<PAGE>
As filed with the Securities and Exchange Commission on September 1, 1994
Registration No. 33-
------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
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 Bruce A. Machmeier
Gibson, Dunn & Crutcher Oppenheimer Wolff & Donnelly
2029 Century Park East 3400 Plaza VII
Suite 4000 45 S. Seventh Street
Los Angeles, California 90067 Minneapolis, Minnesota 55402
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 (the "Merger") of a subsidiary of the Registrant with
and into Network Systems Corporation ("Network Systems") 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. [_]
-------------
CALCULATION OF REGISTRATION FEE
-------------------------------
<TABLE>
<CAPTION>
================================================================================================================================
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered (1) registered (2) offering price per share (3) aggregate offering price (3) registration fee
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.10 par value 8,533,146 $35.938 $306,664,200.95 $105,746.28
================================================================================================================================
</TABLE>
(1) Includes the related preferred stock purchase rights.
(2) Represents the maximum number of common stock of Storage Technology
Corporation ("StorageTek Stock") to be issued pursuant to the Agreement and
Plan of Merger in exchange for all of the shares of common stock of Network
Systems issued and outstanding or reserved for issuance pursuant to options
issued by Network Systems and an employee stock purchase plan to be assumed
by Registrant in the Merger.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), as amended based on the average of the high and
low prices per share of StorageTek Stock on the New York Stock Exchange
Composite Tape on August 30, 1994.
---------------
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
<TABLE>
<CAPTION>
Location or Caption in
Item in Form S-4 Proxy Statement/Prospectus
---------------- --------------------------
<S> <C>
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 Information..... Unaudited Pro Forma Condensed Combined Financial
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
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
<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 _______ _______ 1994 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
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<PAGE>
[Network Systems Logo]
NETWORK SYSTEMS CORPORATION
7600 Boone Avenue North, Minneapolis, Minnesota 55428
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
_________________, 1994
TO THE STOCKHOLDERS OF NETWORK SYSTEMS CORPORATION:
A Special Meeting (the "Meeting") of the stockholders of Network
Systems, Inc. ("Network Systems") will be held at ___________________
_____________________________, Minneapolis, Minnesota, on
__________________, 1994, 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 _________________, 1994 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: ________________, 1994 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 September __, 1994
SPECIAL MEETING OF STOCKHOLDERS OF
NETWORK SYSTEMS CORPORATION TO BE HELD ON _______________, 1994
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 $39.00 of StorageTek Stock on the
New York Stock Exchange composite tape on August 8, 1994, the Exchange
Ratio would have resulted in Network Systems' stockholders receiving
approximately $10.21 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 7,941,161 shares of StorageTek Stock in exchange for all of
the Network Systems Stock outstanding at such time, which would constitute,
as of August 8, 1994, approximately 15.3% of the outstanding shares of
StorageTek Stock after giving effect to such issuance. StorageTek may also
issue up to approximately 591,985 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 __________, 1994 and is first
being mailed to Network Systems' stockholders on or about ___________,
1994.
<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 and July 1, 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, 1994 and June 30, 1994.
