<PAGE> 1
As filed with the Securities and Exchange Commission on June 11, 1997
Registration No. 333-27869
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------------
PICTURETEL CORPORATION
(Exact name of Registrant as specified in its charter)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3661 04-2835972
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
100 MINUTEMAN ROAD, ANDOVER, MA, 01810, (508) 292-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DR. NORMAN E. GAUT
CHIEF EXECUTIVE OFFICER
100 Minuteman Road, Andover, MA 01810, (508) 292-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------------------
COPIES TO:
HOWARD K. FUGUET, ESQ. WILLIAM B. SIMMONS, JR., ESQ.
Ropes & Gray Testa, Hurwitz & Thibeault, LLP
One International Place High Street Tower - 125 High Street
Boston, Massachusetts 02110 Boston, Massachusetts 02110
---------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: At the effective time of the merger of a wholly-owned subsidiary of
the Registrant with and into MultiLink, Inc., which shall occur as soon as
practicable after the effective date of this Registration Statement and the
satisfaction or waiver of all conditions to closing of such merger as described
in the enclosed Proxy Statement/Prospectus.
----------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
MULTILINK, INC.
6 RIVERSIDE DRIVE
ANDOVER, MASSACHUSETTS 01810
June 16, 1997
To the Shareholders of MultiLink, Inc.:
The Board of Directors of MultiLink, Inc., a Massachusetts corporation,
("MultiLink") has unanimously approved and is recommending that the MultiLink
shareholders approve the acquisition of MultiLink by PictureTel Corporation, a
Delaware corporation, ("PictureTel"). In order to consider and act upon
approval of this transaction, we will hold a special meeting of shareholders
(the "MultiLink Special Meeting") at 8:30 a.m. Daylight Savings Time on July 22,
1997, at the offices of MultiLink, 6 Riverside Drive, Andover, Massachusetts.
You are cordially invited to attend.
At this meeting, the holders of MultiLink Common Stock will be asked
(i) to vote on a proposal to approve and adopt the Agreement and Plan of Merger
dated as of April 15, 1997, as amended, among PictureTel, ML Acquisition Corp.,
a Massachusetts corporation, ("Merger Sub") and MultiLink (as so amended, the
"Merger Agreement"), and to approve the merger (the "Merger") of Merger Sub, a
wholly-owned subsidiary of PictureTel, with and into MultiLink pursuant to the
Merger Agreement, and the transactions contemplated thereby, by which MultiLink
would become a wholly-owned subsidiary of PictureTel, and (ii) to act upon such
other matters as may properly be brought before the MultiLink Special Meeting.
Upon the effectiveness of the Merger, each outstanding share of MultiLink Common
Stock will be converted into the right to receive approximately .56 of a share
of PictureTel Common Stock, subject to the terms of the Merger Agreement. The
Merger Agreement also provides that approximately 8% of the shares of PictureTel
Common Stock exchanged in the Merger will be placed in escrow to reimburse
PictureTel for any breaches of MultiLink's representations and warranties in the
Merger Agreement.
THE BOARD OF DIRECTORS OF MULTILINK HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT THE
MULTILINK SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY.
It is important that you vote on this transaction. Accordingly, we ask
you to please complete, sign and date the accompanying Proxy Card, which will
serve as a proxy for your vote at the MultiLink Special Meeting. The details of
the proposed Merger appear in the accompanying Proxy Statement/Prospectus which
is being furnished to the holders of MultiLink Common Stock. You should consider
carefully the investment considerations associated with the Merger discussed
under "Risk Factors" in the accompanying Proxy Statement/Prospectus. The
approval and adoption of the Merger Agreement will require the affirmative vote
of a majority of the outstanding shares of MultiLink Common Stock as of the
record date of the MultiLink Special Meeting. Three of the directors of
MultiLink and certain of MultiLink's principal stockholders, together holding
approximately 72% of the outstanding shares of MultiLink Common Stock as of
June 5, 1997, have agreed to vote all the outstanding shares of MultiLink
Common Stock over which he or she has voting control in favor of approval and
adoption of the Merger Agreement.
The management of MultiLink appreciates the support and confidence that
you have given us. We are very enthusiastic about our acquisition by PictureTel
and we believe it is in the best interest of our shareholders and employees.
Sincerely,
Bruce R. Bower
President and Chief Executive Officer
Andover, Massachusetts
<PAGE> 3
MULTILINK, INC.
6 RIVERSIDE DRIVE
ANDOVER, MASSACHUSETTS 01810
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 22, 1997
To the Shareholders of MULTILINK, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
MultiLink, Inc. (the "MultiLink Special Meeting"), a Massachusetts corporation
("MultiLink"), will be held at 8:30 a.m., Daylight Savings Time on July 22,
1997, at the offices of MultiLink, 6 Riverside Drive, Andover, Massachusetts,
to consider and act upon proposals:
1. To approve and adopt the Agreement and Plan of Merger, dated April
15, 1997, as amended (as so amended, the "Merger Agreement"), among MultiLink,
PictureTel Corporation, a Delaware corporation ("PictureTel"), and ML
Acquisition Corp., a Massachusetts corporation ("Merger Sub"), which is a
wholly-owned subsidiary of PictureTel, providing, among other things, for the
merger of Merger Sub with and into MultiLink (the "Merger") creating a
surviving corporation (the "Surviving Corporation") which will be a
wholly-owned subsidiary of PictureTel. Pursuant to the Merger, each share of
MultiLink's common stock, $.01 par value per share ("MultiLink Common Stock"),
outstanding at the effective time of the Merger (other than shares with respect
to which dissenters' rights are perfected) will be converted into
approximately .56 shares of PictureTel's common stock, $.01 par value per share
("PictureTel Common Stock"), all of which is more fully described in the
accompanying Proxy Statement/Prospectus. A copy of the Merger Agreement
(including the principal exhibits thereto) is attached as Annex A to the
accompanying Proxy Statement/Prospectus.
2. To transact such other business as may properly be brought before
the MultiLink Special Meeting.
The record date for the determination of shareholders entitled to
notice of and to vote at the MultiLink Special Meeting, and any adjournments or
postponements thereof, is June 5, 1997 (the "Record Date"). Only holders of
record of shares of MultiLink Common Stock at the close of business on the
Record Date are entitled to notice of and to vote at the MultiLink Special
Meeting. A list of MultiLink shareholders entitled to vote at the MultiLink
Special Meeting will be available during normal business hours at MultiLink's
corporate offices, 6 Riverside Drive, Andover, Massachusetts 01810, for ten (10)
days prior to the MultiLink Special Meeting for examination by any MultiLink
shareholder for purposes germane to the MultiLink Special Meeting.
Holders of MultiLink Common Stock have a right to dissent from the
Merger, and if the Merger is consummated, to receive "fair value" for their
shares in cash by complying with the provisions of Massachusetts law, including
Sections 85 to 98 of Chapter 156B of the Massachusetts Business Corporation Law,
the full text of which is attached as Annex B to the Proxy Statement/Prospectus
accompanying this Notice of the MultiLink Special Meeting.
If the Merger is approved by the shareholders at the MultiLink Special
Meeting and effected by MultiLink, any shareholder (1) who files with MultiLink,
before the taking of the vote on the approval of the Merger, written objection
to the Merger stating that such shareholder intends to demand payment for such
shareholder's MultiLink Common Stock if the Merger is completed; and (2) whose
shares of MultiLink Common Stock are not voted in favor of the Merger has or may
have the right to demand in writing from the Surviving Corporation, within
twenty (20) days after the date of mailing to such shareholder of notice in
writing that the Merger has become effective, payment for such shareholder's
shares of MultiLink Common Stock and an appraisal of the value thereof.
MultiLink and any such shareholder shall in such cases have the rights and
duties and shall follow the procedure set forth in Sections 85-98, inclusive, of
Chapter 156B of the General Laws of Massachusetts.
<PAGE> 4
Your vote is very important regardless of how many shares of MultiLink
Common Stock you own. Regardless of whether you plan to attend the MultiLink
Special Meeting, you are requested to sign, date and return the enclosed Proxy
without delay in the enclosed postage-paid envelope. You may revoke your Proxy
at any time prior to its exercise. If you are present at the MultiLink Special
Meeting or any adjournments or postponements thereof, you may revoke your Proxy
and vote personally on the matters properly brought before the MultiLink Special
Meeting.
By Order of the Board of Directors,
Mary B. Miller
Assistant Clerk
June 16, 1997
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY
IN THE POSTAGE-PAID ENVELOPE.
PLEASE DO NOT SEND IN STOCK CERTIFICATES AT THIS TIME.
All stockholders are cordially invited to attend the meeting in person.
To ensure your representation at the meeting, however, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
enclosed postage-prepaid envelope. You may revoke your proxy in the manner
described in the accompanying Proxy Statement/Prospectus at any time before it
has been voted at the MultiLink Special Meeting. Any stockholder attending the
MultiLink Special Meeting may vote in person even if he or she has returned a
proxy.
By Order of the Board of Directors,
Bruce R. Bower
President and Chief Executive Officer
Andover, Massachusetts
June 16, 1997
<PAGE> 5
MULTILINK, INC.
PROXY STATEMENT
-------------
PICTURETEL CORPORATION
PROSPECTUS
This Proxy Statement and Prospectus ("Proxy Statement/Prospectus") is
being furnished to the holders of (i) common stock, $.01 par value per share
("MultiLink Common Stock") of MultiLink, Inc., a Massachusetts corporation
("MultiLink"), in connection with the solicitation of proxies by the Board of
Directors of MultiLink for use at the Special Meeting of Stockholders of
MultiLink to be held on July 22, 1997 at the offices of MultiLink, 6 Riverside
Drive, Andover, Massachusetts, commencing at 8:30 a.m. Daylight Savings Time,
and at any and all adjournments or postponements thereof (the "MultiLink Special
Meeting").
This Proxy Statement/Prospectus also constitutes the Prospectus of
PictureTel Corporation, a Delaware corporation ("PictureTel"), with respect to
the issuance of up to 3,750,000 shares of PictureTel common stock, $.01 par
value per share ("PictureTel Common Stock"), to be issued to the stockholders of
MultiLink in connection with the Merger described below. Stockholders of
PictureTel will not be voting on the Merger. PictureTel Common Stock is traded
on The Nasdaq National Market (the "NASDAQ") under the symbol "PCTL."
This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of ML Acquisition Corp., a Massachusetts corporation and a
wholly-owned subsidiary of PictureTel ("Merger Sub"), with and into MultiLink,
pursuant to an Agreement and Plan of Merger dated as of April 15, 1997, as
amended (as so amended, the "Merger Agreement") by and among PictureTel, Merger
Sub and MultiLink. Upon consummation of the Merger, MultiLink will become a
wholly-owned subsidiary of PictureTel. Consummation of the Merger is subject to
various conditions, including the approval and adoption of the Merger Agreement
by the holders of a majority of the outstanding shares of MultiLink Common Stock
at the MultiLink Special Meeting.
Upon the filing of the articles of merger with the Secretary of State
of the Commonwealth of Massachusetts (the "Effective Date"), which shall occur
on the second business day, or such other time as the parties to the Merger may
agree upon, following the satisfaction or waiver of all conditions to the
closing of the transactions contemplated by the Merger Agreement, each share of
MultiLink Common Stock issued and outstanding immediately prior to the
Effective Date will be converted into the right to receive that number of
shares of PictureTel Common Stock equal to a fraction (the "Exchange Ratio"),
the numerator of which is 3,750,000 and the denominator of which is the
aggregate number of (i) shares of MultiLink Common Stock outstanding on the
Effective Date and (ii) shares of MultiLink Common Stock issuable upon the
exercise of vested MultiLink Stock Options outstanding on the Effective Date.
Based upon the capitalization of MultiLink on June 5, 1997, it is currently
anticipated that each share of MultiLink Common Stock will convert into the
right to receive approximately .56 shares of PictureTel Common Stock. Each
holder of MultiLink Common Stock shall be entitled to receive (in addition to
cash in lieu of fractional shares) a number of shares of PictureTel Common
Stock equal to the product of (i) the number of shares of MultiLink Common
Stock exchanged by such stockholder and (ii) the Exchange Ratio. As discussed
below, of the total number of shares of PictureTel Common Stock which each
shareholder of MultiLink is entitled to receive in the Merger, approximately 8%
of such shares will be placed in escrow (the "Escrowed Shares"). The Escrowed
Shares will be released upon the earlier of: (i) the date on which PictureTel's
independent accountants report on their audit of PictureTel's financial
statements for the fiscal year during which the closing of the Merger occurs;
or (ii) the first anniversary of the Closing Date (such earlier date being the
"Release Date"). However, if PictureTel does make a claim against the Escrowed
Shares prior to the Release Date, the shares will remain in escrow until the
resolution of PictureTel's claim pursuant to the procedures specified by the
Merger Agreement. See "The Merger Agreement-- Indemnification" and "--Escrow."
Each option to purchase MultiLink Common Stock that is outstanding at
the Effective Date (each a "MultiLink Option") will be assumed by PictureTel and
will automatically be converted into an option to purchase the number of shares
of PictureTel Common Stock as the holder of such MultiLink Option would have
been entitled to receive pursuant to the Merger had such holder exercised such
option in full immediately prior to the Effective Date (not taking into account
whether or not such option was in fact exercisable), at a price per share equal
to (x) the aggregate exercise price for MultiLink Common Stock otherwise
purchasable pursuant to such MultiLink Option
<PAGE> 6
divided by (y) the number of shares of PictureTel Common Stock purchasable
pursuant to such MultiLink Option. See "The Merger--Conversion of Shares" and
"--Conversion of MultiLink Options."
Approximately 280,000 shares of PictureTel Common Stock, which equal
approximately 8% of the shares of PictureTel Common Stock which the MultiLink
stockholders are expected to be entitled to receive in the Merger, will be
withheld and deposited into an escrow account to secure certain indemnification
and other obligations of the MultiLink stockholders under the Merger Agreement.
See "The Merger Agreement--Indemnification" and "--Escrow."
All information contained in this Proxy Statement/Prospectus, or
incorporated herein by reference, with respect to Merger Sub and PictureTel has
been provided by PictureTel. All information contained in this Proxy
Statement/Prospectus with respect to MultiLink has been provided by MultiLink.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to stockholders of MultiLink on or about June 16, 1997.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT/
PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. MULTILINK
STOCKHOLDERS ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY, PARTICULARLY THE MATTERS REFERRED TO
UNDER "RISK FACTORS" STARTING ON PAGE 12.
IN ACCORDANCE WITH THE MASSACHUSETTS BUSINESS CORPORATION LAW, HOLDERS
OF MULTILINK STOCK ARE ENTITLED TO APPRAISAL AND DISSENTERS' RIGHTS IN
CONNECTION WITH THE MERGER. SEE "THE MERGER--APPRAISAL AND DISSENTERS' RIGHTS."
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
The date of this Proxy Statement/Prospectus is June 16, 1997.
<PAGE> 7
TABLE OF CONTENTS
AVAILABLE INFORMATION ......................................................-1-
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................-2-
TRADEMARKS..................................................................-2-
GLOSSARY....................................................................-3-
SUMMARY.....................................................................-6-
The Business of PictureTel.........................................-6-
General............................................................-6-
Recent Developments................................................-6-
The Business of MultiLink..........................................-6-
General............................................................-6-
Recent Developments................................................-7-
The Merger.........................................................-7-
Conversion of Shares; Options......................................-7-
Exchange of Certificates; Assumption of Options....................-8-
Listing............................................................-8-
Conditions to the Merger...........................................-8-
Escrow Agreement...................................................-8-
Termination........................................................-9-
Termination Fee....................................................-9-
MultiLink Special Meeting..........................................-9-
Time, Place and Date...............................................-9-
Record Date; Shares Entitled to Vote...............................-9-
Purposes of the Meeting ...........................................-9-
Vote Required......................................................-9-
Recommendation of MultiLink's Board of Directors..................-10-
Interests of Certain Persons in the Merger........................-10-
Certain Federal Income Tax Consequences...........................-10-
Anticipated Accounting Treatment..................................-10-
Comparative Rights of Stockholders................................-10-
Risk Factors......................................................-11-
Employment Agreements.............................................-11-
Dissenters' Rights................................................-11-
RISK FACTORS...............................................................-12-
New Products, Cost Reductions and Technological Change............-12-
Competition.......................................................-12-
Recent History of Lower Operating Results.........................-12-
Potential Fluctuations of Quarterly Operating Results.............-12-
Manufacturing.....................................................-13-
Product Protection and Intellectual Property......................-13-
Integration Strategy for MultiLink Merger.........................-13-
Volatility of Stock Price.........................................-13-
Fixed Exchange Ratio Despite Potential Changes in Stock Price.....-14-
Factors Affecting the Performance of MultiLink....................-14-
Forward-Looking Statements........................................-14-
Newly Issued Accounting Standards.................................-14-
SELECTED HISTORICAL AND UNAUDITED COMBINED PRO FORMA FINANCIAL DATA........-15-
PictureTel Corporation Selected Historical Financial Data.........-16-
MultiLink, Inc. Selected Historical Financial Data................-17-
i
<PAGE> 8
Unaudited Pro Forma Combined Financial Data.......................-18-
Comparative Historical and Unaudited Pro Forma Per Share Data.....-19-
RECENT CLOSING PRICES......................................................-20-
Market Price Per Share Data.......................................-20-
MULTILINK SPECIAL MEETING..................................................-21-
Time, Place and Date..............................................-21-
Matters To Be Considered at the MultiLink Special Meeting.........-21-
Voting at the MultiLink Special Meeting; Record Date..............-21-
Proxies...........................................................-22-
THE MERGER.................................................................-22-
General .........................................................-22-
Conversion of Shares..............................................-22-
Conversion of MultiLink Options...................................-23-
Exchange of Certificates..........................................-23-
Notification Regarding MultiLink Options..........................-24-
Effective Date....................................................-24-
Background of the Merger; Recommendation of MultiLink Board of
Directors.......................................................-24-
MultiLink's Reasons for the Merger................................-26-
PictureTel's Reasons for the Merger...............................-27-
Certain Considerations ...........................................-27-
Employment Agreements.............................................-28-
Interests of Certain Persons in the Merger........................-29-
The Broadview Fee.................................................-30-
Certain Federal Income Tax Consequences ..........................-30-
Anticipated Accounting Treatment..................................-32-
Governmental Filings..............................................-33-
Certain Federal Securities Law Consequences; Affiliate
Agreements......................................................-33-
Stock Exchange Listing ...........................................-33-
Dividends and other Distributions ................................-33-
Appraisal and Dissenters' Rights..................................-34-
THE MERGER AGREEMENT.......................................................-35-
Representations and Warranties....................................-35-
Conduct of PictureTel's and MultiLink's Business Prior to the
Merger..........................................................-36-
No Solicitation...................................................-37-
Conditions to the Merger..........................................-37-
Termination.......................................................-38-
Fees and Expenses; Termination Fee................................-39-
Indemnification...................................................-39-
Escrow............................................................-40-
Directors and Officers Indemnification............................-40-
Stockholders Agreement............................................-41-
THE BUSINESS OF MULTILINK..................................................-41-
Industry Background...............................................-41-
Teleconferencing Products.........................................-42-
Teleconferencing Features.........................................-43-
Conference Set-up Tools...........................................-43-
Real-Time Conference Execution and Management.....................-43-
Meeting Productivity Tools........................................-43-
Customized Greetings..............................................-43-
Subconferencing...................................................-43-
Polling and Question and Answer...................................-43-
ActivePresence....................................................-44-
ii
<PAGE> 9
Conference Recordkeeping Tools....................................-44-
MultiMedia Call Center System.....................................-44-
Customers.........................................................-44-
Carriers..........................................................-44-
Independent Service Providers.....................................-44-
Government, Corporate and Educational Users.......................-44-
International Customers...........................................-44-
M-ACD Customers...................................................-45-
Sales and Marketing...............................................-45-
Research and Development..........................................-45-
Customer Support and Service......................................-45-
Manufacturing.....................................................-45-
Competition.......................................................-46-
Patents and Proprietary Rights....................................-46-
Employees.........................................................-47-
Facilities........................................................-47-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS .............................................................-48-
Overview..........................................................-48-
Results of Operations.............................................-48-
Forward-Looking Statements........................................-49-
Six Months Ended March 31, 1997 and 1996..........................-49-
Years ended September 30, 1996, 1995 and 1994.....................-49-
Liquidity and Capital Resources...................................-50-
Factors Affecting Results.........................................-51-
Newly Issued Accounting Standards.................................-51-
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
MULTILINK..................................................................-52-
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS..........................-55-
DESCRIPTION OF CAPITAL STOCK OF PICTURETEL.................................-63-
Common Stock......................................................-63-
Preference Stock..................................................-63-
Rights Plan.......................................................-63-
COMPARISON OF STOCKHOLDER RIGHTS...........................................-63-
Vote Required for Mergers.........................................-64-
Anti-takeover Provisions..........................................-64-
PictureTel's Rights Agreement.....................................-66-
Appraisal Rights..................................................-66-
Amendment of By-Laws..............................................-66-
Limitation on Directors' Liability, Indemnification of Officers
and Directors...................................................-67-
Cumulative Voting for Directors...................................-67-
Removal of Directors..............................................-67-
Newly Created Directorships and Vacancies.........................-68-
Special Meetings.................................................-68-
Inspection Rights.................................................-69-
Election of Directors.............................................-69-
Preemptive Rights.................................................-69-
Dividends.........................................................-69-
LEGAL MATTERS..............................................................-70-
iii
<PAGE> 10
EXPERTS....................................................................-70-
MULTILINK, INC. AND SUBSIDIARY FINANCIAL STATEMENTS INDEX...................F-1
INDEPENDENT ACCOUNTANTS' REPORT.............................................F-2
CONSOLIDATED BALANCE SHEETS.................................................F-3
CONSOLIDATED STATEMENTS OF INCOME...........................................F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY.............................F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS.......................................F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................................F-7
ANNEXES
A. Agreement and Plan of Merger, as Amended.......................A-1
B. Sections 85-98 of Chapter 156B of the Massachusetts
Business Corporation Law.....................................B-1
iv
<PAGE> 11
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES OFFERED BY THIS
PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION
TO OR FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION OF AN OFFER, OR PROXY SOLICITATION, IN ANY SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR THE ISSUANCE OR SALE
OF ANY SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR
INCORPORATED BY REFERENCE SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
PictureTel is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the Public
Reference Facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549 and at the Commission's regional
offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material may be obtained from the Public
Reference Facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. In
addition, PictureTel is required to file electronic versions of these documents
with the Commission through the Commission's Electronic Data Gathering, Analysis
and Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. PictureTel Common Stock is listed on the NASDAQ, and such reports,
proxy statements and other information concerning PictureTel may be inspected at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
PictureTel has filed with the Commission a Registration Statement on
Form S-4 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the securities offered hereby.
This Proxy Statement/Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in schedules and exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. Statements made in this Proxy Statement/Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
Items and information omitted from this Proxy Statement/Prospectus but contained
in the Registration Statement may be inspected and copied at the Public
Reference Facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549.
-1-
<PAGE> 12
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN
DOCUMENTS WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY
SUCH DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS THEY ARE
SPECIFICALLY INCORPORATED BY REFERENCE, ARE AVAILABLE WITHOUT CHARGE TO ANY
PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS
IS DELIVERED UPON WRITTEN OR ORAL REQUEST TO: PICTURETEL, CORPORATION, 100
MINUTEMAN ROAD, ANDOVER, MA 01810 (TELEPHONE: (508) 292-5000). IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE RECEIVED BY
PICTURETEL BY JULY 11, 1997.
The following documents which have been filed with the Commission are
incorporated by reference into this Proxy Statement/Prospectus:
1. PictureTel's Annual Report on Form 10-K and its Amendment to the
Annual Report on Form 10-K/A for the fiscal year ended December 31, 1996 (which
incorporates by reference certain information from PictureTel's Proxy Statement
relating to the 1997 Annual Meeting of Shareholders) (File No. 1-9434);
2. PictureTel's Proxy Statement filed with the Commission on April 28,
1997;
3. PictureTel's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 29, 1997;
4. PictureTel's Current Report on Form 8-K filed with the Commission on
April 18, 1997.
5. All other reports filed pursuant to Sections 13(a) or 15(d) of the
Exchange Act since December 31, 1996.
6. The description of PictureTel Common Stock contained in PictureTel's
Registration Statement on Form 8-A/A under the Exchange Act (File No. 1-9434)
filed with the Commission on February 1, 1995, including all amendments and
reports filed for the purpose of updating such description.
All documents subsequently filed by PictureTel pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the
offering of the PictureTel Common Stock, shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing such documents.
Any statement contained herein or in any document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Proxy Statement/Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed to constitute a part of this Proxy Statement/Prospectus, except as
so modified or superseded.
TRADEMARKS
The following trademarks and tradenames of PictureTel are mentioned in
this Prospectus: PictureTel(R). This Prospectus also includes trademarks and
tradenames of MultiLink and may contain those of other companies.
-2-
<PAGE> 13
GLOSSARY
ACCUNET - the first commercially available switched digital
communication network, which allowed dialed digital connection at rates of 56
and 112 kbps, using a combination of existing telephone lines and new network
equipment.
ACD - automatic call distributor. A specialized telephone system for
handling incoming (and sometimes outgoing) calls, whereby incoming calls are
queued and then distributed in some logical pattern to a group of agents. M-ACD
is MultiLink's ACD product with multimedia capabilities augmenting the
traditional audio ACD capabilities.
API - application programming interface. A set of formalized software
calls and routines, which can be referenced by an application program to access
the underlying network or other services.
AUDIOCONFERENCING - an exchange of sounds among meeting participants
who are located at more than two separate sites, using telephones.
CODEC - combination of a coder and decoder. A coder uses a compression
algorithm to reduce the number of bytes needed to represent an audio or video
segment. A decoder recovers the original raw bytes from the compressed bytes
generated by the coder. In video and audio compression, the recovery does not
need to be exact; a good approximation of the original information is
appropriate for practical purposes.
COMPRESSION ALGORITHM - a set of procedures (usually specified by
mathematical equations and implemented in software within a particular computing
architecture) that reduce the number of bytes necessary to represent some piece
of information, such as a video or audio segment.
COMPRESSION RATIO - the average number of bytes at the input of codec
that will produce one byte at the output of the coder. The higher the ratio the
lower the necessary channel speed to transmit the information, and therefore the
lower the transmission cost.
CTI - computer telephone integration. A term for connecting a computer
(single workstation or file server on a local area network) to a telephone
switch (e.g., private branch exchange or ACD), whereby the computer issues the
switch commands to move calls around.
DATACONFERENCING - also referred to as document conferencing or
audiographic conferencing. An exchange of PC-oriented files such as graphics,
word processing documents and spreadsheets between meeting participants who are
located at two or more separate sites. This results in a teleconference in which
images can be created, exchanged, shared and discussed.
DISCRETE COSINE TRANSFORM, DCT - a mathematical transformation used in
standards and some proprietary video compression algorithms. The DCT maps a set
of original image sample values into frequency components that can more
efficiently be compressed. DCTs are used in all H.3xx standards.
DSP - digital signal processor. A specialized computer chip designed to
perform speedy and complex operations on digitized waveforms and is useful in
processing sound and video signals.
ECHO CANCELLATION - the process of removing the acoustic echo that
would result from a full-duplex audio communication system. When the person at
point A talks and his voice is reproduced by the loudspeaker at point B, the
microphone at B would pick it up and send it back (with a delay due to the
communication system) to the loudspeaker at point A. An acoustic echo canceler
eliminates such a return signal.
FLOATING POINT OPERATIONS - calculations performed using an exponent
with numbers to indicate the location of the decimal point, allowing the
representation of very large numbers using a small number of bits.
-3-
<PAGE> 14
FULL-DUPLEX - characteristic of a communication system in which signals
can be simultaneously transmitted in both directions. For example, in audio or
audio/video calls, it means that people at both ends of a call can speak and be
heard simultaneously.
H.320 - standard for videoconferencing on narrowband switched digital
networks, such as Accunet and ISDN. Can be used from 56 kbps to 2 Mbps.
H.323 - standard for multimedia (audio, video, data) conferencing over
traditional packet-switched networks. It can be used for conferencing over LANs
and the Internet.
H.324 - standard for multimedia conferencing over unmodified analog
phone lines (POTS).
HALF-DUPLEX - characteristic of a communication system in which signals
can be transmitted in both directions, but not simultaneously. For example, in
an audio call, it means that only one person can speak at any given time (a
typical mode of operation for inexpensive speakerphones).
INTERNET - the worldwide network that interconnects many local area
networks. Initially funded entirely by the U.S. government, there are now many
commercial companies investing on expanding the Internet, adding more access
points, switching equipment, and communication links.
INVERSE MULTIPLEXING - the process of splitting a single high-speed
channel into multiple signals, transmitting the multiple signals over multiple
facilities operating at a lower rate than the original signal, and then
recombining the separately-transmitted portions into the original signal at the
original rate.
IP - internet protocol. The most popular packet data communication
protocol, used in many LANs and the Internet.
ISDN - integrated services digital network, an international switched
digital communication network (also leveraging existing telephone wires, similar
to ACCUNET) that provides multiples of kbps per channel, up to a maximum of 2
Mbps. ISDN is available in many countries.
KBPS - kilobits per second, 1 kbps = 1,000 bits per second.
LAN - local area network, in which computer data communication
involving several sources and destinations flow concurrently through the same
wires, by means of a packet-based time-division multiplexing.
MBPS - megabits per second, 1 Mbps = 1,000,000 bits per second.
MCU - multipoint control unit, also referred to as a bridge. A piece of
equipment that is connected to multiple communication channels, making possible
multipoint audio or audio/video calls (i.e. calls in which several sites can
communicate).
MOTION COMPENSATION, MC - a component of most video compression
algorithms. MC leads to higher compression ratios because it allows a video
frame to be partially reconstructed from modifications on the previously
received frame using motion estimates.
OEM - original equipment manufacturer. The maker of equipment marketed
by another vendor, usually under the name of the reseller.
PARALLEL COMPUTER BUS - an electrical connection which allows two or
more wires or lines to be connected together. The bits that make up the
information are transmitted separately, each assigned to a separate wire in the
cable.
POTS - "plain old telephone system," see PSTN.
PSTN - public switched telephone network; the traditional twisted-pair
network used for analog telephony.
-4-
<PAGE> 15
QUANTIZATION - the process for approximating a continuous variable by
its nearest value from a table.
T-1 OR E-1 NETWORK CONNECTIONS - T-1 is a standard for digital
transmission in the United States, Canada, Hong Kong and Japan. E-1 is its
European equivalent. T-1 and E-1 network connections are used to connect
networks across remote distances using two pairs of normal twisted wires.
T-1 OR E-1 CHANNELS - provides for the transmission or reception of
eight TDM channels.
T.120 - standard for data conferencing that enables users to share
documents.
