as a result thereof.
(iii) The holding period of the shares of StorageTek Stock received by
each stockholder of Network Systems, including any fractional
share interest for which cash is received, will include the
holding period of the shares of Network Systems Stock held by
such stockholder immediately prior to the
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Merger, provided that such stockholder held such shares of
Network Systems Stock as a capital asset on the date of the
Merger.
(iv) No gain or loss will be recognized by Network Systems for tax
purposes in connection with the Merger.
(v) The redemption by Network Systems of its Rights in connection
with the Merger will result in a taxable distribution to
stockholders of Network Systems Stock.
If the amount of cash received by stockholders of Network Systems Stock
pursuant to the Merger Agreement exceeds 20% of the sum of the cash and the fair
market value of the StorageTek Stock received by such stockholders pursuant to
the Merger Agreement, the Merger would fail to qualify as a tax-free
reorganization under the Code. Under the terms of the Merger Agreement, if the
Average Price of StorageTek Stock is below $30.37 per share, Network Systems may
terminate its obligation to consummate the Merger, unless StorageTek agrees to
make an Adjustment to the Exchange Ratio. A portion or all of such adjustments
could be made in the form of cash. The Agreement provides, however, that the
amount of cash that will be received by holders of Network Systems Stock
pursuant to the Merger Agreement may not disqualify the Merger as a tax-free
reorganization.
Under the backup withholding rules, a holder of Network Systems Stock
and StorageTek Stock may be subject to backup withholding at the rate of 31%
with respect to dividends and proceeds of redemption, unless such stockholder
(a) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (b) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. Any amount withheld under these rules will be credited
against the stockholder's federal income tax liability. Network Systems or
StorageTek may require holders of Network Systems Stock or StorageTek Stock to
establish an exemption from backup withholding or to make arrangements
satisfactory to Network Systems or StorageTek with respect to the payment of
backup withholding. A stockholder who does not provide Network Systems or
StorageTek with his or her current taxpayer identification number may be subject
to penalties imposed by the IRS.
Comparison Of Stockholder Rights
If the Merger is consummated, the stockholders of Network Systems will
become stockholders of StorageTek. The rights of the stockholders of both
StorageTek and Network Systems are governed by and subject to the provisions of
the Delaware General Corporation Law ("DGCL"). The rights of current Network
Systems stockholders following the Merger will be governed by the StorageTek
Certificate of Incorporation and the StorageTek bylaws rather than the
provisions of the Certificate of Incorporation and bylaws of Network Systems.
The following is a brief summary of certain differences between the rights of
stockholders of StorageTek and the rights of stockholders of Network Systems and
is qualified in its entirety by reference to the relevant provisions of the
DGCL, the StorageTek Certificate of Incorporation, the StorageTek bylaws, the
Network Systems Certificate of Incorporation and the Network Systems bylaws.
Directors. Network Systems' Certificate of Incorporation ("Network
Systems' Certificate") provides for a classified board of directors consisting
of three classes, with each class being as nearly equal in number as possible.
Each director is elected to a three-year term, with one-third of the directors
being elected each year. Network Systems' Bylaws provide for vacancies on the
board to be filled by a majority of the remaining board members. StorageTek's
Certificate of Incorporation ("StorageTek's Certificate") does not provide for a
staggered board of directors. Both Network Systems' Certificate and
StorageTek's
30
<PAGE>
Certificate exempt directors from personal liability to the corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director to
the full extent permitted by Delaware law.
Voting Rights. Under both Network Systems' Certificate and StorageTek's
Certificate, holder of common stock are entitled to one vote per share on all
matters voting as one class. Neither Network Systems' Certificate nor
StorageTek's Certificate provide for cumulative voting with regard to the common
stock and both certificates expressly deny preemptive rights.
Fair Price Provisions/Fundamental Changes. Network Systems' Certificate
provides that, in certain circumstances, an affirmative vote of 80% of the
voting power of all then outstanding voting shares not beneficially owned by
controlling persons is required for the approval of certain transactions. Such
approval is not required, however, if (i) a majority vote of continuing
directors expressly approves the transaction, or (ii) certain other conditions
are met such that the shareholders receive a defined minimum purchase price.
There is no similar provision in StorageTek's Certificate.
Power of Stockholders to Call Special Meeting. Network Systems'
Certificate and Network Systems' Bylaws do not provide the stockholders the
right to call a special meeting and does not allow its stockholders to take
action by written consent. A special meeting of StorageTek stockholders may be
called by 10 percent of the holders of the shares then outstanding and entitled
to vote and StorageTek shareholders may take action by written consent.
Authorized Capital. StorageTek has 190,000,000 authorized shares of
stock, consisting of (i) 150,000,000 shares of StorageTek Common Stock, par
value $.10 per share, and (ii) 40,000,000 shares of preferred stock having a par
value of $.01 per share. Network Systems has 65,000,000 authorized shares of
capital stock consisting of (i) 60,000,000 shares of Network Systems Common
Stock, par value $.02 per share, and (ii) 5,000,000 shares of preferred stock
having a par value $.02 per share.
Alteration or Amendment. The approval of either i) the holders of 80%
or more of the combined voting power of the voting stock of Network Systems, or
ii) the holders of 50% or more of the combined voting power of the voting stock
of Network Systems and the Network Systems Board of Directors, is required for
the alteration, amendment or repeal of, or the adoption of any provision
inconsistent with the foregoing corporate governance provisions as stated in the
Network Systems Certificate. The StorageTek Certificate does not contain such a
supermajority provision.
Accounting Treatment
It is intended that the Merger qualify as a "pooling of interests" for
accounting purposes. It is a condition to the obligations of StorageTek to
consummate the Merger that StorageTek shall have received from its auditors,
Price Waterhouse LLP, a letter confirming that the Merger, if consummated, can
properly be accounted for as a "pooling of interests" in accordance with
generally accepted accounting principles. See "The Merger--Conditions for
Merger and Other Provisions."
Conditions for Merger and Other Provisions
The Merger Agreement contains a number of representations and warranties
by each of the parties and the terms, covenants and conditions to be complied
with and performed by each of them on or before the Effective Time.
The obligations of StorageTek, Sub and Network Systems under the Merger
Agreement are also subject to the fulfillment or waiver of the following
conditions: (a) expiration of the waiting period under the HSR Act (which
expired on October 12, 1994); (b) approval of the Merger by the requisite vote
of the stockholders of Network Systems; (c) effectiveness of the Registration
Statement;
31
<PAGE>
(d) approval for listing upon notice of issuance on the New York Stock Exchange
of StorageTek Stock to be issued in the Merger (which was approved on October
14, 1994); (e) absence of any order, statute, rule, regulation, executive order,
stay, decree, judgment or injunction enacted, entered, issued, promulgated or
enforced by any court or governmental authority prohibiting or restricting the
effectuation of the Merger; and (f) absence of any governmental action or
proceeding commenced or threatened which seeks to prohibit, restrain, invalidate
or set aside the effectuation of the Merger.
The obligations of StorageTek and Sub under the Merger Agreement are
subject to the fulfillment or waiver of certain additional conditions, including
the following: (a) Network Systems must have performed in all material respects
all of its obligations and agreements contained in the Merger Agreement and
related agreements; (b) as of the Effective Time, Network Systems'
representations and warranties contained in the Merger Agreement and related
agreements must be true in all material respects; (c) completion of all
necessary corporate action on the part of Network Systems; (d) receipt by
StorageTek of letters from Network Systems' affiliates covering sales of Network
Systems and StorageTek Stock; (e) receipt by StorageTek of all material consents
or waivers to the Merger; (f) receipt by StorageTek of letters from Network
Systems' auditors regarding the performance of certain specified procedures
(which was obtained on September 9, 1994); (g) receipt by StorageTek of a letter
from StorageTek's auditors confirming that the Merger can be properly accounted
for as a "pooling of interests;" (h) extinguishment or redemption of the Network
Systems Rights; (i) receipt by StorageTek of legal opinions from Network
Systems' general counsel and outside counsel; (j) receipt by StorageTek of
certain officer's certificates; and (k) the absence of any material adverse
change effecting Network Systems.
The obligations of Network Systems under the Merger Agreement are
subject to the fulfillment or waiver of the following additional conditions:
(a) StorageTek and Sub must have performed in all material respects all of their
obligations and agreements contained in the Merger Agreement and related
agreements; (b) as of the Effective Time, StorageTek's and Sub's representations
and warranties contained in the Merger Agreement and related agreements must be
true in all material respects; (c) completion of all necessary corporate action
on the part of StorageTek and Sub; (d) receipt by Network Systems of legal
opinions from StorageTek's general counsel and outside counsel; (e) the absence
of any material adverse change effecting StorageTek; and (f) receipt by Network
Systems of certain officer's certificates.
Certain of the foregoing conditions upon which the respective
obligations of StorageTek, Sub and Network Systems under the Merger Agreement
are subject may be waived by the party for whose benefit the condition exists.
None of StorageTek, Sub or Network Systems has determined under what
circumstances, if any, one or more of the foregoing conditions or any other
conditions would be waived.
The Merger Agreement may be amended by mutual written consent of
StorageTek, Sub and Network Systems before or after approval by Network Systems'
stockholders, except that after such stockholder approval, no amendment can
modify the Exchange Ratio or otherwise alter the amount or form of consideration
to be received by Network Systems' stockholders without further Network Systems'
stockholder approval. The Merger Agreement does not otherwise require Network
Systems' stockholder approval of amendments thereto, including any amendments
adversely affecting Network Systems' stockholders. On August 25 and September 9,
1994, the parties amended several provisions of the Merger Agreement to extend
certain deadlines set forth for certain conditions and clarify certain matters.
The Merger Agreement may be terminated and the Merger abandoned (whether
before or after approval by Network Systems' stockholders) prior to the
Effective Time, as follows:
Termination By Either Party. The Merger Agreement may be terminated
prior to the Effective Time (i) by mutual consent of StorageTek and Network
Systems, or (ii) by either party if (a) there has been a material breach of any
representation, warranty or covenant set forth in the Merger Agreement by the
other party and such breach has made it impossible to satisfy the conditions to
the Merger which have not
32
<PAGE>
been waived, (b) the Merger has not been consummated on or before February 28,
1995, other than due to a breach by the terminating party, (c) any court or
governmental entity shall have prohibited consummation of the Merger Agreement
or the transactions contemplated in connection therewith, or (d) the required
approval of the stockholders of Network Systems is not received at the
stockholders' meeting.
Termination By Network Systems. Network Systems may terminate the
Merger Agreement prior to the Effective Time (i) if the Average Price of
StorageTek Stock is less than $30.37 per share, and StorageTek does not agree to
make an Adjustment to Exchange Ratio (a "Market Out") or (ii) the Board of
Directors of Network Systems exercises its right to accept a Topping Offer from
a third party.
See "The Merger--Expenses; Topping Offer" and "--Exchange of Shares;
Fractional Shares; Adjustment To Exchange Ratio."
No Solicitation
Pursuant to the Merger Agreement, Network Systems has agreed that it
will not directly or indirectly initiate, encourage or solicit any offer from
any entity other than StorageTek relating to the acquisition of Network Systems.
Network Systems also agreed not to consider, entertain, recommend approval of or
provide any confidential information to any entity other than StorageTek unless
based on the advice of counsel, such action is necessary to fulfill fiduciary
duties of the Network Systems Board of Directors or as required by applicable
law. If the Board of Directors of Network Systems receives a bona fide offer
and determines, in the exercise of its fiduciary duty, that such offer will
result in a transaction more favorable to the Network Systems stockholders from
a financial point of view than the transaction contemplated by the Merger
Agreement and StorageTek does not make, within seven business days after
receiving notice of such offer, an offer that Network Systems deems is superior
to such offer, Network Systems may terminate the Merger Agreement and pay to
StorageTek a fee of $16 million plus reimburse StorageTek for all of its
expenses. Network Systems has agreed to promptly notify StorageTek of any such
bona fide offer.
Merger and Consolidation Charges
One-time merger and consolidation charges of between $6 and $8
million are expected to be recognized at the time the merger is consummated.
These one-time charges may have a material impact on the results of operations
in the quarter the merger is consummated, however, the charges are not expected
to materially impact StorageTek's liquidity. See "Unaudited Pro Forma Condensed
Combined Financial Statements."
Expenses; Topping Offer
If (i) the obligation to consummate the Merger is terminated pursuant to
the Merger Agreement; (ii) Network Systems has engaged in any negotiations with
a third party for any type of acquisition proposal, merger or stock sale
relating to Network Systems since February 22, 1994, and prior to such
termination; and (iii) Network Systems completes a transaction with a third
party which was initiated prior to six months from the date of such termination,
and when combined with any dividends or distributions declared after August 8,
1994, and the value of any rights retained by holders of Network Systems Stock,
yields more than $10.00 of value to holders of Network Systems Stock, then
Network Systems will pay StorageTek a fee of $16 million and reimburse it for
all reasonable expenses and fees incurred in connection with the Merger.
In addition, if Network Systems terminates the obligation to consummate
the Merger because of a Market Out, Network Systems will pay StorageTek a fee of
$5 million. In all other circumstances, the
33
<PAGE>
parties have agreed that each party incurring expenses in connection with the
Merger shall pay the respective expenses incurred by them.
Regulatory Approvals
Pursuant to the HSR Act and the rules promulgated thereunder, on
September 19, 1994, StorageTek and Network Systems each furnished notification
of the Merger and provided certain information to the Federal Trade Commission
(the "FTC") and the Department of Justice (the "Department"). The waiting period
under the HSR Act expired on October 12, 1994.
At any time before or after the Effective Time, the FTC, the Department
or a private person or entity could seek under the antitrust laws, among other
things, to enjoin the Merger or to cause StorageTek to divest itself, in whole
or in part, of Network Systems or of other businesses conducted by StorageTek.
There can be no assurance that a challenge to the Merger will not be made or
that, if such a challenge is made, StorageTek and Network Systems will prevail.
The obligations of StorageTek and Network Systems to consummate the Merger are
subject to the condition that there be no preliminary or permanent injunction or
other order by any court or governmental or regulatory authority prohibiting
consummation of the Merger. Each party has agreed to use all reasonable efforts
to remove any such prohibition.
Restrictions on Resale; Affiliate Agreements
The StorageTek Stock issuable in connection with the Merger has been
registered under the Securities Act and will be freely tradable without further
registration or restriction except as described below. In addition, if
necessary, StorageTek intends to file a registration statement under the
Securities Act to register the shares of StorageTek Stock issuable upon the
exercise of the outstanding Options and shares issuable pursuant to Network
Systems obligations under the Stock Purchase Plan which will be assumed by
StorageTek in connection with the Merger. Such shares will also be freely
tradable without further registration or restriction except as described below.
StorageTek's obligation to complete the Merger is conditioned upon
receiving executed agreements from each of the stockholders of Network Systems
who may be deemed to control or be under common control with Network Systems at
the time of the Meeting ("Affiliates") pursuant to which such Affiliates agree,
among other matters, not to (i) sell or otherwise reduce such Affiliate's
interest in or risk relative to any shares of StorageTek Stock received in the
Merger until financial results covering at least 30 days of combined post-Merger
operations of StorageTek and Network Systems have been made publicly available,
or (ii) dispose of shares of StorageTek Stock received in the Merger in
violation of the Securities Act or the rules and regulations of the SEC
promulgated thereunder.
Affiliates may not sell the approximately 890,786 shares of StorageTek
Stock they will acquire in connection with the Merger or the approximately
229,680 shares they may subsequently acquire pursuant to the exercise of the
Options, except pursuant to an effective registration statement under the
Securities Act covering such shares or in compliance with Rule 145 promulgated
under the Securities Act, or another applicable exemption from the registration
requirements of the Securities Act. In general, under Rule 145, for two years
following the Merger, an Affiliate (together with certain related persons) would
be entitled to sell shares of StorageTek Stock acquired in connection with the
Merger only through unsolicited "brokers' transactions" or in transactions
directly with a "market maker," as such terms are defined in Rule 144 of the
Securities Act. Additionally, the number of shares to be sold by an Affiliate
(together with certain related persons and persons acting in concert) within any
three-month period for purposes of Rule 145 may not exceed the greater of 1% of
the outstanding shares of StorageTek Stock or the average weekly trading volume
of such stock during the four calendar weeks preceding such sale. Rule 145
would only be available to Affiliates if StorageTek remains current with its
informational filings with the SEC under the Exchange
34
<PAGE>
Act. After two years, Affiliates would be able to sell such StorageTek Stock
without such manner of sale or volume limitations as long as StorageTek was
current with its informational filings under the Exchange Act and such Affiliate
was not then an affiliate of StorageTek. Three years after the Effective Time,
Affiliates would be able to sell such shares of StorageTek Stock without any
restrictions so long as they had not been an affiliate of StorageTek for at
least three months prior thereto.
Operation Of Business Prior To Merger
Until the Effective Date or the termination of the Merger Agreement,
Network Systems has agreed to operate its business in the ordinary course and to
use all reasonable efforts to preserve all of Network Systems' assets and
business relationships. In furtherance of the foregoing, Network Systems has
agreed not to engage in certain actions, including amending its certificate of
incorporation, paying dividends, issuing additional capital stock, incurring any
material liabilities, acquiring another company or waiving any material rights.
35
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Balance Sheet as of
September 1994, and the related Unaudited Pro Forma Condensed Combined
Statements of Operations for the nine months ended September 1994, and for each
of the three years in the period ended December 1993, give effect to the Merger.
This pro forma information has been prepared utilizing the historical
consolidated financial statements of StorageTek and Network Systems, and should
be read in conjunction with the historical financial statements and notes
thereto, which are incorporated by reference herein. These unaudited pro forma
condensed combined financial statements are provided for comparative purposes
only and do not purport to be indicative of the results which actually would
have been obtained if the Merger had been effected for the periods indicated, or
of results which may be obtained in the future.
These unaudited pro forma condensed combined financial statements are
based on the pooling of interests method of accounting for the Merger. The pro
forma adjustments are described in the accompanying notes. These unaudited pro
forma condensed combined financial statements assume the combination of
StorageTek and Network Systems had occurred on the first day of the earliest
period presented.