3. Current Report on Form 8-K dated 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 ____________________, 1994.
ii
<PAGE>
Proxy Statement/Prospectus
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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......................................................... 12
General........................................................... 12
Record Date; Voting Rights; Vote Required......................... 12
Proxy Solicitation................................................ 13
The Merger........................................................... 14
General........................................................... 14
Background of the Merger.......................................... 14
Network Systems' Reasons for the Merger; Recommendation of
Network Systems' Board of Directors............................... 16
Opinion of Network Systems' Financial Advisor..................... 18
StorageTek's Reasons for the Merger............................... 21
Exchange of Shares; Fractional Shares; Adjustment of Exchange
Ratio............................................................. 22
No Appraisal Rights............................................... 23
Management of Network Systems after the Merger; Interests of
Certain Persons in the Merger..................................... 23
Treatment of Network Systems Options and Employee Stock Purchase
Plan.............................................................. 26
Transactions Between StorageTek and Network Systems............... 26
Certain Federal Income Tax Consequences........................... 27
Comparison of Stockholder Rights.................................. 28
Accounting Treatment.............................................. 29
Conditions for Merger and Other Provisions........................ 29
No Solicitation................................................... 31
Expenses; Topping Offer........................................... 31
Regulatory Approvals.............................................. 31
Restrictions on Resale; Affiliate Agreements...................... 31
Operation Of Business Prior To Merger............................. 31
Unaudited Pro Forma Condensed Combined Financial Statements.......... 33
Experts.............................................................. 41
Certain Legal Matters................................................ 41
Adjournment of Meeting............................................... 41
Appendix A - Agreement and Plan of Merger, dated as of August 8, 1994 by and
among Storage Technology Corporation, StorageTek Eagle Corporation
and Network Systems Corporation, as amended
Appendix B - Opinion of Network Systems' Financial Advisor
</TABLE>
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. The address of its
principal executive offices is 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 amended (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 ____________,
____________________, 1994 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 _________________, 1994 (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 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 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 $39.00 of StorageTek Stock on the New York Stock Exchange ("NYSE")
composite tape on August 8, 1994, the Exchange Ratio would have resulted in
Network Systems stockholders receiving approximately $10.21 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 date of the Merger (the "Average
Price") of the StorageTek Stock 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. 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 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. 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. 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."
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
3
<PAGE>
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. 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 these officers, with the exception of Mr. Altman,
will continue to be employed by 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 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 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).
See "The Merger--Conditions for Merger and Other Provisions" and
"--Exchange of Shares; Fractional Shares; Adjustment of Exchange Ratio."
4
<PAGE>
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 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 (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."
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
_________ 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
5
<PAGE>
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 _________ 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 __, 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.
Expiration or early termination of the applicable waiting period under the
HSR Act is a condition to the obligation of StorageTek and Network Systems to
consummate the Merger. 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.
<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 (through 39.00 32.25 9.125 6.6875
August 31, 1994)
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>
6
<PAGE>
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.
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.
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.
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>
SIX MONTHS
ENDED JUNE YEAR ENDED DECEMBER
------------------------ --------------------------------------
1994 1993 1993 1992 1991
---------- ----------- ----------- ----------- ----------
(In thousands except per share amounts)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenue $ 819,292 $ 806,432 $ 1,617,691 $ 1,774,325 $ 1,807,541
Income (loss) before accounting change (1,308) 8,074 (121,461)* (33,242)* 98,364*
Earnings (loss) per common share,
before accounting change:
Combined per StorageTek common share (a) (0.14) 0.08 (2.59) (0.66) 1.99
Combined per Network Systems Stock
equivalent (b) (0.04) 0.02 (0.68) (0.17) 0.52
Balance Sheet Data:
Total assets 2,056,893 2,181,835 2,064,851 2,011,007 2,055,897
Total debt 454,090 453,212 469,490 477,747 514,089
Book value per common share:
Combined per StorageTek common share (a) 20.35 20.52
Combined per Network Systems Stock
equivalent (b) 5.33 5.37
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------
1994 1993
---------------------------------------------------------------------
June March December September June March
-------- -------- --------- ---------- --------- --------
(In thousands except per share amounts)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Revenue $421,104 $398,188 $458,678 $ 352,581 $409,948 $396,484
Income (loss) before accounting change 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) 0.24 (0.39) (0.20) (2.48) (0.10) 0.18
Combined per Network Systems Stock
equivalent (b) 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.
8
<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.