TDM - time division multiplex. TDM is a technique for transmitting a
number of separate data, voice and/or video signals simultaneously over one
communications medium.
VAR - value-added reseller. VARs are organizations that package
standard products with software solutions for a specific industry. These
organizations range in size from providers of specialty turn-key solutions to
larger systems integrators.
VECTOR QUANTIZATION, VQ - the process of approximating a collection of
continuous values ( a vector), by its nearest vector from a table.
VIDEOCONFERENCING - an exchange of digitized video images and sounds
among meeting participants who are located two or more separate sites, using an
intelligent device such as a desktop videoconferencing PC, a room system or a
videophone.
-5-
<PAGE> 16
- --------------------------------------------------------------------------------
SUMMARY
Reference is made to, and this summary is qualified in its entirety by,
the more detailed information contained in, attached to or incorporated by
reference in this Proxy Statement/Prospectus, the Annexes hereto and the
documents incorporated by reference from the Registration Statement of which
this Proxy Statement/Prospectus is a part. MultiLink stockholders are urged to
read this Proxy Statement/Prospectus, the Annexes hereto and the documents
incorporated by reference from the Registration Statement of which this Proxy
Statement/Prospectus is a part in their entirety.
THE BUSINESS OF PICTURETEL
General
PictureTel develops, manufactures, markets and services visual
communications systems and collaboration software utilizing advanced video and
audio compression technology which permit users to hold face-to-face meetings at
a distance with the cost and convenience similar to the telephone.
Videoconferences may be held between two locations, or, using a multipoint
bridge, among multiple locations. PictureTel's compression technology permits
the transmission of "full-motion" color video with integrated full-duplex audio
at data rates as low as 56 kbps. By operating over such low speed switched
digital lines, PictureTel's systems have substantially reduced the cost and
increased the flexibility of videoconferencing. With high-speed (e.g. at 2 to 5
Mbps) videoconferencing solutions, which operate over dedicated (nondialed)
lines, the per-minute usage cost can be from 10 to 100 times higher. Flexibility
is achieved because the low speed digital switched lines have become available
from the long distance carriers in more and more geographic areas, thus leading
to greater potential use of videoconferencing in general and the PictureTel
systems in particular. PictureTel offers a range of products for group and
personal videoconferencing applications. PictureTel sells its products through a
number of telecommunication and personal computer distributors in the United
States and internationally as well as through a direct sales force. In 1996, 45%
of its revenues were generated from sales to customers outside the United
States.
PictureTel is a Delaware corporation organized in 1984, with executive
offices at 100 Minuteman Road, Andover, Massachusetts 01810 (telephone: (508)
292-5000).
Recent Developments
PictureTel reported a 13% increase in revenues for the quarter ended
March 29, 1997, compared to the corresponding quarter of 1996. Total revenue for
the first quarter was $118.2 million, compared to $105.0 million in the first
quarter of 1996.
Net income for the first quarter declined 59% to $3.1 million or $0.09
per share, compared to $7.5 million, or $0.21 per share, for the first quarter
of 1996 due to lower than expected revenue resulting from a decline in expected
volume in desktop videoconferencing unit sales, and a change in the mix of group
systems sales, with the lower margin compact systems selling rather than some of
PictureTel's larger group systems which have a higher margin.
In addition, PictureTel expects the Merger to be dilutive for 1997, as
a result of the assumed issuance of approximately 3,750,000 shares of
PictureTel Common Stock upon consummation of the Merger as well as
merger-related expenses further described in the Notes to Unaudited Pro Forma
Combined Financial Statements included elsewhere herein.
THE BUSINESS OF MULTILINK
General
MultiLink develops, manufactures and markets multipoint control units
("MCUs"), the software and hardware that enable users at two or more sites to
participate in face-to-face meetings. With the introduction of its System 70
audio MCU in early 1993, MultiLink established itself as a leading supplier of
audioconferencing MCUs. Leveraging its technological expertise in
audioconferencing, MultiLink has also developed the System 80 mixed-media MCU
("System 80"), a software-oriented, fully integrated audio and videoconferencing
product for teleconferencing and multimedia call center applications. In late
1996, MultiLink began selling System 80s for video conferencing applications and
its Multimedia Automatic Call Distributor, which is based on the System 80
platform and provides call centers with multimedia connectivity capabilities.
- --------------------------------------------------------------------------------
-6-
<PAGE> 17
- --------------------------------------------------------------------------------
MultiLink is a Massachusetts corporation organized in 1984 with
executive offices at 6 Riverside Drive, Andover, Massachusetts 01810 (telephone:
(508) 691-2100).
Recent Developments
MultiLink experienced an 18% decline in revenues for the second quarter
ended March 31, 1997, compared to the corresponding quarter of 1996. Total
revenue for the second quarter was $5.4 million compared to $6.6 million in the
second quarter of 1996. MultiLink had a net loss of approximately $600,000
during the second quarter of 1997 as opposed to net income of $1.09 million for
the corresponding quarter in 1996 due to lower than expected purchases by
certain large customers.
THE MERGER
The Merger Agreement provides for the merger of Merger Sub, a
wholly-owned subsidiary of PictureTel, with and into MultiLink, with the result
that the surviving corporation (the "Surviving Corporation") would become a
wholly-owned subsidiary of PictureTel. For the Merger to be consummated it must
be approved by the MultiLink stockholders and the other conditions specified in
the Merger Agreement must be satisfied or waived. See "The Merger."
Conversion of Shares; Options
Upon the consummation of the Merger, each then outstanding share of
MultiLink Common Stock will automatically be converted into the right to
receive the number of shares of PictureTel Common Stock equal to the Exchange
Ratio. Based upon the capitalization of MultiLink on June 5, 1997, it is
currently anticipated that each share of MultiLink Common Stock will convert
into the right to receive approximately .56 shares of PictureTel Common Stock.
No fractional shares of PictureTel Common Stock will be issued in the Merger.
Instead, each MultiLink stockholder who would otherwise be entitled to receive
a fraction of a share of PictureTel Common Stock will receive an amount of cash
equal to the average closing price of PictureTel Common Stock on the NASDAQ, as
reported by the Eastern Edition of the Wall Street Journal, on the ten trading
days ending two days prior to the Effective Date, multiplied by the fraction of
a share of PictureTel Common Stock to which the stockholder would otherwise be
entitled. In the aggregate, PictureTel will exchange approximately 3,750,000
shares of PictureTel Common Stock for all the shares of MultiLink Common Stock
outstanding immediately prior to the Effective Date, including all the shares
of MultiLink Common Stock issued upon the exercise prior to the Effective Date
of outstanding vested MultiLink Options. Shares of PictureTel Common Stock will
only be issued to holders of MultiLink Options who actually exercise such
options prior to the Effective Date. Thus the number of shares of PictureTel
Common Stock issued in connection with the Merger may be less than 3,750,000 if
holders of vested MultiLink Options elect to receive options to purchase
PictureTel Common Stock in lieu of exercising their MultiLink Options prior to
the Effective Date. Based upon the capitalization of MultiLink and PictureTel
as of the date of the Merger Agreement, the stockholders of MultiLink will own
PictureTel Common Stock representing approximately 10% of the PictureTel Common
Stock outstanding immediately after consummation of the Merger. See "The
Merger--Conversion of Shares."
Upon consummation of the Merger, each then outstanding MultiLink Option
will be assumed by PictureTel and will automatically be converted into an option
to purchase the number of shares of PictureTel Common Stock as the holder of
such MultiLink Option would have been entitled to receive pursuant to the Merger
had such holder exercised such option in full immediately prior to the Effective
Date (not taking into account whether or not such option was in fact
exercisable), at a price per share equal to (x) the aggregate exercise price for
MultiLink Common Stock otherwise purchasable pursuant to such MultiLink Option
divided by (y) the number of shares of PictureTel Common Stock purchasable
pursuant to such MultiLink Option.
As of June 5, 1997, the record date for the MultiLink Special Meeting
(the "MultiLink Record Date"), 859,640 shares of MultiLink Common Stock were
subject to outstanding MultiLink Options, of which 459,810 were vested. Upon the
assumption of such MultiLink Options by PictureTel upon consummation of the
Merger, approximately 481,400 shares of PictureTel Common Stock will be subject
to such options, unless any such options are exercised prior to the Merger. See
"The Merger--Conversion of MultiLink Options."
- --------------------------------------------------------------------------------
-7-
<PAGE> 18
- --------------------------------------------------------------------------------
Exchange of Certificates; Assumption of Options
As soon as practicable after the Effective Date, each holder of any
outstanding certificate or certificates representing shares of MultiLink Common
Stock converted in the Merger must surrender them to PictureTel for cancellation
(along with a duly executed letter of transmittal that will be sent to the
MultiLink shareholders by PictureTel) and shall be entitled to receive in
exchange for the surrendered certificate a certificate representing the number
of shares of PictureTel Common Stock to which the holder is entitled pursuant to
the Merger and cash in lieu of any fractional shares. See "The Merger--Exchange
of Certificates."
As soon as practicable after the Effective Date, PictureTel shall
deliver to each holder of an outstanding MultiLink Option an appropriate notice
setting forth such holder's rights pursuant to the MultiLink Option. The
assumption of MultiLink Options will be automatic and no action will be required
on the part of the option holder to convert such holder's MultiLink Option into
an option to purchase shares of PictureTel Common Stock. See "The
Merger--Notification Regarding MultiLink Options."
Listing
The shares of PictureTel Common Stock to be issued in the Merger will
be authorized for listing and trading on the NASDAQ.
Conditions to the Merger
The obligations of PictureTel and MultiLink to consummate the Merger
are subject to the satisfaction of certain conditions, including, but not
limited to, obtaining requisite MultiLink stockholder approval, certain
employees of MultiLink having entered into employment and noncompetition
agreements with PictureTel, the absence of any injunction prohibiting
consummation of the Merger, the continuing accuracy of the other party's
representations and warranties made in the Merger Agreement on and as of the
Effective Date, the other party's performance of its covenants, the receipt of
certain legal opinions to the effect that the Merger qualifies as a tax-free
reorganization, the termination or expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act, and, with respect to the
obligations of PictureTel, the receipt of independent accountants' opinions that
the transaction qualifies for accounting treatment as a pooling of interests.
See "The Merger--Certain Federal Income Tax Consequences" and "The Merger
Agreement--Conditions to the Merger."
Escrow Agreement
Pursuant to an escrow arrangement (the "Escrow Agreement") among
PictureTel, J. Edward McAteer, as a representative of the holders of MultiLink
Common Stock (the "Stockholders Representative"), and State Street Bank and
Trust Company (the "Escrow Agent"), approximately 280,000 shares of PictureTel
Common Stock will be deposited in escrow (the "Escrowed Shares"). The Escrowed
Shares will be released from escrow upon the earlier of: (i) the date on which
PictureTel's independent accountants report on their audit of PictureTel's
financial statements for the fiscal year during which the closing of the Merger
occurs; or (ii) the first anniversary of the Closing Date (such earlier date
being hereinafter referred to as the "Release Date"). However, if PictureTel
does make a claim against the Escrowed Shares prior to the Release Date, the
shares will remain in escrow until the resolution of PictureTel's claim pursuant
to the procedures specified by the Merger Agreement. Such shares will be
available to reimburse PictureTel, subject to certain limitations, in connection
with the following: (i) breaches of representations, warranties or covenants
made by MultiLink in the Merger Agreement or in any document, instrument or
certificate delivered pursuant to it, (ii) any breach or violation of any
covenant or agreement made by or on behalf of MultiLink in the Merger Agreement
or in any document, instrument or certificate delivered pursuant to it, and
(iii) certain discrimination claims and other employment related claims by a
certain former employee of MultiLink (the "Employee Claim").
As a result of the Escrow Agreement, stockholders of MultiLink will be
entitled to receive, depending on the number of dissenting shares and
unexercised MultiLink Options at the Effective Date, approximately 92% of the
shares of PictureTel Common Stock into which their shares of MultiLink Common
Stock are converted pursuant to the Merger and the remaining 8% of the shares of
PictureTel Common Stock into which the shares of MultiLink Common Stock are
converted will be deposited in escrow until the Release Date or such later date
as any claim made prior thereto by PictureTel for a loss for which it is
entitled to indemnification under the Merger Agreement is
- --------------------------------------------------------------------------------
-8-
<PAGE> 19
- --------------------------------------------------------------------------------
resolved pursuant to the procedures specified by the Merger Agreement. See "The
Merger Agreement--Indemnification" and "--Escrow."
Termination
The Merger Agreement is subject to termination by the mutual written
consent of PictureTel and MultiLink and at the option of either MultiLink or
PictureTel if the Merger is not consummated before August 31, 1997 (provided
that the right to terminate the Merger Agreement if not consummated before
August 31, 1997 shall not be available to any party whose breach of any
representation, warranty, or covenant under the Merger Agreement has been the
primary cause of or resulted in the failure of the Merger to occur on or before
such date, and also such date may be extended to September 30, 1997 with the
consent of MultiLink upon the request of PictureTel, which consent will not be
unreasonably withheld) in the event that certain closing conditions specified in
the Merger Agreement have not been achieved. The Merger Agreement is also
subject to termination upon the occurrence of certain other events.
See "The Merger Agreement --Termination."
Termination Fee
If MultiLink terminates the Merger Agreement in connection with the
exercise of the fiduciary duties of its directors, MultiLink shall be obligated
to reimburse PictureTel for PictureTel's actual, documented and reasonable
out-of-pocket expenses related to the Merger Agreement not to exceed $500,000
(the "PictureTel Expenses") within five business days of the termination of the
Merger Agreement. If MultiLink consummates an Alternative Transaction (as
defined in the Merger Agreement) within 90 days of the date of the Merger
Agreement, MultiLink shall pay to PictureTel, in addition to the PictureTel
Expenses, a fee of $1,000,000 (the "Termination Fee") within five business days
after the consummation of the Alternative Transaction.
MULTILINK SPECIAL MEETING
Time, Place and Date
The MultiLink Special Meeting will be held on July 22, 1997 at the
offices of MultiLink, 6 Riverside Drive, Andover, Massachusetts, commencing at
8:30 a.m., Daylight Savings Time.
Record Date; Shares Entitled to Vote
Holders of record of shares of MultiLink Common Stock at the close of
business on the MultiLink Record Date are entitled to notice of, and to vote at,
the MultiLink Special Meeting. At such MultiLink Record Date, there were
outstanding 6,254,911 shares of MultiLink Common Stock. Holders of shares of
MultiLink Common Stock are entitled to one vote for each such share held by the
holder on the proposal to approve and adopt the Merger Agreement and the
transactions contemplated thereby, and for any other matter to be acted upon or
which may properly come before the MultiLink Special Meeting. The presence of
holders of a majority of the shares of MultiLink Common Stock issued,
outstanding and entitled to vote, in person or by proxy, is required to
constitute a quorum at the MultiLink Special Meeting. See "MultiLink Special
Meeting--Voting at the MultiLink Special Meeting; Record Date."
Purposes of the Meeting
The purposes of the MultiLink Special Meeting are to consider and vote
upon (1) a proposal to approve and adopt the Merger Agreement, pursuant to
which, among other things, Merger Sub will be merged with and into MultiLink and
MultiLink will become a wholly-owned subsidiary of PictureTel, and each
outstanding share of MultiLink Common Stock will be converted into the right to
receive shares of PictureTel Common Stock at the Exchange Ratio and (2) such
other matters as may properly be brought before the MultiLink Special Meeting.
See "MultiLink Special Meeting--Matters To Be Considered at the MultiLink
Special Meeting."
Vote Required
The approval and adoption by the MultiLink stockholders of the Merger
Agreement and the transactions contemplated thereby will require the affirmative
vote of the holders of a majority of the outstanding shares of
- --------------------------------------------------------------------------------
-9-
<PAGE> 20
- --------------------------------------------------------------------------------
MultiLink Common Stock. See "MultiLink Special Meeting--Voting at the MultiLink
Special Meeting; Record Date."
As of the MultiLink Record Date, directors and executive officers of
MultiLink and their affiliates had the right to vote approximately 43% of the
outstanding shares of MultiLink Common Stock. Three of the directors and
executive officers of MultiLink and certain of MultiLink's principal
stockholders, together holding approximately 72% of the outstanding shares of
MultiLink Common Stock as of the MultiLink Record Date, have executed an
irrevocable proxy (subject in the case of the directors of MultiLink to the
fulfillment of their fiduciary duties) in favor of PictureTel authorizing
PictureTel to vote all the outstanding shares of MultiLink Common Stock over
which he or she has voting control in favor of approval and adoption of the
Merger Agreement. As of the MultiLink Record Date, neither PictureTel nor any of
its subsidiaries owned any outstanding shares of MultiLink Common Stock. See
"The Merger--Interests of Certain Persons in the Merger" and "Principal
Stockholders of MultiLink."
RECOMMENDATION OF MULTILINK'S BOARD OF DIRECTORS
The Board of Directors of MultiLink has unanimously approved the Merger
Agreement and the transactions contemplated thereby and recommends that holders
of MultiLink Common Stock approve and adopt the Merger Agreement and the
transactions contemplated thereby. See "The Merger--Background of the Merger;
Recommendation of MultiLink's Board of Directors."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the MultiLink Board of Directors
with respect to the Merger Agreement and the transactions contemplated thereby,
the MultiLink stockholders should be aware that an officer who is also a
director of MultiLink has entered into and certain other officers of MultiLink
are expected to enter into employment agreements with PictureTel effective as of
the Merger. The employment arrangements present these officers with potential
conflicts of interest. See "The Merger--Interests of Certain Persons in the
Merger," and "--Employment Agreements."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to be a tax-free reorganization under Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), so that,
except for cash received in lieu of fractional shares, no gain or loss will be
recognized for federal income tax purposes by a holder of MultiLink Common Stock
upon receipt of PictureTel Common Stock in exchange for shares of MultiLink
Common Stock pursuant to the Merger. It is a condition to the Merger that
PictureTel and MultiLink shall have each received an opinion from their
respective counsel to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code. Such opinions
will be based on various representations, qualifications and assumptions.
Holders of MultiLink Common Stock are urged to consult their own tax advisors
concerning the specific tax consequences of the Merger to them, including any
foreign, state or local tax consequences of the Merger. See "The Merger--Certain
Federal Income Tax Consequences and "-- Conditions to the Merger."
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to qualify as a "pooling of interests" for
accounting and financial reporting purposes. The receipt of a letter from each
of Coopers & Lybrand L.L.P. and KPMG Peat Marwick LLP, the certified independent
public accountants of PictureTel and MultiLink, respectively, confirming that
the Merger will qualify for "pooling of interests" accounting treatment is a
condition to PictureTel's consummation of the Merger.
COMPARATIVE RIGHTS OF STOCKHOLDERS
The rights of stockholders of MultiLink are currently governed by
Chapter 156B of the Massachusetts Business Corporation Law (the "MBCL"),
MultiLink's Articles of Organization as amended and MultiLink's By-laws. Upon
consummation of the Merger, stockholders of MultiLink will become stockholders
of PictureTel, and their rights as stockholders of PictureTel will be governed
by the General Corporation Law of the State of Delaware (the "DGCL"),
PictureTel's Restated Certificate of Incorporation and PictureTel's By-laws. For
a discussion of various differences between the rights of stockholders of
MultiLink and the rights of stockholders of PictureTel, see "Comparison of
Stockholder Rights."
- --------------------------------------------------------------------------------
-10-
<PAGE> 21
- --------------------------------------------------------------------------------
RISK FACTORS
IN CONSIDERING WHETHER TO APPROVE THE MERGER AGREEMENT AND THE
CONSUMMATION OF THE MERGER, MULTILINK STOCKHOLDERS SHOULD CAREFULLY REVIEW AND
CONSIDER THE INFORMATION CONTAINED BELOW UNDER THE CAPTION "RISK FACTORS."
EMPLOYMENT AGREEMENTS
It is a condition to consummation of the Merger that certain specified
employees of MultiLink have entered into employment agreements with PictureTel
at or prior to the Effective Date. See "The Merger--Employment Agreements."
DISSENTERS' RIGHTS
Holders of MultiLink Common Stock who object to the Merger may, under
certain circumstances and by following procedures prescribed by the MBCL,
exercise appraisal and dissenters' rights and receive cash for their shares of
MultiLink Common Stock in an amount equal to the fair value of the MultiLink
Common Stock as determined pursuant to such procedures. The failure of a
dissenting shareholder of MultiLink to follow the appropriate procedures will
result in the termination or waiver of such rights. In the event that a
MultiLink shareholder who attempts to exercise dissenters' rights should fail to
make a proper demand for payment or otherwise loses his or her status as a
dissenting shareholder, such MultiLink shareholder shall be entitled to receive
from PictureTel the same number of shares of PictureTel Common Stock and cash
payment in lieu of any fractional share that such MultiLink shareholder would
have received in the Merger if he or she had not attempted to exercise
dissenters' rights. See "The Merger--Dissenters' Rights."
- --------------------------------------------------------------------------------
-11-
<PAGE> 22
RISK FACTORS
The following risk factors relating to the business of PictureTel,
after combining with the business of MultiLink, should be considered by holders
of MultiLink Common Stock in evaluating whether to approve and adopt the Merger
Agreement and thereby become holders of PictureTel Common Stock. These factors
should be considered in conjunction with the other information contained in this
Proxy Statement/Prospectus, the Annexes hereto and the documents incorporated by
reference herein.
NEW PRODUCTS, COST REDUCTIONS AND TECHNOLOGICAL CHANGE. PictureTel is
engaged in an industry that, as a result of extensive research and development
efforts, has new, more technologically advanced products introduced on a regular
basis, and PictureTel continues to seek improvement in operating results through
new products and cost reductions. In addition, new technologies and networks for
delivering videoconferencing and data collaboration services, such as the
Internet and corporate intranets or LANS, have opened new opportunities for
videoconferencing. Industry standards for such new technologies are still being
developed. PictureTel's lower-end products are expected to be distributed
directly through these channels or integrated into other lower-end products.
There can be no assurance that PictureTel will be successful in obtaining cost
reductions or in developing and marketing suitable new products with attractive
margins for these new technologies and networks that are competitive and
accepted by the marketplace.
MultiLink has invested substantial resources in developing a
network-based mixed-media platform for videoconferencing and multimedia call
center applications (the System 80) to accompany its more established audio
platform (the System 70). To date a limited number of System 80 products have
been sold and there can be no assurance that the System 80 will be
accepted by either MultiLink's customers or the market in general. For more
information on the Systems 70 and 80 see "The Business of MultiLink --
Teleconferencing Products."
COMPETITION. In its established businesses of group systems and desktop
systems, PictureTel competes with a number of larger corporations, such as Sony
Corporation and Intel Corporation, which have greater financial and marketing
resources than PictureTel. In the developing business of videoconferencing over
networks such as the Internet and LANs, a number of new companies have begun to
enter the market and offer competitive products. In addition, alliances between
companies which compete with PictureTel and companies which develop and market
network products as well as mergers among competitors are intensifying
competition in the marketplace. This increased competition may lead to decreases
in average selling prices and margins in both group and desktop
videoconferencing systems or a lower segment market share for newer products and
services in the emerging areas of network-based videoconferencing products and
services. These factors may impact PictureTel's growth and operating results.
RECENT HISTORY OF LOWER OPERATING RESULTS. Although PictureTel reported
a 13% increase in revenues for the quarter ended March 29, 1997 compared to the
corresponding first quarter of 1996, net income for the first quarter of 1997
declined to $3.1 million, or $0.09 per share, compared to $7.5 million, or $0.21
per share for the first quarter of 1996. In addition, MultiLink experienced an
operating loss for the first six months of fiscal 1997, ending March 31, 1997,
as compared with profitable operations for the first six months of fiscal 1996.
Past financial performance should not be considered a reliable indicator of
future performance and investors should not use historical trends to anticipate
results or trends in future periods. There can be no assurance that PictureTel
will return to the rate of growth or level of profitability in relation to net
sales experienced in recent years. In addition, PictureTel expects the Merger to
be dilutive for 1997, as a result of the assumed issuance of approximately
3,750,000 shares of PictureTel Common Stock upon consummation of the Merger as
well as merger-related expenses described further in Notes to Unaudited Pro
Forma Combined Financial Statements included elsewhere herein. See "Summary
- -- Business of PictureTel, Recent Developments" for additional information on
PictureTel's results for the first quarter of its fiscal 1997 and "Summary --
Business of MultiLink, Recent Developments" for additional information on
MultiLink's results for the second quarter of its fiscal 1997.
POTENTIAL FLUCTUATIONS OF QUARTERLY OPERATING RESULTS. The majority of
PictureTel's revenues in each quarter result from orders booked in that quarter
and a substantial portion of PictureTel's orders and shipments typically occur
during the last weeks of each quarter so that forecasting of revenue is complex
and difficult to predict. Unanticipated variations in the timing of receipt of
customer orders in any quarter may produce significant fluctuations in quarterly
revenues. As a result (and as was the case with respect to the first quarter of
1997), a shortfall in revenue compared to expectations may not evidence itself
until late in the quarter and any resulting impact on earnings may not be
determinable until some weeks after the end of the quarter.
-12-
<PAGE> 23
MANUFACTURING. Some key supplies, subassemblies and products are
currently available only from one vendor and some vendors are smaller companies
with less financial resources than PictureTel. In some cases these are sourced
from only one vendor, even where multiple sources are available, in order to
maintain quality control and enhance the working relationship with the vendor.
PictureTel's business could be adversely affected by delays or interruptions of
supplies, subassemblies or products from such key vendors.
PRODUCT PROTECTION AND INTELLECTUAL PROPERTY. PictureTel's success
depends in part on its proprietary technology. PictureTel attempts to protect
its proprietary technology through patents, copyrights, trademarks, trade
secrets and license agreements. In the absence of broad patent protection (which
is not likely), and despite PictureTel's reliance upon its proprietary
confidential information, competitors of PictureTel have been able to use
algorithms or other features similar to those used by PictureTel to design and
manufacture products that are directly competitive with PictureTel's products.
Although PictureTel does not believe that its products infringe the
proprietary rights of any third parties, third parties have asserted
infringement and other claims against PictureTel from time to time, and there
can be no assurance that third parties will not assert such claims against
PictureTel (including the MultiLink business) in the future or that such claims
will not be successful. PictureTel could incur substantial costs and diversion
of management resources with respect to the defense of any claims relating to
proprietary rights which could have a material adverse effect on PictureTel's
business, financial condition or results of operations.
In December 1993, PictureTel was sued by Datapoint Corporation in the
United States District Court for the Northern District of Texas. Datapoint
alleges that certain of PictureTel's products infringe patent rights allegedly
owned by Datapoint. The complaint seeks approximately $51 million in damages for
alleged past infringement and an injunction against alleged future infringement.
PictureTel believes that it has meritorious defenses to the allegations of the
complaint and is vigorously defending against the lawsuit. In the event
PictureTel is found to be infringing a valid patent or patents, PictureTel could
be required to pay damages for past infringement and cease the sale of products
incorporating the infringing feature (or be required to take a license and pay
royalties with respect to such patents). While there can be no assurance that
PictureTel will prevail, PictureTel believes that it is unlikely that the
outcome of the lawsuit would have a material adverse effect on the business or
the financial position, results of operations and cash flows of PictureTel.
MultiLink received a letter from Datapoint Corporation, dated April 23, 1997,
stating that Datapoint Corporation is the owner of several patents in the area
of multipoint videoconferencing and audio/video/data networking and that
MultiLink's activities in these areas may require a license under certain
Datapoint Corporation patents. MultiLink has responded to Datapoint
Corporation's letter, stating that it does not believe that a license is
required with respect to the specific patents cited in that letter. However,
there can be no assurance that Datapoint Corporation will not pursue this
matter or claims on other of its Patents or that such claims will not be
successful.
INTEGRATION STRATEGY FOR MULTILINK MERGER. As commonly occurs with
mergers of technology companies, during the pre-merger and integration phases,
aggressive competitors may undertake formal initiatives to attract customers
from the acquired business and, consequently, there may be some erosion of
MultiLink's customer base as a result of the Merger. In addition, as a result
of the Merger, certain customers of MultiLink may prefer to purchase from a
vendor not associated with PictureTel's broader range of products and services.
Acquisitions, such as the Merger, involve various other risks including
difficulties in the assimilation of the operations, technologies and products
of the acquired companies, the diversion of management's attention from other
business concerns, risks of entering market segments in which PictureTel has
limited direct prior experience and where competitors in such segments have
stronger market positions, the potential loss of key employees to competitors
and the risk of increased competition from both an important vendor from which
PictureTel currently sources MCUs and certain of PictureTel's distribution
partners. The successful combination of companies in the high technology
industry may be more difficult to accomplish than in other industries. The
combination of the two companies requires, among other things, integration of
the companies' respective product offerings, coordination of their research and
development efforts, and retention of significant customers by MultiLink. There
can be no assurance that such combination and integration will be accomplished
smoothly or successfully.
VOLATILITY OF STOCK PRICE. As is frequently the case with the stocks of
high technology companies, the market price of PictureTel's stock has been, and
may continue to be, volatile. (See "Recent Closing Prices" herein.) Factors such
as quarterly fluctuations in results of operations, increased competition, the
introduction of new products by PictureTel or its competitors, expenses or other
difficulties associated with assimilating MultiLink and other companies that may
be acquired in the future by PictureTel, changes in the mix of sales channels,
the timing of significant customer orders, and macroeconomic conditions
generally, may have a significant impact on the market price of the stock of
PictureTel. Any shortfall in revenue or earnings from the levels anticipated by
securities analysts could have an immediate and significant adverse effect on
the market price of PictureTel's stock in any given period. In addition,
-13-
<PAGE> 24
the stock market has from time to time experienced extreme price and volume
fluctuations, which have particularly affected the market price for many
high-technology companies and which, on occasion, have appeared to be unrelated
to the operating performance of such companies.
DEPENDENCE ON KEY PERSONNEL. PictureTel depends on a limited number of
key management personnel, including Norman Gaut, its Chief Executive Officer and
Domenic J. LaCava, President and Chief Operating Officer. The loss of the
services of one or more of PictureTel's key personnel or the inability to
attract and retain additional key personnel could have a material adverse effect
on the business or operating results of PictureTel.
FIXED NUMBER OF SHARES DESPITE POTENTIAL CHANGES IN STOCK PRICE. The
Exchange Ratio will not be adjusted in the event of any increases or decreases
in the price of the PictureTel Common Stock. The price of the PictureTel Common
Stock at the Effective Date may vary from its price at the date of this Proxy
Statement/Prospectus and at the date of the MultiLink Special Meeting. Such
variations may be the result of changes in the business, operations and
prospects of PictureTel, market assessments of the likelihood that the Merger
will be consummated, the time thereof and the prospects of the Merger and
post-Merger operations, regulatory considerations, general market and economic
conditions and other factors. Because the Effective Date may occur at a date
later than the MultiLink Special Meeting, there can be no assurance that the
price of the PictureTel Common Stock on the date of the MultiLink Special
Meeting will be indicative of its price at the Effective Date. The Merger
Agreement provides that the Effective Date will be on the second business day
following the satisfaction or waiver of all conditions to closing set forth in
the Merger Agreement. Stockholders of MultiLink are urged to obtain current
market quotations for PictureTel Common Stock. See "The Merger Agreement --
Terms of the Merger."