36
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(In Thousands of Dollars)
<TABLE>
<CAPTION>
September 1994
---------------------------------------------------------------------------
HISTORICAL PRO FORMA
--------------------------------------- ----------------------------------
StorageTek Network Systems Adjustments Combined
---------------- -------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
- ------
Cash and marketable securities $ 188,366 $ 20,969 $ 209,335
Accounts and notes receivable 271,537 74,993 $(30,662) (a) 315,868
Net investment in sales-type leases 403,655 403,655
Inventories 279,568 25,785 305,353
Computer equipment, net 130,110 12,104 (a) 142,214
Spare parts, net 51,882 4,757 (b) 56,639
Property, plant and equipment, net 322,685 50,760 (4,757) (b) 368,688
Deferred income tax assets, net 51,788 18,830 230 (a) 57,151
(13,697) (c)
Goodwill and other intangible assets 46,674 41,062 87,736
Other assets 95,266 63,422 158,688
---------------- -------------------- ------------- ---------------
Total assets $1,841,531 $295,821 $(32,025) $2,105,327
================ ==================== ============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Accounts payable and accrued
liabilities $ 292,149 $ 39,393 $ (2,606) (a) $ 335,936
7,000 (e)
Other liabilities 9,204 23,773 (5,918) (c) 27,059
Convertible subordinated
debentures 145,645 145,645
Nonrecourse borrowings 182,881 182,881
Other long-term debt 171,934 1,000 172,934
---------------- -------------------- ------------- ---------------
Total liabilities 801,813 64,166 (1,524) 864,455
================ ==================== ============= ===============
Preferred stock 35 35
Common stock 4,406 606 187 (d) 5,199
Capital in excess of par value 1,438,560 114,043 (187) (d) 1,552,416
Accumulated earnings (deficit) (397,354) 117,816 (15,722) (a) (310,039)
(7,779) (c)
(7,000) (e)
Other equity (5,929) (810) (6,739)
---------------- -------------------- ------------- ---------------
Total stockholders' equity 1,039,718 231,655 (30,501) 1,240,872
---------------- -------------------- ------------- ---------------
Total liabilities and
stockholders' equity $1,841,531 $295,821 $(32,025) $2,105,327
================ ==================== ============= ===============
</TABLE>
The accompanying notes are an integral part of the unaudited
pro forma condensed combined balance sheet.
37
<PAGE>
NOTE TO UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET
(a) To adjust balance sheet accounts to reflect revenue recognition for Network
Systems' product sales to end-user customers which are recorded at the
time of shipment to the time of customer acceptance, consistent with
StorageTek's policy. These balance sheet adjustments result from
associated adjustments to the combined results of operations; including
accounts receivable associated with revenue, inventories associated with
cost of revenue, accrued liabilities associated with direct sales expense,
and deferred income tax assets associated with the related tax effects.
(b) To reclassify Network Systems' spare parts held for field service consistent
with StorageTek's accounting policy.
(c) To reflect the combined tax position as if the Merger had occurred at the
beginning of the earliest period presented. This adjustment is based on the
evaluation of a variety of factors including: the number of years the
combined companies' operating losses and tax credits can be carried forward,
the existence of taxable temporary differences, the combined companies'
earnings history, the combined companies' near-term earnings expectations,
and possible reductions to net operating loss carryforwards as a result of
proposed adjustments by the Internal Revenue Service to previously filed
federal income tax returns.
(d) To record the exchange of Network Systems Stock for StorageTek Stock.
StorageTek will also reserve additional shares (approximately 600,000
shares) for issuance on exercise of Network Systems' outstanding
options.
(e) To adjust the pro forma condensed combined balance sheet to reflect one-
time merger and consolidation charges which will be expensed at the time the
merger is consummated as required under the "pooling of interests"
accounting method. These charges are presently estimated to be approximately
$7 million. Direct merger expenses, which are estimated to be approximately
$4 million, include financial advisor, outside legal and accounting,
registration, and other fees. The remainder of the charges are expected to
be incurred in connection with the integration of the two companies, none of
which can presently be estimated with specificity.
38
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 1994
------------------------------------------------------
HISTORICAL PRO FORMA
----------------------- ----------------------------
Network
StorageTek Systems Adjustments Combined
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue $1,108,813 $176,426 $3,615 (a) $1,288,854
Cost of revenue 727,182 88,990 1,221 (a) 817,393
----------- ---------- ----------- ----------
Gross margin 381,631 87,436 2,394 471,461
Research and product
development costs 122,223 26,315 148,538
Marketing, general,
administrative and
other income and
expense, net 242,746 59,752 308 (a) 302,806
----------- ---------- ----------- ----------
Operating profit 16,662 1,369 2,086 20,117
Interest (income) and
expense, net (3,363) (2,956) (6,319)
----------- ---------- ----------- ----------
Income before income taxes 20,025 4,325 2,086 26,436
Provision for income taxes 6,700 1,620 780 (a) 9,100
----------- ---------- ----------- ----------
Net income 13,325 2,705 1,306 17,336
Preferred stock dividend 9,056 9,056
----------- ---------- ----------- ----------
Income applicable to
common shares $ 4,269 $ 2,705 $1,306 $ 8,280
=========== ========== =========== ==========
Earnings per common share $ 0.10 $ 0.09 $ 0.16
=========== ========== ==========
Weighted average common
shares and equivalents 44,481 30,104 52,362
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited
pro forma condensed combined statement of operations.
39
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 1993
-----------------------------------------------------------
HISTORICAL PRO FORMA
----------------------- --------------------------------
Network
StorageTek Systems Adjustments Combined
----------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Revenue $1,404,752 $215,558 $(2,619)(a) $1,617,691
Cost of revenue 965,913 109,090 (2,219)(a) 1,072,784
----------- --------- -------------- -----------
Gross margin 438,839 106,468 (400) 544,907
Research and product
development costs 163,286 27,762 191,048
Marketing, general,
administrative and other
income and expense, net 324,823 68,916 252 (a) 393,991
Restructuring, acquisition,
and acquired research and
development costs 74,772 15,642 90,414
----------- --------- -------------- -----------
Operating loss (124,042) (5,852) (652) (130,546)
Interest (income) and
expense, net (11,246) (7,339) (18,585)
----------- --------- -------------- -----------
Income (loss) before
income taxes and cumulative
effect of accounting change (112,796) 1,487 (652) (111,961)
Provision (benefit) for income
taxes 5,000 (720) (432)(a) 9,500
5,652 (b)
----------- --------- -------------- -----------
Income (loss) before
cumulative effect of
accounting change (117,796) 2,207 (5,872) (121,461)
Preferred stock dividend 9,805 9,805
----------- --------- -------------- -----------
</TABLE>
The accompanying notes are an integral part of the unaudited
pro forma condensed combined statement of operations.
[CONTINUED ON NEXT PAGE]
40
<PAGE>
[CONTINUED FROM PREVIOUS PAGE]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Income (loss) applicable to
common shares before
cumulative effect of
accounting change $ (127,601) $ 2,207 $ (5,872) $ (131,266)
================ ================ ================ ================
Earnings (loss) per common
share before cumulative
effect of accounting change $ (2.98) $ 0.07 $ (2.59)
================ ================ ================
Weighted average common
shares and equivalents 42,800 30,118 50,652
================ ================ ================
</TABLE>
The accompanying notes are an integral part of the unaudited
pro forma condensed combined statement of operations.
41
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 1992
-------------------------------------------------------------------------
HISTORICAL PRO FORMA
----------------------------------- -----------------------------------
Network
StorageTek Systems Adjustments Combined
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Revenue $ 1,550,945 $ 219,118 $ 4,262 (a) $ 1,774,325
Cost of revenue 1,074,199 102,729 2,828 (a) 1,179,756
--------------- --------------- --------------- ---------------
Gross margin 476,746 116,389 1,434 594,569
Research and product
development costs 152,702 24,997 177,699
Marketing, general,
administrative and other
income and expense, net 315,475 72,595 426 (a) 388,496
Restructuring, acquisition,
and acquired research
and development costs 60,310 60,310
--------------- --------------- --------------- ---------------
Operating profit (loss) 8,569 (41,513) 1,008 (31,936)
Interest (income) and
expense, net (18,465) (7,429) (25,894)
--------------- --------------- --------------- ---------------
Income (loss) before income taxes 27,034 (34,084) 1,008 (6,042)
Provision for income taxes 17,700 5,590 1,783 (a) 27,200
2,127 (b)
--------------- --------------- --------------- ---------------
Net income (loss) $ 9,334 $ (39,674) $ (2,902) $ (33,242)
=============== =============== =============== ===============
Earnings (loss) per share $ 0.22 $ (1.31) $ (0.66)
=============== =============== ===============
Weighted average common
shares and equivalents 43,347 30,313 50,167
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of the unaudited
pro forma condensed combined statement of operations.
42
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 1991
-------------------------------------------------------------------------
HISTORICAL PRO FORMA
----------------------------------- -----------------------------------
Network
StorageTek Systems Adjustments Combined
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenue $ 1,619,520 $ 198,728 $ (10,707)(a) $ 1,807,541
Cost of revenue 1,105,077 96,305 (3,584)(a) 1,197,798
--------------- --------------- --------------- ---------------
Gross margin 514,443 102,423 (7,123) 609,743
Research and product
development costs 123,269 21,417 144,686
Marketing, general,
administrative and other
income and expense, net 300,253 64,174 (1,071)(a) 363,356
Restructuring, acquisition,
and acquired research
and development costs 5,104 3,974 9,078
--------------- --------------- --------------- ---------------
Operating profit 85,817 12,858 (6,052) 92,623
Interest (income) and
expense, net (16,395) (10,546) (26,941)
--------------- --------------- --------------- ---------------
Income before income taxes 102,212 23,404 (6,052) 119,564
Provision for income taxes 12,400 8,190 610 (a) 21,200
--------------- --------------- --------------- ---------------
Net income $ 89,812 $ 15,214 $ (6,662) $ 98,364
=============== =============== =============== ===============
Earnings per share $ 2.17 $ 0.50 $ 1.99
=============== =============== ===============
Weighted average common
shares and equivalents 41,298 30,686 49,332
=============== =============== ===============
</TABLE>
The accompanying notes are an integral part of the unaudited
pro forma condensed combined statement of operations.
43
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
OPERATIONS
(a) To adjust revenue and associated costs and expenses to reflect revenue
recognition for Network Systems' product sales to end-user customers which
are recorded at the time of shipment to the time of customer acceptance,
consistent with StorageTek's policy. These adjustments reflect the
appropriate reversal (including the effects of rollovers from prior periods)
of revenue and related cost of revenue, as well as direct sales expense, and
the related tax effects.
(b) To reflect the combined tax position as if the Merger had occurred at the
beginning of the earliest period presented. This adjustment is based on
the evaluation of a variety of factors including: the number of years the
combined companies' operating losses and tax credits can be carried forward,
the existence of taxable temporary differences, the combined companies'
earnings history, the combined companies' near-term earnings expectations,
and possible reductions to net operating loss carryforwards as a result of
proposed adjustments by the Internal Revenue Service to previously filed
federal income tax returns.
(c) The accompanying Unaudited Pro Forma Condensed Combined Statements of
Operations exclude any merger expenses or other nonrecurring costs
associated with integrating the operations of the businesses. Although the
operational and transition plans are not completed at this time, the
management of StorageTek believes a one-time charge associated with the
Merger of approximately $7 million will be recognized at the time the merger
is consummated. See footnote (e) to the Unaudited Pro Forma Condensed
Combined Balance Sheet for additional description of the components of this
charge.
44
<PAGE>
EXPERTS
The consolidated financial statements of StorageTek incorporated in this
Proxy Statement/Prospectus by reference, except as they relate to the unaudited
consolidated financial statements of StorageTek included in the Quarterly
Reports on Form 10-Q for the fiscal quarters ended April 1, July 1, and
September 30, 1994, have been audited by Price Waterhouse LLP and KPMG Peat
Marwick LLP, independent accountants. The companies and periods covered by
these audits are indicated in the individual accountants' reports. Such
consolidated financial statements have been so incorporated in reliance on the
reports of the two independent accountants given on the authority of such firms
as experts in auditing and accounting.
The consolidated financial statements of Network Systems incorporated by
reference in Network Systems' Annual Report (Form 10-K) for the year ended
December 31, 1993, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
CERTAIN LEGAL MATTERS
The legality of the StorageTek Stock to be issued in connection with the
Merger is being passed upon for StorageTek by W. Russell Wayman, General Counsel
and Secretary of StorageTek (who currently owns 7,048 shares, and holds
options to purchase an additional 15,556 shares of StorageTek Stock).
ADJOURNMENT OF MEETING
In the event that there are not sufficient votes to approve and adopt
the Merger Agreement at the time of the Meeting, the proposal concerning the
Merger Agreement could not be approved unless the Meeting were adjourned in
order to permit further solicitation of proxies from Network Systems
stockholders. In order to allow proxies that have been received by Network
Systems at the time of the Meeting to be voted for such adjournment, if
necessary, Network Systems is submitting the question of adjournment under such
circumstances to its stockholders as a separate matter for their consideration.
If it is necessary to adjourn the Meeting and the adjournment is for a period of
less than 30 days, no notice of the time and place of the adjourned meeting is
required to be given to stockholders other than an announcement of such time and
place at the Meeting. A majority of the shares represented and voting at the
Meeting is required to approve any such adjournment, provided that a quorum is
present. THE BOARD OF DIRECTORS OF NETWORK SYSTEMS RECOMMENDS THAT NETWORK
SYSTEMS STOCKHOLDERS VOTE FOR THE PROPOSAL TO ADJOURN THE MEETING IF NECESSARY
TO PERMIT FURTHER SOLICITATION OF PROXIES.
45
<PAGE>
APPENDIX A
RESTATED
AGREEMENT
AND
PLAN OF MERGER
BY AND AMONG
STORAGE TECHNOLOGY CORPORATION,
STORAGETEK EAGLE CORPORATION
AND
NETWORK SYSTEMS CORPORATION
DATED
AUGUST 8, 1994
AS
AMENDED ON
AUGUST 25, 1994
AND
SEPTEMBER 9, 1994
AND RESTATED ON
NOVEMBER 15, 1994
<PAGE>
TABLE OF CONTENTS
-----------------
Page(s)
-------
RECITALS................................................................. 1
ARTICLE I THE MERGER..................................................... 2
Section 1.01 The Merger........................................ 2
Section 1.02 Effective Time.................................... 2
Section 1.03 Certificate of Incorporation and By-Laws of the
Surviving Corporation............................. 2
Section 1.04 Board of Directors and Officers................... 2
Section 1.05 Conversion of Shares.............................. 3
Section 1.06 Adjustments to Conversion Number.................. 3
Section 1.07 Surrender of Certificates; Payment for and
Exchange of Shares................................ 3
Section 1.08 No Fractional Shares.............................. 6
Section 1.09 Adjustment Event.................................. 6
Section 1.10 No Further Transfers.............................. 6
ARTICLE II RELATED MATTERS............................................... 7
Section 2.01 Treatment of Stock Options........................ 7
Section 2.02 Stockholder Approvals............................. 7
Section 2.03 Proxy Statement, Etc.............................. 8
Section 2.04 Registration Statement............................ 8
Section 2.05 Compliance with the Securities Act................ 8
Section 2.06 Stock Exchange Listing............................ 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ 9
Section 3.01 Corporate Organization............................ 9
<PAGE>
TABLE OF CONTENTS
-----------------
Page(s)
-------
Section 3.02 Authorization..................................... 9
Section 3.03 Capitalization.................................... 10
Section 3.04 Affiliated Entities............................... 10
Section 3.05 SEC Reports and Financial Statements.............. 12
Section 3.06 Absence of Certain Changes or Events.............. 12
Section 3.07 Consents and Approvals; No Violation.............. 13
Section 3.08 Undisclosed Liabilities........................... 13
Section 3.09 Taxes............................................. 14
Section 3.10 Title and Related Matters......................... 15
Section 3.11 Patents, Trademarks, and Other Intellectual
Property.......................................... 15
Section 3.12 Material Contracts................................ 16
Section 3.13 Litigation........................................ 17
Section 3.14 Insurance......................................... 17
Section 3.15 Compliance with Laws.............................. 18
Section 3.16 Employee Benefit Plans............................ 18
Section 3.17 Employment Related Agreements..................... 19
Section 3.18 Labor Agreements and Controversies................ 19
Section 3.19 Environmental Matters............................. 19
Section 3.20 Absence of Questionable Payments.................. 21
Section 3.21 Ownership of Parent Shares........................ 22
Section 3.22 Certain Fees...................................... 22
ii
<PAGE>
TABLE OF CONTENTS
-----------------
Page(s)
-------
Section 3.23 Disclosure........................................ 22
Section 3.24 Proxy Statement, Etc.............................. 22
Section 3.25 Accounts Receivable; Inventory; Goodwill; and
Leasing Transactions.............................. 23
Section 3.26 Post-Retirement and Post-Employment Benefit
Obligations....................................... 23
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE
SUBSIDIARY.................................................... 24
Section 4.01 Corporate Organization............................ 24
Section 4.02 Authorization..................................... 24
Section 4.03 Capitalization.................................... 24
Section 4.04 Financial Statements and Reports.................. 25
Section 4.05 Absence of Certain Changes........................ 26
Section 4.06 Consents and Approvals; No Violations............. 26
Section 4.07 Litigation........................................ 27
Section 4.08 Compliance with Laws.............................. 27
Section 4.09 Registration Statement............................ 27
Section 4.10 No Undisclosed Liabilities........................ 28
Section 4.11 Disclosure........................................ 29
ARTICLE V COVENANTS...................................................... 29
Section 5.01 Conduct of Business of the Company................ 29
Section 5.02 No Solicitation................................... 31
Section 5.03 Access to Information............................. 32
iii
<PAGE>
TABLE OF CONTENTS
-----------------
Page(s)
-------
Section 5.04 Agreements of Affiliates.......................... 33
Section 5.05 All Reasonable Efforts............................ 33
Section 5.06 Public Announcements.............................. 33
Section 5.07 Notification of Certain Matters................... 34
Section 5.08 Indemnification and Insurance..................... 34
Section 5.09 Regulatory Approvals.............................. 36
Section 5.10 Pooling........................................... 36
Section 5.11 Employee Matters.................................. 36
Section 5.12 Other Matters..................................... 38
Section 5.13 Redemption of Rights.............................. 38
Section 5.14 Disclosure Schedule Supplement and Review......... 38
ARTICLE VI CLOSING....................................................... 39
Section 6.01 Time and Place.................................... 39
Section 6.02 Deliveries at the Closing......................... 39
ARTICLE VII CONDITIONS TO THE MERGER..................................... 40
Section 7.01 Conditions to the Obligations of the Parent, the
Subsidiary and the Company........................ 40
Section 7.02 Additional Conditions to the Obligations of the
Parent and the Subsidiary......................... 41
Section 7.03 Additional Conditions to the Obligations of the
Company........................................... 42
ARTICLE VIII TERMINATION AND ABANDONMENT................................. 43
Section 8.01 Termination....................................... 43
iv
<PAGE>
TABLE OF CONTENTS
-----------------
Page(s)
-------
Section 8.02 Fees and Expenses................................. 46
Section 8.03 Procedure and Effect of Termination............... 47
ARTICLE IX GENERAL PROVISIONS............................................ 47
Section 9.01 Amendment and Modification........................ 47
Section 9.02 Waiver of Compliance; Consents.................... 47
Section 9.03 Validity.......................................... 48
Section 9.04 Parties in Interest............................... 48
Section 9.05 Survival of Representations, Warranties,
Section 9.06 Notices........................................... 48
Section 9.07 Governing Law..................................... 49
Section 9.08 Counterparts...................................... 49
Section 9.09 Table of Contents and Headings.................... 49
Section 9.10 Entire Agreement.................................. 49
Section 9.11 Miscellaneous..................................... 50
v
<PAGE>
RESTATED AGREEMENT AND PLAN OF MERGER
THIS RESTATED AGREEMENT AND PLAN OF MERGER, dated as of November 15,
1994 (the "Agreement"), is among Storage Technology Corporation, a Delaware
corporation (the "Parent"), StorageTek Eagle Corporation, a Delaware corporation
and a direct wholly-owned subsidiary of the Parent (the "Subsidiary"), and
Network Systems Corporation, a Delaware corporation (the "Company").
