<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report: January 6, 1997
COMPRESSION LABS, INCORPORATED
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-13218 94-2390960
- -------------------------------------------------------------------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation or Identification No.)
organization)
350 EAST PLUMERIA DRIVE
SAN JOSE, CALIFORNIA 95134
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 435-3000
<PAGE>
ITEM 5. OTHER EVENTS.
On January 6, 1997, Compression Labs, Incorporated, a Delaware corporation
("CLI"), VTEL Corporation, a Delaware corporation ("VTEL") and VTEL-Sub, Inc., a
Delaware corporation and direct wholly owned subsidiary of VTEL ("Merger Sub"),
entered into an Agreement and Plan of Merger and Reorganization (the "Merger
Agreement"), pursuant to which Merger Sub will merge with and into CLI (the
"Merger"), with CLI becoming a direct wholly owned subsidiary of VTEL. As a
result of the Merger, (a) the outstanding shares of CLI's common stock, par
value $.001 per share ("CLI Common Stock"), will be converted into the right to
receive 0.46 shares of common stock of VTEL, par value $.01 per share ("VTEL
Common Stock"), per share of CLI Common Stock converted (or cash in lieu of
fractional shares otherwise deliverable in respect thereof), and (b) the
outstanding shares of CLI Series C Preferred Stock, par value $.001 per share
("CLI Preferred Stock"), will be converted into the right to receive 3.15 shares
of VTEL Common Stock, per share of CLI Preferred Stock converted (or cash in
lieu of fractional shares otherwise deliverable in respect thereof). The Merger
is conditioned upon, among other things, approval by holders of a majority of
CLI Common Stock, by holders of a majority of VTEL Common Stock, and upon
receipt of certain regulatory and governmental approvals. The Merger Agreement
is attached as Exhibit 1 hereto and its terms are incorporated herein by
reference.
Simultaneously with their execution and delivery of the Merger Agreement,
CLI and VTEL entered into a stock option agreement (the "Stock Option
Agreement") pursuant to which CLI granted VTEL the right, upon the terms and
subject to the conditions set forth therein, to purchase up to 3,120,500 shares
of CLI Common Stock at a price of $4.6575 per share. The Stock Option Agreement
is attached as Exhibit 2 hereto, and its terms are incorporated herein by
reference.
A copy of the Press Release, dated January 7, 1997, issued by CLI and VTEL
relating to the Merger is attached as Exhibit 3 hereto and is incorporated
herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
1. Agreement and Plan of Merger and Reorganization, dated as of
January 6, 1997, by and among, VTEL Corporation, VTEL-Sub, Inc.
and Compression Labs, Incorporated.
2. Stock Option Agreement, dated as of January 6, 1997, by and
between Compression Labs, Incorporated (as "Issuer") and VTEL
Corporation (as "Grantee").
3. Press Release, dated January 7, 1997, relating to transactions
between Compression Labs, Incorporated and VTEL Corporation.
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: January 14, 1997.
COMPRESSION LABS, INCORPORATED
By: /s/Michael E. Seifert
---------------------
Name: Michael E. Seifert
Title: Vice President, Finance and Chief
Accounting Officer
3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
No. Exhibit Description Page
- ------- ------------------- ------------
<S> <C> <C>
99.1 Agreement and Plan of Merger and Reorganization,
dated as of January 6, 1997, by and among VTEL
Corporation, VTEL-Sub, Inc., and Compression
Labs, Incorporated
99.2 Stock Option Agreement, dated as of January 6, 1997,
by and between Compression Labs, Incorporated
(as "Issuer") and VTEL Corporation (as "Grantee")
99.3 Press Release, dated January 7, 1997, relating to
transactions between Compression Labs, Incorporated
and VTEL Corporation
</TABLE>
4
<PAGE>
EXHIBIT 99.1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
VTEL CORPORATION,
VTEL-SUB, INC.
AND
COMPRESSION LABS, INCORPORATED
DATED AS OF JANUARY 6, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I -- THE MERGER.............................................................. 2
Section 1.01. The Merger..................................................... 2
Section 1.02. The Closing.................................................... 2
Section 1.03. Effective Time................................................. 2
Section 1.04. Effect of the Merger........................................... 2
Section 1.05. Certificate of Incorporation................................... 2
Section 1.06. Bylaws......................................................... 2
Section 1.07. Directors and Officers......................................... 2
Section 1.08. Tax Consequences............................................... 3
Section 1.09. Accounting Treatment........................................... 3
ARTICLE II -- CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES...................... 3
Section 2.01. Merger Consideration: Conversion and Cancellation of Securities 3
Section 2.02. Exchange Agency; Surrender of Certificates..................... 4
Section 2.03. Stock Transfer Books........................................... 7
Section 2.04. Dissenters' Rights............................................. 7
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................... 8
Section 3.01. Organization and Qualification: Subsidiaries................... 8
Section 3.02. Certificate of Incorporation and Bylaws........................ 9
Section 3.03. Capitalization................................................. 9
Section 3.04. Authority...................................................... 11
Section 3.05. No Conflict: Required Filings and Consents..................... 11
Section 3.06. Permits: Compliance............................................ 12
Section 3.07. Reports; Financial Statements; Undisclosed Liabilities......... 13
Section 3.08. Absence of Certain Changes or Events........................... 14
Section 3.09. Absence of Litigation.......................................... 14
Section 3.10. Employee Benefit Plans; Labor Matters.......................... 15
Section 3.11. Taxes.......................................................... 16
Section 3.12. Affiliates..................................................... 17
Section 3.13. Properties..................................................... 18
Section 3.14. Intellectual Rights............................................ 18
Section 3.15. Real Property.................................................. 19
Section 3.16. Insider Interests; Transactions with Management................ 19
Section 3.17. Contracts and Agreements....................................... 20
Section 3.18. Vote Required.................................................. 20
Section 3.19. Brokers........................................................ 20
Section 3.20. Opinion of Financial Advisor................................... 20
Section 3.21. Board Recommendations.......................................... 20
Section 3.22. Distributors, Customers, or Suppliers.......................... 21
Section 3.23. Pooling of Interests........................................... 21
Section 3.24. Rights Plan.................................................... 21
Section 3.25. Disclosure..................................................... 21
</TABLE>
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF THE
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
VTEL COMPANIES................................................................... 21
Section 4.01. Organization and Qualification; Subsidiaries................... 21
Section 4.02. Certificate of Incorporation and Bylaws........................ 22
Section 4.03. Capitalization................................................. 22
Section 4.04. Authority...................................................... 24
Section 4.05. No Conflict: Required Filings and Consents..................... 24
Section 4.06. Permits; Compliance............................................ 25
Section 4.07. Reports: Financial Statements.................................. 25
Section 4.08. Absence of Certain Changes or Events........................... 26
Section 4.09. Absence of Litigation.......................................... 27
Section 4.10. Intellectual Rights............................................ 27
Section 4.11. Transactions with Management................................... 28
Section 4.12. Vote Required.................................................. 28
Section 4.13. Brokers........................................................ 28
Section 4.14. Opinion of Financial Advisor................................... 29
Section 4.15. Board Recommendations.......................................... 29
Section 4.16. Distributors, Customers, or Suppliers.......................... 29
Section 4.17. Pooling of Interests........................................... 29
Section 4.18. Disclosure..................................................... 29
ARTICLE V -- COVENANTS................................................................ 29
Section 5.01. Affirmative Covenants of the Company........................... 29
Section 5.02. Affirmative Covenants of VTEL.................................. 30
Section 5.03. Negative Covenants of the Company.............................. 31
Section 5.04. Negative Covenants of VTEL..................................... 35
Section 5.05. Access and Information......................................... 36
ARTICLE VI -- ADDITIONAL AGREEMENTS................................................... 37
Section 6.01. Presentation to Stockholders................................... 37
Section 6.02. Registration Statement; Proxy Statement/Prospectus............. 38
Section 6.03. Appropriate Action: Consents; Filings.......................... 39
Section 6.04. Affiliates; Tax Treatment...................................... 40
Section 6.05. Public Announcements........................................... 41
Section 6.06. NASDAQ Listing................................................. 41
Section 6.07. State Takeover Statutes........................................ 41
Section 6.08. Charter Amendment.............................................. 42
Section 6.09. Board Seats.................................................... 42
Section 6.10. Options........................................................ 42
Section 6.11. Series C Preferred Stock Warrants.............................. 43
Section 6.12. Termination of Convertible Preferred Stock Purchase Agreement.. 43
Section 6.13. Merger Sub..................................................... 43
Section 6.14. Indemnification................................................ 43
Section 6.15. Employment Contracts........................................... 45
Section 6.16. Comfort Letters................................................ 46
Section 6.17. Sales Under Rule 145 if Applicable............................. 46
ARTICLE VII -- CLOSING CONDITIONS..................................................... 47
Section 7.01. Conditions to Obligations of Each Party Under This Agreement... 47
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
Section 7.02. Additional Conditions to Obligations of the VTEL Companies..... 48
Section 7.03. Additional Conditions to Obligations of the Company............ 49
ARTICLE VIII -- TERMINATION, AMENDMENT AND WAIVER..................................... 50
Section 8.01. Termination.................................................... 50
Section 8.02. Effect of Termination.......................................... 52
Section 8.03. Amendment...................................................... 53
Section 8.04. Waiver......................................................... 53
Section 8.05. Fees, Expenses and Other Payments.............................. 53
ARTICLE IX -- GENERAL PROVISIONS...................................................... 54
Section 9.01. Effectiveness of Representations, Warranties and Agreements.... 54
Section 9.02. Notices........................................................ 55
Section 9.03. Certain Definitions............................................ 56
Section 9.04. Headings....................................................... 57
Section 9.05. Severability................................................... 57
Section 9.06. Entire Agreement............................................... 57
Section 9.07. Assignment..................................................... 57
Section 9.08. Parties in Interest............................................ 57
Section 9.09. Failure or Indulgence Not Waiver; Remedies Cumulative.......... 58
Section 9.10. Governing Law.................................................. 58
Section 9.11. Counterparts................................................... 58
Section 9.12. Specific Performance........................................... 58
</TABLE>
EXHIBIT A - Stock Option Agreement
EXHIBIT B - Company Affiliate Letter
EXHIBIT C - Acquiror Affiliate Letter
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of January
6, 1997 (this "Agreement"), is by and among VTEL CORPORATION, a Delaware
---------
corporation ("VTEL"), VTEL-SUB, INC., a Delaware corporation and direct wholly
----
owned subsidiary of VTEL ("Merger Sub"), and COMPRESSION LABS, INCORPORATED, a
----------
Delaware corporation (the "Company"). VTEL and Merger Sub are sometimes
-------
collectively referred to herein as the "VTEL Companies."
--------------
WHEREAS, Merger Sub, upon the terms and subject to the conditions of this
Agreement and in accordance with the General Corporation Law of the State of
Delaware ("DGCL"), will merge with and into the Company (the "Merger");
---- ------
WHEREAS, the Board of Directors of the Company has determined that the
Merger is advisable and is fair to, and in the best interests of, the Company
and its stockholders, has approved and adopted this Agreement and the
transactions contemplated hereby, and has recommended approval and adoption of
this Agreement by the stockholders of the Company;
WHEREAS, the Board of Directors of VTEL has determined that the Merger is
advisable and is fair to, and in the best interests of, VTEL and its
stockholders, has approved and adopted this Agreement and the transactions
contemplated hereby, and its sole stockholder, VTEL, has approved the Merger by
unanimous written consent;
WHEREAS, the Board of Directors of Merger Sub has approved and adopted this
Agreement and the transactions contemplated hereby, and has recommended approval
and adoption of this Agreement by its stockholder;
WHEREAS, it is the intent of the respective Boards of Directors of the
Company and VTEL that the Merger be structured as a strategic combination
involving a "merger of equals" of the Company and VTEL and that the Surviving
Corporation (as defined herein) be governed and operated on that basis;
WHEREAS, for federal income tax purposes, it is intended that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code");
----
WHEREAS, the parties intend to cause the Merger to be accounted for as a
pooling of interests pursuant to APB Opinion No. 16, Staff Accounting Series
Release 130, 135 and 146 and Staff Accounting Bulletins Topic Two;
WHEREAS, in furtherance of, and as a requirement of the VTEL Companies to
enter into this Agreement providing for, the Merger, the Company and VTEL have
entered into a Stock Option Agreement, dated of even date herewith, in the form
attached as Exhibit A (the "Stock Option Agreement"); and
--------- ----------------------
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1. The Merger. Upon the terms and subject to the conditions set
----------
forth in this Agreement, and in accordance with the DGCL, at the Effective Time
(as defined in Section 1.03 of this Agreement), Merger Sub shall be merged with
------------
and into the Company. As a result of the Merger, the separate corporate
existence of Merger Sub shall cease and the Company shall continue as the
surviving corporation of the Merger (the "Surviving Corporation"). The name of
---------------------
the Surviving Corporation shall continue after the Effective Time to be
"Compression Labs, Incorporated."
Section 1.2. The Closing. Subject to the terms and conditions of this
-----------
Agreement, the closing of the Merger (the "Closing") shall take place (a) at the
-------
offices of Jenkens & Gilchrist, a Professional Corporation, 1445 Ross Avenue,
Suite 3200, Dallas, Texas 75202-2799, at 9:00 am., local time, on the second
business day immediately following the day on which the last to be fulfilled or
waived of the conditions set forth in Article VII shall be fulfilled or waived
-----------
in accordance herewith (other than conditions with respect to actions the
respective parties hereto will take at the Closing), or (b) at such other time,
date or place as VTEL and the Company may agree. The date on which the Closing
occurs is hereinafter referred to as the "Closing Date."
------------
Section 1.3. Effective Time. As promptly as practicable after the
--------------
satisfaction or, if permissible, waiver of the conditions set forth in Article
-------
VII of this Agreement, the parties hereto shall cause the Merger to be
- ---
consummated by filing a Certificate of Merger with the Secretary of State of the
State of Delaware, in such form as is required by, and executed in accordance
with the relevant provisions of, the DGCL (the date and time of the completion
of such filing being the "Effective Time").
--------------
Section 1.4. Effect of the Merger . At the Effective Time, the effect of
---------------------
the Merger shall be as provided in Section 259 of the DGCL. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time all
the property, rights, privileges, powers and franchises of Merger Sub and the
Company shall vest in the Surviving Corporation, and all debts, obligations,
liabilities and duties of each of Merger Sub and the Company shall become the
debts, obligations, liabilities and duties of the Surviving Corporation.
Section 1.5 Certificate of Incorporation. At the Effective Time, the
----------------------------
Certificate of Incorporation of the Company shall be the Certificate of
Incorporation of Merger Sub as in effect immediately prior to the Effective
Time.
Section 1.6 Bylaws. At the Effective Time and without further action on
------
the part of the Company or VTEL, the Bylaws of the Surviving Corporation shall
be the Bylaws of Merger Sub in effect as of the Effective Time.
2
<PAGE>
Section 1.7 Directors and Officers. The directors of Merger Sub
----------------------
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified.
Section 1.8 Tax Consequences . It is intended that the Merger shall
-----------------
constitute a reorganization within the meaning of Section 368(a) of the Code,
and that this Agreement shall constitute a "plan of reorganization" for the
purposes of Section 368 of the Code.
Section 1.9 Accounting Treatment . It is intended that the Merger shall be
---------------------
treated as a pooling-of-interests for accounting purposes by VTEL and the
Company.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 2.1 Merger Consideration: Conversion and Cancellation of
----------------------------------------------------
Securities. At the Effective Time, by virtue of the Merger and without any
action on the part of the VTEL Companies, the Company or the holders of any of
the Company's securities:
(a) Subject to the other provisions of this Article II, each share of common
----------
stock, par value $.001 per share, of the Company ("Company Common Stock") issued
--------------------
and outstanding immediately prior to the Effective Time (excluding any Company
Common Stock described in Section 2.01(e) of this Agreement) shall be converted
---------------
into the right to receive .46 of one fully paid and nonassessable share of
common stock, par value $.0l per share, of VTEL ("VTEL Common Stock") (the
-----------------
"Common Stock Conversion Ratio").
- ------------------------------
(b) Subject to the other provisions of this Article II, each share of Series
----------
C Preferred Stock, par value $.001 per share, of the Company ("Series C
--------
Preferred Stock") issued and outstanding immediately prior to the Effective Time
- ---------------
(excluding any Series C Preferred Stock described in Section 2.01(e) of this
---------------
Agreement and any Dissenting Shares, as herein defined) shall be converted into
the right to receive 3.15 fully paid and nonassessable share of VTEL Common
Stock (the "Series C Preferred Stock Conversion Ratio").
-----------------------------------------
(c) Notwithstanding the foregoing, if between the date of this Agreement and
the Effective Time the outstanding shares of VTEL Common Stock or Company Common
Stock shall have been changed into a different number of shares or a different
class, by reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the Common Stock
Conversion Ratio and the Series C Preferred Stock Conversion Ratio shall be
correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares.
3
<PAGE>
(d) As a result of their conversion pursuant to Section 2.01(a) and Section
--------------- -------
2.01(b), all shares of Company Common Stock and Series C Preferred Stock shall
- -------
cease to be outstanding and shall automatically be canceled and retired. Each
certificate previously evidencing Company Common Stock outstanding immediately
prior to the Effective Time (other than Company Common Stock described in
Section 2.01(e) of this Agreement) ("Converted Common Shares") shall thereafter
- -------------- -----------------------
represent, subject to Section 2.02(d) of this Agreement, the right to receive
---------------
that number of shares of VTEL Common Stock into which the shares of Company
Common Stock represented by such certificate have been converted pursuant to
subsection (a) of this Section 2.01 determined pursuant to the Common Stock
------------
Conversion Ratio and, if applicable, the right to receive cash pursuant to
Section 2.02(d) of this Agreement ("Common Stock Merger Consideration"). Each
- ---------------
certificate previously evidencing Series C Preferred Stock outstanding
immediately prior to the Effective Time (other than Series C Preferred Stock
described in Section 2.01(e) of this Agreement and any Dissenting Shares) (the
---------------
"Converted Series C Preferred Shares" and, together with the Converted Common
- ------------------------------------
Shares, the "Converted Shares") shall thereafter represent, subject to Section
---------------- -------
2.02(d) of this Agreement, the right to receive that number of shares of VTEL
- -------
Common Stock into which the shares of Series C Preferred Stock represented by
such certificate have been converted pursuant to subsection (b) of this Section
-------
2.01 determined pursuant to the Series C Preferred Stock Conversion Ratio and,
- ----
if applicable, the right to receive cash pursuant to Section 2.02(d) of this
---------------
Agreement (the "Series C Preferred Stock Consideration" and, with the Common
--------------------------------------
Stock Consideration, the "Merger Consideration"). The holders of certificates
--------------------
previously evidencing Converted Shares shall cease to have any rights with
respect to such Converted Shares except the right to receive the Merger
Consideration applicable thereto and as otherwise provided herein or by law.
Such certificates previously evidencing Converted Shares shall be exchanged for
certificates evidencing whole shares of VTEL Common Stock issued in
consideration therefor upon the surrender of such certificates in accordance
with the provisions of Section 2.02 of this Agreement. No fractional shares of
------------
VTEL Common Stock shall be issued and, in lieu thereof, a cash payment shall be
made pursuant to Section 2.02(d) of this Agreement.
---------------
(e) Notwithstanding any provision of this Agreement to the contrary, each
share of Company Common Stock or Series C Preferred Stock held in the treasury
of the Company and each share of Company Common Stock owned by VTEL or any
direct or indirect wholly owned subsidiary of VTEL or of the Company immediately
prior to the Effective Time shall be canceled and extinguished without any
conversion thereof and no payment shall be made with respect thereto.
(f) Each share of common stock, par value $.0l per share, of Merger Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one newly and validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation.
Section 2.2. Exchange Agency; Surrender of Certificates.
------------------------------------------
(a) Exchange Fund. At or prior to the Effective Time, VTEL shall deposit,
-------------
or cause to be deposited, with a bank or trust company designated by VTEL (the
4
<PAGE>
"Exchange Agent"), for the benefit of the holders of Converted Shares, for
- ---------------
exchange in accordance with this Article II, through the Exchange Agent (i)
----------
certificates evidencing a number of shares of VTEL Common Stock equal to the
product of the Common Stock Conversion Ratio multiplied by the number of
Converted Common Shares issued and outstanding immediately prior to the
Effective Time, (ii) certificates evidencing a number of shares of VTEL Common
Stock equal to the product of the Series C Preferred Stock Conversion Ratio
multiplied by the number of shares of Series C Preferred Stock issued and
outstanding immediately prior to the Effective Time, and (iii) cash in an amount
sufficient to provide for the payments to be made in lieu of issuing any
fractional shares of VTEL Common Stock as provided in Section 2.02(d) of this
---------------
Agreement. Additionally, subject to the provisions of subsection (e) of this
Section 2.02, VTEL shall, if and when a payment date has occurred with respect
- ------------
to a dividend or distribution that has been declared subsequent to the Effective
Time, deposit with the Exchange Agent an amount in cash (or property of like
kind to that which is the subject of such dividend or distribution) equal to the
dividend or distribution per share of VTEL Common Stock times the number of
shares of VTEL Common Stock evidenced by certificates theretofore representing
Converted Shares that have not theretofore been surrendered for exchange in
accordance with this Section 2.02. The certificates and cash (and property, if
-------------
any) deposited with the Exchange Agent in accordance with this Section 2.02(a)
---------------
are hereinafter referred to as the "Exchange Fund." The Exchange Agent shall,
-------------
pursuant to irrevocable instructions, deliver VTEL Common Stock (and any
dividends or distribution related thereto) and/or cash, as described above, in
exchange for surrendered certificates pursuant to the terms of this Agreement
out of the Exchange Fund.
(b) Exchange Procedures. As soon as practicable after the Effective Time,
-------------------
VTEL shall cause the Exchange Agent to send to each record holder of Company
Common Stock and Series C Preferred Stock at the Effective Time (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the certificates theretofore representing Company Common Stock
or Series C Preferred Stock (the "Certificates") shall pass, only upon delivery
------------
of the Certificates to the Exchange Agent and shall be in such form and contain
such other provisions as VTEL and the Company shall reasonably determine), and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of VTEL Common Stock and any cash
in lieu of fractional shares, into which the shares of Company Common Stock or
Series C Preferred Stock represented by such Certificate or Certificates shall
have been converted pursuant to this Agreement. Upon surrender of a Certificate
for cancellation to the Exchange Agent, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor, a certificate representing that number of whole
shares of VTEL Common Stock which such holder has the right to receive pursuant
to the provisions of this Article II and cash in the amount such holder has the
----------
right to receive pursuant to such provisions, and the Certificate so surrendered
shall forthwith be canceled. In the event of a transfer of ownership of Company
Common Stock or Series C Preferred Stock which is not registered in the transfer
records of the Company, a certificate evidencing the proper number of shares of
VTEL Common Stock may be issued to the transferee if the Certificate evidencing
the Company Common Stock or Series C Preferred Stock shall be surrendered to the
Exchange Agent, accompanied by all documents required to evidence
5
<PAGE>
and effect such transfer and by evidence that any applicable stock transfer
taxes have been paid. Until surrendered for exchange in accordance with the
provisions of Section 2.02 of this Agreement, each Certificate theretofore
------------
representing Converted Shares (other than shares of Company Common Stock and
Series C Preferred Stock to be canceled pursuant to Section 2.01(e) of this
---------------
Agreement and any Dissenting Shares) shall from and after the Effective Time
represent for all purposes only the right to receive the applicable Merger
Consideration as set forth in this Agreement. If any holder of Converted Shares
shall be unable to surrender such holder's Certificates because such
Certificates have been lost or destroyed, such holder may deliver in lieu
thereof an affidavit and indemnity bond in form and substance and with surety
reasonably satisfactory to VTEL. No interest shall be paid on any Merger
Consideration payable to former holders of Converted Shares.
(c) Distributions with Respect to VTEL Common Stock. No dividends or other
-----------------------------------------------
distributions declared or made after the Effective Time with respect to VTEL
Common Stock with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate theretofore representing shares of
Company Common Stock or Series C Preferred Stock with respect to any shares of
VTEL Common Stock evidenced thereby, and no Merger Consideration shall be paid
to any such holders until the holder of such Certificate shall surrender such
Certificate theretofore representing shares of Company Common Stock or shares of
Series C Preferred Stock . Subject to applicable laws, following surrender of
any such Certificate, there shall be paid to the holder of the certificates
evidencing whole shares of VTEL Common Stock issued in exchange therefor,
without interest, (i) promptly following the surrender of such Certificate and
in addition to the amount of any cash payable with respect to a fractional share
of VTEL Common Stock to which such holder is entitled pursuant to Section
-------
2.02(d) of this Agreement, the amount of dividends or other distributions with a
- -------
record date after the Effective Time theretofore paid with respect to such whole
shares of VTEL Common Stock and (ii) at the appropriate payment date, the amount
of dividends or other distributions with a record date after the Effective Time
but prior to surrender and a payment date occurring after surrender payable with
respect to such whole shares of VTEL Common Stock.
(d) No Fractional Shares. No certificates or scrip evidencing fractional
--------------------
shares of VTEL Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests shall not entitle the owner
thereof to any rights of a stockholder of VTEL. In lieu of any such fractional
shares, (i) each holder of a Certificate previously evidencing Company Common
Stock or Series C Preferred Stock, upon surrender of such Certificate for
exchange pursuant to this Article II, shall be paid an amount in cash (without
----------
interest), rounded to the nearest cent, determined by multiplying (A) the
Average Closing Price by (B) the fractional interest to which such holder would
otherwise be entitled (after taking into account all shares of Company Common
Stock or Series C Preferred Stock held of record by such holder at the Effective
Time). "Average Closing Price" means the average closing sales price of the
---------------------
VTEL Common Stock on The NASDAQ Stock Market (or such other quotation system or
securities exchange on which the VTEL Common Stock is then quoted or listed) as
reported by the Wall Street Journal for the 20 consecutive trading days
beginning 22 trading days prior to the scheduled Closing Date as provided in
Section 1.02 hereof.
- ------------
6
<PAGE>
(e) Termination of Exchange Fund. Any portion of the Exchange Fund that
----------------------------
remains unclaimed by the former holders of Converted Shares on the first
anniversary of the Closing Date shall be delivered to VTEL, upon demand, and any
former holders of Converted Shares who have not theretofore complied with this
Article II shall thereafter look only to VTEL for the Merger Consideration and
- ----------
dividends or distributions to which they are entitled, without any interest
thereon. Neither VTEL nor the Company shall be liable to any former holder of
Converted Shares for any Merger Consideration (or dividends or distributions
with respect thereto) or cash delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(f) Withholding. VTEL (or any affiliate thereof) shall be entitled to
-----------
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any former holder of Converted Shares such amounts as VTEL (or any
affiliate thereof) is required to deduct and withhold with respect to the making
of such payment under the Code or any other provision of federal, state, local
or foreign tax law and VTEL agrees to remit to the proper taxing authority such
amounts so withheld. To the extent that amounts are so withheld by VTEL, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the former holder of the Converted Shares in respect of which such
deduction and withholding was made by VTEL.
Section 2.3. Stock Transfer Books. At the Effective Time, the stock
--------------------
transfer books of the Company shall be closed and there shall be no further
registration of transfers of shares of Company Common Stock or Series C
Preferred thereafter on the records of the Company. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
canceled and exchanged for the Merger Consideration, deliverable in respect
thereof pursuant to this Agreement in accordance with the procedures set forth
in this Article II. Certificates surrendered for exchange by any person
----------
constituting an "affiliate" of the Company for purposes of Rule 145(c) under the
Securities Act of 1933, as amended (the "Securities Act"), shall not be
--------------
exchanged until VTEL has received a written agreement from such person as
provided in Section 6.04.
-------------
Section 2.4. Dissenters' Rights.
------------------
(a) The holders of shares of Company Common Stock shall not be entitled to
appraisal rights. Notwithstanding anything in this Agreement to the
contrary, each share of Series C Preferred Stock issued and outstanding
immediately prior to the Effective Time and held by stockholders who have
not voted such shares in favor of the Merger or consented thereto in
writing and qualify under and have complied with all of the provisions of
Section 262 of the DGCL ("Dissenting Shares") shall not, by virtue of the
-----------------
Merger, be converted into the right to receive the Series C Preferred Stock
Consideration but such stockholder shall be entitled to receive payment of
the appraised value of such shares of Series C Preferred Stock held by them
in accordance with the provisions of Section 262 of the DGCL; provided,
--------
however, that if any holder of Dissenting Shares (i) subsequently delivers
-------
a written withdrawal of his demand for appraisal rights (with the written
consent of VTEL if such written withdrawal is not made within 60 days after
the Effective Time), or (ii) fails to perfect dissenter's rights as
provided in Section 262 of the DGCL, or (iii) if neither any holder of
Dissenting Shares nor the Surviving Corporation
7
<PAGE>
has filed a petition demanding a determination of the value of Dissenting
Shares within the time provided in Section 262 of the DGCL, the Dissenting
Shares held by such holder or holders (as the case may be) shall thereupon
be deemed to have been converted into and to have become exchangeable for,
as of the Effective Time, the right to receive the Series C Preferred Stock
Consideration, as provided in this Agreement without any interest thereon.
(b) The Company shall give VTEL (i) prompt notice of any written demands
for appraisal, withdrawal of demands for appraisal and any other
instruments served pursuant to Section 262 of the DGCL and (ii) the
opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under Section 262 of the DGCL. The Company agrees
that prior to the Effective Time, it will not, without the prior written
consent of VTEL, voluntarily make or agree to make any payment with respect
to, or settle or offer to settle, any such demands.
