<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 10, 1995
REGISTRATION NO. 33-55343
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
POST EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
STORAGE TECHNOLOGY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 357 84-0593263
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
2270 SOUTH 88TH STREET
LOUISVILLE, COLORADO 80028-0001
(303) 673-5151
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
W. RUSSELL WAYMAN, ESQ.
STORAGE TECHNOLOGY CORPORATION
2270 SOUTH 88TH STREET
LOUISVILLE, COLORADO 80028-4309
(303) 673-4920
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
RICHARD A. STRONG MALCOLM REID BRUCE A. MACHMEIER
GIBSON, DUNN & CRUTCHER VICE PRESIDENT, GENERAL OPPENHEIMER WOLFF &
2029 CENTURY PARK EAST COUNSEL AND SECRETARY DONNELLY
SUITE 4000 NETWORK SYSTEMS 3400 PLAZA VII
LOS ANGELES, CALIFORNIA CORPORATION 45 S. SEVENTH STREET
90067 7600 BOONE AVENUE, N. MINNEAPOLIS, MINNESOTA
MINNEAPOLIS, MINNESOTA 55402
55428
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective and all other
conditions to the merger of a subsidiary of the Registrant with and into
Network Systems Corporation pursuant to the Agreement and Plan of Merger
described in the enclosed Proxy Statement/Prospectus have been satisfied or
waived.
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
STORAGE TECHNOLOGY CORPORATION
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
LOCATION OR CAPTION IN
ITEM IN FORM S-4 PROXY STATEMENT/PROSPECTUS
---------------- --------------------------
<C> <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............... Unaudited Pro Forma Condensed Combined
Financial Information Statements
6. Material Contacts with the Company
Being Acquired................... The Merger--Transactions Between
StorageTek and Network Systems
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to Be
Underwriters..................... Inapplicable
8. Interests of Named Experts and
Counsel.......................... Certain Legal Matters; Experts
9. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities.................. Inapplicable
10. Information with Respect to S-3
Registrants...................... Available Information; Information
Incorporated by Reference; Summary;
Recent Developments of Network
Systems
11. Incorporation of Certain
Information by Reference......... Incorporation of Certain Information
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
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;
Recent Developments of Network
Systems
19. Information if Proxies, Consents
or Authorizations are not to be
Solicited or in an Exchange
Offer............................ Inapplicable
</TABLE>
<PAGE>
[LOGO OF NETWORK SYSTEMS APPEARS HERE]
(R)
January 10, 1995
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
February 8, 1995, at 9:00 a.m., local time, at the Minneapolis Campus of the
University of St. Thomas (Thornton Auditorium, Second Floor), 1000 LaSalle
Avenue, 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 the 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,
/s/ Lyle D. Altman
Lyle D. Altman
Chairman of the Board
<PAGE>
[LOGO OF NETWORK SYSTEMS APPEARS HERE]
(R)
NETWORK SYSTEMS CORPORATION
7600 BOONE AVENUE NORTH, MINNEAPOLIS, MINNESOTA 55428
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
FEBRUARY 8, 1995
TO THE STOCKHOLDERS OF NETWORK SYSTEMS CORPORATION:
A Special Meeting of Stockholders (the "Meeting") of Network Systems
Corporation ("Network Systems") will be held at the Minneapolis Campus of the
University of St. Thomas (Thornton Auditorium, Second Floor), 1000 LaSalle
Avenue, Minneapolis, Minnesota, on February 8, 1995, at 9:00 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
January 6, 1995, 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
/s/ Malcolm Reid
Dated: January 10, 1995 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>
SPECIAL MEETING OF STOCKHOLDERS OF
NETWORK SYSTEMS CORPORATION TO BE HELD ON FEBRUARY 8, 1995
PROXY STATEMENT/PROSPECTUS
This Proxy Statement/Prospectus is being furnished to the holders of Network
Systems Common Stock, $.02 par value ("Network Systems Stock"), in connection
with the solicitation of proxies by the Board of Directors of Network Systems
for use at a special meeting of the stockholders of Network Systems (the
"Meeting") to be held at the Minneapolis Campus of the University of St. Thomas
(Thornton Auditorium, Second Floor), 1000 LaSalle Avenue, Minneapolis,
Minnesota, on February 8, 1995, at 9:00 a.m., local 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 $28.125 of StorageTek Stock on the New York Stock Exchange composite
tape on January 5, 1995, the Exchange Ratio would have resulted in Network
Systems' stockholders receiving approximately $7.363 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 7,956,671 shares of StorageTek Stock in exchange for all of the
Network Systems Stock outstanding at such time, which would constitute, as of
January 6, 1995, approximately 15% of the outstanding shares of StorageTek
Stock after giving effect to such issuance. StorageTek may also issue up to
approximately 515,332 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 January 9, 1995, and is first being
mailed to Network Systems' stockholders on or about January 10, 1995.
<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, as amended by Form 10-K/A filed on January 6, 1995.
2. Quarterly Reports on Form 10-Q for its fiscal quarters ended April
1, 1994, July 1, 1994 and September 30, 1994.
3. The description of the StorageTek Stock contained in the
registration statements on Form 8-A, dated August 13, 1981, August
20, 1990 and February 8, 1993.
i
<PAGE>
NETWORK SYSTEMS
1. Annual Report on Form 10-K for its fiscal year ended December 31,
1993, as amended by Form 10-K/A filed on January 6, 1995.
2. Quarterly Reports on Form 10-Q for its fiscal quarters ended March
31, June 30, and September 30, 1994, as amended by Form 10-Q/A filed
on January 6, 1995.
3. Current Reports on Form 8-K dated August 17, 1994 and January 6,
1995 and Amendments on Form 8-K/A dated January 17, 1994 and January
6, 1995 (both amending a current report on Form 8-K dated November
16, 1993).
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 JANUARY
27, 1995.
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............................... 7
Recent Developments of Network Systems................................. 8
Selected Unaudited Pro Forma Combined Financial Data................... 9
Selected Historical Consolidated Financial Data........................ 10
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 Sys-
tems' Board of Directors.............................................. 16
Opinion of Network Systems' Financial Advisor.......................... 19
StorageTek's Reasons for the Merger.................................... 23
Exchange of Shares; Fractional Shares; Adjustment of Exchange Ratio.... 24
No Appraisal Rights.................................................... 25
Management of Network Systems after the Merger; Interests of Certain
Persons in the Merger................................................. 25
Treatment of Network Systems Options and Employee Stock Purchase Plan.. 28
Transactions Between StorageTek and Network Systems.................... 28
Certain Federal Income Tax Consequences................................ 29
Comparison of Stockholder Rights....................................... 30
Accounting Treatment................................................... 31
Conditions for Merger and Other Provisions............................. 31
No Solicitation........................................................ 32
Merger and Consolidation Charges....................................... 33
Expenses; Topping Offer................................................ 33
Regulatory Approvals................................................... 33
Restrictions on Resale; Affiliate Agreements........................... 33
Operation Of Business Prior To Merger.................................. 34
Recent Developments of Network Systems................................... 34
Unaudited Pro Forma Condensed Combined Financial Statements.............. 36
Experts.................................................................. 44
Certain Legal Matters.................................................... 44
Adjournment of Meeting................................................... 44
Appendix A -- Restated Agreement and Plan of Merger, by and among Storage
Technology Corporation, StorageTek Eagle Corporation and Net-
work Systems Corporation, dated as of August 8, 1994, as
amended on August 25, 1994 and September 9, 1994, and Restated
on November 15, 1994.......................................... A-1
Appendix B --Opinion of Network Systems' Financial Advisor............... B-1
</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. Network Systems is a Delaware corporation. Its
principal executive offices are located at 7600 Boone Avenue North,
Minneapolis, Minnesota 55428, and its telephone number is (612) 424-4888.
Merger Agreement. StorageTek, StorageTek Eagle Corporation, a Delaware
corporation and a wholly-owned subsidiary of StorageTek ("Sub"), and Network
Systems entered into a Restated Agreement and Plan of Merger, dated August 8,
1994, as amended on August 25, 1994 and September 9, 1994 and restated on
November 15, 1994 (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 February 8, 1995, at 9:00 a.m., local time, at
the Minneapolis Campus of the University of St. Thomas (Thornton Auditorium,
Second Floor), 1000 LaSalle Avenue, Minneapolis, Minnesota (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 January 6, 1995 (the "Record Date"), are entitled to
notice of and to vote at the Meeting. On that date, 30,392,681 shares of
Network Systems Stock were outstanding.
Vote Required. Approval of the Merger requires the affirmative vote of the
holders of a majority of the outstanding shares of Network Systems Stock,
unless the Board of Directors of Network Systems withdraws its recommendation
to vote in favor of the Merger, in which case an affirmative vote of 80% of the
1
<PAGE>
outstanding shares of Network Systems Stock is required. The presence, in
person or by proxy, of the holders of a majority of the Network Systems Stock
is necessary to constitute a quorum at the Meeting for purposes of the vote of
the Network Systems Stock. All directors and executive officers and certain
other stockholders of Network Systems have agreed to vote the shares of Network
Systems Stock they hold for the approval of the Merger Agreement. These
stockholders own an aggregate of 1,019,746 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 $28.125 of StorageTek Stock on the New
York Stock Exchange ("NYSE") composite tape on January 5, 1995, the Exchange
Ratio would have resulted in Network Systems stockholders receiving
approximately $7.363 in market value of StorageTek Stock plus the Rights
Payment for each share of Network Systems Stock, if the Merger had been
effective on that date. Because the Exchange Ratio is fixed by the Merger
Agreement and the market price of StorageTek Stock is subject to fluctuation,
the market price of StorageTek Stock may increase or decrease prior to the
Merger, thereby increasing or decreasing the market value of the shares of
StorageTek Stock which Network Systems stockholders will receive in the Merger.
If the average closing price of StorageTek Stock on the NYSE composite tape for
the ten trading-day period ending two days prior to the Effective Time of the
Merger (the "Average Price") is below $30.37 per share, Network Systems may
terminate the Merger Agreement, unless StorageTek agrees to adjust the amount
of StorageTek Stock or provide cash, or a combination of both, so that the
aggregate value to be received for each share of Network Systems Stock is at
least $7.95 (an "Adjustment to the Exchange Ratio"). For purposes of the
foregoing calculation, the value of the StorageTek Stock shall be the Average
Price. StorageTek does not presently intend to make an Adjustment to the
Exchange Ratio if the Average Price for StorageTek for such period is below
$30.37 per share and Network Systems notifies StorageTek of its intention to
terminate the Merger Agreement. See "The Merger--Exchange of Shares; Fractional
Shares; Adjustment of Exchange Ratio" and "--No Appraisal Rights."
Exchange of Shares; Fractional Shares. If the Merger is consummated, the
exchange of Network Systems Stock for shares of StorageTek Stock and the Rights
Payment will be made upon surrender to American Stock Transfer & Trust Co., New
York, New York, as exchange agent (the "Exchange Agent"), of certificates for
the Network Systems Stock.
Fractional shares of StorageTek Stock will not be issued. Instead, each
Network Systems' stockholder will be paid cash equal to the fraction of a share
of StorageTek Stock which such Network Systems stockholder would otherwise be
entitled times the closing sales price of a share of StorageTek Stock as
reported on the New York Stock Exchange composite tape on the business day two
days prior to the date the Merger becomes effective.
NETWORK SYSTEMS STOCKHOLDERS WILL BE PROVIDED WITH TRANSMITTAL FORMS NEEDED
TO EXCHANGE THEIR SHARES PROMPTLY AFTER CONSUMMATION OF THE MERGER AND SHOULD
NOT SURRENDER ANY SHARES AT THIS TIME. See "The Merger--Exchange of Shares;
Fractional Shares; Adjustment of Exchange Ratio."
2
<PAGE>
Recommendation of Network Systems' Board of Directors.
The Network Systems Board believes that the Merger is fair to and in the best
interests of Network Systems and its stockholders and recommends that the
stockholders of Network Systems vote FOR approval of the Merger Agreement. In
reaching its conclusions to enter into the Merger Agreement and to recommend
approval of the Merger Agreement by the Network Systems stockholders at and
prior to the August 7 and 8, 1994 special meeting at which the Network Systems
Board approved the Merger Agreement, the Board considered, among other things,
(i) the recent trends in the networking industry which the Network Systems
Board determined were likely to result in a more competitive business
environment with many of the key players significantly larger in size and scope
of focus as compared to Network Systems; (ii) that Network Systems would
benefit from the greater resources, broader product lines, larger installed
base and economies of scale that a merger with a larger partner such as
StorageTek could provide to meet the competitive challenges of the marketplace
and to take advantage of an opportunity in the high-growth LAN switching and
ATM markets; (iii) the strategic and operating synergies that would result from
a merger with StorageTek; (iv) that as a result of the Merger, Network Systems
would benefit from increased access to StorageTek's large customer base,
increased credibility in the marketplace and a broader and higher level of
contact with existing and potential customers; (v) the amount of consideration
to be received by the stockholders of Network Systems and the fact that such
consideration represented a premium over the market price of Network Systems
Stock prevailing immediately prior to the announcement of the Merger; (vi) the
expectation that the Merger would afford the Network Systems stockholders the
opportunity to receive StorageTek Stock in a non-taxable transaction; (vii) the
fact that the form of consideration to be received in the Merger would allow
the stockholders of Network Systems to continue to share in potential growth or
gains from an investment in Network Systems through the ownership of StorageTek
Stock; (viii) the opinion of Needham that the consideration to be received in
the Merger is fair, from a financial point of view, to the stockholders of
Network Systems; and (ix) the fact that the structure of the Merger was not
designed to exclude additional bona fide bids to acquire Network Systems.
Although the price of StorageTek Stock is currently significantly below its
level on the date on which the Network Systems Board approved the Merger
Agreement, after further consideration of the Merger the Network Systems Board
on January 5, 1995 unanimously reaffirmed its view that the Merger is fair to
and in the best interests of Network Systems and its stockholders. In
reaffirming its decision to enter into the Merger Agreement, the Board of
Directors of Network Systems considered the various factors it had weighed in
reaching its original decision concerning the Merger as well as, among other
things: (i) that no other party has approached Network Systems or its advisors
with a competing offer to acquire Network Systems, although the Merger was
publicly announced in August 1994, (ii) based on Network Systems' operating
results for the third quarter of 1994, the expected shortfall in both its
revenues and earnings for the fourth quarter of 1994 and the prospects of
Network Systems for 1995, the value of Network Systems as an independent entity
is lower than the value immediately prior to the execution of the Merger
Agreement on August 8, 1994, and (iii) considering the operating plans for
Network Systems and StorageTek and the 1995 earnings prospects for both
companies, the Network Systems Board of Directors believes that there is less
risk and greater opportunity to the stockholders of Network Systems in
receiving the Merger consideration than in continuing to own stock of Network
Systems as an independent entity. In connection with its further review of the
fairness of the Merger, the Network Systems Board of Directors received an
updated opinion from Needham as to the fairness, from a financial point of
view, to the Network Systems stockholders of the consideration to be received
in the Merger. After the mailing of this Proxy Statement/Prospectus and prior
to the Network Systems stockholder meeting called to consider the Merger, the
Board of Network Systems will consider the fairness of the Merger to Network
Systems and its stockholders in light of circumstances as they may change
during this period and may seek an updated fairness opinion from Needham. In
the event that the Network Systems Board, after the mailing of this proxy
statement in the exercise of its fiduciary duties, determines that it must
withdraw its recommendation and recommend against the approval of the Merger,
it will communicate its changed recommendation to the Network Systems
stockholders in supplemental proxy materials. See "The Merger--Network Systems'
Reasons for the Merger; Recommendation of Network Systems' Board of Directors."
3
<PAGE>
Opinion of Network Systems' Financial Advisor.
Needham & Company, Inc. ("Needham") was retained by Network Systems to render
its opinion as to the fairness, from a financial point of view, to the Network
Systems stockholders, of the consideration to be received in connection with
the Merger. On August 7, 1994, at the meeting of the Network Systems Board of
Directors at which the Board approved the Merger Agreement, Needham delivered
its opinion, subsequently confirmed in writing, that the consideration to be
received by the Network Systems stockholders pursuant to the Merger Agreement
was fair to the Network Systems stockholders from a financial point of view. On
January 5, 1995, Needham delivered to the Board of Directors its updated
opinion that the consideration to be received by the Network Systems
stockholders pursuant to the Merger Agreement is fair to the stockholders from
a financial point of view. The full text of the written opinion of Needham is
set forth as Appendix B to this Proxy Statement/Prospectus and should be read
in its entirety. See "The Merger--Opinion of Network Systems' Financial
Advisor."
No Appraisal Rights. Under Delaware law, Network Systems stockholders will
not be entitled to any appraisal or dissenter's rights in connection with the
Merger. See "The Merger--No Appraisal Rights."
Accounting Treatment. It is intended that the Merger qualify as a "pooling of
interests" for accounting purposes. It is a condition to the obligation of
StorageTek to consummate the Merger that StorageTek shall have received from
its auditors, Price Waterhouse LLP, a letter confirming that the Merger, if
consummated, can properly be accounted for as a "pooling of interests" in
accordance with generally accepted accounting principles. While under the terms
of the Merger Agreement StorageTek may waive this condition, it has no current
intention of so doing. See "The Merger--Conditions for Merger and Other
Provisions;" and "--Accounting Treatment."
Certain Federal Income Tax Consequences. The Merger is expected to qualify as
a tax-free reorganization under Sections 368(a)(1)(A) and 368(a)(2)(E) of the
Internal Revenue Code of 1986, as amended. However, no ruling will be requested
from the Internal Revenue Service (the "IRS") as to the federal income tax
consequences of the Merger, and consummation of the Merger is not conditioned
on the receipt of opinions from counsel as to such consequences. Further, cash
received in lieu of fractional shares, pursuant to an Adjustment to the
Exchange Ratio or in connection with the Rights Payment, will be taxable.
Holders of Network Systems Stock should consult with their own tax advisors
regarding the federal, state, local and foreign tax consequences of the Merger.
See "The Merger--Certain Federal Income Tax Consequences."