RECITALS
The Boards of Directors of the Parent, the Subsidiary and the Company
have approved the merger of the Subsidiary with and into the Company (the
"Merger"). The Merger will have the effects set forth in this Agreement and as
a result of the Merger, shares of common stock of the Company will be converted
into shares of common stock of the Parent and the Company will become a wholly-
owned subsidiary of the Parent. For accounting purposes, it is intended that
the Merger shall be recorded as a pooling of interests and for tax purposes it
is intended that the Merger shall qualify as a tax free reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
The Parent and certain shareholders of the Company have entered into
various agreements (collectively, the "Shareholder Agreements") substantially in
the form of Exhibit A to this Agreement by which such shareholders have, among
---------
other things, consented to the Merger and agreed to vote such shares in favor of
the Merger unless the Board of Directors, in the exercise of its fiduciary duty,
has withdrawn its recommendation to shareholders of the Company to vote in favor
of the Merger.
Parent, Subsidiary and Company entered into an Agreement and Plan of
Merger on August 8, 1994 (the "Original Agreement"). The Original Agreement was
amended on August 25, 1994, and September 9, 1994 (collectively, the
"Amendments"). The parties desire to restate the Original Agreement to
incorporate the Amendments.
<PAGE>
ARTICLE I
THE MERGER
Section 1.01 The Merger
----------
Upon the terms and subject to the satisfaction or, if permissible,
waiver of the conditions of this Agreement, at the Effective Time (as defined in
Section 1.02 hereof), the Subsidiary shall be merged with and into the Company
in accordance with the applicable provisions of Delaware law and the separate
existence of Subsidiary shall thereupon cease, and the Company, which shall be
and which is hereinafter sometimes referred to as the "Surviving Corporation,"
shall continue its corporate existence under the laws of the State of Delaware
under the name "Network Systems Corporation." From and after the Effective
Time, the Company shall possess all of the rights, privileges, powers and
franchises of a public as well as of a private nature, and be subject to all the
restrictions, disabilities and duties of each of the Constituent Corporations,
all as set forth in Section 259 of the General Corporation Law of the State of
Delaware (the "DGCL").
Section 1.02 Effective Time
--------------
On the date of the closing of the Merger referred to in Section 6.01
hereof, a Certificate of Merger in such form as required by, and executed in
accordance with, the relevant provisions of the DGCL shall be filed with the
Secretary of State of Delaware. The Merger shall become effective at the time
of such filing, and the date and time of such filing is hereinafter referred to
as the "Effective Time."
Section 1.03 Certificate of Incorporation and By-Laws of the
-----------------------------------------------
Surviving Corporation
---------------------
The Certificate of Incorporation and By-laws of the Company, as in
effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation and By-laws of the Surviving Corporation until thereafter changed
or amended as provided therein or by law.
Section 1.04 Board of Directors and Officers
-------------------------------
The directors of Subsidiary and the officers of the Company
immediately prior to the Effective Time shall be the initial directors and
officers of the Surviving Corporation, each of such directors and officers to
hold office, subject to the applicable provisions of the Certificate of
Incorporation and By-laws of the Surviving Corporation, until their
2
<PAGE>
successors are duly elected and qualified, or their earlier death, resignation
or removal.
Section 1.05 Conversion of Shares
--------------------
At the Effective Time, by virtue of the Merger and without any action
on the part of the holder thereof:
(a) each share of common stock, par value $.02 per share, of the
Company (the "Company Common Stock") then owned by Parent, Subsidiary or any
other direct or indirect subsidiary of Parent and each share of Company Common
Stock then held in the treasury of the Company shall be canceled, and no payment
shall be made nor other consideration paid with respect thereto;
(b) each then remaining outstanding share of Company Common Stock
shall be converted into the right to receive .2618 of a share (subject to
adjustment pursuant to Sections 1.06 and 1.09 below, the "Conversion Number") of
common stock, $.10 par value per share of Parent (the "Parent Common Stock"),
(collectively, the "Merger Consideration"); and
(c) all then outstanding shares of common stock of Subsidiary shall be
converted into one hundred newly issued shares of common stock of the Surviving
Corporation.
Section 1.06 Adjustments to Conversion Number
--------------------------------
The Conversion Number shall be adjusted to give effect to any
Adjustment Event (as defined in Section 1.09 hereof).
Section 1.07 Surrender of Certificates; Payment for and Exchange of
------------------------------------------------------
Shares
------
(a) Prior to the Effective Time, Parent shall designate a bank or
trust company to act as exchange agent (the "Exchange Agent") for the purpose of
effecting the issuance of certificates contemplated hereby and making cash
payments in lieu of fractional shares. As soon as practicable after the
Effective Time, Parent shall cause the Exchange Agent to mail to each record
holder of a certificate or certificates, which immediately prior to the
Effective Time represented shares of Company Common Stock (other than those
owned by Parent, Subsidiary or any other subsidiary of Parent), a notice and
form of letter of transmittal advising such holder of the effectiveness of the
Merger and the procedure for surrendering such certificate or certificates to
the Exchange Agent for exchange for the Merger Consideration
3
<PAGE>
in accordance with this Agreement. Upon the surrender to the Exchange Agent of
such certificate or certificates, together with a letter of transmittal duly
executed and completed in accordance with the instructions thereon, the Exchange
Agent shall promptly cause to be issued to such person the number of whole
shares of Parent Common Stock to which such person is entitled and cash payments
in lieu of fractional shares, as provided in Section 1.08. No interest shall be
paid or accrued in respect of such cash payments.
(b) Until surrendered in accordance with the provisions hereof, each
certificate representing shares of Company Common Stock outstanding immediately
prior to the Effective Time (other than shares owned by Parent, Subsidiary or
any other subsidiary of Parent) shall, except as provided in the following
sentence, be deemed for all purposes to solely represent (i) the ownership of
the number of whole shares of Parent Common Stock into which such shares of
Company Common Stock have been converted in accordance with this Agreement, and
(ii) the right to receive cash in lieu of fractional share interests pursuant to
Section 1.08 hereof. Until such certificates are so surrendered, the holders
thereof shall not be entitled to vote or receive any dividend or other
distribution payable to holders of shares of Parent Common Stock; provided,
however, that upon the surrender of such certificates representing shares of
Company Common Stock in exchange for certificates representing shares of Parent
Common Stock, there shall be paid to the record holder of the certificate or
certificates representing shares of Parent Common Stock issued upon such
exchange the amount of dividends or other distributions which theretofore became
payable and were not paid with respect to the number of shares of Parent Common
Stock represented by the certificate or certificates issued upon such surrender.
In no event shall the persons entitled to receive such dividends or
distributions be entitled to receive interest thereon. All dividends or other
distributions declared after the Effective Time with respect to Parent Common
Stock and payable to the holders of record thereof after the Effective Time
which are payable to holders of certificates representing shares of Company
Common Stock not theretofore surrendered and exchanged for certificates
representing shares of Parent Common Stock shall be paid or delivered by Parent
to the Exchange Agent in trust for the benefit of such holders. All such
dividends or other distributions held by the Exchange Agent for payment or
delivery to the holders of unsurrendered certificates representing Company
Common Stock and unclaimed at the end of one year from the Effective Time shall
be repaid or redelivered by the Exchange Agent to Parent, after which time any
holder of certificates representing Company Common Stock who has not theretofore
surrendered such certificates to the Exchange Agent shall, subject to applicable
law, look as a
4
<PAGE>
general creditor only to Parent for payment or delivery of such dividends or
distributions. Any certificates for shares of Parent Common Stock and any cash
payable in lieu of fractional share interests delivered or made available to the
Exchange Agent pursuant to this Agreement and not exchanged for certificates
representing Company Common Stock within one year after the Effective Time shall
also be returned by the Exchange Agent to Parent subject to the rights of
holders of unsurrendered certificates for shares of Company Common Stock, cash
payable in lieu of fractional share interest under this Section 1.07.
Notwithstanding the foregoing, neither Parent, the Exchange Agent nor any other
party hereto shall be liable to any holder of Company Common Stock for any
Parent Common Stock or dividends or distributions thereon, or cash in lieu of
fractional share interests, delivered to a public official pursuant to
applicable escheat or similar laws.
(c) If payment is to be made or any certificates for shares of Parent
Common Stock are to be issued to a person other than the person in whose name
the certificate for shares of Company Common Stock surrendered in exchange
therefor is registered, it shall be a condition of such payment or exchange that
the certificate so surrendered shall be properly endorsed (with such signature
guarantees as may be required by the letter of transmittal) and otherwise in
proper form for transfer and that the person requesting such payment or exchange
shall pay any transfer or other taxes required by reason of the payment and
issuance of certificates for shares of Parent Common Stock to a person other
than the registered holder of the certificate surrendered or establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
(d) Prior to the Effective Time, Parent shall reserve a sufficient
number of authorized but unissued shares of Parent Common Stock for issuance in
connection with the conversion of Company Common Stock into Parent Common Stock
as provided herein. Promptly after the Effective Time, Parent shall make
available, or cause to be made available, to the Exchange Agent the shares of
Parent Common Stock and shall make arrangements to provide the Exchange Agent
with sufficient funds as and when necessary to enable the Exchange Agent to
effect the exchange of certificates and to make the cash payments in lieu of
fractional shares contemplated hereby.
(e) In the event that any certificate for Company Common Stock shall
have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange
for such lost, stolen or destroyed certificate, upon the making of an affidavit
of that fact by the holder thereof, such shares of Parent Common Stock and cash
in lieu of fractional shares, if any, as may be
5
<PAGE>
required pursuant to this Agreement; provided, however, that Parent may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate to deliver a bond in such
sum as it may direct as indemnity against any claim that may be made against
Parent or the Exchange Agent with respect to the certificate alleged to have
been lost, stolen or destroyed.
(f) Each person entitled to receive shares of Parent Common Stock
pursuant to this Agreement shall receive together with such shares the number of
Parent's Series B Junior Participating Preferred Stock Purchase Rights (pursuant
to the Rights Agreement dated as of August 20, 1990 between Parent and First
Fidelity Bank, N.A. (the "Parent Rights Plan")) per share of Parent Common Stock
equal to the number of such preferred stock purchase rights associated with one
share of Parent Common Stock on the Effective Time.
Section 1.08 No Fractional Shares
--------------------
No fractions of a share of Parent Common Stock shall be issued in the
Merger, but in lieu thereof each holder of shares of Company Common Stock
otherwise entitled to a fraction of a share of Parent Common Stock shall, upon
surrender of his certificate or certificates, be entitled to receive an amount
of cash (without interest) determined by multiplying the closing price for
Parent Common Stock as reported on the New York Stock Exchange ("NYSE")
Composite Transactions on the business day two days prior to the Effective Date
by the fractional share interest to which such holder would otherwise be
entitled.
Section 1.09 Adjustment Event
----------------
In the event of any change in Parent Common Stock between the date of
this Agreement and the Effective Time by reason of any stock dividend, split-up,
reclassification, recapitalization, combination, exchange of shares or the like
(an "Adjustment Event"), the Conversion Number shall be appropriately adjusted.
Section 1.10 No Further Transfers
--------------------
After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of any shares of Company Common
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, certificates for shares of Company Common Stock are
presented to the Surviving Corporation for transfer, they shall be canceled and
exchanged for the Merger Consideration as provided herein.
6
<PAGE>
ARTICLE II
RELATED MATTERS
Section 2.01 Treatment of Stock Options
--------------------------
At or immediately prior to the Effective Time, each holder of a then
outstanding option to purchase shares of Company Common Stock (whether or not
then currently exercisable) granted under the Company's 1989 Long-Term Stock
Incentive Plan, the 1988 Non-Employee Director Stock Option Plan, the 1993 Non-
Employee Director Stock Option Plan, the Key Employees 1981 non-qualified Stock
Option Plan and Key Employees 1980 Stock Option Plan (collectively, the "Option
Plans") shall, by virtue of the Merger and without any action on the part of the
holder thereof, be assumed by Parent and shall thereafter be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such option, the number of whole shares of Parent Common Stock
equal to the number of shares of Company Common stock issuable with respect to
such option multiplied by the Conversion Number, at a price equal to the
exercise price per share of Company Common Stock divided by the Conversion
Number. As promptly as practicable after the Effective Time, Parent shall issue
to each holder of an option under the Option Plans a written instrument
evidencing Parent's assumption of such option. If and to the extent required
by, or deemed necessary or desirable under, the terms of any of the Option
Plans, the Company shall use its reasonable best efforts to obtain the consent
of each holder of outstanding options to the foregoing treatment of such
options.
At the Effective Date, each then outstanding option issued pursuant to
the Company's 1989 Employee Stock Purchase Plan shall be deemed to constitute an
option to acquire Parent Common Stock on the same terms and conditions as
theretofore applicable, except that the exercise price per share and the number
of shares of stock for which such option is exercisable shall be adjusted as
appropriate in light of the Merger and the Conversion Number in order to prevent
any diminution of the value of such options or the rights of participants.
Section 2.02 Stockholder Approvals
---------------------
The Company will take all action necessary in accordance with
applicable law and its Certificate of Incorporation and By-laws to convene a
meeting of its stockholders as promptly as practicable following the date on
which the Registration Statement (as defined below) is declared effective to
consider and vote upon the Merger (the "Proposal"). At the meeting of the
Company's stockholders, all shares of Company Common Stock then owned by Parent,
Subsidiary or any other subsidiary of Parent will be voted in
7
<PAGE>
favor of the Merger. Subject to its fiduciary duty under applicable law, the
Board of Directors of the Company will recommend that its stockholders vote in
favor of the Proposal and will use their best efforts to solicit proxies from
their stockholders in favor of the Proposal and to take all other action
necessary or advisable to secure the vote or consent of stockholders required to
effect the Merger.
Section 2.03 Proxy Statement, Etc.
---------------------
The Company shall promptly prepare and file with the Securities and
Exchange Commission (the "SEC") under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and shall use its best efforts to have cleared by
the SEC, and shall thereafter promptly mail to its stockholders, a proxy
statement (the "Proxy Statement") with respect to the stockholders' meeting
referred to in Section 2.02 hereof (which Proxy Statement will also constitute
the prospectus of Parent to be included in the Registration Statement to be
filed by Parent pursuant to Section 2.04 hereof).
Section 2.04 Registration Statement
----------------------
Parent shall promptly prepare and file with the SEC under the
Securities Act of 1933, as amended (the "Securities Act"), a Registration
Statement on Form S-4 (the "Registration Statement") with respect to the shares
of Parent Common Stock to be issued in the Merger and shall use its best efforts
to have the Registration Statement declared effective by the SEC as promptly as
practicable. Parent shall also take any action required to be taken under state
blue sky or securities laws in connection with the issuance of shares of Parent
Common Stock in the Merger and the Company shall furnish Parent with all
information and shall take such other action as Parent may reasonably request in
connection with any such action.
Section 2.05 Compliance with the Securities Act
----------------------------------
Prior to the Effective Time, the Company shall cause to be delivered
to Parent a list (satisfactory to counsel for Parent) identifying all persons
who might in the Company's opinion, at the time of the meeting of the
stockholders of the Company convened in accordance with Section 2.02 hereof, be
deemed to be "affiliates" of the Company for purposes of Rule 145 under the
Securities Act (the "Affiliates"). The Company shall use reasonable efforts to
cause each person who is identified as a possible Affiliate in such opinion to
deliver to Parent on or prior to the Effective Time a written agreement, in the
form of Exhibit B, that he will not offer to sell, sell or otherwise dispose of
any of the shares of Parent Common Stock issued to him in the Merger, except
pursuant to
8
<PAGE>
an effective registration statement or in compliance with Rule 145 or another
exemption from the registration requirements of the Securities Act.
Section 2.06 Stock Exchange Listing
----------------------
Parent shall use its reasonable best efforts to cause the Parent
Common Stock to be issued in the Merger to be listed on the NYSE prior to the
Effective Time, subject to official notice of issuance and evidence of
satisfactory distribution.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent and the Subsidiary
as follows:
Section 3.01 Corporate Organization
----------------------
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, with all requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as now being conducted, and is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which its
ownership or leasing of property or conduct of business requires such licensing
or qualification, except where the failure to be so qualified would not have a
material adverse effect on the Company. The Company has delivered to the Parent
complete and correct copies of its Certificate of Incorporation and By-Laws as
in effect on the date hereof.
