Merger background....................................
10kwizard.com
BACKGROUND OF THE MERGER Harmonic has been engaged for some time in developing and marketing digital video headend systems to complement its core business of providing fiber optic systems for cable operators. From time to time, Harmonic has considered expanding its digital video broadcasting systems business through acquisitions of digital video companies, including the DiviCom business of C-Cube Microsystems. In August 1997, Edward Thompson, Harmonic's Vice President of Business Development met with Tom Lookabaugh, President of C-Cube Microsystems' DiviCom business, to talk in general terms about the advantages of combining Harmonic and the DiviCom business. They discussed the merits of such a combination, and arranged a meeting in September 1997 between Anthony J. Ley, Chairman, President and Chief Executive Officer of Harmonic, and Alexandre Balkanski, President and Chief Executive Officer of C-Cube Microsystems. Following that meeting, Harmonic received indications from C-Cube Microsystems that it had no interest in pursuing a transaction which would involve the sale of its DiviCom business. During 1998, Mr. Thompson and Dr. Lookabaugh continued to have conversations from time to time about a possible combination of Harmonic and the DiviCom business. In June 1999, Harmonic became aware that C-Cube Microsystems had retained investment bankers to explore strategic options for C-Cube Microsystems. Harmonic subsequently held meetings in July with representatives of Warburg Dillon Read, its financial advisor, to discuss possible methods of acquiring the DiviCom business. On July 8, 1999, Harmonic authorized Warburg Dillon Read to explore merger possibilities with C-Cube Microsystems' financial advisor, Credit Suisse First Boston Corporation, who was acting on behalf of C-Cube Microsystems. Harmonic's board met in a regularly scheduled meeting on July 20 and discussed, among other things, the rationale for the proposed merger, the various structural alternatives, including tax and accounting consequences, valuation of the DiviCom business and the likelihood of other bidders emerging for either C-Cube Microsystems or its DiviCom business. At that meeting, Harmonic's board authorized management to proceed with further discussions. C-Cube Microsystems' board also met on July 20 to discuss, among other things, potential business combinations with third parties. On July 29, Messrs. Thompson, Ley, and Robin Dickson, Chief Financial Officer of Harmonic, met with Messrs. Balkanski and Lookabaugh, together with both companies' financial advisors to discuss a potential business combination. The meeting focused on the two companies' business operations and strategy, whether a cultural fit existed and how the two companies could be integrated. Both companies executed a confidentiality agreement. The same individuals met again on August 2 to discuss structural issues and various ways to value the DiviCom business. At that meeting, Harmonic submitted an initial verbal proposal to merge with C-Cube Microsystems provided that C-Cube Microsystems spin-off or sell its semiconductor business prior to the merger. Messrs. Ley, Dickson, Balkanski and Lookabaugh, along with representatives from Credit Suisse First Boston, C-Cube Microsystems' financial advisor, and Warburg Dillon Read were present. 27 On August 18, Messrs. Ley, Dickson, Balkanski and Lookabaugh, along with representatives from Credit Suisse First Boston and Warburg Dillon Read met, and C-Cube Microsystems' representatives offered their response to Harmonic's initial proposal. The response focused primarily on the tax implications of the proposed transaction. Various discussions continued during August and early September between C-Cube Microsystems and Harmonic, and their financial advisors, regarding a potential transaction involving Harmonic and the DiviCom business. The parties agreed that, prior to further financial due diligence by Harmonic, the parties would try to reach agreement on a valuation for the DiviCom business. On September 8, 1999, Harmonic, through its financial advisor, presented a revised merger proposal to C-Cube Microsystems that Harmonic would purchase the DiviCom business in an all stock transaction. On October 1, Messrs. Ley, Dickson, Thompson, Balkanski and Lookabaugh and Walt Walczykowski, C-Cube Microsystems' Chief Financial Officer, along with representatives from Credit Suisse First Boston, Warburg Dillon Read and respective legal counsel to Harmonic and C-Cube met to more fully discuss the potential transaction and the potential strategic and financial benefits of a business combination. On October 5, Harmonic and C-Cube Microsystems, and their respective representatives met to discuss the revised merger proposal proposed by Harmonic on September 8, 1999. On October 7, Dr. Balkanski along with other representatives from C-Cube Microsystems met with a group of C-Cube Microsystems' legal and financial advisors and accountants to discuss the structure and timing of the transaction. Shortly thereafter, Harmonic and C-Cube Microsystems each requested access to information for due diligence purposes from each other. During the week of October 11 through October 15: - the