Management of Network Systems after the Merger; Interests of Certain Persons
in the Merger. Following the Merger, Network Systems will be the surviving
corporation and a wholly-owned subsidiary of StorageTek. Upon consummation of
the Merger, the directors of Sub immediately prior to the Merger will be the
initial directors of the surviving corporation and the officers of Network
Systems immediately prior to the Merger will continue initially as the officers
of the surviving corporation to the extent they elect to continue their
employment with Network Systems. StorageTek, in consultation with senior
officers of Network Systems, is currently reviewing the status of Network
Systems' existing officers following the Merger. It is currently anticipated
that the majority of these officers will continue their employment with Network
Systems following the Merger. Each of the executive officers of Network Systems
is party to an agreement that provides for certain payments and benefits if the
employment of such executive officer is terminated involuntarily or by the
executive officer for good reason following approval of the Merger Agreement by
the stockholders of Network Systems. The Merger Agreement also provides that,
upon satisfaction of certain conditions, for at least six years after the
Effective Time, StorageTek shall indemnify, and advance expenses to the
directors and executive officers of Network Systems to the full extent provided
by applicable law and Network Systems' bylaws with respect to matters arising
out of actions or omissions occurring on, or prior to, the Effective Time,
including with respect to the Merger, and that StorageTek shall cause to be
maintained in effect for
4
<PAGE>
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, for the ten
trading day period ending two trading days prior to the Effective Time, is less
than $30.37 per share, and StorageTek does not agree to make an Adjustment to
the Exchange Ratio (a "Market Out") or (ii) the Board of Directors of Network
Systems exercises its right to accept a "Topping Offer" from a third party (as
defined below). StorageTek does not presently intend to make an Adjustment to
the Exchange Ratio if the Average Price for StorageTek Stock for such period is
below $30.37 per share and Network Systems notifies StorageTek of its intention
to terminate the Merger Agreement.
See "The Merger--Conditions for Merger and Other Provisions," "--Exchange of
Shares; Fractional Shares; Adjustment of Exchange Ratio" and "--Expenses;
Topping Offer."
Fees and Expenses. If (i) the obligation to consummate the Merger is
terminated pursuant to the Merger Agreement; (ii) Network Systems has engaged
in any negotiations with a third party for any type of acquisition proposal,
merger or stock sale relating to Network Systems during the period beginning
February 22, 1994 and ending on the date of the termination specified in (i);
and (iii) Network Systems completes a transaction with a third party which was
initiated prior to six months after the date of such termination, and when
combined with any dividends or distributions declared after August 8, 1994, and
the value of any rights retained by holders of Network Systems Stock, yields
more than $10.00 of value to holders of Network Systems Stock (a "Topping
Offer"), then Network Systems will pay StorageTek a fee of $16 million and
reimburse it for all reasonable expenses and fees incurred in connection with
the Merger.
In addition, if Network Systems terminates the obligation to consummate the
Merger because of a Market Out, Network Systems will pay StorageTek a fee of $5
million. In all other circumstances, the parties have agreed that each party
incurring expenses in connection with the Merger shall pay the respective
expenses incurred by them. See "The Merger--Expenses; Topping Offer."
5
<PAGE>
No Solicitation. Network Systems will not directly or indirectly solicit,
encourage or, except as may be necessary to fulfill the fiduciary duties of the
directors of Network Systems, recommend the approval of any offer from, or
provide any confidential information to, any entity other than StorageTek
relating to the acquisition of Network Systems. If the Board of Directors of
Network Systems receives a bona fide offer and determines, in the exercise of
its fiduciary duty, that such offer will result in a transaction more favorable
to the Network Systems stockholders from a financial point of view than the
transaction contemplated by the Merger Agreement and StorageTek does not make,
within seven business days after receiving notice of such offer, an offer that
Network Systems deems is superior to such offer, Network Systems may terminate
the Merger Agreement and pay to StorageTek a fee of $16 million plus reimburse
StorageTek for all of its expenses. Network Systems agreed to promptly notify
StorageTek of any such bona fide offer. See "The Merger--No Solicitation."
Effective Time of the Merger. If the Merger Agreement is approved and adopted
at the Meeting, and all other conditions to the Merger have been met or waived,
the parties expect the Merger to be effective on the day of the Meeting or
shortly thereafter upon the filing of a Certificate of Merger with the Delaware
Secretary of State. The time of such filing is referred to in this Proxy
Statement/Prospectus as the "Effective Time."
Merger and Consolidation Charges. One-time merger and consolidation charges
of between $6 and $8 million are expected to be recognized at the time the
merger is consummated. These one-time charges may have a material impact on the
results of operations in the quarter the merger is consummated, however, the
charges are not expected to materially impact StorageTek's liquidity. See
"Unaudited Pro Forma Condensed Combined Financial Statements."
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 Board 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 1,019,746 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 1,968,422 shares of
Network Systems Stock ("Options"). The vesting of the Options will accelerate
upon consummation of the transactions contemplated by the Merger Agreement and,
to the extent not exercised prior to the Effective Time, will be exercisable
for that number of shares of StorageTek Stock (with fractions rounded up to the
nearest full share) equal to the number of shares of Network Systems Stock
issuable with respect to the Option multiplied by the Exchange Ratio, at an
exercise price equal to the exercise price of the Option divided by the
Exchange Ratio. Also, each participant in the Network Systems 1989 Employee
Stock Purchase Plan (the "Stock Purchase Plan") will have the right as of March
31, 1995, to purchase shares of StorageTek Stock pursuant to the terms of the
Stock Purchase Plan (by crediting amounts in each participant's individual
account under the Stock Purchase Plan) at the lesser of 85% of (a) $24.35 (the
fair market value of one share of Network Systems Stock on April 1, 1994,
divided by the Exchange Ratio), and (b) the fair market value of one share of
StorageTek Stock on March 31, 1995. As of the Record Date, there were aggregate
individual contributions under the Stock Purchase Plan to purchase 37,336
shares of Network Systems Stock (using a purchase price based on the fair
market value of Network Systems Stock on April 1, 1994).
6
<PAGE>
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 12, 1994, StorageTek and Network Systems
each filed a notification and report under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 ("HSR Act") with the Federal Trade Commission and the
Antitrust Division of the Department of Justice. The applicable waiting period
under the HSR Act expired on October 12, 1994. See "The Merger--Regulatory
Approvals." Neither StorageTek nor Network Systems is aware of any other
governmental or regulatory approval required for consummation of the Merger,
other than compliance with applicable securities laws.
COMPARATIVE PER SHARE MARKET INFORMATION
StorageTek Stock is traded on the New York Stock Exchange ("NYSE") under the
symbol STK. Network Systems Stock is traded on the NASDAQ National Market
System ("NMS") under the symbol NSCO. The table below reflects the high and low
closing sales prices of StorageTek Stock on the NYSE composite tape as reported
by The Wall Street Journal (Western Edition) for the periods indicated and the
highest bid and lowest asked prices for Network Systems Stock as reported on
the NMS.
<TABLE>
<CAPTION>
STORAGETEK NETWORK
STOCK SYSTEMS STOCK
--------------- ---------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
FISCAL YEAR ENDING DECEMBER 1994
1st Quarter................................... $40.625 $31.250 $ 9.375 $ 7.375
2nd Quarter................................... 34.125 25.125 8.000 6.375
3rd Quarter................................... 39.000 28.750 9.125 6.688
4th Quarter................................... 31.000 26.625 7.875 6.453
FISCAL YEAR ENDING DECEMBER 1993
1st Quarter................................... $27.250 $18.625 $13.500 $ 9.875
2nd Quarter................................... 44.000 23.375 10.500 8.125
3rd Quarter................................... 41.125 24.500 9.875 6.875
4th Quarter................................... 33.625 25.000 9.375 7.500
FISCAL YEAR ENDING DECEMBER 1992
1st Quarter................................... $76.625 $39.625 $20.000 $12.250
2nd Quarter................................... 63.125 29.125 13.250 8.500
3rd Quarter................................... 37.625 26.625 13.000 9.625
4th Quarter................................... 32.000 19.625 15.750 10.250
</TABLE>
On August 8, 1994, the business day prior to the public announcement of the
execution of the Merger Agreement, the reported closing sale price per share of
StorageTek Stock on the NYSE composite tape was $39.00, and the closing price
per share of Network Systems Stock, as reported by the NMS, was $8.25. Based on
these prices, the Exchange Ratio would have resulted in Network Systems'
stockholders receiving approximately $10.21 in market value of StorageTek Stock
(plus the Rights Payment of $.05) for each share of Network Systems Stock.
7
<PAGE>
On January 5, 1995, two 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 $28.125 per share and the closing price per share
of Network Systems Stock as reported by the NMS was $7.00 per share. Based on
these prices, the Exchange Ratio would have resulted in Network Systems'
stockholders receiving approximately $7.363 in market value of StorageTek Stock
(plus the Rights Payment of $.05) for each share of Network Systems Stock.
Stockholders are advised to obtain current market quotations for StorageTek
Stock and Network Systems Stock. No assurance can be given as to the market
price of StorageTek Stock or Network Systems Stock at the Effective Time.
Neither StorageTek nor Network Systems has paid any cash dividends on its
common stock and StorageTek currently plans to continue to retain earnings for
use in its business.
Comparison of Stockholder Rights. Both StorageTek and Network Systems are
Delaware corporations which do not provide for preemptive rights or cumulative
voting. Network Systems' Certificate of Incorporation, unlike StorageTek's
Certificate of Incorporation, provides for a staggered board of directors, does
not allow shareholders to call a special meeting of shareholders and contains
provisions requiring supermajority approval of certain transactions.
RECENT DEVELOPMENTS OF NETWORK SYSTEMS
On December 19, 1994, Network Systems' Board of Directors approved an expense
reduction plan in an effort to reduce costs to a level supportable by
anticipated revenues. The plan is expected to result in a single line item
charge during the fourth quarter of 1994 of approximately $8 million. Network
Systems expects to carry out this expense reduction plan regardless of whether
the contemplated merger with Storage Technology Corporation proceeds.
The significant components of the expected fourth quarter charge include an
accrual of approximately $3.4 million for the severance of approximately 140
employees; an accrual of approximately $1.9 million for future lease
commitments, net of estimated future sublease rental income, associated with
excess lease space; a writedown of approximately $2.4 million associated with
equipment, leasehold improvements and repair parts to be abandoned and $0.3
million of other miscellaneous exit costs. Stockholders' Equity will be
correspondingly reduced by $8.0 million as of December 31, 1994.
The plan is expected to result in reduced operating expenses of approximately
$9.8 million in 1995, consisting of reduced payroll, lease and depreciation
expense of $8.0 million, $1.3 million and $0.5 million, respectively. The plan
is expected to result in reduced operating expenses of $10.4 million in 1996,
consisting of reduced payroll, lease and depreciation expense of $8.6 million,
$1.3 million and $0.5 million, respectively.
The majority of the $3.4 million of severance accruals are expected to be
paid during the first quarter of 1995. With respect to the expected long-term
effects of the expense reduction plan on Network System's cash flows, the plan
is expected to result in cash savings of approximately $5.5 million and $7.7
million in 1995 and 1996, respectively, principally in the form of reduced
payroll, net of the estimated severance payments.
The above estimates of expense reductions and cash savings are estimated
based on the available information and certain assumptions that Network Systems
believes are reasonable in the circumstances. There can be no assurance,
however, that these savings can be achieved.
StorageTek has reviewed the expense reduction plan, as outlined under the
heading "Expense Reduction Plan" in Network Systems' Form 8-K filed on January
6, 1995, and does not anticipate this plan will have a material effect on the
combined companies' financial position, results of operations, or liquidity
subsequent to consummation of the Merger.
8
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following selected unaudited pro forma combined financial data has been
derived using the historical consolidated financial statements of StorageTek
and of Network Systems incorporated by reference herein. This unaudited pro
forma combined financial data gives effect to the Merger pursuant to the Merger
Agreement under the pooling of interests method of accounting and assumes the
Merger occurred on the first day of the earliest period presented. This
unaudited pro forma combined financial data is provided for comparative
purposes only and does not purport to be indicative of the results which
actually would have been obtained if the Merger had been effected for the
periods indicated or results which may be obtained in the future.
This unaudited pro forma combined financial data should be read in
conjunction with the historical consolidated financial statements of StorageTek
and Network Systems, and notes thereto, and the Unaudited Pro Forma Condensed
Combined Financial Statements, and notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER YEAR ENDED DECEMBER
--------------------- ------------------------------------
1994 1993 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................. $1,288,854 $1,159,013 $1,617,691 $1,774,325 $1,807,541
Income (loss) before ac-
counting change........ 17,336 (114,525)* (121,461)* (33,242)* 98,364*
Earnings (loss) per com-
mon share, before ac-
counting change:
Combined per StorageTek
common share (a)...... 0.16 (2.40) (2.59) (0.66) 1.99
Combined per Network
Systems Stock
equivalent (b)........ 0.04 (0.63) (0.68) (0.17) 0.52
BALANCE SHEET DATA:
Total assets............ 2,105,327 2,034,506 2,064,851 2,011,007 2,055,897
Total debt.............. 501,460 434,709 469,490 477,747 514,089
Book value per common
share:
Combined per StorageTek
common share (a)...... 20.56 20.52
Combined per Network
Systems Stock
equivalent (b)........ 5.38 5.37
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------
1994 1993
--------------------------- -----------------------------------------
SEPTEMBER JUNE MARCH DECEMBER SEPTEMBER JUNE MARCH
--------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................. $469,562 $421,104 $398,188 $458,678 $ 352,581 $409,948 $396,484
Income (loss) before ac-
counting change........ 18,644 15,720 (17,028) (6,936)* (122,599)* (2,044) 10,118
Earnings (loss) per
common share, before
accounting change:
Combined per StorageTek
common share (a)...... 0.30 0.24 (0.39) (0.20) (2.48) (0.10) 0.18
Combined per Network
Systems Stock
equivalent (b)........ 0.08 0.06 (0.10) (0.05) (0.65) (0.03) 0.05
</TABLE>
- --------
* In 1993, 1992 and 1991, restructuring, acquisition, and acquired research and
development costs of $90,414,000, $60,310,000 and $5,104,000, respectively,
were recognized on a combined basis.
See additional Notes to Selected Financial Data.
9
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following unaudited selected historical financial data has been derived
using the historical consolidated financial statements of StorageTek and
Network Systems incorporated by reference herein. This unaudited historical
financial data should be read in conjunction with the historical consolidated
financial statements of StorageTek and Network Systems, and notes thereto.
STORAGETEK
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER YEAR ENDED DECEMBER
--------------------- --------------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue.................. $1,108,813 $1,004,553 $1,404,752 $1,550,945 $1,619,520 $1,594,804 $1,339,982
Income (loss) before
extraordinary items and
accounting change....... 13,325 (124,141)* (117,796)* 9,334 89,812* 95,384 56,345
Net income (loss)........ 13,325 (84,141)(c) (77,796)(c) 9,334 89,812 94,080(d) 67,645(e)
EARNINGS (LOSS) PER COM-
MON SHARE:
Income (loss) before
extraordinary items and
accounting change...... 0.10 (3.06) (2.98) 0.22 2.17 2.63 1.85
Net income (loss)....... 0.10 (2.13) (2.05) 0.22 2.17 2.59 2.22
BALANCE SHEET DATA:
Total assets............. 1,841,531 1,768,426 1,793,009 1,739,043 1,735,651 1,489,407 1,259,107
Total debt............... 500,460 433,709 468,490 476,747 511,230 574,496 559,354
Book value per common
share................... 19.70 19.50 19.62 21.79 21.50 17.69 14.60
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------
1994 1994
--------------------------- ---------------------------------------
SEPTEMBER JUNE MARCH DECEMBER SEPTEMBER JUNE MARCH
--------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................. $412,274 $360,916 $335,623 $400,199 $307,058 $358,503 $338,992
Income (loss) before
extraordinary items and
accounting change...... 18,550 14,363 (19,588) 6,345 (122,877)* (5,281) 4,017
Net income (loss)....... 18,550 14,363 (19,588) 6,345 (122,877) (5,281) 44,017(c)
EARNINGS (LOSS) PER COM-
MON SHARE:
Income (loss) before
extraordinary items
and accounting change. 0.35 0.26 (0.52) 0.08 (2.94) (0.19) 0.08
Net income (loss)...... 0.35 0.26 (0.52) 0.08 (2.94) (0.19) 1.00
</TABLE>
- --------
* In 1993 and 1991, StorageTek recognized restructuring and other charges of
$74,772,000 and $5,104,000, respectively.
See additional Notes to Selected Financial Data.
10
<PAGE>
NETWORK SYSTEMS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER YEAR ENDED DECEMBER
----------------- -----------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................. $176,426 $148,448 $215,558 $219,118 $198,728 $163,638 $144,789
Net income (loss)....... 2,705 7,284 2,207* (39,674)* 15,214 21,973 17,327
Earnings (loss) per
common share........... 0.09 0.24 0.07 (1.31) 0.50 0.74 0.59
BALANCE SHEET DATA:
Total assets............ 295,821 284,223 305,481 293,425 342,811 293,268 263,500
Total debt.............. 1,000 1,000 1,000 1,000 2,859 2,892 2,923
Book value per common
share.................. 7.65 7.69 7.52 7.57 9.09 8.38 7.53
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------
1994 1993
------------------------- ------------------------------------
SEPTEMBER JUNE MARCH DECEMBER SEPTEMBER JUNE MARCH
--------- ------- ------- -------- --------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................. $58,024 $60,088 $58,314 $67,110 $53,340 $49,061 $46,047
Net income (loss)....... 106 1,400 1,199 (5,077)* 2,578 2,314 2,392
Earnings (loss) per
common share........... 0.00 0.05 0.04 (0.17) 0.09 0.08 0.08
</TABLE>
- --------
* Network Systems recognized acquisition, restructuring, and acquired research
and development costs in 1993 and 1992 of $15,642,000 and $60,310,000,
respectively.
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 February 8, 1995, at 9:00 a.m., local time, at
the Minneapolis Campus of the University of St. Thomas (Thornton Auditorium,
Second Floor), 1000 LaSalle Avenue, Minneapolis, Minnesota, 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 January 10, 1995.