(c) Each holder of Dissenting Shares who becomes entitled, pursuant to the
provisions of Section 262 of the DGCL, to payment of his or its Dissenting
Shares shall receive payment therefor after the Effective Time from the
Surviving Corporation (but only after the amount thereof shall have been
agreed upon or finally determined pursuant to such provisions) and such
shares shall be canceled.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the VTEL Companies that:
Section 3.1. Organization and Qualification: Subsidiaries. The Company is
--------------------------------------------
a corporation, and each of the Company's subsidiaries (as such term in defined
in Section 9.03 herein) is a corporation or partnership, duly organized, validly
------------
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, and each of the Company and its subsidiaries has
all requisite power and authority to own, lease and operate its properties and
to conduct its business as it is now being conducted and is qualified to do
business and is in good standing in each jurisdiction in which the nature of the
business conducted by it or the ownership or leasing of its properties makes
such qualification necessary, other than where the failure to be so qualified
and in good standing could not reasonably be expected to have a Company Material
Adverse Effect. The term "Company Material Adverse Effect" as used in this
-------------------------------
Agreement shall mean any change or effect that would be materially adverse to
the financial condition, results of operations, business, or prospects of the
Company and its subsidiaries, taken as a whole, at the time of such change or
effect; provided, however, no Company Material Adverse Effect shall be deemed to
have occurred hereunder (i) as a result of customers of the Company deferring or
delaying orders as a result of the announcement of the execution of this
Agreement, (ii) if the financial condition or results of operations of the
Company's business are not materially and adversely different from those
announced with respect to the Company's quarter ended September 30, 1996, or
(iii) as a result of the Company employee departures after the announcement of
the execution of this Agreement. Section 3.01 of the Disclosure Schedule
------------
delivered by the Company to the VTEL Companies concurrently with the execution
of this Agreement (the "Company Disclosure Schedule") sets forth, as of the date
---------------------------
of this Agreement, a
8
<PAGE>
true and complete list of all the Company's directly or indirectly owned
subsidiaries, together with (a) the jurisdiction of incorporation or
organization of each such subsidiary and the percentage of each such
subsidiary's outstanding capital stock or other equity interests owned by the
Company or another subsidiary of the Company and (b) an indication of
whether each such subsidiary is a "Significant Subsidiary" as defined in Section
---------------------- -------
9.03 of this Agreement.
- ----
Section 3.2. Certificate of Incorporation and Bylaws. The Company has
---------------------------------------
heretofore furnished or made available to VTEL complete and correct copies of
the Certificate of Incorporation and the Bylaws or the equivalent organizational
documents, in each case as amended or restated to the date hereof, of the
Company and each of its Significant Subsidiaries. Neither the Company nor any
of its subsidiaries is in violation of any of the provisions of its Certificate
of Incorporation or Bylaws (or equivalent organizational documents).
Section 3.3. Capitalization.
--------------
(a) The authorized capital stock of the Company consists of 25,153,658
shares of Company Common Stock, par value $.001 per share, and 4,000,000 shares
of preferred stock, par value $.001 per share. At the date hereof, 15,865,178
shares of Company Common Stock were issued and outstanding, no shares of Company
Common Stock were held by the Company in its treasury or by the Company's
subsidiaries and 8,635,185 shares of Company Common Stock were reserved for
issuance as follows: (i) 2,589,866 shares were reserved for issuance upon
exercise of stock options heretofore granted or available for grant pursuant to
the Company's 1980 Stock Option Plan; (ii) 2,506,833 shares were reserved for
issuance upon exercise of stock options heretofore granted or available for
grant pursuant to the Company's 1984 Supplemental Stock Option Plan; (iii)
176,244 shares were reserved for issuance upon the purchase of shares under the
Company's 1984 Employee Stock Purchase Plan; (iv) 168,000 shares were reserved
for issuance upon exercise of stock options heretofore granted or available for
grant pursuant to the Company's 1992 Non-Employee Directors' Stock Option Plan
(the plans referred to in clauses (i) through (iv) of this section being herein
collectively called the "Company Option Plans"); (v) 580,000 shares were
--------------------
reserved for issuance upon the exercise of the warrants (the "Common Stock
------------
Warrants") listed and described in Section 3.03(a) of the Company Disclosure
- -------- ---------------
Schedule; (vi) 2,424,242 shares were reserved for issuance upon conversion of
the Company's Series C Preferred Stock; and (vii) 3,120,500 shares were reserved
for issuance upon exercise of the Stock Option Agreement. At the date hereof,
350,000 shares of Series C Preferred Stock were issued and outstanding, no other
shares of preferred stock was issued and outstanding, and no shares of preferred
stock were held by the Company in its treasury or by the Company's subsidiaries.
Except as described in this Section 3.03 or in Section 3.03(a) of the Company
------------ ---------------
Disclosure Schedule, no shares of capital stock of the Company are issued and
outstanding or reserved for issuance for any other purpose. Each of the issued
shares of capital stock of each of the Company and its subsidiaries is duly
authorized, validly issued and fully paid and nonassessable, and has not been
issued in violation of (nor are any of the authorized shares of capital stock
of, or other equity interests in, the Company or any of its subsidiaries subject
to) any preemptive or similar rights created by statute, the Certificate of
Incorporation or Bylaws (or the equivalent organizational documents) of the
Company or any of its subsidiaries, or any agreement to which the Company or any
of its subsidiaries is a party or is bound.
9
<PAGE>
Except as set forth in Section 3.03(a) of the Company Disclosure Schedule,
---------------
all issued shares or other equity interests in the subsidiaries of the Company
owned by the Company or a subsidiary of the Company are owned free and clear of
all security interests, liens, claims, pledges, agreements, limitations on the
Company's or such subsidiaries' voting rights, charges or other encumbrances of
any nature whatsoever.
(b) No bonds, debentures, notes or other indebtedness of the Company or its
subsidiaries having the right to vote (or convertible into or exchangeable or
exercisable for securities having the right to vote) on any matters on which
stockholders may vote ("Company Voting Debt") are issued or outstanding. All
-------------------
shares of Company Common Stock which may be issued upon exercise of stock
options granted pursuant to the Company Option Plans or Common Stock Warrants
and all shares of Company Common Stock which may be issued upon conversion of
the Series C Preferred Stock will, when issued in accordance with the terms of
such stock options, warrants, designations and the related Company Option Plans,
be validly issued, fully paid and nonassessable and not subject to preemptive
rights.
(c) Except as set forth in Section 3.03(a) above or in Section 3.03(c) of
--------------- ---------------
the Company Disclosure Schedule, there are no options, warrants or other rights
(including registration rights), agreements, arrangements or commitments of any
character to which the Company or any of its subsidiaries is a party relating to
the issued or unissued capital stock of the Company or any of its subsidiaries
or obligating the Company or any of its subsidiaries to grant, issue or sell any
shares of capital stock, Company Voting Debt or other equity interests of the
Company or any of its subsidiaries. Except as set forth in Section 3.03(c) of
---------------
the Company Disclosure Schedule, there are no obligations, contingent or
otherwise, of the Company or any of its subsidiaries (i) to repurchase, redeem
or otherwise acquire any shares of Company Common Stock or other capital stock
of the Company or the capital stock of any subsidiary of the Company or (ii)
other than advances to wholly owned subsidiaries in the ordinary course of
business, to provide funds to, or to make any investment in (in the form of a
loan, capital contribution or otherwise), or to provide any guarantee with
respect to the obligations of, any subsidiary of the Company or any other
person. Except (i) as set forth in Section 3.03(c) of the Company Disclosure
---------------
Schedule or (ii) for the subsidiaries of the Company set forth in Section 3.01
------------
of the Company Disclosure Schedule, neither the Company nor any of its
subsidiaries (x) directly or indirectly owns, (y) has agreed to purchase or
otherwise acquire or (z) holds any interest convertible into or exchangeable or
exercisable for the capital stock or other equity interests representing five
percent (5%) or more of the capital stock or other equity interests of any
corporation, partnership, joint venture or other business association or entity.
Except as set forth in Section 3.03(c) of the Company Disclosure Schedule or for
---------------
any agreements, arrangements or commitments between the Company and its wholly
owned subsidiaries or between such wholly owned subsidiaries, there are no
agreements, arrangements or commitments of any character (contingent or
otherwise) pursuant to which any person is or may be entitled to receive any
payment based on, or calculated in accordance with, the revenues or earnings of
the Company or any of its subsidiaries. Except as set forth in Section 3.03(c)
---------------
of the Company Disclosure Schedule, there are no voting trusts, proxies or other
agreements or understandings to which the Company or any of its subsidiaries is
a party or by which the Company or any
10
<PAGE>
of its subsidiaries is bound with respect to the voting of any shares of capital
stock or other equity interests of the Company or any of its subsidiaries.
(d) Section 3.03(d) of the Company Disclosure Schedule sets forth a complete
---------------
and correct list as of the date hereof of (i) the number of options to purchase
Company Common Stock outstanding and the number of shares of Company Common
Stock issuable thereunder, (ii) the number of Common Stock Warrants outstanding
and the number of shares of Company Common Stock issuable thereunder, (iii) the
exercise price of each such outstanding stock option and warrant, (iv) the
number of stock options then exercisable, and (v) the number of shares of
Company Common Stock issuable upon conversion of the Series C Preferred Stock if
such Series C Preferred Stock was converted on the date hereof. Complete and
correct copies of the Company Option Plans, all forms of stock options issued
pursuant to the Company Option Plans or otherwise, and all forms of Common Stock
Warrants, including all amendments thereto, have been made available to VTEL.
Section 3.4. Authority. The Company has all requisite corporate power and
---------
authority to execute and deliver this Agreement and the Stock Option Agreement,
to perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby (subject to, with respect to the
Merger, the approval and adoption of this Agreement by the stockholders of the
Company as described in Section 6.01 of this Agreement). The execution and
------------
delivery of this Agreement and the Stock Option Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement and the Stock Option Agreement or to consummate the transactions
contemplated hereby and thereby (subject to, with respect to the Merger, the
approval and adoption of this Agreement by the stockholders of the Company as
described in Section 6.01 of this Agreement). This Agreement and the Stock
------------
Option Agreement have each been duly executed and delivered by the Company and,
assuming the due authorization, execution and delivery hereof by the VTEL
Companies, constitute the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with their terms.
Section 3.5. No Conflict: Required Filings and Consents.
------------------------------------------
(a) Except as disclosed in Section 3.05(a) of the Company Disclosure
---------------
Schedule, the execution and delivery of this Agreement and the Stock Option
Agreement by the Company do not, and the performance by the Company of its
obligations hereunder and thereunder, including consummation of the transactions
contemplated hereby and thereby, will not (i) conflict with or violate the
Certificate of Incorporation or Bylaws, or the equivalent organizational
documents, in each case as amended or restated, of the Company or any of its
Significant Subsidiaries, (ii) conflict with or violate any federal, state,
foreign or local law, statute, ordinance, rule or regulation (collectively,
"Laws") in effect as of the date of this Agreement or any judgment, order or
- -----
decree to which the Company or any of its subsidiaries is a party or by or to
which any of their respective properties are bound or subject or (iii) result in
any breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or impair any of the Company's or
any of its Subsidiaries' rights or alter the rights or
11
<PAGE>
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or require payment
under, or result in the creation of a lien or encumbrance on any of the
properties or assets of the Company or any of its subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company or any of its
subsidiaries is a party or by or to which the Company or any of its subsidiaries
or any of their respective properties are bound or subject (including, but not
limited to, any license agreement, contract or other arrangement of any nature
relating to the Company's Intellectual Property Rights or Third Party
Intellectual Property Rights (as those terms are hereinafter defined)),
excluding from the foregoing clauses (ii) and (iii) any such conflicts,
violations, breaches, defaults, events, rights of termination, amendment,
acceleration or cancellation, payment obligations or liens or encumbrances that
individually or in the aggregate could not reasonably be expected to have a
Company Material Adverse Effect. The Board of Directors of the Company has
approved the Merger, this Agreement and the Stock Option Agreement, and the
transactions contemplated by this Agreement and the Stock Option Agreement and
such approval is sufficient to render the provisions of Section 203 of the DGCL
inapplicable to the Merger, this Agreement and the Stock Option Agreement, and
the transactions contemplated hereby and thereby. To the best of the Company's
knowledge, no other state takeover statute or similar statute or regulation
applies or purports to apply to the Merger, this Agreement and the Stock Option
Agreement, or any of the transactions contemplated by this Agreement or by the
Stock Option Agreement.
(b) The execution and delivery of this Agreement and the Stock Option
Agreement by the Company does not, and the performance by the Company of its
obligations hereunder and thereunder, including consummation of the transactions
contemplated hereby and thereby, will not, require the Company to obtain any
consent, license, permit, waiver, approval, authorization or order of, or to
make any filing with or notification to, any governmental or regulatory
authority, federal, state, local or foreign (collectively, "Governmental
------------
Entities"), except (i) for (A) applicable requirements, if any, of the
- --------
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
--------
Act"), and state securities or blue sky laws ("Blue Sky Laws") and (B) the pre-
- --- -------------
merger notification requirements of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), (ii) the filing and recordation of
-------
appropriate merger documents as required by the DGCL, and (iii) where the
failure to obtain such consents, licenses, permits, waivers, approvals,
authorizations or orders, or to make such filings or notifications could not,
individually or in the aggregate reasonably be expected to cause a Company
Material Adverse Effect or to materially impair or delay the ability of the
Company to perform its obligations under this Agreement and the Stock Option
Agreement or to consummate the transactions contemplated hereby and thereby.
Section 3.6. Permits: Compliance. Except as disclosed in Section 3.06 of
------------------- ------------
the Company Disclosure Schedule, each of the Company and its subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, identification and
registration numbers, approvals and orders (collectively, the "Permits")
-------
necessary to own, lease and operate their properties and to carry on their
businesses as they are now being conducted, except where the failure to possess
such Permits could not reasonably be
12
<PAGE>
expected to have a Company Material Adverse Effect. Section 3.06 of the
------------
Company Disclosure Schedule sets forth, as of the date of this Agreement, all
actions, proceedings, or investigations, pending or, to the knowledge of the
Company, threatened against the Company or any of its subsidiaries that could
reasonably be expected to result in the loss, revocation, suspension or
cancellation of a Permit held by the Company or a subsidiary of the Company,
except for any suspension, loss or revocation that could not reasonably be
expected to have a Company Material Adverse Effect. Except as set forth
in Section 3.06 of the Company Disclosure Schedule, neither the Company
------------
nor any of its subsidiaries is in conflict with, in default under or
in violation of, nor has it received, since December 31, 1993, from any
Governmental Entity any written notice with respect to possible conflicts with,
defaults under or violations of (a) any Law applicable to the Company or any of
its subsidiaries or by or to which any of their respective properties are bound
or subject, (b) any judgment, order or decree applicable to the Company or any
of its subsidiaries, or (c) any of the Permits held by the Company or a
subsidiary of the Company, except for any such conflicts, defaults or violations
that individually or in the aggregate could not reasonably be expected to have a
Company Material Adverse Effect.
Section 3.7. Reports; Financial Statements; Undisclosed Liabilities.
------------------------------------------------------
(a) Since December 31, 1993, except as disclosed in Section 3.07 of the
------------
Company Disclosure Schedule, the Company has filed all forms, reports,
statements and other documents required to be filed with the Securities and
Exchange Commission (the "SEC"), including, without limitation, (i) all Annual
---
Reports on Form 10-K, (ii) all Quarterly Reports on Form 10-Q, (iii) all proxy
statements relating to meetings of stockholders (whether annual or special),
(iv) all Current Reports on Form 8-K and (v) all other reports, schedules,
registration statements or other documents (collectively referred to as the
"Company SEC Reports"). As of their respective dates, the Company SEC Reports
- --------------------
complied in all material respects with the requirements of applicable Laws
(including the Securities Act or the Exchange Act, as the case may be, and the
rules and regulations of the SEC thereunder applicable to such Company SEC
Reports) and the Company SEC Reports, including, without limitation, any
financial statements or schedules included therein, did not at the time they
were filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) The Company has heretofore delivered to VTEL (i) consolidated balance
sheets of the Company and its subsidiaries as of December 31, 1993, December 31,
1994 and December 31, 1995 and (ii) consolidated statements of income,
stockholders' equity and cash flows for each of the three years then ended,
certified by KPMG Peat Marwick LLP, reports thereon are included therewith. The
Company has also delivered to VTEL (i) an unaudited consolidated balance sheet
of the Company and its subsidiaries as of September 30, 1996, and (ii) unaudited
consolidated statements of income, stockholders' equity and cash flows for the
nine months then ended. Such audited and unaudited consolidated financial
statements, including any such financial statements and schedules contained in
the Company SEC reports (or incorporated by reference therein) (i) are in
accordance with the books and records of the Company and its subsidiaries in all
material respects and were prepared in accordance with the published rules and
regulations of the
13
<PAGE>
SEC and generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except (A) to the extent disclosed therein or
required by changes in generally accepted accounting principles, (B) with
respect to Company SEC Reports, as may be indicated in the notes thereto and (C)
in the case of the unaudited financial statements, as permitted by the rules and
regulations of the SEC) and (ii) fairly present in all material respects the
consolidated financial position of the Company and its subsidiaries as of the
respective dates thereof and the consolidated results of operations and cash
flows for the periods indicated (except, in the case of unaudited consolidated
financial statements for interim periods, for the absence of footnotes and
subject to adjustments, consisting only of normal, recurring accruals, necessary
to present fairly such results of operations and cash flows).
(c) Except as and to the extent set forth on the consolidated balance sheet
of the Company and its subsidiaries as of December 31, 1995, including the notes
thereto, or in the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, or other SEC Report filed prior to the date hereof, neither
the Company or any of its subsidiaries has any liabilities or obligations
material to the Company and its subsidiaries which are not referenced on such
balance sheet or in such Quarterly Report on Form 10-Q or in such other SEC
Report filed prior to the date hereof. Except as set forth in Section 3.07 of
------------
the Company Disclosure Schedule or as set forth in the Company's Current Report
on Form 8-K filed with the SEC on October 24, 1996, since the date of the
Company's most recently filed Quarterly Report on Form 10-Q, neither the Company
nor any of its subsidiaries has incurred any liabilities except for (i)
liabilities or obligations incurred in the ordinary course of business and
consistent with past practice, (ii) liabilities incurred in connection with or
as a result of the Merger and (iii) liabilities or obligations which do not have
a Company Material Adverse Effect.
Section 3.8. Absence of Certain Changes or Events. Except as disclosed in
------------------------------------
the Company SEC Reports filed prior to the date of this Agreement or as set
forth in Section 3.08 of the Company Disclosure Schedule, since September 30,
------------
1996, the Company and its subsidiaries have conducted their respective
businesses only in the ordinary course and in a manner consistent with past
practice and there has not been (a) any damage, destruction or loss with respect
to any assets of the Company or any of its subsidiaries that, whether or not
covered by insurance, would constitute a Company Material Adverse Effect, (b)
any change by the Company or its subsidiaries in their significant accounting
policies, (c) except for dividends by a subsidiary of the Company to the Company
or another wholly owned subsidiary of the Company, any declaration, setting
aside or payment of any dividends or distributions in respect of shares of
Company Common Stock or the shares of stock of, or other equity interests in,
any subsidiary of the Company or any redemption, purchase or other acquisition
of any of the Company's securities or any of the securities of any subsidiary of
the Company, (d) any material increase in the benefits under, or the
establishment or amendment of, any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, performance awards
(including, without limitation, the granting of stock appreciation rights or
restricted stock awards), stock purchase or other employee benefit plan, or any
increase in the compensation payable or to become payable to any of the
directors or officers of the Company or the employees of the Company or its
subsidiaries as a group, except for (i) increases in salaries or wages payable
or to become payable in the ordinary course of business and consistent with past
practice or (ii) the granting of stock options in the
14
<PAGE>
ordinary course of business to employees of the Company or its subsidiaries who
are not directors or executive officers of the Company, or (e) any Company
Material Adverse Effect.
Section 3.9 Absence of Litigation. Except as set forth in Section 3.09 of
--------------------- ------------
the Company Disclosure Schedule, there is no claim, action, suit, litigation,
proceeding, arbitration or, to the knowledge of the Company, investigation of
any kind, at law or in equity (including actions or proceedings seeking
injunctive relief), pending or, to the knowledge of the Company, threatened
against the Company or any of its subsidiaries or any properties or rights of
the Company or any of its subsidiaries, and neither the Company nor any of its
subsidiaries is subject to any continuing order of, consent decree, settlement
agreement or other similar written agreement with, or, to the knowledge of the
Company, continuing investigation by, any Governmental Entity, or any judgment,
order, writ, injunction, decree or award of any Governmental Entity or
arbitrator, including, without limitation, cease-and-desist or other orders.
Section 3.10 Employee Benefit Plans; Labor Matters.
-------------------------------------
(a) With respect to each employee benefit plan, program, arrangement,
contract, employment agreement, stock option, bonus, incentive or similar plan
(including, without limitation, any "employee benefit plan" as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), maintained or contributed to by the Company or any of its
-----
subsidiaries, or with respect to which the Company or any of its subsidiaries
could reasonably be expected to incur liability under ERISA (the "Company
-------
Benefit Plans"), the Company has delivered or made available to VTEL a true and
- -------------
correct copy of (i) such Company Benefit Plan, (ii) each trust agreement, if
any, relating to such Company Benefit Plan, (iii) the most recent summary plan
description of each Company Benefit Plan for which a summary plan description is
required, and (iv) the most recent determination letter issued by the IRS with
respect to any Company Benefit Plan that is intended to be qualified under
Section 401 of the Code. Section 3.10 of the Company Disclosure Schedule
------------
contains a complete list of all Company Benefit Plans.
(b) Each of the Company Benefit Plans that are subject to ERISA is in
compliance with ERISA, and except as set forth in Section 3.10 of the Company
------------
Disclosure Schedule, no Company Benefit Plan has an accumulated or waived
funding deficiency within the meaning of Section 412 of the Code. Except as set
forth in Section 3.10 of the Company Disclosure Schedule, none of the Company
------------
Benefit Plans is a "multiemployer plan," as defined in Section 3(37) of ERISA.
Neither the Company nor any trade or business which together with the Company
would be deemed a "single employer" within the meaning of ERISA (an "ERISA
-----
Affiliate") has incurred, directly or indirectly, any material liability
- ---------
(including any material contingent liability) to or on account of a Company
Benefit Plan pursuant to Title IV of ERISA to which the Company or an ERISA
Affiliate made, or was required to make, contributions during the five (5) years
ending on December 31, 1995. As of the date of this Agreement, no condition is
known by the Company to exist that presents a material risk to the Company or an
ERISA Affiliate of incurring such a material liability. No proceedings have
been instituted to terminate any Company Benefit Plan that is subject to Title
IV of ERISA and no
15
<PAGE>
"reportable event," as such term in defined in Section 4043(b) of ERISA, is
known to have occurred with respect to any Company Benefit Plan which has not
been reported.
(c) Except as set forth in Section 3.10 of the Company Disclosure Schedule,
------------
the current value of the assets of each of the Company Benefit Plans that are
subject to Title IV of ERISA, based upon reasonable actuarial assumptions,
equals or exceeds the present value of the accrued benefits under each such
Company Benefit Plan and all contributions or other amounts payable by the
Company and each of its subsidiaries as of the date of this Agreement with
respect to each Plan in respect of current or prior plan years has been either
paid or accrued on the latest balance sheet included in the Company's most
recent SEC Report on Form 10-Q or accrued since September 30, 1996. There are
no pending, or, to the best knowledge of the Company and each of its
subsidiaries, threatened or anticipated claims (other than routine claims for
benefits) by, on behalf of or against any of the Company Benefit Plans or any
trusts related thereto.
(d) There are no collective bargaining or other labor union contracts to
which the Company or its subsidiaries is a party and no collective bargaining
agreement is being negotiated by the Company or any of its subsidiaries. There
is no pending or, to the knowledge of the Company, threatened labor dispute,
strike or work stoppage against the Company or any of its subsidiaries.
(e) No Company Benefit Plan provides retiree medical or retiree life
insurance benefits and neither the Company nor any of its subsidiaries is
contractually or otherwise obligated to provide life insurance and medical
benefits upon retirement or termination of employment of employees.
(f) Neither the Company nor any of its subsidiaries contributes to or has an
obligation to contribute to, or has within six years prior to the date of this
Agreement contributed to or had an obligation to contribute to, an employee
benefit plan that is or was subject to Title IV of ERISA or Section 412 of the
Code.
Section 3.11. Taxes. Except as set forth in Section 3.11 of the Company
----- ------------
Disclosure Schedule:
(a) (i) all returns and reports ("Tax Returns") of or with respect to any
-----------
material Tax (as defined in Section 9.03 of this Agreement) which are required
------------
to be filed on or before the date hereof by or with respect to the Company or
any of its subsidiaries have been duly and timely filed, (ii) all items of
income, gain, loss, deduction and credit or other items required to be included
in each such Tax Return have been so included and all information provided in
each such Tax Return is true, correct and complete in all material respects,
(iii) all material Taxes which have become due with respect to the period
covered by each such Tax Return have been or will be timely paid in full, (iv)
all withholding Tax requirements imposed on or with respect to the Company or
any of its subsidiaries have been satisfied in all material respects, and (v) no
material penalty, interest or other charge is due with respect to the late
filing of any such Tax Return or late payment of any such Tax.
16
<PAGE>
(b) Section 3.11 of the Company Disclosure Schedule lists all federal and
------------
other material Tax Returns filed with respect to the Company and any of its
subsidiaries for taxable years ending on or after December 31, 1992. The
Company has delivered to VTEL correct and complete copies of all such Tax
Returns.
(c) There is no material claim against the Company or any of its
subsidiaries for any amount of Taxes, no assessment, deficiency or adjustment
has been asserted or proposed with respect to any Tax Return of or with respect
to the Company or any of its subsidiaries, and no material Tax Return of or with
respect to the Company or any of its subsidiaries has been, or is being, audited
by the Internal Revenue Service or any state, local or other taxing authority
other than those disclosed (and to which are attached true and complete copies
of all audit or similar reports) in Section 3.11 of the Company Disclosure
------------
Schedule.
(d) The total amounts set up as liabilities for current and deferred Taxes
in the financial statements referred to in Section 3.07 of this Agreement are
------------
sufficient to cover the payment of all Taxes, whether or not assessed or
disputed, which are, or are hereafter found to be, or to have been, due by or
with respect to the Company and any of its subsidiaries up to and through the
periods covered thereby.
(e) Except for statutory liens for current Taxes not yet due and for Taxes
being contested in good faith which have been disclosed in Section 3.11 of the
------------
Company Disclosure Schedule and for which adequate provisions have been made in
the financial statements referred to in Section 3.07, no material liens for
------------
Taxes exist upon the assets of any of the Company or any of its subsidiaries.
(f) Neither the Company nor any of its subsidiaries has waived any statute
of limitations in respect of material Taxes or agreed to any extension of time
with respect to a material Tax assessment or deficiency.
(g) Neither the Company nor any of its subsidiaries has made an election
under Section 341(f) of the Code. Except as disclosed in Section 3.11 of the
Company Disclosure Schedule, neither the Company nor any of its subsidiaries has
made any payments, is obligated to make any payments, or is a party to any
agreement that under the circumstances could obligate it to make any payments
that will not be deductible under Sections 162(m) or 280G of the Code.
(h) Neither the Company nor any of its subsidiaries has taken or agreed to
take any action that would prevent the Merger from constituting a reorganization
qualifying under the provisions of Section 368(a) of the Code.
(i) Neither the Company nor any of its subsidiaries (i) has ever been a
member of an Affiliated Group (as defined in Section 1504 of the Code) other
than a group the common parent of which was the Company or (ii) has any
liability for the Taxes of any person (other than the Company or any of its
subsidiaries) under Treas. Reg. (S) 1.1502-6 (or any similar provision under
state, local, or foreign law), as a transferee or successor, by contract, or
otherwise.
17
<PAGE>
(j) Except for the Merger, there has been no "ownership change" (as defined
in Section 382(g) of the Code) with respect to the Company during the "testing
period" (as defined in Section 382(i) of the Code) that ends on the day on which
the "owner shift" (as defined in Section 382(g) of the Code) occurs as a result
of the Merger.
Section 3.12. Affiliates. Section 3.12 of the Company Disclosure
---------- ------------
Schedule identifies all persons who, to the knowledge of the Company, may be
deemed to be affiliates of the Company within the meaning of that term as used
in Rule 145 promulgated pursuant to the Securities Act, including, without
limitation, all directors and executive officers of the Company.
Section 3.13. Properties. Except as set forth in Section 3.13 of the
---------- ------------
Company Disclosure Schedule or specifically described in the Company SEC
Reports, the Company and its subsidiaries have good and marketable title, free
and clear of all liens, to all their properties and assets whether tangible or
intangible, real, personal or mixed, reflected in the Company's consolidated
financial statements contained in the Company's most recent SEC Report on Form
10-Q as being owned by the Company and its subsidiaries as of the date thereof,
other than (a) any properties or assets that have been sold or otherwise
disposed of in the ordinary course of business since the date of such financial
statements, (b) liens disclosed in the notes to such financial statements and
(c) liens arising in the ordinary course of business after the date of such
financial statements.
Section 3.14. Intellectual Rights.
-------------------
(a) The Company owns, or is licensed or otherwise possesses legally
sufficient rights to use, all patents, trademarks, trade names, service
marks, copyrights, maskworks and any applications therefor, technology,
know-how, video and audio compression algorithms, computer software
programs or applications (in both source code and object code form) and
tangible or intangible proprietary information or material that are used or
proposed to be used in the business of the Company as currently conducted.
Section 3.14 of the Company Disclosure Schedule lists all current patents,
registered and material unregistered copyrights, maskworks, trade names and
any applications therefor owned by the Company (the "Intellectual Property
Rights"), and specifies the jurisdictions in which each such Intellectual
Property Right has been issued or registered or in which an application for
such issuance and registration has been filed, including the respective
registration or application numbers and the names of all registered owners.
Section 3.14 of the Company Disclosure Schedule includes and specifically
identifies all material third-party patents, trademarks, copyrights
(including software) and maskworks (the "Third Party Intellectual Property
Rights"), to the knowledge of the Company, which are incorporated in, are,
or form a part of, any Company product, excluding any such intellectual
property rights that are available on a commodity basis (such as "shrink
wrap" licenses) and which are non-exclusive, terminable and available at a
standard fee. Section 3.14 of the Company Disclosure Schedule lists (i)
all material licenses, sublicenses and other agreements as to which the
Company is a party and pursuant to which any person is authorized to use
any of the Company's Intellectual Property Rights, or any trade secret
material to the Company or any of its subsidiaries; and (ii) all material
licenses, sublicenses and other agreements as to which the Company is a
party and pursuant to which the Company is authorized to use any Third
Party Intellectual Property Rights, or
18
<PAGE>
other trade secret of a third party in or as any product, and includes the
identity of all parties thereto, a description of the nature and subject
matter thereof and the term thereof.
