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November 24, 2005

Scientific-Atlanta faces lawsuits after Cisco deal

Set-top box maker Scientific-Atlanta Inc is facing multiple lawsuits over its agreement to be acquired by the networking equipment giant Cisco Systems Inc for $6.9bn.

By CBR Staff Writer

Lawrenceville, Georgia-based Scientific-Atlanta confirmed that it and its directors have been named in two lawsuits, which accuse the company and its directors of breaching their duties to shareholders after agreeing to an inadequate price for the sale.

However, it said: The complaints are without merit and (the company) intends to defend the actions vigorously. The board of directors of Scientific-Atlanta engaged in a thorough and deliberative process to obtain the best transaction at the highest price available for its shareholders, culminating in the definitive merger agreement with Cisco, which was announced on November 18.

Scientific-Atlanta said it would file a proxy statement with the US Securities and Exchange Commission that would detail the process and the fairness opinions it obtained from three investment banks.

Under the terms of the deal, Cisco agreed to pay $43 a share for Scientific-Atlanta, a 3.7% premium over the stock’s closing price of $41.45 the day before the deal was announced. The stock of Scientific-Atlanta has risen almost 26% recently from the mid to upper $30s after intense media speculation that the company was an acquisition target.

News of the lawsuits did little to shake the market’s conviction that the acquisition was a good deal for both sides. Yet shares in Scientific-Atlanta did slip slightly down 0.07% on the New York Stock Exchange to $42.29 in early trading on November 24, 2005.

The lawsuits were filed on November 22 and 23, 2005 in Georgia State Court. It is thought that one of the suits was filed by Kalford Fadem, a Scientific-Atlanta shareholder, according to the lawsuit seen by Reuters. The size of his stake is not known. Fadem alleges in his complaint that the price agreed for SCA represents nowhere near the true value of the company’s shares, particularly in light of the company’s current financial condition and future prospects.

The acquisition is expected to close in the second quarter of 2006.

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