Section 3.02 Authorization
-------------
The Company has the requisite corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder. The execution
and delivery by the Company of this Agreement, the performance by the Company of
its obligations hereunder and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by the Company's
Board of Directors and no other corporate proceeding on the part of the Company
is necessary for the execution and delivery thereof, and, are subject only to
obtaining any necessary approval of the shareholders of the Company to the
Merger, the performance by the Company of its obligations hereunder and the
consummation by the Company of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company and is a legal,
valid and binding obligation of the Company, enforceable against it in
accordance with its terms.
9
<PAGE>
Section 3.03 Capitalization
--------------
The authorized capital stock of the Company as well as the number of
outstanding shares of each class of capital stock of the Company is as set forth
on Section 3.03 of the Company Disclosure Schedule to this Agreement executed by
the Company and delivered to Parent simultaneously with the execution of this
Agreement (the "Company Disclosure Schedule"). All of such outstanding shares
have been duly and validly issued, were not issued in violation of any
preemptive rights and are fully paid and non-assessable with no personal
liability attaching to the ownership thereof. Except as set forth on Section
3.03 of the Company Disclosure Schedule, there are no options, warrants,
subscriptions, conversion or other rights, agreements, commitments, arrangements
or understandings with respect to the issuance of shares of capital stock of the
Company or any other securities convertible into, exchangeable for or evidencing
the right to subscribe for any such shares. Section 3.03 of the Company
Disclosure Schedule lists each of the Company's stock option plans and other
stock award plans (the "Stock Option Plans"), true and correct copies of which
have been provided by the Company to the Parent.
Section 3.04 Affiliated Entities
-------------------
(a) Except as set forth in Section 3.04(a) of the Company Disclosure
Schedule, the Company has no direct or indirect affiliated entities (which term
includes each direct or indirect subsidiary of the Company and each business
entity in which the Company has any direct or indirect interest and for which it
accounts on the equity method of accounting, other than Essential Communications
Corporation ("ECC")). Each affiliated entity of the Company listed on the
Company Disclosure Schedule is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation, with
all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as now being conducted, and is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which its ownership or leasing of property or conduct of
business requires such qualification or licensing, except where the failure to
be so qualified would not have a material adverse effect on the Company. The
Company has delivered to the Parent complete and correct copies of the Articles
or Certificate of Incorporation and By-Laws of each such affiliated entity as in
effect on the date hereof.
(b) Except as set forth in Section 3.04(b) of the Company Disclosure
Schedule, the Company is, directly or indirectly, the record and beneficial
owner of all of the
10
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outstanding shares of capital stock of each of its affiliated entities, and all
of the outstanding shares of capital stock of each such affiliated entity are
duly and validly issued, were not issued in violation of any preemptive rights,
are fully paid and non-assessable and are owned free and clear of any claim,
lien, encumbrance or agreement with respect thereto. Except as and to the extent
set forth in Section 3.04(b) of the Company Disclosure Schedule, there are not
any options, warrants, subscriptions, conversion or other rights, agreements, or
commitments, arrangements or understandings with respect to the issuance of
capital stock of any affiliated entity of the Company or any other securities
convertible into, exchangeable for or evidencing the right to subscribe for any
such shares.
(c) Except as set forth in Section 3.04(c) of the Company Disclosure
Schedule, the Company does not own, directly or indirectly, any capital stock or
other equity securities of any corporation other than of its affiliated
entities, does not have any direct or indirect equity or ownership interest in
any other business or entity, and does not have any direct or indirect
obligation or any commitment to invest any funds in any corporation or other
business or entity other than investments previously made in its affiliated
entities.
(d) To the Company's Knowledge, (i) ECC is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, with all requisite corporate power and authority
to own, operate and lease its properties and to carry on its business as now
being conducted, and is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which its ownership or leasing of property or
conduct of business requires such qualification or licensing, except where the
failure to be so qualified would not have a material adverse effect on ECC, (ii)
all of the outstanding shares of capital stock of ECC are duly and validly
issued, were not issued in violation of any preemptive rights, are fully paid
and non-assessable and are owned free and clear of any claim, lien, encumbrance
or agreement with respect thereto, and (iii) except for shares issuable to the
Company there are no options, warrants, subscriptions, conversion or other
rights, agreements, or commitments, arrangements or understandings with respect
to the issuance of capital stock of ECC or any other securities convertible
into, exchangeable for or evidencing the right to subscribe for any such shares.
11
<PAGE>
Section 3.05 SEC Reports and Financial Statements
------------------------------------
Since January 1, 1991, the Company has filed with the SEC all reports,
registration statements and all other filings required to be filed with the SEC
under the rules and regulations of the SEC (collectively, the "Required Company
Reports") all of which, as of their respective effective dates, complied in all
material respects with all applicable requirements of the Securities Act and the
Exchange Act. The Company has previously delivered to Parent true and complete
copies of its (i) Annual Reports on Form 10-K for the years ended December 31,
1993, and December 31, 1992, as filed with the SEC; (ii) Quarterly Report on
Form 10-Q for the three months ended March 31, 1994, as filed with the SEC;
(iii) proxy statements relating to all meetings of its stockholders (whether
annual or special) held or scheduled to be held since January 1, 1992; and (iv)
all other reports, statements and registration statements (including Current
Reports on Form 8-K) filed by it with the SEC since January 1, 1992
(collectively, the "Company SEC Filings"). As of their respective dates, none
of the Required Company Reports or the Company SEC Filings contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of the Company and its subsidiaries included in the Company
SEC Filings present fairly the consolidated financial position, results of
operations and cash flows of the Company and its subsidiaries as at the dates or
for the periods indicated therein in conformity with generally accepted
accounting principles applied on a consistent basis ("GAAP") (except as
otherwise indicated in such financial statements or the notes thereto), subject,
in the case of unaudited interim financial statements, to the absence of notes
and to normal year-end adjustments.
Section 3.06 Absence of Certain Changes or Events
------------------------------------
Except as set forth in the Company SEC Filings or in Section 3.06 of
the Company Disclosure Schedule, since December 31, 1993, the Company and its
subsidiaries have conducted its business only in the ordinary and usual course
and there has not been any event, change or development which has affected or
will affect materially and adversely the business, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole.
12
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Section 3.07 Consents and Approvals; No Violation
------------------------------------
There is no requirement applicable to the Company or any of its
affiliated entities to make any filing with, or to obtain any permit,
authorization, consent or approval of, any governmental or regulatory authority
as a condition to the lawful consummation of the transactions contemplated by
this Agreement, other than (i) requirements of Section 251 of the DGCL for
filing of appropriate documents to effect the Merger, (ii) requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), (iii)
filings with the SEC pursuant to the Securities Act and the Exchange Act, (iv)
such filings and approvals as may be required under the "blue sky," takeover or
securities laws of various states, or (v) where the failure to make any such
filing, or to obtain such permit, authorization, consent or approval, would not
prevent or delay consummation of the Merger or would not otherwise prevent the
Company from performing its obligations under this Agreement. Except as set
forth in Section 3.07 of the Company Disclosure Schedule, neither the execution
and delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i) result in the acceleration of, or the creation in
any party of any right to accelerate, terminate, modify or cancel any material
indenture, contract, lease, sublease, loan agreement, note or other obligation
or liability to which the Company or any affiliated entity is a party or by
which any of them is bound or to which any of their assets is subject, (ii)
conflict with or result in a breach of or constitute a default under any
provision of the Certificate of Incorporation or By-laws (or other charter
documents) of the Company or any affiliated entity, or a default under or
violation of any material restriction, lien, encumbrance, indenture, contract,
lease, sublease, loan agreement, note or other obligation or liability to which
any of them is a party or by which any of them is bound or to which any of their
assets is subject or result in the creation of any lien or encumbrance upon any
of said assets, or (iii) violate or result in a breach of or constitute a
default under any judgment, order, decree, rule or regulation of any court or
governmental agency to which the Company or any affiliated entity is subject.
Section 3.08 Undisclosed Liabilities
-----------------------
The Company and its affiliated entities have no liabilities or
obligations, either accrued, absolute, contingent or otherwise material to the
Company and its subsidiaries, taken as a whole, except (i) to the extent
reflected or reserved for on the Consolidated Balance Sheet of the Company and
its subsidiaries included in its Annual Report on Form 10-K for the year ended
December 31, 1993, or the
13
<PAGE>
notes thereto (the "Latest Balance Sheet"), (ii) liabilities or obligations not
material to the Company and its subsidiaries, taken as a whole, incurred in the
ordinary course of business of the Company since December 31, 1993, (iii)
liabilities or obligations disclosed in Company SEC Filings since December 31,
1993, or the Company Disclosure Schedule, (iv) liabilities or obligations
disclosed in this Agreement, or (v) in connection with or as a result of the
transactions contemplated by this Agreement.
Section 3.09 Taxes
-----
(a) For purposes of this Agreement, the term "Taxes" shall mean all
taxes, charges, fees, levies, withholding or other assessments, including,
without limitation, income, excise, property, sales and franchise taxes, imposed
by the United States, or any state, county, local or foreign government or
subdivision or agency thereof, and including any interest, penalties or
additions attributable thereto.
(b) Except as set forth in Section 3.09(b) of the Company Disclosure
Schedule, each of the Company and the affiliated entities has duly filed all
required reports and returns of Taxes required to be filed by it and has duly
paid or made provision for payment of all Taxes and other charges shown on such
reports and returns which are material in amount.
(c) The reserves for Taxes reflected in the Latest Balance Sheet are
adequate, and there are no material tax liens upon any property or assets of the
Company or any affiliated entity, except liens for current Taxes not yet due or
delinquent and the validity of which is being contested in good faith by
appropriate proceedings.
(d) The federal income tax returns of the Company and each affiliated
entity have been examined by the Internal Revenue Service, for all periods to
and including those set forth in Section 3.09(d) of the Company Disclosure
Schedule, and, except to the extent shown therein, all deficiencies asserted as
a result of such examinations have been paid or finally settled.
(e) The state income, sales, use, payroll and property returns of the
Company and each affiliated entity have been examined as set forth in Section
3.09(e) of the Company Disclosure Schedule, and except to the extent shown
therein, all deficiencies asserted as a result of such examinations have been
paid or finally settled.
14
<PAGE>
(f) Except as set forth in Section 3.09(f) of the Company Disclosure
Schedule, there are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any tax return for any period.
Section 3.10 Title and Related Matters
-------------------------
(a) Except as set forth in Section 3.10(a) of the Company Disclosure
Schedule, the Company or an affiliated entity has good title to all of the
properties and assets, other than those that are leased, which are material to
the business, operations or financial condition of the Company, including,
without limitation, the properties reflected in the Latest Balance Sheet (other
than those which have been disposed of since the date thereof in the ordinary
course of business), free and clear of all security interests, claims, charges
or other encumbrances ("Liens") other than (i) Liens reflected on the Company's
March 31, 1994, balance sheet, (ii) statutory Liens arising or incurred in the
ordinary course of business with respect to which the underlying obligations are
not delinquent, (iii) Liens which do not materially affect the value of, or
interfere with the past or future use or ability to convey, the property subject
thereto or affected thereby, and (iv) Liens for taxes and special assessments
not yet due and payable in the ordinary course of business.
(b) Set forth in Section 3.10(b) of the Company Disclosure Schedule is
a complete and accurate list of all the real property owned by the Company or
any affiliated entity. No parcel of real property so listed as owned is, or its
use is, in violation of any applicable zoning laws nor in violation of any other
local, state or federal laws and regulations affecting the use and occupancy of
such property, which violation could have a material adverse effect on the
Company.
Section 3.11 Patents, Trademarks, and Other Intellectual Property
----------------------------------------------------
Except as set forth in Section 3.11 of the Company Disclosure
Schedule, the Company and its affiliated entities possess or have the right to
use to the extent they are now using, all proprietary rights (including, without
limitation, patents, trade secrets, technology, know-how, copyrights,
trademarks, tradenames, and rights to any of the foregoing), the failure to
possess which would have a material adverse effect on the Company or would
prevent the Company from carrying on its business and completing the development
of new products as currently contemplated ("Proprietary Rights"), and the
consummation of the transactions contemplated hereby will not alter or impair
any such rights. Set forth in
15
<PAGE>
Section 3.11 of the Company Disclosure Schedule is a list of all Proprietary
Rights consisting of patents, patent applications, trademarks, trademark
applications, trade names and service marks owned or utilized by the Company or
its affiliated entities. Section 3.11 of the Company Disclosure Schedule also
lists all licenses or other contracts related thereto, other than those entered
into in the ordinary course. With respect to such Proprietary Rights, and except
as set forth in Section 3.11 of the Company Disclosure Schedule, (i) the Company
has no Knowledge of any claim asserted by any person challenging such
Proprietary Rights which could have a material adverse effect on the business of
the Company and its affiliated entities, (ii) to the Knowledge of the Company,
none of the aforesaid infringes or otherwise violates the rights of others or is
being infringed by others, and (iii) except for sales and licenses in the
ordinary course of business, no licenses, sublicenses or agreements pertaining
to any of the aforesaid have been granted by the Company or any affiliated
entity.
Section 3.12 Material Contracts
------------------
(a) Set forth in Section 3.12(a) of the Company Disclosure Schedule is
a complete and accurate listing, with respect to the Company and its affiliated
entities, of (i) any contract for the lease of property from third parties
providing for aggregate lease payments in excess of Sixty Thousand Dollars
($60,000) per annum; (ii) any contract in effect on the date hereof which
involves more than One Hundred Thousand Dollars ($100,000) for the purchase of
materials, commodities, supplies or other personal property or for the receipt
of services or for the sale of products manufactured by the Company, other than
those entered into in the ordinary course of business; (iii) any partnership or
joint venture agreement; and (iv) any agreement or instrument under which the
Company or any affiliated entity is indebted for borrowed money.
(b) All outstanding purchase orders or purchasing commitments and all
outstanding sales orders and commitments of the Company and its affiliated
entities have entered into in the ordinary course of business.
(c) No event has occurred and is continuing under any of the contracts
or obligations listed in Section 3.12(a) of the Company Disclosure Schedule,
which (with or without notice, lapse of time, or both) would constitute a
default thereunder on the part of the Company or any affiliated entity and which
would have a material adverse effect on the Company.
(d) Neither the Company nor any affiliated entity is a guarantor or
otherwise liable for any indebtedness of any
16
<PAGE>
other person which would have a material adverse effect on the Company, except
as incurred in the ordinary course of business.
Section 3.13 Litigation
----------
Except as set forth in Section 3.13 of the Company Disclosure
Schedule, there is no action, proceeding or investigation pending or, to the
Knowledge of the Company, threatened against or involving the Company or any of
its affiliated entities or any of their respective properties, assets, rights or
obligations before any court, arbitrator or administrative or governmental body,
nor is there any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against the Company or any of its affiliated entities in which a
decision could have a material adverse effect on the Company. Neither the
Company nor any of its affiliated entities is in violation of any term of any
judgment, decree, injunction or order outstanding against it. There are no
actions, suits or proceedings pending or, to the Knowledge of the Company,
threatened against the Company or any of its affiliated entities arising out of
or in any way related to this Agreement or any of the transactions contemplated
hereby.
Section 3.14 Insurance
---------
(a) All material policies of fire, liability, workmen's compensation
and other similar forms of insurance owned or held by the Company and each
affiliated entity are in full force and effect, and no notice of cancellation or
termination has been received with respect to any such policy. Such policies
are valid, outstanding and enforceable policies, and will not in any way be
affected by, or terminate or lapse by reason of, the transactions contemplated
by this Agreement. Such policies, together with the self-insurance reserves
reflected on the Company's March 30, 1994 balance sheet, and such other policies
and reserves added since such date, provide, to the Knowledge of the Company,
insurance coverage that is adequate for the assets and operations of the
Company.
(b) Section 3.14(b) of the Company Disclosure Schedule identifies all
key-man life and other similar forms of insurance policies covering officers of
the Company and naming the Company or an affiliated entity. All such policies
are valid, outstanding and enforceable policies, and name the Company as the
sole beneficiary, and will not be affected by, or terminate or lapse by reason
of, the transactions contemplated by this Agreement.
17
<PAGE>
Section 3.15 Compliance with Laws
--------------------
The Company and each affiliated entity have complied in all material
respects with the laws and regulations of federal, state, local and foreign
governments and all agencies thereof which are applicable to the business or
properties of the Company or any affiliated entity, a violation of which would
result in a material adverse effect on the Company.
Section 3.16 Employee Benefit Plans
----------------------
(a) Except as set forth in Section 3.16(a) to the Company Disclosure
Schedule, (i) neither the Company nor any entity that together with the Company
is treated as a single employer pursuant to Section 414(b) or (c) of the Code or
Section 3(5) or 4001(b) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") (an "ERISA Affiliate"), maintains or in the past has
maintained any Employee Benefit Plan, as defined in ERISA, under which the
Company or any of its affiliated entities has any present or future obligation
or liability or under which any present or former employee of the Company or its
affiliated entities has any present or future rights to benefits, (ii) each such
Employee Benefit Plan has been administered in accordance with the applicable
requirements of ERISA and the Code, and in the case of any such Plan that is
funded for purposes of ERISA and the Code, has not incurred any federal income
or excise tax liability, (iii) all material reports and information required to
be filed with the United States Department of Labor, Internal Revenue Service or
Pension Benefit Guaranty Corporation, or distributed to participants and their
beneficiaries with respect to each such Employee Benefit Plan, has been timely
filed or distributed and, with respect to each Employee Benefit Plan for which
an Annual Report has been filed, no change has occurred with respect to the
matters covered by the Annual Report since the date of the most recent such
Annual Report which could reasonably be expected to have a material adverse
effect on the Company, and (iv) there have been no non-exempt "prohibited
transactions" (as that term is defined in the Code or in ERISA) with respect to
any such Employee Benefit Plan and no material penalty or tax under ERISA or the
Code has been imposed upon the Company or any of its affiliated entities and
there are no pending or, to the Company's Knowledge, threatened claims by or on
behalf of any such Employee Benefit Plan, by any employee or beneficiary covered
by such Employee Benefit Plan, or otherwise involving such Employee Benefit
Plan, other than claims for benefits in the ordinary course.