(b) The Company is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations hereunder,
in violation of any license, sublicense or agreement described in Section
3.14(a) of the Company Disclosure Schedule. No claims with respect to the
Company's Intellectual Property Rights, any trade secret material to the
Company, or Third Party Intellectual Property Rights to the extent arising
out of any use, reproduction or distribution of such Third Party
Intellectual Property Rights by or through the Company, are currently
pending or, to the knowledge of the Company, are threatened by any person,
nor does the Company know of any valid grounds for any bona fide claims (i)
to the effect that the manufacture, sale, licensing or use of any product
as now used, sold or licensed or proposed for use, sale or license by the
Company infringes on any copyright, maskwork, patent, trademark, service
mark or trade secret; (ii) against the use by the Company of any
trademarks, trade names, trade secrets, copyrights, maskworks, patents,
technology, know-how, video and audio compression algorithms, or computer
software programs and applications used in the Company's business as
currently conducted or as proposed to be conducted by the Company; (iii)
challenging the ownership, validity or effectiveness of any of the
Company's Intellectual Property Rights or other trade secret material to
the Company; or (iv) challenging the Company's license or legally
enforceable right to use of the Third Party Intellectual Rights. To the
Company's knowledge, all material patents, registered trademarks, maskworks
and copyrights held by the Company are valid and subsisting. To the
Company's knowledge, there is no material unauthorized use, infringement or
misappropriation of any of the Company's Intellectual Property by any third
party, including any employee or former employee of the Company or any of
the its subsidiaries. Except as set forth in Section 3.14(b) of the
Company Disclosure Schedule, neither the Company nor any of its
subsidiaries (i) has been sued or charged in writing as a defendant in any
claim, suit, action or proceeding which involves a claim or infringement of
trade secrets, any patents, trademarks, service marks, maskworks or
copyrights and which has not been finally terminated prior to the date
hereof or been informed or notified by any third party that the Company may
be engaged in such infringement or (ii) has knowledge of any infringement
liability with respect to, or infringement by, the Company or any of its
subsidiaries of any trade secret, patent, trademark, service mark, maskwork
or copyright of another.
(c) Each employee of the Company has executed a confidentiality, invention
and copyright agreement with the Company in the forms previously delivered
to VTEL.
Section 3.15. Real Property. Section 3.15 of the Company Disclosure
------------- ------------
Schedule lists all real property that is owned or leased by the Company (other
than sales offices and shared distribution space).
Section 3.16. Insider Interests; Transactions with Management. Except as
-----------------------------------------------
set forth in Section 3.16 of the Company Disclosure Schedule, no officer or
------------
director of the Company or holder of more than five percent of the Company
Common Stock currently outstanding has any interest in any material property,
real or personal, tangible or intangible, including, without
19
<PAGE>
limitation, any computer software or Company Intellectual Property Assets, used
in or pertaining to the business of the Company or any subsidiary of the
Company, except for the ordinary rights of a stockholder or employee stock
option holder. Except as disclosed in the Company SEC Reports, no executive
officer, director or stockholder of the Company or any of its subsidiaries has,
since December 31, 1994, engaged in any business dealings with the Company or
any of its subsidiaries, other than such business dealings as would not be
required to be disclosed in such documents or reports pursuant to the Securities
Act and the rules and regulations promulgated thereunder. No executive officer
or director of the Company or any of its subsidiaries (except in his capacity as
such) has any direct or indirect material interest in (a) any competitor,
customer, supplier or agent of the Company or any of its subsidiaries, or (b)
any person which is a party to any contract or agreement which is material to
the Company or any of its subsidiaries.
Section 3.17. Contracts and Agreements. The contracts and agreements
------------------------
listed in Section 3.17 of the Company Disclosure Schedule or filed as exhibits
------------
to any of the Company SEC Reports constitute all of the written and material
oral contracts, commitments, leases, and other agreements (including, without
limitation, promissory notes, loan agreements, and other evidences of
indebtedness) to which the Company or any of its subsidiaries is a party or by
which any of their properties are bound with respect to which the obligations of
or the benefits to be received by the Company or any of its subsidiaries,
individually or in the aggregate, could reasonably be expected to have a value
(i) in the case of liabilities, in excess of $250,000, and (ii) in the case of
benefits, $1,000,000, in any consecutive 12-month period (each a "Material
--------
Contract"). Except as set forth in Section 3.17 of the Company Disclosure
- --------
Schedule, neither the Company nor any of its subsidiaries are and, to the best
knowledge of the Company, no other party thereto is in default (and no event has
occurred which, with the passage of time or the giving of notice, or both, would
constitute a default) under any Material Contract, and neither the Company nor
any of its subsidiaries have waived any material right under any Material
Contract. Neither the Company nor any of its subsidiaries have received any
notice of default or termination (other than, in the case of notices of
termination, such termination arising out of the expiration of any Material
Contract by lapse of time or completion of performance in accordance with the
terms thereof) under any Material Contract and neither the Company nor any of
its subsidiaries has assigned or otherwise transferred any rights under any
Material Contract.
Section 3.18. Vote Required. The only votes of the holders of any
-------------
class or series of Company capital stock necessary to approve the Merger and
this Agreement are the affirmative votes of the holders of at least a majority
of the outstanding shares of the Company Common Stock. The provisions of Article
Sixth of the Company's Certificate of Incorporation do not impose any super
majority voting requirement on the transactions contemplated hereby.
Section 3.19. Brokers. No broker, finder or investment banker (other
-------
than PaineWebber Incorporated) is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company. Prior to
the date of this Agreement, the Company has made available to VTEL a complete
and correct copy of all agreements between the Company and PaineWebber
Incorporated pursuant to which such firm will be entitled to any payment
relating to the transactions contemplated by this Agreement.
20
<PAGE>
Section 3.20. Opinion of Financial Advisor. The Board of Directors of
----------------------------
the Company has received the written opinion of PaineWebber Incorporated to the
effect that, as of the date of this Agreement, the Merger Consideration to be
paid to the holders of the Company Common Stock is fair, from a financial point
of view, to such holders. The Company will promptly deliver a copy of such
opinion to VTEL.
Section 3.21. Board Recommendations. By a unanimous vote of the
---------------------
directors present at a meeting of the Company's Board of Directors (which
meeting was duly called and held and at which a quorum was present at all
times), the Board of Directors of the Company (a) approved and adopted this
Agreement, including the Merger and the Stock Option Agreement and the other
transactions contemplated herein and therein, and determined that the Merger is
fair to the stockholders of the Company, and (b) resolved to recommend approval
and adoption of this Agreement, including the Merger and the other transactions
contemplated herein, by the stockholders of the Company.
Section 3.22. Distributors, Customers, or Suppliers. The Company is not
-------------------------------------
aware that any major distributor, customer or supplier to or of the Company or
its subsidiaries intends to cease doing business, or to alter materially the
amount of business done, with the Company or its subsidiaries after the
Effective Time, due to consummation of the transactions contemplated hereunder
or any other reason, that would result in a Company Material Adverse Effect.
Section 3.23. Pooling of Interests. As of the date of this Agreement,
--------------------
the Company has no reason to believe that the Merger will not qualify as a
"pooling of interests" for accounting purposes.
Section 3.24. Rights Plan. The Company has taken all action (including
-----------
amending the Company's Rights Plan, as defined in Section 5.01(h) hereof) so
---------------
that the entering of this Agreement and the Stock Option Agreement and the other
transactions contemplated hereby and thereby do not and will not result in the
grant of any rights to any person under the Company's Rights Plan or enable or
require any rights thereunder to be exercised, distributed or triggered.
Section 3.25. Disclosure. No representation or warranty hereunder
----------
contains any untrue statement of material fact or omits to state a material fact
necessary in order to make the statements contained therein or herein not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE VTEL COMPANIES
The VTEL Companies hereby, jointly and severally, represent and warrant to
the Company that:
Section 4.1. Organization and Qualification; Subsidiaries. Each of the
--------------------------------------------
VTEL Companies is a corporation, and each of VTEL's other subsidiaries is a
corporation, duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and each of the VTEL Companies and
each of VTEL's other subsidiaries has all requisite power and authority to own,
lease and operate its properties and to carry on its business as it is now being
conducted and is duly qualified and in good standing to do business in each
jurisdiction in which the nature
21
<PAGE>
of the business conducted by it or the ownership or leasing of its properties
makes such qualification necessary, other than where the failure to be so duly
qualified and in good standing could not reasonably be expected to have a VTEL
Material Adverse Effect. The term "VTEL Material Adverse Effect" as used in
---- -----------------------
this Agreement shall mean any change or effect that would be materially adverse
to the financial condition, results of operations, business, or prospects of
VTEL and its subsidiaries, taken as a whole, at the time of such change or
effect; provided, however, no VTEL Material Adverse Effect shall be deemed to
have occurred hereunder (i) as a result of customers of VTEL deferring or
delaying orders as a result of the announcement of the execution of this
Agreement, (ii) if the financial condition or results of operations of VTEL's
business are not materially and adversely different from those announced with
respect to VTEL's quarter ended October 31, 1996, or (iii) as a result of the
Company employee departures after the announcement of the execution of this
Agreement. Section 4.01 of the Disclosure Schedule delivered by VTEL to
------------
the Company concurrently with the execution of this Agreement (the
"VTEL Disclosure Schedule") sets forth, as of the date of this Agreement, a true
------------------------
and complete list of all of VTEL's directly or indirectly owned subsidiaries,
together with (a) the jurisdiction of incorporation or organization of each such
subsidiary and the percentage of each such subsidiary's outstanding capital
stock or other equity interests owned by VTEL or another subsidiary of VTEL and
(b) an indication of whether each such subsidiary is a "Significant Subsidiary"
----------------------
as defined in Section 9.03 of this Agreement.
------------
Section 4.2. Certificate of Incorporation and Bylaws. VTEL has heretofore
---------------------------------------
furnished or made available to the Company complete and correct copies of the
Certificate of Incorporation and Bylaws, in each case as amended or restated to
the date hereof, of VTEL and Merger Sub. Neither VTEL nor any of its
subsidiaries is in violation of any of the provisions of its Certificate of
Incorporation or Bylaws (or equivalent organizational documents).
Section 4.3. Capitalization.
--------------
(a) The authorized capital stock of VTEL consists of 25,000,000 shares of
VTEL Common Stock, par value $.01 per share ("VTEL Common Stock"), and
-----------------
10,000,000 shares of preferred stock, par value $.01 per share ("VTEL Preferred
--------------
Stock"). As of December 1, 1996, 13,940,567 shares of VTEL Common Stock were
- -----
issued and outstanding, 407,848 shares of VTEL Common Stock were held by VTEL in
its treasury, and 2,951,915 shares of VTEL Common Stock were reserved for
issuance as follows: (i) 1,973,471 shares were reserved for issuance upon
exercise of stock options heretofore granted or available for grant pursuant to
VTEL's 1989 Stock Option Plan; (ii) 700,000 shares were reserved for issuance
upon exercise of stock options heretofore granted or available for grant
pursuant to VTEL's 1996 Stock Option Plan; (iii) 195,276 shares were reserved
for issuance upon the purchase of shares under the VTEL Employee Stock Purchase
Plan; and (iv) 83,168 shares were reserved for issuance upon exercise of stock
options heretofore granted or available for grant pursuant to the VTEL 1992
Director Plan (the stock option plans referenced in clauses (i) through (iv) of
this section being herein collectively called the "VTEL Option Plans"). No
-----------------
shares of VTEL Preferred Stock are issued or outstanding. Except as described
in this Section 4.03 or in Section 4.03(a) of the VTEL Disclosure Schedule, no
------------ ---------------
shares of capital stock of VTEL are reserved for issuance for any other purpose.
Each of the issued shares of capital stock of, or other equity interests in,
each of VTEL and its subsidiaries is duly authorized, validly issued
22
<PAGE>
and, in the case of shares of capital stock, fully paid and nonassessable, and
have not been issued in violation of (nor are any of the authorized shares of
capital stock of, or other equity interests in, VTEL or an of its subsidiaries
subject to) any preemptive or similar rights created by statute, the Certificate
of Incorporation or Bylaws (or the equivalent organizational documents) of VTEL
or any of its subsidiaries, or any agreement to which VTEL or any of its
subsidiaries is a party or is bound, and, except as set forth in Section 4.03(a)
---------------
of the VTEL Disclosure Schedule, all issued shares or other equity interests in
the subsidiaries of VTEL owned by VTEL or a subsidiary of VTEL are owned free
and clear of all security interests, liens, claims, pledges, agreements,
limitations on VTEL's or such subsidiary's voting rights, charges or other
encumbrances of any nature whatsoever.
(b) No bonds, debentures, notes or other indebtedness of VTEL having the
right to vote (or convertible into or exchangeable or exercisable for securities
having the right to vote) on any matters on which stockholders may vote ("VTEL
----
Voting Debt") are issued or outstanding. All shares of VTEL Common Stock which
- -----------
may be issued upon exercise of stock options granted pursuant to the VTEL Option
Plans will, when issued in accordance with the terms of such stock options and
the related VTEL Option Plans, be validly issued, fully paid and nonassessable
and not subject to preemptive rights
(c) Except as set forth in Section 4.03(a) above or in Section 4.03(c) of
--------------- ---------------
the VTEL Disclosure Schedule, there are no options, warrants or other rights
(including registration rights), agreements, arrangements or commitments of any
character to which VTEL or any of its subsidiaries is a party relating to the
issued or unissued capital stock of VTEL or any of its subsidiaries or
obligating VTEL or any of its subsidiaries to grant, issue or sell any shares of
capital stock, VTEL Voting Debt or other equity interests of VTEL or any of its
subsidiaries. Except as set forth in Section 4.03(c) of the VTEL Disclosure
---------------
Schedule, there are no obligations, contingent or otherwise, of VTEL or any of
its subsidiaries (i) to repurchase, redeem or otherwise acquire any shares of
VTEL Common Stock or other capital stock of VTEL or the capital stock of any
subsidiary of VTEL or (ii) other than advances to wholly owned subsidiaries in
the ordinary course of business, to provide funds to, or to make any investment
in (in the form of a loan, capital contribution or otherwise), or to provide any
guarantee with respect to the obligations of, any subsidiary of VTEL or any
other person. Except as set forth in Section 4.03(c) of the VTEL Disclosure
---------------
Schedule, neither VTEL nor any of its subsidiaries (x) directly or indirectly
owns, (y) has agreed to purchase or otherwise acquire or (z) holds any interest
convertible into or exchangeable or exercisable for the capital stock or other
equity interests representing 5% or more of the capital stock in equity
interests of any corporation, partnership, joint venture or other business
association or entity. Except as set forth in Section 4.03(c) of the VTEL
---------------
Disclosure Schedule or for any agreements, arrangements or commitments between
VTEL and its wholly owned subsidiaries or between such wholly owned
subsidiaries, there are no agreements, arrangements or commitments of any
character (contingent or otherwise) pursuant to which any person is or may be
entitled to receive any payment based on, or calculated in accordance with, the
revenues or earnings of VTEL or any of its subsidiaries. Except as set forth in
Section 4.03(c) of the VTEL Disclosure Schedule, there are no voting trusts,
- ---------------
proxies or other agreements or understandings to which VTEL or any of its
subsidiaries is a party or by
23
<PAGE>
which VTEL or any of its subsidiaries is bound with respect to the voting of any
shares of capital stock or other equity interests of VTEL or any of its
subsidiaries.
(d) The authorized capital stock of Merger Sub consists of 1,000 shares of
common stock, par value $.0l per share ("Merger Sub Common Stock"). An
-----------------------
aggregate of 1,000 shares of Merger Sub Common Stock are issued and outstanding
and held by VTEL, all of which are duly authorized, validly issued, fully paid
and nonassessable and not subject to preemptive rights created by statute,
Merger Sub's Certificate of Incorporation or Bylaws or any agreement to which
Merger Sub is a party or is bound.
(e) The shares of VTEL Common Stock to be issued pursuant to the Merger
will be duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights created by statute, VTEL's Certificate of
Incorporation or Bylaws or any agreement to which VTEL is a party or is bound.
Section 4.4. Authority. Each of the VTEL Companies has all requisite
---------
corporate power and authority to execute and deliver this Agreement and the
Stock Option Agreement to which it is a party and to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Stock Option
Agreement by each of the VTEL Companies and the performance by each of the VTEL
Companies of its obligations hereunder and thereunder, including the
consummation of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action and no other corporate proceedings
on the part of either of the VTEL Companies are necessary to authorize this
Agreement and the Stock Option Agreement or to consummate the transactions
contemplated hereby and thereby (subject to, with respect to the Merger, the
approval and adoption of this Agreement by the stockholders of VTEL as set forth
in Section 6.01 of this Agreement). This Agreement and the Stock Option
------------
Agreement have been duly executed and delivered by each of the VTEL Companies
and, assuming the due authorization, execution and delivery hereof by the
Company, constitute the legal, valid and binding obligation of each of the VTEL
Companies, enforceable against each of the VTEL Companies in accordance with
their terms.
Section 4.5. No Conflict: Required Filings and Consents.
------------------------------------------
(a) Except as otherwise disclosed in Section 4.05(a) of the VTEL Disclosure
---------------
Schedule, the execution and delivery of this Agreement and the Stock Option
Agreement by each of the VTEL Companies which are parties thereto do not, and
performance by each of them of their obligations hereunder and thereunder,
including the consummation of the transactions contemplated hereby and thereby,
will not (i) conflict with or violate the Certificate of Incorporation or
Bylaws, or the equivalent organizational documents, in each case as amended or
restated, of VTEL or any of VTEL's Significant Subsidiaries, (ii) conflict with
or violate any Laws in effect as of the date of this Agreement or any judgment,
order or decree to which VTEL or any of VTEL's subsidiaries is a party or by or
to which any of their properties are bound or subject or (iii) result in any
breach of or constitute a default (or an event that with or without notice or
lapse of time or both would become a default) under, or impair any of VTEL's or
any of its Subsidiaries' rights or alter the rights or obligations of any third
party under, or give to others any rights of
24
<PAGE>
termination, amendment, acceleration or cancellation of, or require payment
under, or result in the creation of a lien or encumbrance on any of the
properties or assets of VTEL or any of VTEL's subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract agreement, lease, license, permit,
franchise or other instrument or obligation to which VTEL or any of VTEL's
subsidiaries is a party or by or to which VTEL or any of VTEL's subsidiaries or
any of their respective properties is bound or subject (including, but not
limited to, any license agreement, contract or other arrangement of any nature
relating to VTEL Intellectual Property Rights or VTEL Third Party Intellectual
Property Rights (as these terms are hereinafter defined), excluding from the
foregoing clauses (ii) and (iii) any such conflicts, violations, breaches,
defaults, events, rights of termination, amendment, acceleration or
cancellation, payment obligations or liens or encumbrances that could not
reasonably be expected to have a VTEL Material Adverse Effect.
(b) The execution and delivery of this Agreement and the Stock Option
Agreement by each of the VTEL Companies which are parties thereto does not, and
the performance by each of the VTEL Companies of its respective obligations
hereunder and thereunder, including consummation of the transactions
contemplated hereby and thereby, will not, require either of the VTEL Companies
to obtain any consent license, permit, waiver, approval, authorization or order
of, or to make any filing with or notification to, any Governmental Entity,
except (i) for (A) applicable requirements, if any, of the Securities Act, the
Exchange Act, and Blue Sky Laws, and (B) the pre-merger notification
requirements of the HSR Act, (ii) the filing and recordation of appropriate
merger documents as required by the DGCL, and (iii) where the failure to obtain
such consents, licenses, permits, waivers, approvals, authorizations or orders,
or to make such filings or notifications could not individually or in the
aggregate reasonably be expected to cause a VTEL Material Adverse Effect or to
materially impair or delay the ability of either of the VTEL Companies from
performing their respective obligations under this Agreement and the Stock
Option Agreement.
Section 4.6. Permits; Compliance. Except as disclosed in Section 4.06 of
------------------- ------------
the VTEL Disclosure Schedule, each of VTEL and its subsidiaries is in possession
of all Permits necessary to own, lease and operate their properties and to carry
on their businesses as they are now being conducted except where the failure to
possess such Permits could not reasonably be expected to have a VTEL Material
Adverse Effect. Except as disclosed in Section 4.06 of the VTEL Disclosure
------------
Schedule, as of the date of this Agreement, there are no actions, proceedings,
or investigations pending or, to the knowledge of VTEL, threatened against VTEL
or any of its subsidiaries that could reasonably be expected to result in the
loss, revocation, suspension or cancellation of a Permit held by VTEL or a
subsidiary of VTEL, except for any suspension, loss or revocation that could not
reasonably be expected to have a VTEL Material Adverse Effect. Except as
disclosed in Section 4.06 of the VTEL Disclosure Schedule, neither VTEL nor any
------------
of its subsidiaries is in conflict with, or in default under or violation of,
nor has it received, since December 31, 1993, from any Governmental Entity any
written notice with respect to possible conflicts with, defaults under or
violations of (a) any Law applicable to VTEL or any of its subsidiaries or by or
to which any of their respective properties are bound or subject, (b) any
judgment, order or decree applicable to VTEL or any of its subsidiaries or (c)
any Permits held by VTEL or a subsidiary of VTEL, except for any such conflicts,
defaults or violations that
25
<PAGE>
individually or in the aggregate could not reasonably be expected to have a VTEL
Material Adverse Effect.
Section 4.7. Reports: Financial Statements.
-----------------------------
(a) Since December 31, 1993, VTEL and its subsidiaries have filed all
forms, reports, statements and other documents required to be filed with the
SEC, including, without limitation, (i) all Annual Reports on Form 10-K, (ii)
all Quarterly Reports on Form 10-Q, (iii) all proxy statements relating to
meetings of stockholders (whether annual or special), (iv) all Current Reports
on Form 8-K and (v) all other reports, schedules, registration statements or
other documents (collectively referred to as the "VTEL SEC Reports"). As of
----------------
their respective dates, the VTEL SEC Reports complied in all material respects
with the requirements of applicable Law (including the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to the VTEL SEC Reports) and the VTEL SEC Reports,
including, without limitation, any financial statements or schedules included
therein, did not at the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) VTEL has heretofore delivered to the Company (i) consolidated balance
sheets of VTEL and its subsidiaries as of December 31, 1993, December 31, 1994
and December 31, 1995 and as of July 31, 1996 and (ii) consolidated statements
of income, stockholders' equity and cash flows for each of the three years and
seven months then ended certified by Price Waterhouse LLP, reports thereon are
included therewith. VTEL has also delivered to the Company (i) an unaudited
consolidated balance sheet of VTEL and its subsidiaries as of October 31, 1996,
and (ii) unaudited consolidated statements of income, stockholders' equity and
cash flows for the three months then ended. Such audited and unaudited
consolidated financial statements, including any such financial statements and
schedules contained in the VTEL SEC reports (or incorporated by reference
therein) (i) are in accordance with the books and records of VTEL and its
subsidiaries in all material respects and have been prepared in accordance with
the published rules and regulations of the SEC and generally accepted accounting
principles applied on a consistent basis throughout the periods involved (except
(A) to the extent disclosed therein or required by changes in generally accepted
accounting principles, (B) with respect to the VTEL SEC Reports filed prior to
the date of this Agreement, as may be indicated in the notes thereto and (C) in
the case of the unaudited financial statements, as permitted by the rules and
regulations of the SEC) and (ii) fairly present in all material respects the
consolidated financial position of VTEL and its subsidiaries as of the
respective dates thereof and the consolidated results of operations and cash
flows for the periods indicated (except, in the case of unaudited consolidated
financial statements for interim periods, for the absence of footnotes and
subject to adjustments, consisting only of normal, recurring accruals, necessary
to present fairly such results of operations and cash flows).
(c) Except as and to the extent set forth on the consolidated balance sheet
of the VTEL and its subsidiaries as of December 31, 1995, including the notes
thereto, or
26
<PAGE>
in the Company's Annual Report Form 10-K for the transition period ended July
31, 1996, or in VTEL's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1996, neither VTEL or any of its subsidiaries has any liabilities or
obligations material to VTEL and its subsidiaries which are not referenced on
such balance sheet or in such Annual Report on Form 10-K. Except as set forth in
Section 4.07 of the VTEL Disclosure Schedule since the date of the VTEL's
- ------------
Transition Report on Form 10-K for the seven month transition period ended July
31, 1996, neither VTEL nor its subsidiaries has incurred any liabilities except
for (i) liabilities or obligations incurred in the ordinary course of business
and consistent with past practice, (ii) liabilities incurred in connection with
or as a result of the Merger and (iii) liabilities or obligations which do not
have a VTEL Material Adverse Effect.
Section 4.8. Absence of Certain Changes or Events. Except as
------------------------------------
disclosed in the VTEL SEC Reports filed prior to the date of this Agreement or
as set forth in Section 4.08 of the VTEL Disclosure Schedule, since December 31,
------------
1995, VTEL and its subsidiaries have conducted their respective businesses only
in the ordinary course and in a manner consistent with past practice and there
has not been (a) any damage, destruction or loss with respect to any assets of
VTEL or any of its subsidiaries that, whether or not covered by insurance, would
constitute a VTEL Material Adverse Effect, (b) any change by VTEL or its
subsidiaries in their significant accounting policies or (c) any VTEL Material
Adverse Effect.
Section 4.9. Absence of Litigation. Except as set forth in Section 4.09
--------------------- ------------
of the VTEL Disclosure Schedule, there is no claim, action, suit, litigation,
proceeding, arbitration or, to the knowledge of VTEL, investigation of any kind,
at law or in equity (including actions or proceedings seeking injunctive
relief), pending or, to the knowledge of VTEL, threatened against VTEL or any of
its subsidiaries or any properties or rights of VTEL or any of its subsidiaries,
and neither VTEL nor any of its subsidiaries is subject to any continuing order
of, consent decree, settlement agreement or other similar written agreement
with, or, to the knowledge of VTEL, continuing investigation by, any
Governmental Entity, or any judgment, order, writ, injunction, decree or award
of any Governmental Entity or arbitrator, including, without limitation, cease-
and-desist or other orders.
Section 4.10. Intellectual Rights.
-------------------
(a) VTEL owns, or is licensed or otherwise possesses legally sufficient
rights to use, all patents, trademarks, trade names, service marks,
copyrights, maskworks and any applications therefor, technology, know-how,
video and audio compression algorithms, computer software programs or
applications (in both source code and object code form) and tangible or
intangible proprietary information or material that are used or proposed to
be used in the business of VTEL as currently conducted. Section 4.10 of
the VTEL Disclosure Schedule lists all current patents, registered and
material unregistered copyrights, maskworks, trade names and any
applications therefor owned by VTEL (the "VTEL Intellectual Property
Rights"), and specifies the jurisdictions in which each such Intellectual
Property Right has been issued or registered or in which an application for
such issuance and registration has been filed, including the respective
registration or application numbers and the names of all registered owners.
Section 4.10 of VTEL's Disclosure Schedule includes and specifically
identifies all material third-party patents,
27
<PAGE>
trademarks, copyrights (including software) and maskworks (the "VTEL Third
Party Intellectual Property Rights"), to the knowledge of VTEL, which are
incorporated in, are, or form a part of, any VTEL product, excluding any
such intellectual property rights that are available on a commodity basis
(such as "shrink wrap" licenses) and which are non-exclusive, terminable
and available for a standard fee. Section 4.10 of the VTEL Disclosure
Schedule lists (i) all material licenses, sublicenses and other agreements
as to which VTEL is a party and pursuant to which any person is authorized
to use any VTEL Intellectual Property Rights, or any trade secret material
to VTEL or any of its subsidiaries; and (ii) all material licenses,
sublicenses and other agreements as to which VTEL is a party and pursuant
to which VTEL is authorized to use any VTEL Third Party Intellectual
Property Rights, or other trade secret of a third party in or as any
product, and includes the identity of all parties thereto, a description of
the nature and subject matter thereof and the term thereof.
(b) VTEL is not, nor will it be as a result of the execution and delivery
of this Agreement or the performance of its obligations hereunder, in
violation of any license, sublicense or agreement described in Section
4.10(a) of the VTEL Disclosure Schedule. No claims with respect to VTEL
Intellectual Property Rights, any trade secret material to VTEL, or VTEL
Third Party Intellectual Property Rights to the extent arising out of any
use, reproduction or distribution of such VTEL Third Party Intellectual
Property Rights by or through VTEL, are currently pending or, to the
knowledge of VTEL, are threatened by any person, nor does VTEL know of any
valid grounds for any bona fide claims (i) to the effect that the
manufacture, sale, licensing or use of any product as now used, sold or
licensed or proposed for use, sale or license by VTEL infringes on any
copyright, maskwork, patent, trademark, service mark or trade secret; (ii)
against the use by VTEL of any trademarks, trade names, trade secrets,
copyrights, maskworks, patents, technology, know-how, video and audio
compression algorithms, or computer software programs and applications used
in VTEL's business as currently conducted or as proposed to be conducted by
VTEL; (iii) challenging the ownership, validity or effectiveness of any
VTEL Intellectual Property Rights or other trade secret material to VTEL;
or (iv) challenging VTEL's license or legally enforceable right to use of
the VTEL Third Party Intellectual Rights. To VTEL's knowledge, all
material patents, registered trademarks, maskworks and copyrights held by
VTEL are valid and subsisting. To VTEL's knowledge, there is no material
unauthorized use, infringement or misappropriation of any VTEL Intellectual
Property by any third party, including any employee or former employee of
VTEL or any of the its subsidiaries. Except as set forth in Section
4.10(b) of the VTEL Disclosure Schedule, neither VTEL nor any of its
subsidiaries (i) has been sued or charged in writing as a defendant in any
claim, suit, action or proceeding which involves a claim or infringement of
trade secrets, any patents, trademarks, service marks, maskworks or
copyrights and which has not been finally terminated prior to the date
hereof or been informed or notified by any third party that VTEL may be
engaged in such infringement or (ii) has knowledge of any infringement
liability with respect to, or infringement by, VTEL or any of its
subsidiaries of any trade secret, patent, trademark, service mark, maskwork
or copyright of another.
(c) Each employee of VTEL has executed a confidentiality, invention and
copyright agreement with VTEL in the forms previously made available to the
Company.
28
<PAGE>
Section 4.11. Transactions with Management. Except as disclosed in the
----------------------------
VTEL SEC Reports, no executive officer, director or stockholder of VTEL or any
of its subsidiaries has, since December 31, 1994, engaged in any business
dealings with the Company or any of its subsidiaries, other than such business
dealings as would not be required to be disclosed in such documents or reports
pursuant to the Securities Act and the rules and regulations promulgated
thereunder.
Section 4.12. Vote Required. The only votes of the holders of any
-------------
class or series of VTEL capital stock necessary to approve the Merger and this
Agreement are the affirmative votes of the holders of not less than a majority
of the outstanding shares of VTEL Common Stock.