RECORD DATE; VOTING RIGHTS; VOTE REQUIRED
The close of business on January 6, 1995 (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 30,392,681 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
(15,196,341 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 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
12
<PAGE>
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
1,019,746 shares of Network Systems Stock (approximately 3% of the Network
Systems Stock entitled to be voted at the Meeting). See "The Merger--Management
of Network Systems after the Merger; Interests of Certain Persons in the
Merger."
PROXY SOLICITATION
All properly completed proxies received at or prior to the Meeting and which
have not been revoked will be voted at the Meeting in accordance with the
instructions contained therein. Proxies solicited by the Board of Directors of
Network Systems which contain no instructions regarding the proposal specified
in the form of proxy will be voted FOR the approval and adoption of the Merger
Agreement. Execution and delivery of a proxy will not prevent a stockholder
from attending the Meeting and voting in person. A stockholder who has executed
and returned the enclosed proxy may revoke it at any time before it is voted,
but only by executing and returning a proxy bearing a later date, by giving
written notice of revocation to the Secretary of Network Systems bearing a
later date than the proxy, or by attending the Meeting and voting in person.
Attendance at the Meeting will not by itself revoke the proxy. Certain
directors, executive officers and other stockholders of Network Systems have
agreed to vote the shares of Network Systems Stock they hold in favor of the
Merger. See "The Merger--Management of Network Systems after the Merger;
Interests of Certain Persons in the Merger."
The cost of solicitation of the holders of Network Systems Stock will be paid
by Network Systems. In addition to the solicitation of proxies by use of mail,
the directors, officers and employees of Network Systems may solicit proxies
personally or by telephone, telegraph or facsimile transmission. Such
directors, officers and employees will not be additionally compensated for such
solicitation but may be reimbursed for out-of-pocket expenses incurred in
connection therewith. Network Systems has retained Morrow & Co., Inc. to assist
in the solicitation of proxies at a cost to Network Systems of approximately
$15,000 plus customary expenses.
13
<PAGE>
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.
14
<PAGE>
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 continue negotiations. Further
negotiations ensued between StorageTek and Network Systems (including their
respective legal and financial advisors).
15
<PAGE>
On August 7, 1994, a meeting of the Finance and Acquisition Committee of
StorageTek's Board met again to consider the proposed merger and to comment on
the terms of the Merger Agreement. Later that day, the Finance and Acquisition
Committee recommended that StorageTek's full Board approve the transaction, and
StorageTek's Board of Directors approved the Merger Agreement on August 7,
1994.
On August 7, 1994, a special meeting of the Board of Directors of Network
Systems was also convened to consider the proposed Merger Agreement. At this
meeting, senior management discussed with the Network Systems' Board the
negotiations that had led to the proposal, the status of the due diligence
review of the business of StorageTek, and the benefits to Network Systems and
its stockholders from the proposed combination. Needham discussed the financial
aspects of the proposed business combination and the procedures that it had
undertaken and would continue to undertake to evaluate the proposal from a
financial point of view and addressed questions from the Network Systems' Board
members. Legal counsel made a presentation regarding the structure of the
proposed transaction and the negotiations surrounding the drafting of the
Merger Agreement. At the conclusion of its presentation, Needham delivered its
oral opinion (which it subsequently confirmed in writing) to the effect that,
as of such date, the consideration to be received by the Network Systems
stockholders pursuant to the Merger Agreement was fair to the stockholders of
Network Systems from a financial point of view. Following considerable further
discussion of the terms of the proposed transaction, including the exchange
ratio, the Board of Directors of Network Systems unanimously approved the
Merger Agreement, subject to the resolution of certain remaining issues.
On August 8, 1994, senior management of Network Systems and StorageTek
further negotiated these remaining issues, after which Network Systems' Board
and a special Merger Agreement Committee of the StorageTek Board held
telephonic meetings to consider and discuss the resolution of these issues,
and, after discussion and review with their respective financial and legal
advisors, both Network Systems' Board and the Merger Agreement Committee of
StorageTek's Board approved the recommended resolution of the remaining issues
and authorized the executive officers of their respective companies to finalize
and execute the Merger Agreement.
On August 8, 1994, Network Systems and StorageTek executed the Agreement and
Plan of Merger, which was amended on August 25, 1994 and September 9, 1994 to
extend certain deadlines set forth for certain conditions and clarify certain
matters.
NETWORK SYSTEMS' REASONS FOR THE MERGER; RECOMMENDATION OF NETWORK SYSTEMS'
BOARD OF DIRECTORS
The Board of Directors of Network Systems believes that the Merger is fair to
and in the best interests of Network Systems and its stockholders. THE MEMBERS
OF THE NETWORK SYSTEMS BOARD ALSO RECOMMENDED THAT STOCKHOLDERS OF NETWORK
SYSTEMS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
In reaching its conclusions to enter into the Merger Agreement and to
recommend approval of the Merger Agreement by the Network Systems stockholders,
at and prior to the August 7 and 8, 1994 special meeting at which the Network
Systems Board approved the Merger Agreement, the 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
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
16
<PAGE>
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."
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."
17
<PAGE>
SUBSEQUENT TO THE EXECUTION OF THE MERGER AGREEMENT ON AUGUST 8, 1994, THE
PRICE OF STORAGETEK STOCK HAS DROPPED SIGNIFICANTLY. WHILE THE CLOSING PRICE OF
STORAGETEK STOCK ON AUGUST 8, 1994 WAS $39.00, INDICATING THAT THE THEN VALUE
OF THE MERGER CONSIDERATION WAS $10.21 FOR EACH SHARE OF NETWORK SYSTEMS STOCK,
ON JANUARY 5, 1995 THE CLOSING PRICE OF STORAGETEK STOCK WAS $28.125,
INDICATING THAT THE VALUE OF THE MERGER CONSIDERATION CURRENTLY IS $7.363 (PLUS
THE RIGHTS PAYMENT OF $.05) PER NETWORK SYSTEMS SHARE. BECAUSE OF THESE AND
OTHER CHANGED CIRCUMSTANCES SINCE THE EXECUTION OF THE MERGER AGREEMENT, THE
BOARD OF DIRECTORS OF NETWORK SYSTEMS PRIOR TO THE MAILING OF THIS PROXY
STATEMENT AGAIN CONSIDERED THE VALUE OF THE CONSIDERATION OFFERED BY STORAGETEK
IN THE MERGER.
In considering the value of the Merger consideration in light of these
changed circumstances, the Board considered that StorageTek has stated that it
does not presently intend to increase the value of the Merger consideration. If
the Average Price of StorageTek Stock during the period before the Effective
Time of the Merger is less than $30.37 per share, Network Systems could notify
StorageTek of Network Systems' intent to terminate the Merger. Although
StorageTek would then have the right to avoid such termination by increasing
the value received for each share of Network Systems Stock to at least $7.95,
StorageTek has stated that it does not presently intend to make such an
adjustment. Thus, it appears likely that the value to be received by Network
Systems' stockholders in the Merger will not be any greater than the value of
the shares of StorageTek Stock to be received under the existing Exchange Ratio
at the Effective Time of the Merger (plus the Rights Payment of $.05 per
share).
Based on its further consideration of the Merger, the Network Systems Board
on January 5, 1995 unanimously reaffirmed its view that the Merger is fair to
and in the best interests of Network Systems and its stockholders.
In reaffirming its decision to enter into the Merger Agreement, the Board of
Directors of Network Systems considered the various factors (summarized above)
it had considered in reaching its original decision concerning the Merger. The
Board found that these reasons continue to be valid, except that the
consideration to be received by Network Systems stockholders now is likely to
represent a discount rather than a premium when compared with the market price
of Network Systems Stock prevailing immediately prior to the announcement of
the Merger. In reaching its conclusion to reaffirm the fairness of the Merger
to Network Systems and its stockholders the Network Systems Board considered a
number of additional factors, including, without limitation, the following:
1. Although the Merger was publicly announced in August 1994, no other party
has approached Network Systems or its advisors with a competing offer to
acquire Network Systems.
2. Based on Network Systems' operating results for the third quarter of
1994, the expected shortfall in both its revenues and earnings for the fourth
quarter of 1994 and the prospects of Network Systems for 1995, the value of
Network Systems as an independent entity is lower than the value immediately
prior to the execution of the Merger Agreement on August 8, 1994.
3. Considering the operating plans for Network Systems and StorageTek and the
1995 earnings prospects for both companies, the Network Systems Board of
Directors believes that there is less risk and greater opportunity to the
stockholders of Network Systems in receiving the Merger consideration than in
continuing to own stock of Network Systems as an independent entity. As an
independent company, Network Systems would continue to confront alone the
challenges in the networking industry resulting from increasing consolidation,
slower growth of mature markets and increasing focus on the high-growth LAN
switching and ATM markets, and the need to reduce costs and make further
investments in research and development. In particular, the Network Systems
business plan for 1995 is dependent in part upon the successful introduction of
several new products. The Network Systems Board of Directors believes that the
combination with StorageTek will reduce the risks associated with the
introduction of these new products.
In reaffirming its approval of the Merger, the Network Systems Board of
Directors was advised by Needham. On January 5, 1995 Needham rendered an
updated 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
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Merger. Such opinion was subsequently confirmed in writing and is attached to
this Proxy Statement/Prospectus as Appendix B. See "The Merger--Opinion of
Network Systems' Financial Advisor."
AFTER CONSIDERING ALL OF THE FACTORS DISCUSSED ABOVE THE NETWORK SYSTEMS
BOARD OF DIRECTORS HAS DETERMINED TO APPROVE THE MERGER AND UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
After the mailing of this Proxy Statement/Prospectus and prior to the Network
Systems stockholder meeting called to consider the Merger, the Board of
Directors of Network Systems will consider the fairness of the Merger to
Network Systems and its stockholders in light of circumstances as they may
change during this period. Changed circumstances after the date of this Proxy
Statement/Prospectus which might be relevant to the Board of Directors in its
future consideration of the fairness of the Merger include changes in the
market value of StorageTek Stock and the prospects of StorageTek, changes in
the value and prospects of Network Systems, changes in the value of companies
comparable to Network Systems and changes in the value of recently completed
acquisitions of other comparable companies. The Network Systems Board's further
consideration of the fairness of the Merger may include seeking an updated
opinion from Needham on or about the Effective Time of the Merger to the effect
that, at such time, the consideration to be received by the Network Systems
stockholders pursuant to the Merger Agreement is fair to the stockholders from
a financial point of view. In connection with any further review of the Merger,
the Board of Network Systems will review all factors that it then considers to
be relevant to its consideration of the fairness of the Merger. In light of the
nature and extent of these factors, the Board is unable to determine at present
their relative importance. In particular, the Board has not established any
minimum price of StorageTek Stock below which the Board would withdraw its
recommendation and recommend against the approval of the Merger.
In the event that the Network Systems Board, after the mailing of this proxy
statement, in the exercise of its fiduciary duties determines that it must
withdraw its recommendation and recommend against the approval of the Merger,
it will communicate its changed recommendation to the stockholders in
supplemental proxy materials. If the Board were to recommend against the
approval of the Merger, approval of the Merger would require the affirmative
vote of 80% of the outstanding shares of Network Systems Stock. In the event
that the Network Systems stockholders did not approve the Merger, Network
Systems would be entitled to terminate the Merger Agreement (and would not be
required to pay any termination fee to StorageTek). See "The Merger--Conditions
for Merger and Other Provisions" and "--Expenses, Topping Offer."
OPINION OF NETWORK SYSTEMS' FINANCIAL ADVISOR
Pursuant to an engagement letter entered into on May 25, 1994, Network
Systems retained Needham to furnish financial advisory and investment banking
services with respect to a possible merger and to render an opinion as to the
fairness, from a financial point of view, to the Network Systems stockholders,
of the consideration offered in any proposed merger. The amount of
consideration to be exchanged in the Merger was determined through negotiations
between Network Systems management and StorageTek management and not by
Needham, although Needham did assist Network Systems management in certain of
these negotiations.
At a meeting of the Board of Directors of Network Systems on August 7, 1994,
Needham delivered its oral opinion (subsequently confirmed in writing) 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 initial opinion,
that as of the date January 5, 1995 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
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Meeting. The complete text of the January 5, 1995 opinion (the "Needham
Opinion") is attached to this Proxy Statement/Prospectus as Appendix B, and the
summary of the Needham Opinion set forth in this Proxy Statement/Prospectus is
qualified in its entirety by reference to the Needham Opinion. Network Systems
stockholders are urged to read the Needham Opinion carefully and in its
entirety for a description of the procedures followed, the factors considered
and the assumptions made by Needham.
In arriving at its opinion, Needham reviewed and analyzed, among other
things, (i) the Merger Agreement; (ii) certain other documents related to the
Merger including the Proxy Statement/Prospectus; (iii) certain publicly
available information concerning Network Systems and StorageTek; (iv) the
historical stock prices and trading volumes of Network Systems' and
StorageTek's Common Stock; (v) publicly available financial data of public
companies which it deemed generally comparable to Network Systems; (vi) the
financial terms of certain other recent business combinations, which it deemed
generally relevant; and (vii) certain financial forecasts and projections
prepared by Network Systems' and StorageTek's respective managements. In
addition, Needham held discussions with certain members of both Network
Systems' and StorageTek's senior managements concerning their current and
future business prospects and participated in the discussions and negotiations
among representatives of Network Systems and StorageTek and their legal
advisors and independent auditors. Needham visited the Network Systems'
facility in Minneapolis, and performed such other studies, analyses, inquiries
and investigations as it deemed appropriate. Needham assumed and relied upon,
without independent verification, the accuracy and completeness of the
information it reviewed for purposes of its opinion. With respect to Network
Systems' and StorageTek's financial forecasts provided to Needham by their
respective managements, Needham has assumed that such forecasts have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of such managements, at the time of preparation, of the future
operating and financial performance of Network Systems and StorageTek.
Needham's opinion stated that it is necessarily based on economic, monetary and
market conditions existing as of the date of such opinion.
Based on this information, Needham performed a variety of financial analyses
of the Merger and the Merger consideration. The following paragraphs summarize
the significant quantitative and 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. In Needham's presentation to Network
Systems' Board of Directors on August 7, 1994 (the "August Needham
Presentation") the multiples of projected 1995 revenues for these companies
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. In Needham's presentation to the
Network Systems Board of Directors on January 5, 1995 (the "January Needham
Presentation"), the multiples of projected 1995 revenues for these companies
ranged from 0.5 to 2.4 with a mean of 1.4 and a median of 1.3; the multiples of
projected 1995 net income ranged from 9.9 to 16.2 with a mean of 12.9 and a
median of 12.5; and the multiples of historical book value ranged from 1.5 to
5.3 with a mean of 3.3 and a median of 3.0.
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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. In the August
Needham Presentation, the multiples of projected 1995 revenues for these
companies 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. In the January Needham
Presentation, the multiples of projected 1995 revenues for these companies
ranged from 0.5 to 4.4 with a mean of 1.9 and a median of 1.4; the multiples of
projected 1995 net income ranged from negative to 50.0 with a mean of 25.4 and
a median of 17.9; and the multiples of historical book value ranged from 1.3 to
11.2 with a mean of 6.0 and a median of 5.7.
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. In the August Needham
Presentation, the multiples of projected 1995 revenues for these companies
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. In the January Needham
Presentation, the multiples of projected 1995 revenues for these companies
ranged from 1.0 to 3.4 with a mean of 2.5 and a median of 2.7; the multiples of
projected 1995 net income ranged from 10.6 to 25.8 with a mean of 19.98 and a
mean of 21.6; and the multiples of historical book value ranged from 3.0 to
11.2 with a mean of 6.7 and a median of 6.3.
Comparable Transaction Analysis
In the August Needham Presentation, 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 the January Needham
Presentation, Needham analyzed publicly available financial information for ten
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 as part of the
August Needham Presentation Needham included Prime Computer,
Inc./Computervision Corporation; Tandem Computers Incorporated/Ungermann-Bass,
Inc.; Anacomp, Inc./Xidex Corporation; Massachusetts Computer
Corporation/Concurrent Computer Corporation; Unisys Corporation/Convergent,
Inc.; STC PLC/Computer Consoles, Inc.; Olivetti USA, Inc./ISC Systems
Corporation; Novell, Inc./Excelan, Inc.; Hewlett-Packard Company/Apollo
Computer, Inc.; Archive Corporation/Cipher Data Products, Inc.; HND
Corporation/Dataproducts Corporation; Acer America Corporation/Altos Computer
Corporation; American Telephone & Telegraph Company/NCR Corporation; 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.
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Proposed and completed networking deals analyzed by Needham as part of the
August Needham Presentation 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.
Proposed and completed networking deals analyzed by Needham as part of the
January Needham Presentation included the eight networking transactions
analyzed by Needham as part of the August Needham Presentation and two
additional transactions: Wellfleet Communications/SynOptics Communications,
Inc.; and Raytheon Co./Xyplex Inc. For these ten transactions the multiples of
the last twelve months' revenues (for those transactions where multiples were
available) ranged from 0.7 to 6.9 with a mean of 2.7 and a median of 1.7; the
multiples of the 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 14.0 and a median of 11.5; the multiples of the last twelve months'
net income (for those transactions where multiples were available) ranged from
3.6 to 39.4 with a mean of 22.1 and a median of 19.8; 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 2.7 and a median of 2.9.
Premiums Paid in Mergers
In the August Needham Presentation, 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%. In the January Needham
Presentation, Needham analyzed the premiums (for those transaction where
premiums were available) for ten selected mergers and acquisitions in the
networking industry. Based on stock prices four weeks prior to the announcement
date the range of premiums in the networking industry was 16.2% to 72.3%, with
a median of 41.7%.
Stock Trading History
In both the August Needham Presentation and the January Needham Presentation,
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.
Recent Network Systems Performance
In the January Needham Presentation, Needham compared the Network Systems
1994 business plan as forecasted by Network Systems management in August 1994
with estimated 1994 results as of January 1995 and noted the significant
shortfall of the estimated 1994 results from the August 1994 forecast.
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
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considerations and judgments concerning differences in financial
characteristics of the comparable companies and other factors that could affect
the public trading value of the comparable companies to which they are being
compared.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analyses and the application of those methods to the particular
circumstances and therefore, such an opinion is not readily susceptible to
summary description. Accordingly, Needham believes that its analyses must be
considered as a whole and that considering any portions of such analyses and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying its opinion.