(b) Each such Employee Benefit Plan which is an "employee pension
benefit plan," as defined in ERISA and which is intended to be "qualified"
within the meaning of
18
<PAGE>
Section 401(a) of the Code, is so qualified, and, except as set forth in Section
3.16(b) of the Company Disclosure Schedule, a favorable determination letter has
been issued by the Internal Revenue Service with respect to such plan and no
such plan has been amended since the issuance of the most recent determination
letter issued by the Internal Revenue Service with respect thereto. No such
Employee Benefit Plan is subject to Title IV of ERISA or Section 412 of the
Code.
(c) The Company has not maintained or contributed to, or been
obligated or required to contribute to, a "multiemployer plan," as such term is
defined in Section 3(37) of ERISA.
Section 3.17 Employment Related Agreements
-----------------------------
Except as described in Section 3.17 of the Company Disclosure
Schedule, neither the Company nor any of its affiliated entities is a party to
any material bonus, profit sharing, stock option, incentive, pension,
retirement, deferred compensation, consulting, severance, indemnification,
employment or similar arrangement or agreement with officers, directors or
employees of the Company or any of its affiliated entities ("Employment Related
Agreements").
Section 3.18 Labor Agreements and Controversies
----------------------------------
Except as set forth in Section 3.18 of the Company Disclosure
Schedule, neither the Company nor any of its affiliated entities is a party to
any collective bargaining agreement nor are there any union representation
proceedings or labor controversies pending or, to the Knowledge of the Company,
threatened against the Company or any of its affiliated entities.
Section 3.19 Environmental Matters
---------------------
(a) Except as disclosed in Section 3.19(a) of the Company Disclosure
Schedule, the Company and each of its affiliated entities has obtained all
permits, licenses and other authorizations required by all Environmental Laws
(as defined below) and is in compliance with all of the respective terms and
conditions of all such permits, licenses and authorizations.
(b) Except as disclosed in Section 3.19(b) of the Company Disclosure
Schedule, there is not constructed, placed, deposited, stored, disposed of nor
located on or under (including any underground improvements, including, but not
limited to, treatment or storage tanks, sumps or water, gas or oil wells) any
real property owned or leased by the Company or
19
<PAGE>
any affiliated entity any Hazardous Material (as defined below) or facility for
holding any Hazardous Material, nor have any Hazardous Materials migrated from
such property upon or beneath other properties, nor have any Hazardous Materials
migrated or threatened to migrate from other properties upon, about or beneath
any real property owned or leased by the Company or any affiliated entity.
(c) Except as disclosed in Section 3.19(c) of the Company Disclosure
Schedule, (i) no notices of any violation or alleged violation of any
Environmental Laws have been received by the Company or any affiliated entity or
by any prior owner or occupant of any real property owned or leased by the
Company or any affiliated entity, and (ii) there are no writs, injunctions,
decrees, orders or judgments outstanding, or any actions, suits, claims,
proceedings or investigations pending or threatened, relating to the ownership,
use, maintenance or operation of any real property owned or leased by the
Company or any affiliated entity nor is there any basis for any such actions,
suits, claims, proceedings or investigations being instituted or filed.
(d) "Environmental Law" shall mean all applicable statues,
regulations, rules, ordinances, codes, licenses, permits, orders, approvals,
authorizations and similar items of all governmental agencies, departments,
commissions, boards, bureaus or instrumentalities of the United States, states
and political subdivisions thereof and all applicable judicial and
administrative and regulatory decrees, judgments and orders relating to the
protection of human health or the environment, including, without limitation:
(1) all requirements, including, but not limited to, those
pertaining to reporting, licensing, permitting, investigation and
remediation of emissions, discharges, releases or threatened releases of
"Hazardous Materials," substances, pollutants, contaminants or hazardous or
toxic substances, materials or wastes whether solid, liquid or gaseous in
nature, into the air, surface water, groundwater or land, or relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of substances, pollutants, contaminants or
hazardous or toxic substances, materials, or wastes, whether solid, liquid
or gaseous in nature, including by way of illustration and not by way of
limitation, (x) the Clean Air Act (42 U.S.C. (S)(S) 7401 et seq.), the
------
Federal Water Pollution Control Act (33 U.S.C. (S)(S) 1251), the Safe
Drinking Water Act (42 U.S.C. (S)(S) 300f et seq.), the Toxic Substances
-------
Control Act (15 U.S.C. (S)(S) 2601 et seq.), the Endangered Species Act (16
------
U.S.C. (S)(S) 1531 et seq.), the Emergency Planning and Community Right-to-
------
Know Act of 1986
20
<PAGE>
(42 U.S.C. (S)(S) 11001 et seq.), and (y) analogous state and local
------
provisions; and
(2) all requirements pertaining to the protection of the health
and safety of employees or the public.
(e) "Hazardous Material" means any chemical substance:
(1) the presence of which requires investigation or remediation
under any federal, state or local statute, regulation, ordinance, order,
action or policy, administrative request or civil complaint under any of
the foregoing or under common law; or
(2) which is defined as a "hazardous waste" or "hazardous
substance" under any federal, state or local statute, regulation or
ordinance or amendments thereto including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. Section 9601 et seq.) and the Resource Conservation and Recovery Act
------
(42 U.S.C. Section 6901 et seq.); or
------
(3) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic, or otherwise hazardous and is
regulated by any governmental authority, agency, department, commission,
board, agency or instrumentality of the United States, or any state or any
political subdivision thereof having or asserting jurisdiction over any of
the business of the Company; or
(4) the presence of which on any of the property owned or leased
by the Company causes a nuisance upon such property or to adjacent
properties or poses a hazard to the health or safety or persons on or about
any of the property; or
(5) without limitation, which contains gasoline, diesel fuel or
other petroleum hydrocarbons, polychlorinated biphenols (PCBs) or asbestos.
Section 3.20 Absence of Questionable Payments
--------------------------------
Neither the Company nor any affiliated entity nor any director,
officer, agent or employee or any other person authorized to act on behalf of
the Company nor any affiliated entity has used any corporate or other funds in
any significant amount for unlawful contributions, payments, gifts or
entertainment, or made any unlawful expenditures in any
21
<PAGE>
significant amount relating to political activity, government officials or
others and neither the Company nor any affiliated entity nor any director,
officer, agent or employee or any other person authorized to act on behalf of
the Company or any affiliated entity has accepted or received any unlawful
contributions, payments, gifts or expenditures in any significant amount.
Section 3.21 Ownership of Parent Shares
--------------------------
Neither the Company nor any affiliated entity owns directly or
indirectly any Parent common stock or has rights to purchase such shares, and
will not purchase any such shares in a fashion that would prevent the accounting
treatment of the Merger as a pooling of interests.
Section 3.22 Certain Fees
------------
Except for fees payable to Needham & Company, Inc., pursuant to an
agreement, a copy of which has been previously delivered to Parent, neither the
Company, nor any of its affiliated entities nor any of their directors or
officers has employed any broker or finder or incurred any liability for any
financial advisory, brokerage or finders' fees or similar fees or commissions in
connection with the transactions contemplated by this Agreement.
Section 3.23 Disclosure
----------
To the best of the Company's Knowledge, no representation or warranty
by the Company in this Agreement and no statement contained in any document,
certificate or other writing furnished or to be furnished by the Company to the
Parent or the Subsidiary contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
Section 3.24 Proxy Statement, Etc.
---------------------
The Proxy Statement (as defined in Section 2.03) and all amendments
and supplements thereto will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations promulgated
thereunder. Neither the Proxy Statement, nor any amendments thereof or
supplements thereto, will, on the date the Proxy Statement is first mailed to
stockholders of the Company, at the time the meeting of the stockholders of the
Company referred to in Section 2.02 hereof is convened or at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or
22
<PAGE>
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the Company makes
no representation or warranty with respect to any information furnished to it by
Parent or Subsidiary or any of their accountants, counsel or other authorized
representatives in writing specifically for inclusion in the Proxy Statement.
None of the information with respect to the Company or any affiliate or
associate of the Company that has been supplied by the Company or any of its
accountants, counsel or other authorized representatives in writing (the
"Company Information") specifically for use in the Registration Statement will,
at the time the Registration Statement becomes effective, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
Section 3.25 Accounts Receivable; Inventory; Goodwill; and Leasing
-----------------------------------------------------
Transactions
------------
(a) Accounts receivable reflected on the Company's March 31, 1994,
balance sheet, including receivables associated with equipment shipped but not
billed, have been properly stated at their realizable value after consideration
of all allowances and reserves GAAP.
(b) Inventories reflected on the Company's March 31, 1994, balance
sheet are properly stated at the lower of cost or market value in accordance
with GAAP and to properly reflect excess and obsolete inventories at net
realizable value.
(c) Amounts reported on the Company's March 31, 1994, balance sheet
for goodwill associated with the acquisition of Bytex, and for intellectual
property rights and non-compete agreements associated with the acquisition of
Bus-Tech are fairly stated at not more than their realizable value in accordance
with GAAP.
(d) All transactions with King Leasing Corp., and all other similar
types of transactions, have been properly accounted for with all associated
receivables, liabilities and other accounts fairly stated at their realizable
value in accordance with GAAP.
Section 3.26 Post-Retirement and Post-Employment Benefit Obligations
-------------------------------------------------------
Except as described in Section 3.26 of the Company Disclosure
Schedule, all obligations associated with benefits to be provided to present and
former employees after
23
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retirement or termination have been properly recognized as liabilities on the
Company's March 31, 1994, balance sheet in accordance with Statement Financial
Accounting Standards No. 106 and 112.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE PARENT AND THE SUBSIDIARY
The Parent and the Subsidiary represent and warrant to the Company as
follows:
Section 4.01 Corporate Organization
----------------------
The Parent and the Subsidiary are corporations duly organized, validly
existing and in good standing under the laws of the State of Delaware with all
requisite corporate power and authority to own, operate and lease their
respective properties and to carry on their respective businesses as now being
conducted and are duly qualified or licensed to do business and are in good
standing in each jurisdiction in which their ownership or leasing of property or
conduct of business requires such licensing or qualification, except where the
failure to be so qualified would not have a material adverse effect on Parent.
Section 4.02 Authorization
-------------
The Parent and the Subsidiary have the requisite corporate power and
authority to enter into this Agreement and to carry out their respective
obligations hereunder. The execution and delivery by the Parent and the
Subsidiary of this Agreement and the performance by each of them of their
respective obligations hereunder and the consummation by each of them of the
transactions contemplated hereby have been duly authorized by their respective
Boards of Directors and by the Parent as the sole shareholder of the Subsidiary
and no other corporate proceeding on their part is necessary for the execution
and delivery thereof, and the performance of their respective obligations
hereunder, and the consummation by each of them of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by each of them and
it is a legal, valid and binding obligation of the Parent and the Subsidiary
enforceable against each of them in accordance with its terms.
Section 4.03 Capitalization
--------------
The authorized capital stock of the Parent and Subsidiary as well as
the number of outstanding shares of each class of capital stock of the Parent
and Subsidiary is as set forth on Section 4.03 of the Parent and Subsidiary
Disclosure
24
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Schedule to this Agreement executed by the Parent and Subsidiary and delivered
to Parent simultaneously with the execution of this Agreement (the "Parent and
Subsidiary Disclosure Schedule"). All of such outstanding shares have been duly
and validly issued, were not issued in violation of any preemptive rights and
are fully paid and non-assessable with no personal liability attaching to the
ownership thereof. Except as set forth on Section 4.03 of the Parent and
Subsidiary Disclosure Schedule, there are no options, warrants, subscriptions,
conversion or other rights, agreements, commitments, arrangements or
understandings with respect to the issuance of shares of capital stock of the
Parent or Subsidiary or any other securities convertible into, exchangeable for
or evidencing the right to subscribe for any such shares. Section 4.03 of the
Parent and Subsidiary Disclosure Schedule lists each of the Parent and
Subsidiary's stock option plans and other stock award plans, true and correct
copies of which have been provided by the Parent and Subsidiary to the Company.
Section 4.04 Financial Statements and Reports
--------------------------------
Since January 1, 1991, the Parent has filed with the SEC all reports,
registration statements and all other filings required to be filed with the SEC
under the rules and regulations of the SEC (collectively, the "Required Parent
Reports"), all of which, as of their respective effective dates, complied in all
material respects with all applicable requirements of the Securities Act and the
Exchange Act. The Parent has delivered to the Company true and complete copies
of (i) the Parent's Annual Reports on Form 10-K for the fiscal years ended
December 31, 1993 and December 25, 1992, as filed with the SEC, (ii) Quarterly
Reports on Form 10-Q for the three months ended March 31, 1994, as filed with
the SEC, (iii) proxy statements relating to all meetings of the Parent's
shareholders (whether annual or special) held or scheduled to be held since
January 1, 1992 (iv) all other forms, reports, statements and documents filed by
the Parent with the SEC since January 1, 1992 and (iv) all reports, statements
and other information provided by the Parent to its shareholders since January
1, 1992 (collectively the "Parent SEC Filings"). As of their respective dates,
none of the Required Parent Reports or the Parent SEC Filings contained any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The consolidated
financial statements of the Parent included or incorporated by reference in the
Parent SEC Filings were prepared in accordance with GAAP applied on a consistent
basis (except as otherwise stated in such financial statements or, in the case
of audited statements, the related report thereon of
25
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independent certified public accountants), and present fairly the financial
position and results of operations, cash flows and changes in stockholders'
equity of the Parent and its consolidated subsidiaries as of the dates and for
the periods indicated, subject, in the case of unaudited interim financial
statements, to the absence of notes and to normal year-end adjustments.
Section 4.05 Absence of Certain Changes
--------------------------
Except as set forth in the Parent SEC Filings or in Section 4.05 of
the Parent and Subsidiary Disclosure Schedule, since December 31, 1993, the
Parent and Subsidiary, and each other subsidiary of Parent, have conducted their
respective businesses only in the ordinary and usual course and there has not
been any event, change or development which has affected or will affect
materially and adversely the business, financial condition or results of
operations of the Parent, the Subsidiary, or any other subsidiaries of the
Parent, taken as a whole.
Section 4.06 Consents and Approvals; No Violations
-------------------------------------
There is no requirement applicable to the Parent or any of its
affiliated entities to make any filing with, or to obtain any permit,
authorization, consent or approval of, any governmental or regulatory authority
as a condition to the lawful consummation of the transactions contemplated by
this Agreement, other than (i) requirements of Section 251 of the DGCL for
filing of appropriate documents to effect the Merger, (ii) requirements of the
HSR Act, (iii) filings with the SEC pursuant to the Securities Act and the
Exchange Act, (iv) such filings and approvals as may be required under the "blue
sky," takeover or securities laws of various states, (v) listing of the Parent
Common Stock pursuant to the requirements of the NYSE, or (vi) where the failure
to make any such filing, or to obtain such permit, authorization, consent or
approval, would not prevent or delay consummation of the Merger or would not
otherwise prevent the Parent from performing its obligations under this
Agreement. Except as set forth in Section 4.06 of the Parent and Subsidiary
Disclosure Schedule, neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, will (i) result in the
acceleration of, or the creation in any party of any right to accelerate,
terminate, modify or cancel any material indenture, contract, lease, sublease,
loan agreement, note or other obligation or liability to which the Parent or any
affiliated entity is a party or by which any of them is bound or to which any of
their assets is subject, (ii) conflict with or result in a breach of or
constitute a default under any provision of the Certificate of Incorporation or
By-laws (or
26
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other charter documents) of the Parent or any affiliated entity, or a default
under or violation of any material restriction, lien, encumbrance, indenture,
contract, lease, sublease, loan agreement, note or other obligation or liability
to which any of them is a party or by which any of them is bound or to which any
of their assets is subject or result in the creation of any lien or encumbrance
upon any of said assets, or (iii) violate or result in a breach of or constitute
a default under any judgment, order, decree, rule or regulation of any court or
governmental agency to which the Parent or any affiliated entity is subject.
Section 4.07 Litigation
----------
Except as set forth in Section 4.07 of the Parent and Subsidiary
Disclosure Schedule, there is no action, proceeding or investigation pending or,
to the Knowledge of the Parent, threatened against or involving the Parent or
any of its affiliated entities or any of their respective properties, assets,
rights or obligations before any court, arbitrator or administrative or
governmental body nor is there any judgment, decree, injunction, rule or order
of any court, governmental department, commission, agency, instrumentality or
arbitrator outstanding against the Parent or any of its affiliated entities in
which a decision could have a material adverse effect on the Parent. Neither
the Parent nor any of its affiliated entities is in violation of any term of any
judgment, decree, injunction or order outstanding against it. There are no
actions, suits or proceedings pending or, to the Knowledge of the Parent,
threatened against the Parent or any of its affiliated entities arising out of
or in any way related to this Agreement or any of the transactions contemplated
hereby.
Section 4.08 Compliance with Laws
--------------------
The Parent and each affiliated entity have complied in all material
respects with the laws and regulations of federal, state, local and foreign
governments and all agencies thereof which are applicable to the business or
properties of the Parent or any affiliated entity, a violation of which would
result in a material adverse effect on the Parent.
Section 4.09 Registration Statement
----------------------
The Registration Statement (as defined in Section 2.04) and all
amendments and supplements thereto will comply as to form in all material
respects with the provisions of the Securities Act and the rules and regulations
promulgated thereunder. Neither the Registration Statement, nor any amendments
thereof or supplements thereto, will, on the date it becomes effective or at the
Effective Time, contain any
27
<PAGE>
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; provided, however,
that the Parent makes no representation or warranty with respect to any
information furnished to it by the Company or any of its accountants, counsel or
other authorized representatives in writing specifically for inclusion in the
Registration Statement. None of the information with respect to the Parent or
any affiliate or associate of the Parent that has been supplied by the Parent or
any of its accountants, counsel or other authorized representatives in writing
(the "Parent Information") specifically for use in the Proxy Statement will, at
the time the Proxy Statement is first mailed to shareholders of the Company,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
Section 4.10 No Undisclosed Liabilities
--------------------------
Except as and to the extent set forth on the consolidated balance
sheet of the Parent as of December 31, 1993, included in the Required Parent
Reports, neither the Parent nor any of its subsidiaries had, at such date, any
liabilities or obligations (absolute, accrued, contingent or otherwise) material
to the Parent and its subsidiaries taken as a whole and since that date neither
the Parent nor any of its subsidiaries has incurred any such liabilities or
obligations material to the Parent and its subsidiaries taken as a whole except
those incurred in the ordinary and usual course of business and consistent with
past practice or in connection with or as a result of the transactions
contemplated by this Agreement to which the Parent or the Subsidiary is or is to
be a party.