Section 4.13. Brokers. No broker, finder or investment banker (other
-------
than Bear, Stearns & Co. Inc.) is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of VTEL.
Section 4.14. Opinion of Financial Advisor. VTEL has received the
----------------------------
written opinion of Bear, Stearns & Co. Inc. to the effect that, as of the date
of this Agreement, the Merger Consideration to be paid by VTEL is fair, from a
financial point of view, to the holders of VTEL Common Stock. VTEL will promptly
deliver a copy of such opinion to the Company.
Section 4.15. Board Recommendations. By a unanimous vote of the
---------------------
directors present at a meeting of VTEL's Board of Directors (which meeting was
duly called and held and at which a quorum was present at all times), the Board
of Directors of VTEL (a) approved and adopted this Agreement and the other
transactions contemplated herein, and determined that the Merger is fair to the
stockholders of VTEL, and (b) resolved to recommend approval and adoption of
this Agreement, including the Merger and the other transactions contemplated
herein, by the stockholders of VTEL.
Section 4.16. Distributors, Customers, or Suppliers. VTEL is not aware
-------------------------------------
that any major distributor, customer or supplier to or of VTEL or its
subsidiaries intends to cease doing business, or to alter materially the amount
of business done, with VTEL or its subsidiaries after the Effective Time, due to
consummation of the transactions contemplated hereunder or any other reason,
that would result in a VTEL Material Adverse Effect.
Section 4.17. Pooling of Interests. As of the date of this Agreement,
--------------------
VTEL has no reason to believe that the Merger will not qualify as a "pooling of
interests" for accounting purposes.
Section 4.18. Disclosure. No representation or warranty hereunder
----------
contains any untrue statement of material fact or omits to state a material fact
necessary in order to make the statements contained therein or herein not
misleading.
ARTICLE V
COVENANTS
29
<PAGE>
Section 5.1. Affirmative Covenants of the Company. The Company hereby
------------------------------------
covenants and agrees that, prior to the Effective Time, unless otherwise
expressly contemplated by this Agreement or consented to in writing by VTEL, the
Company will and will cause each of its subsidiaries to:
(a) operate its business in the usual and ordinary course consistent with
past practices;
(b) use its best efforts to preserve intact its business organization,
maintain its rights and franchises, retain the services of its respective
officers and key employees and maintain its relationships with its respective
customers and suppliers;
(c) maintain and keep its properties and assets in as good a repair and
condition as at present, ordinary wear and tear excepted, and use its best
efforts to maintain supplies and inventories in quantities consistent with its
customary business practices;
(d) use its best efforts to keep in full force and effect insurance and
bonds comparable in amount and scope of coverage to that currently maintained;
(e) promptly notify VTEL of (i) any material adverse change in the
condition (financial or otherwise), business, properties, assets, liabilities or
prospects of the Company and its subsidiaries or in the operation of the
business or the properties of the Company and its subsidiaries, (ii) any
material litigation or material governmental complaints, investigations or
hearings (or communications indicating that the same may be contemplated)
involving the Company or any of its subsidiaries, (iii) the occurrence, or
failure to occur, of any event which occurrence or failure to occur would likely
cause any representation or warranty contained in this Agreement or the Stock
Option Agreement to be untrue or inaccurate in any material respect when made or
at any time from the date of this Agreement to the Effective Time; (iv) any
failure of the Company to comply in any material respect with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement or the Stock Option Agreement; or (v) any other event that could
reasonably be expected to result in a Company Material Adverse Effect; provided,
--------
however, that no such notification shall affect the representations and
- -------
warranties of the Company or the conditions to the obligations of the parties
hereunder;
(f) immediately cease and cause to be terminated any solicitation,
initiating, encouragement, activity, discussions or negotiations with any
parties conducted heretofore with respect to any Alternative Transaction (as
defined in Section 5.03(g)) and take the necessary steps to inform such parties
---------------
of the obligations undertaken in Section 5.03(g);
---------------
(g) (i) file all Tax Returns required to be filed on or before the Closing
Date by or with respect to the Company or any of its subsidiaries, (ii) include
in each such Tax Return all items of income, gain, loss, deduction and credit or
other items required to be included in each such Tax Return, (iii) timely pay in
full all material Taxes which become
30
<PAGE>
due pursuant to such Tax Returns, and (iv) satisfy all withholding requirements
imposed on or with respect to the Company; and
(h) take all actions necessary to (i) ensure that the rights issued
pursuant to the Company's Preferred Share Purchase Rights Plan (the "Rights
------
Plan") shall not have, and will not, be granted, become nonredeemable,
- ----
exercisable, distributed or triggered pursuant to the terms of the Rights Plan
by virtue of the Company's execution and delivery of this Agreement or the Stock
Option Agreement or the Company's performance of the transactions contemplated
hereby or thereby and (ii) terminate the Rights Plan immediately prior to the
Effective Date (but not any sooner than immediately prior to the Effective
Time).
Section 5.2. Affirmative Covenants of VTEL. VTEL hereby covenants and
-----------------------------
agrees that, prior to the Effective Time, unless otherwise expressly
contemplated by this Agreement or consented to in writing by the Company, VTEL
will and will cause each of its subsidiaries to:
(a) operate its business in the usual and ordinary course consistent with
past practices except as contemplated by this Agreement; and
(b) use its best efforts to preserve intact its business organization,
maintain its rights and franchises, retain the services of its respective
officers and key employees and maintain its relationships with its respective
customers and suppliers.
Section 5.3. Negative Covenants of the Company. Except as expressly
---------------------------------
contemplated by this Agreement or otherwise consented to in writing by VTEL from
the date of this Agreement until the Effective Time, the Company shall not do,
and shall not permit any of its subsidiaries to do, any of the following:
(a) (i) increase the compensation payable to or to become payable to any
director; (ii) increase the compensation payable or pay bonuses to officers or
employees of the Company or any of its subsidiaries other than in the ordinary
course of business and consistent with past practices; (iii) grant any severance
or termination pay (other than pursuant to agreements or arrangements in effect
on the date hereof and set forth in Section 5.03 of the Company Disclosure
------------
Schedule) to, or enter into any employment or severance agreement with, any
director, officer or employee; (iv) establish, adopt or enter into any employee
benefit plan or arrangement; (v) make any loans to any stockholders, officers,
directors or employees or make any change in its borrowing arrangements; or (vi)
amend, or take any other actions (including, without limitation, the waiving of
performance criteria or the adjustment of awards or any other actions permitted
upon a "change in control" (as defined in the respective plans) of the Company
or a filing under Section 13(d) or 14(d) of the Exchange Act with respect to the
Company) with respect to any of the Company Benefit Plans or any of the plans,
programs, agreements, policies or other arrangements described in Section
-------
3.10(a) of this Agreement;
- -------
(b) declare or pay any dividend on, or make any other distribution in
respect of, outstanding shares of capital stock or other equity interests,
except dividends by a
31
<PAGE>
wholly owned subsidiary of the Company to the Company or another wholly owned
subsidiary of the Company;
(c) (i) except pursuant to the redemption of rights issued under the
Rights Plan, redeem, purchase or otherwise acquire any shares of its or any of
its subsidiaries' capital stock or any securities or obligations convertible
into or exchangeable for any shares of its or its subsidiaries' capital stock
(other than any such acquisition directly from any wholly owned subsidiary of
the Company in exchange for capital contributions or loans to such subsidiary),
or any options, warrants or conversion or other rights to acquire any shares of
its or its subsidiaries' capital stock or any such securities or obligations,
(ii) effect any reorganization or recapitalization of the Company or any of its
subsidiaries, or (iii) split, combine or reclassify any of its or its
subsidiaries' capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for, shares of its
or its subsidiaries' capital stock;
(d) (i) issue (whether upon original issue or out of treasury), sell,
grant, award, deliver or limit the voting rights of any shares of any class of
its or its subsidiaries' capital stock, any securities convertible into or
exercisable or exchangeable for any such shares, or any rights, warrants or
options to acquire any such shares (except for the issuance of shares upon the
exercise of outstanding stock options or warrants in accordance with their terms
and for the issuance of shares upon the conversion of outstanding shares of
Series C Preferred Stock in accordance with the terms of the certificate of
designation, in the form now existing, governing such preferred stock), or (ii)
amend or otherwise modify the terms of any such rights, warrants or options or
terms of the Series C Preferred Stock (except for such amendments and
modifications relating to the terms of the Series C Preferred Stock expressly
contemplated by this Agreement or by the Company Affiliate Letter in the form
attached hereto as Exhibit B executed and delivered concurrently with the
---------
execution and delivery of this Agreement);
(e) acquire or agree to acquire (whether pursuant to a definitive
agreement, a non-binding letter of intent or otherwise), by merging or
consolidating with, by purchasing an equity interest in or a portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets of any other Person (other than the
purchase of assets from suppliers or vendors in the ordinary course of business
and consistent with past practice);
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose
of ("transfer"), or agree to sell, lease, exchange, mortgage, pledge, transfer
--------
or otherwise dispose of, any of its assets or any assets of any of its
subsidiaries, except for transfers of assets in the ordinary course of business
and consistent with past practice;
(g) initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, directly or
indirectly, any inquiries or the making of any proposal or offer relating to, or
that may reasonably be expected to lead to, any Alternative Transaction (as
defined below), or enter into discussions or negotiate with any Person or entity
in furtherance of such inquiries or to obtain an
32
<PAGE>
Alternative Transaction, or disclose any nonpublic information relating to the
Company or any of its subsidiaries to, or afford access to the properties, books
or records of the Company or any of its subsidiaries, or agree to, or endorse,
any Alternative Transaction, or authorize or permit any of the officers,
directors, employees or agents of the Company or any of its subsidiaries or any
investment banker, financial advisor, attorney, accountant or other
representative retained by the Company or any of the Company's subsidiaries (the
"Representatives") to take any such action, and the Company shall notify VTEL
---------------
within 24 hours of receipt by the Company or any of its subsidiaries, or by any
of their Representatives, of all relevant terms of any such inquiries or
proposals or requests for information relating to the Company or any of its
subsidiaries or access to its properties, books or records so received by any of
them relating to any Alternative Transaction and if such inquiry or proposal or
request is in writing, the Company shall within 24 hours of receipt by the
Company or any of its subsidiaries, or by any of their Representatives, deliver
or cause to be delivered to VTEL a copy of such inquiry or proposal or request
(or a complete summary thereof if it is not in writing) and the Company shall
keep VTEL fully informed of the status and details of any such inquiry, proposal
or request or any correspondence or communications related thereto and shall
provide VTEL with five days' advance notice of any agreement to be entered into
with any Person making such inquiry or proposal or request; provided, however,
-------- -------
that at any time prior to the time that the Company's stockholders shall have
voted to approve this Agreement, the Board of Directors of the Company may cause
the Company to furnish information to, and may participate in discussions or
negotiations with, any Person who (without any solicitation, initiation,
encouragement, discussion or negotiation, directly or indirectly, with the
Company or any of its subsidiaries or their respective Representatives) has
submitted a written proposal to such Board of Directors relating to an
Alternative Transaction that is financially superior to the transactions
contemplated by this Agreement, if, and only to the extent that, (i) the
Company's Board of Directors shall have concluded in good faith, after
considering applicable provisions of state law, on the basis of a written
opinion of independent outside counsel of nationally recognized reputation, that
such action is necessary to prevent the Company's Board of Directors from
violating its fiduciary duties to the Company's stockholders under applicable
law, (ii) if such Alternative Transaction is an all cash or substantially all
cash offer, such Alternative Transaction shall not be subject to any financing
contingency (and such Person shall have cash or unrestricted securities on its
latest balance sheet prior to submitting such written proposal equal to at least
two times the amount of such all cash or substantially all cash offer or legally
binding commitments for the financing of such Alternative Transaction, subject
to no conditions to funding), and the Board of Directors of the Company shall
have determined (based upon the advice of the Company's independent financial
advisors or investment bankers of nationally recognized reputation) in the
proper exercise of its fiduciary duties to the Company's stockholders that such
Person is capable of consummating such Alternative Transaction on the terms
proposed, (iii) the Board of Directors of the Company determines (based upon the
advice of the Company's independent financial advisors or investment bankers of
nationally recognized reputation) in the proper exercise of its fiduciary duties
to the Company's stockholders that such Alternative Transaction provides greater
value to the stockholders of the Company than the Merger, (iv) the agreement
relating to the Alternative Transaction be on terms and subject to conditions no
less restrictive than the provisions contained herein, (v) such Person enters
into a
33
<PAGE>
Confidentiality and Standstill Agreement on terms substantially similar to and
no less restrictive to such Person than the Confidentiality and Standstill
Agreement entered into between the Company and VTEL referred to in Section
-------
5.05(d) hereof, and (vi) the Company may not furnish any information to such
- -------
Person if it has not prior to the date thereof notified VTEL in writing of its
intent to furnish information to such person (specifying the nature and identity
of the information to be so furnished) and provided the same information
concurrently to VTEL. For purposes of this Agreement, "Alternative Transaction"
-----------------------
shall mean any of the following (other than the transactions contemplated by
this Agreement) involving the Company or any of its subsidiaries: (i) any
purchase, lease, exchange, transfer or other acquisition or assumption of all or
a material portion of the assets of the Company and its subsidiaries, taken as a
whole; (ii) any merger, consolidation, share exchange, business combination or
similar transaction involving the Company or any of its subsidiaries; or (iii) a
purchase or other acquisition (including by way of merger, consolidation, share
exchange or otherwise) of securities representing 20% or more of the outstanding
voting of the Company;
(h) release any third party from its obligations under any standstill
agreement or arrangement relating to an Alternative Transaction or otherwise
under any confidentiality or other similar agreement relating to information
material to the Company or any of its subsidiaries, unless the Company's Board
of Directors shall have concluded in good faith, after considering applicable
provisions of state law, on the basis of a written opinion of independent
outside counsel of nationally recognized reputation that such action is
necessary to prevent the Company's Board of Directors from violating its
fiduciary duties to its stockholders under applicable law; provided, however,
notwithstanding the foregoing, the Company shall not release any third party
from its obligations under any standstill agreement or arrangement relating to
an Alternative Transaction or otherwise under any such confidentiality or
similar agreement unless the Company shall simultaneously release VTEL from its
obligations and restrictions under the Confidentiality and Standstill Agreement
referred to in Section 5.05(d) hereof; and further, provided, upon receipt by
--------------- ------- --------
the Company of any unsolicited proposal for an Alternative Transaction, the
Company shall promptly release VTEL from its standstill obligations contained in
the Confidentiality and Standstill Agreement referred to in Section 5.05(d)
---------------
hereof;
(i) unless otherwise ordered by a court of competent jurisdiction, take or
permit any action to (w) cause any Person, other than VTEL, Merger Sub or any of
VTEL's subsidiaries, to not be deemed an "Acquiring Person" pursuant to the
Rights Plan; (x) except as contemplated by Section 5.01(h) hereof, to terminate,
---------------
amend or modify the Rights Plan; (y) redeem any rights issued under the Rights
Plan; or (z) cause the rights issuable under the Rights Plan to be redeemed or
to become redeemable, nonexercisable, nondistributed or not triggered or
triggerable pursuant to the terms of the Rights Plan, other than as required by
this Agreement;
(j) adopt or propose to adopt any amendments to its Certificate of
Incorporation or its Bylaws;
34
<PAGE>
(k) (i) change any of its significant accounting policies or (ii) make or
rescind any express or deemed election relating to Taxes, settle or compromise
any claim, action, suit, litigation, proceeding, arbitration, investigation,
audit or controversy relating to Taxes, or change any of its methods of
reporting income or deductions for federal income tax purposes from those
employed in the preparation of the federal income tax returns for the taxable
year ended December 31, 1995 except, in the case of clause (i) or clause (ii),
as may be required by Law or generally accepted accounting principles;
(l) incur any obligation for borrowed money or purchase money
indebtedness, whether or not evidenced by a note, bond, debenture or similar
instrument or under any financing lease, whether pursuant to a sale-and-
leaseback transaction or otherwise or guarantee or endorse the obligations of
any Person;
(m) aside from any actions contemplated by this Agreement, take or permit
any action which could prevent the Merger from qualifying for pooling-of-
interests accounting treatment in accordance with generally accepted accounting
principles and all rules, regulations and policies of the SEC, and the Company
will use its best efforts to prevent any of its officers or directors from
taking or permitting such action;
(n) take or permit any action which could prevent the Merger from
qualifying as a tax-free reorganization under Section 368 of the Code, and the
Company will use its best efforts to prevent any of its officers or directors
from taking or permitting any such action;
(o) take or permit any action which could adversely affect or delay the
ability of either the Company or VTEL to obtain any necessary approvals of any
Governmental Entities required for the transactions contemplated hereby or to
perform its covenants and agreements under this Agreement or the Stock Option
Agreement;
(p) take any action which would make any representation or warranty
contained in Article III of this Agreement untrue or incorrect in any material
-----------
respect; or
(q) agree in writing or otherwise to do any of the foregoing.
Section 5.4. Negative Covenants of VTEL. Except as expressly
--------------------------
contemplated by this Agreement or otherwise consented to in writing by the
Company, from the date of this Agreement until the Effective Time, VTEL shall
not do, and shall not permit any of its subsidiaries to do, any of the
following:
(a) take any action that would result in a failure to maintain the
eligibility of the VTEL Common Stock for quotation on the NASDAQ National
Market;
(b) propose to adopt any amendments to its Certificate of Incorporation or
its Bylaws that could reasonably be expected to delay or have an adverse effect
on the consummation of the transactions contemplated by this Agreement or would
otherwise be inconsistent in any material respect with the terms and conditions
of this Agreement or the other agreements or transactions contemplated hereby
(it being understood that this
35
<PAGE>
clause (b) shall not in any respect limit the right and power of VTEL to amend
its Certificate of Incorporation to increase the authorized number of shares of
any class of capital stock of VTEL);
(c) change any of its significant accounting policies except as may be
required by Law or generally accepted accounting principles;
(d) declare or pay any dividend on, or make any other distribution in
respect of, outstanding shares of its or its subsidiaries capital stock or other
equity interests, except dividends by a wholly owned subsidiary of VTEL to VTEL
or another wholly owned subsidiary of VTEL;
(e) take or permit any action which would adversely affect or delay the
ability of either the Company or VTEL to obtain any necessary approvals of any
Governmental Entities required for the transactions contemplated hereby or to
perform its covenants and agreements under this Agreement;
(f) aside from any actions contemplated by this Agreement, take or permit
any action which could prevent the Merger from qualifying for pooling-of-
interests accounting treatment in accordance with generally accepted accounting
principles and all rules, regulations and policies of the SEC, and VTEL will use
its best efforts to prevent any of its officers or directors from taking or
permitting any such actions;
(g) take or permit any action which could prevent the Merger from
qualifying as a tax-free organization under Section 368 of the Code, and VTEL
will use its best efforts to prevent any of its officers or directors from
taking or permitting any such action;
(h) except as contemplated by this Agreement or as set forth on the VTEL
Disclosure Schedule, issue (whether upon original issue or out of treasury),
sell, grant, award, deliver or limit the voting rights of any shares of any
class of its or its subsidiaries' capital stock, any securities convertible into
or exercisable or exchangeable for any such shares, or any rights, warrants or
options to acquire any such shares (except for issuances, grants and awards
pursuant to VTEL's employee stock purchase plans and its stock option plans and
except for the issuance of shares upon the exercise of outstanding awards, stock
options or warrants in accordance with their terms and except for issuance, if
any, necessary to enable the Merger to be treated as a "pooling of interests"
for accounting purposes), or amend or otherwise modify in any material respect
the terms of such rights, warrants and options;
(i) acquire or agree to acquire (whether pursuant to a definitive
agreement, a nonbinding letter of intent or otherwise), by merging or
consolidating with, by purchasing an equity interest in or a portion of the
assets of, or by any other manner, any business or corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire the assets of any other Person (other than (i) the
purchase of assets from suppliers or vendors in the ordinary course of business
and
36
<PAGE>
consistent with past practice, or (ii) such purchase involving the payment of a
purchase price by VTEL not exceeding $25 million);
(j) take any action which would make any representation or warranty
contained in Article IV of this Agreement untrue or incorrect in any material
respect; or
(k) agree in writing or otherwise to do any of the foregoing.
Section 5.5. Access and Information.
----------------------
(a) The Company shall, and shall cause its subsidiaries to, (i) afford to
VTEL and VTEL's officers, directors, employees, accountants, consultants, legal
counsel, agents and other representatives (collectively, the "VTEL
----
Representatives") access during ordinary business hours and at other reasonable
- ---------------
times, upon reasonable prior notice, to the officers, employees, accountants,
agents, properties, offices and other facilities of the Company and its
subsidiaries and to the books and records thereof and (ii) furnish promptly to
VTEL and the VTEL Representatives such information concerning the business,
properties, Intellectual Property Assets, contracts, records and personnel of
the Company and its subsidiaries (including, without limitation, financial,
operating and other data and information) as may be reasonably requested, from
time to time, by VTEL.
(b) VTEL shall, and shall cause its subsidiaries to, (i) afford to the
Company and the Company's officers, directors, employees, accountants,
consultants, legal counsel, agents and other representatives (collectively, the
"Company Representatives") access during ordinary business hours and at other
-----------------------
reasonable times, upon reasonable prior notice, to the officers, employees,
accountants, agents, properties, offices and other facilities of VTEL and its
subsidiaries and to the books and records thereof and (ii) furnish promptly to
the Company and the Company Representatives such information concerning the
business, properties, intellectual property assets, contracts, records and
personnel of VTEL and its subsidiaries (including, without limitation,
financial, operating and other data and information) as may be reasonably
requested, from time to time, by the Company.
(c) No investigation by the parties hereto made heretofore or hereafter
shall affect the representations and warranties of the parties that are
contained herein and each such representation and warranty shall survive such
investigation.
(d) All information received by any party pursuant to this Section 5.05
------------
shall be subject to the provisions of that certain Confidentiality and
Standstill Agreement, dated as of September 12, 1996 between VTEL and the
Company.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1. Presentation to Stockholders. The Company shall, promptly
----------------------------
after the date of this Agreement, take all actions necessary in accordance with
the DGCL and its Certificate of Incorporation and Bylaws to present the Merger
and this Agreement to the holders of the
37
<PAGE>
Company Common Stock (and, if required, holders of the Series C Preferred Stock)
for their consideration and approval by the vote thereof at a meeting of the
Company's stockholders duly called and convened to act on the Merger and this
Agreement (the "Company Stockholders' Meeting"). In like manner, VTEL shall,
----------------------------
promptly after the date of this Agreement, take all actions necessary in
accordance with the DGCL, VTEL's Certificate of Incorporation and Bylaws and the
rules of The NASDAQ Stock Market to present the Merger and this Agreement to the
holders of VTEL Common Stock for their consideration and approval by the vote
thereof at a meeting of VTEL's stockholders duly called and convened to act on
the Merger and this Agreement (the "VTEL Stockholders' Meeting"). The Company
--------------------------
and VTEL shall consult with each other in connection with such meetings and each
shall use its best efforts to cause such meetings to occur on the same date. The
Company and VTEL shall use their reasonable best efforts to solicit from their
respective stockholders proxies in favor of the approval and adoption of this
Agreement and to secure the vote of stockholders required by the DGCL and their
respective Certificates of Incorporation and Bylaws and by the rules of The
NASDAQ Stock Market to approve and adopt the Merger and this Agreement. The
Board of Directors of VTEL and the Board of Directors of the Company shall
recommend that their respective stockholders approve and adopt this Agreement
and the Merger on the terms and conditions set forth in this Agreement. The
Company shall cause its Board of Directors (a) not to withdraw, modify or change
their recommendations of this Agreement or the Merger and (b) to continue to
recommend to the respective stockholders of the Company the approval and
adoption of this Agreement and the Merger on the terms and conditions set forth
in this Agreement. Notwithstanding any other provision hereof, no party shall be
restricted from complying with Rule 14e-2 promulgated under the Exchange Act
with regard to a tender offer or exchange offer; provided, further, that the
-------- -------
Company shall not, and shall not permit any of its officers, directors,
employees (acting on behalf of the Company) or other representatives to agree to
or endorse or recommend any Alternative Transaction unless the Company shall
have first terminated this Agreement pursuant to Section 8.01(i) and paid VTEL
---------------
all amounts payable to VTEL pursuant to Sections 8.01(i) and 8.05 hereof and, if
---------------- ----
VTEL shall have as of such time exercised any of its rights under the Stock
Option Agreement, the Company shall have complied with all of its obligations
under the Stock Option Agreement.
Section 6.2. Registration Statement; Proxy Statement/Prospectus.
--------------------------------------------------
(a) As promptly as practicable after the execution of this Agreement, VTEL
shall prepare and file with the SEC a Registration Statement containing a joint
Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") for stockholders
--------------------------
of the Company and VTEL in connection with (i) the registration under the
Securities Act of the offer, sale and delivery of VTEL Common Stock to be issued
in the Merger and (ii) the vote of the requisite percentage of the stockholders
of the Company and VTEL with respect to the Merger and this Agreement. VTEL and
the Company shall each use all reasonable efforts to cause the Registration
Statement to become effective as promptly as practicable, and shall take any
action required to be taken in order to comply with any applicable federal or
state securities laws in connection with the issuance of shares of VTEL Common
Stock in the Merger. VTEL and the Company shall each furnish all information
concerning itself, its subsidiaries and the holders of its capital stock as the
other may reasonably request in connection with such actions. As promptly as
practicable after the Registration Statement shall have become effective, the
Company and VTEL shall mail
38
<PAGE>
(the "Mailing Date") the Proxy Statement/Prospectus to the holders of Company
------------
Common Stock or VTEL Common Stock, as the case may be, of record at least 20
calendar days prior to the Company Stockholders' Meeting and the VTEL
Stockholders' Meeting. It shall be a condition to the mailing of the Proxy
Statement/Prospectus that VTEL and the Company shall have received the comfort
letters described in Section 6.16 of this Agreement, if VTEL shall have
------------
requested such letters as described in Section 6.16 hereof. The Proxy
------------
Statement/Prospectus shall include the recommendation of the Board of Directors
of the Company and VTEL in favor of the Merger.
(b) None of the information supplied or to be supplied by the Company for
inclusion or incorporation by reference in (i) the Registration Statement will,
at the time the Registration Statement is filed with the SEC and at the time it
becomes effective under the Securities Act, 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 made therein not misleading and (ii) the
Proxy Statement/Prospectus will, at the Mailing Date and at the time of the
Company Stockholders' Meeting and the VTEL Stockholders' Meeting, 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 made therein, in light
of the circumstances in which they were made, not misleading. If at any time
prior to the Company Stockholders' Meeting or the VTEL Stockholders' Meeting any
event or circumstance relating to the Company or any of its affiliates, or its
or their respective officers or directors, should be discovered by the Company
that should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement/Prospectus, the Company shall promptly inform
VTEL. All documents that the Company is responsible for filing with any
Governmental Entity in connection with the transactions contemplated hereby,
including, without limitation, the Proxy Statement/Prospectus to the extent that
the information contained therein relates to the Company and its subsidiaries or
the transactions contemplated hereby, will comply as to form in all material
respects with the provisions of applicable law, including applicable provisions
of the Securities Act, the Exchange Act and the rules and regulations
thereunder, and each such document required to be filed with any Governmental
Entity other than the SEC will comply with the provisions of applicable Law as
to the information required to be contained therein.
(c) None of the information supplied or to be supplied by VTEL for
inclusion or incorporation by reference in (i) the Registration Statement will,
at the time the Registration Statement is filed with the SEC and at the time it
becomes effective under the Securities Act, 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 not misleading and (ii) the Proxy
Statement/Prospectus will, at the Mailing Date and at the time of the Company
Stockholders' Meeting and the VTEL Stockholders' Meeting, 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 contained therein, in light
of the circumstances in which they were made, not misleading. If at any time
prior to the Company Stockholders' Meeting or the VTEL Stockholders' Meeting any
event or circumstance relating to VTEL or any of its affiliates, or its or their
respective officers or directors, should be discovered by VTEL that should be
set forth in an amendment to
39
<PAGE>
the Registration Statement or a supplement to the Proxy Statement/Prospectus,
VTEL shall promptly inform the Company. All documents that VTEL is responsible
for filing with any Governmental Entity in connection with the transactions
contemplated hereby, including, without limitation, the Registration Statement
to the extent that the information contained therein relates to VTEL and its
subsidiaries or the transactions contemplated hereby, will comply as to form in
all material respects with the provisions of applicable law, including
applicable provisions of the Securities Act, the Exchange Act and the rules and
regulations thereunder, and each such document required to be filed with any
Governmental Entity other than the SEC will comply with the provisions of
applicable Law as to the information required to be contained therein.
Section 6.3. Appropriate Action: Consents; Filings.
-------------------------------------
(a) The Company and VTEL shall each use, and shall cause each of their
respective subsidiaries to use, all reasonable efforts promptly (i) to take, or
cause to be taken, all appropriate action, and do, or cause to be done, all
things necessary, proper or advisable under applicable Law or otherwise to
consummate and make effective the transactions contemplated by this Agreement,
(ii) to obtain from any Governmental Entities any consents, licenses, permits,
waivers, approvals, authorizations or orders required to be obtained by the
Company or VTEL, respectively, or any of their respective subsidiaries in
connection with the authorization, execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby,
including, without limitation, the Merger, and (iii) to make all necessary
filings, and thereafter make any other required submissions, with respect to
this Agreement and the Merger required under (A) the Securities Act and the
Exchange Act and the rules and regulations thereunder, and any other applicable
federal or state securities laws, (B) the HSR Act, and (C) any other applicable
Law; and VTEL and the Company shall cooperate with each other in connection with
the making of all such filings, including providing copies of all such documents
to the nonfiling party and its advisors prior to filing and, if requested, shall
accept all reasonable additions, deletions or changes suggested in connection
therewith. The Company and VTEL shall furnish all information required for any
application or other filing to be made pursuant to the rules and regulations of
any applicable Law in connection with the transactions contemplated by this
Agreement.
(b) VTEL and the Company agree, and shall cause each of their respective
subsidiaries, to cooperate and to use all reasonable efforts to contest and
resist any action, including legislative, administrative or judicial action, and
to have vacated, lifted, reversed or overturned any decree, judgment, injunction
or other order (whether temporary, preliminary or permanent) (an "Order") that
-----
is in effect and that restricts, prevents or prohibits the consummation of the
Merger or any other transactions contemplated by this Agreement, including,
without limitation, by vigorously pursuing all available avenues of
administrative and judicial appeal and all available legislative action.