FACTORS AFFECTING THE PERFORMANCE OF MULTILINK. Historically, MultiLink
has experienced significant variations in its results of operations.
Fluctuations in quarterly revenue are due to a number of factors, including the
concentration of sales to a limited number of customers, the irregular timing of
their orders and the lengthy sales cycle as well as other factors. These or
other factors can materially adversely affect MultiLink's operating results and
net income for one quarter or a series of quarters. In addition, as noted above,
MultiLink's income from operations has been declining since 1994 due, in
part, to increased expenditures on research and development related to its
System 80 for its videoconferencing and multimedia ACD business and
international expansion. In addition, MultiLink experienced an operating loss
for the first six months of fiscal 1997. For more information see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Factors Affecting Results." See also "Summary--The Business of
MultiLink-- Recent Developments."
FORWARD-LOOKING STATEMENTS. This Proxy Statement/Prospectus and
documents incorporated by reference in the Registration Statement of which this
Proxy Statement/Prospectus is a part include forward-looking statements about
PictureTel's and MultiLink's businesses, new products, sales and expenses,
effective tax rate, operating and capital requirements and the expected
financial impact and other aspects of the proposed Merger. Forward-looking
statements made or incorporated by reference herein are not guarantees of future
performance. In addition, forward-looking statements may be included in various
other PictureTel documents to be issued in the future and in various oral
statements by PictureTel representatives to security analysts and investors from
time to time. Any forward-looking statements are subject to risks that could
cause the actual results to vary materially. Such risks, including those
pertaining to MultiLink's business as such, are discussed above and in related
portions of the Proxy Statement/Prospectus, including the documents incorporated
by reference.
NEWLY ISSUED ACCOUNTING STANDARDS. In February 1997, the Financial
Accounting Standards Board issued Statement No. 128 ("SFAS 128"), "Earnings per
Share," which is effective for fiscal years ending after December 15, 1997,
including interim periods. SFAS 128 requires the presentation of basic and
diluted earning per share (EPS). Basic EPS, which replaces primary EPS, excludes
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Diluted EPS is computed similarly to fully diluted EPS under the
existing rules. SFAS 128 requires restatement of all prior-period earnings per
share data presented after the Effective Date. PictureTel will adopt SFAS 128 in
1997 and has not yet determined the impact of adoption.
-14-
<PAGE> 25
SELECTED HISTORICAL AND UNAUDITED COMBINED PRO FORMA FINANCIAL
AND COMPARATIVE PER SHARE DATA
The following selected historical financial data of PictureTel for each of
fiscal years 1996, 1995, and 1994 has been derived from, and is qualified by
reference to, PictureTel's historical consolidated financial statements, which
have been audited by Coopers & Lybrand L.L.P., PictureTel's independent
accountants and which are incorporated herein by reference. PictureTel's
selected historical financial data presented below for each of fiscal years 1993
and 1992 has been derived from, and is qualified by reference to, PictureTel's
historical consolidated financial statements, which have been audited by Coopers
& Lybrand L.L.P., PictureTel's independent accountants, and which are not
included in this Proxy Statement/Prospectus. The selected historical financial
data presented below for PictureTel's three months ending March 29, 1997 and
March 30, 1996, has been derived from, and is qualified by reference to, its
unaudited consolidated financial statements, incorporated by reference herein,
which in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
of such periods. The selected historical financial data for PictureTel presented
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and PictureTel's Consolidated
Financial Statements and Notes thereto, incorporated by reference from
PictureTel's Annual Report on Form 10-K for the fiscal year ended December 31,
1996 and from PictureTel's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 29, 1997.
The following selected historical financial data of MultiLink for each of fiscal
years 1996, 1995 and 1994 has been derived from, and is qualified by reference
to, MultiLink's historical consolidated financial statements, included elsewhere
in this Proxy Statement/Prospectus, which have been audited by KPMG Peat Marwick
LLP, MultiLink's independent accountants. MultiLink's selected historical
financial data presented below at and for each of fiscal years 1993 and 1992 has
been derived from, and is qualified by reference to, MultiLink's historical
consolidated financial statements, which have been audited by KPMG Peat Marwick
LLP, MultiLink's independent accountants, and which are not included in this
Prospectus. The selected historical financial data presented below for
MultiLink's six months ended March 31, 1997 and 1996 has been derived from, and
is qualified by reference to, MultiLink's unaudited consolidated financial
statements included elsewhere in this Proxy Statement/Prospectus and which, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of such
periods. The selected historical financial data for MultiLink presented below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto, included elsewhere in this Proxy
Statement/Prospectus.
The following selected unaudited combined pro forma financial data is derived
from the unaudited pro forma combined financial statements appearing elsewhere
herein, which give effect to the Merger as a pooling of interests, and should
be read in conjunction with such pro forma statements and the notes thereto.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been consummated, nor is it necessarily
indicative of the future operating results or financial position of PictureTel
or MultiLink.
The comparative historical and unaudited pro forma per share data table below
sets forth (1) historical net income per share and historical book value per
share data of PictureTel; (2) historical net income (loss) per share and
historical book value per share data of MultiLink; (3) unaudited pro forma
combined net income per share and unaudited pro forma book value per share data
of PictureTel after giving effect to the Merger on a pooling of interests
basis; and (4) unaudited equivalent pro forma combined net income per share and
unaudited equivalent pro forma combined book value per share data of MultiLink
based on the Exchange Ratio of approximately .56 shares of PictureTel Common
Stock for each share of MultiLink Common Stock. The information in the table
should be read in conjunction with the audited and unaudited consolidated
financial statements of PictureTel and MultiLink and the unaudited pro forma
combined financial statements and the notes thereto incorporated by reference
or included elsewhere in this Proxy Statement/Prospectus. The unaudited pro
forma and equivalent pro forma per share data are not necessarily indicative of
the net income per share or book value per share that would have been achieved
had the Merger been consummated as of the beginning of the periods presented
and should not be construed as representative of such amounts for any future
dates or periods.
-15-
<PAGE> 26
PICTURETEL CORPORATION SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 29, MARCH 30,
------------------------------------------------------- --------- ---------
1996 1995 1994 1993 1992 1997 1996
-------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues............................. $482,532 $346,758 $255,193 $176,252 $141,409 $118,222 $105,001
Income from operations............... 44,151 24,302 5,209 8,675 9,116 3,069 9,230
Net income........................... 34,773 19,626 4,579 8,426 10,659 3,075 7,469
Net income per share................. $ 0.96 $ 0.56 $ 0.15 $ 0.27 $ 0.33 $ 0.09 $ 0.21
Weighted average common and
equivalent shares
outstanding (1)(2)................. 36,054 35,014 31,354 31,486 31,868 35,562 36,115
BALANCE SHEET DATA:
Working capital...................... $200,946 $139,396 $118,922 $ 48,399 $ 55,334 $208,653 $134,574
Total assets......................... 376,047 288,141 216,699 187,425 165,713 370,081 304,109
Total long-term obligations.......... 13,934 12,804 3,015 4,367 4,685 8,577 10,030
Stockholders' equity................. 259,058 200,822 153,236 146,939 132,128 262,639 212,950
</TABLE>
(1) Net income per common and common equivalent share is based on the weighted
average number of shares of PictureTel Common Stock and dilutive PictureTel
Common Stock equivalents outstanding during the period. All common and
common equivalent share and per share amounts in 1995 and years prior have
been retroactively restated to reflect the two-for-one common stock split
effected by a 100% common stock dividend paid during the fourth quarter of
1995.
(2) PictureTel has not paid dividends on its Common Stock since its inception.
PictureTel intends to reinvest earnings for use in its business and to
finance future growth. Accordingly, the Board of Directors does not
anticipate declaring any cash dividends in the foreseeable future.
-16-
<PAGE> 27
MULTILINK, INC. SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
----------------------------------------------------- --------------------
1996 1995 1994 1993 1992 1997 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues............................. $22,420 $17,041 $17,648 $12,086 $ 9,143 $12,009 $ 9,663
Income (loss) from operations........ 2,538 3,652 5,228 2,797 1,404 (251) 1,026
Net income (loss).................... 1,574 2,233 3,090 2,419 1,150 (187) 566
Net income (loss) per share.......... $ 0.25 $ 0.37 $ 0.51 $ 0.46 $ 0.24 $(0.03) $ 0.09
Weighted average common and
equivalent shares
outstanding(1)(2)(3)................ 6,379 6,097 6,045 5,305 4,699 6,212 6,402
BALANCE SHEET DATA:
Working capital...................... $ 5,342 $ 3,837 $ 5,040 $ 2,420 $ 600 $ 4,628 $ 3,392
Total assets......................... 14,618 12,472 10,539 6,497 3,892 18,830 12,317
Total long-term obligations.......... 1,440 822 1,173 898 1,334 1,353 804
Redeemable cumulative convertible
preferred stock (4)................. -- -- 2,610 2,610 2,610 -- --
Total stockholders' equity (deficit). 9,950 7,562 3,606 448 (2,310) 9,792 8,239
</TABLE>
(1) Net income per common and common equivalent share is based on the weighted
average number of shares of MultiLink Common Stock and dilutive MultiLink
Common Stock equivalents outstanding during the period. Common stock
equivalents are excluded from the historical per share calculations for the
six months ended March 31, 1997 since the effect of their inclusion would be
antidilutive.
(2) MultiLink has not paid dividends on its Common Stock since its inception.
MultiLink paid dividends to preferred stockholders in 1995. MultiLink
intends to reinvest earnings for use in its business and to finance future
growth. Accordingly, the Board of Directors of MultiLink does not anticipate
declaring any cash dividends in the foreseeable future.
(3) Assumes conversion of all outstanding shares of redeemable cumulative
convertible preferred stock into common stock.
(4) On March 1, 1995, MultiLink redeemed 329,830 shares of the outstanding
preferred stock for $1,125,743. Also, on March 1, 1995, MultiLink converted
the remaining 819,458 preferred shares to 837,953 shares of MultiLink
Common Stock.
-17-
<PAGE> 28
PICTURETEL AND MULTILINK
------------------------
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
-------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31, March 29, March 30,
---------------------------------- --------- ---------
1996 1995 1994 1997 1996
-------- -------- -------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Pro Forma Combined Statement of Income Data:(1)(3)
Revenues.......................................... $504,952 $363,799 $272,841 $123,619 $111,610
Income from operations............................ 46,689 27,954 10,437 2,143 11,098
Net income........................................ 36,347 21,859 7,669 2,495 8,561
Net income per share.............................. $ 0.92 $ 0.57 $ 0.22 $ 0.06 $ 0.22
Weighted average common and equivalent
shares outstanding.............................. 39,626 38,428 34,739 39,222 39,686
Pro Forma Combined Balance Sheet Data:(2)
Working capital................................... $213,282
Total assets...................................... 388,911
Total long-term obligations....................... 9,931
Stockholders' equity.............................. 272,431
</TABLE>
---------------
See "Unaudited Pro Forma Combined Financial Statements" and the Notes thereto.
(1) The unaudited pro forma combined statements of income data for all periods
presented give effect to the proposed Merger on a pooling of interests
basis, as if it occurred at the beginning of the earliest period presented.
(2) The unaudited pro forma combined balance sheet data give effect to the
proposed Merger on a pooling of interests basis, as if it occurred as of
March 29, 1997.
(3) The unaudited pro forma financial data combines PictureTel's financial data
for the three months ended March 29, 1997 and March 30, 1996 and the three
years ended December 31, 1996, 1995, and 1994 with MultiLink's financial
data for the three months ended March 31, 1997 and 1996 and the fiscal years
ended September 30, 1996, 1995, and 1994, respectively.
(4) PictureTel and MultiLink anticipate that the combined company will incur
Merger-related expenses totaling approximately $2.0 to $3.0 million. Such
expenses include investment advisory fees, legal and accounting expenses,
other transaction costs and costs to eliminate duplicative facilities and
other consolidation costs. These costs are expected to be charged to the
operations of PictureTel in the third quarter of 1997, the quarter in which
the Merger is expected to be consummated. The effects of these costs have
not been reflected in the historical or pro forma net income per share data.
-18-
<PAGE> 29
PictureTel Corporation and MultiLink, Inc.
Comparative Historical and Unaudited Pro Forma Per Share Data
-------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 29 and 30,
respectively Years Ended December 31,
--------------------- ------------------------
1997 1996 1996 1995 1994
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
PictureTel - Historical
Net income............................ $ .09 $.21 $ .96 $.56 $.15
Book Value (1)..................... $7.69 $7.61
<CAPTION>
Three Months Ended
March 31, Years Ended September 30,
--------------------- ------------------------
1997 1996 1996 1995 1994
----- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C>
MultiLink - Historical
Net income (loss)..................... $(.09) $.17 $ .25 $.37 $.51
Book Value (1)..................... $1.57 $1.61
<CAPTION>
Three Months Ended
March 29 and 30,
respectively Years Ended December 31,
--------------------- ------------------------
1997 1996 1996 1995 1994
----- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Pro forma combined - per combined
companies share(4)(5)
Net income (2)........................ $ .06 $.22 $ .92 $.57 $.22
Book Value (2)..................... $7.24 $7.17
<CAPTION>
Three Months Ended
March 29 and 30,
respectively Years Ended December 31,
--------------------- ------------------------
1997 1996 1996 1995 1994
----- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Equivalent pro forma combined - per
MultiLink share (3)(5)
Net income............................ $ .03 $.12 $ .52 $.32 $.12
Book Value ........................ $4.05 $4.02
</TABLE>
- ---------------
(1) Historical book value per share is computed by dividing total stockholders'
equity by the actual number of shares of common stock outstanding at the end
of each period.
(2) The pro forma net income per share amounts are based upon the historical
weighted average number of shares of common stock and dilutive common stock
equivalents of PictureTel outstanding during each period presented. In
addition, the shares of PictureTel Common Stock to be issued in connection
with the Merger, based on the equivalent weighted average shares and the
dilutive common share equivalents of MultiLink outstanding during each
period presented, are treated as outstanding during each such period. The
pro forma book value per share amounts are based upon the sum of the
historical shares of common stock of PictureTel outstanding at the end of
each period presented and the shares of PictureTel Common Stock assumed to
be issued in connection with the Merger, based upon the equivalent shares of
MultiLink Common Stock outstanding at the end of each period presented.
(3) Equivalent pro forma per share amounts are calculated by multiplying the pro
forma per share amounts by the Exchange Ratio.
(4) PictureTel and MultiLink anticipate that the combined company will incur
Merger-related expenses totaling approximately $2.0 to $3.0 million. Such
expenses include investment advisory fees, legal and accounting expenses,
other transaction costs and costs to eliminate duplicative facilities and
other consolidation costs. These costs are expected to be charged to the
operations of PictureTel in the third quarter of 1997, the quarter in which
the Merger is expected to be consummated. The effects of these costs have
not been reflected in the historical or pro forma net income or book value
per share data.
(5) The unaudited pro forma and equivalent pro forma per share data combine
PictureTel's per share data for the three months ended March 29, 1997 and
March 30, 1996 and the three years ended December 31, 1996, 1995, and 1994
with MultiLink's per share data for the three months ended March 31, 1997
and 1996 and the fiscal years ended September 30, 1996, 1995, and 1994,
respectively.
-19-
<PAGE> 30
RECENT CLOSING PRICES
The last reported sale price per share of the PictureTel Common Stock as
reported on the NASDAQ on April 15, 1997, the last trading day before the
announcement of the proposed Merger, was $10.625. The last reported sale price
per share of the PictureTel Common Stock on June 9, 1997, the latest
practicable trading day before the printing of this Proxy Statement/Prospectus
was $11.9375. Based upon the last reported sale price of PictureTel Stock on
June 9, 1997, and an Exchange Ratio equal to approximately .56, each share of
MultiLink Common Stock would be converted in the Merger into the right to
receive approximately .56 shares of PictureTel Common Stock having a market
value of approximately $6.67.
Because the market price of PictureTel Common Stock is subject to
fluctuation, the market value of the shares of PictureTel Common Stock that
holders of MultiLink Common Stock will receive in the Merger may increase or
decrease prior to and following the Merger. STOCKHOLDERS ARE URGED TO OBTAIN
CURRENT MARKET QUOTATIONS FOR PICTURETEL COMMON STOCK. NO ASSURANCE CAN BE GIVEN
AS TO THE FUTURE PRICES OR MARKETS FOR PICTURETEL COMMON STOCK. See "Risk
Factors--Volatility of Stock Price."
MARKET PRICE PER SHARE DATA
---------------------------
PictureTel Common Stock is listed and traded on the NASDAQ under the symbol
"PCTL". The following table sets forth the high and low sales prices per share
of PictureTel Common Stock as reported on the NASDAQ for the quarterly periods
presented below, which periods correspond to PictureTel's quarterly fiscal
periods for financial reporting purposes. Share prices for 1995 were adjusted to
reflect the two-for-one common stock split effected by a 100% common stock
dividend paid during the fourth quarter of 1995.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
FISCAL YEAR ENDED HIGH LOW
DECEMBER 31, 1995
- ---------------------------------------------------------------------
<S> <C> <C>
First Quarter $ 19.125 $ 11.125
- ---------------------------------------------------------------------
Second Quarter $ 25.063 $ 17.000
- ---------------------------------------------------------------------
Third Quarter $ 31.000 $ 21.188
- ---------------------------------------------------------------------
Fourth Quarter $ 43.875 $ 20.750
- ---------------------------------------------------------------------
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31, 1996
- ---------------------------------------------------------------------
<S> <C> <C>
First Quarter $ 44.734 $ 30.250
- ---------------------------------------------------------------------
Second Quarter $ 40.063 $ 26.750
- ---------------------------------------------------------------------
Third Quarter $ 41.250 $ 31.250
- ---------------------------------------------------------------------
Fourth Quarter $ 37.875 $ 23.375
- ---------------------------------------------------------------------
<CAPTION>
FISCAL YEAR ENDING
DECEMBER 31, 1997
- ---------------------------------------------------------------------
<S> <C> <C>
First Quarter $ 26.875 $ 13.625
- ---------------------------------------------------------------------
Second Quarter $ 13.750 $ 8.625
(through June 9, 1997)
- ---------------------------------------------------------------------
</TABLE>
-20-
<PAGE> 31
MULTILINK SPECIAL MEETING
TIME, PLACE AND DATE
The MultiLink Special Meeting will be held on July 22, 1997 at the
offices of MultiLink, 6 Riverside Drive, Andover, Massachusetts, commencing at
8:30 a.m., Daylight Savings Time.
MATTERS TO BE CONSIDERED AT THE MULTILINK SPECIAL MEETING
At the MultiLink Special Meeting, holders of shares of MultiLink Common
Stock will consider and vote upon (1) a proposal to approve and adopt the Merger
Agreement and the transactions contemplated thereby, by which MultiLink would
become a wholly-owned subsidiary of PictureTel and (2) such other matters as may
properly be brought before the MultiLink Special Meeting. THE DIRECTORS OF
MULTILINK HAVE UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY AND RECOMMEND A VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY BY THE STOCKHOLDERS
OF MULTILINK.
VOTING AT THE MULTILINK SPECIAL MEETING; RECORD DATE
The MultiLink Board of Directors has fixed June 5, 1997 as the
MultiLink Record Date for the determination of the MultiLink stockholders
entitled to notice of and to vote at the MultiLink Special Meeting. Accordingly,
only holders of record of shares of MultiLink Common Stock on the MultiLink
Record Date will be entitled to notice of and to vote at the MultiLink Special
Meeting. As of such MultiLink Record Date, there were outstanding 6,254,911
shares of MultiLink Common Stock held by approximately 117 holders of record.
Each holder of record of shares of MultiLink Common Stock on the MultiLink
Record Date is entitled to cast one vote per share on the proposal to approve
and adopt the Merger Agreement and the transactions contemplated thereby, and on
any other proposal properly submitted for the vote of the MultiLink
stockholders, either in person or by properly executed proxy, at the MultiLink
Special Meeting. The presence, in person or by properly executed proxy, of the
holders of a majority of the outstanding shares of MultiLink Common Stock
entitled to vote is necessary to constitute a quorum at the MultiLink Special
Meeting.
The approval and adoption by MultiLink stockholders of the Merger
Agreement and the transactions contemplated thereby will require the affirmative
vote of the holders of a majority of the outstanding shares of MultiLink Common
Stock.
Abstentions will be included in determining the number of shares
present and voting at the meeting for purposes of determining the presence of a
quorum, but will not be counted as a vote cast on the matter. Therefore,
abstentions will have the same effect as votes against such proposal.
Approval of the Merger Agreement and the transactions contemplated
thereby, shall constitute approval of the terms of the Escrow Agreement and the
appointment of Mr. J. Edward McAteer as representative of the MultiLink
stockholders under the Escrow Agreement.
As of the MultiLink Record Date, directors and executive officers of
MultiLink and their affiliates have the right to vote 2,660,691 shares, or
approximately 43% of the outstanding shares of MultiLink Common Stock. Three of
the directors of MultiLink (Bruce Bower, J. Edward McAteer, and Sigmund
Hertzstein) and certain of MultiLink's principal stockholders, together holding
approximately 72% of the outstanding shares of MultiLink Common Stock as of the
MultiLink Record Date, have executed a Stockholders Agreement dated April 15,
1997 (the "Stockholders Agreement"), which grants an irrevocable proxy to
PictureTel and authorizes PictureTel to vote all the outstanding shares of
MultiLink Common Stock over which he or she has voting control in favor of
approval and adoption of the Merger Agreement (subject in the case of the
directors of Multilink to the fulfillment of their fiduciary duties). As of the
MultiLink Record Date, neither PictureTel nor any of its subsidiaries owned any
outstanding shares of MultiLink Common Stock.
-21-
<PAGE> 32
PROXIES
All shares of MultiLink Stock which are entitled to vote and are
represented at the MultiLink Special Meeting by properly executed proxies
received prior to or at the MultiLink Special Meeting, and not revoked, will be
voted at the MultiLink Special Meeting in accordance with the instructions
indicated on such proxies. If no instructions are indicated, such proxies will
be voted FOR approval and adoption of the Merger Agreement and the transactions
contemplated thereby. The Board of Directors of MultiLink knows of no matters to
be presented at the MultiLink Special Meeting other than those described in this
Proxy Statement/Prospectus. If any other matters are properly presented at the
MultiLink Special Meeting for consideration, including, among other things,
consideration of a motion to adjourn the MultiLink Special Meeting to another
time and/or place (including, without limitation, for the purpose of soliciting
additional proxies), the persons named in the enclosed form of proxy and acting
thereunder will have discretion to vote on such matters in accordance with their
best judgment.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Assistant Clerk of MultiLink, at or before the taking of the
vote at the MultiLink Special Meeting, a written notice of revocation bearing a
later date than the proxy, (ii) duly executing a later dated proxy relating to
the same shares and delivering it to the Assistant Clerk of MultiLink before the
taking of the vote at the MultiLink Special Meeting, or (iii) attending the
MultiLink Special Meeting and voting in person (although attendance at the
MultiLink Special Meeting will not in and of itself constitute a revocation of a
proxy). Any written notice of revocation or subsequent proxy should be sent so
as to be delivered to MultiLink, Inc., 6 Riverside Drive, Andover, Massachusetts
01810, Attention: Assistant Clerk, or hand delivered to the Assistant Clerk of
MultiLink at or before the taking of the vote at the MultiLink Special Meeting.
All expenses of this solicitation will be borne by MultiLink and each
of PictureTel and MultiLink will bear their costs of preparing this Proxy
Statement/Prospectus. In addition to solicitation by use of the mails, proxies
may be solicited by directors, officers and employees of PictureTel and
MultiLink in person or by telephone, facsimile or other means of communication.
Such directors, officers and employees will not be additionally compensated, but
may be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. Arrangements will also be made with custodians, nominees and
fiduciaries for forwarding of proxy solicitation materials to beneficial owners
of shares held of record by such custodians, nominees and fiduciaries, and
MultiLink will reimburse such custodians, nominees and fiduciaries for
reasonable expenses incurred in connection therewith.
THE MERGER
GENERAL
The Merger Agreement provides for the merger of Merger Sub, a
wholly-owned subsidiary of PictureTel, with and into MultiLink, with the result
that MultiLink would become a wholly-owned subsidiary of PictureTel. For the
Merger to be consummated, the Merger Agreement must be approved by the MultiLink
stockholders and the other conditions specified in the Merger Agreement must be
satisfied or waived. The discussion in this Proxy Statement/Prospectus of the
Merger and the description of the principal terms and conditions of the Merger
Agreement are subject to and qualified in their entirety by reference to the
Merger Agreement, a copy of which is attached to this Proxy Statement/Prospectus
as Annex A and is incorporated herein by reference. MultiLink stockholders are
urged to read the Merger Agreement in its entirety.
CONVERSION OF SHARES
Upon the consummation of the Merger, each then outstanding share of
MultiLink Common Stock will automatically be converted into the right to
receive the number of shares of PictureTel Common Stock equal to the Exchange
Ratio. Based upon the capitalization of MultiLink as of June 5, 1997 it is
currently anticipated that each share of MultiLink Common Stock will convert
into the right to receive approximately .56 shares of PictureTel Common Stock.
No fractional shares of PictureTel Common Stock will be issued in the Merger.
Instead, each MultiLink stockholder who would otherwise be entitled to receive
a fraction of a share of PictureTel Common Stock will receive an amount of cash
equal to the average closing price of PictureTel Common Stock on the NASDAQ, as
reported by the Eastern Edition
-22-
<PAGE> 33
of the Wall Street Journal, on the ten trading days ending two days prior to the
Effective Date, multiplied by the fraction of a share of PictureTel Common Stock
to which the stockholder would otherwise be entitled. In the aggregate,
PictureTel will exchange up to 3,750,000 shares of PictureTel Common Stock for
all the shares of MultiLink Common Stock outstanding immediately prior to the
Effective Date, including all the shares of MultiLink Common Stock issued upon
the exercise prior to the Effective Date of outstanding and vested MultiLink
Options. Shares of PictureTel Common Stock will only be issued to holders of
MultiLink Options who actually exercise such options prior to the Effective
Date. Thus the number of shares of PictureTel Common Stock issued in connection
with the Merger may be less than 3,750,000 if holders of vested MultiLink
Options elect to receive options to purchase PictureTel Common Stock in lieu of
exercising their MultiLink Options prior to the Effective Date. Based upon the
capitalization of MultiLink and PictureTel as of the date of the Merger
Agreement, the stockholders of MultiLink will own PictureTel Common Stock
representing approximately 10% of the PictureTel Common Stock outstanding
immediately after consummation of the Merger.
CONVERSION OF MULTILINK OPTIONS
Upon consummation of the Merger, each then outstanding MultiLink Option
will be assumed by PictureTel and will automatically be converted into an option
to purchase the number of shares of PictureTel Common Stock as the holder of
such MultiLink Option would have been entitled to receive pursuant to the Merger
had such holder exercised such option in full immediately prior to the Effective
Date (not taking into account whether or not such option was in fact
exercisable), at a price per share equal to (x) the aggregate exercise price for
MultiLink Common Stock otherwise purchasable pursuant to such MultiLink Option
divided by (y) the number of shares of PictureTel Common Stock purchasable
pursuant to such MultiLink Option.
As of the MultiLink Record Date, 859,640 shares of MultiLink Common
Stock were subject to outstanding MultiLink Options, 459,810 of which were
vested. Upon the assumption of such options by PictureTel upon consummation of
the Merger, approximately 481,400 shares of PictureTel Common Stock will be
subject to such options.
EXCHANGE OF CERTIFICATES
As promptly as practicable after the Effective Date, each holder (other
than MultiLink, if applicable) of any outstanding certificate or certificates
representing shares of MultiLink Common Stock converted in the Merger to shares
of PictureTel Common Stock shall surrender them to PictureTel for cancellation
(along with a duly executed letter of transmittal in form reasonably acceptable
to PictureTel and the Surviving Corporation) and will be entitled upon the
surrender to receive in exchange a certificate(s) representing the number of
shares of PictureTel Common Stock to which the holder is entitled pursuant to
the Merger and cash in lieu of any fractional share of PictureTel Common Stock
to otherwise be issued. Until surrendered, each outstanding certificate which,
prior to the Effective Date, represented MultiLink Common Stock will be deemed
for all corporate purposes to evidence ownership of the cash and number of
PictureTel Shares into which it was converted pursuant to the Merger. Pursuant
to the terms of the Escrow Agreement, approximately 8% of the shares of
PictureTel Common Stock that each MultiLink stockholder is entitled to receive
in the Merger will automatically be placed in escrow for approximately one year.
See "The Merger--Agreement Indemnification" and "Escrow."
No dividends or other distributions with respect to PictureTel Common
Stock with a record date after the Effective Date will be paid to the holder of
any unsurrendered MultiLink Common Stock certificate with respect to the shares
of PictureTel Common Stock represented thereby until the holder of record of
such certificate surrenders such certificate. Subject to applicable law,
following surrender of any such certificate, there will be paid to the record
holder of the certificates representing whole shares of PictureTel Common Stock
issued in exchange therefor, without interest, at the time of such surrender,
the amount of any such dividends or other distributions with a record date after
the Effective Date theretofore paid with respect to such shares of PictureTel
Common Stock and at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Date and a payment
date subsequent to such surrender. PictureTel has not paid dividends on its
Common Stock since its inception. PictureTel
-23-
<PAGE> 34
intends to reinvest earnings for use in its business and to finance future
growth. Accordingly, the Board of Directors does not anticipate declaring any
cash dividends in the foreseeable future.
If any certificate for shares of PictureTel Common Stock is to be
issued in a name other than that in which the MultiLink Common Stock certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the MultiLink Common Stock certificate so surrendered be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange have paid to PictureTel or any agent designated by it
any transfer or other taxes required by reason of the issuance of a certificate
for shares of PictureTel Common Stock in any name other than that of the
registered holder of the MultiLink Common Stock certificate surrendered, or
established to the satisfaction of PictureTel or any agent designated by it that
such tax has been paid or is not payable.
NOTIFICATION REGARDING MULTILINK OPTIONS
As soon as practicable after the Effective Date, PictureTel shall
deliver to each holder of an outstanding MultiLink Option an appropriate notice
setting forth such holder's rights pursuant thereto. PictureTel's assumption of
the MultiLink Options will be automatic and no action will be required on the
part of the option holder to convert his MultiLink Option into an option to
purchase shares of PictureTel Common Stock.