In its analyses, Needham made numerous assumptions with respect to industry
performance, general business and economic and other matters, many of which are
beyond the control of either Network Systems or StorageTek. Any 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% of the amount 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). Based on the closing price of the StorageTek Stock on the
NYSE of $28.125 on January 5, 1995, if this was the price at the Effective Time
of the Merger, Needham would receive no additional fee. 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. In
addition, pursuant to an amendment dated December 27, 1994, Needham received an
additional fee of $100,000 for rendering its opinion dated January 5, 1995.
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 eleven months of 1994, based
upon information published by AutEx, Needham was not a significant market maker
for Network Systems Common Stock. However, in the normal course of its market-
making activities Needham may, from time to time, have a long or short position
in, and buy or sell, Network Systems securities, which positions on occasion,
may be material in size relative to the volume of trading activity. Needham was
retained by the Network Systems Board of Directors to act as Network Systems'
financial advisor in connection with the Merger based on Needham's experience
as a financial advisor in mergers and acquisitions as well as Needham's
familiarity with the networking industry. In the normal course of its business,
Needham may actively trade the equity securities of StorageTek for its own
account or for the account of its customers and, therefore, may at any time
hold a long or short position in such securities. In addition, Needham has
previously provided investment banking services to StorageTek on matters
unrelated to the Merger, including acting as (i) a managing underwriter on the
offerings by StorageTek of: (a) 6.0 million shares of Common Stock on March 21,
1990; (b) 2.25 million shares of Common Stock on May 3, 1991; and (c) 3.45
million shares of Convertible Preferred Stock on February 25, 1993; and (ii) as
financial advisor in connection with StorageTek's acquisition of Amperif
Corporation and StorageTek's partnership with Epoch Systems.
STORAGETEK'S REASONS FOR THE MERGER
StorageTek historically has been a producer and seller of tape and disk
subsystems in the mainframe computer marketplace, primarily through its
attachment to IBM operating systems. With the introduction of StorageTek's
Automated Cartridge System Library, StorageTek began to significantly expand
the
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connectivity of its products into the non-IBM operating system environment. The
majority of the early work done in this area involved connection of its
products to other mainframe computers. However, with the ongoing increase in
the percentage of computing which is done on mini-computers, computer
workstations and personal computers, it gradually became clear that StorageTek
would materially benefit by improving the connectivity of its products to these
smaller computing platforms.
While it is not economical to attach the high-capacity storage subsystem
products supplied by StorageTek to individual workstations or personal
computers, the growing importance of the networked environment provided an
opportunity for StorageTek to use its larger, more sophisticated devices in
these network environments to become the storage provider for not only the
mainframe, but also the network.
In order to expand its technical capabilities into the network environment,
StorageTek had three possible alternatives to acquire such expertise. First, it
could develop its own internal capabilities with regard to these skills.
Second, it could enter into so-called strategic alliances, such as the joint
development and marketing agreement it has with Network Systems (see "The
Merger--Transactions Between StorageTek and Network Systems"), to leverage
other companies' expertise in this area. The third potential way of increasing
its technical skills in the network environment was to merge with a company
with significant expertise.
Of the three possible ways of increasing its presence in the network
environment, the possibility of a merger appeared most attractive. Internal
development would necessitate a much longer lead time to entry, and potentially
much higher costs and uncertainty of success. Strategic alliances carry the
risk of lack of control of the technology and the possibility of unfriendly
takeover of the strategic partner, leading to risk of loss of future benefit.
Of the potential merger candidates, StorageTek believes that Network Systems
offers significant expertise in networking at the high end of the computing
spectrum, that is, the mainframe. While there are many other companies engaged
in the computer networking business, Network Systems appears to have a
significant breadth of expertise ranging from the mainframe to personal
computer networking. Other companies are more successful in particular niches
of this market, but the overall offerings available from Network Systems more
closely match the broad spectrum of networking which StorageTek has as its
strategic goal.
In addition, during the process of due diligence, StorageTek realized that
the basic philosophies and approaches of Network Systems, both from a
technological and a managerial point of view, closely match its own strategies
and cultural attributes.
StorageTek believes that by combining the capabilities of StorageTek and
Network Systems, improved solutions can be delivered to the network marketplace
on an accelerated basis.
EXCHANGE OF SHARES; FRACTIONAL SHARES; ADJUSTMENT OF EXCHANGE RATIO
At the Effective Time, Sub will be merged into Network Systems, and
outstanding shares of Network Systems Stock will be converted into shares of
StorageTek Stock at the Exchange Ratio. Based on the closing price of $28.125
of StorageTek Stock on the NYSE composite tape on January 5, 1995, two trading
days before the date of this Proxy Statement/Prospectus, the foregoing exchange
ratio would have resulted in Network Systems' stockholders receiving
approximately $7.363 in market value of StorageTek Stock (plus the Rights
Payment of $.05) for each share of Network Systems Stock, if the Merger had
been effective on that date. Because the Exchange Ratio is fixed by the Merger
Agreement and the market price of StorageTek Stock is subject to fluctuation,
the market price of StorageTek Stock may increase or decrease prior to the
Merger, thereby increasing or decreasing the market value of the shares of
StorageTek Stock which Network Systems' stockholders will receive in the
Merger. If the Average Price of the StorageTek Stock is below $30.37 per share,
for the ten trading day period ending two trading days before the Effective
Time, Network Systems may terminate the obligation to consummate the Merger,
unless StorageTek agrees to make an Adjustment to the Exchange Ratio.
StorageTek does not presently intend to make an Adjustment to the Exchange
Ratio
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if the Average Price for StorageTek Stock for such period is below $30.37 per
share and Network Systems notifies StorageTek of its intention to terminate the
Merger Agreement.
If the Merger becomes effective, StorageTek will issue to each holder of
outstanding Network Systems Stock certificates representing the number of whole
shares of StorageTek Stock which such Network Systems' stockholder shall be
entitled to receive pursuant to the terms of the Merger Agreement. The Exchange
Agent will distribute certificates to each Network Systems' stockholder
representing the number of whole shares of StorageTek Stock (and cash for any
fractional share interests, as described below, and for the Rights Payment)
upon the surrender to the Exchange Agent for cancellation of the certificates
representing such holder's Network Systems Stock accompanied by transmittal
forms. The approval of the Merger by the stockholders of Network Systems will
constitute approval of the appointment of the Exchange Agent.
All of the shares of StorageTek Stock to be issued to Network Systems'
stockholders will be fully paid and non-assessable and will include the right
to purchase Series B Junior Participating Preferred Stock pursuant to a Rights
Agreement dated August 20, 1990. Each right entitles the registered holder to
purchase from StorageTek one one-hundredth of a share of Series B Junior
Participating Preferred Stock at a price of $150.00, subject to adjustment.
Each whole share of StorageTek Stock issued in the Merger will be accompanied
by one such right. The NYSE has approved for listing the shares of StorageTek
Stock to be issued in the Merger, or reserved for issuance upon exercise of the
Options under the Option Plans and Stock Purchase Plan, which are being assumed
by StorageTek. The obligations of StorageTek and Network Systems to consummate
the Merger were conditioned upon such listing.
No scrip or fractional share certificates of StorageTek will be issued. In
lieu thereof, each Network Systems' stockholder will be paid cash in an amount
equal to such fractional interest times the closing sale price of a share of
StorageTek Stock on the NYSE composite tape on the business day two days prior
to the date the Merger becomes effective.
Promptly after the Effective Time, transmittal forms will be sent to the
Network Systems stockholders for use in effecting the surrender of their
Network Systems certificates to the Exchange Agent in exchange for certificates
representing StorageTek Stock and cash for fractional share interests, and for
the Rights Payment. Shares of Network Systems Stock should not be surrendered
for exchange prior to the receipt by stockholders of transmittal forms and
instructions. It is important for Network Systems' stockholders to exchange
their Network Systems certificates for StorageTek certificates promptly after
the Effective Time because all trading of Network Systems Stock on NASDAQ will
terminate at the Effective Time. Moreover, no dividends or other distributions
payable by StorageTek will be paid on outstanding Network Systems certificates
until surrendered for exchange, but upon surrender of Network Systems
certificates, any unpaid dividends or distributions will be paid, without
interest. Until so exchanged, Network Systems stock certificates will evidence
for all other purposes (including voting rights) the number of whole shares of
StorageTek Stock into which they were converted at the Effective Time.
For information concerning the substitution and assumption by StorageTek of
Network Systems' outstanding Options and obligations under the Stock Purchase
Plan, see "The Merger--Treatment of Network Systems 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
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Merger will initially continue as the initial directors of the surviving
corporation and the officers of Network Systems immediately prior to the Merger
will initially continue as the officers of the surviving corporation to the
extent they elect to continue their employment with Network Systems.
StorageTek, in consultation with senior officers of Network Systems, is
currently reviewing the status of Network Systems' existing officers following
the Merger. It is currently anticipated that the majority of these officers
will continue their employment with Network Systems following the Merger. The
Certificate of Incorporation and bylaws of Network Systems as in effect at the
Effective Time will be the Certificate of Incorporation and bylaws of the
surviving corporation after the Merger, in each case until amended in
accordance with their terms and applicable law.
No officers, directors or persons holding more than 5% of the voting power of
either StorageTek or Network Systems will have any material interest in the
Merger except as described below and any interest arising from the ownership of
securities of StorageTek or Network Systems, respectively, which interests are
shared pro rata by all holders of the same class of securities.
Each of the executive officers of Network Systems is a party to an agreement
with Network Systems which will be operative if a change of control of Network
Systems occurs (the "Change of Control Agreement"). The Change of Control
Agreements provide for certain payments in the event that, subsequent to a
change in control of Network Systems, the executive officer's employment is
terminated involuntarily for reasons other than "cause" or the executive
officer's death or disability or by the executive officer for "good reason,"
including, among other reasons, a material change in the position, duties or
benefits of the executive officer (a "Qualifying Termination"). For the
purposes of these Change of Control Agreements, approval by the stockholders of
Network Systems of the Merger Agreement will constitute such a change in
control. Upon a Qualifying Termination, in addition to salary and benefits then
due and in addition to any other benefits due under Network Systems'
compensation and benefit plans, the terminated executive officer shall be
entitled to: (a) a lump sum payment equal to 200% of the executive officer's
base salary; (b) a cash payment equal to the value (at the time of the change
in control or the termination of employment, whichever is greater) of the
executive officer's outstanding options granted under the Stock Option Plans in
lieu of such options; (c) reimbursement for all legal fees and expenses
incurred by the executive officer as a result of such termination; (d) for a
24-month period following such termination or, if earlier, until an equivalent
benefit is received, life and health insurance benefits substantially similar
to those the executive officer was receiving at the time of notice of the
termination; and (e) all costs, fees, and expenses of reasonable out-placement
assistance services.
In addition to these payments and benefits, the Change in Control Agreements
with Lyle D. Altman, Michael F. G. Ashby, Gary S. Christensen and Malcolm Reid
provide for: (a) a lump sum payment equal to the present value of the executive
officer's benefit under Network Systems' deferred compensation plan, calculated
in the manner specified in the Change of Control Agreements as if the executive
officer had continued to be employed by Network Systems and remained a
participant in the plan for two years immediately following the termination;
and (b) a lump sum payment equal to the present value of a normal retirement
benefit payable at age 65 under Network Systems' supplemental retirement plan,
calculated in the manner specified in the Change of Control Agreements as if
the executive officer had attained age 55 and either continued to be employed
by Network Systems and remained a participant in the plan for two years
immediately following the termination or participated in the plan for ten
years. These lump sum payments are in lieu of all rights the executive officer
may have under Network Systems' deferred compensation and supplemental
retirement plans pursuant to these Change of Control Agreements. In the event
that severance payments under these four Change in Control Agreements are
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code"), Network Systems will pay the executive
officer an additional amount such that the net amount retained by the executive
officer after the deduction of the excise tax, and income tax on the additional
amount will be equal to the total amount of the severance payments.
The Change of Control Agreements for executive officers other than those
mentioned in the preceding paragraph provide that in the event that any payment
or benefit received by the executive officer pursuant to
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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 such payments and benefits
to three times the average of the executive officer's annualized includable
compensation received from Network Systems and its subsidiaries during the
five-year period prior to the year in which the change in control occurs.
StorageTek has entered into a "Supplemental Compensation Agreement" with
certain Network Systems executive officers who StorageTek would like to remain
with Network Systems Corporation following the Merger. The Supplemental
Compensation Agreements provide that StorageTek will make payments equal to one
year's salary, as a one-time special bonus, payable one-half at the Effective
Time and one-half one year from the Effective Time. Any payments made under the
Supplemental Compensation Agreement would be deducted from payments which might
otherwise become payable under the Change of Control Agreements. In addition,
the Supplemental Compensation Agreements generally provide that certain other
benefit plans would be continued during the two-year term of the Supplemental
Compensation Agreement, and that any payments made under the Supplemental
Compensation Agreement, or under the Change of Control Agreement, would be
deducted from amounts which could become payable to the employee on his
termination pursuant to his original employment agreement with Network Systems.
Furthermore, the Supplemental Compensation Agreements provide that the employee
would not claim any rights under the Change of Control Agreement merely by
virtue of Network Systems becoming a subsidiary of StorageTek. StorageTek has
entered into Supplemental Compensation Agreements with Gary Chastelet, Bill
Franta, Malcolm Hopping, Carl Russo, Roger Weingarth, Warren Pillsbury, Donald
Pierce, Michael Mancusi, Donald Haeny and Jeffrey Jacobsen.
The maximum estimated value (assuming that (i) the Merger is approved by the
stockholders of Network Systems in February 1995, and (ii) all options and
restricted stock are cashed out at a price of $27.875 per share for StorageTek
Stock) that each such executive officer would be entitled to receive if such
officer was terminated immediately after the Merger in a manner entitling the
officer to benefits pursuant to such officer's Change of Control Agreement is
as follows: Lyle D. Altman, $876,308; Michael F. G. Ashby, $676,932; Gary S.
Christensen, $594,982; Malcolm Reid, $495,044; Gerry Chastelet, $423,101;
William R. Franta, $384,611; Donald Haeny, $391,032; Malcolm Hopping, $462,280;
Jeffrey Jacobsen, $251,195; Michael D. Mancusi, $357,708; Donald T. Pierce,
$335,984; Warren L. Pillsbury, $383,129; Carl Russo, $347,624; and Roger E.
Weingarth, $353,454. The actual value that each executive officer will be
entitled to receive will vary significantly depending upon, among other things,
the price of StorageTek Stock at the Effective Time.
Each of the non-employee directors of Network Systems holds options to
purchase 20,000 shares of Network Systems stock which were granted under the
Network Systems 1993 Non-Employee Director Stock Option Plan and its
predecessor Non-Employee Director Stock Option Plan. The options generally
become exercisable in three annual installments from the date of grant but will
automatically become exercisable in full upon the effectiveness of the Merger.
The weighted average exercise price of the options held by Messrs. Barth,
Fedderson, and Haggerty each equals $7.5234 per share; those held by Mr. Castle
equals $7.6875 per share; and those held by Messrs. Fitzpatrick and Thorton
each equals $7.875 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
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Networks Systems pursuant to each indemnification agreement entered into with
such directors and executive officers, provided that such director or executive
officer agrees to amend their indemnification agreement to remove the
provisions relating to the retention of independent counsel and the
establishment of a trust for the payment of expenses.
The Merger Agreement also provides that StorageTek shall cause to be
maintained in effect for not less than four years from the Effective Time the
current policies of directors' and officers' liability insurance maintained by
Network Systems and its subsidiaries (or substitute policies providing the same
coverage on terms and conditions no less advantageous to the beneficiaries of
such policies) with respect to all matters, including matters contemplated by
the Merger Agreement, occurring prior to and including the Effective Time,
provided that such director and officer agrees to amend their indemnification
agreement in the manner described above.
As an inducement to StorageTek's execution of the Merger Agreement, certain
directors, executive officers and stockholders of Network Systems entered into
agreements with StorageTek pursuant to which they will vote in favor of the
Merger, unless the Network Systems Board withdraws its recommendation that
stockholders vote in favor of the Merger or the Merger Agreement is terminated.
These stockholders have the right to vote 1,019,746 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 1,968,422 shares of Network Systems
Stock ("Options"), and (ii) the Stock Purchase Plan obligations of Network
Systems to issue 37,336 shares of Network Systems Stock on March 31, 1995,
based on a purchase price of $5.42 per share and the aggregate individual
contributions as of the Record Date. The vesting of the Options will accelerate
upon consummation of the transactions contemplated by the Merger Agreement and,
to the extent not exercised prior to the Effective Time, shall be exercisable
for that number of shares of StorageTek Stock (with fractions rounded up to the
nearest full share) equal to the number of shares of Network Systems Stock
issuable with respect to the Option multiplied by the Exchange Ratio, at an
exercise price equal to the exercise price of the Option divided by the
Exchange Ratio.
Also, each participant in the Stock Purchase Plan shall have the right as of
March 31, 1995, to purchase shares of StorageTek Stock pursuant to the terms of
the Stock Purchase Plan (by crediting amounts in each participant's individual
account under the Stock Purchase Plan) at the lesser of 85% of (a) $24.35 (the
$6.375 fair market value of one share of Network Systems Stock on April 1, 1994
divided by the Exchange Ratio), and (b) the fair market value of one share of
StorageTek Stock on March 31, 1995. Except as modified by the provisions
described above, the Option Plans and Stock Purchase Plan shall each remain in
full force and effect following the Effective Time, although StorageTek does
not presently intend to grant any further options pursuant to the Option Plans
and intends to terminate the Stock Purchase Plan after the current offering
period expires on March 31, 1995. It is expected that employees of Network
Systems will be eligible to participate in the option plans and employee stock
purchase plan that StorageTek may from time to time make available to employees
of StorageTek and its subsidiaries.
Stockholders are advised to obtain current market quotations for StorageTek
Stock and Network Systems Stock. No assurance can be given as to the market
price of StorageTek Stock or Network Systems Stock at the Effective Time.