28
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Section 4.11 Disclosure
----------
No representation or warranty by the Parent or the Subsidiary in this
Agreement and no statement contained or to be contained in any document,
certificate or other writing furnished or to be furnished by either the Parent
or the Subsidiary to the Company, contains or will contain any untrue statement
of a material fact or omits or will omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
ARTICLE V
COVENANTS
Section 5.01 Conduct of Business of the Company
----------------------------------
Except as contemplated by this Agreement or to the extent that Parent
shall otherwise consent in writing, during the period from the date of this
Agreement to the Effective Time, the Company and its affiliated entities will
conduct their respective operations only in, and the Company and its affiliated
entities will not take any action except in, the ordinary course of business and
the Company and its affiliated entities will use all reasonable efforts to
preserve intact in all material respects their respective business
organizations, assets, prospects and advantageous business relationships, to
keep available the services of their respective officers and key employees and
to maintain satisfactory relationships with their respective licensors,
licensees, suppliers, contractors, distributors, customers and others having
advantageous business relationships with them. Without limiting the generality
of the foregoing, except as contemplated by this Agreement, neither the Company
nor any of its affiliated entities will, without the prior written consent of
the Parent:
(a) amend its Articles or Certificate of Incorporation or By-Laws or
change its authorized number of directors;
(b) split, combine or reclassify any shares of its capital stock,
declare, pay or set aside for payment any dividend or other distribution in
respect of its capital stock, or (except as may be required in connection with
the redemption by the Company of the shareholder rights issued pursuant to the
Amended and Restated Rights Agreement, dated as July 16, 1986, as amended and
restated as of September 29, 1988 (the "Company Rights Agreement")) directly or
indirectly, redeem, purchase or otherwise acquire any shares of its capital
stock or other securities;
29
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(c) authorize for issuance, issue, sell or deliver or agree or commit
to issue, sell, or deliver (whether through the issuance or granting of any
options, warrants, commitments, subscriptions, rights to purchase or otherwise)
any of its capital stock or any securities convertible into or exercisable or
exchangeable for shares of its capital stock, other than the issuance by the
Company of shares of its Common Stock pursuant to the exercise of employee stock
options and other rights set forth in Section 3.03 of the Company Disclosure
Schedule.
(d) incur any material liability or obligation (absolute, accrued,
contingent or otherwise) other than in the ordinary course of business or issue
any debt securities or assume, guarantee, endorse or otherwise as an
accommodation become responsible for, the obligations of any other individual or
entity, or change any assumption underlying, or methods of calculating, any bad
debt, contingency or other reserve;
(e) enter into, adopt or, except as determined by the Company to be
necessary to comply with applicable law or maintain tax-favored status (and any
nonmaterial changes incidental thereto), amend any Employment Related Agreement
or Employee Benefit Plan or grant, or become obligated to grant, any increase in
the compensation payable or to become payable to any of their officers or
directors or any general increase in the compensation payable or to become
payable to their employees (including, in each case, any such increase pursuant
to any Employment Related Agreement or Employee Benefit Plan, other than an
increase pursuant to the terms of such an Employment Related Agreement or
Employee Benefit Plan in effect on the date of this Agreement and reflected on
the Company Disclosure Schedule), other than in connection with individual
performance reviews in the ordinary course of business and consistent with past
practice;
(f) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or division
thereof or make any investment either by purchase of stock or securities,
contributions to capital, property transfer, or purchase of any material amount
of properties or assets of any other individual or entity, other than any such
transaction described in Section 3.12 of the Company Disclosure Schedule;
(g) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against on the Latest Balance Sheet, or
subsequently
30
<PAGE>
incurred in the ordinary course of business, or disclosed pursuant to this
Agreement;
(h) acquire (including by lease) any material assets or properties or
dispose of, mortgage or encumber any material assets or properties, other than
in the ordinary course of business;
(i) waive, release, grant or transfer any material rights or modify or
change in any material respect any material existing license, lease, contract or
other document, other than in the ordinary course of business and consistent
with past practice; or
(j) take any action or agree, in writing or otherwise, to take any of
the foregoing actions or any action which would at any time make any
representation or warranty in Article III (other than subsection 3.09(b) solely
as it relates to payment, Section 3.11 with respect to the defense of any
litigation, arbitration or claim, 3.12(c) solely as it relates to payment or
financial covenant defaults and Section 3.13) untrue or incorrect.
Section 5.02 No Solicitation
---------------
Neither the Company nor any of its affiliated entities will, nor will
any of them authorize any director or authorize or permit any officer or
employee or representative or agent retained by it to, directly or indirectly,
encourage, initiate, solicit or, unless, based upon the advice of counsel, such
action is necessary to fulfill fiduciary duties of the Company's Board of
Directors or as required under applicable law, consider, entertain or recommend
approval, acceptance or consideration of any offer or proposal from, or provide
any confidential information to, any corporation, partnership, person or other
entity or group (as defined in Section 13(d)(3) of the Exchange Act), other than
the Parent and its subsidiaries (a "Third Party"), concerning (or concerning the
business of the Company or its affiliated entities in connection with) any
tender offer (including a self tender offer), exchange offer, merger,
consolidation, sale of substantial assets or of a substantial amount of assets,
sale of a substantial equity interest, direct or indirect acquisition of
beneficial ownership of or power to vote a substantial equity interest,
liquidation, dissolution or similar transactions involving the Company or any of
its affiliated entities (such offers or proposals or transactions being referred
to herein as "Acquisition Proposals"); provided that nothing contained in this
Section 5.02 or in any other provision of this Agreement shall prohibit the
Company or its Board of Directors from (i) taking and disclosing to the
Company's stockholders a position with respect to a tender or
31
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exchange offer by a Third Party pursuant to Rules 14d-9 and 14e-2 promulgated
under the Exchange Act or (ii) making such disclosures to the Company's
stockholders as are required under applicable law. Subject to the provisions of
Section 8.01, the Company may approve and recommend an Acquisition Proposal
constituting a third-party offer if (A) the Board of Directors determines in
good faith, in the exercise of its fiduciary duties and after consultation with
its outside counsel and financial advisors, that the Acquisition Proposal would
result in a transaction more favorable to the Company's stockholders from a
financial point of view than the transaction contemplated by this Agreement
(such Acquisition Proposal, an "Approved Offer") and (B) Parent does not make
within seven business days of Parent's receiving notice of such third-party
offer, an offer which the Board of Directors, after consultation with its
financial advisors, determines is superior to such third-party offer. As used in
this Section 5.02, "third-party offer" shall mean any bona fide Third Party
offer, other than an offer by Parent, Subsidiary or any of their respective
affiliates, for a merger or other business combination involving the Company
resulting in the acquisition of more than 50% of the outstanding shares of
Company Common Stock or to acquire in any manner more than 50% of the
outstanding shares of Company Common Stock or all or substantially all of the
assets of the Company. The Company will promptly inform the Parent of any
inquiry (including the terms thereof and the identity of the Third Party making
such inquiry) which it may receive in respect of an Acquisition Proposal and
furnish to the Parent a copy of any such inquiry.
Section 5.03 Access to Information
---------------------
(a) Between the date of this Agreement and the Effective Time, Parent
and the Company will upon reasonable notice give to each other and the other's
authorized representatives access during regular business hours to all of its
personnel, plants, offices, warehouses and other facilities and to all of its
books and records and will permit the other to make such inspections as it may
require and will cause its officers and those of its subsidiaries to furnish the
other with such financial and operating data and other information with respect
to its business and properties as the other may from time to time reasonably
request.
(b) Information obtained by the parties hereto pursuant to this
Section 5.03 shall be subject to the provisions of the confidentiality agreement
between Parent and the Company dated March 14, 1994, which agreement remains in
full force and effect. If this Agreement is terminated, each party will (i)
deliver to the other all documents, work papers and other material (including
copies) obtained by such party
32
<PAGE>
or on its behalf from the other party as a result of this Agreement or in
connection herewith, and (ii) destroy or provide to outside counsel for
retention all material working papers reflecting any of the confidential
information contained in such documents, work papers and other material. In
addition, if this Agreement is terminated neither party shall disclose, except
as required by law, the basis or reason for such termination, without the
consent of the other party.
Section 5.04 Agreements of Affiliates
------------------------
The Company will use its reasonable efforts to cause each person who
is so identified as an "affiliate" pursuant to the list specified in Section
2.05 hereof to deliver to the Parent on or prior to the Effective Time a written
agreement substantially in the form of Exhibit B to this Agreement with respect
---------
to the shares of Common Stock of the Parent to be received by such affiliate in
the Merger.
Section 5.05 All Reasonable Efforts
----------------------
Upon the terms and subject to the conditions hereof, and subject to
the fiduciary duties of the Board of Directors of the Company under applicable
law, the Parent, the Subsidiary and the Company each agree to use all reasonable
efforts promptly to take, or cause to be taken, all appropriate action and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement and will use all reasonable efforts
to obtain all waivers, permits, consents and approvals and to effect all
registrations, filings and notices with or to third parties or governmental or
public bodies or authorities which are in the opinion of the Parent or the
Company necessary or desirable in connection with the transactions contemplated
by this Agreement, including, without limitation, filings and approvals to the
extent required under the DGCL, the Securities Act, the Exchange Act and the HSR
Act. If at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers or
directors of the Parent, the Subsidiary and the Company will take such action.
Section 5.06 Public Announcements
--------------------
The Parent and the Subsidiary, on the one hand, and the Company, on
the other hand, will consult with each other before issuing any press release or
otherwise making any public statements with respect to this Agreement or the
transactions contemplated hereby and will not issue any such press release or
make any such public statement prior to such
32
<PAGE>
consultation. Notwithstanding the foregoing, the Parent and Company shall not be
prohibited from issuing any press release or making any public statement as may
be required under applicable law, but in any such event, the Parent or the
Company, as the case may be, shall notify the other party prior to taking such
action.
Section 5.07 Notification of Certain Matters
-------------------------------
The Parent, the Subsidiary and the Company will give prompt notice to
one another of (i) the occurrence, or failure to occur, of any event which
occurrence or failure would or would be likely to cause any of their respective
representations or warranties contained in this Agreement to be untrue or
inaccurate in any material respect or would or would likely cause any condition
in Article VII to become impossible to fulfill at any time from the date hereof
to the Effective Time, and (ii) any failure on its part or on the part of any of
their respective officers, directors, employees, representatives or agents to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by them under this Agreement; provided, however, that no such
notification will alter or otherwise affect such representations, warranties,
covenants, conditions or agreements.
Section 5.08 Indemnification and Insurance
-----------------------------
(a) From and after the Effective Time, Parent and the Surviving
Corporation shall indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the date hereof or who becomes prior to the
Effective Time, an officer, director or employee of the Company or any
affiliated entity (the "Indemnified Parties") against (i) all losses, claims,
damages, costs, expenses (including attorney's fees), liabilities or judgments
or amounts that are paid in settlement (which settlement shall require the prior
written consent of Parent, which consent shall not be unreasonably withheld) of
or in connection with any claim, action, suit, proceeding or investigation (a
"Claim") in which an Indemnified Party is, or is threatened to be made, a party
or a witness based in whole or in part on or arising in whole or in part out of
the fact that such person is or was an officer, director or employee of the
Company or any affiliated entity, whether such Claim pertains to any matter or
fact arising, existing or occurring at or prior to the Effective Time
(including, without limitation, the Merger and other transactions contemplated
by this Agreement), regardless of whether such Claim is asserted or claimed
prior to, at or after the Effective Time (the "Indemnified Liabilities"), and
(ii) all Indemnified Liabilities based in whole or in part on, or arising in
whole or in part out of, or pertaining to this
34
<PAGE>
Agreement or the transactions contemplated hereby, in each case to the full
extent the Company would have been permitted under Delaware law and its
Certificate of Incorporation and Bylaws to indemnify such person (and the Parent
shall pay expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the full extent permitted by law and
under such Certificate of Incorporation or Bylaws, upon receipt of any
undertaking required by such Certificate of Incorporation, Bylaws or applicable
law). Any Indemnified Party wishing to claim indemnification under this Section
5.08(a), upon learning of any Claim, shall notify the Parent (but the failure so
to notify the Parent shall not relieve it from any liability which the Parent
may have under this Section 5.08(a) except to the extent such failure prejudices
the Parent) and shall deliver to the Parent any undertaking required by such
Certificate of Incorporation, Bylaws or applicable law. The Parent shall use its
best efforts to assure, to the extent permitted under applicable law, that all
limitations of liability existing in favor of the Indemnified Parties as
provided in the Company's Certificate of Incorporation and Bylaws, as in effect
as of the date hereof, with respect to claims or liabilities arising from facts
or events existing or occurring prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement), shall survive the
Merger. The obligations of the Parent described in this Section 5.08(a) shall
continue in full force and effect, without any amendment thereto, for a period
of not less than six years from the Effective Time; provided, however, that all
rights to indemnification in respect of any Claim asserted or made within such
period shall continue until the final disposition of such Claim; and provided
further that nothing in this Section 5.08(a) shall be deemed to modify
applicable Delaware law regarding indemnification of former officers and
directors. Parent acknowledges that the Company has agreed to indemnify certain
of its employees pursuant to indemnification agreements in the form attached to
the Company Disclosure Schedule. Except as otherwise provided in Section
5.08(c), from and after the Effective Time, Parent agrees to assume the
Company's obligations pursuant to such indemnification agreements.
(b) Except as otherwise provided in Section 5.08(c), Parent and the
Surviving Corporation shall cause to be maintained in effect for not less than
four years from the Effective Time the current policies of a directors' and
officers' liability insurance maintained by the Company and the Company's
affiliated entities (provided that Parent and the Surviving Corporation may
substitute therefor policies of at least the same coverage containing terms and
conditions which are no less advantageous to the Indemnified Parties so long as
no lapse in coverage occurs as a result of such
35
<PAGE>
substitution) with respect to all matters, including the transactions
contemplated hereby, occurring prior to, and including, the Effective Time,
provided that, in the event that any Claim is asserted or made within such four-
year period, such insurance shall be continued in respect of any such Claim
until final disposition of any and all such Claims.
(c) Prior to the Effective Time, the Company shall use its best
efforts to enter into an amendment to the indemnification agreement with each of
the directors and officers of the Company providing that, effective at the
Effective Time, Sections 3 and 4 thereof shall be deleted in their entirety.
The last sentence of Section 5.08(a) and all of the provisions of Section
5.08(b) shall not apply to any director or officer who shall not agree to such
amendment.
(d) The obligations of Parent and the Surviving Corporation under this
Section 5.08 are intended to benefit, and be enforceable against Parent and the
Surviving Corporation directly by, the Indemnified Parties, and shall be binding
on all respective successors of Parent and the Surviving Corporation.
Section 5.09 Regulatory Approvals
--------------------
The Company and Parent will take all such action as may be necessary
under federal or state securities laws or the HSR Act applicable to or necessary
for, and will file and, if appropriate, use their best efforts to have declared
effective or approved all documents and notifications with the SEC and other
governmental or regulatory bodies which they deem necessary or appropriate for
the consummation of the Merger and the transactions contemplated hereby, and
each party shall give the other information reasonably requested by such other
party pertaining to it and its subsidiaries and affiliates to enable such other
party to take such actions, and the Company and Parent shall file in a timely
manner all reports and documents required to be so filed by or under the 1934
Act which they deem necessary or appropriate in relation to the Merger.
Section 5.10 Pooling
-------
Parent and the Company each agrees that it will not knowingly take any
action which would have the effect of jeopardizing the treatment of the Merger
as a "pooling-of-interests" for accounting purposes.
Section 5.11 Employee Matters
----------------
(a) After the date of this Agreement and prior to the Effective Time,
the Company may agree to pay or cause an
36
<PAGE>
affiliated entity to agree to pay retention bonuses payable at the Effective
Time to such employees of the Company or its affiliated entities and upon such
terms and conditions as the Company may reasonably determine are necessary to
retain the services of employees from the date hereof through the Effective
Time; provided that the amount of such bonuses may not exceed $500,000 in the
aggregate and not more than $5,000 to any such employee.
(b) Parent will cause service with the Company and its affiliated
entities and their predecessors prior to the Effective Time to be taken into
account for eligibility and vesting purposes in connection with any benefit or
payroll plan, practice, policy or agreement of Parent or any of its affiliates
in which any employee of the Company or an affiliated entity may become entitled
to participate at or after the Effective Time.
(c) The Parent assumes and agrees to perform the obligations of the
Company pursuant to each change in control letter agreement between the Company
and certain of its officers in the same manner and to the same extent that the
Company would be required to perform under each such Agreement if the Merger had
not taken place.
(d) The Parent hereby assumes and agrees to perform and pay or cause
to be performed and paid all of the Company's duties and obligations (with the
Company remaining jointly and severally liable) under the following: the
Company's 1985, 1987, 1990 and 1994 Deferred Compensation Plans; the Company's
Supplemental Retirement Plan; the Company's Death Benefit Plan and Agreement for
Officers; that certain Consulting Agreement dated June 17, 1991 by and between
the Company and Lyle D. Altman; that certain Agreement dated as of November 25,
1991 by and between the Company and Richard A. Fisher; the Network Systems
Corporation 1992 James E. Thornton Deferred Compensation Plan; that certain
Settlement Agreement dated as of June 30, 1989 by and between the Company and
Jim Checco; that certain Settlement Agreement dated as of June 30, 1989 by and
between the Company and Ray Rantala; and that certain Settlement Agreement and
General Release dated as of June 1994 by and between the Company and David
Brown. The Parent and the Company agree that during the term of his change in
control letter agreement, (1) any termination of employment by Lyle D. Altman
other than due to his death or disability (as defined in the change in control
letter agreement) will be deemed to be for good reason and (2) neither will
provide or permit to be provided to Mr. Altman the notice contemplated by
Section 1(b) of his June 17, 1991 Consulting Agreement with the Company. On or
prior to the Effective Date, the Company may modify the terms of the plans and
agreements referenced in
37
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this subsection to reflect the provisions of this subsection, but not otherwise
without the written consent of Parent.