EFFECTIVE DATE
Consummation of the Merger will occur upon the filing of the articles
of merger ("Articles of Merger") with the Secretary of State of The Commonwealth
of Massachusetts (the "Effective Date"). The filing of the Articles of Merger
will occur on the second business day, or such other time as the parties to the
Merger may agree upon, following the satisfaction or waiver of all conditions to
the closing of the transactions contemplated by the Merger Agreement. The Merger
Agreement is subject to termination by mutual written consent of PictureTel and
MultiLink and at the option of either MultiLink or PictureTel if the Merger is
not consummated before August 31, 1997 (provided that the right to terminate the
Merger Agreement if not consummated before August 31, 1997 shall not be
available to any party whose breach of any representation, warranty, or covenant
under the Merger Agreement has been the primary cause of or resulted in the
failure of the Merger to occur on or before such date, and also such date may be
extended to September 30, 1997 with the consent of MultiLink upon the request of
PictureTel, which consent will not be unreasonably withheld) in the event that
certain closing conditions specified in the Merger Agreement have not been
achieved. The Merger Agreement is also subject to termination upon the
occurrence of certain other events. See "The Merger Agreement--Conditions to the
Merger" and "--Termination."
BACKGROUND OF THE MERGER; RECOMMENDATION OF MULTILINK BOARD OF DIRECTORS
During mid-1996, PictureTel's Network Systems Division began to
evaluate the possibility of obtaining externally produced architecture for next
generation multipoint control units ("MCUs" or "bridges") which would be
compatible with PictureTel's systems and would provide a complete client/server
approach, including a standards based LAN audiographics bridge in addition to
the H.320 bridge. As part of this strategy, PictureTel identified potential
strategic relationships with organizations that had MCU architecture, including
MultiLink.
In October 1996, representatives of PictureTel management had an
initial meeting with Bruce Bower, the President of MultiLink, to discuss a
potential business relationship between PictureTel and MultiLink. On October 8,
1996, PictureTel and MultiLink entered into confidentiality agreements. In
November 1996, PictureTel indicated that it was interested in the possibility of
acquiring MultiLink. Mr. Bower indicated that MultiLink would entertain such an
offer. During November 1996, Jeff Bernstein of PictureTel's research staff met
with MultiLink's engineers to review MultiLink's products and technology and
Marty Falaro, Vice President of Business Development for PictureTel, had
numerous discussions with Mr. Bower.
During December 1996, PictureTel engineering and finance personnel met
with members of MultiLink's engineering and finance groups to review MultiLink's
financial data and engineering and technical details of the
-24-
<PAGE> 35
MultiLink products. On December 12, 1996, Mr. Bower made a presentation to the
Board of Directors of PictureTel at its regularly scheduled meeting about the
potential for an acquisition.
During January 1997, William Avery, Vice President of Network Systems,
reviewed strategies for various potential acquisitions with PictureTel's senior
management. On January 28, 1997, PictureTel and MultiLink executed a letter of
intent setting forth certain terms for the proposed acquisition of MultiLink,
not including any valuation, but including a standard exclusivity clause for a
period of 15 days from the date of the letter of intent.
On January 30, 1997, Mr. Avery made a presentation to PictureTel's
Board of Directors in connection with the potential acquisition of MultiLink,
including the likely markets and applications and the strategic need for the
MultiLink products. PictureTel's Board ratified the actions of PictureTel's
officers in entering into a letter of intent with MultiLink, discussed the
potential of an acquisition of MultiLink and authorized its executive officers
to make an acquisition offer.
The next substantive contact between the parties was on February 11,
1997. Zenas Hutchenson, a MultiLink Board member, informed PictureTel that
MultiLink had received indications from a third party interested in acquiring
MultiLink at a significant premium over what PictureTel was prepared to pay.
Discussions between representatives of the parties concerning the valuation of
MultiLink were held over the next few days. On February 12, 1997, PictureTel's
Board of Directors held a special meeting to discuss the valuation of MultiLink.
PictureTel determined at that time that it would not pursue further an
acquisition at the valuation desired by MultiLink, but the PictureTel Board
authorized certain officers of PictureTel to execute a second letter of intent
if negotiations respecting the acquisition of MultiLink were to resume.
During a meeting of the Board of Directors of MultiLink on February 18,
1997, the MultiLink Board discussed the market fit of MultiLink's business with
PictureTel's business and issues involving the valuation of MultiLink. The
MultiLink Board decided that an investment advisor should be used to assist in
negotiating terms of an acquisition and authorized Mr. Bower to negotiate and
sign an agreement with an investment adviser. Mr. Bower negotiated such an
agreement with Broadview Associates and signed the agreement on behalf of
MultiLink on March 10, 1997.
On or about February 28, 1997, Mr. Bower had a discussion with Dr.
Norman Gaut, Chief Executive Officer of PictureTel, to explore whether a deal
was still possible. After discussions, Dr. Gaut indicated that talks could
resume if a mutually acceptable valuation range could be agreed upon. On March
7, 1997, there was another discussion between Dr. Gaut and Mr. Bower and a
potential valuation range was discussed. The parties agreed that the acquisition
consideration would consist of registered common stock of PictureTel and that
the transaction would be structured to qualify as a tax-free reorganization,
which would also permit a pooling-of-interests accounting treatment. A revised
letter of intent including the above general terms (but no valuation) and
containing an additional 21 day exclusivity period was executed by the parties
on or about March 10, 1997.
On March 21, 1997, at a special meeting of the Board of Directors of
PictureTel, the Board of Directors of PictureTel unanimously approved the
acquisition of MultiLink for a consideration not to exceed an aggregate of
3,750,000 shares of PictureTel Common Stock plus replacement options for
MultiLink options, and authorized each of the Chief Executive Officer and the
President of PictureTel to negotiate and execute a definitive merger agreement
to carry out the foregoing.
On April 1, 1997, at a special meeting of the Board of Directors of
MultiLink, MultiLink's Board of Directors approved entering into a letter of
intent with PictureTel.
On April 1, 1997, PictureTel and MultiLink entered into a letter of
intent incorporating the agreed upon consideration, certain conditions and a 45
day exclusivity period. Thereafter, the parties, together with their respective
legal counsel, commenced negotiation of a proposed merger agreement, including
without limitation, the exchange ratio, the circumstances under which a
termination fee would be paid by MultiLink to PictureTel, the extent and nature
of the indemnification to be provided and the size of the escrow.
-25-
<PAGE> 36
On April 13, 1997, at a special meeting of MultiLink's Board of
Directors, MultiLink's Board of Directors met to consider the form of Merger
Agreement previously distributed to them, and the transactions contemplated
thereby, including the proposed consideration. Members of MultiLink's Board and
MultiLink's legal advisors discussed their views and analyses of the proposed
transaction. The MultiLink Board unanimously approved the Merger Agreement and
the transactions contemplated thereby as being in the best interests of
MultiLink, subject to certain matters relating to indemnification.
After the MultiLink Board action described above, the remaining items
were negotiated and resolved by the parties and their respective legal advisors
during the next two days. On April 15, 1997, at a regularly scheduled meeting of
MultiLink's Board of Directors, the definitive Merger Agreement was approved.
The Merger Agreement was then executed by PictureTel and MultiLink as of April
15, 1997, and the Stockholders Agreement was executed by PictureTel and certain
officers, directors and principal stockholders of MultiLink as of April 15,
1997.
The terms of the Merger Agreement and the transactions contemplated
thereby are the result of arm's-length negotiations between representatives of
MultiLink and PictureTel.
MULTILINK'S REASONS FOR THE MERGER
The MultiLink Board of Directors arrived at its unanimous decision to
approve the Merger Agreement after consideration of a number of significant
factors. Among those factors were:
- The increase of MultiLink's audio market position worldwide by
utilizing PictureTel's worldwide distribution channels.
- The combination of MultiLink and PictureTel engineering
resources and technology to develop the next generation of
mixed media MCU products for customer premise equipment users,
service providers, carriers and national public telephone and
telegraphs ("PTTs") worldwide.
- The joining of PictureTel and MultiLink's technology to
provide video call center solutions for OEM and VAR partners
worldwide.
- The increasing level of investment necessary for MultiLink to
compete in multiple emerging markets worldwide.
- The unlikelihood that terms of the Merger Agreement,
including the termination fee provisions, would unduly
discourage third parties from making a proposal to acquire
MultiLink subsequent to signing the Merger Agreement.
- The competitive nature of the industry in which MultiLink
operates, based, in part, upon presentations by management of
MultiLink, including management's view of the business.
- The financial prospects for MultiLink if it were to remain
independent, taking into account the competitive position for
channels of distribution for video MCU products.
- Information available to them concerning PictureTel, its
business, size, market characteristics of PictureTel Common
Stock and other matters based, in part, on information
provided by management of MultiLink as a result of meetings
with PictureTel's management.
- The terms of the Merger Agreement, including the proposed
structure of the Merger as a tax-free reorganization under
Section 368(a) of the Code.
- The exchange of MultiLink Common Stock for PictureTel Common
Stock will give current holders publicly listed shares that
trade on the NASDAQ in place of the illiquid MultiLink Common
Stock.
-26-
<PAGE> 37
The MultiLink Board of Directors did not assign relative weights to the
factors or determine that any single factor was of particular importance.
Rather, the MultiLink Board of Directors viewed its position and recommendations
as being based upon the totality of the information presented to and considered
by them.
PICTURETEL'S REASONS FOR THE MERGER
The PictureTel Board of Directors arrived at its unanimous decision to
approve the Merger Agreement after consideration of a number of significant
factors. Among those factors were:
- The likelihood that the combination of MultiLink's technology
and PictureTel's technology will assist PictureTel in
providing the next generation of client/server products and
broaden the range of product offerings for all levels in the
market place from end users to OEMs (original equipment
manufacturers).
- The ability to leverage the research and development
capabilities of MultiLink by combining its research and
development efforts and personnel with those of PictureTel to
improve and increase product development.
- MultiLink's focus on large scale multipoint control units is
highly complementary to PictureTel's technology for both H.323
multipoint and visual communications technologies.
- The potential to increase the sales of MultiLink's audio
market products by employing PictureTel's global distribution
channels.
In addition, the PictureTel Board of Directors considered, among other
matters, (i) information concerning PictureTel's and MultiLink's respective
businesses, prospects, financial performance and condition, operations,
technology, management and competitive position; (ii) the judgment that the
terms of the Merger Agreement, including the parties' respective
representations, warranties and covenants, and the conditions to their
respective obligations, are reasonable; (iii) the acquisition consideration; and
(iv) the ability of PictureTel to devote management time and energy to the
integration and assimilation of MultiLink's business and organization should the
Merger be consummated.
The PictureTel Board of Directors also considered negative factors
relating to the Merger, including (i) the effect of the public announcement of
the Merger on MultiLink's sales, operating results, and business relationships,
(ii) the risks that the benefits sought in the Merger would not be fully
achieved, including possible erosion of the MultiLink customer base, and (iii)
MultiLink's current trend of declining earnings. The PictureTel Board of
Directors believed that these risks were outweighed by the potential benefits to
be gained by the Merger.
In view of the wide variety of factors considered by the PictureTel
Board of Directors, the PictureTel Board of Directors did not find it
practicable to quantify or otherwise assign relative weights to the specific
factors considered in approving the Merger Agreement. However, after taking into
account all of the factors set forth above, the PictureTel Board of Directors
determined that the Merger Agreement was in the best interests of PictureTel and
its stockholders and that PictureTel should proceed with the Merger Agreement.
CERTAIN CONSIDERATIONS
In considering whether to approve the Merger Agreement and the
transactions contemplated thereby, stockholders of MultiLink should be aware
that the stock price of PictureTel Common Stock at the Effective Date may vary
significantly from the price as of the date of execution of the Merger
Agreement, the date hereof or the date on which stockholders of MultiLink vote
on the Merger Agreement due to changes in the business, operations and prospects
of PictureTel, general market and economic conditions, and other factors.
Because the market price of PictureTel Common Stock has been and is subject to
fluctuation, the market value of the shares of PictureTel Common Stock that
holders of MultiLink Common Stock will receive in the Merger may increase or
decrease prior to and following the Merger. STOCKHOLDERS ARE URGED TO OBTAIN
CURRENT MARKET QUOTATIONS FOR PICTURETEL
-27-
<PAGE> 38
COMMON STOCK. NO ASSURANCE CAN BE GIVEN AS TO THE FUTURE PRICES OR MARKETS FOR
PICTURETEL COMMON STOCK. See "Recent Closing Prices" and "Risk
Factors--Volatility of Stock Price."
EMPLOYMENT AGREEMENTS
It is a condition to consummation of the Merger that Bruce Bower, a director
and officer of MultiLink, and Rajiv Shanmugaraj and Carl Yasharian, officers of
MultiLink, enter into employment and non-competition agreements with
PictureTel. Mr. Bower and Mr. Shanmugaraj have entered into employment
agreements with PictureTel as of the Effective Date. PictureTel and Mr.
Yasharian have not yet agreed upon the terms of Mr. Yasharian's employment
with PictureTel. There can be no assurance that any such agreement will be
reached. In the event PictureTel does not enter into an employment agreement
with Mr. Yasharian, PictureTel has agreed to waive such condition to closing
the Merger. PictureTel has agreed to provide severance benefits and interim
employment to certain officers of MultiLink. In addition, several other
officers of MultiLink may become employees of PictureTel as of the Effective
Date.
Under the terms of his employment agreement, Mr. Bower is to receive
his current MultiLink base salary ($194,400 on an annualized basis) through
December 31, 1997 as well as all standard fringe benefits generally available
to other employees of MultiLink. Mr. Bower will be continued as a participant
in the MultiLink 1997 Profit Sharing Plan for the period ending September 30,
1997 in accordance with its terms. Provided he remains a full-time employee of
PictureTel through December 31, 1997, Mr. Bower will also receive a bonus,
subject to revenue goals, for sales of MultiLink products from October 1, 1997
through December 31, 1997, payable in the first quarter of 1998, ranging from
$13,500 to $18,000, and $35,000 as an assignment completion bonus payable
during the first quarter of 1998. Over-achievement of the target set in the
revenue plan would result in a higher revenue bonus payment. PictureTel has
agreed to recommend to the Compensation Committee of its Board of Directors a
grant of options to purchase up to 40,000 shares of PictureTel Common Stock to
Mr. Bower (the "Option"), subject to Mr. Bower's remaining a full-time
employee of PictureTel, with 25% of the aggregate number of shares vesting on
December 31, 1997, 6.25% of the aggregate number of shares vesting on the first
anniversary of the Effective Date, and 6.25% of the aggregate number of shares
vesting each quarter thereafter. The exercise price of the Option will be the
closing price quoted on NASDAQ for PictureTel Common Stock on the Effective
Date.
By the terms of Mr. Bower's proprietary information and inventions
agreement, he is obligated to assign all intellectual property developed or
conceived by him during the employment term to PictureTel and is restricted by
confidentiality provisions. Pursuant to Mr. Bower's related non-competition
agreement, he has agreed, during the term of employment with PictureTel and for
12 months following the earlier of the effective date of his termination of
employment with PictureTel or December 31, 1997, not to engage in any business
activity which is competitive with PictureTel or its subsidiaries and not to
solicit employees or customers of PictureTel or its subsidiaries.
If Mr. Bower is terminated by PictureTel without cause prior to
December 31, 1997, he will be entitled to the following benefits provided he
satisfies the terms of his related non-competition and proprietary information
and inventions agreements (the "Severance Benefits"): (i) all salary, bonus, and
fringe benefits that he would have received if he had remained employed by
PictureTel through December 31, 1997 and all conditions to full payment of his
bonuses had been met; (ii) severance payments of one year's salary at an
annualized rate of $194,400; (iii) continuation of all fringe benefits,
including health, dental, life and disability insurance until the earlier of
December 31, 1998 or such time as Mr. Bower obtains other employment; (iv)
options to purchase 10,000 shares of PictureTel Common Stock under the Option
will vest and remain exercisable until 90 days after December 31, 1997; and (v)
voicemail and secretarial support from the date of his termination through
December 31, 1998. If Mr. Bower is terminated for "just cause," as defined by
his employment agreement, no further compensation shall be due to him, except
for compensation due and payable through the date of his termination, excluding
bonuses.
If Mr. Bower remains in the employ of PictureTel through December 31,
1997 and satisfies the terms of his related non-competition and proprietary
information and inventions agreements, then he shall be entitled to items (ii),
(iii), (iv) and (v) of the Severance Benefits listed above unless PictureTel
and Mr. Bower agree to extend his employment after December 31, 1997, in which
case Mr. Bower and PictureTel will, at such time, negotiate the terms of his
employment commensurate with similar level positions at PictureTel. Regardless
of whether Mr. Bower remains employed by PictureTel or leaves after
December 31, 1997, his rights under the Option continue in accordance with
its terms.
-28-
<PAGE> 39
Under the terms of his employment agreement, Mr. Shanmugaraj is to
receive his current base salary ($120,000 on an annualized basis) as Director of
Engineering. He will continue as a participant under the terms of the current
MultiLink Profit Sharing Plan through September 30, 1997. PictureTel has agreed
to recommend to the Compensation Committee of its Board of Directors a grant of
options to purchase 15,000 shares of PictureTel Common Stock. Provided that Mr.
Shanmugaraj remains an employee of PictureTel through December 31, 1997,
PictureTel will pay him an assignment completion bonus of $25,000 payable in
January 1998. In the event of termination without cause of Mr. Shanmugaraj by
PictureTel, Mr. Shanmugaraj would be entitled to three months salary and, if he
remains unemployed at such time, PictureTel has agreed to extend up to an
additional three months salary continuation on a month to month basis.
In the event that Mr. Shanmugaraj remains unemployed after the end of
six months following an involuntary termination from PictureTel, provided that
(i) he is actively seeking new employment and (ii) he continues to comply with
the terms of his proprietary information and inventions and non-competition
agreements, PictureTel has agreed to extend his base salary month to month for
up to an additional maximum of six (6) months. Mr. Shanmugaraj shall also be
provided full relocation assistance in accordance with PictureTel's standard
policy.
By the terms of Mr. Shanmugaraj's proprietary information and
inventions agreement, he is obligated to assign all intellectual property
developed or conceived by him during the employment term to PictureTel and is
restricted by confidentiality provisions. Pursuant to Mr. Shanmugaraj's
non-competition agreement, he agrees, during the term of employment with
PictureTel and for 12 months following the effective date of his termination of
employment with PictureTel not to engage in any business activity which is
competitive with PictureTel or its subsidiaries and not to solicit employees
or customers of PictureTel or its subsidiaries.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the MultiLink Board of Directors
with respect to the Merger, stockholders of MultiLink should be aware that one
director/officer and one officer of MultiLink have entered into employment
agreements with PictureTel with respect to employment following the Merger
which present them with potential conflicts of interest. In addition several
other employees of MultiLink may become employees of PictureTel on the
Effective Date. See "The Merger--Employment Agreements."
From and after the Effective Date, PictureTel and the Surviving
Corporation have agreed to indemnify, defend and hold harmless each person who
as of or prior to April 15, 1997 was an officer or director of MultiLink to the
same extent that such officer or director was indemnified by MultiLink pursuant
to its Charter and By-Laws, as in effect on April 15, 1997, for acts or
omissions in such person's capacity as an officer or director of MultiLink
occurring on or prior to the Effective Date. MultiLink has represented in the
Merger Agreement that there is no action or claim pending or, to the knowledge
of MultiLink, threatened against any person who is now or has been at any time
prior to April 15, 1997 an officer or director of MultiLink for acts or
omissions in such person's capacity as an officer or director of MultiLink.
As of the MultiLink Record Date, directors and executive officers of
MultiLink and their affiliates had the right to vote approximately 43% of the
outstanding shares of MultiLink Common Stock. Three of the directors and
executive officers of MultiLink (Bruce Bower, J. Edward McAteer, and Sigmund
Hertzstein) and certain of their affiliates,
-29-
<PAGE> 40
holding, as of the MultiLink Record Date, approximately 72% of the outstanding
shares of MultiLink Common Stock, have executed an irrevocable proxy (subject in
the case of the directors to the fulfillment of their fiduciary duties) in favor
of PictureTel, authorizing PictureTel to vote all the outstanding shares of
MultiLink Common Stock over which he or she has voting control in favor of
approval and adoption of the Merger Agreement.
THE BROADVIEW FEE
Pursuant to a letter agreement (the "Letter Agreement") between
Broadview Associates LLC ("Broadview") and MultiLink dated as of March 10, 1997,
MultiLink is obligated to pay Broadview a "success fee" (discounted by 20%) of
1.5% of the first sixty million dollars of consideration and 2.0% of all
consideration beyond the first sixty million dollars received by MultiLink or
its stockholders, initially or subsequently, due to Broadview's investment
banking services rendered during the negotiation of the sale of MultiLink to
PictureTel, with a minimum fee of $600,000. The fee is due when the
consideration is received directly by MultiLink or its shareholders and at least
the minimum fee is due to Broadview at the closing, which shall take place on
the Effective Date. With respect to any consideration placed in escrow, that
portion of the fee attributable to the escrowed amount, if any, will be due when
the escrowed consideration is received by MultiLink or its stockholders. The
Surviving Corporation will pay the fee.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion addresses the material federal income tax
consequences of the Merger. This is not a complete description of all the tax
consequences of the Merger and does not address the survival or availability of
any tax attributes of MultiLink as a result of the Merger or the tax
consequences that may be relevant to particular categories of stockholders
subject to special treatment under certain federal income tax laws, such as
dealers in securities, banks, insurance companies, foreign individuals and
entities, tax-exempt organizations and stockholders who acquired MultiLink
Common Stock pursuant to an employee stock option or otherwise as compensation.
Each MultiLink stockholder's individual circumstances may affect the tax
consequences of the Merger to him or her. No information is provided herein with
respect to the tax consequences of the Merger under foreign, state or local laws
or the tax consequences of transactions effected prior to, concurrently with, or
after the Merger (whether or not such transactions are undertaken in connection
with the Merger), including, without limitation, the exercise of options or
similar rights to purchase stock, or the exchange, assumption or substitution of
options or similar rights to purchase MultiLink Common Stock for rights to
purchase PictureTel Common Stock. Moreover, the description set forth below is
based on existing law and currently applicable United States Treasury
regulations promulgated under the Code, judicial authority, and current
published administrative positions of the Internal Revenue Service contained in
revenue rulings and revenue proceedings, all of which are subject to change
either prospectively or retroactively. Any such changes could adversely affect
the accuracy of the statements and conclusions set forth herein.
It is intended that the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code.
Subject to the limitations and qualifications referred to herein, if the Merger
qualifies as a reorganization, the following federal income tax consequences
will result:
(i) No gain or loss will be recognized by holders of MultiLink
Common Stock upon their receipt in the Merger of PictureTel Common Stock (except
to the extent of cash received by MultiLink stockholders in lieu of fractional
share interests in PictureTel Common Stock) exchanged therefor.
(ii) The aggregate tax basis of the PictureTel Common Stock
received by MultiLink stockholders in the Merger (including any fractional share
that is treated as issued and sold pursuant to paragraph (iv) below and
including any shares of PictureTel Common Stock initially held in escrow) will
be the same as the aggregate tax basis of the MultiLink Common Stock surrendered
in exchange therefor.
(iii) The holding period of the shares of PictureTel Common Stock
received in the Merger by MultiLink stockholders (including any fractional share
that is treated as issued and sold pursuant to paragraph (iv) below and any
shares of PictureTel Common Stock initially held in escrow) will include the
period during which the shares of
-30-
<PAGE> 41
MultiLink Common Stock surrendered in exchange therefor were held, provided that
such shares of MultiLink Common Stock were held as capital assets at the
Effective Date.
(iv) Cash received by a holder of MultiLink Common Stock in lieu of
a fractional share interest in PictureTel Common Stock will be treated as if it
was received upon the sale by such MultiLink stockholder of a fractional share
of PictureTel Common Stock issued in the Merger. A MultiLink stockholder
receiving such cash will recognize gain or loss for federal income tax purposes
upon such payment, equal to the difference (if any) between the amount of cash
received and such stockholder's tax basis in the fractional share. Such gain or
loss will be capital gain or loss, provided that such share of MultiLink Common
Stock was held as a capital asset at the Effective Date and will be long-term
capital gain or loss if such share of MultiLink Common Stock has been held for
more than one year at the Effective Date.
(v) No gain or loss will be recognized and no amount will be
included in the income of the MultiLink stockholders by reason of any return to
PictureTel of the Escrowed Shares pursuant to the terms of the Escrow Agreement
or by reason of the release of the Escrowed Shares to the MultiLink
stockholders. If a portion of the Escrowed Shares are returned to PictureTel,
the adjusted basis of the returned shares will be added to the adjusted basis
of the remaining shares of PictureTel stock received by the MultiLink
stockholders in the Merger.
(vi) A stockholder who exercises dissenters' rights with respect to
a share of MultiLink Common Stock and receives payment for such share in cash
should in general recognize gain or loss for federal income tax purposes,
measured by the difference between the holder's tax basis in such share and the
amount of cash received, exclusive of interest, if any. Such gain or loss should
in general be capital gain or loss, provided that the share of MultiLink Common
Stock was held as a capital asset at the Effective Date and be long-term capital
gain or loss if such share of MultiLink Common Stock has been held for more than
one year at the Effective Date. Special rules may apply to a dissenting
stockholder that actually or constructively (pursuant to section 318 of the
Code) owns either shares of MultiLink Common Stock as to which dissenters'
rights are not being exercised or shares of PictureTel Common Stock. Interest,
if any, awarded in an appraisal proceeding by a court will be includible in such
stockholder's income as ordinary income for federal income tax purposes.
No advance ruling will be requested or received from the Internal
Revenue Service as to the federal income tax consequences of the Merger. It is a
condition to the consummation of the Merger that PictureTel and MultiLink shall
each have received an opinion of their respective counsel to the effect that the
Merger will qualify as a reorganization within the meaning of Section 368(a) of
the Code. MultiLink stockholders should be aware that the tax opinions do not
bind the Internal Revenue Service and the Internal Revenue Service is therefore
not precluded from successfully asserting a contrary opinion. In addition, the
tax opinions are subject to certain assumptions and qualifications, including
but not limited to an assumption that certain representations made by
PictureTel, MultiLink, Merger Sub, and certain MultiLink stockholders, including
representations in certain certificates to be delivered to counsel by the
respective management of PictureTel, MultiLink, Merger Sub and certain MultiLink
stockholders, are true and accurate. Of particular importance are certain
assumptions and representations relating to the "continuity of interest"
requirement for reorganization treatment.
To satisfy the "continuity of interest" requirement, MultiLink
stockholders must not, pursuant to a plan or intent existing at or prior to the
Merger, sell, exchange, pledge or otherwise dispose of, or engage in a short
sale (or any other transaction which results in a reduction in the risk of
ownership) with respect to, so much of either (i) their MultiLink Common Stock
in anticipation of the Merger or (ii) the PictureTel Common Stock to be received
in the Merger, such that MultiLink stockholders, as a group, would no longer
have a significant equity interest in the MultiLink business being conducted by
PictureTel after the Merger. Certain stockholders of MultiLink will be making
representations at the Effective Date regarding the absence of any plan or
intent to engage in such transactions. If such representations prove to be
inaccurate, the Merger may fail to meet the "continuity of interest"
requirement. Although it is uncertain as to what constitutes sufficient
continuity of interest, the published advance ruling guidelines of the Internal
Revenue Service provide that the requirement will be satisfied if the MultiLink
stockholders do not dispose of a number of shares of PictureTel Common Stock
having a value, as of the date of the Merger, of 50 percent or more of the value
of all of the formerly outstanding MultiLink Common Stock as of the same date.
On December 23, 1996, the Internal Revenue
-31-
<PAGE> 42
Service published proposed regulations in the Federal Register that would
generally eliminate any requirement under the continuity of interest test that
target company stockholders retain any stock issued in a reorganization
transaction. However, this proposed regulation would, in its present form, not
apply to the Merger, since it is proposed to apply only to transactions
occurring after final regulations are published in the Federal Register and
would not apply to any transaction occurring after such publication pursuant to
a written agreement which is (subject to customary conditions) binding on or
before final regulations are so published.
A successful Internal Revenue Service challenge to the status of the
Merger as a reorganization under Section 368(a) of the Code (as a result of a
lack of continuity of interest or otherwise) would result in MultiLink
stockholders recognizing taxable gain or loss with respect to each share of
MultiLink Common Stock surrendered equal to the difference between the
stockholder's tax basis in such share and the fair market value, as of the
Effective Date, of the PictureTel Common Stock received in exchange therefor. In
such event, a stockholder's aggregate tax basis in the PictureTel Common Stock
so received would equal its fair market value and the holding period for such
stock would begin the day after the Merger.
Certain noncorporate MultiLink stockholders may be subject to backup
withholding at a rate of 31% on cash payments received in lieu of a fractional
share interest in PictureTel Common Stock or after exercise of dissenters'
rights. Backup withholding will not apply, however, to a stockholder who (i)
furnishes a correct taxpayer identification number ("TIN") and certifies that he
or she is not subject to backup withholding on the substitute Form W-9 included
in the Transmittal Letter, (ii) provides a certificate of foreign status on Form
W-8, or (iii) is otherwise exempt from backup withholding. A stockholder who
fails to provide the correct TIN on Form W-9 may be subject to a $50 penalty
imposed by the Internal Revenue Service.
Holders of MultiLink Common Stock will be required to attach a
statement to their tax returns for the year of the Merger that contains the
information set forth in Treasury Regulation Section 1.368-3(b). The statement
must include the holder's tax basis in the MultiLink Common Stock exchanged and
a description of the PictureTel Common Stock received in the Merger.
EACH HOLDER OF SHARES OF MULTILINK COMMON STOCK IS URGED TO CONSULT HIS OR HER
OWN TAX ADVISOR AS TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO HIM
OR HER, AND ALSO AS TO ANY STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES.
ANTICIPATED ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for
accounting purposes. Under this method of accounting, the assets and liabilities
of PictureTel and MultiLink will be combined based on the respective carrying
values of the accounts in the historical financial statements of each entity.
Results of operations of the combined company will include income of PictureTel
and MultiLink for the entire fiscal period in which the combination occurs and
the historical results of operation of the separate companies for fiscal years
prior to the Merger will be combined and reported as the results of operations
of the combined company.
It is a condition of the obligation of PictureTel to consummate the
Merger that it receive opinions from KPMG Peat Marwick LLP, MultiLink's
independent accountants, and from Coopers & Lybrand L.L.P., PictureTel's
independent accountants, that, based on material representations from PictureTel
and MultiLink, they are not aware of any fact that would preclude PictureTel
from accounting for the Merger as a pooling-of-interests. Certain events,
including transactions with respect to PictureTel Common Stock or MultiLink
Common Stock by affiliates of PictureTel or MultiLink, respectively, may prevent
the Merger from qualifying as a pooling of interests for accounting and
financial reporting purposes. To support the treatment of the Merger as a
pooling of interests, affiliates of MultiLink and PictureTel have entered into
agreements imposing certain resale limitations on their stock. See "--Certain
Federal Securities Law Consequences; Affiliates Agreements".