StorageTek
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 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 $ 696,539 $ 697,495 $1,404,752 $1,550,945 $1,619,520 $1,594,804 $1,339,982
Income(loss) before extraordinary
items and accounting change (5,225) (1,264) (117,796) * 9,334 89,812 * 95,384 56,345
Net income (loss) (5,225) 38,736 (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 (0.26) (0.12) (2.98) 0.22 2.17 2.63 1.85
Net income (loss) (0.26) 0.80 (2.05) 0.22 2.17 2.59 2.22
Balance Sheet Data:
Total assets 1,788,132 1,911,196 1,793,009 1,739,043 1,735,651 1,489,407 1,259,107
Total debt 453,090 452,212 468,490 476,747 511,230 574,496 559,354
Book value per common share 19.30 22.50 19.62 21.79 21.50 17.69 14.60
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------
1994 1993
------------------ -----------------------------------------
June March December September June March
-------- -------- -------- --------- -------- --------
(In thousands except per share amounts)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Revenue $360,916 $335,623 $400,199 $307,058 $358,503 $338,992
Income (loss) before
extraordinary items
and accounting change 14,363 (19,588) 6,345 (122,877) * (5,281) 4,017
Net income (loss) 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 0.26 (0.52) 0.08 (2.94) (0.19) 0.08
Net income (loss) 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.
9
<PAGE>
Network Systems
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 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 $118,402 $ 95,108 $215,558 $219,118 $198,728 $163,638 $144,789
Net income (loss) 2,599 4,706 2,207* (39,674)* 15,214 21,973 17,327
Earnings (loss) per common share 0.09 0.16 0.07 (1.31) 0.50 0.74 0.59
Balance Sheet Data:
Total assets 300,712 285,817 305,481 293,425 342,811 293,268 263,500
Total debt 1,000 1,000 1,000 1,000 2,859 2,892 2,923
Book value per common share 7.62 7.61 7.52 7.57 9.09 8.38 7.53
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------
1994 1993
------------------ -----------------------------------------
June March December September June March
-------- -------- -------- --------- -------- --------
(In thousands except per share amounts)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Revenue $60,088 $58,314 $67,110 $53,340 $49,061 $46,047
Net income (loss) 1,400 1,199 (5,077)* 2,578 2,314 2,392
Earnings (loss) per common share 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.
10
<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.
11
<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 ________, _________ __, 1994,
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 __________________, 1994.
Record Date; Voting Rights; Vote Required
The close of business on _____ 1994 (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." [see p. 43]
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 a
definitive Merger Agreement.
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 significantly
larger in size and scope of focus compared to Network Systems. To compete
effectively in this
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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."
AFTER CONSIDERING ALL OF THE ABOVE FACTORS THE BOARD OF DIRECTORS
DETERMINED TO APPROVE THE MERGER AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
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 September __, 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
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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 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.;
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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; 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
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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 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 preeminent supplier of tape and
disk subsystems into the mainframe computer marketplace, principally 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
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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.
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 unique expertise in networking at the high end of the
computing spectrum, that is, the mainframe. This is an area where StorageTek
has historically been most active and successful. In addition, while there
are many other companies engaged in the computer networking business, Network
Systems appears to have a unique 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 $39.00
of StorageTek Stock on the NYSE composite tape on August 8, 1994, the day
before the public announcement of the Merger, the foregoing 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, 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, Network
Systems may terminate the obligation to consummate the Merger, unless
StorageTek agrees to make an Adjustment to the Exchange Ratio.
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 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
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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. StorageTek will list on the NYSE 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 are 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. 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 these officers, with the exception
of Mr. Altman, will continue to be employed by Network Systems following the
Merger. The Certificate of Incorporation and bylaws of Network Systems as in
effect at the Effective Time
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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 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
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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 intends to offer to enter 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 Agreement provides 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.