(e) The obligations of Parent under Sections 5.11(c) and 5.11(d) are
intended to benefit, and be enforceable against Parent directly by, the parties
(other than the Company) to such agreements and the participants or former
participants in such plans and their respective beneficiaries and other
successors in interest, and shall be binding on all successors of Parent.
Section 5.12 Other Matters
-------------
The Company shall use its best efforts to:
(a) amend the terms of the option agreements held by employees of the
Company which were modified by Company in April of 1994, to conform to the
original terms of such option agreements; and
(b) successfully complete the actions described in Sections
8.01(h)(ii) and 8.01(h)(iv).
Any change in the business, operations or financial condition of the
Company as a result of any payments made by the Company in connection with
repurchasing, redeeming, canceling or otherwise acquiring shares of Company
Common Stock or options to purchase shares of Company Common Stock pursuant to
this Section 5.12 shall not be considered for purposes of determining whether
any condition contained in Section 7.02(k) has been met.
Section 5.13 Redemption of Rights
--------------------
The Company may take all necessary action to cause the rights issued
pursuant to the Company Rights Agreement to be redeemed at the Effective Time
and may cause the redemption price to be paid in connection therewith.
Section 5.14 Disclosure Schedule Supplement and Review
-----------------------------------------
As of the date hereof, the Company has not completed its internal
investigation and review for purposes of confirming and verifying the
representations and warranties of the Company contained in this Agreement, as
such representations and warranties relate to the Company's international
operations. Consequently, the Company Disclosure Schedule delivered to Parent
as of the date hereof does not include complete disclosure of matters related to
the
38
<PAGE>
Company's international operations (the "International Disclosures"). On or
prior to August 19, 1994, the Company shall deliver to Parent a supplement to
the Company Disclosure Schedule which includes the International Disclosures,
and copies of all documents newly listed thereon. In the event that Parent
determines in good faith that the Company Disclosure Schedule, as so
supplemented, includes disclosures which are inconsistent in a material and
adverse respect with the representations and warranties of the Company contained
in this Agreement (as modified by the Company Disclosure Schedule prior to such
supplement), or that the Company Disclosure Schedule as so supplemented contains
information which in the Parent's good faith, reasonable business judgment
materially adversely affects the value of the business or prospects of the
Company, then Parent shall have the right within five business days of the
receipt of such supplement to the Company Disclosure Schedule to terminate this
Agreement, as set forth in Section 8.01 hereto. Furthermore, the Parent has not
completed its review of certain matters referenced in 3.07, 3.11 and 3.12 of the
Company Disclosure Schedule. In the event that Parent determines in its good
faith, reasonable business judgment upon completion of such review that those
matters materially and adversely affect the value of the business or prospects
of the Company, then Parent may terminate this Agreement on or before August 11,
1994, as set forth in Section 8.01 hereto.
ARTICLE VI
CLOSING
Section 6.01 Time and Place
--------------
Subject to the provisions of Articles VII and VIII, the consummation
of the transactions contemplated by this Agreement (the "Closing") will take
place at the offices of Gibson, Dunn & Crutcher, 2029 Century Park East, Los
Angeles, California 90067, immediately after the approval of shareholders of the
Company referred to in Section 2.02 hereof and the fulfillment of the other
conditions to the Merger set forth in Article VII hereof has been obtained or at
such other place or at such other time as may be mutually agreed upon by the
Parent and the Company.
Section 6.02 Deliveries at the Closing
-------------------------
Subject to the provisions of Articles VII and VIII, at the Closing:
(a) There will be delivered to the Parent and the Company the
certificates and other documents and instruments the delivery of which is
contemplated under Article VII; and
39
<PAGE>
(b) The Parent, the Subsidiary and the Company will cause appropriate
documents necessary to effect the Merger to be filed in accordance with the
provisions of 251 of the DGCL and shall take any and all other lawful actions
and do any and all other lawful things necessary to cause the Merger to become
effective.
ARTICLE VII
CONDITIONS TO THE MERGER
Section 7.01 Conditions to the Obligations of the Parent, the
------------------------------------------------
Subsidiary and the Company
--------------------------
The respective obligations of the Parent, the Subsidiary and the
Company to effect the Merger are subject to fulfillment at or prior to the date
of the Closing of the following conditions:
(a) Any waiting period (and any extension thereof) applicable to the
Merger under the HSR Act shall have expired or been terminated;
(b) The Merger shall have been approved by the requisite vote of the
shareholders of the Company required by the DGCL and the Company's Certificate
of Incorporation and Bylaws;
(c) The Registration Statement shall have become effective and no stop
order suspending the effectiveness thereof shall be in effect and no proceedings
for such purpose shall be pending or threatened before the Commission;
(d) The shares of Parent Common Stock issuable in the Merger shall be
authorized for listing on the New York Stock Exchange upon notice of issuance;
(e) No order, statute, rule, regulation, executive order, stay,
decree, judgment, or injunction shall have been enacted, entered, issued,
promulgated or enforced by any court or governmental authority which prohibits
or restricts the effectuation of the Merger; and
(f) No governmental action or proceeding shall have been commenced or
threatened seeking any injunction, restraining or other order which seeks to
prohibit, restrain, invalidate or set aside the effectuation of the Merger.
40
<PAGE>
Section 7.02 Additional Conditions to the Obligations of the Parent
------------------------------------------------------
and the Subsidiary
------------------
The obligations of the Parent and the Subsidiary to effect the Merger
are also subject to the fulfillment at or prior to the date of the Closing of
the following additional conditions:
(a) The Company shall have performed and complied in all material
respects with the agreements and obligations contained in this Agreement that
are required to be performed and complied with by it at or prior to the date of
the Closing;
(b) The representations and warranties of the Company contained in
this Agreement shall be true and correct in all material respects, as of the
date hereof and shall be deemed to have been made again at and as of the date of
the Closing and shall then be true and correct in all material respects;
(c) All corporate actions on the part of the Company necessary to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby or thereby shall have been
duly and validly taken;
(d) The Parent shall have received from each person who is identified
as an "affiliate" of the Company for purposes of Rule 145 under the Securities
Act, as identified in the list delivered pursuant to Section 2.05, a written
agreement substantially in the form of Exhibit B to this Agreement with respect
---------
to the shares of Parent Common Stock to be received by such affiliate in the
Merger;
(e) The Company shall have received consents to the Merger from all
persons from whom such consent or waiver is required, as referred to in Section
5.09;
(f) The Parent shall have received from Ernst & Young independent
certified public accountants for the Company, letters dated the effective date
of the Registration Statement and the Effective Time, substantially in the form
of Exhibit C hereto and in substance reasonably satisfactory to the Parent;
---------
(g) The Parent shall have received from Price Waterhouse, independent
certified public accountants for the Parent, a letter dated the date of the
Effective Time confirming, as of that date, their prior advice to the Parent
that the Merger will be treated for accounting purposes as a
41
<PAGE>
"pooling of interests" under Opinion No. 16 of the Accounting Principles Board;
(h) The Company shall have taken all necessary action to cause all of
the rights issued pursuant to the Company Rights Agreement to be extinguished or
redeemed effective at the Effective Time;
(i) The Parent shall have received the opinions of counsel from
Oppenheimer, Wolff & Donnelly, special counsel to the Company and from the
Company's General Counsel covering such matters and in form and substance
reasonably satisfactory to Parent and its special counsel;
(j) The Parent shall have received such certificates of officers of
the Company and such certificates of others to evidence compliance with the
conditions set forth in this Section and in Section 7.01 as may be reasonably
requested by the Parent; and
(k) Since the date of this Agreement, there shall have been no
material adverse change in, and no event, occurrence or development in the
business of the Company that, taken together with other events, occurrences and
developments with respect to such business, would have or would reasonably be
expected to have a material adverse effect on, the business, operations or
financial condition of the Company and its subsidiaries, taken as a whole.
Section 7.03 Additional Conditions to the Obligations of the Company
-------------------------------------------------------
The obligations of the Company to effect the Merger are also subject
to the fulfillment at or prior to the date of the Closing of the following
additional conditions:
(a) The Parent and the Subsidiary shall have performed and complied in
all material respects with the agreements and obligations contained in this
Agreement that are required to be performed and complied with by them at or
prior to the date of the Closing;
(b) The representations and warranties of the Parent and the
Subsidiary contained in this Agreement shall be true and correct in all material
respects as of the date hereof and shall be deemed to have been made again at
and as of the date of the Closing and shall then be true and correct in all
material respects;
(c) All corporate actions on the part of the Parent and the Subsidiary
necessary to authorize the execution, delivery and performance of this Agreement
and the
42
<PAGE>
consummation of the transactions contemplated hereby and thereby shall have been
duly and validly taken;
(d) The Company shall have received the opinions of counsel from
Gibson, Dunn & Crutcher, special counsel to the Parent and from Parent's General
Counsel covering such matters and in form and substance satisfactory to the
Company and its special counsel;
(e) Since the date of this Agreement, there shall have been no
material adverse change in, and no event, occurrence or development in the
business of Parent that, taken together with other events, occurrences and
developments with respect to such business, would have or would reasonably be
expected to have a material adverse effect on, the business, operations or
financial condition of Parent and its subsidiaries, taken as a whole; and
(f) The Company shall have received such certificates of officers of
the Parent and the Subsidiary and such certificates of others to evidence
compliance with the conditions set forth in this Section and in Section 7.01 as
may be reasonably requested by the Company.
ARTICLE VIII
TERMINATION AND ABANDONMENT
Section 8.01 Termination
-----------
This Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time, whether before or after the approval by
shareholders referred to in Section 2.02:
(a) after February 28, 1995, by either the Company or Parent, if the
Closing has not occurred for any reason other than a breach of this Agreement by
the terminating party;
(b) by Parent, if there has been a material breach by the Company of
any agreement, representation or warranty contained in this Agreement which has
rendered the satisfaction of any condition to the obligations of Parent and
Subsidiary impossible and such breach has not been waived by Parent;
(c) by the Company, if there has been a material breach by Parent or
the Subsidiary of any agreement, representation or warranty contained in this
Agreement which has rendered the satisfaction of any condition to the
obligations of the Company impossible and such breach has not been waived by the
Company;
43
<PAGE>
(d) by Parent or the Company, if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action (which the Parent,
the Subsidiary and the Company agree to use all reasonable efforts to
terminate), in each case permanently restraining, enjoining or otherwise
prohibiting the Merger;
(e) by the Company, if the Board of Directors of the Company has
accepted an Approved Offer in accordance with Section 5.02;
(f) by either Parent or the Company if the Company's shareholders
shall have voted on and failed to adopt and approve, this Agreement and Merger;
(g) by mutual consent of the Parent and the Company;
(h) by Parent on September 16, 1994, and for two business days
thereafter, if on or prior to September 16, 1994:
(i) The Parent shall not have received from Ernst & Young,
independent certified public accountants for the Company, a report
concerning the completion of tests of specific accounts and records of the
Company as requested by the Parent, which report shall confirm no material
difference from amounts contained in the consolidated financial statements
of the Company as at and for the period ended June 30, 1994; or
(ii) The Company shall not have completed the acquisition of all
or substantially all of the technology of TMD Products Inc. on terms and
conditions substantially similar to those contained in the letter of intent
previously provided to Parent and otherwise reasonably satisfactory to
Parent; or
(iii) The Parent shall not have received all requisite consents
and approvals to the Merger from its Lenders under the $150,000,000
Multicurrency Credit Agreement, dated as of March 31, 1993 to which Parent
and certain of its subsidiaries are parties; or
(iv) The Company shall not have purchased, redeemed, canceled or
otherwise acquired (in accordance with the advice and consent of Price
Waterhouse to the effect that such action would not affect the financial
reporting of the Merger as a "pooling-of-interests" and at an effective
price per share of less than $10.00 per share) Company Common Stock or
options to purchase shares
44
<PAGE>
of Company Common Stock in sufficient quantities so as to reduce the
outstanding issued Company Common Stock and the outstanding Company Common
Stock reserved for issuance upon exercise of options, warrants,
subscriptions, conversion rights or other rights, agreements, commitments,
arrangements or understandings with respect to the issuance of Company
Common Stock to an amount not to exceed 32,594,141 shares;
(i) by Parent, or by the Company if the Company has not then breached
the covenant contained in Section 5.12(a) hereof, on September 16, 1994, and for
two business days thereafter, if on or prior to September 16, 1994, the Company
shall not have amended the terms of the option agreements held by all employees
of the Company which were modified by Company on or about April 28, 1994, to
conform to the original terms of all such option agreements, unless Parent shall
agree in writing with the Company prior to September 19, 1994 that failure to so
amend any of such option agreements shall not disqualify the Merger from being
treated for accounting purposes as a "pooling of interests" under Opinion No. 16
of the Accounting Principles Board;
(j) by Parent based upon the exercise of its right to terminate this
Agreement under the terms of Section 5.14 hereof; or
(k) by the Company if (i) the average closing price of Parent Common
Stock as reported on the New York Stock Exchange, Inc. for the ten trading day
period ending two trading days prior to the Effective Time (the "Average Price")
is less than $30.37 per share (adjusted to reflect any Adjustment Events), and
(ii) Parent does not agree in writing, within five business days of written
notice from the Company to parent that it intends to exercise its right of
termination pursuant to this Section 8.01(k), to amend this Agreement (A) to
adjust the Conversion Number so that the product of the Conversion Number and
the Average Price equals at least $7.95 per share, or (B) to provide that, in
addition to the Parent Common Stock otherwise provided for by this Agreement,
the Merger Consideration shall consist of cash such that the aggregate of the
Parent Common Stock and cash comprising the Merger Consideration shall equal at
least $7.95 per share, provided, with respect to this clause (B), that the
inclusion of such cash consideration does not disqualify the Merger as a tax
free reorganization within the meaning of Section 368(a) of the Code and that
Parent may not terminate this Agreement pursuant to Section 7.02(g) hereof if
the failure to satisfy such condition is due to the inclusion of such cash
consideration.
45
<PAGE>
Section 8.02 Fees and Expenses
-----------------
(a) In the event that the Merger is not consummated because this
Agreement is terminated as permitted by Section 8.01;
and
---
between February 22, 1994 and the time of such termination (i) any
Third Party (A) makes a written Acquisition Proposal to the Company or any
authorized director or officer or (B) publicly announces an Acquisition
Proposal, or (ii) the Company or any authorized director or officer of the
Company participates in discussions or negotiations with, or provides
confidential information to, any Third Party concerning an Acquisition Proposal;
and
---
at any time after the date of this Agreement and prior to six months
after the date of such termination any Third Party consummates any transaction
with the Company or any of its affiliate or affiliated entities (an "Alternative
Transaction") or enters into an agreement with the Company or any of its
affiliates with respect to an Alternative Transaction in which the sum, on a per
share basis, of (A) the fair market value of the consideration received by
Company shareholders (the "Consideration") in connection with such Alternative
Transaction, (B) the fair market value, if any, of the Company Common Stock or
other rights arising from Company Common Stock (other than the Consideration)
retained by Company Shareholders after the Alternative Transaction (the
"Retained Value"), and (C) the fair market value when declared, issued or at the
time of the consummation of the Alternative Transaction, whichever is higher, of
the dividends, redemptions or other distributions declared on or in relation to
Company Common Stock after the date hereof, exceeds $10.00 per share, adjusted
to reflect stock splits, distributions or dividends on Company Common Stock
after the date hereof;
then the Company will, within five days after the completion of such Alternative
Transaction (which involves Consideration which when aggregated with the items
listed in B and C above totals more than of $10.00 per share), (1) pay the
Parent a fee of $16 million and (2) reimburse the Parent for all reasonable
expenses and fees incurred by it or on its behalf in connection with the Merger
and the consummation of all transactions contemplated by this Agreement and the
financing of such transactions, and in connection with the negotiation,
preparation, execution and performance of this Agreement.
46
<PAGE>
(b) In the event that the Company terminates this Agreement pursuant
to Section 8.01(k), the Company shall, within five days thereafter, pay the
Parent a fee of $5 million.
(c) Except as provided in paragraphs (a) or (b) of this Section, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by such of the Parent, the
Subsidiary or the Company incurring such expenses.
Section 8.03 Procedure and Effect of Termination
-----------------------------------
In the event of termination and abandonment of the Merger by the
Parent or the Company pursuant to Section 8.01, written notice thereof shall
forthwith be given to the other and this Agreement and the Merger Agreement
shall terminate and the Merger shall be abandoned, without further action by any
of the Parent, the Subsidiary or the Company. If this Agreement is terminated
as provided herein there shall be no liability or further obligation hereunder
on the part of the Parent, the Subsidiary or the Company, except as set forth in
this Section and in Sections 5.02, 5.03(b), 8.02 and Article IX. Nothing in
this Section 8.03 shall relieve any party to this Agreement of liability for
willful breach of this Agreement.
ARTICLE IX
GENERAL PROVISIONS
Section 9.01 Amendment and Modification
--------------------------
Subject to applicable law, this Agreement may be amended, modified or
supplemented only by written agreement of the Parent, the Subsidiary and the
Company at any time prior to the Effective Time with respect to any of the terms
contained herein except that after the approvals by shareholders contemplated by
Section 2.02, the amount or form of consideration to be received by the holders
of voting shares of the Company may not be decreased or altered without the
approval of such holders.
Section 9.02 Waiver of Compliance; Consents
------------------------------
Any failure of Parent or the Subsidiary, on the one hand, or the
Company on the other hand, to comply with any obligation, covenant, agreement or
condition herein may be waived in writing by the Parent or the Company,
respectively, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any
47
<PAGE>
subsequent or other failure. Whenever this Agreement requires or permits consent
by or on behalf of the Parent, the Subsidiary or the Company, such consent shall
be given in writing in a manner consistent with the requirements for a waiver of
compliance as set forth in this Section.
Section 9.03 Validity
--------
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provisions of this
Agreement, which shall remain in full force and effect.
Section 9.04 Parties in Interest
-------------------
This Agreement shall be binding upon and inure solely to the benefit
of the Parent, the Subsidiary and the Company, and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Section 9.05 Survival of Representations, Warranties, Covenants and
------------------------------------------------------
Agreements
----------
The respective representations and warranties of the Parent, the
Subsidiary and the Company shall not survive the Effective Time, but covenants
that specifically relate to periods, activities or obligations subsequent to the
Merger shall survive the Merger. In addition, if this Agreement is terminated
pursuant to Section 8.01, the covenants contained in Sections 5.02, 5.03(b) and
8.02 shall survive such termination.