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
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each party paying a royalty to the other based on its sales of the jointly
developed product. Two products are currently under development pursuant to
this agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States federal income
tax consequences of the Merger to the holders of Network Systems Stock, and
Network Systems. The law firm of Oppenheimer Wolff & Donnelly has opined on the
material federal income tax consequences of the Merger. The opinion of
Oppenheimer Wolff & Donnelly is subject to various assumptions and
qualifications and is based on current law. Unlike a ruling from the IRS, an
opinion of counsel is not binding on the IRS and there can be no assurance that
the IRS will not take a position contrary to one or more of the positions
reflected herein, or that the positions herein would be upheld by the courts if
challenged by the IRS. 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. No
ruling from the IRS has been or will be sought with respect to any aspect of
the Merger. 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.
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
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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
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
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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. If such condition is not met and
StorageTek elects to waive the condition and consummate the Merger, Network
Systems will make appropriate revisions to and recirculate the Proxy
Statement/Prospectus and resolicit the vote of the Network Systems
shareholders. See "The Merger--Conditions for Merger and Other Provisions."
CONDITIONS FOR MERGER AND OTHER PROVISIONS
The Merger Agreement contains a number of representations and warranties by
each of the parties and the terms, covenants and conditions to be complied with
and performed by each of them on or before the Effective Time.
The obligations of StorageTek, Sub and Network Systems under the Merger
Agreement are also subject to the fulfillment or waiver of the following
conditions: (a) expiration of the waiting period under the HSR Act (which
expired on October 12, 1994); (b) approval of the Merger by the requisite vote
of the stockholders of Network Systems; (c) effectiveness of the Registration
Statement; (d) approval for listing upon notice of issuance on the New York
Stock Exchange of StorageTek Stock to be issued in the Merger (which was
approved on October 14, 1994); (e) absence of any order, statute, rule,
regulation, executive order, stay, decree, judgment or injunction enacted,
entered, issued, promulgated or enforced by any court or governmental authority
prohibiting or restricting the effectuation of the Merger; and (f) absence of
any governmental action or proceeding commenced or threatened which seeks to
prohibit, restrain, invalidate or set aside the effectuation of the Merger.
The obligations of StorageTek and Sub under the Merger Agreement are subject
to the fulfillment or waiver of certain additional conditions, including the
following: (a) Network Systems must have performed in all material respects all
of its obligations and agreements contained in the Merger Agreement and related
agreements; (b) as of the Effective Time, Network Systems' representations and
warranties contained in the Merger Agreement and related agreements must be
true in all material respects; (c) completion of all necessary corporate action
on the part of Network Systems; (d) receipt by StorageTek of letters from
Network Systems' affiliates covering sales of Network Systems and StorageTek
Stock; (e) receipt by StorageTek of all material consents or waivers to the
Merger; (f) receipt by StorageTek of letters from Network Systems' auditors
regarding the performance of certain specified procedures (which was obtained
on September 9,
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1994); (g) receipt by StorageTek of a letter from StorageTek's auditors
confirming that the Merger can be properly accounted for as a "pooling of
interests;" (h) extinguishment or redemption of the Network Systems Rights; (i)
receipt by StorageTek of legal opinions from Network Systems' general counsel
and outside counsel; (j) receipt by StorageTek of certain officer's
certificates; and (k) the absence of any material adverse change effecting
Network Systems.
The obligations of Network Systems under the Merger Agreement are subject to
the fulfillment or waiver of the following additional conditions: (a)
StorageTek and Sub must have performed in all material respects all of their
obligations and agreements contained in the Merger Agreement and related
agreements; (b) as of the Effective Time, StorageTek's and Sub's
representations and warranties contained in the Merger Agreement and related
agreements must be true in all material respects; (c) completion of all
necessary corporate action on the part of StorageTek and Sub; (d) receipt by
Network Systems of legal opinions from StorageTek's general counsel and outside
counsel; (e) the absence of any material adverse change effecting StorageTek;
and (f) receipt by Network Systems of certain officer's certificates.
Certain of the foregoing conditions upon which the respective obligations of
StorageTek, Sub and Network Systems under the Merger Agreement are subject may
be waived by the party for whose benefit the condition exists. None of
StorageTek, Sub or Network Systems has determined under what circumstances, if
any, one or more of the foregoing conditions or any other conditions would be
waived.
The Merger Agreement may be amended by mutual written consent of StorageTek,
Sub and Network Systems before or after approval by Network Systems'
stockholders, except that after such stockholder approval, no amendment can
modify the Exchange Ratio or otherwise alter the amount or form of
consideration to be received by Network Systems' stockholders without further
Network Systems' stockholder approval. The Merger Agreement does not otherwise
require Network Systems' stockholder approval of amendments thereto, including
any amendments adversely affecting Network Systems' stockholders. On August 25
and September 9, 1994, the parties amended several provisions of the Merger
Agreement to extend certain deadlines set forth for certain conditions and
clarify certain matters.
The Merger Agreement may be terminated and the Merger abandoned (whether
before or after approval by Network Systems' stockholders) prior to the
Effective Time, as follows:
Termination By Either Party. The Merger Agreement may be terminated prior to
the Effective Time (i) by mutual consent of StorageTek and Network Systems, or
(ii) by either party if (a) there has been a material breach of any
representation, warranty or covenant set forth in the Merger Agreement by the
other party and such breach has made it impossible to satisfy the conditions to
the Merger which have not 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 of Exchange Ratio."
NO SOLICITATION
Pursuant to the Merger Agreement, Network Systems has agreed that it will not
directly or indirectly initiate, encourage or solicit any offer from any entity
other than StorageTek relating to the acquisition of
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Network Systems. Network Systems also agreed not to consider, entertain,
recommend approval of or provide any confidential information to any entity
other than StorageTek unless based on the advice of counsel, such action is
necessary to fulfill fiduciary duties of the Network Systems Board of Directors
or as required by applicable law. If the Board of Directors of Network Systems
receives a bona fide offer and determines, in the exercise of its fiduciary
duty, that such offer will result in a transaction more favorable to the
Network Systems stockholders from a financial point of view than the
transaction contemplated by the Merger Agreement and StorageTek does not make,
within seven business days after receiving notice of such offer, an offer that
Network Systems deems is superior to such offer, Network Systems may terminate
the Merger Agreement and pay to StorageTek a fee of $16 million plus reimburse
StorageTek for all of its expenses. Network Systems has agreed to promptly
notify StorageTek of any such bona fide offer.
MERGER AND CONSOLIDATION CHARGES
One-time merger and consolidation charges of between $6 and $8 million are
expected to be recognized at the time the merger is consummated. These one-time
charges may have a material impact on the results of operations in the quarter
the merger is consummated, however, the charges are not expected to materially
impact StorageTek's liquidity. See "Unaudited Pro Forma Condensed Combined
Financial Statements."
EXPENSES; TOPPING OFFER
If (i) the obligation to consummate the Merger is terminated pursuant to the
Merger Agreement; (ii) Network Systems has engaged in any negotiations with a
third party for any type of acquisition proposal, merger or stock sale relating
to Network Systems since February 22, 1994, and prior to such termination; and
(iii) Network Systems completes a transaction with a third party which was
initiated prior to six months from the date of such termination, and when
combined with any dividends or distributions declared after August 8, 1994, and
the value of any rights retained by holders of Network Systems Stock, yields
more than $10.00 of value to holders of Network Systems Stock, then Network
Systems will pay StorageTek a fee of $16 million and reimburse it for all
reasonable expenses and fees incurred in connection with the Merger.
In addition, if Network Systems terminates the obligation to consummate the
Merger because of a Market Out, Network Systems will pay StorageTek a fee of $5
million. In all other circumstances, the 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
12, 1994, StorageTek and Network Systems each furnished notification of the
Merger and provided certain information to the Federal Trade Commission (the
"FTC") and the Department of Justice (the "Department"). The waiting period
under the HSR Act expired on October 12, 1994.
At any time before or after the Effective Time, the FTC, the Department or a
private person or entity could seek under the antitrust laws, among other
things, to enjoin the Merger or to cause StorageTek to divest itself, in whole
or in part, of Network Systems or of other businesses conducted by StorageTek.
There can be no assurance that a challenge to the Merger will not be made or
that, if such a challenge is made, StorageTek and Network Systems will prevail.
The obligations of StorageTek and Network Systems to consummate the Merger are
subject to the condition that there be no preliminary or permanent injunction
or other order by any court or governmental or regulatory authority prohibiting
consummation of the Merger. Each party has agreed to use all reasonable efforts
to remove any such prohibition.
RESTRICTIONS ON RESALE; AFFILIATE AGREEMENTS
The StorageTek Stock issuable in connection with the Merger has been
registered under the Securities Act and will be freely tradable without further
registration or restriction except as described below. In
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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 266,970 shares of StorageTek Stock
they will acquire in connection with the Merger or the approximately 212,581
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.
RECENT DEVELOPMENTS OF NETWORK SYSTEMS
On December 19, 1994, Network Systems' Board of Directors approved an expense
reduction plan in an effort to reduce costs to a level supportable by
anticipated revenues. The plan is expected to result in a single line item
charge during the fourth quarter of 1994 of approximately $8 million. Network
Systems expects to carry out this expense reduction plan regardless of whether
the contemplated merger with Storage Technology Corporation proceeds.
34
<PAGE>
The significant components of the expected fourth quarter charge include an
accrual of approximately $3.4 million for the severance of approximately 140
employees; an accrual of approximately $1.9 million for future lease
commitments, net of estimated future sublease rental income, associated with
excess lease space; a writedown of approximately $2.4 million associated with
equipment, leasehold improvements and repair parts to be abandoned and $0.3
million of other miscellaneous exit costs. Stockholders' equity will be
correspondingly reduced by $8.0 million as of December 31, 1994.
The plan is expected to result in reduced operating expenses of approximately
$9.8 million in 1995, consisting of reduced payroll, lease and depreciation
expense of $8.0 million, $1.3 million and $0.5 million, respectively. The plan
is expected to result in reduced operating expenses of $10.4 million in 1996,
consisting of reduced payroll, lease and depreciation expense of $8.6 million,
$1.3 million and $0.5 million, respectively.
The majority of the $3.4 million of severance accruals are expected to be
paid during the first quarter of 1995. With respect to the expected long-term
effects of the expense reduction plan on Network Systems' cash flows, the plan
is expected to result in cash savings of approximately $5.5 million and $7.7
million in 1995 and 1996, respectively, principally in the form of reduced
payroll, net of the estimated severance payments.
The above estimates of expense reductions and cash savings are estimated
based on the available information and certain assumptions that Network Systems
believes are reasonable in the circumstances. There can be no assurance,
however, that these savings can be achieved.
StorageTek has reviewed the expense reduction plan, as outlined under the
heading "Expense Reduction Plan" in Network Systems' Form 8-K filed on January
6, 1995, and does not anticipate this plan will have a material effect on the
combined companies' financial position, results of operations, or liquidity
subsequent to consummation of the Merger.
35
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Balance Sheet as of
September 1994, and the related Unaudited Pro Forma Condensed Combined
Statements of Operations for the nine months ended September 1994, and for each
of the three years in the period ended December 1993, give effect to the
Merger. This pro forma information has been prepared utilizing the historical
consolidated financial statements of StorageTek and Network Systems, and should
be read in conjunction with the historical financial statements and notes
thereto, which are incorporated by reference herein. These unaudited pro forma
condensed combined financial statements are provided for comparative purposes
only and do not purport to be indicative of the results which actually would
have been obtained if the Merger had been effected for the periods indicated,
or of results which may be obtained in the future.
These unaudited pro forma condensed combined financial statements are based
on the pooling of interests method of accounting for the Merger. The pro forma
adjustments are described in the accompanying notes. These unaudited pro forma
condensed combined financial statements assume the combination of StorageTek
and Network Systems had occurred on the first day of the earliest period
presented.
36
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 1994
----------------------------------------------------
HISTORICAL PRO FORMA
-------------------------- -------------------------
STORAGETEK NETWORK SYSTEMS ADJUSTMENTS COMBINED
---------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and marketable securi-
ties...................... $ 188,366 $ 20,969 $ 209,335
Accounts and notes receiv-
able...................... 271,537 74,993 $(30,662)(a) 315,868
Net investment in sales-
type leases............... 403,655 403,655
Inventories................ 279,568 25,785 305,353
Computer equipment, net.... 130,110 12,104 (a) 142,214
Spare parts, net........... 51,882 4,757 (b) 56,639
Property, plant and equip-
ment, net................. 322,685 50,760 (4,757)(b) 368,688
Deferred income tax assets,
net....................... 51,788 18,830 230 (a) 57,151
(13,697)(c)
Goodwill and other intangi-
ble assets................ 46,674 41,062 87,736
Other assets............... 95,266 63,422 158,688
---------- -------- -------- ----------
Total assets............. $1,841,531 $295,821 $(32,025) $2,105,327
========== ======== ======== ==========
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued li-
abilities...................... $ 292,149 $ 39,393 $ (2,606)(a) $ 335,936
7,000 (e)
Other liabilities............... 9,204 23,773 (5,918)(c) 27,059
Convertible subordinated deben-
tures.......................... 145,645 145,645
Nonrecourse borrowings.......... 182,881 182,881
Other long-term debt............ 171,934 1,000 172,934
---------- -------- -------- ----------
Total liabilities............. 801,813 64,166 (1,524) 864,455
========== ======== ======== ==========
Preferred stock................. 35 35
Common stock.................... 4,406 606 187 (d) 5,199
Capital in excess of par value.. 1,438,560 114,043 (187)(d) 1,552,416
Accumulated earnings (deficit).. (397,354) 117,816 (15,722)(a) (310,039)
(7,779)(c)
(7,000)(e)
Other equity.................... (5,929) (810) (6,739)
---------- -------- -------- ----------
Total stockholders' equity.... 1,039,718 231,655 (30,501) 1,240,872
---------- -------- -------- ----------
Total liabilities and stock-
holders' equity.............. $1,841,531 $295,821 $(32,025) $2,105,327
========== ======== ======== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
condensed combined balance sheet.
37
<PAGE>
NOTE TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(a) To adjust balance sheet accounts to reflect revenue recognition for Network
Systems' product sales to end-user customers which are recorded at the time
of shipment to the time of customer acceptance, consistent with
StorageTek's policy. These balance sheet adjustments result from associated
adjustments to the combined results of operations; including accounts
receivable associated with revenue, computer equipment (representing
equipment shipped awaiting revenue recognition) associated with cost of
revenue, accrued liabilities associated with direct sales expense, and
deferred income tax assets associated with the related tax effects.
(b) To reclassify Network Systems' spare parts held for field service
consistent with StorageTek's accounting policy.
(c) To reflect the combined tax position as if the Merger had occurred at the
beginning of the earliest period presented. This adjustment is based on the
evaluation of a variety of factors including: the number of years the
combined companies' operating losses and tax credits can be carried
forward, the existence of taxable temporary differences, the combined
companies' earnings history, the combined companies' near-term earnings
expectations, and possible reductions to net operating loss carryforwards
as a result of proposed adjustments by the Internal Revenue Service to
previously filed federal income tax returns.
(d) To record the exchange of Network Systems Stock for StorageTek Stock.
StorageTek will also reserve additional shares (approximately 600,000
shares) for issuance on exercise of Network Systems' outstanding options.
(e) To adjust the pro forma condensed combined balance sheet to reflect one-
time merger and consolidation charges which will be expensed at the time
the merger is consummated as required under the "pooling of interests"
accounting method. These charges are presently estimated to be
approximately $7 million. Direct merger expenses are estimated to be
approximately $4 million. Direct merger expenses include financial advisor
fees of approximately $2,300,000, outside legal and accounting fees of
approximately $900,000, and various other costs and filing fees of
approximately $800,000. Integration costs of $3 million have also been
estimated for the purposes of the pro forma condensed combined balance
sheet. These costs are expected to consist largely of costs associated with
integrating accounting and other business systems, and costs resulting from
the elimination of duplicative operations. The actual amount of the
integration costs to be incurred will be determined upon the completion of
a detailed integration plan, which is expected to occur after consummation
of the proposed merger.
38
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 1994
---------------------------------------------
HISTORICAL PRO FORMA
-------------------- -----------------------
NETWORK
STORAGETEK SYSTEMS ADJUSTMENTS COMBINED
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue.......................... $1,108,813 $176,426 $3,615(a) $1,288,854
Cost of revenue.................. 727,182 88,990 1,221(a) 817,393
---------- -------- ------ ----------
Gross margin..................... 381,631 87,436 2,394 471,461
Research and product development
costs........................... 122,223 26,315 148,538
Marketing, general,
administrative and other income
and expense, net................ 242,746 59,752 308(a) 302,806
---------- -------- ------ ----------
Operating profit................ 16,662 1,369 2,086 20,117
Interest (income) and expense,
net............................. (3,363) (2,956) (6,319)
---------- -------- ------ ----------
Income before income taxes....... 20,025 4,325 2,086 26,436
Provision for income taxes....... 6,700 1,620 780(a) 9,100
---------- -------- ------ ----------
Net income...................... 13,325 2,705 1,306 17,336
Preferred stock dividend......... 9,056 9,056
---------- -------- ------ ----------
Income applicable to common
shares.......................... $ 4,269 $ 2,705 $1,306 $ 8,280
========== ======== ====== ==========
Earnings per common share........ $ 0.10 $ 0.09 $ 0.16
========== ======== ==========
Weighted average common shares
and equivalents................. 44,481 30,104 52,362
========== ======== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
condensed combined statement of operations.
39
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 1993
-----------------------------------------------
HISTORICAL PRO FORMA
-------------------- -------------------------
NETWORK
STORAGETEK SYSTEMS ADJUSTMENTS COMBINED
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue...................... $1,404,752 $215,558 $ (2,619)(a) $1,617,691
Cost of revenue.............. 965,913 109,090 (2,219)(a) 1,072,784
---------- -------- -------- ----------
Gross margin................. 438,839 106,468 (400) 544,907
Research and product
development costs........... 163,286 27,762 191,048
Marketing, general,
administrative and other
income and expense, net..... 324,823 68,916 252 (a) 393,991
Restructuring, acquisition,
and acquired research and
development costs........... 74,772 15,642 90,414
---------- -------- -------- ----------
Operating loss............... (124,042) (5,852) (652) (130,546)
Interest (income) and
expense, net................ (11,246) (7,339) (18,585)
---------- -------- -------- ----------
Income (loss) before income
taxes and cumulative effect
of accounting change........ (112,796) 1,487 (652) (111,961)
Provision (benefit) for
income taxes................ 5,000 (720) (432)(a) 9,500
5,652 (b)
Income (loss) before
cumulative effect of
accounting change........... (117,796) 2,207 (5,872) (121,461)
Preferred stock dividend..... 9,805 9,805
---------- -------- -------- ----------
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.