The maximum estimated value (assuming that (i) the Merger is
approved by the stockholders of Network Systems in December l994, and (ii)
all options are cashed out at a price of $39.00 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, $904,642; Michael F. G. Ashby, $1,037,633; Gary
S. Christensen, $762,526; Malcolm Reid, $643,672; Gerry Chastelet, $714,952;
William R. Franta, $546,750; Malcolm Hopping, $673,062; Michael D. Mancusi,
$570,086; Donald T. Pierce, $506,078; Warren L. Pillsbury, $580,398; Carl
Russo, $536,415; and Roger E. Weingarth, $484,425.
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 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
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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 _________ shares of Network
Systems Stock ("Options"), and (ii) the Stock Purchase Plan obligations of
Network Systems to issue _______ 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.
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.
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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 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.
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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 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
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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 is expected to expire on ________________, 1994); (b) approval of the
Merger by the requisite vote of the stockholders of Network Systems; (c)
effectiveness of the Registration Statement; (d) approval for listing upon
notice of issuance on the New York Stock Exchange of StorageTek Stock to be
issued in the Merger; (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
29
<PAGE>
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 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; (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, 1994, the parties agreed to amend several
provisions of the Merger Agreement.
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 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."
30
<PAGE>
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.
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 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 __, 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 is expected to expire on
_______________ __, 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.
31
<PAGE>
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 ______ 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 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.
32
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Balance Sheet
as of June 1994, and the related Unaudited Pro Forma Condensed Combined
Statements of Operations for the six months ended June 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.
33
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(In Thousands of Dollars)
<TABLE>
<CAPTION>
June 1994
----------------------------------------------------------------------
HISTORICAL PRO FORMA
--------------------------------- --------------------------------
StorageTek Network Systems Adjustments Combined
---------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
ASSETS
- ------
Cash and marketable securities $ 184,228 $ 35,462 $ 219,690
Accounts and notes receivable 257,260 75,225 $ (29,926) (a) 302,559
Net investment in sales-type leases 400,994 400,994
Inventories 262,274 23,759 286,033
Computer equipment, net 117,349 11,412 (a) 128,761
Spare parts, net 54,150 5,078 (b) 59,228
Property, plant and equipment, net 318,719 52,117 (5,078) (b) 365,758
Deferred income tax assets, net 52,425 18,830 260 (a) 57,818
(13,697) (c)
Other assets 140,733 95,319 236,052
------------- ------------ -------------- --------------
Total assets $1,788,132 $300,712 $ (31,951) $2,056,893
============= ============ ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Accounts payable and accrued liabilities $ 303,911 $ 37,887 $ (2,544) (a) $ 339,254
Other liabilities 11,209 30,589 (5,918) (c) 35,880
Convertible subordinated debentures 145,645 145,645
Nonrecourse borrowings 165,676 165,676
Other long-term debt 141,769 1,000 142,769
------------- ------------ -------------- --------------
Total liabilities 768,210 69,476 (8,462) 829,224
------------- ------------ -------------- --------------
Preferred stock 35 35
Common stock 4,395 607 187 (d) 5,189
Capital in excess of par value 1,434,443 114,434 (187) (d) 1,548,690
Accumulated earnings (deficit) (412,886) 117,710 (15,710) (a) (318,665)
(7,779) (c)
Other equity (6,065) (1,515) (7,580)
------------- ------------ -------------- --------------
Total stockholders' equity 1,019,922 231,236 (23,489) 1,227,669
------------- ------------ -------------- --------------
Total liabilities and stockholders' $1,788,132 $300,712 $ (31,951) $2,056,893
equity ============= ============ ============== ==============
</TABLE>
The accompanying notes are an integral part of the unaudited
pro forma condensed combined balance sheet.
34
<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 to the time of
customer acceptance, consistent with StorageTek's policy.
(b) To reclassify Network Systems' spare parts held for field service
consistent with StorageTek's accounting policy.
(c) To reflect StorageTek's tax position subsequent to the Merger relating
to the combined net deferred taxes under Statement of Financial
Accounting Standards ("SFAS") No. 109.
(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.