(c) The Company and VTEL shall each promptly give (or shall cause their
respective subsidiaries to give) any notices regarding the Merger, this
Agreement or the Stock Option Agreement or the transactions contemplated hereby
or thereby to third parties required by Law or by any material contract,
license, lease or other material
40
<PAGE>
agreement to which it is a party or by which it is bound, and use, and cause its
subsidiaries to use, all reasonable efforts to obtain any third party consents
(i) necessary, proper or advisable to consummate the transactions contemplated
by this Agreement or the Stock Option Agreement, (ii) otherwise required under
any contracts, licenses, leases or other agreements in connection with the
consummation of the transactions contemplated by this Agreement or the Stock
Option Agreement, or (iii) required to prevent a Company Material Adverse Effect
or a VTEL Material Adverse Effect, respectively, from occurring; provided,
--------
however, that this Section 6.03 shall not impose any obligations on or confer
- ------- ------------
any rights upon any person or entity other than the parties to this Agreement or
the Stock Option Agreement.
(d) If any party shall fail to obtain any third party consent described in
subsection (c) above, such party shall use all reasonable efforts, and shall
take any such actions reasonably requested by the other parties, to limit the
adverse effect upon the Company and VTEL, their respective subsidiaries, and
their respective businesses resulting, or which could reasonably be expected to
result from the failure to obtain such consent.
Section 6.4. Affiliates; Tax Treatment.
-------------------------
(a) The Company shall obtain and deliver to VTEL (i) on the date that this
Agreement is executed by VTEL, an executed agreement, substantially in the form
of Exhibit B hereto from each person identified as an affiliate of the Company
---------
in Section 3.12 of the Company Disclosure Schedule, and (ii) by the Closing
------------
Date, from any other person who is an affiliate of the Company on the Closing
Date.
(b) VTEL shall obtain and deliver to the Company (i) on the date that this
Agreement is executed by the Company, an executed agreement, substantially in
the form of Exhibit C hereto from each person identified as an affiliate of VTEL
---------
in Section 6.04 of the VTEL Disclosure Schedule, and (ii) by the Closing Date,
------------
from any other person who is an affiliate of VTEL on the Closing Date.
(c) VTEL shall be entitled to place legends as specified in such
agreements on the certificates evidencing any VTEL Common Stock to be received
by such affiliates of the Company pursuant to the terms of this Agreement, and
to issue appropriate stop transfer instructions to the transfer agent of the
VTEL Common Stock, consistent with the terms of such letter agreements.
(d) Neither the Company nor VTEL nor any of their respective subsidiaries
or other affiliates shall (i) take any action, or fail to take any action, that
would jeopardize qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code or (ii) enter into any contract,
agreement, commitment or arrangement with respect to the foregoing.
(e) At or before the Closing, VTEL shall provide an officer's certificate,
in form and substance reasonably acceptable to VTEL, to Shearman & Sterling to
assist such counsel in rendering the written opinion provided for in Section
-------
7.01(e) of this Agreement
- -------
41
<PAGE>
and the Company shall provide an officer's certificate, in form and substance
reasonably satisfactory to the Company, to Jenkens & Gilchrist, a Professional
Corporation, to assist such counsel in rendering the written opinion provided
for in Section 7.01(d) of this Agreement.
---------------
Section 6.5. Public Announcements. Except as otherwise required by
--------------------
applicable law or the rules of The NASDAQ Stock Market, neither the Company nor
VTEL shall, or shall permit any of its subsidiaries to, issue or cause the
publication of any press release or other public announcement with respect to,
or otherwise make any public statement concerning, the transactions contemplated
by this Agreement or the Stock Option Agreement without the consent of the other
party, which consent shall not be unreasonably withheld.
Section 6.6. NASDAQ Listing. VTEL shall use all reasonable efforts to
--------------
cause the shares of VTEL Common Stock to be issued in the Merger to be approved
for quotation on The NASDAQ Stock Market prior to the Effective Time.
Section 6.7. State Takeover Statutes. The Company will take all steps
-----------------------
necessary to exempt the transactions contemplated by this Agreement and the
Stock Option Agreement from, and if necessary challenge the validity of, any
applicable state takeover law, including, without limitation, Section 203 of the
DGCL. The Company shall take all actions necessary under the DGCL, including
approving the transactions contemplated by this Agreement and the Stock Option
Agreement, to ensure that the prohibitions on business combinations set forth in
Section 203 of the DGCL do not, or will not, apply to the transactions
contemplated by this Agreement.
Section 6.8. Charter Amendment. Consistent with applicable law, VTEL
-----------------
shall cause to be presented to its stockholders and shall cause to be voted upon
at the VTEL Stockholders' Meeting referred to in Section 6.01, in addition to
------------
the consideration and action upon this Agreement and the Merger, a proposed
amendment to the Certificate of Incorporation of VTEL increasing the authorized
shares of VTEL Common Stock to 40 million. VTEL shall use its reasonable best
efforts to solicit from its stockholders proxies in favor of the approval of the
amendment to its Certificate of Incorporation and to secure the vote required by
the DGCL and its Certificate of Incorporation to approve such amendment.
Section 6.9. Board Seats. Promptly following the Effective Time,
-----------
consistent with applicable law and its Bylaws, the Board of Directors of VTEL
shall increase the number of members of its Board of Directors from five to
seven, and shall elect T. Gary Trimm and Arthur G. Anderson to fill such
vacancies, to serve as such until the next annual meeting of VTEL stockholders
or such time as their respective successors shall have been duly elected or
appointed and qualified.
Section 6.10. Options .
--------
(a) At the Effective Time, each option granted by the Company to purchase
shares of Company Common Stock which is outstanding and unexercised immediately
prior thereto shall cease to represent a right to acquire shares of Company
Common Stock and shall be converted automatically into an option to purchase
shares of VTEL Common Stock in an amount and at an exercise price determined as
provided below (and otherwise
42
<PAGE>
subject to the terms of the Company benefit plans under which they were issued
and the agreements evidencing grants thereunder).
(i) The number of shares of VTEL Common Stock to be subject to the new
option shall be equal to the product of the number of shares of
Company Common Stock subject to the original option and the Common
Stock Conversion Ratio, provided that any fractional shares of VTEL
Common Stock resulting from such multiplication shall be rounded to
the nearest whole share; and
(ii) The exercise price per share of VTEL Common Stock under the new option
shall be equal to the exercise price per share of Company Common Stock
under the original option divided by the Common Stock Conversion
Ratio, provided that such exercise price shall be rounded down to the
nearest whole cent.
(b) The adjustment provided herein with respect to any options which are
"incentive options" (as defined in Section 422 of the Code) shall be and is
intended to be effectuated in a manner which is consistent with Section 424(a)
of the Code. The duration and other terms of the new option shall be the same
as the original option except that all references to the Company or any of its
subsidiaries shall be deemed to be references to VTEL and its subsidiaries.
(c) If and to the extent required by the terms of the plans governing the
original options or pursuant to the terms of any agreements evidencing grants
thereunder, the Company shall use its reasonable efforts to obtain the consent
of each holder of outstanding options to the treatment provided in subparagraph
(a) of this Section 6.10.
(d) With respect to the Assumed Options, as soon as practicable following
the Effective Time, VTEL shall use its best efforts to file one or more
registration statements on Form S-8 with the SEC with respect to the VTEL Common
Stock subject to such Assumed Options.
Section 6.11. Series C Preferred Stock Warrants. As of the Effective
---------------------------------
Time, each warrant to purchase Common Stock Warrant issued in conjunction with
the issuance of the Series C Preferred Stock (the "Series C Warrants") then
-----------------
outstanding shall remain outstanding and, pursuant to the terms of Section 7(c)
of the Series C Warrants, shall thereafter be exercisable into the Merger
Consideration that the shares of Company Common Stock into which such Series C
Warrants could have been exercised immediately prior to the Effective Time would
have been entitled.
Section 6.12. Termination of Convertible Preferred Stock Purchase
---------------------------------------------------
Agreement. The Company, acting through its Board of Directors, shall prior to
- ---------
the Effective Time terminate that certain Convertible Preferred Stock Purchase
Agreement, dated October 24, 1996, between the Company and Infinity Investors,
Ltd. and Seacrest Capital, Ltd. in accordance with the provisions of Section
5.2(b) and (c) thereof, in a manner sufficient to extinguish any obligation of
the Company to issue any Series D Preferred Stock or Series E Preferred Stock
pursuant to that Agreement.
43
<PAGE>
Section 6.13. Merger Sub. Prior to the Effective Time, Merger Sub shall
----------
not conduct any business or make any investments other than as specifically
contemplated by this Agreement and will not have any assets (other than the
minimum amount of cash paid to Merger Sub for the issuance of its stock to VTEL)
or liabilities.
Section 6.14. Indemnification.
---------------
(a) The Company shall indemnify and hold harmless, to the fullest extent
permitted under applicable law, and after the Effective Time VTEL and the
Surviving Corporation shall indemnify and hold harmless, to the fullest extent
permitted under applicable law, each present and former director and officer of
the Company or any of its subsidiaries, and each person who is or was then
serving as a director of the Company or any of its subsidiaries (individually,
an "Indemnified Party" and collectively, the "Indemnified Parties") against any
expenses, including reasonable attorneys' fees, fines, losses, claims, damages,
liabilities, costs, judgments and amounts paid in settlement in connection with
any threatened, pending or completed claim, action, suit, proceeding or
investigation (whether civil, criminal or administrative) arising out of or
pertaining to any action or omission occurring prior to the Effective Time
(including, without limitation, any which arise out of or relate to the Merger
and the transactions contemplate by this Agreement) which are asserted or
commenced prior to or within six years following the Effective Time, and the
Company, VTEL or the Surviving Corporation, as the case may be, will advance
expenses to each such Indemnified Party (provided the person to whom expenses
are advanced provides an undertaking to repay such advances if it is ultimately
determined that such person is not entitled to indemnification), provided the
Indemnified Party asserting the right to indemnification hereunder shall have
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Company and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which such person reasonably believed to be in
or not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, that such person and reasonable cause to believe
that his conduct was unlawful. In the event of any such claim, action, suit,
proceeding or investigation (whether asserted or commenced before or after the
Effective Time), the Company, VTEL or the Surviving Corporation, as the case may
be, will be entitled to participate in and, to the extent that it may wish, to
assume the defense thereof; provided, however, that if any Indemnified Party (or
-------- -------
group of Indemnified Parties) reasonably believes that it is advisable for such
Indemnified Parties to be represented by separate counsel as a result of a
conflict, on any significant issue between the positions of the Indemnified
Party (or group of Indemnified Parties) and the Company, VTEL or the Surviving
Corporation, as the case may be, as determined under applicable standards of
professional conduct or if the Company, VTEL or the Surviving Corporation shall
promptly fail to assume responsibility for such defense, such Indemnified Party
(or group of Indemnified Parties) may retain counsel satisfactory to such
Indemnified Party (or group of Indemnified Parties), who will represent such
Indemnified Party (or group
44
<PAGE>
of Indemnified Parities), and the Company, VTEL or the Surviving Corporation, as
the case may be, shall pay all reasonable fees and expenses of such counsel
promptly as statements therefor are received; provided, that the Indemnified
--------
Parties and the Company, VTEL or the Surviving Corporation, as the case may be,
will use their respective best efforts to assist in the vigorous defense of any
such matter; provided, further, that neither the Company, VTEL nor the Surviving
-------- -------
Corporation shall be liable for any settlement effected without their written
consent, which consent, if the Company, VTEL or the Surviving Corporation fails
to assume the defense of any such matter, shall not be unreasonably withheld and
in no event shall be withheld in bad faith; and provided, further, that neither
-------- -------
the Company, VTEL nor the Surviving Corporation shall have any obligation
hereunder to any Indemnified Party when and if a court of competent jurisdiction
shall ultimately determine, after exhaustion of all avenues of appeal, that such
Indemnified Party is not entitled to indemnification hereunder (at which point
such Indemnified Party shall promptly refund, without interest, to the
indemnifying party all amounts previously paid by the indemnifying party
hereunder). Any Indemnified Party wishing to claim indemnification under this
Section 6.14, upon learning of any such claim, action, suit, proceeding or
- ------------
investigation, shall promptly notify the indemnifying party thereof. In the
event the Indemnified Parties are entitled to separate counsel pursuant to this
paragraph (a), the Indemnified Parties may as a group retain only one such law
firm to represent them with respect to any such matter unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Indemnified Parties in which case
the Indemnified Parties may retain, at the expense of the Company, VTEL or the
Surviving Corporation, as the case may be, two additional law firms.
(b) For six years after the Effective Time, the Surviving Corporation shall
keep in effect a provision in its bylaws substantially the same as the provision
contained in Article XI of the Company's bylaws as in effect on the date hereof.
(c) The Company and the Surviving Corporation and their subsidiaries will
perform and discharge all indemnification agreements to which the Company or any
of its subsidiaries is a party and that have been disclosed in Section 6.14(c)
---------------
of the Company Disclosure Schedule.
(d) This Section shall survive the closing of the transactions contemplated
hereby, is intended to benefit the Company, VTEL, the Surviving Corporation and
each of the Indemnified Parties (each of whom shall be entitled to enforce this
Section against the Company or the Surviving Corporation, as the case may be)
and shall be binding on all successors and assigns of the Surviving Corporation.
The exercise by any person of such person's rights under any of paragraphs (a),
(b) or (c) of this Section shall not preclude the exercise of such person's
rights under any such other paragraph of this section, provided that such party
shall not be entitled to multiple recoveries thereunder.
(e) For six years from the Effective Time, VTEL shall cause the Surviving
Corporation to provide to the Company's current directors and officers liability
45
<PAGE>
insurance protection of the same kind and scope as that provided by the
Company's directors' and officers' liability insurance policies (copies of which
have been made available to VTEL) in effect on the date hereof; provided,
--------
however, that in no event shall the Surviving Corporation be required to expend
- -------
in any one year an amount in excess of 150% of the annual premiums currently
paid by the Company for such insurance; and, provided, further, that if the
-------- -------
annual premiums of such insurance coverage exceeds such amount, the Surviving
Corporation shall be obligated to obtain a policy with the greatest coverage
available for a cost not exceeding such amount.
(f) In the event the Surviving Corporation, VTEL or any of their respective
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each such case, proper
provision shall be made so that the successors and assigns of the Surviving
Corporation or VTEL, as the case may be, assume the obligations set forth in
this Section 6.14.
------------
Section 6.15. Employment Contracts. The Company represents that it has
--------------------
previously delivered or made available to VTEL all employment, retirement,
termination, severance or similar agreements with officers or other employees of
the Company and its subsidiaries which are currently in effect, all of which are
listed in the Company Disclosure Schedule. Subsection 6.15 of the Company
---------------
Disclosure Schedule lists all such agreements and plans that provide for payment
of amounts or awards upon consummation of a "change of control" of the Company,
including all those providing for payments or awards upon consummation of the
Merger. The Company has made available to VTEL true, correct and complete
copies of all such agreements and plans. The Company will not enter into any
such agreements after the date hereof without VTEL's prior written consent.
Section 6.16. Comfort Letters.
---------------
(a) If requested by VTEL, the Company shall cause KPMG Peat Marwick LLP to
deliver a letter, dated as of the date of the Proxy Statement/Prospectus, and
addressed to VTEL and its Board of Directors, in form and substance reasonably
satisfactory to VTEL and customary in scope and substance for agreed upon
procedures letters delivered by independent public accountants in connection
with registration statements and proxy statements similar to the Proxy
Statement/Prospectus.
(b) If VTEL should make the request for the Company to cause KPMG Peat
Marwick LLP to deliver the letter referred to in subparagraph (a) of this
Section 6.16, VTEL shall then cause Price Waterhouse LLP to deliver a letter
- ------------
dated as of the date of the Proxy Statement/Prospectus, and addressed to VTEL
and the Company and their respective Boards of Directors, in form and substance
reasonably satisfactory to the Company and customary in scope and substance for
agreed upon procedures letters delivered by independent public accountants in
connection with registration statements and proxy statements similar to the
Proxy Statement/Prospectus.
Section 6.17. Sales Under Rule 145 if Applicable.
----------------------------------
46
<PAGE>
(a) VTEL will use its best efforts to comply with the reporting
requirements of the Exchange Act after the Effective Time.
(b) Upon being informed in writing by any person who, at the Effective
Time, was an officer, director or a shareholder of the Company that may be
deemed to be an affiliate of the Company (within the meaning of the Exchange
Act) (the "Affiliated Shareholder"), that such person intends to sell any shares
----------------------
of VTEL Common Stock acquired in the Merger under Rule 145 under the Exchange
Act, VTEL will certify in writing to such person that it has been subject to the
reporting requirements of the Exchange Act for at least 90 days and it has filed
all of the reports required to be filed by it under the Exchange Act to enable
such person to sell such person's VTEL Common Stock acquired in the Merger under
Rule 145 (or will inform such person in writing that it has not filed such
reports). VTEL will further supply such person with any information in its
possession which he may reasonably request in connection with any such proposed
sale.
(c) If any of the certificates representing any VTEL Common Stock acquired
in the Merger is presented to VTEL's transfer agent for registration of transfer
in connection with any sale theretofore made under paragraph (d) of Rule 145,
provided such certificate is duly endorsed for transfer or accompanied by a duly
executed stock power and is accompanied by an opinion of counsel satisfactory to
VTEL that such transfer has complied with the requirements of Rule 145, VTEL
will promptly instruct its transfer agent to register such transfer and to issue
one or more new certificates free of any stop transfer order or restrictive
legend.
Section 6.18. Stockholder Litigation. The Company shall give VTEL the
----------------------
opportunity to participate in the defense or settlement of any stockholder
litigation against the Company and its directors relating to any of the
transactions contemplated by this Agreement or the Stock Option Agreement;
provided, no such settlement shall be agreed to without VTEL's consent, which
- --------
consent shall not be unreasonably withheld; and further provided, that no
------- --------
settlement requiring a payment by a director of the Company shall be agreed to
without such director's consent.
ARTICLE VII
CLOSING CONDITIONS
Section 7.1. Conditions to Obligations of Each Party Under This Agreement.
------------------------------------------------------------
The respective obligations of each party to effect the Merger and the other
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of the following conditions (any or all of which may
be waived by the parties hereto in writing, in whole or in part, to the extent
permitted by applicable Law):
(a) Effectiveness of the Registration Statement. The Registration
-------------------------------------------
Statement shall have been declared effective by the SEC under the Securities
Act. No stop order suspending the effectiveness of the Registration Statement
shall have been issued by the SEC and no proceedings for that purpose shall have
been initiated by the SEC.
47
<PAGE>
(b) Stockholder Approval. The Merger and this Agreement shall have been
--------------------
approved and adopted by the requisite vote of the stockholders of the Company
and of VTEL in accordance with the DGCL and the respective Certificates of
Incorporation of the Company and VTEL.
(c) HSR Act. The Company and VTEL shall have made all required filings
-------
under the HSR Act and the applicable waiting period under the HSR Act with
respect to the transactions contemplated by this Agreement shall have expired or
been terminated.
(d) VTEL Tax Opinion. VTEL shall have received from Jenkens & Gilchrist,
----------------
a Professional Corporation, a written opinion, dated as of the Mailing Date, to
the effect that the Merger, when effected in accordance with this Agreement,
will qualify as a reorganization under Section 368(a) of the Code and VTEL,
Merger Sub and the Company will constitute parties to such reorganization, and a
copy of such opinion shall have been delivered to the Company.
(e) Company Tax Opinion. The Company shall have received from Shearman &
-------------------
Sterling a written opinion, dated as of the Mailing Date, to the effect that the
Merger, when effected in accordance with this Agreement, will qualify as a
reorganization under Section 368(a) of the Code and VTEL, Merger Sub and the
Company will constitute parties to such reorganization, and a copy of such
opinion shall have been delivered to VTEL.
(f) NASDAQ Approval. The shares of VTEL Common Stock to be issued in the
---------------
Merger shall have been approved for quotation on The NASDAQ Stock Market, but
subject to official notice of issuance.
(g) Pooling Letter. VTEL and the Company shall have received a letter
--------------
from Price Waterhouse LLP, in form and substance reasonably satisfactory to
VTEL, to the effect that the transactions contemplated by this Agreement will be
accounted for by VTEL as a "pooling of interests" under generally accepted
accounting principles and the rules, regulations and policies of the SEC.
(h) Charter Amendment. The amendment to the Certificate of Incorporation
of VTEL referred to in Section 6.08 shall have been duly approved and adopted by
------------
the stockholders of VTEL at the VTEL Stockholders' Meeting in accordance with
the DGCL, and such charter amendment shall have been duly filed with the
Delaware Secretary of State and shall have become effective.
(i) Rights Plan. The rights issued pursuant to the Rights Plan shall not
-----------
have become nonredeemable, exercisable, distributed or triggered pursuant to the
terms of the Rights Plan.
Section 7.2. Additional Conditions to Obligations of the VTEL Companies.
----------------------------------------------------------
The obligations of the VTEL Companies to effect the Merger and the other
transactions contemplated by this Agreement are also subject to the following
conditions (any or all of which may be waived by the VTEL Companies in writing,
in whole or in part):
48
<PAGE>
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company contained in this Agreement shall have been true and
correct in all material respects at and as of the date made and, except as
contemplated or permitted by this Agreement, at and as of the Effective Time as
if made at and as of such time. The VTEL Companies shall have received a
certificate of the President and the Chief Executive Officer of the Company, in
his capacity as such, dated the Closing Date, to the effect that each of the
representations and warranties of the Company contained in this Agreement were
true and correct in all material respects as of the date made and, except as
contemplated or permitted by this Agreement, at and as of the Effective Time as
if made at and as of such time.
(b) Agreements and Covenants. The Company shall have performed or
------------------------
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it at or prior to the
Effective Time. The VTEL Companies shall have received a certificate of the
President and the Chief Executive Officer of the Company, in his capacity as
such, dated the Closing Date, to such effect.
(c) Consents. All consents, authorizations, orders and approvals of, or
--------
filings or registrations with, any Governmental Entity required in connection
with the execution, delivery and performance of this Agreement shall have been
obtained or made, except for filings required under the DGCL in connection with
the Merger and the Company shall have obtained all consents, authorizations,
waivers and approvals required from third parties required under all Material
Contracts by reason of the Merger and the consummation of the transactions
contemplated hereby, except for such consents, authorizations, waivers and
approvals where the failure to obtain such could not reasonably be expected to
result in a Company Material Adverse Effect.
(d) No Governmental Proceedings or Litigation. There shall not be pending
-----------------------------------------
or threatened any action, proceeding, claim or counterclaim by any Governmental
Entity or by any third party which seeks to or would (i) prohibit or restrict
the consummation of the Merger, (ii) require the disposition of or the holding
separate of any of the stock or assets of the Company or its subsidiaries or
impose material limitations on the ability of VTEL to control in any material
respect the business, assets or operations of either VTEL or the Company, or
(iii) have a material adverse effect on VTEL's business or materially impair the
ability of the Company or Merger Sub to perform their obligations hereunder.
There shall not be in effect any order, decree or injunction (whether
preliminary, final or appealable) of a United States Federal or state court of
competent jurisdiction, and no statute, rule or regulation shall have been
enacted or promulgated by any Governmental Entity , which (i) prohibits or
restricts consummation of the Merger or the transactions contemplated hereby,
(ii) requires VTEL to hold separate or dispose of any of the stock or assets of
the Company or its subsidiaries or imposes material limitations on the ability
of VTEL to control in any material respect the business, assets or operations of
either VTEL or the Company, or (iii) has a material adverse effect on the
business of VTEL and its subsidiaries or on the Company and its subsidiaries or
materially impairs the ability of VTEL or Merger Sub to perform their
obligations hereunder.
49
<PAGE>
(e) Affiliate Agreements. The Company shall have delivered to VTEL the
--------------------
letter agreements called for by Section 6.04.
------------
Section 7.3. Additional Conditions to Obligations of the Company. The
---------------------------------------------------
obligations of the Company to effect the Merger and the other transactions
contemplated hereby are also subject to the following conditions (any or all of
which may be waived by the Company in writing, in whole or in part):
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of the VTEL Companies contained in this Agreement shall have been
true and correct in all material respects at and as of the date made and, except
as contemplated or permitted by this Agreement, at and as of the Effective Time
as if made at and as of such time. The Company shall have received a certificate
of the President and the Chief Executive Officer of each of the VTEL Companies,
in their capacities as such, dated as of the Effective Time, to the effect that
each of the representations and warranties of the VTEL Companies contained in
this Agreement were true and correct in all material respects as of the date
made and, except as contemplated by this Agreement, at and as of the Effective
Time as if made at and as of such time.
(b) Agreements and Covenants. The VTEL Companies shall have performed or
------------------------
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them at or prior to the
Effective Time. The Company shall have received a certificate of the Chairman
and Chief Executive Officer of each of the VTEL Companies, in their capacities
as such, dated the Closing Date, to that effect.
(c) Consents. All consents, authorizations, orders and approvals of, or
--------
filings or registrations with, any Governmental Entity required in connection
with the execution, delivery and performance of this Agreement shall have been
obtained or made, except for filings required under the DGCL in connection with
the Merger, and the VTEL Companies shall have obtained all consents,
authorizations, waivers and approvals required from third parties required under
all material agreements and instruments by reason of the Merger and the
consummation of the transactions contemplated hereby, except for such consents,
authorizations, waivers and approvals where the failure to obtain such could not
reasonably be expected to result in a VTEL Material Adverse Effect.
(d) No Regulatory Action. No statute, rule or regulation shall have been
--------------------
enacted or promulgated by any Governmental Entity which seeks to or would (i)
prohibit the consummation of the Merger or the transactions contemplated hereby
or (ii) materially impair the ability of the Company to perform its obligations
hereunder; and there shall not be in effect any order, decree or injunction
(whether preliminary, final or appealable injunction) of a United States federal
or state court of competent jurisdiction which (i) prohibits consummation of the
Merger, or (ii) materially impairs the ability of the Company to perform its
obligations hereunder.
50
<PAGE>
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1. Termination. This Agreement may be terminated and the
-----------
Merger hereby contemplated may be abandoned at any time notwithstanding approval
of this Agreement by the stockholders of the Company and/or VTEL, but prior to
the Effective Time:
(a) by mutual written consent duly authorized by the Boards of Directors
of VTEL and the Company;
(b) by VTEL, if there has been a material breach of the representations
and warranties of the Company contained in this Agreement or if the Company has
failed to comply in any material respect with any of its covenants or agreements
set forth in this Agreement or in the Stock Option Agreement, and the Company
shall not have cured such breach or failure within ten days of receipt of
written notice thereof from VTEL (or such shorter period as provided for in the
Stock Option Agreement (a "Terminating Company Breach"); provided, however, that
-------------------------- -------- -------
the failure of the Company to comply in any material respect with any of its
covenants or obligations set forth in Sections 5.01(f), 5.03(g), 5.03(h),
---------------- ------- -------
5.03(i), 6.01, 6.02 or 6.05 hereof, shall be a Terminating Company Breach
- ------- ---- ---- ----
immediately upon receipt of written notice thereof from VTEL; and further
-------
provided, if such breach or failure is incapable of cure within such ten day
- --------
period, such breach or failure shall constitute a Terminating Company Breach
immediately upon receipt of written notice thereof from VTEL;
(c) by the Company, if there has been a material breach of the
representations and warranties of the VTEL Companies contained in this Agreement
or if either VTEL Company has failed to comply in any material respect with any
covenant or agreement on the part of the VTEL Companies set forth in this
Agreement, and the VTEL Companies shall not have cured such breach or failure
within ten days of receipt of written notice thereof from the Company; provided,
--------
however, if such breach or failure is incapable of cure within such ten day
- -------
period, the ten day cure period shall not apply;
(d) by either VTEL or the Company, if any court of competent jurisdiction
in the United States or other United States governmental body shall have issued
an order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting any of the transactions contemplated hereby or by the
Stock Option Agreement and such order, decree, ruling or other action shall have
become final and non-appealable preventing the consummation of the Merger;
(e) by either VTEL or the Company, if the Effective Time shall not have
occurred on or before December 31, 1997; provided that neither the Company nor
--------
VTEL shall be entitled to terminate this Agreement pursuant to this paragraph if
such party's material breach of this Agreement or the Stock Option Agreement has
been the cause of or resulted in the failure of the Effective Time to occur at
or prior to such time;
51
<PAGE>
(f) by either VTEL or the Company, if at the meetings of their respective
stockholders (including any adjournment thereof) called for by Section 6.01
------------
hereof, this Agreement and the Merger shall fail to be approved and adopted by
the affirmative vote of the stockholders of VTEL and the Company required under
the DGCL and their respective Certificates of Incorporation.
(g) by either VTEL or the Company if there is in effect any order, decree
or injunction of a United States federal court or a court of competent
jurisdiction which shall have become final with all opportunities to appeal
having been exhausted or expired and which (i) requires VTEL to hold separate or
dispose of any of the stock or assets of the Company or its subsidiaries, or of
VTEL or its subsidiaries, which are material to the financial condition,
properties, assets, liabilities, business, results of operations or prospects of
either VTEL and its subsidiaries or the Company and its subsidiaries, or (ii)
imposes material limitations on the ability of VTEL to control in any material
respect the business, assets or operations of either the Company or VTEL;
(h) by VTEL, if (i) the Board of Directors of the Company withdraws,
modifies or changes its recommendation of this Agreement or the Merger in a
manner adverse to VTEL or to the likelihood of consummation of the Merger or
shall have resolved to do any of the foregoing, or (ii) the Board of Directors
of the Company shall have approved, endorsed or recommended to the stockholders
of the Company any Alternative Transaction or resolved to do so;
(i) by the Company, upon prior payment to VTEL of a fee of $3,500,000,
(which, when paid, shall be in lieu of any further Termination Fee due under
Section 8.05(c), anything contained in Section 8.05(d) to the contrary
- --------------- ---------------
notwithstanding) and VTEL's Expenses (as defined in Section 8.05(b) hereof) if
---------------
the Board of Directors of the Company shall have received an offer from a Person
other than VTEL or an affiliate of VTEL to effect an Alternative Transaction
which the Board of Directors of the Company shall have determined, after
considering advice from its financial advisors, is more beneficial to the
stockholders of the Company than the Merger and the Board of Directors of the
Company shall have concluded in good faith, after considering applicable
provisions of state law, on the basis of a written opinion of independent
outside legal counsel of nationally recognized reputation that terminating this
Agreement in order to enter into an agreement with respect to or to consummate
an Alternative Transaction is necessary to prevent the Company's Board of
Directors from violating its fiduciary duties to the Company's stockholders
under applicable law provided, however, the Company shall not be entitled to
-------- -------
terminate this Agreement pursuant to this subsection (i) if the Company shall
have breached or failed to comply with its covenants and agreements contained in
subsections (g), (h) or (i) of Section 5.03 hereof, in Section 6.01 or in
------------ ------------
Section 6.05 hereof with respect to the offer in question;
- ------------
(j) by VTEL, if a tender offer or exchange offer for 20% or more of the
outstanding shares of Company Common Stock is commenced (other than by VTEL or
an affiliate of VTEL), and within ten (10) business days of such commencement
the Board of Directors of the Company shall not have recommended that the
stockholders of the Company not tender their shares in such tender or exchange
offer; or
52
<PAGE>
(k) by VTEL, if the Stock Option Agreement is determined by a court of
competent jurisdiction to be invalid or unenforceable, and such determination
shall have become final with all opportunities to appeal having been exhausted
or expired, but only if the Company or any of its subsidiaries, or any of its
officers, directors, employees, agents or other representatives, instigates or
otherwise voluntarily assists, supports or cooperates with any other party
instigating or pursuing such a legal determination; or if any of the parties
thereto, other than VTEL, shall be in material breach of the Stock Option
Agreement.