-32-
<PAGE> 43
GOVERNMENTAL FILINGS
The Merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act, as amended, and the regulations thereunder, which
provide that certain acquisition transactions (including the Merger) may not be
consummated until certain information has been furnished to the Antitrust
Division of the Department of Justice (the "Antitrust Division") and the Federal
Trade Commission (the "FTC"), and certain waiting period requirements have been
satisfied. PictureTel and MultiLink have filed the required information and
material with the Antitrust Division and the FTC and they have received notice
from the FTC that early termination of the applicable waiting period has been
granted effective as of May 9, 1997. Termination of the waiting period does not
preclude the Antitrust Division, the FTC, or any other party from challenging or
seeking to delay or enjoin the Merger on antitrust or other grounds. There can
be no assurance that any such challenge, if made, would not be successful;
however, neither MultiLink nor PictureTel believes that the Merger will violate
the antitrust laws. Any such action taken or threatened prior to the
consummation of the Merger could relieve MultiLink and PictureTel of their
respective obligations to consummate the Merger.
The Articles of Merger will be filed with the Secretary of State of The
Commonwealth of Massachusetts on the Effective Date.
CERTAIN FEDERAL SECURITIES LAW CONSEQUENCES; AFFILIATE AGREEMENTS
The PictureTel Common Stock to be issued in the Merger has been
registered under the Securities Act of 1933 (the "Securities Act"), thereby
allowing those shares to be traded without restriction, except for those shares
held by stockholders of MultiLink or PictureTel who are deemed to control or be
under common control with MultiLink or PictureTel, respectively ("Affiliates").
Affiliates of MultiLink may not sell their shares of PictureTel Common Stock
acquired in the Merger except pursuant to (i) an effective registration
statement under the Securities Act covering such shares, (ii) the resale
provisions of Rule 145 promulgated under the Securities Act or (iii) another
applicable exemption from the registration requirements of the Securities Act.
Affiliates of PictureTel may not sell any shares of PictureTel Common Stock
except pursuant to an effective registration statement under the Securities Act
covering such shares or an applicable exemption from the registration
requirements of the Securities Act.
All Affiliates of PictureTel and MultiLink must deliver to PictureTel a
written agreement (the "Affiliates Agreement") in the form attached as Exhibit A
to the Merger Agreement, pursuant to which they have agreed that, until such
time as financial results covering at least thirty days of combined operations
of MultiLink and PictureTel have been published by PictureTel, they will not
sell, transfer or otherwise dispose of, or offer or agree to sell, transfer or
otherwise dispose of any shares of PictureTel Common Stock received by them
pursuant to the Merger or any securities which may be paid as a dividend or
otherwise distributed thereon or with respect thereto or issued or delivered in
exchange or substitution therefor. Legends restricting the transfer of such
shares of PictureTel Common Stock will be placed on all certificates
representing such shares.
STOCK EXCHANGE LISTING
The shares of PictureTel Common Stock to be issued in the Merger will
be authorized for listing and trading on the NASDAQ.
DIVIDENDS AND OTHER DISTRIBUTIONS
On and prior to the Effective Date, MultiLink and its Subsidiaries are
not permitted, without the prior written consent of PictureTel, to take any of
the following actions: (i) declare or pay any dividend on or in respect of any
of their equity securities; (ii) purchase, redeem or retire any of their equity
securities, directly or indirectly through an Affiliate or otherwise; (iii) make
any other distribution in respect of any shares of any class of capital stock or
other equity security; (iv) make any payment or other distribution on or in
respect of the principal of, interest on, or otherwise relating to, directly or
indirectly, any debt of MultiLink or its subsidiaries or any Affiliate thereof;
or (v) grant any options, warrants or other convertible securities.
-33-
<PAGE> 44
APPRAISAL AND DISSENTERS' RIGHTS
Massachusetts Law
If the Plan of Reorganization is approved by the required vote of
MultiLink shareholders and is not abandoned or terminated, holders of MultiLink
Common Stock who did not vote for the Merger may, by complying with Sections 85
through 98 of the MBCL, be entitled to appraisal and dissenters' rights as
described therein ("Dissenters' Rights"). The shareholders of record of
MultiLink Common Stock who are eligible to, and do, exercise their Dissenters'
Rights with respect to the Merger are referred to herein as "MultiLink
Dissenting Shareholders", and the shares of stock with respect to which they
exercise Dissenters' Rights are referred to herein as "Dissenting Shares." If a
MultiLink shareholder has a beneficial interest in shares of MultiLink Common
Stock that are held of record in the name of another person, and such
shareholder desires to perfect whatever Dissenters' Rights such beneficial
shareholder may have, such beneficial shareholder must act promptly to cause the
shareholder of record timely and properly to follow the steps summarized below.
Pursuant to the MBCL, a shareholder of MultiLink may dissent from the
proposed corporate action to approve the Merger Agreement and receive the right
to an appraisal of such shareholder's shares. Attached hereto as Annex B is a
copy of Sections 85 through 98 of the MBCL.
If the Merger is consummated, the MultiLink Dissenting Shareholders
will be entitled, if they strictly comply with the provisions of the MBCL, to
have the fair value of their shares judicially determined and paid to them. THE
FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE MBCL RELATING TO
DISSENTERS' RIGHTS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTIONS 85
THROUGH 98 OF THE MBCL ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS ANNEX B
AND INCORPORATED HEREIN BY REFERENCE. This discussion and Sections 85 through 98
of the MBCL should be reviewed carefully by any shareholder who wishes to
exercise statutory Dissenters' Rights or wishes to preserve the right to do so,
since failure to comply with the required procedures will result in the loss of
such rights. A shareholder of MultiLink who votes for the adoption and approval
of the Merger Agreement will be deemed to have waived such shareholder's right
to exercise Dissenters' Rights with respect to all shares of MultiLink Common
Stock held by such shareholder. Any shareholder who is considering dissenting
should consult his or her legal advisor.
1. To exercise Dissenters' Rights, a shareholder must (1) file with
MultiLink, before the MultiLink Special Meeting, a written objection to the
Merger stating that the shareholder will exercise the shareholder's right to
dissent if the Merger is effective and giving the address of the shareholder to
which the Surviving Corporation shall mail notice in the event that the Merger
is effective, and (2) the shareholder must not vote in favor of the Merger
Agreement. A vote in favor of the Merger Agreement will waive such shareholder's
Dissenters' Rights. However, a shareholder's failure to vote on the Merger
Agreement will not in itself be a waiver of such shareholder's Dissenters'
Rights. A shareholder who dissents and demands Dissenters' Rights must do so as
to all shares of MultiLink Common Stock held by such shareholder. A shareholder
may not assert Dissenters' Rights with respect to less than all of such
shareholder's shares.
2. If the Merger Agreement is approved and adopted by the MultiLink
shareholders, within 10 days after the Effective Date of the Merger, the
Surviving Corporation must give written notice that the Merger has become
effective to each shareholder who gave notice before the MultiLink Special
Meeting of such shareholder's objection to the Merger and who did not vote in
favor of the Merger Agreement.
3. If the shareholder did not vote in favor of the Merger Agreement,
such MultiLink Dissenting Shareholder may, within 20 days after the mailing of
the notice that the Merger is effective, make written demand (the "Demand
Notice") on the Surviving Corporation for the payment of the fair value of such
shareholder's Dissenting Shares. Any shareholder failing to make demand for
payment within the 20-day period shall be bound by the Merger.
4. Pursuant to the MBCL, the fair value of the Dissenting Shares is the
value thereof as of the day immediately preceding the MultiLink Special Meeting,
excluding any appreciation or depreciation in anticipation of the Merger.
-34-
<PAGE> 45
5. Within 30 days after the expiration of the dissenting shareholders'
20 day notice period, the Surviving Corporation receiving demand for payment by
the MultiLink Dissenting Shareholder must deliver to the MultiLink Dissenting
Shareholder payment of the fair value of the shares.
6. If, within 60 days of the Effective Date, the MultiLink Dissenting
Shareholder and the Surviving Corporation do not agree as to the fair value of
the Dissenting Shares, then within 120 days after the Effective Date the
MultiLink Dissenting Shareholder may file a petition with any court of competent
jurisdiction in Essex County, Massachusetts (the "Court") requesting a
determination of the value of such shareholder's Dissenting Shares. The
surviving corporation must, within 10 days after the service of the filing of a
petition described above, file with the office of the clerk of the Court in
which the petition was filed a verified list of the names and addresses of all
MultiLink Dissenting Shareholders. A notice of the time and place of the hearing
on the petition will then be sent to all of the individuals on that list.
At the hearing on the petition, the Court will determine the
shareholders who have complied with the MBCL and have become entitled to
Dissenters' Rights and will appoint one or more qualified appraisers to
determine the value of the Dissenting Shares, who shall file a report with the
Court. After a hearing on the appraisal(s), the Court shall determine the fair
value of the Dissenting Shares and shall direct payment of that value by the
Surviving Corporation, together with interest thereon, beginning 91 days after
the Effective Date, subject to receipt of duly endorsed certificates for the
Dissenting Shares. All court costs, including appraisers' fees, shall be
allocated by the Court in a manner it determines to be fair and equitable.
7. Upon consummation of the Merger, each MultiLink Dissenting
Shareholder will cease to have any rights of a shareholder except the right to
be paid the fair value of the Dissenting Shares and the right to receive other
distributions, if any, payable to shareholders of record prior to the Effective
Date and any other rights under applicable Massachusetts law.
THE MERGER AGREEMENT
The description of the Merger Agreement set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Merger Agreement, a copy of which is attached to this Proxy Statement/Prospectus
as Annex A and incorporated herein by reference. Statements in this Proxy
Statement/Prospectus with respect to the terms of the Merger are qualified in
their entirety by reference to the Merger Agreement. MultiLink shareholders are
urged to read the full text of the Merger Agreement.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
the parties, including representations (subject to disclosed exceptions) by
MultiLink relating to (i) its organization and qualification to do business,
(ii) its articles of organization and by-laws, (iii) its authority relative to
the Merger Agreement, (iv) its capitalization, (v) its subsidiaries, (vi) its
financial statements, (vii) the absence of undisclosed liabilities, (viii) the
absence of certain changes or events, (ix) its title to property, (x) the
payment of its taxes, (xi) its contracts and commitments, (xii) the absence of
defaults (xiii) its intellectual property, (xiv) any interested party
transactions, (xv) the conflicts, required filings and consents arising from or
necessitated by the Merger, (xvi) the compliance and permits necessitated by the
Merger, (xvii) the absence of litigation, (xviii) the absence of restrictions on
its business activities, (xix) brokerage, finder's or other fees or commissions,
(xx) its environmental matters, (xxi) full disclosure by MultiLink, (xxii) its
insurance, (xxiii) its labor matters, (xxiv) its employee benefit plans and
employment agreements, (xxv) its accounts receivable and inventories, (xxvi) the
accuracy of information supplied by MultiLink for this Proxy
Statement/Prospectus and the registration statement on Form S-4 (the
"Registration Statement"), of which it is a part, relating to MultiLink, (xxvii)
the absence of change in control payments and (xxviii) the absence of claims
against officers and directors. The Merger Agreement also contains
representations and warranties of PictureTel and Merger Sub as to (i) their
organization and qualification to do business, (ii) the full force and effect of
their respective certificate of incorporation, articles of organization and
by-laws, (iii) their capitalization, (iv) their authority relative to the Merger
Agreement, (v) the conflicts, required filings and consents arising from or
necessitated by the Merger, (vi) the absence of litigation, (vii)
-35-
<PAGE> 46
SEC filings and financial statements, (viii) brokerage, finders or other fees or
commissions, (ix) the accuracy of information supplied by PictureTel in this
Proxy Statement/Prospectus and the Registration Statement of which it is a part
relating to PictureTel or Merger Sub, and (x) PictureTel's ownership of Merger
Sub and the prior activities of Merger Sub. The representations and warranties
made by the parties will survive until the Release Date; provided however, that
if PictureTel or MultiLink gives written notice of a claim, for which it is
entitled to indemnification under the Merger Agreement, prior to the Release
Date, then the relevant representations, warranties, covenants or agreements
shall survive as to such claim until such claims have been finally resolved.
CONDUCT OF PICTURETEL'S AND MULTILINK'S BUSINESS PRIOR TO THE MERGER
Under the terms of the Merger Agreement, MultiLink has agreed that,
during the period from the date of the Merger Agreement and continuing until the
earlier of the termination of the Merger Agreement or the Effective Date, unless
PictureTel otherwise agrees in writing, MultiLink will conduct its business and
will cause the business of its subsidiaries to be conducted only in, and
MultiLink and its subsidiaries shall not take any action except in, the ordinary
course of business and in a manner consistent with past practice other than
actions taken by MultiLink or its subsidiaries in contemplation of the Merger;
and MultiLink shall use its best efforts to preserve the value of MultiLink and
its subsidiaries as a going concern and to preserve the present relationships of
MultiLink and its subsidiaries with customers, suppliers, employees and other
persons with which MultiLink or any of its subsidiaries has significant business
relations.
MultiLink has further agreed that neither it nor any of its
subsidiaries will, during the period from the date of the Merger Agreement and
continuing until the earlier of the termination of the Merger Agreement or the
Effective Date, directly or indirectly do, or propose to do, any of the
following without the prior written consent of PictureTel: (a) amend or
otherwise change the Charter or Bylaws of MultiLink or any of its subsidiaries;
(b) sell, pledge, dispose of or encumber any assets of MultiLink or any of its
subsidiaries (except for sales of inventory in the ordinary course of business
and in a manner consistent with past practice); (c) increase the compensation
payable or to become payable to its officers or employees, or grant any
severance or termination pay to, or enter into any employment or severance
agreement with any director, officer or other employee of MultiLink or any of
its subsidiaries, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any current or former directors, officers or
employees, except, in each case, as may be required by law; (d) issue, sell,
pledge, dispose of or encumber, or authorize the issuance, sale, pledge,
disposition or encumbrance of, any shares of capital stock of any class, or any
options, warrants, convertible securities or other rights of any kind to acquire
any shares of capital stock, or any other ownership interest (including, without
limitation, any phantom interest) in MultiLink, any of its subsidiaries or
affiliates (except for the issuance of shares of MultiLink Common Stock issuable
pursuant to MultiLink Options which were granted under MultiLink's Stock Option
Plans (the "MultiLink Stock Option Plans") and were outstanding on the date of
the execution of the Merger Agreement); (e) (i) declare, set aside, make or pay
any dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of any of its capital stock, (ii) split, combine
or reclassify any of its 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 capital stock, or (iii) amend the terms or change the period
of exercisability of, purchase, repurchase, redeem or otherwise acquire, or
permit any subsidiary to purchase, repurchase, redeem or otherwise acquire, any
of its securities or any securities of its subsidiaries, including, without
limitation, shares of MultiLink Common Stock or any option, warrant or right,
directly or indirectly, to acquire shares of MultiLink Common Stock, or propose
to do any of the foregoing; (f) (i) acquire (by merger, consolidation, or
acquisition of stock or assets) any corporation, partnership or other business
organization or division thereof, (ii) incur any indebtedness for borrowed money
other than under the terms of MultiLink's existing credit facility or issue any
debt securities or assume, guarantee or endorse or otherwise as an accommodation
become responsible for, the obligations of any person or make any loans or
advances to any of MultiLink's officers or employees or shareholders (other than
normal travel advances) in excess of $10,000, or (iii) enter into or amend any
material contract or agreement for a value exceeding $500,000 for a term
exceeding one year (other than in the ordinary course of business consistent
with past practice or to extend the maturity date of MultiLink's existing credit
facility); (g) enter into any transaction with any MultiLink affiliates other
than on an arms' length basis; (including, without limitation, procedures with
respect to revenue recognition, payments of accounts payable and collection of
accounts receivable); (h) allow any permit or license to lapse or terminate or
fail to renew any such permit;
-36-
<PAGE> 47
(i) cancel claims or waive or release any valuable right of substantial value or
settle any mutual action; or (j) take, or agree in writing or otherwise to take,
any of the actions described in (a) through (i) above, or any action which would
make any of the representations or warranties of MultiLink contained in the
Merger Agreement untrue or incorrect or prevent MultiLink from performing or
cause MultiLink not to perform its covenants thereunder.
NO SOLICITATION
The Merger Agreement provides, subject to certain exceptions, that: (a)
MultiLink cannot, directly or indirectly, through any officer, director,
employee, representative or agent of MultiLink or any of its subsidiaries,
solicit, initiate or encourage the initiation of any inquiries or proposals or
provide any information to any person relating to any merger, sale of
substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transactions involving MultiLink
or any subsidiaries of MultiLink other than the Merger (each of the foregoing
inquiries or proposals referred to herein as an "Alternative Transaction"),
except (x) to the extent that it is required to do so pursuant to MultiLink's
applicable fiduciary obligations confirmed by written opinion of MultiLink's
counsel or (y) in connection with certain discussions with existing stockholders
or advisors with respect to alternative financing arrangements if the Merger
Agreement is terminated; and (b) MultiLink shall immediately notify PictureTel
after becoming aware of any Alternative Transaction. Such notice to PictureTel
shall include the identity of the relevant parties and the content of any such
communication.
CONDITIONS TO THE MERGER
Each party's respective obligation to effect the Merger is subject to,
among other things, the satisfaction prior to the Effective Date of the
following conditions: (a) immediately prior to the Effective Date, the
Commission having declared the Registration Statement of which this Proxy
Statement/Prospectus is a part, effective, with no stop order suspending the
effectiveness of the Registration Statement having been issued by the Commission
and no proceedings for that purpose and no similar proceeding in respect of the
Proxy Statement/Prospectus having been initiated or threatened by the
Commission; (b) the Merger Agreement having received the approval of MultiLink's
stockholders holding not less than a majority of outstanding MultiLink Common
Stock (the "Requisite Approvals"); (c) the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act shall have terminated or expired;
and (d) the absence of any temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the Merger, any
pending proceeding brought by any administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing or any action taken, statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the Merger, which makes the
consummation of the Merger illegal.
The obligations of PictureTel and Merger Sub to effect the Merger are
also subject to the following conditions: (a) the accuracy, in all respects, of
the representations and warranties of MultiLink as of the Effective Date with
the same force and effect as if made at and as of such time (except as otherwise
expressly provided in the Merger Agreement) and the receipt of a certificate to
such effect signed by the President or any Vice President of MultiLink; (b) the
performance and compliance by MultiLink with all agreements and covenants
required by the Merger Agreement to be performed or complied with by MultiLink
at or prior to the Effective Date and the receipt of a certificate to such
effect signed on behalf of MultiLink by the President or any Vice President of
MultiLink; (c) there shall not have occurred any change, effect or circumstance
that is materially adverse to the assets, condition (financial or otherwise) of
MultiLink and its subsidiaries, provided, however, that in making such
determination, any material adverse change with respect to the business or
operations of MultiLink shall not be considered; (d) there shall be no
outstanding options to purchase MultiLink Common Stock immediately prior to the
Effective Date (other than options being converted into options to purchase
PictureTel Common Stock pursuant to the Merger); (e) the Articles of Merger
shall be executed and delivered to PictureTel and Merger Sub; (f) the receipt by
PictureTel of an opinion (the "Pooling Opinions") of each of Coopers & Lybrand
L.L.P. and KPMG Peat Marwick LLP to the effect that the Merger qualifies for
pooling of interests accounting treatment (unless PictureTel waives the
requirement that the Merger so qualify); (g) the shares of PictureTel Common
Stock shall have been approved for listing on NASDAQ; (h) the Stockholders
Agreement shall be in full force and effect; (i) MultiLink having obtained all
necessary consents, waivers, approvals, authorizations or orders, and having
made all required filing, for the due authorization, execution and delivery of
the Merger Agreement
-37-
<PAGE> 48
and the consummation by MultiLink of the transactions contemplated by the Merger
Agreement; (j) the receipt by PictureTel of an opinion from Testa, Hurwitz &
Thibeault, LLP, counsel to MultiLink, regarding the validity of certain actions
taken by MultiLink with respect to the Merger; (k) the receipt by PictureTel of
an opinion from Ropes & Gray, counsel to PictureTel, in form and substance
reasonably satisfactory to PictureTel, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368 of the Code; (l)
the receipt by PictureTel and the continuing full force and effect of an
"Affiliate Agreement" by each person who is identified as an "affiliate" of
MultiLink; (m) the termination of all existing registration rights with respect
to the purchase of the capital stock of MultiLink of holders of MultiLink
securities; (n) certain specified persons shall have entered into employment and
non-competition agreements (the "Employment Agreements") with PictureTel; and
(o) in addition to obtaining the Requisite Approvals, MultiLink shall not have
received from any stockholders of MultiLink holding more than 5% of the
MultiLink Common Stock that will be outstanding in the aggregate immediately
prior the Effective Date notices of an intent to pursue appraisal rights
pursuant to Sections 85 through 98 of the MBCL in respect of the Merger.
The obligation of MultiLink to effect the Merger is also subject to the
following conditions: (a) the accuracy, in all respects, of the representations
and warranties of PictureTel and Merger Sub as of the Effective Date with the
same force and effect as if made at and as of such time and the receipt of a
certificate to such effect signed by the President or any Vice President of
PictureTel; (b) the performance and compliance by PictureTel and Merger Sub in
all material respects with all agreements and covenants required by the Merger
Agreement to be performed or complied with by them on or prior to the Effective
Date, and MultiLink shall have received a certificate to such effect signed by
the President or any Vice President of PictureTel; (c) the Articles of Merger,
the Affiliate Agreements and the Employment Agreements shall have been entered
into by PictureTel; (d) MultiLink shall have received copies of the Pooling
Opinions, unless PictureTel has waived the condition that the Merger qualify for
pooling of interests accounting treatment; (e) PictureTel and Merger Sub shall
have obtained all necessary consents, waivers, approvals, authorizations or
orders, and have made all required filings, for the authorization, execution and
delivery of the Merger Agreement and the consummation by them of the
transactions contemplated by the Merger Agreement; (f) the receipt by MultiLink
of the written opinion from Testa, Hurwitz & Thibeault, LLP in form and
substance reasonably satisfactory to MultiLink, to the effect that the Merger
will constitute a reorganization within the meaning of Section 368 of the Code;
and (g) the receipt by MultiLink of the written opinion of Ropes & Gray, counsel
to PictureTel, regarding the validity of certain actions taken by PictureTel
with respect to the Merger.
By the terms of the Merger Agreement, each of PictureTel and MultiLink
have the right to waive any condition to their respective obligations to
consummate the Merger.
TERMINATION
The Merger Agreement may be terminated at any time prior to the
Effective Date, (a) by mutual written consent of PictureTel, Merger Sub and
MultiLink; (b) by either PictureTel or MultiLink if the Merger shall not have
been consummated by August 31, 1997 (provided that the right to terminate the
Merger Agreement under this clause (b) shall not be available to any party whose
breach of any representation, warranty, covenant or agreement under the Merger
Agreement has been the primary cause of or resulted in the failure of the Merger
to occur on or before such date and such date may be extended to September 30,
1997 with the consent of MultiLink upon the request of PictureTel, which consent
shall not be unreasonably withheld); (c) by PictureTel or MultiLink, upon a
breach (except as otherwise provided) of any representation, warranty, covenant
or agreement on the part of MultiLink or PictureTel, respectively, set forth in
the Merger Agreement, after PictureTel or MultiLink, as the case may be, has
notified the other of such breach and such breach has continued uncured for a
period of 5 days; or (d) by MultiLink, if MultiLink receives an unsolicited
proposal for and is required by applicable fiduciary duties, confirmed by
written opinion of counsel, to enter into an Alternative Transaction.
In the event of the termination of the Merger Agreement pursuant to the
preceding paragraphs, the Merger Agreement shall forthwith become void and there
shall be no liability on the part of any party thereto or any of its affiliates,
directors, officers or stockholders except (i) for certain confidentiality and
jurisdictional provisions of the Merger Agreement which shall survive any
termination of the Merger Agreement and (ii) the payment of the PictureTel
Expenses and Termination Fee described below to PictureTel.
-38-
<PAGE> 49
FEES AND EXPENSES; TERMINATION FEE
Except for the PictureTel Expenses and the Termination Fee payable to
PictureTel described below, all fees and expenses incurred in connection with
the Merger Agreement and the transactions contemplated by it will be paid by the
party incurring such expenses, whether or not the Merger is consummated,
provided that, in the event the Merger Agreement is terminated by MultiLink,
PictureTel and MultiLink shall share equally all fees and expenses (other than
accountants and attorney fees) related to the printing and filing of this Proxy
Statement/Prospectus, the Registration Statement of which it is part, and any
amendments or supplements hereto and thereto. If MultiLink terminates the Merger
Agreement pursuant to carrying out the fiduciary duties of its directors,
MultiLink shall be obligated to reimburse PictureTel for PictureTel's actual,
documented and reasonable out-of-pocket expenses related to the Merger Agreement
not to exceed $500,000 (the "PictureTel Expenses") within five business days of
the termination of the Merger Agreement. If MultiLink consummates an Alternative
Transaction within 90 days of the date of the Merger Agreement, MultiLink shall
pay to PictureTel, in addition to the PictureTel Expenses, a fee of $1,000,000
(the "Termination Fee") within five business days after the consummation of the
Alternative Transaction.
INDEMNIFICATION
The representations and warranties made by the parties will survive
until the Release Date; provided however, that if PictureTel or MultiLink gives
written notice of a claim, for which it is entitled to indemnification under the
Merger Agreement, prior to the Release Date, then the relevant representations,
warranties, covenants or agreements shall survive as to such claim until such
claim has been finally resolved. The representations and warranties made by the
parties will remain operative and in full force and effect regardless of any
investigation made by or on behalf of any other party thereto, any person
controlling any such party or any of their officers or directors, whether prior
to or after the execution of the Merger Agreement. No claim for indemnification
for breach of a representation or warranty by MultiLink or PictureTel may be
commenced after the Release Date.
By approving the Merger Agreement, the stockholders of MultiLink (each
in its capacity as an indemnifying party, an "Indemnifying Party") agree,
subject to the monetary limitations described below, to indemnify and hold
harmless each of PictureTel, Merger Sub, the Surviving Corporation and each of
their respective affiliates (each in its capacity as an indemnified party, an
"Indemnitee") from and after the date of the Merger Agreement from and against
all losses, damages, obligations, liabilities, causes of action, accusations,
allegations, claims, awards, assessments, amounts paid in settlement,
judgements, orders, decrees, fines, penalties and other sanctions, costs and
expenses (including without limitation, reasonable attorneys' fees and costs and
expenses and costs and expenses of collection) (collectively "Losses") incurred
by such Indemnitee as a result of or incident to (i) any breach of or inaccuracy
in any representation or warranty of MultiLink set forth therein (or any
allegation by any third party of facts which, if true as alleged, would
constitute such a breach or inaccuracy) or in any certificate or other document
delivered in connection therewith with respect to which a claim for
indemnification is brought by an Indemnitee within the applicable period
described above, (ii) any breach or violation by MultiLink with respect to, any
covenant, agreement, or obligation contained therein or in any certificate or
other document delivered in connection therewith except to the extent waived by
PictureTel, or (iii) certain discrimination claims and other employment related
claims by a certain employee of MultiLink (the "Employee Claim").
PictureTel and Merger Sub (each in its capacity as an indemnifying
party, an "Indemnifying Party") have agreed, subject to the monetary limitations
described below, to indemnify and hold harmless the holders of MultiLink Common
Stock or MultiLink Options immediately prior to the Merger (the "Target
Securityholders" and each in its capacity as an indemnified party, an
"Indemnitee") from and after the date of the Merger Agreement from and against
all Losses incurred by such Indemnitee as a result of or incident to (i) any
breach of or inaccuracy in any representation or warranty of PictureTel set
forth therein (or any allegation by any third party of facts which, if true as
alleged, would constitute such a breach or inaccuracy) or in any certificate or
other document delivered in connection therewith with respect to which a claim
for indemnification is brought by an Indemnitee within the applicable period
described above, or (ii) any breach or violation by PictureTel with respect to,
any covenant, agreement, or obligation contained therein or in any certificate
or other document delivered in connection therewith except to the extent waived
by the Target Securityholders.
-39-
<PAGE> 50
Subject to the exceptions described below, the Indemnifying Parties
shall not be required to indemnify any Indemnitee except to the extent that
Losses suffered by such Indemnitee, together with Damages suffered with respect
to all other claims for indemnification pursuant to the Merger Agreement, exceed
$500,000 (the "Minimum Amount") in which case the Indemnitee shall be entitled
to indemnification for the entire aggregate cumulative amount of such Losses
subject to the maximum aggregate liability equal to the value of the Escrowed
Shares (described below).
For claims with respect to Losses related to the breach of
representations related to MultiLink's organization, authorization,
capitalization, subsidiary, tax matters, brokers and matters relating to the
Foreign Corrupt Practices Act, or PictureTel's organization, authorization and
capitalization the Minimum Amount shall be $100,000 and for the Employee Claim,
MultiLink's shareholders shall only be obligated to indemnify the PictureTel
Indemnitees to the extent such Losses exceed $50,000.
Promptly after an Indemnitee has received notice of or has knowledge of
any claim by a person not a party to the Merger Agreement (a "Third Person") or
the commencement of any action or proceeding by a Third Person, the Indemnitee
shall use reasonable efforts to give written notice of such claim or the
commencement of such action or proceeding; provided, however, that the failure
to give such notice will not affect the Indemnitee's right to indemnification
pursuant to the Merger Agreement with respect to such claim, action or
proceeding, except to the extent that the stockholders have been, actually and
materially, prejudiced as a result of such failure. If the Indemnifying Party
notifies the Indemnitee within 30 days from the receipt of the foregoing notice
that the Indemnifying Party wishes to defend against the claim by the Third
Person and if the claim involves only money damages and does not seek injunctive
relief, and settlement of or adverse judgement with respect to such claim is not
in the good faith judgement of the Indemnitee reasonably likely to establish a
precedent adverse to the continuing business interests of the Indemnitee and the
Indemnifying Party conducts the defense of such claim actively and diligently,
then the Indemnifying Party shall have the right to assume and control the
defense of the claim by appropriate proceedings with counsel reasonably
acceptable to the Indemnitee. The Indemnitee may participate in the defense, at
its sole expense, of any such claim for which the Indemnifying Parties shall
have assumed the defense pursuant to the preceding sentence; provided, however,
that neither the Indemnifying Party nor the Indemnitee will consent to the entry
of any judgement or enter into any settlement without the prior written consent
of the other. For any period during which the Indemnifying Party has not assumed
the defense of any claim, the Indemnitee shall be entitled to indemnification
for the reasonable fees and expenses of its counsel.