35
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 1994
----------------------------------------------------
HISTORICAL PRO FORMA
--------------------- -----------------------------
Network
StorageTek Systems Adjustments Combined
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 696,539 $ 118,402 $ 4,351 (a) $ 819,292
Cost of revenue 463,810 59,340 1,913 (a) 525,063
---------- --------- ----------- -----------
Gross margin 232,729 59,062 2,438 294,229
Other costs and expenses 235,954 54,913 370 (a) 291,237
---------- --------- ----------- -----------
Income (loss) before income taxes (3,225) 4,149 2,068 2,992
Provision for income taxes 2,000 1,550 750 (a) 4,300
---------- --------- ----------- -----------
Net income (loss) (5,225) 2,599 1,318 (1,308)
Preferred stock dividend 6,038 6,038
---------- --------- ----------- -----------
Income (loss) applicable to common $ (11,263) $ 2,599 $ 1,318 $ (7,346)
shares ========== ========= =========== ===========
Earnings (loss) per common share $ (0.26) $ 0.09 $ (0.14)
========== ========= ===========
Weighted average common
shares and equivalents 43,417 29,964 51,242
========== ========= ===========
</TABLE>
The accompanying notes are an integral part of the unaudited
pro forma condensed combined statement of operations.
36
<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
Other costs and
expenses 551,635 104,981 252 (a) 656,868
------------- ---------- --------- ------------
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
------------- ---------- --------- ------------
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.
37
<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
Other costs and expenses 449,712 150,473 426 (a) 600,611
------------- ----------- ------------ --------------
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.
38
<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
Other costs and expenses 412,231 79,019 (1,071) (a) 490,179
------------- ----------- ----------- ------------
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 equivalent $41,298 30,686 49,332
============= =========== ============
</TABLE>
The accompanying notes are an integral part of the unaudited
pro forma condensed combined statement of operations.
39
<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 to
the time of customer acceptance consistent with StorageTek's policy.
(b) To reflect the combined tax position as if the Merger had occurred at
the beginning of the earliest period presented.
(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 will be recognized
in the fourth quarter of 1994 associated with the Merger not to exceed
$10 million.
40
<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, 1994,
and July 1, 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 5,917 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.
41
<PAGE>
APPENDIX A
AGREEMENT
AND
PLAN OF MERGER
BY AND BETWEEN
STORAGE TECHNOLOGY CORPORATION,
STORAGETEK EAGLE CORPORATION
AND
NETWORK SYSTEMS CORPORATION
AUGUST 8, 1994
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
RECITALS................................................................. 1
ARTICLE I THE MERGER..................................................... 1
Section 1.01 The Merger.......................................... 1
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................................ 2
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............................................... 6
Section 2.01 Treatment of Stock Options.......................... 6
Section 2.02 Stockholder Approvals............................... 7
Section 2.03 Proxy Statement, Etc................................ 7
Section 2.04 Registration Statement.............................. 8
Section 2.05 Compliance with the Securities Act.................. 8
Section 2.06 Stock Exchange Listing.............................. 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ 9
Section 3.01 Corporate Organization.............................. 9
Section 3.02 Authorization....................................... 9
Section 3.03 Capitalization...................................... 9
</TABLE>
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C> <C>
Section 3.04 Affiliated Entities................................. 10
Section 3.05 SEC Reports and Financial Statements................ 11
Section 3.06 Absence of Certain Changes or Events................ 12
Section 3.07 Consents and Approvals; No Violation................ 12
Section 3.08 Undisclosed Liabilities............................. 13
Section 3.09 Taxes............................................... 13
Section 3.10 Title and Related Matters........................... 14
Section 3.11 Patents, Trademarks, and Other Intellectual
Property............................................ 15
Section 3.12 Material Contracts.................................. 16
Section 3.13 Litigation.......................................... 16
Section 3.14 Insurance........................................... 17
Section 3.15 Compliance with Laws................................ 17
Section 3.16 Employee Benefit Plans.............................. 17
Section 3.17 Employment Related Agreements....................... 18
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.......................... 21
Section 3.22 Certain Fees........................................ 22
Section 3.23 Disclosure.......................................... 22
Section 3.24 Proxy Statement, Etc................................ 22
Section 3.25 Accounts Receivable; Inventory; Goodwill;
and Leasing Transactions............................ 23
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C> <C>
Section 3.26 Post-Retirement and Post-Employment Benefit
Obligations......................................... 23
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PARENT AND