Section 8.2. Effect of Termination. Except as provided in Section
--------------------- -------
5.05(d), Section 8.05 and Section 9.01 of this Agreement and in this Section
- ------- ------------ ------------ -------
8.02, in the event of the termination of this Agreement pursuant to Section
- ---- -------
8.01, this Agreement shall forthwith become void, there shall be no liability on
- ----
the part of the VTEL Companies or the Company or any of their respective
officers or directors to the other and all rights and obligations of any party
hereto shall cease, except that nothing herein shall relieve any party from its
obligations with respect to any breach of this Agreement. Notwithstanding the
foregoing, the Company's obligations under the Stock Option Agreement shall
survive such termination, and shall remain in full force and effect and the
duties of the Company thereunder shall not be affected by the termination of
this Agreement, and termination and abandonment of this Agreement shall have no
effect upon the Confidentiality and Standstill Agreement referred to in Section
-------
5.05(d) (except as otherwise provided in Section 5.03(h) hereof).
- ------- ---------------
Section 8.3. Amendment. This Agreement may be amended by the Company and
---------
the VTEL Companies by action taken by or on behalf of their respective Boards of
Directors at any time prior to the Effective Time; provided, however, that after
-------- -------
approval of the Merger by the stockholders of the Company or the stockholders of
VTEL, any such amendment shall be subject to the provisions of Section 251 of
the DGCL. This Agreement may not be amended except by an instrument in writing
signed by the Company and the VTEL Companies.
Section 8.4. Waiver. At any time prior to the Effective Time, any party
------
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other party or parties hereto, (b) waive any inaccuracies in
the representations and warranties of the other party or parties contained
herein or in any document delivered pursuant hereto and (c) waive compliance by
the other party or parties with any of the agreements or conditions contained
herein. Any such extension or waiver shall be valid only if set forth in an
instrument in writing signed by the party or parties to be bound thereby. For
purposes of this Section 8.04, the VTEL Companies as a group shall be deemed to
------------
be one party.
Section 8.5. Fees, Expenses and Other Payments.
---------------------------------
(a) Subject to Section 8.05(c) and (d), all Expenses (as defined in
--------------- ---
paragraph (b) of this Section 8.05) incurred by the parties hereto shall be
------------
borne solely and entirely by the party which has incurred such Expenses;
provided, however, that, subject to the provisions of Sections 8.05(c) and (d)
- -------- ------- ---------------- ---
hereof, the allocable share of each of VTEL and the Company for all expenses
related to printing, filing and mailing the Registration Statement and the Proxy
Statement and all SEC and other regulatory filing fees incurred in connection
with the Registration Statement and the Proxy Statement, and all filing fees
53
<PAGE>
incurred in connection with all regulatory filings made under the HSR Act, shall
be one-half.
(b) "Expenses" as used in this Agreement shall include all out-of-pocket
--------
expenses (including, without limitation, all fees and expenses of counsel,
accountants, investment bankers, experts and consultants to a party hereto and
its affiliates) incurred by a party or on its behalf in connection with or
related to the authorization, preparation, negotiation, execution and
performance of this Agreement, the preparation, printing, filing and mailing of
the Registration Statement and the Proxy Statement/Prospectus, the solicitation
of stockholder approvals and all other matters related to the consummation of
the transactions contemplated hereby.
(c) The Company agrees that:
(i) The Company shall pay to VTEL in same day funds the aggregate amount
of all Expenses incurred by VTEL and its affiliates in connection with this
Agreement and the Stock Option Agreement and the transactions contemplated
hereby or thereby (including fees and expenses of counsel, accountants, and
financial advisors incurred by VTEL) (the "Expense Reimbursement") if any of the
---------------------
following events shall have occurred and there shall be no material breach of
this Agreement by VTEL: (A) VTEL shall have terminated this Agreement in
accordance with the terms of Section 8.01(b) or Section 8.01(h) or Section
--------------- --------------- -------
8.01(j); or (B) the Company shall have terminated this Agreement pursuant to
- -------
Section 8.01(i).
- ---------------
(ii) The Company shall pay to VTEL in same day funds a fee of $3,500,000
(the "Termination Fee") upon demand and with the Expense Reimbursement, if (A)
---------------
this Agreement shall have been terminated; (B) there shall be no material breach
of this Agreement by VTEL continuing at the time of such termination; and (C)
any of the following events shall have occurred: (I) the Company shall have
breached in any material respect the representations warranties, covenants or
conditions contained in this Agreement or the Stock Option Agreement; or (II)
the Board of Directors of the Company or any committee thereof shall have
withdrawn or modified or changed its approval or recommendation of this
Agreement or the Merger, or resolved to do so, or shall have resolved to accept,
accepted or recommended a different proposal; or (III) the Company shall have
entered into an agreement with respect to an Alternative Transaction on or prior
to December 31, 1997; or (IV) the stockholders of the Company shall fail to
approve the Merger and transactions contemplated hereby and shall approve an
Alternative Transaction on or prior to December 31, 1997; or (V) on or prior to
December 31, 1997, the Company's stockholders shall receive a proposal for an
Alternative Transaction and such proposal shall result in a party unaffiliated
with VTEL acquiring securities of the Company representing in excess of a
majority of the voting power of the Company's then outstanding voting
securities; or (VI) this Agreement is terminated by VTEL pursuant to Section
-------
8.01(j).
- -------
54
<PAGE>
(iii) The acceptance by VTEL of a payment pursuant to Section 8.05(c)
---------------
shall not constitute a waiver of, or limit in any way its rights to pursue any
and all remedies for the Company's material breach of this Agreement.
(d) Any payment required to be made pursuant to Section 8.05(c) of this
---------------
Agreement shall be made as promptly as practicable but not later than 5 business
days after termination of this Agreement and shall be made by wire transfer of
immediately available funds to an account designated by VTEL. Such payment
shall not relieve the Company of any obligation it may have if the agreement is
terminated because of a Terminating Company Breach.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1. Effectiveness of Representations, Warranties and Agreements.
-----------------------------------------------------------
(a) Except as set forth in Section 9.01(b) of this Agreement, the
---------------
representations, warranties, covenants and agreements of each party hereto shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any other party hereto, any person controlling any such
party or any of their officers, directors, representatives or agents whether
prior to or after the execution of this Agreement.
(b) The representations and warranties in this Agreement shall terminate
at the Effective Time. This Section 9.01(b) shall not limit any covenant or
---------------
agreement of the parties hereto that by its terms contemplates performance after
the Effective Time.
Section 9.2. Notices. All notices and other communications given or made
-------
pursuant hereto shall be in writing and shall be deemed to have been duly given
upon receipt, if delivered personally, sent by nationally recognized overnight
courier service, mailed by registered or certified mail (postage prepaid, return
receipt requested) to the parties at the following addresses ( or at such other
address for a party as shall be specified by like changes of address) or sent by
electronic transmission to the telecopier number specified below:
(a) If to either of the VTEL Companies, to:
VTEL Corporation
108 Wild Basin Road
Austin, TX 78746
Attention: Chief Executive Officer
Telecopier No.: (512) 314-2542
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with copies to:
Jenkens & Gilchrist
a Professional Corporation
1445 Ross Avenue
Suite 3200
Dallas, TX 75202-2799
Attention: L. Steven Leshin
Telecopier No.: (214) 855-4300
(b) If to the Company, to:
Compression Labs, Incorporated
350 East Plumeria Drive
San Jose, CA 95134
Attention: President and Chief Executive Officer
Telecopier No.: (408) 922-5574
with copies to:
Shearman & Sterling
555 California Street
San Francisco, CA 94104
Attention: Michael J. Kennedy
Telecopier No.: (415) 616-1199
Section 9.3. Certain Definitions. For the purposes of this Agreement,
-------------------
the term:
(a) "Affiliate" means a person that directly or indirectly, through one or
---------
more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person;
(b) "Business day" means any day other than a day on which banks in the
------------
State of New York, State of California or the State of Texas are authorized or
obligated to be closed;
(c) "Control" (including the terms "controlled," "controlled by" and
------- ---------- -------------
"under common control with") means the possession, directly or indirectly or as
-------------------------
trustee or executor, of the power to direct or cause the direction of the
management or policies of a person, whether through the ownership of stock or as
trustee or executor, by contract or credit arrangement or otherwise;
(d) "Knowledge" or "known" shall mean, with respect to any matter in
--------- -----
question, the actual knowledge of an executive officer of the Company or VTEL,
as the case may be, of such matter after having made due and diligent inquiry
with respect to
56
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such matter of all appropriate personnel of the party in question who would
reasonably be expected to be familiar with the matter involved;
(e) "Person" means an individual, corporation, partnership, association,
------
trust, unincorporated organization, other entity or group (as defined in Section
13(d) of the Exchange Act);
(f) "Proxy Statement/Prospectus" or "Joint Proxy Statement/Prospectus"
-------------------------- --------------------------------
shall mean a joint proxy statement/prospectus or joint information
statement/prospectus included in the Registration Statement at the time the
Registration Statement is declared effective under the Securities Act and
meeting the requirements of Schedule 14A or Schedule 14C of the SEC's Proxy
Rules promulgated pursuant to the Exchange Act;
(g) "Registration Statement" shall mean a registration statement of VTEL
----------------------
on Form S-4 filed with the SEC pursuant to the Securities Act for the purpose of
registering thereunder the offering and sale of the VTEL Common Stock to be
issued pursuant to the Merger;
(h) "Significant Subsidiary" means any subsidiary of the Company or VTEL,
----------------------
as the case may be, that would constitute a Significant Subsidiary of such party
within the meaning of Rule 1-02 of Regulation S-X of the SEC;
(i) "Subsidiary" or "subsidiaries" of the Company, VTEL, the Surviving
---------- ------------
Corporation or any other person, means any corporation, partnership, joint
venture or other legal entity of which the Company, VTEL, the Surviving
Corporation or any such other Person, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or indirectly,
50% or more of the stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity; and
(j) "Tax" or "Taxes" shall mean any and all taxes, charges, fees, levies,
--- -----
assessments, duties or other amounts payable to any federal, state, local or
foreign taxing authority or agency, including, without limitation, (i) income,
franchise, profits, gross receipts, minimum, alternative minimum, estimated, ad
valorem, value added, sales, use, service, real or personal property, capital
stock, license, payroll, withholding, disability, employment, social security,
workers compensation, unemployment compensation, utility, severance, excise,
stamp, windfall profits, transfer and gains taxes, (ii) customs, duties,
imposts, charges, levies or other similar assessments of any kind, and (iii)
interest, penalties and additions to tax imposed with respect thereto.
Section 9.4. Headings. The headings contained in this Agreement are for
--------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 9.5. Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
57
<PAGE>
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
Section 9.6. Entire Agreement. This Agreement (together with the
----------------
Exhibits, the Company Disclosure Schedule and the VTEL Disclosure Schedule),
together with the Stock Option Agreement, constitute the entire agreement of the
parties, and supersede all prior agreements and undertakings, both written and
oral (other than the agreement referred to in Section 5.05(d) hereof) , among
---------------
the parties, with respect to the subject matter of this Agreement.
Section 9.7. Assignment. This Agreement shall not be assigned by
----------
operation of law or otherwise.
Section 9.8. Parties in Interest. This Agreement shall be binding upon
-------------------
and inure solely to the benefit of each party hereto and the beneficiaries of
the provisions of Section 6.14 herein, and nothing in this Agreement, express or
------------
implied, is intended to or shall confer upon any other person any right, benefit
or remedy of any nature whatsoever under or by reason of this Agreement.
Section 9.9. Failure or Indulgence Not Waiver; Remedies Cumulative. No
-----------------------------------------------------
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies
existing under this Agreement are in addition to, and not exclusive of, any
rights or remedies otherwise available.
Section 9.10. Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law.
Section 9.11. Counterparts. This Agreement may be executed in multiple
------------
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
Section 9.12. Specific Performance. The parties hereby acknowledge and
--------------------
agree that the failure of any party to this Agreement to perform the provisions
in accordance with their specific terms or to otherwise breach such provisions,
including its failure to take all actions as are necessary on its part to the
consummation of the Merger, will cause irreparable injury to the other parties
to this Agreement for which damages, even if available, will not be an adequate
remedy. Accordingly, each of the parties hereto hereby consents to the issuance
of injunctive relief by any court of competent jurisdiction to compel
performance of any party's obligations, including an injunction to prevent
breaches, and to the granting by any such court of the remedy of specific
performance of the terms and conditions hereof.
58
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed as of the date first written above by their respective officers
thereunto duly authorized.
VTEL CORPORATION
By: /s/ Dick Moeller
-------------------------------------------
Name: Dick Moeller
-----------------------------------
Title: Chairman & Chief Executive Officer
----------------------------------
VTEL-SUB, INC.
By: /s/ Dick Moeller
-------------------------------------------
Name: Dick Moeller
-----------------------------------
Title: Chairman & Chief Executive Officer
-----------------------------------
COMPRESSION LABS, INCORPORATED
By: /s/ Thomas Gary Trimm
--------------------------------------------
Name: Thomas Gary Trimm
------------------------------------
Title: President & Chief Executive Officer
-----------------------------------
60
<PAGE>
EXHIBIT A
STOCK OPTION AGREEMENT
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated January 6, 1997, between Compression Labs,
Incorporated, a Delaware corporation ("Issuer"), and VTEL Corporation, a
Delaware corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger and Reorganization of even date herewith (the "Merger Agreement"), which
agreement has been executed by the parties hereto immediately prior to this
Stock Option Agreement (the "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement and
in consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to 3,120,500
fully paid and nonassessable shares of Issuer's Common Stock, par value $.001
per share ("Common Stock"), at a price of $4.6575 per share (the "Option
Price"); provided, however, that in no event shall the number of shares of
Common Stock for which this Option is exercisable exceed 19.9% of the Issuer's
issued and outstanding shares of Common Stock without giving effect to any
shares subject to or issued pursuant to the Option. The number of shares of
Common Stock that may be received upon the exercise of the Option and the Option
Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are either
(i) issued or otherwise become outstanding after the date of this Agreement
(other than pursuant to this Agreement) or (ii) redeemed, repurchased, retired
or otherwise cease to be outstanding after the date of the Agreement, the number
of shares of Common Stock subject to the Option shall be increased or decreased,
as appropriate, so that, after such issuance, such number equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing
contained in this Section l(b) or elsewhere in this Agreement shall be deemed to
authorize Issuer or Grantee to breach any provision of the Merger Agreement.
1
<PAGE>
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, and from time to time, if, but only if, both an Initial
Triggering Event (as hereinafter defined) and a Subsequent Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined), provided that the Holder shall have
--------
sent the written notice of such exercise (as provided in subsection (e) of this
Section 2) within 90 days following such Subsequent Triggering Event. Each of
the following shall be an Exercise Termination Event: (i) the Effective Time (as
defined in the Merger Agreement) of the Merger; (ii) termination of the Merger
Agreement in accordance with the terms thereof prior to the occurrence of an
Initial Triggering Event except a termination of the Merger Agreement by Grantee
pursuant to Section 8.01(b) of the Merger Agreement; or (iii) the passage of 12
months after termination of the Merger Agreement if such termination follows the
occurrence of an Initial Triggering Event or is a termination of the Merger
Agreement by Grantee pursuant to Section 8.01(b) of the Merger Agreement
provided that if an Initial Triggering Event continues or occurs beyond such
- --------
termination and prior to the passage of such 12-month period, the Exercise
Termination Event shall be 12 months from the expiration of the Last Triggering
Event but in no event more than 18 months after such termination. The "Last
Triggering Event" shall mean the last Initial Triggering Event to expire. The
term "Holder" shall mean the holder or holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an "Issuer Subsidiary"),
without having received Grantee's prior written consent, shall have entered into
an agreement to engage in an Acquisition Transaction (as hereinafter defined)
with any person (the term "person" for purposes of this Agreement having the
meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the rules and regulations
thereunder) other than Grantee or any of its Subsidiaries (each a "Grantee
Subsidiary") or the Board of Directors of Issuer shall have recommended that the
stockholders of Issuer approve or accept any Acquisition Transaction. For
purposes of this Agreement, "Acquisition Transaction" shall mean (w) a merger or
consolidation, or any similar transaction, involving Issuer or any Significant
Subsidiary (as defined in Rule 1-02 of Regulation S-X promulgated by the
Securities and Exchange Commission (the "SEC")) of Issuer, (x) a purchase, lease
or other acquisition or assumption of all or a substantial portion of the assets
of Issuer or any Significant Subsidiary of Issuer, (y) a purchase or other
acquisition (including by way of merger, consolidation, share exchange or
otherwise) of securities representing 10% or more of the voting power of Issuer,
or (z) any substantially similar transaction;
(ii) Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended, proposed or
publicly announced its intention to authorize, recommend or propose, to engage
in an Acquisition Transaction with any person other than Grantee or a Grantee
Subsidiary, or the Board of Directors of Issuer shall have publicly withdrawn or
modified, or publicly announced its interest to withdraw or modify, in any
manner adverse to Grantee, its recommendation that the stockholders of Issuer
approve the transactions contemplated by the Merger Agreement;
2
<PAGE>
(iii) Any person other than Grantee or any Grantee Subsidiary
shall have acquired beneficial ownership or the right to acquire beneficial
ownership of 10% or more of the outstanding shares of Common Stock (the term
"beneficial ownership" for purposes of this Agreement having the meaning
assigned thereto in Section 13(d) of the 1934 Act, and the rules and regulations
thereunder);
(iv) Any person other than Grantee or any Grantee Subsidiary shall
have made a bona fide proposal to Issuer or its stockholders by public
announcement or written communication that is or becomes the subject of public
disclosure to engage in an Acquisition Transaction; or
(v) After an overture is made by a third party to Issuer or its
stockholders to engage in an Acquisition Transaction, Issuer shall have breached
any covenant or obligation contained in the Merger Agreement and such breach (x)
would entitle Grantee to terminate the Merger Agreement and (y) shall not have
been cured prior to the Notice Date (as defined below).
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of 20%
or more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
paragraph (i) of subsection (b) of this Section 2, except that the percentage
referred to in clause (y) shall be 20%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence
of any Initial Triggering Event or Subsequent Triggering Event of which it has
notice (together, a "Triggering Event"), it being understood that the giving of
such notice by Issuer shall not be a condition to the right of the Holder to
exercise the Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of shares it
will purchase pursuant to such exercise and (ii) a place and date not earlier
than three business days nor later than 60 business days from the Notice Date
for the closing of such purchase (the "Closing Date"); provided that if prior
notification to or approval of any regulatory agency is required in connection
with such purchase, the Holder shall promptly file the required notice or
application for approval and shall expeditiously process the same and the period
of time that otherwise would run pursuant to this sentence shall run instead
from the date on which any required notification periods have expired or been
terminated or such approvals have been obtained and any requisite waiting period
or periods shall have passed. Any exercise of the Option shall be deemed to
occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2,
the Holder shall pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased
3
<PAGE>
pursuant to the exercise of the Option in immediately available funds by wire
transfer to a bank account designated by Issuer, provided that failure or
refusal of Issuer to designate such a bank account shall not preclude the Holder
from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder, and the Holder
shall deliver to Issuer a copy of this Agreement and a letter agreeing that the
Holder will not offer to sell or otherwise dispose of such shares in violation
of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at a closing hereunder may
be endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale restrictions
arising under the Securities Act of 1933, as amended. A copy
of such agreement is on file at the principal office of Issuer
and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act"), in the above legend
shall be removed by delivery of substitute certificates) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions to this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and (iii) the legend shall be removed
in its entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 2 in the name of the
Holder or its assignee, transferee or designee.
4
<PAGE>
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. (S)18a and regulations promulgated
thereunder) in order to permit the Holder to exercise the Option and Issuer duly
and effectively to issue shares of Common Stock pursuant hereto; and (iv)
promptly to take all action provided herein to protect the rights of the Holder
against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of the Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option and the Option Price shall be subject to adjustment from time to time
as provided in this Section 5. In the event of any change in, or distributions
in respect of, the Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions, exchanges
of shares, distributions on or in respect of the Common Stock that would be
prohibited under the terms of the Merger Agreement, or the like, the type and
number of shares of Common Stock purchasable upon exercise hereof and the Option
Price shall be appropriately adjusted in such manner as shall fully preserve the
economic benefits provided hereunder and proper provision shall be made in any
agreement governing any such transaction to provide for such proper adjustment
and the full satisfaction of the Issuer's obligations hereunder.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior
to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within 90 days of such Subsequent Triggering Event (whether on its own
behalf or on behalf of any subsequent holder of this Option (or part thereof) or
any of the shares of Common Stock issued pursuant hereto), promptly prepare,
file and keep current a shelf registration statement under the 1933 Act
5
<PAGE>
covering this Option and any shares issued and issuable pursuant to this Option
and shall use its reasonable best efforts to cause such registration statement
to become effective and remain current in order to permit the sale or other
disposition of this Option and any shares of Common Stock issued upon total or
partial exercise of this Option ("Option Shares") in accordance with any plan of
disposition requested by Grantee. Issuer will use its reasonable best efforts to
cause such registration statement first to become effective and then to remain
effective for such period not in excess of 180 days from the day such
registration statement first becomes effective or such shorter time as may be
reasonably necessary to effect such sales or other dispositions. Grantee shall
have the right to demand two such registrations. The foregoing notwithstanding,
if, at the time of any request by Grantee for registration of the Option or
Option Shares as provided above, Issuer is in registration with respect to an
underwritten public offering of shares of Common Stock, and if in the good faith
judgment of the managing underwriter or managing underwriters, or, if none, the
sole underwriter or underwriters, of such offering the inclusion of the Holder's
Option or Option Shares would interfere with the successful marketing of the
shares of Common Stock offered by Issuer, the number of Option Shares otherwise
to be covered in the registration statement contemplated hereby may be reduced;
and provided, however, that after any such required reduction the number of
Option Shares to be included in such offering for the account of the Holder
shall constitute at least 25% of the total number of shares to be sold by the
Holder and Issuer in the aggregate; and provided further, however, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practical and no reduction shall thereafter occur. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in secondary
offering underwriting agreements for the Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall
Issuer be obligated to effect more than two registrations pursuant to this
Section 6 by reason of the fact that there shall be more than one Grantee as a
result of any assignment or division of this Agreement.
7. (a) Immediately prior to the occurrence of a Repurchase Event (as
defined below), (i) following a request of the Holder, delivered prior to an
Exercise Termination Event (or such later period as provided in Section 10),
Issuer (or any successor thereto) shall repurchase the Option from the Holder at
a price (the "Option Repurchase Price") equal to the amount by which (A) the
Market/Offer Price (as defined below) exceeds (B) the Option Price, multiplied
by the number of shares for which this Option may then be exercised and (ii) at
the request of the owner of Option Shares from time to time (the "Owner"),
delivered within 90 days of such occurrence (or such later period as provided in
Section 10), Issuer shall repurchase such number of the Option Shares from the
Owner as the owner shall designate at a price (the "Option Share Repurchase
Price") equal to the Market/Offer Price multiplied by the number of Option
Shares so designated. The term "Market/Offer Price" shall mean the highest of
(i) the price per share of Common Stock at which a tender offer or exchange
offer therefor has been made, (ii) the price per share of Common Stock to be
paid by any third party pursuant to an agreement with Issuer
6
<PAGE>
entered into subsequent to the date hereof, (iii) the highest closing price for
shares of Common Stock within the six-month period immediately preceding the
date the Holder gives notice of the required repurchase of this Option or the
Owner gives notice of the required repurchase of Option Shares, as the case may
be, or (iv) in the event of a sale of all or a substantial portion of Issuer's
assets, the sum of the price paid in such sale for such assets and the current
market value of the remaining assets of Issuer as determined by a nationally
recognized investment banking firm mutually selected by the Holder or the Owner,
as the case may be, on the one hand, and the Issuer, on the other, divided by
the number of shares of Common Stock of Issuer outstanding at the time of such
sale. In determining the Market/Offer Price, the value of consideration other
than cash shall be determined by a nationally recognized investment banking firm
mutually selected by the Holder or Owner, as the case may be, on the one hand,
and the Issuer, on the other.
(b) The Holder and the Owner, as the case may be, may exercise its
right to require Issuer to repurchase the Option and any Option Shares pursuant
to this Section 7 by surrendering for such purpose to Issuer, at its principal
office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. Within the latter to occur of (x) five business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto and (y) the time that is
immediately prior to the occurrence of a Repurchase Event, Issuer shall deliver
or cause to be delivered to the Holder the Option Repurchase Price and/or to the
Owner the Option Share Repurchase Price therefor or the portion thereof that
issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full, Issuer
shall immediately so notify the Holder and/or the Owner and thereafter deliver
or cause to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after delivery of a
notice of repurchase pursuant to paragraph (b) of this Section 7 is prohibited
under applicable law or regulation from delivering to the Holder and/or the
Owner, as appropriate, the Option Repurchase Price and the Option Share
Repurchase Price, respectively, in full (and Issuer hereby undertakes to use its
best efforts to obtain all required regulatory and legal approvals and to file
any required notices as promptly as practicable in order to accomplish such
repurchase), the Holder or Owner may revoke its notice of repurchase of the
Option or the Option Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, Issuer shall promptly (i) deliver to the Holder
and/or the Owner, as appropriate, that portion of the Option Repurchase Price or
the Option Share Repurchase Price that Issuer is not prohibited from delivering;
and (ii) deliver, as appropriate, either (A) to the Holder, a new Stock Option
Agreement evidencing the right of the Holder to purchase that number of shares
of Common Stock obtained by multiplying the number of shares of Common Stock for
which the surrendered Stock Option Agreement was exercisable at the time of
delivery of the notice of repurchase by a fraction, the numerator of which is
the Option Repurchase Price less the portion thereof theretofore delivered to
the Holder and the denominator
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of which is the Option Repurchase Price, or (B) to the Owner, a certificate for
the Option Shares it is then so prohibited from repurchasing.
(d) For purposes of this Section 7, a Repurchase Event shall be deemed
to have occurred (i) upon the consummation of any merger, consolidation or
similar transaction involving Issuer or any purchase, lease or other acquisition
of all or a substantial portion of the assets of Issuer or (ii) upon the
acquisition by any person of beneficial ownership of 50% or more of the then
outstanding shares of Common Stock, provided that no such event shall constitute
a Repurchase Event unless a Subsequent Triggering Event shall have occurred
prior to an Exercise Termination Event. The parties hereto agree that Issuer's
obligations to repurchase the Option or Option Shares under this Section 7 shall
not terminate upon the occurrence of an Exercise Termination Event unless no
Subsequent Triggering Event shall have occurred prior to the occurrence of an
Exercise Termination Event.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or one of its Subsidiaries, and shall not be the continuing
or surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its Subsidiaries, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in with such
merger, the then outstanding shares of Common Stock shall into or exchanged for
stock or other securities of any other person any other property or the then
outstanding shares of Common Stock shall after such merger represent less than
50% of the outstanding voting shares and voting share equivalents of the merged
company, or (iii) to sell or otherwise transfer all or substantially all of its
assets to any person, other than Grantee or one of its Subsidiaries, then, and
in each such case, the agreement governing such transaction shall make proper
provision so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an Option (the "Substitute Option"), at the election of
the Holder, of either (x) the Acquiring Corporation (as hereinafter defined) or
(y) any person that controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or surviving
person, and (iii) the transferee of all or substantially all of Issuer's assets.
(2) "Substitute Common Stock" shall mean the common stock issued
by the issuer of the Substitute Option upon exercise of the Substitute Option.
(3) "Assigned Value" shall mean the Market/Offer Price, as
defined in Section 7.
(4) "Average Price" shall mean the average closing price of a share of
the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding such
consolidation, merger or sale; provided that if Issuer
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is the issuer of the Substitute Option, the Average Price shall be computed with
respect to a share of common stock issued by the person merging into Issuer or
by any company which controls or is controlled by such person, as the Holder may
elect.