40
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 1992
--------------------------------------------------
HISTORICAL PRO FORMA
---------------------- --------------------------
NETWORK
STORAGETEK SYSTEMS ADJUSTMENTS COMBINED
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue..................... $ 1,550,945 $ 219,118 $ 4,262 (a) $ 1,774,325
Cost of revenue............. 1,074,199 102,729 2,828 (a) 1,179,756
----------- --------- -------- -----------
Gross margin................ 476,746 116,389 1,434 594,569
Research and product
development costs.......... 152,702 24,997 177,699
Marketing, general,
administrative and other
income and expense, net.... 315,475 72,595 426 (a) 388,496
Restructuring, acquisition,
and acquired research and
development costs.......... 60,310 60,310
----------- --------- -------- -----------
Operating profit (loss)..... 8,569 (41,513) 1,008 (31,936)
Interest (income) and
expense, net............... (18,465) (7,429) (25,894)
----------- --------- -------- -----------
Income (loss) before income
taxes...................... 27,034 (34,084) 1,008 (6,042)
Provision for income taxes.. 17,700 5,590 1,783 (a) 27,200
2,127 (b)
----------- --------- -------- -----------
Net income (loss)........... $ 9,334 $ (39,674) $ (2,902) $ (33,242)
=========== ========= ======== ===========
Earnings (loss) per share... $ 0.22 $ (1.31) $ (0.66)
=========== ========= ===========
Weighted average common
shares and equivalents..... 43,347 30,313 50,167
=========== ========= ===========
</TABLE>
The accompanying notes are an integral part of the unaudited
pro forma condensed combined statement of operations.
41
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 1991
--------------------------------------------------
HISTORICAL PRO FORMA
---------------------- --------------------------
NETWORK
STORAGETEK SYSTEMS ADJUSTMENTS COMBINED
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue.................... $ 1,619,520 $ 198,728 $ (10,707)(a) $ 1,807,541
Cost of revenue............ 1,105,077 96,305 (3,584)(a) 1,197,798
----------- --------- --------- -----------
Gross margin............... 514,443 102,423 (7,123) 609,743
Research and product
development costs......... 123,269 21,417 144,686
Marketing, general,
administrative and other
income and expense, net... 300,253 64,174 (1,071)(a) 363,356
Restructuring,
acquisition,and acquired
research and development
costs..................... 5,104 3,974 9,078
----------- --------- --------- -----------
Operating profit........... 85,817 12,858 (6,052) 92,623
Interest (income) and
expense, net.............. (16,395) (10,546) (26,941)
----------- --------- --------- -----------
Income before income taxes. 102,212 23,404 (6,052) 119,564
Provision for income taxes. 12,400 8,190 610 (a) 21,200
----------- --------- --------- -----------
Net income................. $ 89,812 $ 15,214 $ (6,662) $ 98,364
=========== ========= ========= ===========
Earnings per share......... $ 2.17 $ 0.50 $ 1.99
=========== ========= ===========
Weighted average common
shares and equivalents.... 41,298 30,686 49,332
=========== ========= ===========
</TABLE>
The accompanying notes are an integral part of the unaudited
pro forma condensed combined statement of operations.
42
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(a) To adjust revenue and associated costs and expenses to reflect revenue
recognition for Network Systems' product sales to end-user customers which
are recorded at the time of shipment to the time of customer acceptance,
consistent with StorageTek's policy. These adjustments reflect the
appropriate reversal (including the effects of rollovers from prior
periods) of revenue and related cost of revenue, as well as direct sales
expense, and the related tax effects.
(b) To reflect the combined tax position as if the Merger had occurred at the
beginning of the earliest period presented. This adjustment is based on the
evaluation of a variety of factors including: the number of years the
combined companies' operating losses and tax credits can be carried
forward, the existence of taxable temporary differences, the combined
companies' earnings history, the combined companies' near-term earnings
expectations, and possible reductions to net operating loss carryforwards
as a result of proposed adjustments by the Internal Revenue Service to
previously filed federal income tax returns.
(c) The accompanying Unaudited Pro Forma Condensed Combined Statements of
Operations exclude any merger expenses or other nonrecurring costs
associated with integrating the operations of the businesses. Although the
operational and transition plans are not completed at this time, the
management of StorageTek believes a one-time charge associated with the
Merger of approximately $7 million will be recognized at the time the
merger is consummated. See footnote (e) to the Unaudited Pro Forma
Condensed Combined Balance Sheet for additional description of the
components of this charge.
43
<PAGE>
EXPERTS
The consolidated financial statements of StorageTek incorporated in this
Proxy Statement/Prospectus by reference, except as they relate to the unaudited
consolidated financial statements of StorageTek included in the Quarterly
Reports on Form 10-Q for the fiscal quarters ended April 1, July 1, and
September 30, 1994, have been audited by Price Waterhouse LLP and KPMG Peat
Marwick LLP, independent accountants. The companies and periods covered by
these audits are indicated in the individual accountants' reports. Such
consolidated financial statements have been so incorporated in reliance on the
reports of the two independent accountants given on the authority of such firms
as experts in auditing and accounting.
The consolidated financial statements of Network Systems incorporated by
reference in Network Systems' Annual Report (Form 10-K/A, as amended) 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 6,781 shares, and holds
options to purchase an additional 23,263 shares of StorageTek Stock). The
opinion of counsel described under "The Merger--Certain Federal Income Tax
Consequences" has been rendered by Oppenheimer Wolff & Donnelly, counsel to
Network Systems, which opinion is subject to various assumptions and
qualifications and is based upon current law.
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.
44
<PAGE>
APPENDIX A
RESTATED
AGREEMENT
AND
PLAN OF MERGER
BY AND AMONG
STORAGE TECHNOLOGY CORPORATION,
STORAGETEK EAGLE CORPORATION
AND
NETWORK SYSTEMS CORPORATION
DATED
AUGUST 8, 1994
AS
AMENDED ON
AUGUST 25, 1994
AND
SEPTEMBER 9, 1994
AND RESTATED ON
NOVEMBER 15, 1994
<PAGE>
TABLE OF CONTENTS
-----------------
Page(s)
-------
RECITALS................................................................. A-1
ARTICLE I THE MERGER..................................................... A-1
Section 1.01 The Merger........................................ A-1
Section 1.02 Effective Time.................................... A-2
Section 1.03 Certificate of Incorporation and By-Laws of the
Surviving Corporation............................. A-2
Section 1.04 Board of Directors and Officers................... A-2
Section 1.05 Conversion of Shares.............................. A-2
Section 1.06 Adjustments to Conversion Number.................. A-3
Section 1.07 Surrender of Certificates; Payment for and
Exchange of Shares................................ A-3
Section 1.08 No Fractional Shares.............................. A-5
Section 1.09 Adjustment Event.................................. A-5
Section 1.10 No Further Transfers.............................. A-5
ARTICLE II RELATED MATTERS............................................... A-5
Section 2.01 Treatment of Stock Options........................ A-5
Section 2.02 Stockholder Approvals............................. A-6
Section 2.03 Proxy Statement, Etc.............................. A-6
Section 2.04 Registration Statement............................ A-6
Section 2.05 Compliance with the Securities Act................ A-6
Section 2.06 Stock Exchange Listing............................ A-7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ A-7
Section 3.01 Corporate Organization............................ A-7
<PAGE>
TABLE OF CONTENTS
-----------------
Page(s)
-------
Section 3.02 Authorization..................................... A-7
Section 3.03 Capitalization.................................... A-7
Section 3.04 Affiliated Entities............................... A-8
Section 3.05 SEC Reports and Financial Statements.............. A-9
Section 3.06 Absence of Certain Changes or Events.............. A-9
Section 3.07 Consents and Approvals; No Violation.............. A-9
Section 3.08 Undisclosed Liabilities........................... A-10
Section 3.09 Taxes............................................. A-10
Section 3.10 Title and Related Matters......................... A-11
Section 3.11 Patents, Trademarks, and Other Intellectual
Property.......................................... A-11
Section 3.12 Material Contracts................................ A-12
Section 3.13 Litigation........................................ A-12
Section 3.14 Insurance......................................... A-13
Section 3.15 Compliance with Laws.............................. A-13
Section 3.16 Employee Benefit Plans............................ A-13
Section 3.17 Employment Related Agreements..................... A-14
Section 3.18 Labor Agreements and Controversies................ A-14
Section 3.19 Environmental Matters............................. A-14
Section 3.20 Absence of Questionable Payments.................. A-16
Section 3.21 Ownership of Parent Shares........................ A-16
Section 3.22 Certain Fees...................................... A-16
Section 3.23 Disclosure........................................ A-16
Section 3.24 Proxy Statement, Etc.............................. A-17
A-ii
<PAGE>
TABLE OF CONTENTS
-----------------
Page(s)
-------
Section 3.25 Accounts Receivable; Inventory; Goodwill; and
Leasing Transactions.............................. A-17
Section 3.26 Post-Retirement and Post-Employment Benefit
Obligations....................................... A-17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE
SUBSIDIARY.................................................... A-18
Section 4.01 Corporate Organization............................ A-18
Section 4.02 Authorization..................................... A-18
Section 4.03 Capitalization.................................... A-18
Section 4.04 Financial Statements and Reports.................. A-19
Section 4.05 Absence of Certain Changes........................ A-19
Section 4.06 Consents and Approvals; No Violations............. A-19
Section 4.07 Litigation........................................ A-20
Section 4.08 Compliance with Laws.............................. A-20
Section 4.09 Registration Statement............................ A-20
Section 4.10 No Undisclosed Liabilities........................ A-21
Section 4.11 Disclosure........................................ A-21
ARTICLE V COVENANTS...................................................... A-21
Section 5.01 Conduct of Business of the Company................ A-21
Section 5.02 No Solicitation................................... A-23
Section 5.03 Access to Information............................. A-24
Section 5.04 Agreements of Affiliates.......................... A-24
Section 5.05 All Reasonable Efforts............................ A-24
Section 5.06 Public Announcements.............................. A-24
Section 5.07 Notification of Certain Matters................... A-25
A-iii
<PAGE>
TABLE OF CONTENTS
-----------------
Page(s)
-------
Section 5.08 Indemnification and Insurance..................... A-25
Section 5.09 Regulatory Approvals.............................. A-26
Section 5.10 Pooling........................................... A-27
Section 5.11 Employee Matters.................................. A-27
Section 5.12 Other Matters..................................... A-28
Section 5.13 Redemption of Rights.............................. A-28
Section 5.14 Disclosure Schedule Supplement and Review......... A-28
ARTICLE VI CLOSING....................................................... A-29
Section 6.01 Time and Place.................................... A-29
Section 6.02 Deliveries at the Closing......................... A-29
ARTICLE VII CONDITIONS TO THE MERGER..................................... A-29
Section 7.01 Conditions to the Obligations of the Parent, the
Subsidiary and the Company........................ A-29
Section 7.02 Additional Conditions to the Obligations of the
Parent and the Subsidiary......................... A-30
Section 7.03 Additional Conditions to the Obligations of the
Company........................................... A-31
ARTICLE VIII TERMINATION AND ABANDONMENT................................. A-32
Section 8.01 Termination....................................... A-32
Section 8.02 Fees and Expenses................................. A-34
Section 8.03 Procedure and Effect of Termination............... A-34
ARTICLE IX GENERAL PROVISIONS............................................ A-35
Section 9.01 Amendment and Modification........................ A-35
Section 9.02 Waiver of Compliance; Consents.................... A-35
Section 9.03 Validity.......................................... A-35
A-iv
<PAGE>
TABLE OF CONTENTS
-----------------
Page(s)
-------
Section 9.04 Parties in Interest............................... A-35
Section 9.05 Survival of Representations, Warranties, Covenants
and Agreements.................................... A-35
Section 9.06 Notices........................................... A-36
Section 9.07 Governing Law..................................... A-36
Section 9.08 Counterparts...................................... A-36
Section 9.09 Table of Contents and Headings.................... A-37
Section 9.10 Entire Agreement.................................. A-37
Section 9.11 Miscellaneous..................................... A-37
A-v
<PAGE>
RESTATED AGREEMENT AND PLAN OF MERGER
THIS RESTATED AGREEMENT AND PLAN OF MERGER, dated as of November 15,
1994 (the "Agreement"), is among Storage Technology Corporation, a Delaware
corporation (the "Parent"), StorageTek Eagle Corporation, a Delaware corporation
and a direct wholly-owned subsidiary of the Parent (the "Subsidiary"), and
Network Systems Corporation, a Delaware corporation (the "Company").
RECITALS
The Boards of Directors of the Parent, the Subsidiary and the Company
have approved the merger of the Subsidiary with and into the Company (the
"Merger"). The Merger will have the effects set forth in this Agreement and as
a result of the Merger, shares of common stock of the Company will be converted
into shares of common stock of the Parent and the Company will become a wholly-
owned subsidiary of the Parent. For accounting purposes, it is intended that
the Merger shall be recorded as a pooling of interests and for tax purposes it
is intended that the Merger shall qualify as a tax free reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code").
The Parent and certain shareholders of the Company have entered into
various agreements (collectively, the "Shareholder Agreements") substantially in
the form of Exhibit A to this Agreement by which such shareholders have, among
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other things, consented to the Merger and agreed to vote such shares in favor of
the Merger unless the Board of Directors, in the exercise of its fiduciary duty,
has withdrawn its recommendation to shareholders of the Company to vote in favor
of the Merger.
Parent, Subsidiary and Company entered into an Agreement and Plan of
Merger on August 8, 1994 (the "Original Agreement"). The Original Agreement was
amended on August 25, 1994, and September 9, 1994 (collectively, the
"Amendments"). The parties desire to restate the Original Agreement to
incorporate the Amendments.
ARTICLE I
THE MERGER
Section 1.01 The Merger
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Upon the terms and subject to the satisfaction or, if permissible,
waiver of the conditions of this Agreement, at the Effective Time (as defined in
Section 1.02 hereof), the Subsidiary shall be merged with and into the Company
in accordance with the applicable provisions of Delaware law and the separate
existence of Subsidiary shall thereupon cease, and the Company, which shall be
and which is hereinafter sometimes referred to as the "Surviving Corporation,"
shall continue its corporate existence under the laws of the State of Delaware
under the name "Network Systems Corporation." From and after the Effective
Time, the Company shall possess all of the rights, privileges, powers and
franchises of a public as well as of a private nature, and be subject to all the
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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, 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.
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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 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
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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 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 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.
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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
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
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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 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
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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.
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
liability attaching to the ownership thereof. Except as set forth on Section
3.03 of the Company Disclosure Schedule, there are no options, warrants,
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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 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
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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;
(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,
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(iv) such filings and approvals as may be required under the "blue sky,"
takeover or securities laws of various states, or (v) where the failure to make
any such filing, or to obtain such permit, authorization, consent or approval,
would not prevent or delay consummation of the Merger or would not otherwise
prevent the Company from performing its obligations under this Agreement. Except
as set forth in Section 3.07 of the Company Disclosure Schedule, neither the
execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (i) result in the acceleration of, or the
creation in any party of any right to accelerate, terminate, modify or cancel
any material indenture, contract, lease, sublease, loan agreement, note or other
obligation or liability to which the Company or any affiliated entity is a party
or by which any of them is bound or to which any of their assets is subject,
(ii) conflict with or result in a breach of or constitute a default under any
provision of the Certificate of Incorporation or By-laws (or other charter
documents) of the Company or any affiliated entity, or a default under or
violation of any material restriction, lien, encumbrance, indenture, contract,
lease, sublease, loan agreement, note or other obligation or liability to which
any of them is a party or by which any of them is bound or to which any of their
assets is subject or result in the creation of any lien or encumbrance upon any
of said assets, or (iii) violate or result in a breach of or constitute a
default under any judgment, order, decree, rule or regulation of any court or
governmental agency to which the Company or any affiliated entity is subject.
Section 3.08 Undisclosed Liabilities
-----------------------
The Company and its affiliated entities have no liabilities or
obligations, either accrued, absolute, contingent or otherwise material to the
Company and its subsidiaries, taken as a whole, except (i) to the extent
reflected or reserved for on the Consolidated Balance Sheet of the Company and
its subsidiaries included in its Annual Report on Form 10-K for the year ended
December 31, 1993, or the notes thereto (the "Latest Balance Sheet"), (ii)
liabilities or obligations not material to the Company and its subsidiaries,
taken as a whole, incurred in the ordinary course of business of the Company
since December 31, 1993, (iii) liabilities or obligations disclosed in Company
SEC Filings since December 31, 1993, or the Company Disclosure Schedule, (iv)
liabilities or obligations disclosed in this Agreement, or (v) in connection
with or as a result of the transactions contemplated by this Agreement.
Section 3.09 Taxes
-----
(a) For purposes of this Agreement, the term "Taxes" shall mean all
taxes, charges, fees, levies, withholding or other assessments, including,
without limitation, income, excise, property, sales and franchise taxes, imposed
by the United States, or any state, county, local or foreign government or
subdivision or agency thereof, and including any interest, penalties or
additions attributable thereto.
(b) Except as set forth in Section 3.09(b) of the Company Disclosure
Schedule, each of the Company and the affiliated entities has duly filed all
required reports and returns of Taxes required to be filed by it and has duly
paid or made provision for payment of all Taxes and other charges shown on such
reports and returns which are material in amount.