THE SUBSIDIARY........................................................ 23
Section 4.01 Corporate Organization.............................. 23
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.......................... 25
Section 4.06 Consents and Approvals; No Violations............... 26
Section 4.07 Litigation.......................................... 26
Section 4.08 Compliance with Laws................................ 27
Section 4.09 Registration Statement.............................. 27
Section 4.10 No Undisclosed Liabilities.......................... 28
Section 4.11 Disclosure.......................................... 28
ARTICLE V COVENANTS...................................................... 28
Section 5.01 Conduct of Business of the Company.................. 28
Section 5.02 No Solicitation..................................... 30
Section 5.03 Access to Information............................... 32
Section 5.04 Agreements of Affiliates............................ 32
Section 5.05 All Reasonable Efforts.............................. 32
Section 5.06 Public Announcements................................ 33
Section 5.07 Notification of Certain Matters..................... 33
Section 5.08 Indemnification and Insurance....................... 33
Section 5.09 Regulatory Approvals................................ 35
</TABLE>
iii
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C> <C>
Section 5.10 Pooling............................................. 36
Section 5.11 Employee Matters.................................... 36
Section 5.12 Other Matters....................................... 37
Section 5.13 Redemption of Rights................................ 37
Section 5.14 Disclosure Schedule Supplement and Review........... 38
ARTICLE VI CLOSING....................................................... 38
Section 6.01 Time and Place...................................... 38
Section 6.02 Deliveries at the Closing........................... 39
ARTICLE VII CONDITIONS TO THE MERGER..................................... 39
Section 7.01 Conditions to the Obligations of the
Parent, the Subsidiary and the Company.............. 39
Section 7.02 Additional Conditions to the Obligations of
the Parent and the Subsidiary....................... 40
Section 7.03 Additional Conditions to the Obligations of
the Company......................................... 41
ARTICLE VIII TERMINATION AND ABANDONMENT................................. 42
Section 8.01 Termination......................................... 42
Section 8.02 Fees and Expenses................................... 45
Section 8.03 Procedure and Effect of Termination................. 46
ARTICLE IX GENERAL PROVISIONS............................................ 46
Section 9.01 Amendment and Modification.......................... 46
Section 9.02 Waiver of Compliance; Consents...................... 47
Section 9.03 Validity............................................ 47
Section 9.04 Parties in Interest................................. 47
</TABLE>
iv
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page(s)
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<S> <C> <C>
Section 9.05 Survival of Representations, Warranties,
Covenants and Agreements............................ 47
Section 9.06 Notices............................................. 47
Section 9.07 Governing Law....................................... 48
Section 9.08 Counterparts........................................ 48
Section 9.09 Table of Contents and Headings...................... 48
Section 9.10 Entire Agreement.................................... 49
Section 9.11 Miscellaneous....................................... 49
</TABLE>
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of August 8, 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.
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
<PAGE>
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 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,
2
<PAGE>
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 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
3
<PAGE>
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 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
4
<PAGE>
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 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
5
<PAGE>
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.
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
6
<PAGE>
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 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
7
<PAGE>
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 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.
8
<PAGE>
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.
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
9
<PAGE>
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 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
10
<PAGE>
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.
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;
11
<PAGE>
(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.
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
12
<PAGE>
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 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,
13
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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.
(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,
14
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(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 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
15
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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 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
16
<PAGE>
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.