ESCROW
In order to secure the indemnification obligations of the stockholders
of MultiLink under the Merger Agreement, approximately 280,000 shares PictureTel
Common Stock (which is expected to equal approximately 8% of the PictureTel
Common Stock to be issued in the Merger, depending on the number of dissenting
shares and unexercised MultiLink Options) will be held in escrow (the "Escrowed
Shares"). Each stockholder will have voting rights with respect to the Escrowed
Shares held for such stockholder's account and will have the right to receive
any dividend or distribution on such Escrowed Shares (other than dividends or
distributions in the form of capital stock of PictureTel or otherwise falling
within the definition of Escrowed Shares, as defined by the Merger Agreement,
which will be delivered to the Escrow Agent and held as part of the Escrowed
Shares) so long as such Escrowed Shares are held in escrow. If no claim is made
prior to the Release Date, the Escrowed Shares will remain in escrow until the
Release Date. If PictureTel or the Surviving Corporation does make a claim
against the Escrowed Shares prior to the Release Date, the shares will remain in
escrow until the resolution of the claim pursuant to the procedures specified by
the Merger Agreement. To the extent that PictureTel or the Surviving Corporation
or another Indemnitee makes a claim against the Escrowed Shares, and such claim
is paid in shares of PictureTel Common Stock, then for purposes of such payment,
the shares of PictureTel Common Stock shall be valued at the price at which the
PictureTel Common Stock is valued on the Effective Date pursuant to the Merger
Agreement.
DIRECTORS AND OFFICERS INDEMNIFICATION
From and after the Effective Date, PictureTel and the Surviving
Corporation have agreed to indemnify, defend and hold harmless each person who
as of or prior to April 15, 1997 was an officer or director of MultiLink to the
same extent that such officer or director was indemnified by the MultiLink
pursuant to its Charter and By-Laws, as in effect
-40-
<PAGE> 51
on April 15, 1997, for acts or omissions in such person's capacity as an officer
or director of MultiLink occurring on or prior to the Effective Date. MultiLink
has represented in the Merger Agreement that there is no action or claim pending
or, to the knowledge of MultiLink, threatened against any person who is now or
has been at any time prior to April 15, 1997 an officer or director of MultiLink
for acts or omissions in such person's capacity as an officer or director of
MultiLink.
STOCKHOLDERS AGREEMENT
As a condition to PictureTel entering into the Merger Agreement,
certain directors, officers and principal stockholders (the "MultiLink Holders")
who held, in the aggregate approximately 72% of the outstanding MultiLink Common
Stock as of the MultiLink Record Date, entered into a Stockholders Agreement
with PictureTel dated as of April 15, 1997 (the "Stockholders Agreement").
Pursuant to the Stockholders Agreement, each of the MultiLink Holders
represented and warranted as to the title to the shares of MultiLink Common
Stock held by them, agreed to vote their shares of MultiLink Common Stock in
favor of the Merger, granted an irrevocable proxy to PictureTel, subject, in the
case of those Holders serving on MultiLink's Board of Directors, to their
fiduciary duties to vote such shares and agreed to provide certain
representations which can be relied upon by counsel opining to the tax-free
status of the merger. The MultiLink Holders also agreed to not, directly or
indirectly, solicit or respond to any inquiries or the making of any proposal by
any person or entity (other than PictureTel or its Affiliates) with respect to
an Alternative Transaction other than in connection with certain discussions
with existing stockholders or advisors with respect to alternative financing
arrangements or pursuant to any MultiLink Holder's fiduciary obligations. The
MultiLink Holders have also agreed to indemnify PictureTel, Merger Sub and the
Surviving Corporation for any breach of certain of the representations and
warranties contained in the Stockholders Agreement up to an amount equal to,
when taken together with all liabilities of the MultiLink stockholders for
Losses under the indemnification provisions of the Merger Agreement, 10% of the
total number of shares of PictureTel Common Stock issued in connection with the
Merger. The Stockholders Agreement will terminate in the event the Merger
Agreement is terminated.
THE BUSINESS OF MULTILINK
MultiLink develops, manufactures and markets software and hardware that
bring people together across distance for teleconferencing and call center
applications. With the introduction of its System 70 audio MCU ("System 70") in
early 1993, MultiLink established itself as a leading supplier of
audioconferencing MCUs. The sale of audioconferencing products remains the
principal business of MultiLink. Leveraging its technological expertise in
audioconferencing, MultiLink later developed the System 80 ("System 80"), a
software-oriented, mixed-media platform for videoconferencing and multimedia
call center applications. MultiLink has been selling its System 80 for network
based videoconferencing applications since August 1996, and its Multimedia
Automatic Call Distributor ("M-ACD") products, which provide call centers with
multimedia connectivity capabilities, since September 1996.
INDUSTRY BACKGROUND
Business enterprises and government agencies increasingly rely on
network technologies that provide "meetings-at-a-distance," including
teleconferences and call center transactions.
Mixed media multipoint teleconferences are conferences among
participants at more than two locations utilizing any one or more of the
currently available conferencing media: audio, video, and data conferencing.
Audioconferencing has become a standard, broadly accepted business
communications tool where individuals or groups of individuals at different
locations meet using the telephone. Videoconferencing enables conference
participants simultaneously to hear and see each other at different locations.
Dataconferencing enables participants to share data and software applications
during a teleconference in addition to using either telephones or video
terminals. Network based multipoint videoconferencing and dataconferencing are
still in the early stages of acceptance but as standards for interoperation have
been adopted, usage is increasing.
-41-
<PAGE> 52
The market for multimedia Automatic Call Distributors ("ACDs") is just
beginning to emerge -- fueled by the cost savings and revenue opportunities
afforded by using audio, video and data call centers as an alternative to
face-to-face communications. Possible future applications include bank loan
originations, catalog sales and insurance adjustments. The multimedia ACD
enables callers to be efficiently matched with service representatives best
suited to meet the needs of the callers. If a representative is not immediately
available, the call can be queued until someone is available. The multimedia ACD
permits many traditional audio call center transactions to be personalized
through use of video technology, allowing each party to see the other. The
addition of data capability in future products is expected to introduce
presentation and application sharing support tools for call center transactions.
MultiLink's objective is to make video and data conferences as easy to
use and reliable as audioconferences and to provide call centers with multimedia
ACD technology offering the same ease of use, cost-effectiveness and
functionality found in the audio ACD market.
TELECONFERENCING PRODUCTS
SYSTEM 70
When MultiLink launched the System 70 in 1993, it introduced a new
architecture to the audioconferencing industry which serves as the foundation
for the System 80 and potential future MultiLink products. The architecture has
multiple independent DSPs that are tightly coupled by a parallel computer bus to
the application processor. This integration is ideal for audioconferencing which
requires high bandwidth and a fast transaction interface between the voice
telecommunications processors and the application processor. All voice
processors are connected by a multiplex telecommunications bus and a computer
bus. MultiLink's software-based architecture provides the processing power for a
comprehensive set of conference and call center applications.
The base System 70 is an audio MCU that provides T-1 or E-1 network
connections in single or multiple channels, up to 144 ports. The list price for
a base System 70 ranges from approximately $50,000 to more than $250,000
depending on the number of network connections and operator workstations.
Multiple System 70s may be linked or "cascaded" to act as a single system for
large conferences. Small systems can be upgraded to large configurations by
adding hardware and software. A customer can add options to the base System 70
such as a reservation system, Personal Identification Number ("PIN") code
database, LAN connectivity, and digital record and playback capability. Options
may add between $3,000 and $25,000 to the cost of a System 70.
SYSTEM 80
The System 80 was designed to create an MCU architecture that could not
only support current audioconferencing terminals such as telephones and H.320
videoconferencing systems, but also accommodate emerging and future technologies
such as T.120 dataconferencing, H.323 Internet/LAN videoconferencing and H.324
analog POTS videoconferencing. This approach resulted in a general purpose
hardware architecture that automatically adapts to the requirements of each
individual conference purely through software application modules. Thus, future
conferencing technologies can be incorporated by downloading new applications
by software via disk or network connections.
The System 80 mixed-media MCU supports T-1 or E-1 network
configurations and is available in multiple configurations. A single System 80
will support up to 64 two-way interactive video users, 192 telephone
participants, 128 T.120 users or combinations thereof. The list price for a base
System 80 ranges from approximately $25,000 to more than $300,000, depending on
the number of network connections and attendant workstations. Multiple System
80s may be linked or "cascaded" to act as a single system for large conferences.
A customer can add options such as ActivePresence, audiographics, and
call-your-conference, which may add $25,000 or more to the cost of a System 80.
-42-
<PAGE> 53
TELECONFERENCING FEATURES
The System 70 and System 80 have been designed with features that
facilitate the set-up and operation of meetings-at-a-distance, making
teleconferences easy to use, reliable and more productive.
CONFERENCE SET-UP TOOLS. System 70 audioconferencing calls can be set
up quickly and initiated by either the participant dialing in or an attendant or
moderator dialing out. A conference participant can easily join a conference
without assistance and each caller to a conference is routed to the appropriate
meeting based on the telephone number dialed and the security or PIN code
entered. If a call is being facilitated by an attendant or moderator, "fast
dial" will dial out to all conference participants individually from a
pre-determined list with a single keystroke. Additionally, all participants can
be dialed simultaneously by using a feature called "blast dial."
The System 80 utilizes flex port technology. There are no
single-purpose processor boards needed because flex ports transparently adjust
and monitor System 80 resources to dynamically reconfigure the MCU through
software that is downloaded as and when required. Thus, each port which connects
a remote terminal to the conference can automatically flex its capabilities to
support telephones or H.320 videoconferencing systems as the need arises.
Because the adaptation occurs automatically, no attendant, technician or
end-user intervention is required. For example, if conference participants are
using videoconferencing systems, the System 80 automatically adapts the required
ports to create a videoconference. If one or more participants want to join a
conference using telephones, the MCU adapts ports to incorporate their audio
participation. If the next teleconference is to be held among participants all
using telephones, the same ports which previously supported the
videoconferencing systems automatically reconfigure to support telephones.
REAL-TIME CONFERENCE EXECUTION AND MANAGEMENT. The System 70 is
controlled through a terminal or personal computer running terminal emulation
software. Each System 70 can be attended by up to twelve attendants or may be
run in an unattended mode. In an attended mode, attendants and technicians can
monitor conferences and quickly address problems. For example, an attendant can
listen to each participant's line to determine where an audio problem exists,
pull the participant out of the conference and work to resolve the problem
without interfering with the conference. The System 70 also offers PIN code and
hunt group support which is a feature that supports single number dialing, so
that customers with multiple MCUs can provide a single number to callers,
regardless of which MCU will be handling the call.
The System 80 connects to a windows-based workstation, allowing up to
eight attendants on each MCU to monitor and control conferences. The attendant
workstation displays one live video window and other windows for conference
monitoring, control and database editing. The attendant workstation interface
displays comprehensive database information and complete status information for
all conferences and endpoints. As with the System 70, the System 80 allows an
attendant to monitor each conference for problems and take the appropriate
corrective action which allows the meeting to continue without interruption.
MEETING PRODUCTIVITY TOOLS. MultiLink's MCUs have interactive features
that make meetings-at-a-distance resemble in-person communications, including
the following:
Customized Greetings. Allow a unique audio or video greeting to be
created for each conference. Participants know that they are in the correct
conference and may be given information regarding the conference agenda when
they reach the MCU.
Subconferencing. The attendant has the ability to transfer participants
into subconferences or break-out sessions for private consultations or in-depth
discussions without disrupting the main conference.
Polling and Question and Answer. Participant feedback is essential in
many large conference calls and MultiLink products facilitate the necessary
level of interaction by using touch tone for conference response. Applications
-43-
<PAGE> 54
include multiple choice testing, voting and electronic hand raising.
Participants use their touch-tone telephones to ask or respond to questions.
ActivePresence. ActivePresence enables each participant in a
multipoint videoconference to see four other conference participants
simultaneously on their video monitors, instead of just the person who is
currently speaking. MultiLink's software-based ActivePresence differs from
competitive offerings by eliminating the need for additional hardware.
CONFERENCE RECORDKEEPING TOOLS Conference administrators can generate a
variety of reports with information about conferences and participants which
include: traffic and time statistics, attendant transaction logs, attendant and
participant configurations, dialing lists, polling results and call detail
records for conference billing.
MULTIMEDIA CALL CENTER SYSTEM
The M-ACD system has been designed to augment the services currently
offered by today's audio-only call centers, by enabling them to add
videocommunications to their call center infrastructure. The M-ACD can perform
as a standalone, video-enabled call center or in conjunction with existing
audio call centers because it easily integrates with existing private branch
exchange ("PBX") devices and customer information database systems. To date, a
limited number of M-ACD systems have been sold for test, development and pilot
programs. The M-ACD is modeled on the audio call center requirements for call
control station features and supervisory capabilities and provides the ability
to connect and conduct video calls. The list price for a base M-ACD system
ranges from $50,000 to more than $250,000, depending on the number of network
connections and agent workstations.
CUSTOMERS
MultiLink's principal customers for audio and mixed media
audioconferencing equipment are telephone carriers, independent service
providers and corporate, government and educational users. In fiscal 1996, sales
of audioconferencing equipment accounted for 97.8% of MultiLink's total
revenues; sales to carriers and other service providers accounted for 76.5% of
MultiLink's total revenues; and sales to MultiLink's 5 largest customers
accounted for 64.7% of MultiLink's total revenues.
Carriers. With increasing competition, carriers are seeking
technologies and capabilities to provide value-added services that will enable
them to retain and increase the traffic over their networks. Major carriers have
been offering audioconferencing for more than ten years. More recently
videoconferencing has been offered by the major long-distance carriers and
certain of the Regional Bell Operating Companies ("RBOCs"). As audioconferencing
service providers evolve to mixed media conferences, the functionality and
support which has long been available in audioconferencing will be required to
make such conferences successful and productive.
Independent Service Providers. Independent service providers offer
conferencing management and support, as well as differentiated conferencing
services for specific industries or types of conferences. It is expected that
these providers will increasingly seek to offer mixed media conferencing
services to their customer base by improving reliability for users. These
providers and their customers will have the same expectations and needs in a
mixed media conference that exist today in an audioconference. They will require
features and functionality to increase the effectiveness of the meeting and
tools and support to assure that all conferences are completed successfully.
Government, Corporate and Educational Users. Government, corporate and
educational users have been significant customers in the audioconferencing and
videoconferencing markets. For certain users with high-volume conferencing
requirements it may be more efficient to establish an in-house conference
service bureau than to rely on outside vendors. These customers often decide to
build in house conferencing service capability to reduce cost, provide increased
information security or to ensure on demand capacity is always available.
International Customers. The international audioconferencing
marketplace is undergoing major structural changes. This is particularly true in
Europe where the privatization of national public telephones and telegraphs
-44-
<PAGE> 55
("PTTs") is occurring in preparation for the dropping of all protective barriers
scheduled for January 1998. Previously, in almost all countries, only the
national PTTs could provide audioconferencing to their constituents and, as a
result, few PTTs offered services. Alliances are being formed to provide uniform
services for global customers, which include audio and video conferencing.
M-ACD Customers. MultiLink's potential customers for its M-ACD are ACD
manufacturers and call center VARS and integrators. M-ACD products purchased to
date have been purchased by a limited number of customers for test, development
and pilot programs.
SALES AND MARKETING
MultiLink sells its products primarily through its sales organization
based in Andover, Massachusetts and its European subsidiary based in Bracknell,
United Kingdom. MultiLink also has a sales office in Overland Park, Kansas and
sells products through third party distributors. MultiLink's North American
sales force is divided into four groups, one focusing on carrier and service
provider accounts, the second focusing on corporate, government and educational
accounts, the third focusing on OEM, VAR and dealer channels, and the fourth
focused on M-ACDs. The international sales organization sells primarily to
carriers, PTTs, service providers and M-ACD OEMs and VARS. As of March 31, 1997,
the sales organization consisted of 22 employees.
The marketing department is responsible for strategic planning,
developing new product requirements, marketing communications, market research,
competitive analysis and customer and sales support activities. MultiLink
generates awareness of its products through its World Wide Web site, direct
mail, public relations, advertising activities and attendance at industry trade
shows. As of March 31, 1997, the marketing department consisted of 13 employees.
RESEARCH AND DEVELOPMENT
The group's efforts are focused on technological advancement in the
development of mixed-media MCU and M-ACD products including, hardware, Unix and
Windows PC based software and DSP development, system integration, system
quality assurance, mechanical design and drafting. As of March 31, 1997, the
research and development group consisted of 58 employees.
MultiLink has continued to invest in its core audioconferencing
business as well as in its videoconferencing, dataconferencing and ACD products.
MultiLink has also focused its research and development efforts on the expansion
of its business into international markets. MultiLink's development efforts are
based on accepted international standards, promoting interoperability and ease
of use.
CUSTOMER SUPPORT AND SERVICE
MultiLink installs, maintains and directly supports its products, and
provides comprehensive problem management, training, diagnostic tools, repair
services and spare parts to facilitate and supplement these efforts. MultiLink
offers a technical support to answer customer support calls and attempts to
provide immediate telephone responses to requests for technical assistance. The
products are designed with advanced remote diagnostic capabilities that permit a
customer or MultiLink's Support Center engineer to begin diagnosing problems in
the field immediately, thereby reducing response time, travel time and cost.
MultiLink has contracted with third party maintenance organizations to provide
on-site support where appropriate. When necessary, MultiLink's support engineers
are dispatched to the customer's facility to assist in the diagnosis of reported
problems. As of March 31, 1997, the customer support organization consisted of
26 employees.
MANUFACTURING
MultiLink's manufacturing consists of the subassembly, final assembly
and testing coupled with a complete materials function consisting of
procurement, inventory control, shipping, receiving and inspection. MultiLink
has been granted both ISO 9001 and British Approvals Board for
Telecommunications certifications. As of March 31, 1997, the manufacturing
department consisted of 14 employees.
-45-
<PAGE> 56
COMPETITION
The market for conferencing equipment is highly competitive and subject
to rapid technological change. Competitors in the audioconferencing market,
include Coherent Communications Systems Corporation, Compunetix Inc.,
ConferTech International, Inc. and Latitude Communications, Inc. Competitors in
the videoconferencing market include Accord Software, Inc., Lucent Technologies,
Inc., PictureTel Corporation, Teleos Communications, Inc., Videoserver, Inc.
and VTEL Corporation. Competitors in the multimedia ACD market include Lucent
Technologies, Inc. and Teloquent Communications Corporation.
MultiLink expects competition to increase in the future and this
additional competition could have an adverse impact on operating results. Many
of MultiLink's current and potential competitors have greater financial, market,
technical and other resources than MultiLink. The principal competitive factors
that have affected the market for MultiLink's products include reliability,
functionality, interoperability, conference enhancing support tools and price.
There can be no assurance that MultiLink will be able to compete successfully
with new or existing competitors.
PATENTS AND PROPRIETARY RIGHTS
MultiLink relies in part on patent and trade secret protection to
protect its technology. MultiLink also owns patents that specifically cover
aspects of telephone conferencing technology. MultiLink has also applied for
patents that would expand patent protection coverage to the application of its
technology to implement digitally telephone conferencing technology for voice,
video and data application.
MultiLink believes that, because of the rapid pace of technological
change in the data communications and telecommunications industries, the legal
intellectual property protection for its products is a less significant factor
in MultiLink's success than the knowledge, abilities and experience of
MultiLink's employees, the frequency of its product enhancements, its
relationships with its partners, the effectiveness of its marketing activities
and the timeliness and quality of its support services. While MultiLink believes
that the patents and patent applications are important and material to its
business, it does not believe they are essential to the success of MultiLink.
MultiLink typically requires persons such as customers, licensees and employees
who have access to proprietary information concerning MultiLink's products to
sign nondisclosure agreements that prohibit the use of MultiLink's proprietary
information other than for the specific purpose for which it was provided.
Although MultiLink holds U.S. patents and has applied for patent
protection under certain foreign laws and requires its employees to enter into
confidentiality and non-disclosure agreements, there can be no assurance that
other companies will not develop or patent similar or superior technology, that
MultiLink's patents and agreements will prove defensible or will adequately
protect its interests or that MultiLink can afford the cost associated with
protecting its intellectual property interests. There can be no assurance that
the steps taken by MultiLink to safeguard its intellectual property will be
adequate to deter misappropriation or independent third-party development of
competing technologies.
Other companies are engaged in the development of technologies which
may result in products competitive with those made by MultiLink. These
development efforts may result in proprietary technology, and possibly patents,
which impair the value of, or render obsolete, technology owned or licensed by
MultiLink. MultiLink does not believe that its products and proprietary rights
infringe the proprietary rights of any other persons. There can be no
assurance, however, that other persons will not assert infringement claims
against MultiLink in the future, which, if successful, could have a material
adverse effect on MultiLink's business, operating results and financial
condition. MultiLink is aware that Datapoint Corporation has asserted claims
that its patents cover many aspects of multipoint conferencing operations
involving terminals and MCUs. MultiLink received a letter from Datapoint
Corporation, dated April 23, 1997, stating that Datapoint Corporation is the
owner of several patents in the area of multipoint videoconferencing and
audio/video/data networking and that MultiLink's activities in these areas may
require a license under certain Datapoint Corporation patents. MultiLink has
responded to Datapoint Corporation's letter, stating that it does not believe a
license is required with respect to the specific patents cited in that letter.
However, there can be no assurance that Datapoint Corporation will not pursue
this matter or claims on other of its patents or that such claims will not be
successful.
-46-
<PAGE> 57
EMPLOYEES
At March 31, 1997, MultiLink employed a total of 149 persons, including
58 in research and development, 35 in sales and marketing, 26 in customer
support, 14 in manufacturing, and 16 in finance and administration. Two of
MultiLink's employees were located in the United Kingdom and the remainder were
located in the United States. None of MultiLink's employees are represented by a
labor organization. MultiLink has experienced no work stoppages and believes
that its relations with employees are good.
Competition for qualified personnel in the computer networking and
communications industry is intense. MultiLink believes that its future success
will depend on its continued ability to attract and retain qualified personnel.
FACILITIES
MultiLink's principal offices are located in Andover, Massachusetts,
where it leases approximately 47,000 square feet under agreements that expire in
August 1997. MultiLink has entered into another agreement to lease the entire
77,000 square foot Andover facility beginning in August 1997. This lease expires
in August 2007.
MultiLink also leases, on a short-term basis, sales office space in
Overland Park, Kansas and Bracknell, United Kingdom. MultiLink believes its
existing facilities are adequate for its current needs and that suitable
additional or substitute space will be available as needed.
-47-
<PAGE> 58
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Financial Statements and related Notes thereto contained elsewhere in
this Proxy Statement/Prospectus.
OVERVIEW
Since 1989, MultiLink has focused on the development, manufacture and
sale of network based multipoint audioconferencing systems. MultiLink's initial
products were analog MCU products which were sold to service providers and end
users. In 1993, MultiLink introduced the System 70, its first digital audio MCU.
In the fourth quarter of 1996, MultiLink began selling the System 80, its
mixed-media MCU, and the M-ACD, its automated call center system. MultiLink
markets its product directly to the major carriers, independent service
providers and corporate, government and educational users. For the six month
period ended March 31, 1997, MultiLink revenues from audioconferencing products
and services accounted for approximately 90% of total revenues.
Since 1994, MultiLink has been developing products for the
videoconferencing and multimedia ACD markets. MultiLink's first sales of System
80 videoconferencing and multimedia ACD products occurred in late 1996, and
MultiLink has not yet derived significant revenues from the sale of these
products. The related expenses from the investment in the research and
development of the System 80 and the expansion of the sales and marketing
organization for these products has been substantial. In addition, MultiLink
has incurred significant expenses due to the international expansion of its
business. As a result, net income has declined in each year since 1994 and
MultiLink experienced an operating loss for the first six months of fiscal
1997.
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
revenues for the periods indicated.
<TABLE>
MULTILINK, INC.
<CAPTION>
Years Ended September 30, Six Months Ended March 31,
------------------------- --------------------------
1996 1995 1994 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues 100% 100% 100% 100% 100%
Cost of
Revenues 22 22 26 22 24
--- --- --- --- ---
Gross Margin 78 78 74 78 76
Operating
Expenses:
Research and Development 24 15 10 27 2l
Selling, General
and Administrative 43 42 34 53 44
--- --- --- --- ---
Total Operating
Expenses 67 57 44 80 65
Operating
Income (Loss) 11 21 30 (2) 11
Interest expense, net - - 1 1 1
--- --- --- --- ---
Income (Loss)
before Income Taxes 11 21 29 (3) 10
Income Tax
Expense (Benefit) 4 8 11 (1) 4
--- --- --- --- ---
Net Income (Loss) 7 13 18 (2) 6
=== === === === ===
</TABLE>
-48-
<PAGE> 59
FORWARD-LOOKING STATEMENTS
This section, as well as other portions of this document, includes
certain forward-looking statements about MultiLink's business and new products,
sales and expenses, effective tax rate and operating and capital requirements.
Any such statements are subject to risks that could cause the actual results to
vary materially. These risks are discussed below under the caption "Factors
Affecting Results".
SIX MONTHS ENDED MARCH 31, 1997 COMPARED TO SIX MONTHS ENDED MARCH 31, 1996
Revenues. MultiLink's revenues increased 24% to $12,009,000 in the
first six months of fiscal 1997 from $9,663,000 in the first six months of
fiscal 1996. The increase in revenue was primarily due to an increase in
shipments as a result of increased market acceptance of MultiLink's products and
services. Audioconferencing product revenues accounted for approximately 90% and
100% of total revenues for the first six months of fiscal 1997 and fiscal 1996,
respectively. International revenues were approximately 10% and 16% of
MultiLink's total revenues for the first six months of fiscal 1997 and fiscal
1996, respectively. Customer support and service revenues represented 9% and
4% of total revenues for the first six months of fiscal 1997 and fiscal 1996,
respectively.
Gross Margin. MultiLink's gross profit increased $2,062,000 or 28% in
the first six months of fiscal 1997 from the first six months of fiscal 1996.
Gross margin as a percentage of revenues increased to 78% in the first six
months of fiscal 1997 from 76% in the first six months of fiscal 1996. This
increase in gross margin was primarily due to reductions in product cost as a
result of economies of scale in purchasing and manufacturing. Due to numerous
factors affecting the sales mix among products and customers, gross margins are
likely to vary from quarter to quarter.
Selling, General and Administrative. Selling, general and
administrative expenses consist primarily of compensation costs (including sales
commissions and bonuses); the costs of providing customer technical support,
maintenance and training; the costs of trade shows, travel expenses, and other
marketing programs; as well as the costs of the finance, human resources,
information systems and administrative departments of MultiLink. These expenses
increased $2,070,000 or 48% in the first six months of 1997 from the comparable
first six months of 1996, and were 53% and 44%, respectively, of the total
revenues. The increase in expenses resulted primarily from the addition of staff
to support the expansion of indirect distribution channels, a new sales office
in the United Kingdom, and increased customer support, training and maintenance.
In addition, higher commissions and bonuses on stronger sales pushed expenses
higher. Also, marketing expenses grew during this period as a result of new
programs associated with product introductions. MultiLink expects selling,
general and administrative expense growth to continue as it addresses broader
markets for its products and services.
Research and Development. Research and development expenses consist
primarily of compensation costs for engineers, depreciation expense, supplies
and testing. Research and development expenses increased $1,268,000 or 62% in
the first six months of fiscal 1997 from the first six months of fiscal 1996 and
were 27% and 21%, respectively, of total revenues. The increase in spending was
primarily due to increased engineering staffing levels and related costs to
develop and enhance MultiLink's video and data and audioconferencing products.
MultiLink capitalized software costs of $411,000 in the first six months of
fiscal 1996 represented 17% of research and development expenditures. For the
first six months of fiscal 1997, all software development costs have been
expensed as incurred because costs eligible for capitalization have not been
material.
Interest Expense, net. Net interest expense decreased to approximately
$58,000 in first six months of fiscal 1997 from $81,000 for the first six months
of fiscal 1996. The decrease was primarily due to lower average short term
borrowings during the first six months of fiscal 1997.
Income Taxes. MultiLink's effective tax rate for the first six months
of fiscal 1997 and fiscal 1996 was 40%.
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
FISCAL 1996 COMPARED TO FISCAL 1995
Revenues. MultiLink's revenues increased 32% to $22,420,000 in fiscal
1996 from $17,042,000 in fiscal 1995. The growth in revenue was primarily due to
an increase in audioconferencing equipment sales. Domestic sales in fiscal 1996
and fiscal 1995 totaled $20,056,000 and $15,387,000, representing 89% and 90% of
total revenues, respectively, while international sales totaled $2,364,000 and
$1,655,000, representing 11% and 10% of total revenues, respectively.
Gross Margin. Gross profit increased 31% to $17,416,000 in fiscal 1996
from $13,302,000 in fiscal 1995, but remained 78% of total revenues in both
years. The dollar increase was due to increased sales volume.
-49-
<PAGE> 60
Selling, General and Administrative. Selling, general and
administrative expenses increased 34% to $9,512,000 in fiscal 1996 from
$7,118,000 in fiscal 1995 and increased as a percentage of total revenues to 43%
from 42%. This increase was primarily due to an increase in personnel and
related costs to support the growth in MultiLink's sales and marketing efforts,
operations and installed customer base, and the expansion of marketing
activities associated with MultiLink's newly-introduced products.
Research and Development. Research and development expenses increased
112% to $5,366,000 in fiscal 1996 from $2,532,000 in fiscal 1995 and increased
as a percentage of total revenues to 24% from 15%. The increase was primarily
due to additional staffing and related costs to support the development efforts
for MultiLink's System 80 and continued enhancements to the System 70. In fiscal
1996 and fiscal 1995, MultiLink capitalized $912,000 and $922,000 of software
development costs, respectively. The amounts capitalized represented 15% and 27%
of total research and development expenses for fiscal 1996 and fiscal 1995,
respectively.
Interest Expense, net. Net interest expense increased to $126,000 in
fiscal 1996 from $92,000 in fiscal 1995. This increase was primarily due to an
increase in average short term borrowings.
Income Taxes. MultiLink's effective tax rate was 35% in fiscal 1996
compared to 37% in fiscal 1995. The decrease from the fiscal 1995 effective tax
rate was due to greater utilization of research credit carryforwards.
FISCAL 1995 COMPARED TO FISCAL 1994
Revenues. MultiLink's revenues decreased 3% to $17,042,000 in fiscal
1995 from $17,648,000 in fiscal 1994. The decrease in sales was attributable to
a reduction in sales of approximately $1 million to a government agency combined
with minimal growth in equipment sales. Domestic revenue in fiscal 1995 and
fiscal 1994 totaled $15,387,000 and $15,803,000, respectively, representing 90%
of total revenues in both years, while international revenue totaled $1,655,000
and $1,845,000, respectively, representing 10% of total revenues in both years.