(c) The reserves for Taxes reflected in the Latest Balance Sheet are
adequate, and there are no material tax liens upon any property or assets of the
Company
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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, (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
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<PAGE>
Proprietary Rights consisting of patents, patent applications, trademarks,
trademark applications, trade names and service marks owned or utilized by the
Company or its affiliated entities. Section 3.11 of the Company Disclosure
Schedule also lists all licenses or other contracts related thereto, other than
those entered into in the ordinary course. With respect to such Proprietary
Rights, and except as set forth in Section 3.11 of the Company Disclosure
Schedule, (i) the Company has no Knowledge of any claim asserted by any person
challenging such Proprietary Rights which could have a material adverse effect
on the business of the Company and its affiliated entities, (ii) to the
Knowledge of the Company, none of the aforesaid infringes or otherwise violates
the rights of others or is being infringed by others, and (iii) except for sales
and licenses in the ordinary course of business, no licenses, sublicenses or
agreements pertaining to any of the aforesaid have been granted by the Company
or any affiliated entity.
Section 3.12 Material Contracts
------------------
(a) Set forth in Section 3.12(a) of the Company Disclosure Schedule is
a complete and accurate listing, with respect to the Company and its affiliated
entities, of (i) any contract for the lease of property from third parties
providing for aggregate lease payments in excess of Sixty Thousand Dollars
($60,000) per annum; (ii) any contract in effect on the date hereof which
involves more than One Hundred Thousand Dollars ($100,000) for the purchase of
materials, commodities, supplies or other personal property or for the receipt
of services or for the sale of products manufactured by the Company, other than
those entered into in the ordinary course of business; (iii) any partnership or
joint venture agreement; and (iv) any agreement or instrument under which the
Company or any affiliated entity is indebted for borrowed money.
(b) All outstanding purchase orders or purchasing commitments and all
outstanding sales orders and commitments of the Company and its affiliated
entities have entered into in the ordinary course of business.
(c) No event has occurred and is continuing under any of the contracts
or obligations listed in Section 3.12(a) of the Company Disclosure Schedule,
which (with or without notice, lapse of time, or both) would constitute a
default thereunder on the part of the Company or any affiliated entity and which
would have a material adverse effect on the Company.
(d) Neither the Company nor any affiliated entity is a guarantor or
otherwise liable for any indebtedness of any other person which would have a
material adverse effect on the Company, except as incurred in the ordinary
course of business.
Section 3.13 Litigation
----------
Except as set forth in Section 3.13 of the Company Disclosure
Schedule, there is no action, proceeding or investigation pending or, to the
Knowledge of the Company, threatened against or involving the Company or any of
its affiliated entities or any of their respective properties, assets, rights or
obligations before any court, arbitrator or administrative or governmental body,
nor is there any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against the Company or any of its affiliated entities in which a
decision could have a material adverse effect on the Company. Neither the
Company nor any of its affiliated entities is in violation of any term of any
judgment, decree, injunction or order outstanding against it. There are no
actions, suits or proceedings pending or, to
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
such property upon or beneath other properties, nor have any Hazardous Materials
migrated or threatened to migrate from other properties upon, about or beneath
any real property owned or leased by the Company or any affiliated entity.
(c) Except as disclosed in Section 3.19(c) of the Company Disclosure
Schedule, (i) no notices of any violation or alleged violation of any
Environmental Laws have been received by the Company or any affiliated entity or
by any prior owner or occupant of any real property owned or leased by the
Company or any affiliated entity, and (ii) there are no writs, injunctions,
decrees, orders or judgments outstanding, or any actions, suits, claims,
proceedings or investigations pending or threatened, relating to the ownership,
use, maintenance or operation of any real property owned or leased by the
Company or any affiliated entity nor is there any basis for any such actions,
suits, claims, proceedings or investigations being instituted or filed.
(d) "Environmental Law" shall mean all applicable statues,
regulations, rules, ordinances, codes, licenses, permits, orders, approvals,
authorizations and similar items of all governmental agencies, departments,
commissions, boards, bureaus or instrumentalities of the United States, states
and political subdivisions thereof and all applicable judicial and
administrative and regulatory decrees, judgments and orders relating to the
protection of human health or the environment, including, without limitation:
(1) all requirements, including, but not limited to, those
pertaining to reporting, licensing, permitting, investigation and
remediation of emissions, discharges, releases or threatened releases of
"Hazardous Materials," substances, pollutants, contaminants or hazardous or
toxic substances, materials or wastes whether solid, liquid or gaseous in
nature, into the air, surface water, groundwater or land, or relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of substances, pollutants, contaminants or
hazardous or toxic substances, materials, or wastes, whether solid, liquid
or gaseous in nature, including by way of illustration and not by way of
limitation, (x) the Clean Air Act (42 U.S.C. (S)(S) 7401 et seq.), the
------
Federal Water Pollution Control Act (33 U.S.C. (S)(S) 1251), the Safe
Drinking Water Act (42 U.S.C. (S)(S) 300f et seq.), the Toxic Substances
-------
Control Act (15 U.S.C. (S)(S) 2601 et seq.), the Endangered Species Act (16
------
U.S.C. (S)(S) 1531 et seq.), the Emergency Planning and Community Right-to-
------
Know Act of 1986 (42 U.S.C. (S)(S) 11001 et seq.), and (y) analogous state
------
and local provisions; and
(2) all requirements pertaining to the protection of the health
and safety of employees or the public.
(e) "Hazardous Material" means any chemical substance:
(1) the presence of which requires investigation or remediation
under any federal, state or local statute, regulation, ordinance, order,
action or policy, administrative request or civil complaint under any of
the foregoing or under common law; or
(2) which is defined as a "hazardous waste" or "hazardous
substance" under any federal, state or local statute, regulation or
ordinance or amendments thereto including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. Section 9601
A-15
<PAGE>
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.
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.
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<PAGE>
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.
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.
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<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE PARENT AND THE SUBSIDIARY
The Parent and the Subsidiary represent and warrant to the Company as
follows:
Section 4.01 Corporate Organization
----------------------
The Parent and the Subsidiary are corporations duly organized, validly
existing and in good standing under the laws of the State of Delaware with all
requisite corporate power and authority to own, operate and lease their
respective properties and to carry on their respective businesses as now being
conducted and are duly qualified or licensed to do business and are in good
standing in each jurisdiction in which their ownership or leasing of property or
conduct of business requires such licensing or qualification, except where the
failure to be so qualified would not have a material adverse effect on Parent.
Section 4.02 Authorization
-------------
The Parent and the Subsidiary have the requisite corporate power and
authority to enter into this Agreement and to carry out their respective
obligations hereunder. The execution and delivery by the Parent and the
Subsidiary of this Agreement and the performance by each of them of their
respective obligations hereunder and the consummation by each of them of the
transactions contemplated hereby have been duly authorized by their respective
Boards of Directors and by the Parent as the sole shareholder of the Subsidiary
and no other corporate proceeding on their part is necessary for the execution
and delivery thereof, and the performance of their respective obligations
hereunder, and the consummation by each of them of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by each of them and
it is a legal, valid and binding obligation of the Parent and the Subsidiary
enforceable against each of them in accordance with its terms.
Section 4.03 Capitalization
--------------
The authorized capital stock of the Parent and Subsidiary as well as
the number of outstanding shares of each class of capital stock of the Parent
and Subsidiary is as set forth on Section 4.03 of the Parent and Subsidiary
Disclosure Schedule to this Agreement executed by the Parent and Subsidiary and
delivered to Parent simultaneously with the execution of this Agreement (the
"Parent and Subsidiary Disclosure Schedule"). All of such outstanding shares
have been duly and validly issued, were not issued in violation of any
preemptive rights and are fully paid and non-assessable with no personal
liability attaching to the ownership thereof. Except as set forth on Section
4.03 of the Parent and Subsidiary Disclosure Schedule, there are no options,
warrants, subscriptions, conversion or other rights, agreements, commitments,
arrangements or understandings with respect to the issuance of shares of capital
stock of the Parent or Subsidiary or any other securities convertible into,
exchangeable for or evidencing the right to subscribe for any such shares.
Section 4.03 of the Parent and Subsidiary Disclosure Schedule lists each of the
Parent and Subsidiary's stock option plans and other stock award plans, true and
correct copies of which have been provided by the Parent and Subsidiary to the
Company.
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<PAGE>
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, 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
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<PAGE>
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 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
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<PAGE>
Registration Statement. None of the information with respect to the Parent or
any affiliate or associate of the Parent that has been supplied by the Parent or
any of its accountants, counsel or other authorized representatives in writing
(the "Parent Information") specifically for use in the Proxy Statement will, at
the time the Proxy Statement is first mailed to shareholders of the Company,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
Section 4.10 No Undisclosed Liabilities
--------------------------
Except as and to the extent set forth on the consolidated balance
sheet of the Parent as of December 31, 1993, included in the Required Parent
Reports, neither the Parent nor any of its subsidiaries had, at such date, any
liabilities or obligations (absolute, accrued, contingent or otherwise) material
to the Parent and its subsidiaries taken as a whole and since that date neither
the Parent nor any of its subsidiaries has incurred any such liabilities or
obligations material to the Parent and its subsidiaries taken as a whole except
those incurred in the ordinary and usual course of business and consistent with
past practice or in connection with or as a result of the transactions
contemplated by this Agreement to which the Parent or the Subsidiary is or is to
be a party.
Section 4.11 Disclosure
----------
No representation or warranty by the Parent or the Subsidiary in this
Agreement and no statement contained or to be contained in any document,
certificate or other writing furnished or to be furnished by either the Parent
or the Subsidiary to the Company, contains or will contain any untrue statement
of a material fact or omits or will omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
ARTICLE V
COVENANTS
Section 5.01 Conduct of Business of the Company
----------------------------------
Except as contemplated by this Agreement or to the extent that Parent
shall otherwise consent in writing, during the period from the date of this
Agreement to the Effective Time, the Company and its affiliated entities will
conduct their respective operations only in, and the Company and its affiliated
entities will not take any action except in, the ordinary course of business and
the Company and its affiliated entities will use all reasonable efforts to
preserve intact in all material respects their respective business
organizations, assets, prospects and advantageous business relationships, to
keep available the services of their respective officers and key employees and
to maintain satisfactory relationships with their respective licensors,
licensees, suppliers, contractors, distributors, customers and others having
advantageous business relationships with them. Without limiting the generality
of the foregoing, except as contemplated by this Agreement, neither the Company
nor any of its affiliated entities will, without the prior written consent of
the Parent:
(a) amend its Articles or Certificate of Incorporation or By-Laws or
change its authorized number of directors;
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(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 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;
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(i) waive, release, grant or transfer any material rights or modify or
change in any material respect any material existing license, lease, contract or
other document, other than in the ordinary course of business and consistent
with past practice; or
(j) take any action or agree, in writing or otherwise, to take any of
the foregoing actions or any action which would at any time make any
representation or warranty in Article III (other than subsection 3.09(b) solely
as it relates to payment, Section 3.11 with respect to the defense of any
litigation, arbitration or claim, 3.12(c) solely as it relates to payment or
financial covenant defaults and Section 3.13) untrue or incorrect.
Section 5.02 No Solicitation
---------------
Neither the Company nor any of its affiliated entities will, nor will
any of them authorize any director or authorize or permit any officer or
employee or representative or agent retained by it to, directly or indirectly,
encourage, initiate, solicit or, unless, based upon the advice of counsel, such
action is necessary to fulfill fiduciary duties of the Company's Board of
Directors or as required under applicable law, consider, entertain or recommend
approval, acceptance or consideration of any offer or proposal from, or provide
any confidential information to, any corporation, partnership, person or other
entity or group (as defined in Section 13(d)(3) of the Exchange Act), other than
the Parent and its subsidiaries (a "Third Party"), concerning (or concerning the
business of the Company or its affiliated entities in connection with) any
tender offer (including a self tender offer), exchange offer, merger,
consolidation, sale of substantial assets or of a substantial amount of assets,
sale of a substantial equity interest, direct or indirect acquisition of
beneficial ownership of or power to vote a substantial equity interest,
liquidation, dissolution or similar transactions involving the Company or any of
its affiliated entities (such offers or proposals or transactions being referred
to herein as "Acquisition Proposals"); provided that nothing contained in this
Section 5.02 or in any other provision of this Agreement shall prohibit the
Company or its Board of Directors from (i) taking and disclosing to the
Company's stockholders a position with respect to a tender or 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 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
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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 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
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as of the date hereof, with respect to claims or liabilities arising from facts
or events existing or occurring prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement), shall survive the
Merger. The obligations of the Parent described in this Section 5.08(a) shall
continue in full force and effect, without any amendment thereto, for a period
of not less than six years from the Effective Time; provided, however, that all
rights to indemnification in respect of any Claim asserted or made within such
period shall continue until the final disposition of such Claim; and provided
further that nothing in this Section 5.08(a) shall be deemed to modify
applicable Delaware law regarding indemnification of former officers and
directors. Parent acknowledges that the Company has agreed to indemnify certain
of its employees pursuant to indemnification agreements in the form attached to
the Company Disclosure Schedule. Except as otherwise provided in Section
5.08(c), from and after the Effective Time, Parent agrees to assume the
Company's obligations pursuant to such indemnification agreements.
(b) Except as otherwise provided in Section 5.08(c), Parent and the
Surviving Corporation shall cause to be maintained in effect for not less than
four years from the Effective Time the current policies of a directors' and
officers' liability insurance maintained by the Company and the Company's
affiliated entities (provided that Parent and the Surviving Corporation may
substitute therefor policies of at least the same coverage containing terms and
conditions which are no less advantageous to the Indemnified Parties so long as
no lapse in coverage occurs as a result of such substitution) with respect to
all matters, including the transactions contemplated hereby, occurring prior to,
and including, the Effective Time, provided that, in the event that any Claim is
asserted or made within such four-year period, such insurance shall be continued
in respect of any such Claim until final disposition of any and all such Claims.
(c) Prior to the Effective Time, the Company shall use its best
efforts to enter into an amendment to the indemnification agreement with each of
the directors and officers of the Company providing that, effective at the
Effective Time, Sections 3 and 4 thereof shall be deleted in their entirety.
The last sentence of Section 5.08(a) and all of the provisions of Section
5.08(b) shall not apply to any director or officer who shall not agree to such
amendment.
(d) The obligations of Parent and the Surviving Corporation under this
Section 5.08 are intended to benefit, and be enforceable against Parent and the
Surviving Corporation directly by, the Indemnified Parties, and shall be binding
on all respective successors of Parent and the Surviving Corporation.
Section 5.09 Regulatory Approvals
--------------------
The Company and Parent will take all such action as may be necessary
under federal or state securities laws or the HSR Act applicable to or necessary
for, and will file and, if appropriate, use their best efforts to have declared
effective or approved all documents and notifications with the SEC and other
governmental or regulatory bodies which they deem necessary or appropriate for
the consummation of the Merger and the transactions contemplated hereby, and
each party shall give the other information reasonably requested by such other
party pertaining to it and its subsidiaries and affiliates to enable such other
party to take such actions, and the Company and Parent shall file in a timely
manner all reports and documents required to be so filed by or under the 1934
Act which they deem necessary or appropriate in relation to the Merger.
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<PAGE>
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 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
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and their respective beneficiaries and other successors in interest, and shall
be binding on all successors of Parent.
Section 5.12 Other Matters
-------------
The Company shall use its best efforts to:
(a) amend the terms of the option agreements held by employees of the
Company which were modified by Company in April of 1994, to conform to the
original terms of such option agreements; and
(b) successfully complete the actions described in Sections
8.01(h)(ii) and 8.01(h)(iv).
Any change in the business, operations or financial condition of the
Company as a result of any payments made by the Company in connection with
repurchasing, redeeming, canceling or otherwise acquiring shares of Company
Common Stock or options to purchase shares of Company Common Stock pursuant to
this Section 5.12 shall not be considered for purposes of determining whether
any condition contained in Section 7.02(k) has been met.
Section 5.13 Redemption of Rights
--------------------
The Company may take all necessary action to cause the rights issued
pursuant to the Company Rights Agreement to be redeemed at the Effective Time
and may cause the redemption price to be paid in connection therewith.
Section 5.14 Disclosure Schedule Supplement and Review
-----------------------------------------
As of the date hereof, the Company has not completed its internal
investigation and review for purposes of confirming and verifying the
representations and warranties of the Company contained in this Agreement, as
such representations and warranties relate to the Company's international
operations. Consequently, the Company Disclosure Schedule delivered to Parent as
of the date hereof does not include complete disclosure of matters related to
the 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.
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ARTICLE VI
CLOSING
Section 6.01 Time and Place
--------------
Subject to the provisions of Articles VII and VIII, the consummation
of the transactions contemplated by this Agreement (the "Closing") will take
place at the offices of Gibson, Dunn & Crutcher, 2029 Century Park East, Los
Angeles, California 90067, immediately after the approval of shareholders of the
Company referred to in Section 2.02 hereof and the fulfillment of the other
conditions to the Merger set forth in Article VII hereof has been obtained or at
such other place or at such other time as may be mutually agreed upon by the
Parent and the Company.
Section 6.02 Deliveries at the Closing
-------------------------
Subject to the provisions of Articles VII and VIII, at the Closing:
(a) There will be delivered to the Parent and the Company the
certificates and other documents and instruments the delivery of which is
contemplated under Article VII; and
(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
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by any court or governmental authority which prohibits or restricts the
effectuation of the Merger; and
(f) No governmental action or proceeding shall have been commenced or
threatened seeking any injunction, restraining or other order which seeks to
prohibit, restrain, invalidate or set aside the effectuation of the Merger.