(c) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to the Holder. The issuer of the Substitute Option
shall also enter into an agreement with the then Holder or Holders of the
Substitute Option in substantially the same form as this Agreement, which shall
be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
shares of Substitute Common Stock as is equal to the Assigned Value multiplied
by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall then be equal to the Option
Price multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock for which the Option is then exercisable and the
denominator of which shall be the number of shares of Substitute Common Stock
for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall
the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than 19.9%
of the shares of Substitute Common Stock outstanding prior to exercise but for
this clause (e), the issuer of the Substitute Option (the "Substitute Option
Issuer") shall make a cash payment to Holder equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in this
clause (e) over (ii) the value of the Substitute Option after giving effect to
the limitation in this clause (e). This difference in value shall be determined
by a nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, and reasonably acceptable to the Acquiring
Corporation.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the Substitute Option Issuer shall repurchase the
Substitute Option from the Substitute Option Holder at a price (the "Substitute
Option Repurchase Price") equal to (x) the amount by which (i) the Highest
Closing Price (as hereinafter defined) exceeds (ii) the exercise price of the
Substitute Option, multiplied by the number of shares of Substitute Common Stock
for which the Substitute Option may then be exercised plus (y) Grantee's
reasonable out-of-pocket expenses (to the extent not previously reimbursed), and
at the request of the owner (the "Substitute Share Owner") of shares of
Substitute Common Stock (the "Substitute Shares"), the Substitute Option Issuer
shall repurchase the Substitute Shares at a price (the "Substitute Share
Repurchase Price") equal to (x) the Highest Closing Price multiplied by the
number of Substitute Shares so designated plus (y) Grantee's reasonable out-of-
pocket expenses (to the extent not previously reimbursed). The term "Highest
Closing Price" shall mean the highest closing price for shares
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of Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as
the case may be, may exercise its respective right to require the Substitute
Option Issuer to repurchase the Substitute Option and the Substitute Shares
pursuant to this Section 9 by surrendering for such purpose to the Substitute
Option Issuer, at its principal office, the agreement for such Substitute Option
(or, in the absence of such an agreement, a copy of this Agreement) and
certificates for Substitute Shares accompanied by a written notice or notices
stating that the Substitute Option Holder or the Substitute Share Owner, as the
case may be, elects to require the Substitute Option Issuer to repurchase the
Substitute Option and/or the Substitute Shares in accordance with the provisions
of this Section 9. As promptly as practicable, and in any event within five
business days after the surrender of the Substitute Option and/or certificates
representing Substitute Shares and the receipt of such notice or notices
relating thereto, the Substitute Option Issuer shall deliver or cause to be
delivered to the Substitute Option Holder the Substitute Option Repurchase Price
and/or to the Substitute Share Owner the Substitute Share Repurchase Price
therefor or, in either case, the portion thereof which the Substitute Option
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that the Substitute Option Issuer is prohibited
under applicable law or regulation from repurchasing the Substitute Option
and/or the Substitute Shares in part or in full, the Substitute Option Issuer
following a request for repurchase pursuant to this Section 9 shall immediately
so notify the Substitute Option Holder and/or the Substitute Share Owner and
thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
portion of the Substitute Share Repurchase Price, respectively, which it is no
longer prohibited from delivering, within five business days after the date on
which the Substitute Option Issuer is no longer so prohibited; provided,
however, that if the Substitute Option Issuer is at any time after delivery of a
notice of repurchase pursuant to subsection (b) of this Section 9 prohibited
under applicable law or regulation from delivering to the Substitute Option
Holder and/or the Substitute Share Owner, as appropriate, the Substitute Option
Repurchase Price and the Substitute Share Repurchase Price, respectively, in
full (and the Substitute Option Issuer shall use its best efforts to receive all
required regulatory and legal approvals as promptly as practicable in order to
accomplish such repurchase), the Substitute Option Holder or Substitute Share
Owner may revoke its notice of repurchase of the Substitute Option or the
Substitute Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, the Substitute Option Issuer shall promptly (i)
deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the
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Substitute Option Repurchase Price, or (B) to the Substitute Share Owner, a
certificate for the Substitute Common Shares it is then so prohibited from
repurchasing.
10. The 90-day period for exercise of certain rights under Sections 2, 6,
7, 9 and 13 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights, and for the expiration of
all statutory waiting periods; and (ii) to the extent necessary to avoid
liability under Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer, and constitutes a legal and binding agreement,
enforceable against Issuer in accordance with its terms.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Grantee. This Agreement has been duly executed and delivered by Grantee, and
constitutes a legal and binding agreement, enforceable against Grantee in
accordance with its terms.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be, acquired
with a view to the public distribution thereof and will not be transferred or
otherwise disposed of except in a transaction registered or exempt from
registration under the Securities Act.
13. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other person, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions
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hereof, may assign in whole or in part its rights and obligations hereunder
within 90 days following such Subsequent Triggering Event (or such later period
as provided in Section 10).
14. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation making application to list the
shares of Common Stock issuable hereunder on the Nasdaq Stock Market upon
official notice of issuance.
15. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief.
16. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section l(a) hereof (as adjusted pursuant to Section l(b) or 5
hereof), it is the express intention of Issuer to allow the Holder to acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
17. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
18. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
19. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
20. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
21. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than
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the parties hereto, and their respective successors except as assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
22. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
COMPRESSION LABS, INC.
By:
--------------------------------------
Name:
--------------------------------------
Title: President and Chief Executive Officer
VTEL CORPORATION
By:
--------------------------------------
Name:
--------------------------------------
Title: Chairman and Chief Executive Officer
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EXHIBIT B
COMPANY AFFILIATE AGREEMENT
(Series C Preferred Stock)
AGREEMENT (hereinafter referred to as the "Agreement") entered into as of
January 6, 1997, between VTEL Corporation, a Delaware corporation (hereinafter
referred to as the "Acquiror"), Compression Labs, Incorporated, a Delaware
corporation (the "Company"), and the undersigned stockholders (the
"Stockholders") of the Company.
W I T N E S S E T H:
WHEREAS, the Acquiror, the Company and VTEL-Sub, Inc., a Delaware
corporation (hereinafter referred to as the "Subsidiary"), propose to enter, or
have entered into an Agreement and Plan of Merger and Reorganization expected to
be dated, or dated January 6, 1997 (hereinafter referred to as the "Merger
Agreement"), pursuant to which the Subsidiary, which is wholly-owned by the
Acquiror, will be merged into the Company (the "Merger") and the Company will
become a wholly-owned subsidiary of the Acquiror;
WHEREAS, upon the consummation of the Merger and in connection therewith,
the Stockholders will become the owners of shares of Common Stock of Acquiror
(hereinafter referred to as the "Acquiror Shares"); and
WHEREAS, it is intended that the transactions contemplated by the Merger
Agreement will be treated as a "pooling of interests" in accordance with
generally accepted accounting principles and the applicable General Rules and
Regulations published by the Securities and Exchange Commission (the
"Commission").
NOW, THEREFORE, in consideration of the promises and the mutual agreements,
provisions and covenants set forth in the Merger Agreement, and hereinafter in
this Agreement, it is hereby agreed as follows:
1. Each of the Stockholders hereby severally agree that:
(a) It may be deemed to be an "affiliate" of the Company within the
meaning of Rule 145 under the Securities Act of 1933, as amended (the
"Securities Act"), and Accounting Series Release No. 130, as amended, of the
Commission.
(b) It will not surrender for conversion or otherwise attempt to
convert any shares of the Company's Series C Preferred Stock (or any part
thereof) into shares of common stock of the Company during the period commencing
on the date hereof through the Effective Time, as defined in the Merger
Agreement, of the Merger.
(c) It will not sell, contract to sell or otherwise agree to sell or
otherwise transfer any capital stock of the Company or any part thereof or any
Acquiror Shares or any part thereof or otherwise reduce its risk relative to any
of such shares of capital stock of the Company or any Acquiror Shares until such
time after the Effective Time, as defined in the Merger
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Agreement, of the Merger as financial results covering at least thirty (30) days
of the post-Effective Time combined operations of Acquiror and the Company have
been, within the meaning of said Accounting Series Release No. 130, as amended,
filed by the Acquiror with the Commission in the Current Report on Form 8-K
called for by Section 2(a) hereof; provided, however, the foregoing shall not
restrict any such holder from engaging in any sale, transfer, exchange or
hedging transactions with respect to such shares effected at least sixty (60)
days prior to the Effective Time, unless the Acquiror shall determine that any
sale, transfer, exchange or hedge transaction within such sixty (60) day period
preceding the Effective Time would not cause the Merger to be subject to any
accounting treatment other than pooling of interests accounting treatment and
the Acquiror shall consent thereto in a writing delivered to the Stockholders;
provided, further, the Stockholders agree that they will not sell, transfer or
exchange any such shares that they might otherwise be permitted to sell,
transfer or exchange pursuant to the preceding proviso unless the Acquiror is
notified in writing of such sale, transfer or exchange and the transferor
Stockholder shall have caused the transferee to assume and be bound by the
restrictions and agreements contained herein pursuant to a written instrument,
in form and substance reasonably satisfactory to the Acquiror and the Company,
delivered to the Acquiror and the Company prior to effecting such sale, transfer
or exchange, notwithstanding anything in the preceding proviso to the contrary.
(d) It agrees to the provisions of the Merger Agreement providing for
the conversion of each share of Series C Preferred Stock into the right to
receive 3.15 Acquiror Shares (subject to adjustments for stock splits,
recapitalizations and other events specified in the Merger Agreement) in
accordance with and pursuant to the Series C Preferred Stock Conversion Ratio,
as therein defined (which Series C Conversion Ratio may not be amended without
the written consent of the Stockholders), and irrevocably agrees to vote all
shares of Series C Preferred Stock and common stock of the Company held by the
undersigned at the special meeting of the Company's stockholders called to
consider and to vote all such shares for the approval of the Merger Agreement
and the Merger.
(e) It hereby waives and relinquishes its right of first refusal to
purchase shares of common stock of the Company set forth in Section 3.18 of the
Convertible Preferred Stock Purchase Agreement, dated as of October 24, 1996,
between the Company, Infinity Investors, Ltd. and Seacrest Capital Limited and
waives any violation or breach thereof arising by virtue of the execution,
delivery and performance of the Stock Option Agreement by the Company pursuant
to the Merger Agreement, affording the Acquiror the option to purchase up to
3,120,500 shares of the Company's Common Stock, and/or by virtue of the exercise
by the Acquiror of any rights therein granted (provided, however, such waiver
and relinquishment shall apply solely to the execution, delivery and performance
of the Stock Option Agreement and the exercise of the rights therein granted,
and shall not extend to any other transaction entered into by the Company
subsequent thereto with respect to which such right is applicable).
(f) Subject in any event to paragraph (c) of this Section 1, it agrees
not to offer, sell, pledge, transfer or otherwise dispose of any of the Acquiror
Shares unless at that time either:
(i) such transaction shall be permitted pursuant to the
provisions of Rule 145(d) under the Securities Act;
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(ii) counsel representing the applicable Stockholder,
satisfactory to the Acquiror, shall have advised the Acquiror in a written
opinion letter satisfactory to the Acquiror and the Acquiror's counsel and upon
which the Acquiror and its counsel may rely, that no registration under the
Securities Act would be required in connection with the proposed sale, transfer
or other disposition;
(iii) a registration statement under the Securities Act covering
the Acquiror Shares proposed to be sold, transferred or otherwise disposed of,
describing the manner and terms of the proposed sale, transfer or other
disposition, and containing a current prospectus under the Securities Act, shall
be effective under the Securities Act; or
(iv) an authorized representative of the Commission shall have
rendered written advice to the applicable Stockholder (sought by such
Stockholder or counsel to such Stockholder, with a copy thereof and of all other
related communications delivered to the Acquiror) to the effect that the
Commission would take no action, or that the staff of the Commission would not
recommend that the Commission take action, with respect to the proposed sale,
transfer or other disposition if consummated.
(g) (1) Until the financial results described in paragraph (c) of
this Section 1 have been filed or published as described therein, and until a
public sale of the Acquiror Shares represented by such certificate has been made
in compliance with one of the alternative conditions set forth in the
subparagraphs of paragraph (f) of this Section 1, all certificates representing
the Acquiror Shares deliverable to the Stockholders pursuant to the Merger
Agreement and in connection with the Merger and any certificates subsequently
issued with respect thereto or in substitution therefor shall bear a legend
substantially as follows:
"The shares represented by this certificate may not be offered,
sold, pledged, transferred or otherwise disposed of except in
accordance with paragraph (d) of Rule 145 promulgated by the
Securities and Exchange Commission, and the other conditions
specified in the Company Affiliate Agreement dated as of
January 6, 1997, between VTEL Corporation, the Company and
the registered holder, a copy of which Company Affiliate
Agreement may be inspected by the holder of this certificate
at the offices of VTEL Corporation or VTEL Corporation will
furnish a copy thereof to the holder of this certificate upon
written request and without charge."
Acquiror, at its discretion, may cause stop transfer orders to be placed with
its transfer agent(s) with respect to the certificates for the Acquiror Shares
but not as to the certificates for any part of the Acquiror Shares as to which
said legend is no longer appropriate as hereinabove provided.
(2) Notwithstanding paragraph (g)(1) of this Section 1, at any time after
the financial results described in paragraph (c) of this Section 1 have been
filed or published as described therein, any or all certificates representing
the Acquiror Shares shall, at the written request of such Stockholder and upon
surrender of such certificates to the transfer agent for Acquiror Shares, be
replaced by stock certificates representing the Acquiror Shares bearing only the
following legend:
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"The shares represented by this certificate may not be offered,
sold, pledged, transferred or otherwise disposed of except in
compliance with paragraph (d) of Rule 145 promulgated by the
Securities and Exchange Commission."
The reference in the foregoing legend to Rule 145 shall not preclude, however,
the alternative of a transaction in compliance with subparagraphs (ii), (iii) or
(iv) of paragraph (f) of this Section 1. Acquiror shall, or shall cause its
counsel to, promptly deliver to Acquiror's transfer agent customary letters or
opinion letters necessary to authorize such transfer agent to deliver
certificates without restrictive legend to a purchaser of Acquiror Shares sold
by a Stockholder in compliance with Rule 144 and Rule 145 upon receipt of
written request from a Stockholder of such sale(s).
(h) Each Stockholder will observe and comply with the Securities Act
and the General Rules and Regulations thereunder, as now in effect and as from
time to time amended and including those hereafter enacted or promulgated, in
connection with any offer, sale, pledge or transfer or other disposition of the
Acquiror Shares or any part thereof.
2. Acquiror covenants and agrees with each of the Stockholders as
follows:
(a) As soon as practicable following the expiration of the first full
calendar month that commences after the Effective Time of the Merger (but in any
event no later than the end of the fourteenth day following the expiration of
the first full calendar month commencing after the Effective Time of the
Merger), the Acquiror will file a Current Report on Form 8-K which includes
combined sales and net income of the Company and the Acquiror.
(b) As soon as practicable after the financial results described in
paragraph (c) of Section 1 have been filed as described in paragraph (a) of this
Section 2, the Acquiror, at its expense, shall file a Form S-3 registration
statement registering for public sale the Acquiror Shares acquired in the Merger
by the Stockholders and the Acquiror Shares issuable upon exercise of the Series
C Preferred Stock Warrants, as that term is defined in the Merger Agreement, and
shall use its best efforts to cause such registration to become effective within
forty-five (45) days after the filing of the financial results described in
paragraph (c) of Section 1 as described in paragraph (a) of this Section 2, and
to remain effective for a period of not less than three years (unless prior to
the expiration of such three year period, all of the Series C Preferred Stock
Warrants are exercised, in which case the registration statement shall not be
required to remain effective so long as one year has elapsed from the date of
the filing of such registration statement); provided, however, that at such time
that none of the Series C Preferred Warrants remain outstanding, Acquiror shall
not be obligated to maintain the effectiveness of any registration statement
filed pursuant to this paragraph 2 if either (i) the combined holdings of
Acquiror Shares held by the Stockholders represent less than 2% of the total
issued and outstanding Acquiror Shares, or (ii) if the volume restrictions under
Rule 145 would not materially impair the ability of the Stockholders to sell
such shares in the public market in reliance upon Rule 145 during a period not
exceeding thirty (30) days. The Acquiror and the Stockholders shall in good
faith negotiate a mutually acceptable agreement governing the registration
rights herein granted prior to the Effective Time, containing terms and
conditions customary for contractual shelf registrations such as this, and
taking into account customary shelf
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registration procedures, covenants and indemnities, but excluding any required
registrations other than as contained in this Section and excluding piggyback
registrations. Pending the occurrence of the Effective Time, the Stockholders
agree not to assert any claims against the Company for liquidated damages under
Section 6 of that Registration Rights Agreement, dated as of October 24, 1996
among the Company and the Stockholders (the "Registration Rights Agreement"),
and at the Effective Time, the Registration Rights Agreement shall terminate and
be of no further force or effect and neither the Company nor the Acquiror shall
be liable for liquidated or other damages thereunder, all of which claims shall
be waived as of the Effective Time; provided, if the Merger Agreement shall be
terminated, the Registration Rights Agreement shall continue in full force and
effect and thereafter the Stockholders may assert such claims for liquidated
damages as may be permitted by such Registration Rights Agreement.
3. The Company covenants and agrees with each of the Stockholders that if
the Merger Agreement is terminated for any reason whatsoever, it will pay to the
Stockholders a flat expense reimbursement fee of $400,000 (allocated among the
Stockholders in such manner as directed by the Stockholders in writing to the
Company), payable at the sole discretion of the Company in either cash or common
stock of the Company (in the case of common stock of the Company, based on the
average closing sale price of the Company's common stock as reported by
Bloomberg LP on the NASDAQ Stock Market for the five business days preceding the
date that such fee shall become due); provided, however, if the Merger, as
defined in the Merger Agreement, is consummated, no fee shall be due or owing to
the Stockholders by the Company. The Stockholders confirm that Acquiror shall
have no liability or obligation whatsoever with respect to such fee, and that
there are no other fees or payments that are or will become due to the
Stockholders from the Company or Acquiror in connection with or relating to the
Stockholders' execution, delivery and performance of this Agreement. The Company
further agrees that (unless the fee set forth above has otherwise been paid upon
a prior termination of the Merger Agreement) upon the occurrence of the
Expiration Date, it will deposit the $400,000 fee into an escrow account with an
escrow depository reasonably acceptable to the Stockholders to be held by the
escrow depository and disbursed to (i) the Stockholders if the Merger Agreement
is terminated or (ii) to the Company upon occurrence of the Effective Time. The
expense of such escrow shall be paid by the Company.
4. From and after the Effective Time of the Merger and for so long as
necessary in order to permit the Stockholders to sell the Acquiror Shares
pursuant to Rule 145 and, to the extent applicable, Rule 144 under the
Securities Act, Acquiror will use its best efforts to file on a timely basis all
reports required to be filed by it pursuant to Section 13 of the Securities
Exchange Act of 1934, referred to in paragraph (c)(1) of Rule 144 under the
Securities Act (or, if applicable, Acquiror will use its best efforts to make
publicly available the information regarding itself referred to in paragraph
(c)(2) of Rule 144) in order to permit the Stockholders to sell, pursuant to the
terms and conditions of Rule 145 and the applicable provisions of Rule 144, the
Acquiror Shares.
5. Each of the Stockholders severally agrees that it will not perfect any
dissenter's appraisal rights under the Delaware General Corporation Law.
6. The provisions of this Agreement may be terminated from and after the
Expiration Date (as hereinafter defined) by written notice given by the
Stockholders to Acquiror and the
5
<PAGE>
Company if the Effective Time of the Merger shall not have occurred on or prior
to the Expiration Date; provided, however if the Effective Time shall have
occurred on or prior to the Expiration Date, then this Agreement shall continue
in full force and effect notwithstanding any such notice given by the
Stockholders. As used herein, the term "Expiration Date" shall mean June 30,
1997; provided, however, if the Effective Time shall not have occurred on or
prior to June 30, 1997 due to any action or inaction of any Governmental Entity
(as defined in the Merger Agreement) [including, but not limited to, the failure
of the Commission to declare the Acquiror's Registration Statement on Form S-4
relating to the Merger effective (as long as the initial filing of such
Registration Statement shall be made by March 31, 1997) or the failure of the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, to be terminated (so long as the initial filing thereof
shall be made by March 31, 1997)], the Expiration Date shall automatically be
extended to such later date as is necessary to permit the Effective Time to
occur prior to the occurrence of the Expiration Date (which extension shall
include sufficient time to permit the occurrence of the special meetings of the
stockholders of the Acquiror and the Company as contemplated by the Merger
Agreement), in which case this Agreement shall continue in full force and
effect; provided further, that if the Effective Time shall not have occurred by
September 30, 1997, then this Agreement may thereafter be terminated upon
written notice by the Stockholders to the Acquiror and the Company, whereupon
delivery of such notice this Agreement shall be of no further force or effect,
notwithstanding anything herein to the contrary.
7. Each Stockholder represents that it knows of no plan (written or oral)
pursuant to which the stockholders of the Company intend to sell or otherwise
dispose of any Acquiror Shares to be received by them pursuant to the Merger
Agreement which would reduce the holdings of such Acquiror Shares to an amount
having in the aggregate a value at the time of the Merger of less than 50% of
all Common Stock of the Company outstanding prior to the Merger.
8. No waiver by any party hereto of any condition or of any breach of any
provision of this Agreement shall be effective unless in writing.
9. All notices, requests, demands or other communications which are
required or may be given pursuant to the terms of this Agreement shall be in
writing and shall be deemed to have been duly given if delivered by hand or
(except where receipt thereof is specifically required for purposes of this
Agreement) mailed by registered or certified mail, postage prepaid, as follows:
If to a Stockholder, at the address set forth below such Stockholder's
signature at the end hereof.
If to Acquiror:
To: Copies to:
VTEL Corporation Jenkens & Gilchrist
108 Wild Basin Road 1445 Ross Avenue, Suite 3200
Austin, Texas 78746 Dallas, Texas 75202
Attn: L. Steven Leshin, Esq.
6
<PAGE>
If to the Company:
To: Copies to:
Compression Labs, Incorporated Shearman & Sterling
350 East Plumeria Drive 555 California Street
San Jose, CA 85134 San Francisco, CA 94104
Attn: Michael J. Kennedy
or to such other address as any party hereto or any Stockholder may designate
for itself by notice given as herein provided
10. For the convenience of the parties hereto this Agreement may be
executed by facsimile and in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
document. This Agreement shall be enforceable by, and shall inure to the
benefit of and be binding upon, the parties hereto and their respective
successors and assigns.
11. This Agreement shall be governed by and construed, interpreted and
enforced in accordance with the laws of the State of Delaware.
12. If a court of competent jurisdiction determines that any provision of
this Agreement is unenforceable or enforceable only if limited in time and/or
scope, this Agreement shall continue in full force and effect with such
provision stricken or so limited.
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
Stockholders:
INFINITY INVESTORS LIMITED
By: HW Finance Partners, L.P.,
Investment Advisor
By: HW Finance, L.L.C.,
its General Partner
By:
-------------------------------
Clark K. Hunt, Vice President
and a Manager
27 Wellington Road
Cork, Ireland
With copies to:
HW Finance Partners, L.P.
4000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
and
Victor Zanetti, Esq.
Arter & Hadden
1717 Main Street, Suite 4100
Dallas, Texas 75201
8
<PAGE>
SEACREST CAPITAL LIMITED
By: Sandera Capital Management, L.P.,
Investment Advisor
By: Sandera Capital, L.L.C.,
its General Partner
By:
--------------------------------
Clark K. Hunt, Vice President
and a Manager
27 Wellington Road
Cork, Ireland
With copies to:
HW Finance Partners, L.P.
4000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
and
Victor Zanetti, Esq.
Arter & Hadden
1717 Main Street, Suite 4100
Dallas, Texas 75201
Accepted and agreed to as of
______________, 1997.
Acquiror:
VTEL CORPORATION
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
9
<PAGE>
The Company:
COMPRESSION LABS, INCORPORATED
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
10
<PAGE>
EXHIBIT B
COMPANY AFFILIATE AGREEMENT
AGREEMENT (hereinafter referred to as the "Agreement") entered into as of
January 6, 1997, between VTEL Corporation, a Delaware corporation (hereinafter
referred to as the "Acquiror"), and the stockholder (the "Stockholder") of
Compression Labs, Incorporated, a Delaware corporation (hereinafter referred to
as the "Company").
W I T N E S S E T H:
WHEREAS, the Acquiror, the Company and VTEL-Sub, Inc., a Delaware
corporation (hereinafter referred to as the "Subsidiary"), propose to enter, or
have entered into an Agreement and Plan of Merger and Reorganization expected to
be dated, or dated January 6, 1997 (hereinafter referred to as the "Merger
Agreement"), pursuant to which the Subsidiary, which is wholly-owned by the
Acquiror, will be merged into the Company (the "Merger") and the Company will
become a wholly-owned subsidiary of the Acquiror;
WHEREAS, upon the consummation of the Merger and in connection therewith,
the Stockholder will become the owner of shares of Common Stock of Acquiror
(hereinafter referred to as the "Acquiror Shares"); and
WHEREAS, it is intended that the transactions contemplated by the Merger
Agreement will be treated as a "pooling of interests" in accordance with
generally accepted accounting principles and the applicable General Rules and
Regulations published by the Securities and Exchange Commission (the
"Commission").
NOW, THEREFORE, in consideration of the promises and the mutual agreements,
provisions and covenants set forth in the Merger Agreement, and hereinafter in
this Agreement, it is hereby agreed as follows:
1. The Stockholder hereby agrees that:
(a) It or he may be deemed to be an "affiliate" of the Company within
the meaning of Rule 145 under the Securities Act of 1933, as amended (the
"Securities Act"), and Accounting Series Release No. 130, as amended, of the
Commission.
(b) It or he will not sell, contract to sell or otherwise agree to
sell or otherwise transfer any capital stock of the Company or any part thereof
or any Acquiror Shares or any part thereof or otherwise reduce his or its risk
relative to any of such shares of capital stock of the Company or any Aquiror
Shares until such time after the Effective Time, as defined in the Merger
Agreement, of the Merger as financial results covering at least thirty (30) days
of the post-Effective Time combined operations of Acquiror and the Company have
been, within the meaning of said Accounting Series Release No. 130, as amended,
filed by the Acquiror with the Commission or published by the Acquiror in an
Annual Report on Form 10-K, a Quarterly Report on Form 10-Q, a Current Report on
Form 8-K, a quarterly earnings report, a press release or
1
<PAGE>
other public issuance which includes combined sales and income of the Company
and the Acquiror.
(c) Subject in any event to paragraph (b) of this Section 1, he agrees
not to offer, sell, pledge, transfer or otherwise dispose of any of the Acquiror
Shares unless at that time either:
(i) such transaction shall be permitted pursuant to the
provisions of Rule 145(d) under the Securities Act;
(ii) counsel representing the Stockholder, satisfactory to the
Acquiror, shall have advised the Acquiror in a written opinion letter
satisfactory to the Acquiror and the Acquiror's counsel and upon which the
Acquiror and its counsel may rely, that no registration under the Securities Act
would be required in connection with the proposed sale, transfer or other
disposition;
(iii) a registration statement under the Securities Act covering
the Acquiror Shares proposed to be sold, transferred or otherwise disposed of,
describing the manner and terms of the proposed sale, transfer or other
disposition, and containing a current prospectus under the Securities Act, shall
be effective under the Securities Act; or
(iv) an authorized representative of the Commission shall have
rendered written advice to the Stockholder (sought by the Stockholder or counsel
to the Stockholder, with a copy thereof and of all other related communications
delivered to the Acquiror) to the effect that the Commission would take no
action, or that the staff of the Commission would not recommend that the
Commission take action, with respect to the proposed sale, transfer or other
disposition if consummated.
The Stockholder understands that the Acquiror is under no obligation to
register the sale, transfer or other disposition of the Acquiror Common Stock by
the Stockholder on its behalf or to take any other action necessary in order to
make compliance with an exemption from registration available.
(d) (1) Until the financial results described in paragraph (b) of
this Section 1 have been filed or published as described therein, and until a
public sale of the Acquiror Shares represented by such certificate has been made
in compliance with one of the alternative conditions set forth in the
subparagraphs of paragraph (c) of this Section 1, all certificates representing
the Acquiror Shares deliverable to the Stockholder pursuant to the Merger
Agreement and in connection with the Merger and any certificates subsequently
issued with respect thereto or in substitution therefor shall bear a legend
substantially as follows:
"The shares represented by this certificate may not be offered,
sold, pledged, transferred or otherwise disposed of except in
accordance with the requirements of the Securities Act of 1933,
as amended, and the other conditions specified in the Company
Affiliate Agreement dated as of January 6, 1997, between VTEL
2
<PAGE>
Corporation and the registered holder, a copy of which Company
Affiliate Agreement may be inspected by the holder of this
certificate at the offices of VTEL Corporation or VTEL Corporation
will furnish a copy thereof to the holder of this certificate
upon written request and without charge."
Acquiror, at its discretion, may cause stop transfer orders to be placed with
its transfer agent(s) with respect to the certificates for the Acquiror Shares
but not as to the certificates for any part of the Acquiror Shares as to which
said legend is no longer appropriate as hereinabove provided.
(2) Notwithstanding paragraph (d)(1) of this Section 1, at any time after
the financial results described in paragraph (b) of this Section 1 have been
filed or published as described therein, any or all certificates representing
the Acquiror Shares shall, at the written request of the Stockholder and upon
surrender of such certificates to the transfer agent for Acquiror Shares, be
replaced by stock certificates representing the Acquiror Shares bearing only the
following legend:
"The shares represented by this certificate may not be offered,
sold, pledged, transferred or otherwise disposed of except in
compliance with paragraph (d) of Rule 145 promulgated by the
Securities and Exchange Commission."
The reference in the foregoing legend to Rule 145 shall not preclude, however,
the alternative of a transaction in compliance with subparagraphs (ii), (iii) or
(iv) of paragraph (c) of this Section 1.
(e) The Stockholder will observe and comply with the Securities Act
and the General Rules and Regulations thereunder, as now in effect and as from
time to time amended and including those hereafter enacted or promulgated, in
connection with any offer, sale, pledge or transfer or other disposition of the
Acquiror Shares or any part thereof.
2. From and after the Effective Time of the Merger and for so long as
necessary in order to permit the Stockholder to sell the Acquiror Shares
pursuant to Rule 145 and, to the extent applicable, Rule 144 under the
Securities Act, Acquiror will use its best efforts to file on a timely basis all
reports required to be filed by it pursuant to Section 13 of the Securities
Exchange Act of 1934, referred to in paragraph (c)(1) of Rule 144 under the
Securities Act (or, if applicable, Acquiror will use its best efforts to make
publicly available the information regarding itself referred to in paragraph
(c)(2) of Rule 144) in order to permit the Stockholder to sell, pursuant to the
terms and conditions of Rule 145 and the applicable provisions of Rule 144, the
Acquiror Shares.
3. The Stockholder agrees that it or he will not perfect any dissenter's
appraisal rights under the Delaware General Corporation Law.
4. The Stockholder represents that it or he knows of no plan (written or
oral) pursuant to which the stockholders of the Company intend to sell or
otherwise dispose of any Acquiror Shares to be received by them pursuant to the
Merger Agreement which would reduce their holdings of such Acquiror Shares to an
amount having in the aggregate a value at the
3
<PAGE>
time of the Merger of less than 50% of all Common Stock of the Company
outstanding prior to the Merger.
5. No waiver by any party hereto of any condition or of any breach of any
provision of this Agreement shall be effective unless in writing.