companies and their advisors conducted extensive due diligence on each other; - management of both companies met to discuss combining operations of the two companies; and - negotiations continued on significant issues including (a) intellectual property issues, (b) tax issues, (c) the issue of unvested options currently held by C-Cube Microsystems employees and (d) the cash remaining with C-Cube Microsystems after the disposition of its semiconductor business. On October 14, in a special meeting of the C-Cube Microsystems board of directors, C-Cube Microsystems management, C-Cube Microsystems' legal and financial advisors reviewed with the board of directors the terms of the proposed transaction. In addition, C-Cube Microsystems' legal counsel reviewed with the board of directors their fiduciary duties. The board of directors considered the proposed acquisition and determined that management should continue to pursue and evaluate the business combination. On October 16, Harmonic's board of directors met to consider the proposed transaction. At the Harmonic board meeting, senior management and Harmonic's financial and legal advisors discussed the following with the board: - the status of the negotiations with respect to the proposed transaction; - the potential benefits and risks associated with an acquisition of the DiviCom business; and - the principal terms and conditions of the merger agreement. Harmonic's financial advisors reviewed the financial analyses relating to the merger. The Harmonic board then discussed the terms of the proposed merger and the analyses presented by the financial advisors, unanimously approved the merger, and authorized management to finalize the terms of the merger agreement. On October 18, the C-Cube Microsystems board of directors met again. At the meeting, C-Cube Microsystems' management, along with its financial, accounting and legal advisors, updated the directors on their due diligence investigations and reviewed the revised terms of the proposed transaction, based 28 upon the proposed definitive merger agreement and other materials previously circulated to the board. The meeting included a discussion of the material terms of the proposed transaction, including the businesses and assets to be combined and the corporate governance, tax and accounting treatment of the contemplated transaction. The board of directors discussed the proposed acquisition and determined to continue to pursue and evaluate the proposed business combination further. On October 19, Harmonic's board of directors met again to consider the proposed transaction. At this meeting, Harmonic's board of directors discussed the status of the negotiations with respect to the proposed transaction, the structure of the proposed transaction and additional information about C-Cube Microsystems gathered from its due diligence review process. On October 19, substantially all outstanding issues related to the merger agreement were finalized, except for certain open due diligence matters. The C-Cube Microsystems board of directors met and again reviewed the proposed transaction. The board of directors further discussed the proposed merger and elected to continue to pursue and evaluate the proposed business combination. On October 26, the C-Cube Microsystems board of directors met again to review the proposed transaction. Representatives of Credit Suisse First Boston delivered an oral opinion, subsequently confirmed in writing on October 27, 1999, the date of the merger agreement before the amendment and restatement, to the effect that, as of the date of the opinion and based upon and subject to the matters stated in the opinion, the exchange ratio provided for in the merger agreement was fair to the holders of C-Cube Microsystems common stock, from a financial point of view. This meeting concluded with the board unanimously voting to approve the acquisition and the merger agreement and related documents and to recommend that C-Cube Microsystems' stockholders adopt the merger agreement and approve the merger, subject to satisfactory resolution of the outstanding issues. On October 26, Harmonic's board of directors met telephonically to review the proposed transaction. Representatives of Warburg Dillon Read delivered an oral opinion, subsequently confirmed in writing as of the same date, to the effect that, as of the date of the opinion and based upon and subject to the matters stated in the opinion, the exchange ratio provided for in the merger agreement was fair to Harmonic, from a financial point of view. At the meeting, Harmonic's management and its advisors updated the directors on the revised terms of the proposed transaction. This meeting concluded with the board unanimously voting to approve the acquisition and the merger agreement and the related documents and to recommend that Harmonic's stockholders adopt the merger agreement and approve the merger, subject to satisfactory resolution of the outstanding issues. C-Cube Microsystems and Harmonic entered into the merger agreement on October 27, 1999. A press release stating the general terms of the merger agreement was released after the markets closed on October 27, 1999. On December 9, 1999, C-Cube Microsystems and Harmonic amended and restated the merger agreement. |