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
17
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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 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
18
<PAGE>
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 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
19
<PAGE>
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 (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
20
<PAGE>
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 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.
21
<PAGE>
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 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.
22
<PAGE>
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 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
23
<PAGE>
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 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
24
<PAGE>
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 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,
25
<PAGE>
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 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
26
<PAGE>
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 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
27
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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.
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
28
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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;
(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
29
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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 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
30
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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 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.
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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 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
32
<PAGE>
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 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
33
<PAGE>
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 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
34
<PAGE>
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 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
35
<PAGE>
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 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
36
<PAGE>
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 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).
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.
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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 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
38
<PAGE>
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
(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
39
<PAGE>
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.
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
40
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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 "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
41
<PAGE>
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 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
42
<PAGE>
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;
(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 August 26, 1994, and for two business days
thereafter, if on or prior to August 26, 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
43
<PAGE>
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 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 August 26, 1994, and for
two business days thereafter, if on or prior to August 26, 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 August 30, 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
44
<PAGE>
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.
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
45
<PAGE>
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.
(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.
46
<PAGE>
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 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:
47
<PAGE>
(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
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.
48
<PAGE>
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 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.
49
<PAGE>
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, CEO and President
------------------------------
STORAGETEK EAGLE CORPORATION
By: /s/ GREGORY A. TYMN
------------------------------
Its: Executive Vice President
------------------------------
NETWORK SYSTEMS CORPORATION
By: /s/ MICHAEL ASHBY
------------------------------
Its: Chief Operating Officer
------------------------------
EA942200.069/-1+
50
<PAGE>
LIST OF EXHIBITS
Exhibit A - Shareholder Agreement
Exhibit B - Affiliates Letters
Exhibit C - Ernst & Young Letter
<PAGE>
DISCLOSURE STATEMENT
<PAGE>
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Amendment to Agreement and Plan of Merger, dated as of August 25,
1994 (the "Amendment"), 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 Parent, the Subsidiary and the Company have entered into an
Agreement and Plan of Merger, dated as of August 8, 1994 (the "Agreement").
Section 8.01 of the Agreement provides that parties to the Agreement may
terminate the Agreement under certain circumstances. Subparagraphs 8.01(h) and
8.01(i) provide for termination if certain actions shall not have been completed
by August 26, 1994. With the exception of the consents and approvals required
by subclause (iii) of Section 8.01(h), none of the actions to be completed on or
before August 26, 1994 have been completed.
The Parent, the Subsidiary and the Company desire to amend Section
8.01(h) and Section 8.01(i) to allow additional time for the required actions to
be completed and to amend Section 5.12 to clarify the intention of the parties.
AMENDMENT
1. Amendment of Section 8.01(h) and Section 8.01(i). The Parent, the
------------------------------------------------
Subsidiary and the Company hereby amend Section 8.01(h) and Section 8.01(i) to
substitute the date September 9, 1994 in the place of and instead of the date
August 26, 1994 and the date September 13, 1994 in the place of and instead of
the date August 30, 1994 in each and every place where August 26, 1994 and
August 30, 1994, respectively, appear in said Sections 8.01(h) and 8.01(i).
2. Amendment of Section 5.12. The Parent, the Subsidiary and the
-------------------------
Company hereby amend Section 5.12 by adding the following at the end of said
Section:
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
<PAGE>
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.
NO OTHER AMENDMENT
Except as specifically amended herein by this Amendment, all other
provisions of the Agreement shall remain in full force and effect. This
Amendment shall not constitute or operate as a waiver of, or estoppel with
respect to, any provision of the Agreement by any party hereto.
COUNTERPARTS
This Amendment 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.
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, CEO and President
------------------------------
STORAGETEK EAGLE CORPORATION
By: /s/ W. RUSSELL WAYMAN
------------------------------
Its: Vice President
------------------------------
NETWORK SYSTEMS CORPORATION
By: /s/ MICHAEL ASHBY
------------------------------
Its: Chief Operating Officer
------------------------------
CA942360.131/3+
2
<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>
<TABLE>
<CAPTION>
Item 21.