Gross Margin. Gross profit increased 1% to $13,302,000 in fiscal 1995
from $13,121,000 in fiscal 1994. As a percentage of total revenues, gross margin
increased to 78% from 74% over the same period. The gross margin increase is
primarily attributable to reductions in material costs.
Selling, General and Administrative. Selling, general and
administrative expenses increased 15% to $7,118,000 in fiscal 1995 from
$6,214,000 in fiscal 1994 representing 42% and 34% of total revenues,
respectively. This increase resulted from an increase in personnel and related
costs to support MultiLink's operations and increased marketing expenses to
support MultiLink's audioconferencing product efforts.
Research and Development. Research and development expenses increased
51% to $2,532,000 in fiscal 1995 from $1,679,000 in fiscal 1994 representing 15%
and 10% of total revenues, respectively. The increase in research and
development in fiscal 1995 was primarily attributable to additional staffing and
related costs associated with the development of MultiLink's System 80. In
addition, engineering expenses were incurred for the development of additional
enhancements of MultiLink's audioconferencing product line. In fiscal 1995 and
fiscal 1994, MultiLink capitalized $922,000 and $451,000, respectively, in
software costs.
Interest Expense, net. Net interest expense decreased to $92,000 in
fiscal 1995 from $118,000 in fiscal 1994. This decrease was primarily due to a
decrease in average short term borrowings.
Income Taxes. MultiLink's effective tax rates in fiscal 1995 and fiscal
1994 were 37% and 40%, respectively. This decrease in the effective tax rate
was primarily due to greater utilization of research credits.
LIQUIDITY AND CAPITAL RESOURCES
MultiLink has financed its operations to date primarily through private
sales of preferred stock totaling $2.6 million (the last of which occurred in
1987), cash generated from operations and $294,000 and $750,000 of subordinated
debt financing in December 1989 and September 1992, respectively. MultiLink
generated cash from operations of $2.3 million in fiscal 1994, $2.3 million in
fiscal 1995, and $3.3 million in fiscal 1996, respectively. For the first six
months of fiscal 1997, cash of approximately $200,000 was used by operations of
MultiLink, which was primarily due to a net loss. At March 31, 1997, MultiLink
had cash and cash equivalents of $1.9 million.
-50-
<PAGE> 61
MultiLink has available a bank line of credit of $3 million until
December 30, 1997 to provide working capital financing. Borrowings are limited
to a percentage of eligible accounts receivable and borrowings are secured by
all of MultiLink's assets. At May 30, 1997, MultiLink had borrowings
outstanding of $2.8 million under its available line of credit. Due to the
variability of MultiLink's results, MultiLink expects to utilize the bank line
in connection with its operations. The terms of the credit facility require
MultiLink to maintain minimum financial ratios, levels of net worth and
profitability.
MultiLink's primary investing activities to date have been for capital
expenditures, principally to support the expansion and growth of the business.
In fiscal years 1996, 1995, and 1994, MultiLink purchased $1,382,000,
$2,081,000, and $834,000, respectively, of property and equipment which
consisted primarily of computer equipment and software, furniture and fixtures,
and leasehold improvements. MultiLink does not currently have any significant
capital commitments.
MultiLink's financing activities for fiscal years 1996, 1995, and 1994,
used net cash of $750,000, $109,000, and $703,000, respectively, and $13,000 for
the first six months of fiscal 1997.
MultiLink believes that existing cash balances together with its funds
generated from operations and borrowings available under MultiLink's existing
credit facilities will be sufficient to meet MultiLink's cash requirements for
the next twelve months.
FACTORS AFFECTING RESULTS
MultiLink has experienced significant variations in sales, expenses and
operating results from quarter to quarter and such variations are likely to
continue. A significant portion of MultiLink's revenues have been concentrated
among a limited number of customers and it is difficult to predict the timing of
orders and shipments to these and other customers. See "Business--Customers".
Moreover, new customers' orders have generally been characterized by lengthy
sales cycles, making it difficult to predict the quarter in which sales will
occur. Carriers' deployment projects involve particularly long sales cycles, and
shipments for such projects are therefore often difficult to forecast. In
addition, such shipments are subject to delays in the timing of such projects.
MultiLink typically operates with a small backlog. As a result, quarterly sales
and operating results generally depend on the volume, timing of and ability to
fulfill orders received within the quarter, which are difficult to forecast.
Operating results may also fluctuate due to factors such as (i) the
timing of new product announcements and introductions by MultiLink, its major
customers and its competitors, (ii) market acceptance of new or enhanced
versions of MultiLink's products, (iii) changes in the product mix of sales,
(iv) changes in the relative proportions of sales among distribution channels or
among customers within each distribution channel, (v) changes in manufacturing
costs, (vi) competitive pricing pressures, (vii) the gain or loss of significant
customers, (viii) increased research and development expenses associated with
new product introductions, and (ix) general economic conditions. All of the
above factors are difficult for MultiLink to forecast, and these or other
factors can materially adversely affect MultiLink's business and operating
results for one quarter or a series of quarters. MultiLink establishes its
expenditure levels for product development and other operating expenses based,
in large part, on its expected future sales. As a result, if sales fall below
expectations, there would likely be a material adverse effect on MultiLink's
operating results and net income because only a small portion of MultiLink's
expenses vary with its sales in the short term.
-51-
<PAGE> 62
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF MULTILINK
The following table sets forth certain information with respect to the
beneficial ownership of MultiLink Common Stock as of June 5, 1997 by (i) each
person known by MultiLink to own beneficially more than 5% of the outstanding
shares of MultiLink Common Stock, (ii) each director of MultiLink, (iii) certain
executive officers of MultiLink, and (iv) all directors and executive officers
of MultiLink as a group. Unless otherwise indicated, the address of the
shareholder is c/o MultiLink, Inc., 6 Riverside Drive, Andover, Massachusetts.
<TABLE>
<CAPTION>
DIRECTORS, EXECUTIVE OFFICERS SHARES OF MULTILINK COMMON
AND FIVE PERCENT STOCKHOLDERS STOCK BENEFICIALLY OWNED(1)
----------------------------- ----------------------------
PERCENTAGE
NUMBER OWNERSHIP
------ ----------
<S> <C> <C>
Arthur D. Little Ventures, L.P.(2) 1,339,604 21.42%
15 Acorn Park
Cambridge, MA 02140
Corning Partners III, L.P. and 510,820 8.17%
certain affiliates (3)
c/o Kestrel Venture Management
31 Milk Street
Fifth Floor, Suite 510
Boston, MA 02109
Massachusetts Technology Development 1,139,708 18.22%
Corporation
148 State Street, 9th Floor
Boston, MA 02109
Coolidge Investments Corporation 552,583 8.83%
18 Orne Street
Marblehead, MA 01945
Pension Reserve Investment Trust 165,000 2.64%
148 State Street, 9th Floor
Boston, MA 02109
Bruce Bower(4) 182,000 2.87%
Nancy Carey(5) 20,000 *
1 Winthrop Square
Key Executive Group
Boston, MA 02110
Jacques de Labry(6) 8,750 *
11702 Glen Court
Potomac, MD 20854
Sigmund Hertzstein(2)(7) 135,000 2.16%
c/o ADL Ventures, L.P.
15 Acorn Park
Cambridge, MA 02140
Zenas W. Hutchenson III(8) 20,000 *
J. Edward McAteer(9) 568,267 9.09%
</TABLE>
-------------------------------------
* Less than 1 percent of the outstanding
MultiLink Common Stock
-52-
<PAGE> 63
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OWNERSHIP
------ ----------
<S> <C> <C>
Edward J. Stewart III(3)(10) 10,000 *
Kestrel Venture Management
31 Milk Street
Fifth Floor, Suite 510
Boston, MA 02109
Charles McCarthy(11) 24,504 *
Mary Miller -- *
Mitchell Rosenberg(12) 10,942 *
Robert Scott 3,000 *
Rajiv Shanmugaraj -- *
Carl Yasharian(13) 13,134 *
All Directors and Executive Officers
as a group(14) 2,846,021 44.19%
</TABLE>
------------------
*Less than 1 percent of outstanding
MultiLink Common Stock
(1) For purposes of determining beneficial ownership of MultiLink's Common
Stock, owners of options exercisable within sixty days are considered
to be the beneficial owners of the shares of MultiLink Common Stock for
which such securities are exercisable. The percentage ownership of the
outstanding MultiLink Common Stock reported herein is based on the
assumption (expressly required by the applicable rules of the
Securities and Exchange Commission) that only the person whose
ownership is being reported has converted his options into shares of
MultiLink Common Stock.
(2) Mr. Herzstein, a director of MultiLink, is retained as a consultant to
Arthur D. Little Enterprises, Inc., a general partner of Arthur D.
Little Ventures, L.P. As a general partner, Arthur D. Little
Enterprises, Inc. exercises sole voting and investment power with
respect to the shares owned by Arthur D. Little Ventures, L.P. Mr.
Herzstein disclaims beneficial ownership of such shares.
(3) Includes 435,820 shares owned by Corning Partners III, L.P., and 75,000
shares owned by Corning Partners IV-A, L.P. Mr. Stewart is a general
partner of Corning Venture Management III, L.P., Corning Venture
Management IV, L.P. and Suite 510 Advisors, L.P., respectively. The
respective general partners of these entities, including Mr. Stewart, a
director of MultiLink, exercise sole voting and investment power with
respect to the shares owned by such entities. Mr. Stewart disclaims
beneficial ownership of such shares except as to his partnership
interests therein.
(4) Includes 80,000 shares of MultiLink Common Stock issuable upon exercise
of options exercisable within 60 days.
(5) Includes 20,000 shares of MultiLink Common Stock issuable upon exercise
of options exercisable within 60 days.
(6) Includes 8,750 shares of MultiLink Common Stock issuable upon exercise
of options exercisable within 60 days.
(7) Includes 10,000 shares of MultiLink Common Stock issuable upon exercise
of options exercisable within 60 days.
(8) Includes 20,000 shares of MultiLink Common Stock issuable upon exercise
of options exercisable within 60 days.
(9) Includes 568,267 shares of MultiLink Common Stock owned by the McAteer
Family Trust as to which Mr. McAteer has sole voting and investment
power. Does not include an aggregate of 50,000 shares of MultiLink
Common Stock held in trust for the benefit of various members of Mr.
McAteer's family. Mr. McAteer disclaims beneficial ownership of such
50,000 shares.
(10) Includes 10,000 shares of MultiLink Common Stock issuable upon exercise
of options exercisable within 60 days.
(11) Includes 12,504 shares of MultiLink Common Stock issuable upon exercise
of options exercisable within 60 days.
-53-
<PAGE> 64
(12) Includes 10,942 shares of MultiLink Common Stock issuable upon exercise
of options exercisable within 60 days.
(13) Includes 13,134 shares of MultiLink Common Stock issuable upon exercise
of options exercisable within 60 days.
(14) Includes 185,330 shares of MultiLink Common Stock issuable upon
exercise of options exercisable within 60 days.
-54-
<PAGE> 65
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements assume
a business combination between PictureTel and MultiLink which is accounted for
on a pooling of interests basis and is based upon the respective historical
financial statements and related notes thereto which are included elsewhere
herein or incorporated by reference in this Proxy Statement/Prospectus. The
unaudited pro forma combined balance sheet gives effect to the Merger as if it
had occurred on March 29, 1997, combining the balance sheets of PictureTel and
MultiLink at March 29, 1997. The unaudited pro forma combined statements of
income give effect to the Merger as if it had occurred on January 1, 1994,
combining the results of PictureTel and MultiLink for each of the three years in
the period ended December 31, 1996 and interim periods.
The unaudited pro forma financial statements combine PictureTel's
financial statements for the three months ended March 29, 1997 and March 30,
1996 and the three years ended December 31, 1996, 1995 and 1994 with MultiLink's
financial statements for the three months ended March 31, 1997 and 1996 and the
fiscal years ended September 30, 1996, 1995 and 1994, respectively.
The pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial position
that would have occurred if the Merger had been consummated at the beginning of
each period presented, nor is it necessarily indicative of the future operating
results or financial position of the combined companies following the Merger.
These financial statements should read in conjunction with the historical
consolidated financial statements and related notes thereto included elsewhere
herein or incorporated by reference in this Proxy Statement/Prospectus.
<TABLE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
($ in thousands)
<CAPTION>
PICTURETEL MULTILINK
MARCH 29, MARCH 31, COMBINED
1997 1997 PRO FORMA
---------- --------- ---------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......... $ 35,397 $ 1,905 $ 37,302
Marketable securities.............. 54,489 1 54,490
Accounts receivable, net........... 139,335 6,236 145,571
Inventories, net................... 57,391 3,321 60,712
Deferred taxes..................... 6,152 512 6,664
Prepaid expenses and other assets.. 14,754 63 14,817
Refundable income taxes............ -- 275 275
-------- ------- --------
Total current assets............... 307,518 12,313 319,831
Long-term deferred taxes.............. 5,088 -- 5,088
Property, plant and equipment, net.... 43,229 4,393 47,622
Capitalized software costs, net....... 7,626 1,903 9,529
Other assets.......................... 6,620 221 6,841
-------- ------- --------
Total assets....................... $370,081 $18,830 $388,911
======== ======= ========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings.............. $ 299 $ 3,223 $ 3,522
Accounts payable................... 45,915 1,894 47,809
Accrued compensation and benefits.. 8,379 518 8,897
Accrued expenses................... 22,409 765 23,174
</TABLE>
-55-
<PAGE> 66
<TABLE>
<S> <C> <C> <C>
Current portion of capital lease
obligations................... 3,095 129 3,224
Deferred revenue................... 18,768 1,155 19,923
-------- ------- --------
Total current liabilities 98,865 7,684 106,549
Long-term borrowings.................. 4,558 -- 4,558
Long-term capital lease obligation 4,019 199 4,218
Deferred rent liabilities............. -- 12 12
Deferred tax liabilities.............. -- 1,143 1,143
-------- ------- --------
Total liabilities............. 107,442 9,038 116,480
Stockholders' Equity:
Common stock........................ 342 62 404
Additional paid-in capital.......... 198,203 3,508 201,711
Retained earnings................... 65,270 6,222 71,492
Cumulative translation adjustment..... (1,689) -- (1,689)
Unrealized gain on marketable
securities, net..................... 513 -- 513
-------- ------- --------
Total stockholders' equity.... 262,639 9,792 272,431
-------- ------- --------
Total liabilities and
stockholders' equity........ $370,081 $18,830 $388,911
======== ======= ========
</TABLE>
See accompanying "Notes to Unaudited Pro Forma Combined Financial Statements."
-56-
<PAGE> 67
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 29, 1997
-------------------------------------------------
COMBINED
PICTURETEL MULTILINK PRO FORMA
---------- --------- ---------
<S> <C> <C> <C>
Revenues ................................. $118,222 $5,397 $123,619
Cost of revenues ......................... 62,368 1,207 63,575
-------- ------ --------
Gross profit ........................... 55,854 4,190 60,044
Operating Expenses:
Research and Development ............... 19,457 1,629 21,086
Selling, general and administrative .... 33,328 3,487 36,815
-------- ------ --------
Total operating expenses ............. 52,785 5,116 57,901
-------- ------ -------
Operating income (loss) .................. 3,069 (926) 2,143
Interest income (expense), net ........... 938 (39) 899
Other income ............................. 723 -- 723
-------- ------ --------
Income (loss) before taxes ............... 4,730 (965) 3,765
Provision (benefit) for income taxes ..... 1,655 (385) 1,270
-------- ------ --------
Net income (loss) ........................ $ 3,075 $ (580) $ 2,495
======== ====== ========
Net income (loss) per share .............. $ 0.09 $(0.09) $ 0.06
======== ====== ========
Number of shares used in
per share calculation .................... 35,562 6,196 39,222
======== ====== ========
</TABLE>
-------------------
See accompanying "Notes to Unaudited Pro Forma Combined Financial Statements."
-57-
<PAGE> 68
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
($ in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 30, 1996
------------------------------------------------------
COMBINED
PICTURETEL MULTILINK PRO FORMA
---------- --------- ---------
<S> <C> <C> <C>
Revenues ................................... $105,001 $6,609 $111,610
Cost of revenues ........................... 54,109 1,322 55,431
-------- ------ --------
Gross profit ............................. 50,892 5,287 56,179
Operating Expenses:
Research and Development ................. 13,924 1,084 15,008
Selling, general and administrative ...... 27,738 2,335 30,073
-------- ------ --------
Total operating expenses ............... 41,662 3,419 45,081
-------- ------ --------
Operating income ........................... 9,230 1,868 11,098
Interest income (expense), net ............. 1,077 (48) 1,029
Other income ............................... 677 -- 677
-------- ------ --------
Income before taxes ........................ 10,984 1,820 12,804
Provision for income taxes ................. 3,515 728 4,243
-------- ------ --------
Net income ................................. $ 7,469 $1,092 $ 8,561
======== ====== ========
Net income per share ....................... $ 0.21 $ 0.17 $ 0.22
======== ====== ========
Number of shares used in
per share calculation ...................... 36,115 6,377 39,686
======== ====== ========
</TABLE>
-------------------
See accompanying "Notes to Unaudited Pro Forma Combined Financial Statements."
-58-
<PAGE> 69
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------
COMBINED
PICTURETEL MULTILINK PRO FORMA
---------- --------- ---------
<S> <C> <C> <C>
Revenues ................................. $482,532 $22,420 $504,952
Cost of revenues ......................... 254,772 5,004 259,776
-------- ------- --------
Gross profit ........................... 227,760 17,416 245,176
Operating Expenses:
Research and Development ............... 60,089 5,366 65,455
Selling, general and administrative .... 123,520 9,512 133,032
-------- ------- --------
Total operating expenses ............. 183,609 14,878 198,487
-------- ------- --------
Operating income ......................... 44,151 2,538 46,689
Interest income (expense), net ........... 4,413 (126) 4,287
Other income ............................. 3,147 -- 3,147
-------- ------- --------
Income before taxes ...................... 51,711 2,412 54,123
Provision for income taxes ............... 16,938 838 17,776
-------- ------- --------
Net income ............................... $ 34,773 $ 1,574 $ 36,347
======== ======= ========
Net income per share ..................... $ 0.96 $ 0.25 $ 0.92
======== ======= ========
Number of shares used in
per share calculation .................... 36,054 6,379 39,626
======== ======= ========
</TABLE>
-------------------
See accompanying "Notes to Unaudited Pro Forma Combined Financial Statements."
-59-
<PAGE> 70
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
($ in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------
COMBINED
PICTURETEL MULTILINK PRO FORMA
---------- --------- ---------
<S> <C> <C> <C>
Revenues ................................... $346,758 $ 17,041 $363,799
Cost of revenues ........................... 175,043 3,739 178,782
-------- -------- --------
Gross profit ............................. 171,715 13,302 185,017
Operating Expenses:
Research and Development ................. 46,184 2,532 48,716
Selling, general and administrative ...... 101,229 7,118 108,347
-------- -------- --------
Total operating expenses ............... 147,413 9,650 157,063
-------- -------- --------
Operating income ........................... 24,302 3,652 27,954
Interest income (expense), net ............. 3,152 (92) 3,060
Other income ............................... 87 -- 87
-------- -------- --------
Income before taxes ........................ 27,541 3,560 31,101
Provision for income taxes ................. 7,915 1,327 9,242
-------- -------- --------
Net income ................................. $ 19,626 $ 2,233 $ 21,859
======== ======== ========
Net income per share ....................... $ 0.56 $ 0.37 $ 0.57
======== ======== ========
Number of shares used in
per share calculation ...................... 35,014 6,097 38,428
======== ======== ========
</TABLE>
-------------------
See accompanying "Notes to Unaudited Pro Forma Combined Financial Statements."
-60-
<PAGE> 71
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
($ in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
----------------------------------------------
COMBINED
PICTURETEL MULTILINK PRO FORMA
---------- --------- ---------
<S> <C> <C> <C>
Revenues ................................... $255,193 $17,648 $272,841
Cost of revenues ........................... 129,039 4,527 133,566
-------- ------- --------
Gross profit ............................. 126,154 13,121 139,275
Operating Expenses:
Research and Development ................. 38,327 1,679 40,006
Selling, general and administrative ...... 82,618 6,214 88,832
-------- ------- --------
Total operating expenses ............... 120,945 7,893 128,838
-------- ------- --------
Operating income ........................... 5,209 5,228 10,437
Interest income (expense), net ............. 1,841 (118) 1,723
Other expense .............................. (101) -- (101)
-------- ------- --------
Income before taxes ........................ 6,949 5,110 12,059
Provision for income taxes ................. 2,370 2,020 4,390
-------- ------- --------
Net income ................................. $ 4,579 $ 3,090 $ 7,669
======== ======= ========
Net income per share ....................... $ 0.15 $ 0.51 $ 0.22
======== ======= ========
Number of shares used in
per share calculation ...................... 31,354 6,045 34,739
======== ======= ========
</TABLE>
-------------------
See accompanying "Notes to Unaudited Pro Forma Combined Financial Statements."
-61-
<PAGE> 72
Notes to Unaudited Pro Forma Combined Financial Statements:
1. Upon the consummation of the Merger, each then outstanding share of
MultiLink Common Stock will automatically be converted into the right
to receive the number of shares of PictureTel Common Stock equal to
the Exchange Ratio. Based upon the capitalization of MultiLink on
June 5, 1997, it is currently anticipated that each share of
MultiLink Common Stock will convert into the right to receive
approximately .56 shares of PictureTel Common Stock. In the
aggregate, PictureTel will exchange approximately 3,750,000 shares of
PictureTel Common Stock for all the shares of MultiLink Common Stock
outstanding immediately prior to the Effective Date, including all the
shares of MultiLink Common Stock issued upon the exercise prior to
the Effective Date of outstanding vested MultiLink Options.
2. PictureTel anticipates that it will incur a charge for Merger-related
expenses totaling approximately $2.0 to $3.0 million. Such Merger-
related expenses include investment advisory fees, regulatory filing
costs, legal and accounting expenses, other transaction costs and
costs to eliminate duplicative facilities and other consolidation
costs. The unaudited pro forma combined balance sheet and statements of
income do not reflect these charges, which PictureTel anticipates
will be recorded during the third quarter of 1997, the quarter in
which the Merger is expected to be consummated.
3. The unaudited pro forma combined financial statements do not include
adjustments to conform the accounting policies of MultiLink to those
followed by PictureTel as there are no significant differences which
would have a material impact on the financial statements of the
combined company.
4. The pro forma combined net income per share amounts in the unaudited
pro forma combined statements of income are based on the historical
weighted average number of shares of PictureTel Common Stock and
dilutive PictureTel Common Stock equivalents outstanding during each
period presented. In addition, the shares of PictureTel Common Stock to
be issued in connection with the Merger, based on the equivalent
weighted average shares and the dilutive common share equivalents of
MultiLink outstanding during each period presented, are treated as
outstanding during each such period.
-62-
<PAGE> 73
DESCRIPTION OF CAPITAL STOCK OF PICTURETEL
The following description does not purport to be complete and is subject
in all respects to the applicable provisions of PictureTel's Restated
Certificate of Incorporation and By-Laws, copies of which are filed as exhibits
to the registration statement, of which this Proxy Statement/Prospectus is a
part.
The total authorized capital stock of PictureTel is 95,000,000 shares,
consisting of 80,000,000 shares of Common Stock, $.01 par value, and 15,000,000
shares of Preference Stock, $.01 par value, of which 800,000 are designated
Junior Preference Stock.
COMMON STOCK
Subject to the powers, preferences and rights of any preferred stock,
including the Preference Stock, the holders of PictureTel Common Stock are
entitled to all powers and voting and other rights pertaining to the stock of
PictureTel and each share of PictureTel Common Stock is entitled to one vote.
There is no cumulative voting. Holders of PictureTel Common Stock have no
preemptive or other subscription rights, and there are no conversion, redemption
or sinking fund provisions applicable thereto. The Board of Directors of
PictureTel is authorized to issue from time to time all of the authorized and
unissued shares of PictureTel Common Stock.
PREFERENCE STOCK
The Board of Directors of PictureTel is authorized to issue Preference
Stock from time to time in one or more series, each of such series to have such
voting powers, full or limited, or no voting powers, and such designations,
preferences and special rights as shall be determined by the Board of Directors
in a resolution or resolutions providing for the issue of such stock.
RIGHTS PLAN
On March 25, 1992, the Board of Directors of PictureTel declared a
dividend of one purchase right (a "Right") for every outstanding share of
PictureTel's Common Stock. After giving effect to the split, each Right entitles
the holder to purchase from PictureTel one two-hundredths of a share of Junior
Preference Stock at a price of $90 per one two-hundredths of a share, subject to
adjustment. The Rights will become exercisable on the fifteenth business day
following the date of a public announcement that an acquiring person (as defined
in the Rights Agreement, the definition of which provides for certain limited
exclusions) has acquired, or obtained the right to acquire, beneficial ownership
of 15% or more of PictureTel's outstanding Common Stock or on the fifteenth
business day following the commencement of a tender offer or exchange offer that
would result in an acquiring person owning 15% or more of PictureTel's
outstanding Common Stock.
If PictureTel were acquired in a merger or other business combination, or
more than 25% of its assets or earning power were sold, each holder of a Right
would be entitled to exercise such Right and thereby receive common stock of the
acquiring company with a market value of two times the exercise price of the
Right. If an acquiring person has acquired or obtained the right to acquire 15%
of PictureTel's Common Stock, each holder of a Right, other than the acquiring
person, will be entitled to receive shares of PictureTel's Common Stock having a
market value of two times the exercise price of the Right. At any time
PictureTel may redeem the Rights at a redemption price of $0.005 per Right. The
Rights expire March 25, 2002.
COMPARISON OF STOCKHOLDER RIGHTS
The rights of MultiLink stockholders are governed by the laws of The
Commonwealth of Massachusetts, including Chapter 156B of the Massachusetts
Business Corporation Law (the "MBCL") and by MultiLink's Articles of
Organization, as amended (the "MultiLink Articles"), and MultiLink's By-Laws,
as amended (the "MultiLink By-Laws"). Upon consummation of the Merger, the
MultiLink stockholders will become stockholders of PictureTel and their rights
as stockholders of PictureTel will be governed by the laws of the State of
Delaware, including the
-63-
<PAGE> 74
General Corporation Law of the State of Delaware (the "DGCL"), by PictureTel's
Third Restated Certificate of Incorporation (the "PictureTel Certificate"), and
PictureTel's By-Laws, as amended, (the "PictureTel By-Laws"), which differ in
certain material respects from the MBCL, the MultiLink Articles and the
MultiLink By-Laws. The following is a summary of certain differences between the
rights of MultiLink stockholders compared with those of PictureTel stockholders.
The following summary does not purport to be a complete description of
the rights of stockholders of MultiLink or the rights of stockholders of
PictureTel or a comprehensive comparison of such rights, and is qualified in its
entirety by reference to the governing law, to the PictureTel Certificate and
By-Laws and to the MultiLink Articles and By-Laws, to which MultiLink's
stockholders are referred.
VOTE REQUIRED FOR MERGERS
The DGCL generally requires the affirmative vote of a majority of a
corporation's outstanding shares entitled to vote, unless the certificate of
incorporation requires a greater proportion, to authorize a merger with another
Delaware corporation except that, unless required by its charter, no
authorizing stockholder vote is required of a corporation surviving a merger if
(i) such corporation's charter is not amended by the merger; (ii) each share of
stock of such corporation will be an identical share of the surviving
corporation after the merger; and (iii) the number of shares to be issued in the
merger does not exceed twenty percent (20%) of such corporation's outstanding
common stock immediately prior to the effective date of the merger (Section
251). Section 252 of the DGCL, applying to mergers between a Delaware and
foreign corporation, incorporates by reference the approval requirements of
Section 251 with respect to the Delaware party to the merger and states that the
foreign corporation must comply with the approval provisions of its own
corporate law.
Since the PictureTel Certificate does not modify the terms of Section 251
with respect to the vote required for a merger and since, pursuant to the terms
set out by Section 251, the Merger qualifies as a transaction that does not
require the acquiring corporation to take a vote of its stockholders, the
PictureTel stockholders will not vote on the Merger.
Section 78 of the MBCL provides that a merger between two or more
Massachusetts corporations must be approved by two-thirds of the shares of each
class of stock of each constituent corporation outstanding and entitled to vote
thereon or by such lesser proportion (but not less than a majority) thereof as
a corporation's articles or organization may provide. The MultiLink Articles
provide that such approval may be accomplished by a majority of such shares
outstanding and entitled to vote. Where the merger is between one or more
Massachusetts corporations and one or more foreign corporations and the
surviving corporation is to be a foreign corporation, the foregoing vote is
required for the domestic corporation under Section 79 of the MBCL, but the
foreign corporation is required only to comply with the applicable provisions
of its jurisdiction of incorporation. With respect to the Merger, the DGCL does
not require PictureTel to take a vote of its stockholders.
ANTI-TAKEOVER PROVISIONS
Section 203 of the DGCL prohibits a Delaware corporation from engaging in
a "business combination" with an "interested shareholder" for three years
following the date that such person becomes an interested shareholder. With
certain exceptions, an interested shareholder is a person or group who or which
owns 15% or more of the corporation's outstanding voting stock (including any
rights to acquire stock pursuant to an opinion, warrant, agreement, arrangement
or understanding, or upon the exercise of conversion or exchange rights and
stock with respect to which the person has voting rights only), or is an
affiliate or associate of the corporation which was the owner of 15% or more of
such voting stock at any time within the previous three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers with or caused by the interested shareholder; sales
or other dispositions to the interested shareholder (except proportionately with
the corporation's other shareholders) of assets of the corporation or a
subsidiary equal to 10% or more of the
-64-
<PAGE> 75
aggregate market value of the corporation's consolidated assets or its
outstanding stock; the issuance or transfer by the corporation or a subsidiary
of stock of the corporation or such subsidiary to the interested shareholder
(except for transfers in a conversion or exchange or a pro rata distribution or
certain other transactions, none of which increase the interested shareholder's
proportionate ownership of any class or series of the corporation's or such
subsidiary's stock); and receipt by the interested shareholder (except
proportionately as a shareholder), directly or indirectly, of any loans,
advances, guarantees, pledges or other financial benefits provided by or through
the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if: (i) prior to the date on which such shareholder becomes an
interested shareholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested shareholder; (ii) the interested shareholder owns 85% of the
corporation's voting stock upon consummation of the transaction which made him
an interested shareholder (excluding shares held by certain affiliates of the
corporation); or (iii) on or after the date such person becomes an interested
shareholder, the business combination is approved by both the board of directors
and 66 2/3% of the outstanding voting stock of the corporation (excluding shares
held by the interested shareholder).
Section 203 only applies to Delaware corporations which have a class of
voting stock that is listed on a national securities exchange, is quoted by an
interdealer quotation system such as Nasdaq or is held of record by more than
2,000 shareholders. A Delaware corporation may elect in its original certificate
of incorporation, or by amending its certificate of incorporation or by-laws,
that it will not be governed by Section 203. Any such amendment must be approved
by the shareholders and may not be further amended by the board of directors.