6. All notices, requests, demands or other communications which are
required or may be given pursuant to the terms of this Agreement shall be in
writing and shall be deemed to have been duly given if delivered by hand or
(except where receipt thereof is specifically required for purposes of this
Agreement) mailed by registered or certified mail, postage prepaid, as follows:
If to the Stockholder, at the address set forth below the Stockholder's
signature at the end hereof.
If to Acquiror:
To: Copies to:
VTEL Corporation Jenkens & Gilchrist
108 Wild Basin Road 1445 Ross Avenue, Suite 3200
Austin, Texas 78746 Dallas, Texas 75202
Attn: L. Steven Leshin, Esq.
or to such other address as any party hereto or any Stockholder may designate
for itself by notice given as herein provided
7. For the convenience of the parties hereto this Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same document. This
Agreement shall be enforceable by, and shall inure to the benefit of and be
binding upon, the parties hereto and their respective successors and assigns.
8. This Agreement shall be governed by and construed, interpreted and
enforced in accordance with the laws of the State of Delaware.
9. If a court of competent jurisdiction determines that any provision of
this Agreement is unenforceable or enforceable only if limited in time and/or
scope, this Agreement shall continue in full force and effect with such
provision stricken or so limited.
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
Stockholder:
-------------------------------------
[signature]
-------------------------------------
-------------------------------------
-------------------------------------
[print name and address]
Accepted and agreed to as of
______________, 1997.
Acquiror:
VTEL CORPORATION
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
5
<PAGE>
EXHIBIT C
ACQUIROR AFFILIATE AGREEMENT
AGREEMENT (hereinafter referred to as the "Agreement") entered into as of
January 6, 1997, between VTEL Corporation, a Delaware corporation (hereinafter
referred to as the "Acquiror"), and the stockholder (the "Stockholder") of
Acquiror.
W I T N E S S E T H:
WHEREAS, the Acquiror, VTEL-Sub, Inc. a Delaware corporation wholly owned
by Acquiror (hereinafter referred to as the "Subsidiary"), and Compression Labs,
Inc., a Delaware corporation (the "Company") propose to enter, or have entered
into an Agreement and Plan of Merger and Reorganization expected to be dated, or
dated January 6, 1997 (hereinafter referred to as the "Merger Agreement"),
pursuant to which the Subsidiary will be merged into the Company (the "Merger")
and the Company will become a wholly-owned subsidiary of the Acquiror; and
WHEREAS, it is intended that the transactions contemplated by the Merger
Agreement will be treated as a "pooling of interests" in accordance with
generally accepted accounting principles and the applicable General Rules and
Regulations published by the Securities and Exchange Commission (the
"Commission").
NOW, THEREFORE, in consideration of the promises and the mutual agreements,
provisions and covenants set forth in the Merger Agreement, and hereinafter in
this Agreement, it is hereby agreed as follows:
1. The Stockholder hereby agrees that:
(a) He may be deemed to be an "affiliate" of the Acquiror within the
meaning of Rule 145 under the Securities Act of 1933, as amended (the
"Securities Act"), and Accounting Series Release No. 130, as amended, of the
Commission.
(b) He will not sell or otherwise reduce his risk relative to shares
of Common Stock of the Acquiror (the "Acquiror Shares") or any part thereof
until such time after the Effective Time, as defined in the Merger Agreement, of
the Merger as financial results covering at least thirty (30) days of the post-
Effective Time combined operations of Acquiror and the Company have been, within
the meaning of said Accounting Series Release No. 130, as amended, filed by the
Acquiror with the Commission or published by the Acquiror in an Annual Report on
Form 10-K, a Quarterly Report on Form 10-Q, a Current Report on Form 8-K, a
quarterly earnings report, a press release or other public issuance which
includes combined sales and income of the Company and the Acquiror.
(c) Acquiror, at its discretion, may cause stop transfer orders to be
placed with its transfer agent(s) with respect to the certificates for the
Acquiror Shares.
1
<PAGE>
2. No waiver by any party hereto of any condition or of any breach of any
provision of this Agreement shall be effective unless in writing.
3. All notices, requests, demands or other communications which are
required or may be given pursuant to the terms of this Agreement shall be in
writing and shall be deemed to have been duly given if delivered by hand or
(except where receipt thereof is specifically required for purposes of this
Agreement) mailed by registered or certified mail, postage prepaid, as follows:
If to the Stockholder, at the address set forth below the Stockholder's
signature at the end hereof.
If to Acquiror:
To: Copies to:
VTEL Corporation Jenkens & Gilchrist
108 Wild Basin Road 1445 Ross Avenue, Suite 3200
Austin, Texas 78746 Dallas, Texas 75202
Attn: L. Steven Leshin, Esq.
or to such other address as any party hereto or any Indemnified Person may
designate for itself by notice given as herein provided
4. For the convenience of the parties hereto this Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same document.
5. This Agreement shall be enforceable by, and shall inure to the benefit
of and be binding upon, the parties hereto and their respective successors and
assigns.
6. This Agreement shall be governed by and construed, interpreted and
enforced in accordance with the laws of the State of Delaware.
7. If a court of competent jurisdiction determines that any provision of
this Agreement is unenforceable or enforceable only if limited in time and/or
scope, this Agreement shall continue in full force and effect with such
provision stricken or so limited.
2
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
Stockholder:
-----------------------------------
-----------------------------------
-----------------------------------
Accepted and agreed to as of
_________________, 1997.
Acquiror:
VTEL CORPORATION
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
3
<PAGE>
EXHIBIT 99.2
STOCK OPTION AGREEMENT
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated January 6, 1997, between Compression Labs,
Incorporated, a Delaware corporation ("Issuer"), and VTEL Corporation, a
Delaware corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger and Reorganization of even date herewith (the "Merger Agreement"), which
agreement has been executed by the parties hereto immediately prior to this
Stock Option Agreement (the "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement and
in consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to 3,120,500
fully paid and nonassessable shares of Issuer's Common Stock, par value $.001
per share ("Common Stock"), at a price of $4.6575 per share (the "Option
Price"); provided, however, that in no event shall the number of shares of
Common Stock for which this Option is exercisable exceed 19.9% of the Issuer's
issued and outstanding shares of Common Stock without giving effect to any
shares subject to or issued pursuant to the Option. The number of shares of
Common Stock that may be received upon the exercise of the Option and the Option
Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are either
(i) issued or otherwise become outstanding after the date of this Agreement
(other than pursuant to this Agreement) or (ii) redeemed, repurchased, retired
or otherwise cease to be outstanding after the date of the Agreement, the number
of shares of Common Stock subject to the Option shall be increased or decreased,
as appropriate, so that, after such issuance, such number equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing
contained in this Section l(b) or elsewhere in this Agreement shall be deemed to
authorize Issuer or Grantee to breach any provision of the Merger Agreement.
1
<PAGE>
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, and from time to time, if, but only if, both an Initial
Triggering Event (as hereinafter defined) and a Subsequent Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined), provided that the Holder shall have
--------
sent the written notice of such exercise (as provided in subsection (e) of this
Section 2) within 90 days following such Subsequent Triggering Event. Each of
the following shall be an Exercise Termination Event: (i) the Effective Time (as
defined in the Merger Agreement) of the Merger; (ii) termination of the Merger
Agreement in accordance with the terms thereof prior to the occurrence of an
Initial Triggering Event except a termination of the Merger Agreement by Grantee
pursuant to Section 8.01(b) of the Merger Agreement; or (iii) the passage of 12
months after termination of the Merger Agreement if such termination follows the
occurrence of an Initial Triggering Event or is a termination of the Merger
Agreement by Grantee pursuant to Section 8.01(b) of the Merger Agreement
provided that if an Initial Triggering Event continues or occurs beyond such
- --------
termination and prior to the passage of such 12-month period, the Exercise
Termination Event shall be 12 months from the expiration of the Last Triggering
Event but in no event more than 18 months after such termination. The "Last
Triggering Event" shall mean the last Initial Triggering Event to expire. The
term "Holder" shall mean the holder or holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an "Issuer Subsidiary"),
without having received Grantee's prior written consent, shall have entered into
an agreement to engage in an Acquisition Transaction (as hereinafter defined)
with any person (the term "person" for purposes of this Agreement having the
meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the rules and regulations
thereunder) other than Grantee or any of its Subsidiaries (each a "Grantee
Subsidiary") or the Board of Directors of Issuer shall have recommended that the
stockholders of Issuer approve or accept any Acquisition Transaction. For
purposes of this Agreement, "Acquisition Transaction" shall mean (w) a merger or
consolidation, or any similar transaction, involving Issuer or any Significant
Subsidiary (as defined in Rule 1-02 of Regulation S-X promulgated by the
Securities and Exchange Commission (the "SEC")) of Issuer, (x) a purchase, lease
or other acquisition or assumption of all or a substantial portion of the assets
of Issuer or any Significant Subsidiary of Issuer, (y) a purchase or other
acquisition (including by way of merger, consolidation, share exchange or
otherwise) of securities representing 10% or more of the voting power of Issuer,
or (z) any substantially similar transaction;
(ii) Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended, proposed or
publicly announced its intention to authorize, recommend or propose, to engage
in an Acquisition Transaction with any person other than Grantee or a Grantee
Subsidiary, or the Board of Directors of Issuer shall have publicly withdrawn or
modified, or publicly announced its interest to withdraw or modify, in any
manner adverse to Grantee, its recommendation that the stockholders of Issuer
approve the transactions contemplated by the Merger Agreement;
2
<PAGE>
(iii) Any person other than Grantee or any Grantee Subsidiary
shall have acquired beneficial ownership or the right to acquire beneficial
ownership of 10% or more of the outstanding shares of Common Stock (the term
"beneficial ownership" for purposes of this Agreement having the meaning
assigned thereto in Section 13(d) of the 1934 Act, and the rules and regulations
thereunder);
(iv) Any person other than Grantee or any Grantee Subsidiary shall
have made a bona fide proposal to Issuer or its stockholders by public
announcement or written communication that is or becomes the subject of public
disclosure to engage in an Acquisition Transaction; or
(v) After an overture is made by a third party to Issuer or its
stockholders to engage in an Acquisition Transaction, Issuer shall have breached
any covenant or obligation contained in the Merger Agreement and such breach (x)
would entitle Grantee to terminate the Merger Agreement and (y) shall not have
been cured prior to the Notice Date (as defined below).
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of 20%
or more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
paragraph (i) of subsection (b) of this Section 2, except that the percentage
referred to in clause (y) shall be 20%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence
of any Initial Triggering Event or Subsequent Triggering Event of which it has
notice (together, a "Triggering Event"), it being understood that the giving of
such notice by Issuer shall not be a condition to the right of the Holder to
exercise the Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of shares it
will purchase pursuant to such exercise and (ii) a place and date not earlier
than three business days nor later than 60 business days from the Notice Date
for the closing of such purchase (the "Closing Date"); provided that if prior
notification to or approval of any regulatory agency is required in connection
with such purchase, the Holder shall promptly file the required notice or
application for approval and shall expeditiously process the same and the period
of time that otherwise would run pursuant to this sentence shall run instead
from the date on which any required notification periods have expired or been
terminated or such approvals have been obtained and any requisite waiting period
or periods shall have passed. Any exercise of the Option shall be deemed to
occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2,
the Holder shall pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased
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pursuant to the exercise of the Option in immediately available funds by wire
transfer to a bank account designated by Issuer, provided that failure or
refusal of Issuer to designate such a bank account shall not preclude the Holder
from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder, and the Holder
shall deliver to Issuer a copy of this Agreement and a letter agreeing that the
Holder will not offer to sell or otherwise dispose of such shares in violation
of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at a closing hereunder may
be endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale restrictions
arising under the Securities Act of 1933, as amended. A copy
of such agreement is on file at the principal office of Issuer
and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act"), in the above legend
shall be removed by delivery of substitute certificates) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions to this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and (iii) the legend shall be removed
in its entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 2 in the name of the
Holder or its assignee, transferee or designee.
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3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. (S)18a and regulations promulgated
thereunder) in order to permit the Holder to exercise the Option and Issuer duly
and effectively to issue shares of Common Stock pursuant hereto; and (iv)
promptly to take all action provided herein to protect the rights of the Holder
against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of the Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option and the Option Price shall be subject to adjustment from time to time
as provided in this Section 5. In the event of any change in, or distributions
in respect of, the Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions, exchanges
of shares, distributions on or in respect of the Common Stock that would be
prohibited under the terms of the Merger Agreement, or the like, the type and
number of shares of Common Stock purchasable upon exercise hereof and the Option
Price shall be appropriately adjusted in such manner as shall fully preserve the
economic benefits provided hereunder and proper provision shall be made in any
agreement governing any such transaction to provide for such proper adjustment
and the full satisfaction of the Issuer's obligations hereunder.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior
to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within 90 days of such Subsequent Triggering Event (whether on its own
behalf or on behalf of any subsequent holder of this Option (or part thereof) or
any of the shares of Common Stock issued pursuant hereto), promptly prepare,
file and keep current a shelf registration statement under the 1933 Act
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covering this Option and any shares issued and issuable pursuant to this Option
and shall use its reasonable best efforts to cause such registration statement
to become effective and remain current in order to permit the sale or other
disposition of this Option and any shares of Common Stock issued upon total or
partial exercise of this Option ("Option Shares") in accordance with any plan of
disposition requested by Grantee. Issuer will use its reasonable best efforts to
cause such registration statement first to become effective and then to remain
effective for such period not in excess of 180 days from the day such
registration statement first becomes effective or such shorter time as may be
reasonably necessary to effect such sales or other dispositions. Grantee shall
have the right to demand two such registrations. The foregoing notwithstanding,
if, at the time of any request by Grantee for registration of the Option or
Option Shares as provided above, Issuer is in registration with respect to an
underwritten public offering of shares of Common Stock, and if in the good faith
judgment of the managing underwriter or managing underwriters, or, if none, the
sole underwriter or underwriters, of such offering the inclusion of the Holder's
Option or Option Shares would interfere with the successful marketing of the
shares of Common Stock offered by Issuer, the number of Option Shares otherwise
to be covered in the registration statement contemplated hereby may be reduced;
and provided, however, that after any such required reduction the number of
Option Shares to be included in such offering for the account of the Holder
shall constitute at least 25% of the total number of shares to be sold by the
Holder and Issuer in the aggregate; and provided further, however, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practical and no reduction shall thereafter occur. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in secondary
offering underwriting agreements for the Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall
Issuer be obligated to effect more than two registrations pursuant to this
Section 6 by reason of the fact that there shall be more than one Grantee as a
result of any assignment or division of this Agreement.
7. (a) Immediately prior to the occurrence of a Repurchase Event (as
defined below), (i) following a request of the Holder, delivered prior to an
Exercise Termination Event (or such later period as provided in Section 10),
Issuer (or any successor thereto) shall repurchase the Option from the Holder at
a price (the "Option Repurchase Price") equal to the amount by which (A) the
Market/Offer Price (as defined below) exceeds (B) the Option Price, multiplied
by the number of shares for which this Option may then be exercised and (ii) at
the request of the owner of Option Shares from time to time (the "Owner"),
delivered within 90 days of such occurrence (or such later period as provided in
Section 10), Issuer shall repurchase such number of the Option Shares from the
Owner as the owner shall designate at a price (the "Option Share Repurchase
Price") equal to the Market/Offer Price multiplied by the number of Option
Shares so designated. The term "Market/Offer Price" shall mean the highest of
(i) the price per share of Common Stock at which a tender offer or exchange
offer therefor has been made, (ii) the price per share of Common Stock to be
paid by any third party pursuant to an agreement with Issuer
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entered into subsequent to the date hereof, (iii) the highest closing price for
shares of Common Stock within the six-month period immediately preceding the
date the Holder gives notice of the required repurchase of this Option or the
Owner gives notice of the required repurchase of Option Shares, as the case may
be, or (iv) in the event of a sale of all or a substantial portion of Issuer's
assets, the sum of the price paid in such sale for such assets and the current
market value of the remaining assets of Issuer as determined by a nationally
recognized investment banking firm mutually selected by the Holder or the Owner,
as the case may be, on the one hand, and the Issuer, on the other, divided by
the number of shares of Common Stock of Issuer outstanding at the time of such
sale. In determining the Market/Offer Price, the value of consideration other
than cash shall be determined by a nationally recognized investment banking firm
mutually selected by the Holder or Owner, as the case may be, on the one hand,
and the Issuer, on the other.
(b) The Holder and the Owner, as the case may be, may exercise its
right to require Issuer to repurchase the Option and any Option Shares pursuant
to this Section 7 by surrendering for such purpose to Issuer, at its principal
office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. Within the latter to occur of (x) five business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto and (y) the time that is
immediately prior to the occurrence of a Repurchase Event, Issuer shall deliver
or cause to be delivered to the Holder the Option Repurchase Price and/or to the
Owner the Option Share Repurchase Price therefor or the portion thereof that
issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full, Issuer
shall immediately so notify the Holder and/or the Owner and thereafter deliver
or cause to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after delivery of a
notice of repurchase pursuant to paragraph (b) of this Section 7 is prohibited
under applicable law or regulation from delivering to the Holder and/or the
Owner, as appropriate, the Option Repurchase Price and the Option Share
Repurchase Price, respectively, in full (and Issuer hereby undertakes to use its
best efforts to obtain all required regulatory and legal approvals and to file
any required notices as promptly as practicable in order to accomplish such
repurchase), the Holder or Owner may revoke its notice of repurchase of the
Option or the Option Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, Issuer shall promptly (i) deliver to the Holder
and/or the Owner, as appropriate, that portion of the Option Repurchase Price or
the Option Share Repurchase Price that Issuer is not prohibited from delivering;
and (ii) deliver, as appropriate, either (A) to the Holder, a new Stock Option
Agreement evidencing the right of the Holder to purchase that number of shares
of Common Stock obtained by multiplying the number of shares of Common Stock for
which the surrendered Stock Option Agreement was exercisable at the time of
delivery of the notice of repurchase by a fraction, the numerator of which is
the Option Repurchase Price less the portion thereof theretofore delivered to
the Holder and the denominator
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of which is the Option Repurchase Price, or (B) to the Owner, a certificate for
the Option Shares it is then so prohibited from repurchasing.
(d) For purposes of this Section 7, a Repurchase Event shall be deemed
to have occurred (i) upon the consummation of any merger, consolidation or
similar transaction involving Issuer or any purchase, lease or other acquisition
of all or a substantial portion of the assets of Issuer or (ii) upon the
acquisition by any person of beneficial ownership of 50% or more of the then
outstanding shares of Common Stock, provided that no such event shall constitute
a Repurchase Event unless a Subsequent Triggering Event shall have occurred
prior to an Exercise Termination Event. The parties hereto agree that Issuer's
obligations to repurchase the Option or Option Shares under this Section 7 shall
not terminate upon the occurrence of an Exercise Termination Event unless no
Subsequent Triggering Event shall have occurred prior to the occurrence of an
Exercise Termination Event.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or one of its Subsidiaries, and shall not be the continuing
or surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its Subsidiaries, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in with such
merger, the then outstanding shares of Common Stock shall into or exchanged for
stock or other securities of any other person any other property or the then
outstanding shares of Common Stock shall after such merger represent less than
50% of the outstanding voting shares and voting share equivalents of the merged
company, or (iii) to sell or otherwise transfer all or substantially all of its
assets to any person, other than Grantee or one of its Subsidiaries, then, and
in each such case, the agreement governing such transaction shall make proper
provision so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an Option (the "Substitute Option"), at the election of
the Holder, of either (x) the Acquiring Corporation (as hereinafter defined) or
(y) any person that controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or surviving
person, and (iii) the transferee of all or substantially all of Issuer's assets.
(2) "Substitute Common Stock" shall mean the common stock issued
by the issuer of the Substitute Option upon exercise of the Substitute Option.
(3) "Assigned Value" shall mean the Market/Offer Price, as
defined in Section 7.
(4) "Average Price" shall mean the average closing price of a share of
the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding such
consolidation, merger or sale; provided that if Issuer
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is the issuer of the Substitute Option, the Average Price shall be computed with
respect to a share of common stock issued by the person merging into Issuer or
by any company which controls or is controlled by such person, as the Holder may
elect.
(c) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to the Holder. The issuer of the Substitute Option
shall also enter into an agreement with the then Holder or Holders of the
Substitute Option in substantially the same form as this Agreement, which shall
be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
shares of Substitute Common Stock as is equal to the Assigned Value multiplied
by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall then be equal to the Option
Price multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock for which the Option is then exercisable and the
denominator of which shall be the number of shares of Substitute Common Stock
for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall
the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than 19.9%
of the shares of Substitute Common Stock outstanding prior to exercise but for
this clause (e), the issuer of the Substitute Option (the "Substitute Option
Issuer") shall make a cash payment to Holder equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in this
clause (e) over (ii) the value of the Substitute Option after giving effect to
the limitation in this clause (e). This difference in value shall be determined
by a nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, and reasonably acceptable to the Acquiring
Corporation.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the Substitute Option Issuer shall repurchase the
Substitute Option from the Substitute Option Holder at a price (the "Substitute
Option Repurchase Price") equal to (x) the amount by which (i) the Highest
Closing Price (as hereinafter defined) exceeds (ii) the exercise price of the
Substitute Option, multiplied by the number of shares of Substitute Common Stock
for which the Substitute Option may then be exercised plus (y) Grantee's
reasonable out-of-pocket expenses (to the extent not previously reimbursed), and
at the request of the owner (the "Substitute Share Owner") of shares of
Substitute Common Stock (the "Substitute Shares"), the Substitute Option Issuer
shall repurchase the Substitute Shares at a price (the "Substitute Share
Repurchase Price") equal to (x) the Highest Closing Price multiplied by the
number of Substitute Shares so designated plus (y) Grantee's reasonable out-of-
pocket expenses (to the extent not previously reimbursed). The term "Highest
Closing Price" shall mean the highest closing price for shares
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of Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as
the case may be, may exercise its respective right to require the Substitute
Option Issuer to repurchase the Substitute Option and the Substitute Shares
pursuant to this Section 9 by surrendering for such purpose to the Substitute
Option Issuer, at its principal office, the agreement for such Substitute Option
(or, in the absence of such an agreement, a copy of this Agreement) and
certificates for Substitute Shares accompanied by a written notice or notices
stating that the Substitute Option Holder or the Substitute Share Owner, as the
case may be, elects to require the Substitute Option Issuer to repurchase the
Substitute Option and/or the Substitute Shares in accordance with the provisions
of this Section 9. As promptly as practicable, and in any event within five
business days after the surrender of the Substitute Option and/or certificates
representing Substitute Shares and the receipt of such notice or notices
relating thereto, the Substitute Option Issuer shall deliver or cause to be
delivered to the Substitute Option Holder the Substitute Option Repurchase Price
and/or to the Substitute Share Owner the Substitute Share Repurchase Price
therefor or, in either case, the portion thereof which the Substitute Option
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that the Substitute Option Issuer is prohibited
under applicable law or regulation from repurchasing the Substitute Option
and/or the Substitute Shares in part or in full, the Substitute Option Issuer
following a request for repurchase pursuant to this Section 9 shall immediately
so notify the Substitute Option Holder and/or the Substitute Share Owner and
thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
portion of the Substitute Share Repurchase Price, respectively, which it is no
longer prohibited from delivering, within five business days after the date on
which the Substitute Option Issuer is no longer so prohibited; provided,
however, that if the Substitute Option Issuer is at any time after delivery of a
notice of repurchase pursuant to subsection (b) of this Section 9 prohibited
under applicable law or regulation from delivering to the Substitute Option
Holder and/or the Substitute Share Owner, as appropriate, the Substitute Option
Repurchase Price and the Substitute Share Repurchase Price, respectively, in
full (and the Substitute Option Issuer shall use its best efforts to receive all
required regulatory and legal approvals as promptly as practicable in order to
accomplish such repurchase), the Substitute Option Holder or Substitute Share
Owner may revoke its notice of repurchase of the Substitute Option or the
Substitute Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, the Substitute Option Issuer shall promptly (i)
deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the
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Substitute Option Repurchase Price, or (B) to the Substitute Share Owner, a
certificate for the Substitute Common Shares it is then so prohibited from
repurchasing.
10. The 90-day period for exercise of certain rights under Sections 2, 6,
7, 9 and 13 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights, and for the expiration of
all statutory waiting periods; and (ii) to the extent necessary to avoid
liability under Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer, and constitutes a legal and binding agreement,
enforceable against Issuer in accordance with its terms.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Grantee. This Agreement has been duly executed and delivered by Grantee, and
constitutes a legal and binding agreement, enforceable against Grantee in
accordance with its terms.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Grantee upon exercise of the Option will not be, acquired
with a view to the public distribution thereof and will not be transferred or
otherwise disposed of except in a transaction registered or exempt from
registration under the Securities Act.
13. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other person, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions
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hereof, may assign in whole or in part its rights and obligations hereunder
within 90 days following such Subsequent Triggering Event (or such later period
as provided in Section 10).
14. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation making application to list the
shares of Common Stock issuable hereunder on the Nasdaq Stock Market upon
official notice of issuance.
15. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief.
16. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section l(a) hereof (as adjusted pursuant to Section l(b) or 5
hereof), it is the express intention of Issuer to allow the Holder to acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
17. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
18. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
19. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
20. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
21. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than
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the parties hereto, and their respective successors except as assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
22. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
COMPRESSION LABS, INC.
By: /s/ Thomas Gary Trimm
---------------------
Name: Thomas Gary Trimm
Title: President and Chief Executive Officer
VTEL CORPORATION
By: /s/ Dick Moeller
---------------------
Name: Dick Moeller
Title: Chairman and Chief Executive Officer
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EXHIBIT 99.3
FOR IMMEDIATE RELEASE
Contact: David Kamp 512/314-2636 Contact: Charlie Smith 512/314-2751
VTEL Corporation VTEL Corporation
[email protected] [email protected]
Contact: Patrizia Owen 408/922-4745
Compression Labs
[email protected]
VIDEOCONFERENCING COMPANIES ANNOUNCE PLANS TO MERGE
VTEL and Compression Labs Will Focus on Synergy and Innovation
To Capitalize on Strategic Opportunities in the Rapidly Growing
Billion Dollar Videoconferencing Industry
AUSTIN, Texas (January 7, 1997) - VTEL Corporation (NASDAQ: VTEL) and
Compression Labs (NASDAQ: CLIX), two of the leading companies in the rapidly
growing videoconferencing industry, today announced that their respective boards
of directors have unanimously approved a definitive agreement to merge the two
corporations in an exchange of VTEL common stock for CLI stock. The transaction
is valued in excess of $80 million. The new entity will retain the VTEL(R) name
and will have annualized revenue of nearly $200 million, making it one of the
larger players in the videoconferencing industry.
The agreement provides for a stock-for-stock exchange in which each share of CLI
common stock will be exchanged for 0.46 of a VTEL share. VTEL expects to issue
approximately 8.4 million new common shares. The new shares, which are in
addition to the 13.9 million common shares currently outstanding, will represent
approximately 36% of VTEL's ownership.
The transaction is expected to be a tax free exchange and accounted for as a
pooling of interest and is expected to close in VTEL's fourth fiscal quarter
ending July 31, 1997. One-time expenses related to the transaction will be
incurred at that time and will have a dilutive effect on VTEL's earnings.
VTEL's financial strength will fund the merged entity out of existing cash
resources to create a combined entity with a debt-free balance sheet.
Thereafter, the transaction is expected to be accretive to VTEL's earnings in
fiscal year 1998. Completion of the transaction is conditional upon approval by
the shareholders of both companies and upon the approval of government
regulatory agencies.
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According to Dick Moeller, present and future chairman and CEO of VTEL,
"Through this merger, we plan to capitalize on marketing synergy, financial
leverage, complementary sales strategies and innovative product development.
Successful execution will result in improved competitive positioning. We can
enhance our global presence and provide the value-added products and services
our customers need for mission-critical applications. In short, this business
decision will enable us to create for our industry a more effective supplier of
high-performance videoconferencing solutions."
Moeller adds, "We are certain that we can have more impact and create more value
together than if we remain separate companies. The creation of value will
benefit our customers, employees, partners, and shareholders."
Gary Trimm, president and CEO of CLI says, "We have both been technology
leaders, with over 25 years of combined experience creating industry standards
and providing the highest quality data, voice and video systems available on the
market. Together, we will continue our legacy of innovation as we work towards
the day when television-quality interactive video communications will be as
ubiquitous as voice telephones, fax machines and copiers--and as simple to use."
Gary Trimm will be joined on the board of directors of VTEL with long time CLI
board member and current board chairman, Dr. Arthur G. Anderson. Gary will take
an active role in shaping VTEL's strategy and guiding its future. His immediate
role will be working with Dick Moeller on the Integration Steering Committee as
it manages the merger transition.
The combination of VTEL and CLI should give the new entity the scale and
critical mass required to achieve its goal of offering the best products and
services for worldwide customers who want advanced videoconferencing capability.
Bear, Stearns & Co. is the financial advisor to VTEL for this transaction and
CLI was advised by PaineWebber.
VTEL is a global leader in the design and manufacture of Smart Videoconferencing
systems and recently reported its latest quarterly revenues ended October 31,
1996 of $28.2 million with revenues over the last 12 months of $99.3 million.
VTEL and its authorized resellers have installed systems in some of the largest
and most recognized organizations in the United States and around the world,
including: Microsoft Corp., Nortel, BMW AG, VHA, Inc., Deloitte & Touche, Credit
Suisse, Texas A&M University, and the U.S. Army T-Net.
Headquartered in San Jose, California, CLI is a leading designer and
manufacturer of solutions for digital video communications. CLI reported
revenues in its third quarter ended September 30, 1996 of $20.2 million with
revenues over the last twelve months of $93.4 million. Using its core
technology, compressed digital video, the company provides a broad range of
video communications products for business, government, educational, healthcare
and other organizations. CLI's installed base includes major corporations and
institutions such as Boeing,
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Hewlett-Packard, General Electric and the National Ministry of Posts and
Telecommunications in China.
Except for historical information contained herein, the matters discussed in
this news release are forward looking statements that involve risks and
uncertainties, including the timely availability and acceptance of new products,
the impact of competitive products and pricing, the management of growth, and
other risks detailed from time to time in the SEC reports of each of the
Companies.
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VTEL is a registered trademark of VTEL Corporation. Smart Videoconferencing is
a trademark of VTEL Corporation.
VTEL Corporation, 108 Wild Basin Road, Austin, Texas 78746
512-314-2700, FAX 512-314-2792
VTEL Website: www.vtel.com/info
CLI Website: www.clix.com