Section 7.02 Additional Conditions to the Obligations of the Parent
------------------------------------------------------
and the Subsidiary
------------------
The obligations of the Parent and the Subsidiary to effect the Merger
are also subject to the fulfillment at or prior to the date of the Closing of
the following additional conditions:
(a) The Company shall have performed and complied in all material
respects with the agreements and obligations contained in this Agreement that
are required to be performed and complied with by it at or prior to the date of
the Closing;
(b) The representations and warranties of the Company contained in
this Agreement shall be true and correct in all material respects, as of the
date hereof and shall be deemed to have been made again at and as of the date of
the Closing and shall then be true and correct in all material respects;
(c) All corporate actions on the part of the Company necessary to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby or thereby shall have been
duly and validly taken;
(d) The Parent shall have received from each person who is identified
as an "affiliate" of the Company for purposes of Rule 145 under the Securities
Act, as identified in the list delivered pursuant to Section 2.05, a written
agreement substantially in the form of Exhibit B to this Agreement with respect
---------
to the shares of Parent Common Stock to be received by such affiliate in the
Merger;
(e) The Company shall have received consents to the Merger from all
persons from whom such consent or waiver is required, as referred to in Section
5.09;
(f) The Parent shall have received from Ernst & Young independent
certified public accountants for the Company, letters dated the effective date
of the Registration Statement and the Effective Time, substantially in the form
of Exhibit C hereto and in substance reasonably satisfactory to the Parent;
---------
(g) The Parent shall have received from Price Waterhouse, independent
certified public accountants for the Parent, a letter dated the date of the
Effective Time confirming, as of that date, their prior advice to the Parent
that the Merger will be treated for accounting purposes as a "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;
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(i) The Parent shall have received the opinions of counsel from
Oppenheimer, Wolff & Donnelly, special counsel to the Company and from the
Company's General Counsel covering such matters and in form and substance
reasonably satisfactory to Parent and its special counsel;
(j) The Parent shall have received such certificates of officers of
the Company and such certificates of others to evidence compliance with the
conditions set forth in this Section and in Section 7.01 as may be reasonably
requested by the Parent; and
(k) Since the date of this Agreement, there shall have been no
material adverse change in, and no event, occurrence or development in the
business of the Company that, taken together with other events, occurrences and
developments with respect to such business, would have or would reasonably be
expected to have a material adverse effect on, the business, operations or
financial condition of the Company and its subsidiaries, taken as a whole.
Section 7.03 Additional Conditions to the Obligations of the Company
-------------------------------------------------------
The obligations of the Company to effect the Merger are also subject
to the fulfillment at or prior to the date of the Closing of the following
additional conditions:
(a) The Parent and the Subsidiary shall have performed and complied in
all material respects with the agreements and obligations contained in this
Agreement that are required to be performed and complied with by them at or
prior to the date of the Closing;
(b) The representations and warranties of the Parent and the
Subsidiary contained in this Agreement shall be true and correct in all material
respects as of the date hereof and shall be deemed to have been made again at
and as of the date of the Closing and shall then be true and correct in all
material respects;
(c) All corporate actions on the part of the Parent and the Subsidiary
necessary to authorize the execution, delivery and performance of this Agreement
and the 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
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conditions set forth in this Section and in Section 7.01 as may be reasonably
requested by the Company.
ARTICLE VIII
TERMINATION AND ABANDONMENT
Section 8.01 Termination
-----------
This Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time, whether before or after the approval by
shareholders referred to in Section 2.02:
(a) after February 28, 1995, by either the Company or Parent, if the
Closing has not occurred for any reason other than a breach of this Agreement by
the terminating party;
(b) by Parent, if there has been a material breach by the Company of
any agreement, representation or warranty contained in this Agreement which has
rendered the satisfaction of any condition to the obligations of Parent and
Subsidiary impossible and such breach has not been waived by Parent;
(c) by the Company, if there has been a material breach by Parent or
the Subsidiary of any agreement, representation or warranty contained in this
Agreement which has rendered the satisfaction of any condition to the
obligations of the Company impossible and such breach has not been waived by the
Company;
(d) by Parent or the Company, if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action (which the Parent,
the Subsidiary and the Company agree to use all reasonable efforts to
terminate), in each case permanently restraining, enjoining or otherwise
prohibiting the Merger;
(e) by the Company, if the Board of Directors of the Company has
accepted an Approved Offer in accordance with Section 5.02;
(f) by either Parent or the Company if the Company's shareholders
shall have voted on and failed to adopt and approve, this Agreement and Merger;
(g) by mutual consent of the Parent and the Company;
(h) by Parent on September 16, 1994, and for two business days
thereafter, if on or prior to September 16, 1994:
(i) The Parent shall not have received from Ernst & Young,
independent certified public accountants for the Company, a report
concerning the completion of tests of specific accounts and records of the
Company as requested by the Parent, which report shall confirm no material
difference from amounts contained in the consolidated financial statements
of the Company as at and for the period ended June 30, 1994; or
(ii) The Company shall not have completed the acquisition of all
or substantially all of the technology of TMD Products Inc. on terms and
conditions
A-32
<PAGE>
substantially similar to those contained in the letter of intent
previously provided to Parent and otherwise reasonably satisfactory to
Parent; or
(iii) The Parent shall not have received all requisite consents
and approvals to the Merger from its Lenders under the $150,000,000
Multicurrency Credit Agreement, dated as of March 31, 1993 to which Parent
and certain of its subsidiaries are parties; or
(iv) The Company shall not have purchased, redeemed, canceled or
otherwise acquired (in accordance with the advice and consent of Price
Waterhouse to the effect that such action would not affect the financial
reporting of the Merger as a "pooling-of-interests" and at an effective
price per share of less than $10.00 per share) Company Common Stock or
options to purchase shares of Company Common Stock in sufficient quantities
so as to reduce the outstanding issued Company Common Stock and the
outstanding Company Common Stock reserved for issuance upon exercise of
options, warrants, subscriptions, conversion rights or other rights,
agreements, commitments, arrangements or understandings with respect to the
issuance of Company Common Stock to an amount not to exceed 32,594,141
shares;
(i) by Parent, or by the Company if the Company has not then breached
the covenant contained in Section 5.12(a) hereof, on September 16, 1994, and for
two business days thereafter, if on or prior to September 16, 1994, the Company
shall not have amended the terms of the option agreements held by all employees
of the Company which were modified by Company on or about April 28, 1994, to
conform to the original terms of all such option agreements, unless Parent shall
agree in writing with the Company prior to September 19, 1994 that failure to so
amend any of such option agreements shall not disqualify the Merger from being
treated for accounting purposes as a "pooling of interests" under Opinion No. 16
of the Accounting Principles Board;
(j) by Parent based upon the exercise of its right to terminate this
Agreement under the terms of Section 5.14 hereof; or
(k) by the Company if (i) the average closing price of Parent Common
Stock as reported on the New York Stock Exchange, Inc. for the ten trading day
period ending two trading days prior to the Effective Time (the "Average Price")
is less than $30.37 per share (adjusted to reflect any Adjustment Events), and
(ii) Parent does not agree in writing, within five business days of written
notice from the Company to parent that it intends to exercise its right of
termination pursuant to this Section 8.01(k), to amend this Agreement (A) to
adjust the Conversion Number so that the product of the Conversion Number and
the Average Price equals at least $7.95 per share, or (B) to provide that, in
addition to the Parent Common Stock otherwise provided for by this Agreement,
the Merger Consideration shall consist of cash such that the aggregate of the
Parent Common Stock and cash comprising the Merger Consideration shall equal at
least $7.95 per share, provided, with respect to this clause (B), that the
inclusion of such cash consideration does not disqualify the Merger as a tax
free reorganization within the meaning of Section 368(a) of the Code and that
Parent may not terminate this Agreement pursuant to Section 7.02(g) hereof if
the failure to satisfy such condition is due to the inclusion of such cash
consideration.
A-33
<PAGE>
Section 8.02 Fees and Expenses
-----------------
(a) In the event that the Merger is not consummated because this
Agreement is terminated as permitted by Section 8.01;
and
---
between February 22, 1994 and the time of such termination (i) any
Third Party (A) makes a written Acquisition Proposal to the Company or any
authorized director or officer or (B) publicly announces an Acquisition
Proposal, or (ii) the Company or any authorized director or officer of the
Company participates in discussions or negotiations with, or provides
confidential information to, any Third Party concerning an Acquisition Proposal;
and
---
at any time after the date of this Agreement and prior to six months
after the date of such termination any Third Party consummates any transaction
with the Company or any of its affiliate or affiliated entities (an "Alternative
Transaction") or enters into an agreement with the Company or any of its
affiliates with respect to an Alternative Transaction in which the sum, on a per
share basis, of (A) the fair market value of the consideration received by
Company shareholders (the "Consideration") in connection with such Alternative
Transaction, (B) the fair market value, if any, of the Company Common Stock or
other rights arising from Company Common Stock (other than the Consideration)
retained by Company Shareholders after the Alternative Transaction (the
"Retained Value"), and (C) the fair market value when declared, issued or at the
time of the consummation of the Alternative Transaction, whichever is higher, of
the dividends, redemptions or other distributions declared on or in relation to
Company Common Stock after the date hereof, exceeds $10.00 per share, adjusted
to reflect stock splits, distributions or dividends on Company Common Stock
after the date hereof;
then the Company will, within five days after the completion of such Alternative
Transaction (which involves Consideration which when aggregated with the items
listed in B and C above totals more than of $10.00 per share), (1) pay the
Parent a fee of $16 million and (2) reimburse the Parent for all reasonable
expenses and fees incurred by it or on its behalf in connection with the Merger
and the consummation of all transactions contemplated by this Agreement and the
financing of such transactions, and in connection with the negotiation,
preparation, execution and performance of this Agreement.
(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
A-34
<PAGE>
the other and this Agreement and the Merger Agreement shall terminate and the
Merger shall be abandoned, without further action by any of the Parent, the
Subsidiary or the Company. If this Agreement is terminated as provided herein
there shall be no liability or further obligation hereunder on the part of the
Parent, the Subsidiary or the Company, except as set forth in this Section and
in Sections 5.02, 5.03(b), 8.02 and Article IX. Nothing in this Section 8.03
shall relieve any party to this Agreement of liability for willful breach of
this Agreement.
ARTICLE IX
GENERAL PROVISIONS
Section 9.01 Amendment and Modification
--------------------------
Subject to applicable law, this Agreement may be amended, modified or
supplemented only by written agreement of the Parent, the Subsidiary and the
Company at any time prior to the Effective Time with respect to any of the terms
contained herein except that after the approvals by shareholders contemplated by
Section 2.02, the amount or form of consideration to be received by the holders
of voting shares of the Company may not be decreased or altered without the
approval of such holders.
Section 9.02 Waiver of Compliance; Consents
------------------------------
Any failure of Parent or the Subsidiary, on the one hand, or the
Company on the other hand, to comply with any obligation, covenant, agreement or
condition herein may be waived in writing by the Parent or the Company,
respectively, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any 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.
A-35
<PAGE>
Section 9.06 Notices
-------
All notices and other communications hereunder shall be in writing and
shall be deemed given on the date of delivery, if delivered personally or faxed
during normal business hours of the recipient, or three days after deposit in
the U.S. Mail, postage prepaid, if mailed by registered or certified mail
(return receipt requested) as follows:
(a) if to the Parent or the Subsidiary or to the Company after the
Effective Time, to:
Storage Technology Corporation
2270 South 88th Street
Louisville, CO 80028-4309
Attention: General Counsel
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.
A-36
<PAGE>
Section 9.09 Table of Contents and Headings
------------------------------
The table of contents and article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 9.10 Entire Agreement
----------------
This Agreement, including the exhibits and schedules hereto and the
documents and instruments referred to herein, embodies the entire agreement and
understanding of the Parent, the Subsidiary and the Company in respect of the
subject matter contained herein and supersedes all prior agreements and
understandings among them with respect to such subject matter.
Section 9.11 Miscellaneous
-------------
(a) Parent hereby agrees to cause the Subsidiary to comply with its
obligations hereunder and to cause the Subsidiary to consummate the Merger as
contemplated herein.
(b) For purposes of this Agreement, the term "Knowledge" of an entity
means knowledge actually possessed by any Director, officer or the direct
reports to such officers of such entity.
IN WITNESS WHEREOF, the Parent, the Subsidiary and the Company have
caused this Agreement to be signed on their behalf by their respective duly
authorized officers on the date first above written.
STORAGE TECHNOLOGY CORPORATION
By: /s/Ryal R. Poppa
-------------------------------------
Its: Chairman of the Board, President and
-------------------------------------
Chief Executive Officer
-------------------------------------
STORAGETEK EAGLE CORPORATION
By: /s/Gregory A. Tyman
-------------------------------------
Its: Executive Vice President
-------------------------------------
NETWORK SYSTEMS CORPORATION
By: /s/Michael Ashby
-------------------------------------
Its: Chief Operating Officer
-------------------------------------
A-37
<PAGE>
[NEEDHAM & COMPANY, INC. LETTERHEAD APPEARS HERE]
APPENDIX B
January 5, 1995
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 StorageTek Eagle Corporation, 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
January 5, 1995
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>
Publication No. NS2265
<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.
ITEM 21.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1*** Restated Agreement and Plan of Merger by and among the Registrant,
StorageTek Eagle Corporation and Network Systems Corporation dated
as of August 8, 1994, as amended as of August 25, 1994 and
September 9, 1994 and restated on November 15, 1994.
4.1 Restated Certificate of Incorporation and Restated bylaws of the
Registrant dated July 28, 1987 (filed as Exhibit 3 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 25, 1987, and incorporated herein by reference).
4.2 Certificate of Amendment dated May 22, 1989 to the Restated
Certificate of the Registrant dated July 28, 1987 (filed as Exhibit
(c)(1) to the Registrant's Current Report on Form 8-K dated June 2,
1989, and incorporated herein by reference).
4.3 Certificate of Second Amendment dated June 2, 1992 to the Restated
Certificate of Incorporation of the Registrant dated July 28, 1987
(filed as Exhibit (3) to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 26, 1992, and incorporated herein
by reference).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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.
8.1**** Tax Opinion of Oppenheimer Wolff & Donnelly
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).
23.5**** Consent of Oppenheimer Wolff & Donnelly (included in Exhibit 8.1)
23.6* Consent of Needham & Company, Inc. (included in Appendix B)
23.7* Consent of Needham & Company, Inc.
24.1** Powers of Attorney for each person executing the Registration
Statement.
99.1**** Form of Proxy.
</TABLE>
- --------
* Filed herewith.
** Previously filed on September 2, 1994, as a part of this Registration
Statement.
*** Previously filed on November 16, 1994, as a part of this Registration
Statement.
**** Previously filed on January 9, 1995, as part of this Registration
Statement.
(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.
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.
II-2
<PAGE>
(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;
(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-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS POST EFFECTIVE AMENDMENT NO. 1 TO THE REGISTRATION
STATEMENT (NO. 33-55343) TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED IN THE CITY OF LOUISVILLE, STATE OF COLORADO ON THE
9TH DAY OF JANUARY, 1995.
Storage Technology Corporation
* Ryal R. Poppa
By: _________________________________
RYAL R. POPPACHAIRMAN OF THE
BOARD, PRESIDENT,CHIEF EXECUTIVE
OFFICER AND DIRECTOR(PRINCIPAL
EXECUTIVE OFFICER)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS POST
EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
* Ryal R. Poppa Chairman of the Board, January 9, 1995
- ------------------------------------- President and Chief
RYAL R. POPPA Executive Officer and
Director (Principal
Executive Officer)
/s/ Gregory A. Tymn Senior Vice President January 9, 1995
- ------------------------------------- and Chief Financial
GREGORY A. TYMN Officer (Principal
Financial Officer)
* David E. Lacey Corporate Vice January 9, 1995
- ------------------------------------- President and
DAVID E. LACEY Controller
(Principal
Accounting Officer)
II-4
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
*Judith E.N. Albino Director January 9, 1995
- -------------------------------------
JUDITH E.N. ALBINO
*William L. Armstrong Director January 9, 1995
- -------------------------------------
WILLIAM L. ARMSTRONG
*Robert A. Burgin Director January 9, 1995
- -------------------------------------
ROBERT A. BURGIN
*Paul Friedman Director January 9, 1995
- -------------------------------------
PAUL FRIEDMAN
*Stephen J. Keane Director January 9, 1995
- -------------------------------------
STEPHEN J. KEANE
*Robert E. LaBlanc Director January 9, 1995
- -------------------------------------
ROBERT E. LABLANC
*Robert E. Lee Director January 9, 1995
- -------------------------------------
ROBERT E. LEE
*Dr. Harrison Shull Director January 9, 1995
- -------------------------------------
DR. HARRISON SHULL
*Richard C. Steadman Director January 9, 1995
- -------------------------------------
RICHARD C. STEADMAN
*Robert C. Wilson Director January 9, 1995
- -------------------------------------
ROBERT C. WILSON
*By: /s/ Gregory A. Tymn
--------------------------------
GREGORY A. TYMN
ATTORNEY IN FACT
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
2.1 Restated Agreement and Plan of Merger by and among the
Registrant, StorageTek Eagle Corporation and Network
Systems Corporation dated as of August 8, 1994, as
amended as of August 25, 1994 and September 9, 1994
and restated on November 15, 1994 .................... ***
4.1 Restated Certificate of Incorporation and Restated by-
laws 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 in-
corporated herein by reference)....................... *
4.2 Certificate of Amendment dated May 22, 1989 to the Re-
stated Certificate of the Registrant dated July 28,
1987 (filed as Exhibit (c)(1) to the Registrant's Cur-
rent Report on Form 8-K dated June 2, 1989, and incor-
porated herein by reference).......................... *
4.3 Certificate of Second Amendment dated June 2, 1992 to
the Restated Certificate of Incorporation of the Reg-
istrant 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 refer-
ence) ................................................ *
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 Asso-
ciation, New Jersey (filed as Exhibit 4.1 to the Reg-
istrant'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 Partici-
pating 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 in-
corporated herein by reference)....................... *
5.1 Opinion of General Counsel............................. ****
8.1 Tax Opinion of Oppenheimer Wolff & Donnelly............ ****
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)... ****
23.5 Consent of Oppenheimer Wolff & Donnelly (included in
Exhibit 8.1).......................................... ****
23.6 Consent of Needham & Company, Inc. (included in Appen-
dix B)................................................
23.7 Consent of Needham & Company, Inc. ....................
24.1 Powers of Attorney for each person executing the Regis-
tration 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.
** Previously filed on September 2, 1994, as a part of this Registration
Statement.
*** Previously filed on November 16, 1994, as a part of this Registration
Statement.
**** Previously filed on January 9, 1995, as a part of this Registration
Statement.
<PAGE>
Exhibit 23.7
CONSENT OF NEEDHAM & COMPANY, INC.
We hereby consent to the use of our opinion as Appendix B to the Proxy
Statement/Prospectus included in this Post Effective Amendment No. 1 to
Registration Statement No. 33-55343 and to the use of our firm's name as it
appears in such Proxy Statement/Prospectus.
/s/ Needham & Company, Inc.
- ---------------------------
Needham & Company, Inc.
New York, New York
January 9, 1995