Section 9.06 Notices
-------
All notices and other communications hereunder shall be in writing and
shall be deemed given on the date of delivery, if delivered personally or faxed
during normal business hours of the recipient, or three days after deposit in
the U.S. Mail, postage prepaid, if mailed by registered or certified mail
(return receipt requested) as follows:
(a) if to the Parent or the Subsidiary or to the Company after the
Effective Time, to:
Storage Technology Corporation
2270 South 88th Street
Louisville, CO 80028-4309
Attention: General Counsel
48
<PAGE>
with a copy to:
Gibson, Dunn & Crutcher
2029 Century Park East, Ste. 4000
Los Angeles, CA 90067
Attention: Richard A. Strong
(b) if to the Company prior to the Effective Time, to:
Network Systems Corporation
7600 Boone Avenue North
Minneapolis, MN 55428
Attention: General Counsel
with a copy to:
Oppenheimer, Wolff & Donnelly
Plaza VII
45 S. Seventh Street
Minneapolis, MN 55402
Attention: Bruce A. Machmeier
Section 9.07 Governing Law
-------------
The Agreement shall be governed by and construed in accordance with
the law of the State of New York without regard to the conflicts of law rules
thereof.
Section 9.08 Counterparts
------------
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same agreement.
Section 9.09 Table of Contents and Headings
------------------------------
The table of contents and article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 9.10 Entire Agreement
----------------
This Agreement, including the exhibits and schedules hereto and the
documents and instruments referred to herein, embodies the entire agreement and
understanding of the Parent, the Subsidiary and the Company in respect of the
subject matter contained herein and supersedes all prior agreements
49
<PAGE>
and understandings among them with respect to such subject matter.
Section 9.11 Miscellaneous
-------------
(a) Parent hereby agrees to cause the Subsidiary to comply with its
obligations hereunder and to cause the Subsidiary to consummate the Merger as
contemplated herein.
(b) For purposes of this Agreement, the term "Knowledge" of an entity
means knowledge actually possessed by any Director, officer or the direct
reports to such officers of such entity.
IN WITNESS WHEREOF, the Parent, the Subsidiary and the Company have
caused this Agreement to be signed on their behalf by their respective duly
authorized officers on the date first above written.
STORAGE TECHNOLOGY CORPORATION
By: /s/Ryal R. Poppa
-------------------------------------
Its: Chairman of the Board, President and
-------------------------------------
Chief Executive Officer
-------------------------------------
STORAGETEK EAGLE CORPORATION
By: /s/Gregory A. Tyman
-------------------------------------
Its: Executive Vice President
-------------------------------------
NETWORK SYSTEMS CORPORATION
By: /s/Michael Ashby
-------------------------------------
Its: Chief Operating Officer
-------------------------------------
50
<PAGE>
[NEEDHAM & COMPANY, INC. LETTERHEAD APPEARS HERE]
APPENDIX B
September __, 1994
Board of Directors
Network Systems Corporation
7600 Boone Avenue North
Minneapolis, MN 55428
Gentlemen:
We understand that Network Systems Corporation ("NSC"), Storage
Technology Corporation ("STK") and NSC Acquisition, Inc., a wholly owned
subsidiary of STK ("Merger Sub"), have entered into an Agreement and Plan of
Merger, dated as of August 8, 1994 (the "Merger Agreement"), pursuant to which
Merger Sub will be merged with and into NSC and NSC, as the surviving
corporation, will become a wholly owned subsidiary of STK (the "Merger"). The
terms of the Merger are set forth more fully in the Merger Agreement.
Pursuant to the Merger Agreement, we understand that (i) each issued
and outstanding share of common stock, par value $.02 per share, of NSC ("NSC
Common Stock") will be converted into and exchanged for 0.2618 of a share
(subject to adjustment as set forth in the Merger Agreement) of common stock,
$0.10 par value per share, of STK ("STK Common Stock"); and (ii) rights issued
pursuant to NSC's Amended and Restated Rights Agreement will be redeemed
pursuant to the terms thereof at a redemption price of $0.05 per right.
You have asked us to advise you as to the fairness, from a financial
point of view, to the stockholders of NSC of the consideration to be received by
the stockholders of NSC in the Merger. Needham & Company, Inc. as part of its
investment banking business is regularly engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
other purposes. We have acted as financial advisor to NSC in connection with
the Merger and will receive a fee for our services that is contingent on the
consummation of the Merger. In addition, NSC has agreed to indemnify us for
certain liabilities arising out of the rendering of this opinion.
For purposes of this opinion we have, among other things: (i)
reviewed the Merger Agreement; (ii) reviewed certain other documents related to
the Merger, including the Proxy Statement/Prospectus; (iii) reviewed certain
publicly available information concerning NSC and STK and certain other relevant
financial and operating data of NSC
<PAGE>
Network Systems Corporation
September __, 1994
Page 2
and STK made available from the internal records of NSC and STK; (iv) visited
NSC's facility and held discussions with members of senior management of NSC and
STK concerning their current and future business prospects; (v) reviewed certain
financial forecasts and projections prepared by NSC's and STK's respective
managements; (vi) reviewed the historical stock prices and trading volumes of
the Common Stocks of NSC and STK; (vii) compared publicly available financial
data of public companies, which we deemed generally comparable to NSC, to
similar data for NSC; (viii) reviewed the financial terms of certain other
recent business combinations that we deemed generally relevant; and (ix)
performed and/or considered such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In connection with our review, we have not independently verified any
of the foregoing information, have relied on such information, and have assumed
that all such information is complete and accurate in all material respects.
With respect to NSC's and STK's financial forecasts provided to us by their
respective managements, we have assumed for purposes of our opinion that such
forecasts have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of such managements, at the time of
preparation, of the future operating and financial performance of NSC and STK.
We have not made an independent evaluation, appraisal or physical inspection of
the assets or liabilities of NSC and STK. Further, our opinion is based on
economic, monetary and market conditions existing as of the date hereof, and in
rendering this opinion, we have relied without independent verification on the
accuracy, completeness and fairness of all historical financial and other
information which was either publicly available or furnished to us by NSC and
STK.
This opinion is solely for the benefit of the Board of Directors of
NSC and may not be quoted or referred to or used for any other purpose without
prior written consent, except that this letter may be disclosed in connection
with any registration statement or proxy statement used in connection with the
Merger so long as the opinion is quoted in full in such registration statement
or proxy statement.
Based upon and subject to the foregoing, it is our opinion that the
consideration to be offered to the stockholders of NSC in the Merger is fair to
the stockholders of NSC from a financial point of view.
Sincerely,
NEEDHAM & COMPANY, INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law, as amended,
provides that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at its request in such capacity in another
corporation or business association against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interest of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 102(b)(7) of the Delaware General Corporation Law, as amended,
permits a corporation to provide in its certificate of incorporation that a
director of the corporation shall not be personally liable to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
Article VII of the Registrant's Amended and Restated Certificate of
Incorporation provides that the Registrant shall indemnify its directors and
officers to the fullest extent permitted by the Delaware General Corporation Law
and provides for the elimination of personal liability of a director for breach
of fiduciary duty, as permitted by Section 102(b)(7) of the Delaware General
Corporation Law.
StorageTek has entered into agreements to defend and indemnify each of
its directors, to the fullest extent legally possible, in connection with
threatened, pending or completed legal proceedings, as defined, including
derivative proceedings.
II-1
<PAGE>
Item 21.
(a) Exhibits
--------
Exhibit
Number Description
------- -----------
2.1** Restated Agreement and Plan of Merger by and among the Registrant,
StorageTek Eagle Corporation and Network Systems Corporation dated as
of August 8, 1994, as amended as of August 25, 1994 and September 9,
1994 and restated on November 15, 1994.
4.1 Restated Certificate of Incorporation and Restated bylaws of the
Registrant dated July 28, 1987 (filed as Exhibit 3 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 25, 1987, and incorporated herein by reference).
4.2 Certificate of Amendment dated May 22, 1989 to the Restated
Certificate of the Registrant dated July 28, 1987 (filed as Exhibit
(c)(1) to the Registrant's Current Report on Form 8-K dated June 2,
1989, and incorporated herein by reference).
4.3 Certificate of Second Amendment dated June 2, 1992 to the Restated
Certificate of Incorporation of the Registrant dated July 28, 1987
(filed as Exhibit (3) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 26, 1992, and incorporated herein by
reference).
4.4 First Amendment dated February 2, 1988, to the Restated bylaws of
Storage Technology Corporation, amending Section IV (filed as Exhibit
3(cc) to the Registrant's Annual report on Form 10-K for the fiscal
year ended December 25, 1987, and incorporated herein by reference).
4.5 Specimen Certificate of Common Stock, $0.10 par value, of the
Registrant (filed as Exhibit (c)(2) as to the Registrant's Current
Report on Form 8-K dated June 2, 1989, and incorporated herein by
reference).
4.6 Rights Agreement dated as of August 20, 1990, between the Registrant
and First Fidelity Bank, National Association, New Jersey (filed as
Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed with
the Commission on August 20, 1990, and incorporated herein by
reference).
4.7 Certificate of Designations of Series B Junior Participating
Preferred Stock (filed as Exhibit A to Exhibit 4.1 to the
Registrant's Current Report on Form 8-K filed with the Commission on
August 20, 1990, and incorporated herein by reference).
5.1 Opinion of General Counsel.
23.1* Consent of Price Waterhouse LLP.
23.2* Consent of KPMG Peat Marwick LLP.
23.3* Consent of Ernst & Young LLP.
II-2
<PAGE>
23.4 Consent of General Counsel (included in Exhibit 5.1).
24.1** Powers of Attorney for each person executing the Registration
Statement.
99.1* Form of Proxy.
(b) Financial Statement Schedules.
-----------------------------
No schedules are required.
(c) Reports, Opinions or Appraisals.
-------------------------------
Opinion of Network Systems' Financial Advisor is furnished as Appendix B to
the Proxy Statement/Prospectus forming a part of this Registration
Statement.
_____________
* Filed herewith.
** Previously filed on September 2, 1994, as part of this Registration
Statement.
II-3
<PAGE>
Item 22. Undertakings.
Pursuant to the requirements of the Securities Act of 1933, as amended
(the "Securities Act"), the Registrant certifies and undertakes as follows:
(1) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Exchange Act) that is incorporated by reference in
the Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer of controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the questions
whether such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
(3) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11 or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information contained
in documents filed subsequent to the effective date of the registration
statement through the date of responding to the request.
(4) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(5) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
II-4
<PAGE>
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof; and
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement (No. 33-
55343) to be signed on its behalf by the undersigned, thereunto duly authorized
in the City of Louisville, State of Colorado on the 15th day of November,
1994.
STORAGE TECHNOLOGY CORPORATION
By: /s/ Ryal R. Poppa
----------------------------------------
Ryal R. Poppa
Chairman of the Board, President,
Chief Executive Officer and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ryal R. Poppa Chairman of the Board, President November 15, 1994
- ------------------------- and Chief Executive Officer
Ryal R. Poppa and Director (Principal
Executive Officer)
/s/ Gregory A. Tymn Senior Vice President and Chief November 15, 1994
- ------------------------- Financial Officer (Principal
Gregory A. Tymn Financial Officer)
/s/ David E. Lacey Corporate Vice President and November 15, 1994
- ------------------------- Controller (Principal
David E. Lacey Accounting Officer)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Judith E.N. Albino Director November 15, 1994
- -------------------------
Judith E.N. Albino
* William L. Armstrong Director November 15, 1994
- -------------------------
William L. Armstrong
* Robert A. Burgin Director November 15, 1994
- -------------------------
Robert A. Burgin
* Paul Friedman Director November 15, 1994
- -------------------------
Paul Friedman
* Stephen J. Keane Director November 15, 1994
- -------------------------
Stephen J. Keane
* Robert E. LaBlanc Director November 15, 1994
- -------------------------
Robert E. LaBlanc
* Robert E. Lee Director November 15, 1994
- -------------------------
Robert E. Lee
* Dr. Harrison Shull Director November 15, 1994
- -------------------------
Dr. Harrison Shull
* Richard C. Steadman Director November 15, 1994
- -------------------------
Richard C. Steadman
* Robert C. Wilson Director November 15, 1994
- -------------------------
Robert C. Wilson
*By:/s/W. Russell Wayman
- -------------------------
W. Russell Wayman
Attorney in Fact
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
Sequentially
Numbered
Exhibit No. Description Page
- ----------- ----------- ------------
2.1 Restated Agreement and Plan of Merger by
and among the Registrant, StorageTek Eagle
Corporation and Network Systems Corporation dated
as of August 8, 1994, as amended as of August 25, **
1994 and September 9, 1994 and restated on
November 15, 1994..................................
4.1 Restated Certificate of Incorporation and Restated
bylaws of the Registrant dated July 28, 1987
(filed as Exhibit 3 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended
September 25, 1987, and incorporated herein by
reference)......................................... *
4.2 Certificate of Amendment dated May 22, 1989 to
the Restated Certificate of the Registrant dated
July 28, 1987 (filed as Exhibit (c)(1) to the
Registrant's Current Report on Form 8-K dated
June 2, 1989, and incorporated herein by
reference)......................................... *
4.3 Certificate of Second Amendment dated June 2, 1992
to the Restated Certificate of Incorporation of
the Registrant dated July 28, 1987 (filed as
Exhibit (3) to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 26, 1992,
and incorporated herein by reference).............. *
4.4 First Amendment dated February 2, 1988, to the
Restated bylaws of Storage Technology Corporation,
amending Section IV (filed as Exhibit 3(cc) to the
Registrant's Annual report on Form 10-K for the
fiscal year ended December 25, 1987, and
incorporated herein by reference).................. *
4.5 Specimen Certificate of Common Stock, $0.10 par
value, of the Registrant (filed as Exhibit (c)(2)
as to the Registrant's Current Report on Form 8-K
dated June 2, 1989, and incorporated herein by
reference)......................................... *
4.6 Rights Agreement dated as of August 20, 1990,
between the Registrant and First Fidelity Bank,
National Association, New Jersey (filed as Exhibit
4.1 to the Registrant's Current Report on Form 8-K
filed with the Commission on August 20, 1990, and
incorporated herein by reference).................. *
<PAGE>
4.7 Certificate of Designations of Series B Junior
Participating Preferred Stock (filed as Exhibit A
to Exhibit 4.1 to the Registrant's Current Report
on Form 8-K filed with the Commission on August
20, 1990, and incorporated herein by reference)... *
5.1 Opinion of General Counsel........................
23.1 Consent of Price Waterhouse LLP...................
23.2 Consent of KPMG Peat Marwick LLP..................
23.3 Consent of Ernst & Young LLP......................
23.4 Consent of General Counsel (included in
Exhibit 5.1)......................................
24.1 Powers of Attorney for each person executing the
Registration Statement (included on Signature
Page)............................................. **
99.1 Form of Proxy.....................................
(b) Financial Statement Schedules.
-----------------------------
No schedules are required.
(c) Reports, Opinions or Appraisals.
-------------------------------
Opinion of Network Systems' Financial Advisor is furnished as Appendix B
to the Proxy Statement/Prospectus forming a part of this Registration
Statement.
_____________
* Incorporated by Reference
** Previously filed on September 2, 1994, as part of this Registration
Statement.
<PAGE>
Exhibit 23.1
- ------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Amendment No. 1 to the Registration Statement on Form
S-4 of Storage Technology Corporation of our report dated February 17, 1994
appearing on page F-25 of Storage Technology Corporation's Annual Report on Form
10-K for the year ended December 31, 1993. We also consent to the reference to
us under the heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
- ------------------------
PRICE WATERHOUSE LLP
Denver, Colorado
November 14, 1994
<PAGE>
Exhibit 23.2
- ------------
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Storage Technology Corporation:
We consent to incorporation by reference in this Registration Statement on Form
S-4 of Storage Technology Corporation of our report dated January 31, 1992,
relating to the consolidated statements of operations and cash flows of
XL/Datacomp, Inc. and subsidiaries for the year ended December 31, 1991, and the
related consolidated statement of stockholder's equity for the fifteen month
period ended December 31, 1991, and the related financial statement schedules,
which report appears in the December 31, 1993 annual report on Form 10-K of
Storage Technology Corporation.
/s/ KPMG PEAT MARWICK LLP
- -------------------------
KPMG PEAT MARWICK LLP
Chicago, Illinois
November 14, 1994
<PAGE>
Exhibit 23.3
- ------------
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (Form S-4 No. 33-55343) and related
Prospectus of Storage Technology Corporation for the registration of 8,533,140
shares of its common stock and to the incorporation by reference therein of our
report dated January 28, 1994, with respect to the consolidated financial
statements and schedules of Network Systems Corporation included in its Annual
Report (Form 10-K) for the year ended December 31, 1993, filed with the
Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
- ---------------------
ERNST & YOUNG LLP
Minneapolis, Minnesota
November 15, 1994
<PAGE>
EXHIBIT 99.1
NETWORK SYSTEMS CORPORATION
7600 Boone Avenue North
Minneapolis, Minnesota 55428
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE SPECIAL MEETING OF
STOCKHOLDERS ON _________________, 199_
The undersigned hereby appoints Michael F. G. Ashby and Malcolm Reid, or
either of them, as Proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote, as designated below, all the
shares of common stock of Network Systems Corporation held of record by the
undersigned on __________________, 199_, at the special meeting of stockholders
to be held on _____________, 199_, or any adjournment thereof.
1. PROPOSAL TO APPROVE MERGER AGREEMENT
[_] FOR [_] AGAINST [_] ABSTAIN
2. PROPOSAL TO ADJOURN MEETING TO PERMIT FURTHER SOLICITATION
[_] FOR [_] AGAINST [_] ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE PROPOSAL.
---
Please sign exactly as When shares are held by joint tenants, both should
name appears below. sign. When signing as attorney, executor,
administrator, trustee or guardian, please give
full title. If stockholder is a corporation,
please sign in full corporate name by President or
other authorized officer. If a partnership,
please sign in partnership name by an authorized
person.
______________________________________________
(Signature)
______________________________________________
(Signature)
DATED:___________________________________,199_
Please mark, sign, date and mail the proxy card
promptly using the return envelope.