(a) Exhibits
--------
Exhibit
Number Description
- ------ -----------
<S> <C>
2.1 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.
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.
23.4 Consent of General Counsel (included in Exhibit
5.1).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
24.1 Powers of Attorney for each person executing the
Registration Statement (included on Signature
Page).
99.1* Form of Proxy.
</TABLE>
(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.
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 Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of
Louisville, State of Colorado on the 1st day of September, 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
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears
below constitutes and appoints Ryal R. Poppa, Gregory A. Tymn and W. Russell
Wayman, and each of them (with full power to each of them to act alone), his
or her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities to sign on his or her behalf
individually and in each capacity stated below any amendment, including post-
effective amendments, to this Registration Statement, and to file the same,
with all exhibits thereto and other documents in connection therewith with
the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents and either of them, or their substitutes, may lawfully do or cause
to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/ RYAL R. POPPA Chairman of the Board, President and Chief September 1, 1994
- --------------------------- Executive Officer and Director (Principal
Ryal R. Poppa Executive Officer)
/S/ GREGORY A. TYMN
- --------------------------- Senior Vice President and Chief Financial September 1, 1994
Gregory A. Tymn Officer (Principal Financial Officer)
/S/ DAVID E. LACEY
- --------------------------- Corporate Vice President and Controller September 1, 1994
David E. Lacey (Principal Accounting Officer)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ JUDITH E.N. ALBINO
- --------------------------- Director September 1,1994
Judith E.N. Albino
/s/ WILLIAM L. ARMSTRONG
- --------------------------- Director September 1,1994
William L. Armstrong
/s/ ROBERT A. BURGIN
- --------------------------- Director September 1,1994
Robert A. Burgin
/s/ PAUL FRIEDMAN
- --------------------------- Director September 1,1994
Paul Friedman
/s/ STEPHEN J. KEANE
- --------------------------- Director September 1,1994
Stephen J. Keane
/s/ ROBERT E. LABLANC
- --------------------------- Director September 1,1994
Robert E. LaBlanc
/s/ ROBERT E. LEE
- --------------------------- Director September 1,1994
Robert E. Lee
/s/ DR. HARRISON SHULL
- --------------------------- Director September 1,1994
Dr. Harrison Shull
/s/ RICHARD C. STEADMAN
- --------------------------- Director September 1,1994
Richard C. Steadman
/s/ ROBERT C. WILSON
- --------------------------- Director September 1,1994
Robert C. Wilson
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Description Page
- ----------- ----------- ------------
<C> <S> <C>
2.1 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.........
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 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 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 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 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 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 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 by reference)............... *
5.1 Opinion of General Counsel.........................
23.1 Consent of Price Waterhouse LLP....................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Description Page
- ----------- ----------- ------------
<C> <S> <C>
23.2 Consent of KPMG Peat Marwick LLP...................
23.3 Consent of Ernst & Young LLP.......................
23.4 Consent of General Counsel.........................
24.1 Powers of Attorney for each person executing the
Registration Statement (included on Signature
Page)..............................................
99.1 Form of Proxy......................................
</TABLE>
(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
<PAGE>
Exhibit 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this 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
September 1, 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
September 1, 1994
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Storage Technology
Corporation for the registration of 8,533,146 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, 1994, filed with the Securities and Exchange Commission.
/s/ ERNEST & YOUNG LLP
- ------------------------
ERNEST & YOUNG LLP
Minneapolis, Minnesota
September 1, 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 _________________, 1994
The undersigned hereby appoints 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 __________________, 1994, at
the special meeting of stockholders to be held on _____________, 1994, 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:___________________________________, 1994
Please mark, sign, date and mail the proxy card
promptly using the return envelope.