PictureTel has not "opted out" of the provisions of Section 203.
Section 203 has been challenged in lawsuits arising out of ongoing
takeover disputes, and it is not yet clear whether and to what extent its
constitutionality will be upheld by the courts. Although the United States
District Court for the District of Delaware has consistently upheld the
constitutionality of Section 203, the Delaware Supreme Court has not yet
considered the issue.
Pursuant to the PictureTel Certificate, the directors of PictureTel are
expressly granted the power to authorize the issuance of preferred stock in one
or more series and to determine with respect to each series all the preferences,
powers, or other special rights of such series to the full extent permitted by
law. This ability to issue series of preferred stock with various rights could
be used to deter attempts to acquire PictureTel.
Chapter 110F of the Massachusetts General Laws ("Chapter 110F") prohibits
a corporation with 200 or more stockholders from engaging in a "Business
Combination" (as defined in Chapter 110F) with an "Interested Stockholder"
(defined generally as a person who, together with affiliates and associates,
owns 5% or more of such corporation's outstanding voting stock, or as an
affiliate or associate of such corporation who, together with affiliates and
associates, owned 5% or more of such corporation's outstanding voting stock, or
as an affiliate or associate of such corporation who, together with affiliates
and associates, owned 5% or more of such corporation's outstanding voting stock
at any time within the immediately preceding three-year period) for three years
following the date such person became an Interested Stockholder. The provision
is not applicable when (i) prior to the date the stockholder became an
Interested Stockholder, the board of directors of the corporation approved
either the Business Combination or the transaction that resulted in the
stockholder becoming an Interested Stockholder, (ii) upon consummation of the
transaction that resulted in the stockholder becoming an Interested Stockholder,
such Interested Stockholder owned at least 90% of the outstanding voting stock
of the corporation, not including shares owned by directors who are also
officers and by certain employee stock plans or (iii) on or subsequent to the
date the stockholder becomes an Interested Stockholder, the Business Combination
is approved by the board of directors of the corporation and authorized at a
meeting of stockholders, and not by written consent, by the affirmative vote of
the holders of at least two-thirds of the outstanding voting stock entitled to
vote thereon, excluding shares owned by the Interested Stockholder. These
restrictions generally do not apply to Business Combinations with an Interested
Stockholder that are proposed subsequent to the public announcement of, and
prior to the consummation or abandonment of, certain mergers, sales of a
majority of a corporation's assets or tender offers for 50% or more of the
corporation's voting stock. Chapter 110F allows corporations to elect not to be
subject to the preceding provisions of the Massachusetts Law. MultiLink has not
so elected.
-65-
<PAGE> 76
PICTURETEL'S RIGHTS AGREEMENT
PictureTel has issued Rights pursuant to its Rights Agreement, which
allow the holders of the Rights to convert them into common stock of PictureTel
or the acquiring corporation on favorable terms upon the happening of certain
events. The Rights will become exercisable on the fifteenth business day
following the date of a public announcement that an acquiring person (as defined
in the Rights Agreement, the definition of which provides for certain limited
exclusions) has acquired, or obtained the right to acquire, beneficial ownership
of 15% or more of PictureTel's outstanding Common Stock or on the fifteenth
business day following the commencement of a tender offer or exchange offer that
would result in an acquiring person owning 15% or more of PictureTel's
outstanding Common Stock. If PictureTel were acquired in a merger or other
business combination, or more than 25% of its assets or earning power were sold,
each holder of a Right would be entitled to exercise such Right and thereby
receive common stock of the acquiring company with a market value of two times
the exercise price of the Right. If an acquiring person has acquired or obtained
the right to acquire 15% of PictureTel's Common Stock, each holder of a Right,
other than the acquiring person, will be entitled to receive shares of
PictureTel's Common Stock having a market value of two times the exercise price
of the Right. At any time PictureTel may redeem the Rights at a redemption price
of $0.005 per Right. The Rights expire March 25, 2002.
APPRAISAL RIGHTS
Section 262 of the DGCL provides for appraisal rights only in the case of
a statutory merger or consolidation of the corporation where the petitioning
shareholder does not consent to the transaction. In addition, no appraisal
rights are available where the corporation is to be the surviving corporation
and a vote of its shareholders is not required under DGCL Section 251(f). There
are also no appraisal rights, unless otherwise provided for in a corporation's
certificate of incorporation, for shares listed on a national securities
exchange or held by more than 2,000 holders of record, unless such shareholders
would be required to accept anything other than shares of the surviving
corporation, shares of another corporation so listed or held by such number of
holders of record, cash in lieu of fractional shares of such stock or any
combination thereof. The PictureTel Certificate does not provide for such
additional appraisal rights.
Pursuant to Sections 85 and 76 of the MBCL, a shareholder of a
Massachusetts corporation who complied with the statutory procedures is entitled
to demand payment for his or her shares in the event that the corporation has
voted to consolidate or merge with another corporation or to sell, lease or
exchange all or substantially all of its property and assets or has adopted any
amendment of its articles of organization that adversely affects the rights of
such shareholder. For more information concerning dissenter's rights under the
MBCL, see "The Merger--Appraisal and Dissenters' Rights".
AMENDMENT OF BY-LAWS
Section 109 of the DGCL provides that the power to adopt, amend or repeal
by-laws shall be in the shareholders entitled to vote, provided that a
corporation may, in its certificate of incorporation, confer such powers on the
board of directors, such power to be concurrent with that of the shareholders.
In accordance with the PictureTel Certificate, the PictureTel Board is expressly
authorized to make, alter, amend or repeal the PictureTel By-Laws, subject to
any limitations set forth in the PictureTel By-Laws, of which there currently
are none.
Section 17 of the MBCL provides that shareholders have the power to make,
amend or repeal by-laws and, if authorized in the articles of organization of
the corporation, the by-laws may provide that directors may also make, amend or
repeal by-laws, except with respect to any provision thereof which by-law, the
articles of organization or the by-laws requires action by the shareholders. And
by-laws adopted by the directors of the corporation may be amended or repealed
by the shareholders. In the event the directors make, amend or repeal any
by-law, notice of such action stating the substance of the change to the by-laws
must be given to all shareholders entitled to vote on by-law amendments not
later than the time of the giving of notice of the meeting of shareholders next
following the action by the directors. As expressly permitted by the MultiLink
Articles, the MultiLink By-Laws grant the MultiLink Board of
-66-
<PAGE> 77
Directors the power to amend or repeal the MultiLink By-Laws by a majority vote
of the Directors then in office, provided that: (i) the Directors may not amend
or repeal any provision of the MultiLink By-Laws which by law, the MultiLink
Articles or the MultiLink By-Laws requires action by the stockholders; (ii)
notice of the change to the MultiLink By-Laws shall be given to MultiLink
shareholders not later than the time of the giving of notice of the next
stockholders meeting; and (iii) any amendment or repeal of the MultiLink By-Laws
by the Board may be amended or repealed by the MultiLink stockholders. The
MultiLink Articles provide that neither the MultiLink Articles nor ByLaws may be
amended in any way that affects the preferences, voting powers, or other special
rights of the MultiLink preferred stock without the prior consent of the holders
of at least two-thirds of each class of shares of preferred stock.
MultiLink currently has no outstanding preferred stock.
LIMITATION ON DIRECTORS' LIABILITY, INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 102 of the DGCL allows a corporation to include in its
certificate of incorporation a provision that limits or eliminates the personal
liability of directors to the corporation and its shareholders for monetary
damages for breach of fiduciary duty as a director. Section 102 of the DGCL does
not, however, permit a corporation to limit or eliminate the personal liability
of a director for (i) any breach of the director's duty of loyalty to the
corporation or its shareholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
intentional or negligent payment of unlawful dividends or unlawful stock
purchases or redemptions or (iv) any transaction from which the director derives
an improper personal benefit. The PictureTel Certificate provides for
limitations on directors' liability to the fullest extent permitted by the DGCL.
Section 145 of the DGCL provides that a corporation may indemnify any of
its officers and directors party to any action, suit or proceeding by reason of
the fact that he or she is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another organization by, among other
things, a majority vote of a quorum consisting of directors who were not parties
to such action, suit or proceedings, provided that such officer or director
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the corporation. The PictureTel Certificate
provides for indemnification of officers and directors of PictureTel to the
maximum extent and in the manner permitted by the DGCL.
Section 67 of the MBCL provides that indemnification of directors,
officers, employees and other agents of a corporation, and persons who serve at
its request as directors, officers, employees or other agents of another
organization, may be provided by the corporation to whatever extent specified in
or authorized by (i) the articles of organization, (ii) a by-law adopted by the
shareholders or (iii) a vote adopted by the holders of a majority of the shares
entitled to vote on the election of directors. The MultiLink By-Laws provide for
indemnification of directors, officers, employees and other agents of MultiLink
to the maximum extent permitted by the MBCL. The MultiLink Articles and By-Laws
include provisions eliminating the personal liability of MultiLink's directors
for monetary damages resulting from breaches of their fiduciary duty except (i)
for any breach of the director's duty of loyalty to MultiLink or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Sections 61
and 62 of the MBCL or (iv) with respect to any transaction from which the
director derived an improper personal benefit.
CUMULATIVE VOTING FOR DIRECTORS
Section 214 of the DGCL permits cumulative voting for directors to the
extent provided for in a Delaware corporation's certificate of incorporation.
The PictureTel Certificate does not provide for cumulative voting. As a result,
the shareholders of PictureTel do not have cumulative voting rights. The
elimination of cumulative voting limits the ability of minority shareholders to
obtain representation on the PictureTel Board.
While the MBCL does not expressly prohibit cumulative voting, it is
generally understood that cumulative voting is not permitted in Massachusetts
corporations.
-67-
<PAGE> 78
REMOVAL OF DIRECTORS
Under Section 141 of the DGCL, any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority of
the shares entitled to vote at an election of directors, except (i) unless the
certificate of incorporation otherwise provides, in the case of a corporation
having a classified board, shareholders may effect such removal only for cause
and (ii) in the case of a corporation having cumulative voting, if less than the
entire board is to be removed, no director may be removed without cause if the
votes cast against his removal would be sufficient to elect him if then
cumulatively voted at an election of the entire board of directors. PictureTel
does not have a classified board of directors or cumulative voting.
Under Section 51 of the MBCL, unless the articles of organization or
by-laws provide otherwise, (i) directors and officers elected by shareholders
may be removed from their respective offices with or without cause by the vote
of the holders of a majority of the shares entitled to vote in the election of
directors or such officers, as the case may be, provided that the directors of a
class elected by a particular class of shareholders and officers elected by a
particular class of shareholders may be removed only by the vote of the holders
of a majority of the shares of the particular class of shareholders entitled to
vote for the election of such directors or officers, as the case may be; (ii)
officers elected or appointed by the directors may be removed from their
respective offices, with or without cause, by vote of a majority of the
directors then in office; and (iii) any director and any officer elected by the
shareholders, may be removed from office for cause by vote of a majority of the
directors then in office. The MultiLink By-Laws modify Section 51 in the
following ways: (i) MultiLink's Directors may remove any officer with or without
cause by a vote of a majority of the Directors then in office; and (ii) an
Officer or a Director of MultiLink may be removed for cause only after
reasonable notice and opportunity to be heard by the body proposing to remove
him prior to their taking any action with respect to his removal.
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Section 223 of the DGCL provides that vacancies and newly created
directorships may be filled by a majority of the directors then in office (even
though less than a quorum) unless (i) otherwise provided in the certificate of
incorporation or by-laws of the corporation (the PictureTel Certificate and
By-Laws do not provide otherwise) or (ii) the certificate of incorporation
directs that a particular class is to elect such director, in which case any
other directors elected by such class, or a sole remaining director, shall fill
such vacancy (the PictureTel Certificate does not have such a provision). In
addition, if, at the time of filling any vacancy or newly created directorship,
the directors then in office constitute less than a majority of the whole board,
the Delaware Court of Chancery may, upon application of shareholders holding at
least ten percent of the shares outstanding at the time and entitled to vote for
such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office. Such elections are to be conducted in accordance
with the procedures provided by the DGCL. Unless otherwise provided in the
certificate of incorporation or by-laws, when one or more directors resign from
the board, a majority of directors then in office, including those who have so
resigned, may vote to fill the vacancy. The PictureTel By-Laws limit this
provision with respect to directors that have resigned such that it applies only
where the director's resignation is effective at a future date.
Section 52 of the MBCL provides that, unless otherwise provided in a
corporation's articles of organization, any vacancy in the board of directors
(including a vacancy resulting from the enlargement of the board) may be filled
in the manner prescribed in the by-laws or in the absence of such a by-law, by
the directors. The MultiLink By-Laws provide that any such vacancy, however
occurring, including a vacancy resulting from an enlargement of the MultiLink
Board, may be filled by the MultiLink stockholders, or in the absence of
stockholder action, by the Directors.
SPECIAL MEETINGS
Under Section 211 of the DGCL, special meetings of shareholders may be
called by the board of directors and by such other person or persons authorized
to do so by the corporation's certificate of incorporation or by-laws. Under the
PictureTel By-Laws, a special meeting of shareholders may be called by the
Chairman of the Board, if any, the President, or the PictureTel Board of
Directors.
-68-
<PAGE> 79
Under Section 34 of the MBCL, special meetings of shareholders may be
called by the president or by the directors, and shall be called by the clerk,
or in case of death, absence, incapacity or refusal of the clerk, by any other
officer, upon written application of one or more shareholders who hold at least
10% in interest of the capital stock entitled to vote thereat. In case none of
the officers is able and willing to call a special meeting, the supreme judicial
or superior court, upon application of one or more shareholders who hold at
least 10% in interest of the capital stock entitled to vote thereat, will have
jurisdiction to authorize one or more of such shareholders to call a meeting by
giving such notice as is required by law. The MultiLink By-Laws provide special
meetings of the shareholders may be called by the president or the directors,
and, upon written application of one or more shareholders who hold at least 10%
of the capital stock entitled to vote at a meeting, a special meeting shall be
called by the clerk or in case of the death, absence, incapacity or refusal of
the clerk, by any other officer.
INSPECTION RIGHTS
Section 220 of the DGCL provides that any shareholder, upon written
demand stating the purpose of the inspection, shall have the right to inspect
for any proper purpose the corporation's stock ledger, a list of its
shareholders, and its other books and records.
Section 32 of the MBCL generally provides that a shareholder may inspect
a corporation's articles of organization, its by-laws, records of its meetings
of incorporators and shareholders, a list of its shareholders, and its other
stock and transfer records for any proper purpose.
ELECTION OF DIRECTORS
The PictureTel By-Laws provide that the PictureTel Board shall consist of
at least one and no more than 15 members and that such number shall otherwise be
fixed from time to time by resolution of the PictureTel Board.
The MultiLink By-Laws provide that the MultiLink Board will consist of
not less than six directors and that the number of directors may be increased
and one or more additional directors elected at any special meeting of the
stockholders.
PREEMPTIVE RIGHTS
Section 151 of the DGCL generally permits a Delaware corporation to
provide its stockholders with the preemptive right to subscribe to capital stock
or securities convertible into stock in its certificate of incorporation. The
PictureTel Certificate does not provide for preemptive rights.
Section 20 of the MBCL generally provides that no stockholder shall have
any preemptive right to acquire stock of the corporation except to the extent
provided in the articles of organization or in a by-law adopted by and subject
to amendment only by the stockholders. MultiLink has no provision granting
preemptive rights in the MultiLink Articles or By-Laws.
DIVIDENDS
Section 170 of the DGCL provides that a corporation, unless otherwise
restricted by its certificate of incorporation, may declare and pay dividends
out of surplus, or if no surplus exists, out of net profit for the fiscal year
in which the dividend is declared or the preceding fiscal year (provided that
the amount of capital of the corporation following the declaration and payment
of the dividend is not less than the aggregate amount of the capital represented
by the issued and outstanding shares of all classes having preference upon the
distribution of assets). Additionally, the DGCL provides that, in general, a
corporation may redeem or repurchase its shares only out of surplus. The
PictureTel Certificate does not alter these provisions of the DGCL.
The MBCL describes no special sources for distributions. It specifies
instead the liabilities which can result from an improper distribution by a
corporation, both for the directors (Section 61) who authorize the distribution
and
-69-
<PAGE> 80
the stockholders (Section 45) who receive it. Generally, an improper
distribution is one made when a corporation is insolvent or would be rendered
insolvent by part or all of the distribution. To the extent of the damage to the
corporation, the directors who authorize it and the stockholders who receive it
are jointly and severally liable to the corporation.
LEGAL MATTERS
Certain legal matters with respect to the validity of the securities
offered hereby will be passed upon for PictureTel by Ropes & Gray, Boston,
Massachusetts. Certain legal matters in connection with the Merger will be
passed upon for MultiLink by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts.
EXPERTS
The consolidated financial statements and the related consolidated
financial statement schedule of PictureTel Corporation as of December 31, 1996
and 1995, and for each of the three years in the period ended December 31, 1996,
have been incorporated by reference herein and in the Registration Statement, of
which this Proxy Statement/Prospectus is a part, in reliance upon the reports of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The consolidated financial statements of MultiLink, Inc. and Subsidiary
as of September 30, 1996 and 1995, and for each of the years in the three-year
period ended September 30, 1996, have been included herein in reliance on the
report of KPMG Peat Marwick LLP, independent accountants, which is given upon
the authority of said firm as experts in accounting and auditing.
-70-
<PAGE> 81
MULTILINK, INC. AND SUBSIDIARY
FINANCIAL STATEMENTS INDEX
PAGE NUMBER
Independent Accountants' Report .................................... F-2
Consolidated Balance Sheets as of September 30, 1996
and 1995 ......................................................... F-3
Consolidated Statements of Income for the years
ended September 30, 1996, 1995 and 1994 .......................... F-4
Consolidated Statements of Stockholders' Equity
for the years ended September 30, 1996, 1995 and 1994 ............ F-5
Consolidated Statements of Cash Flows for the years
ended September 30, 1996, 1995 and 1994 .......................... F-6
Notes to Consolidated Financial Statements ......................... F-7
F-1
<PAGE> 82
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors and Stockholders of MultiLink, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of MultiLink,
Inc. and subsidiary as of September 30, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three-year period ended September 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MultiLink,
Inc. and subsidiary as of September 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1996 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
November 4, 1996
F-2
<PAGE> 83
MULTILINK, INC. AND SUBSIDIARY
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30,
----------------------------- March 31,
ASSETS 1996 1995 1997
------ ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 375,509 $ 117,298 $ 1,905,801
Accounts receivable, less allowance for doubtful accounts of
$441,758, $175,334 and $218,862 in 1996,
1995 and March 31, 1997, respectively 4,683,497 5,417,813 6,236,320
Inventories (note 3) 2,690,358 1,792,880 3,320,545
Deferred tax assets (note 10) 512,194 494,080 512,193
Refundable income taxes 275,212 -- 275,212
Prepaid expenses 33,417 103,488 62,578
----------- ----------- -----------
TOTAL CURRENT ASSETS 8,570,187 7,925,559 12,312,649
Property and equipment, net (note 4) 3,529,854 2,716,381 4,205,642
Capitalized software development costs, net 2,277,623 1,504,609 1,902,621
Purchased software costs, net 128,305 226,675 187,967
Other assets 111,991 99,074 220,998
----------- ----------- -----------
TOTAL ASSETS $14,617,960 $12,472,298 $18,829,877
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable (note 5) $ -- $ 800,000 $ 3,223,115
Subordinated demand notes payable (note 5) -- 742,600 --
Current installments under capital leases (note 6) 128,859 -- 128,859
Accounts payable 964,456 748,103 1,894,190
Deferred revenue 416,781 114,552 1,154,692
Income taxes payable -- 237,800 --
Accrued liabilities 1,717,668 1,445,049 1,283,420
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 3,227,764 4,088,104 7,684,276
Capital lease obligations, net of current installments (note 6) 268,081 -- 198,626
Deferred rent liabilities (note 6) 29,251 64,353 11,700
Deferred tax liabilities (note 10) 1,143,070 757,390 1,143,070
----------- ----------- -----------
TOTAL LIABILITIES 4,668,166 4,909,847 9,037,672
----------- ----------- -----------
Commitments and contingencies (note 6)
STOCKHOLDERS' EQUITY (NOTES 7, 8 AND 9):
Common stock, $.01 par value; 15,000,000 shares authorized; 61,838 51,370 62,292
6,183,795, 5,136,937 and 6,229,237 shares issued and
outstanding in 1996, 1995, and March 31, 1997, respectively
Additional paid-in capital 3,478,976 2,676,366 3,507,589
Retained earnings 6,408,980 4,834,715 6,222,324
----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 9,949,794 7,562,451 9,792,205
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $14,617,960 $12,472,298 $18,829,877
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 84
MULTILINK, INC. AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years Ended September 30, Six Months Ended
----------------------------------------- March 31,
--------------------------
(unaudited)
1996 1995 1994 1997 1996
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues (note 11) $22,420,351 $17,041,597 $17,647,989 $12,008,919 $9,662,505
Cost of revenues 5,004,648 3,739,279 4,526,715 2,581,106 2,296,549
----------- ----------- ----------- ----------- ----------
Gross profit 17,415,703 13,302,318 13,121,274 9,427,813 7,365,956
Operating expenses:
Research and development 5,366,280 2,532,145 1,679,073 3,307,060 2,038,712
Selling, general and administrative 9,511,611 7,118,420 6,214,085 6,371,570 4,301,739
----------- ----------- ----------- ----------- ----------
Total operating expenses 14,877,891 9,650,565 7,893,158 9,678,630 6,340,451
Operating income (loss) 2,537,812 3,651,753 5,228,116 (250,817) 1,025,505
Interest expense, net 125,903 91,851 118,076 57,700 81,465
----------- ----------- ----------- ----------- ----------
Income (loss) before income taxes 2,411,909 3,559,902 5,110,040 (308,517) 944,040
Income tax expense (benefit) (note 10) 837,644 1,327,075 2,020,250 (121,861) 377,645
----------- ----------- ----------- ----------- ----------
Net income (loss) $ 1,574,265 $ 2,232,827 $ 3,089,790 $ (186,656) $ 566,395
=========== =========== =========== =========== ==========
Net income (loss) per share $ .25 $ .37 $ .51 $ (.03) $ .09
=========== =========== =========== =========== ==========
Weighted average number of common and
common equivalent shares outstanding 6,379,361 6,097,100 6,044,601 6,212,356 6,401,612
=========== =========== =========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 85
MULTILINK, INC. AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Common Stock
---------------------------- Additional Retained
Number of Paid-in Earnings Stockholders'
Shares Amount Capital (Deficit) Equity
----------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1993 3,126,778 $ 31,268 $ 428,877 $ (12,160) $ 447,985
Exercise of employee stock options
(note 9) 119,737 1,197 17,093 -- 18,290
Exercise of stock purchase warrants
(note 7) 100,000 1,000 49,000 -- 50,000
Net Income -- -- -- 3,089,790 3,089,790
--------- ----------- ----------- ----------- -----------
Balance, September 30, 1994 3,346,515 33,465 494,970 3,077,630 3,606,065
Exercise of employee stock options
(note 9) 802,469 8,025 156,074 -- 164,099
Exercise of stock purchase warrants
(note 7) 150,000 1,500 73,500 -- 75,000
Conversion of preferred stock to
common stock (note 8) 837,953 8,380 1,951,822 -- 1,960,202
Dividends (note 8) -- -- -- (475,742) (475,742)
Net Income -- -- -- 2,232,827 2,232,827
--------- ----------- ----------- ----------- -----------
Balance, September 30, 1995 5,136,937 51,370 2,676,366 4,834,715 7,562,451
Exercise of employee stock options
(note 9) 109,358 1,093 69,385 -- 70,478
Conversion of subordinated debt to
common stock (note 5) 937,500 9,375 733,225 -- 742,600
Net Income -- -- -- 1,574,265 1,574,265
--------- ----------- ----------- ----------- -----------
Balance, September 30, 1996 6,183,795 $ 61,838 $ 3,478,976 $ 6,408,980 $ 9,949,794
Exercise of employee
stock options (unaudited) 45,442 454 28,613 -- 29,067
Net Loss (unaudited) -- -- -- (186,656) (186,656)
--------- ----------- ----------- ----------- -----------
Balance, March 31, 1997 (unaudited) 6,229,237 $ 62,292 $ 3,507,589 $ 6,222,324 $ 9,792,205
========= =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 86
MULTILINK, INC. AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Six Months Ended
Years Ended September 30, March 31,
----------------------------------------- --------------------------
(unaudited)
1996 1995 1994 1997 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,574,265 $ 2,232,827 $ 3,089,790 $ (186,656) $ 566,395
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 934,276 571,813 369,508 627,840 370,285
Amortization 288,355 220,900 155,253 447,000 144,178
Provision for losses on accounts receivable 266,424 8,601 (18,083) (222,896) 40,024
Deferred rent liabilities (35,102) (32,294) 8,464 (17,551) (17,651)
Deferred taxes 367,566 189,316 73,994 -- --
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable 467,892 738,400 (2,475,725) (1,329,927) 1,051,120
Inventories (897,478) (938,867) 143,764 (630,187) (366,156)
Prepaid expenses and other assets 57,154 (91,554) (392,696) (138,163) 72,129
Refundable income taxes (275,212) -- -- -- --
Increase (decrease) in:
Accounts payable 216,353 (17,544) 43,510 929,734 50,538
Income taxes payable (237,800) (238,687) 305,939 -- (237,800)
Accrued liabilities and deferred
revenue 574,848 (326,041) 963,434 303,665 482,203
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities 3,301,541 2,316,870 2,267,152 (217,141) 2,155,265
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (1,330,422) (1,955,610) (593,892) (1,303,631) (691,639)
Purchase of vendor software (51,200) (125,000) (240,432) (131,662) --
Capitalized computer software development costs (911,799) (921,818) (450,733) -- (411,091)
----------- ----------- ----------- ----------- -----------
Net cash used in
investing activities (2,293,421) (3,002,428) (1,285,057) (1,435,293) (1,102,730)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Payment of dividends -- (475,742) -- -- --
Redemption of preferred stock -- (650,001) -- -- --
Borrowings (repayments) of notes payable (800,000) 800,000 (656,250) 3,223,115 (800,000)
Principal payments under capital lease obligations (20,387) (21,921) (115,273) (69,456) --
Proceeds from issuance of common stock 70,478 239,099 68,290 29,067 20,600
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities (749,909) (108,565) (703,233) 3,182,726 (779,400)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash 258,211 (794,123) 278,862 1,530,292 273,135
Cash, beginning of the period 117,298 911,421 632,559 375,509 117,298
----------- ----------- ----------- ----------- -----------
Cash, end of the period $ 375,509 $ 117,298 $ 911,421 $ 1,905,801 $ 390,433
=========== =========== =========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 141,030 $ 91,851 $ 124,684 $ 57,700 $ 96,593
=========== =========== =========== =========== ===========
Cash paid during the period for income taxes $ 1,044,253 $ 1,380,837 $ 1,633,847 $ 263,000 $ 301,000
=========== =========== =========== =========== ===========
Supplemental disclosures of noncash investing and
financing activities:
Transfers of inventory to property and equipment $ 542,451 $ 127,927 $ 96,241 $ 211,492 $ 180,745
=========== =========== =========== =========== ===========
A capital lease obligation of $417,327 was incurred in 1996 when the
Company entered into a lease for new equipment.
On September 30, 1996, additional common stock was issued upon the
conversion of $742,600 of subordinated debt.
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 87
MULTILINK, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended September 30, 1996, 1995 and 1994
(Information as of March 31, 1997 is unaudited)
(1) BUSINESS
MultiLink, Inc. and subsidiary (collectively, the "Company") is engaged
in the design, manufacture, marketing and service of audioconferencing
equipment. Founded in 1984, the Company is headquartered in Andover,
Massachusetts and maintains sales offices in Kansas and the United
Kingdom. In November 1996, MultiLink established a subsidiary in the
United Kingdom for its European headquarters. The Company markets its
products worldwide to large organizations for internal use and to
entities that provide audioconferencing services to third parties. In
August 1996, the Company released its first videoconferencing product
incorporating video capability with audio-related functions already
available in predecessor products.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of
MultiLink, Inc. and its wholly owned subsidiary. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Interim Results (Unaudited)
The accompanying balance sheet at March 31, 1997, the statement of
stockholders' equity for the six months ended March 31, 1997 and the
statement of operations and cash flows for the six months ended March
31, 1997 and 1996 are unaudited. In the opinion of management, these
statements have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting only of
normal recurring adjustments, necessary for the fair statement of
financial data for such periods.
Revenue Recognition
Revenue from product sales is recognized upon shipment, and the
Company's products are generally delivered without significant
post-sale obligations to the customer. If significant obligations
exist, revenue recognition is deferred until the obligations are
satisfied.
Revenue from service maintenance contracts is recognized ratably over
the life of the service contract.
Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation and amortization are
provided using the straight-line method over the estimated useful lives
of the related assets or the term of the leases for equipment under
capital leases, as appropriate.
Upon sale or retirement of property and equipment, the related cost and
accumulated depreciation are removed from the accounts and any gain or
loss is recognized currently. Expenditures for maintenance and repairs
are expensed as incurred, while betterments and replacements are
capitalized.
Software Development Costs
The Company capitalizes costs incurred to develop computer software
incorporated into its products once the technological feasibility of
the software has been established. Software costs capitalized are
amortized over the estimated economic life of the product, which is
generally estimated to be three years, on a straight-line basis from
the time that the product is available for general release to
customers. This method effects a
F-7
<PAGE> 88
greater annual amortization charge than using the ratio that current
gross revenues for each product bear to the total of current and
anticipated future gross revenues for that product. All costs incurred
prior to the establishment of technological feasibility are charged to
expense as incurred. In fiscal 1996, 1995 and 1994 capitalized
$911,799, $921,818 and $450,733, respectively, in software costs. The
recoverability of such costs is reviewed on an ongoing basis.
Accumulated amortization as of September 30, 1996 and 1995 was
$448,160 and $309,375, respectively.
Purchased Software Costs
The cost of purchased software from outside vendors was $51,200,
$125,000, and $240,432 in 1996, 1995 and 1994, respectively. The total
amount of such costs amortized to expense during those periods was
$149,570, $97,504 and $43,336, respectively. The costs are amortized
over the estimated economic life of the software, which is three years
or less.
Income Taxes
The Company uses the asset and liability method to record income taxes.
Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and the respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare the
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Product Warranties
The Company sells the majority of its products under unconditional
repair warranties for up to one year. The Company provides for
estimated warranty claims based on the historical claims experience.
New Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which established
financial accounting and reporting standards for stock-based employee
compensation plans. Companies are encouraged, rather than required, to
adopt a new method that accounts for stock compensation awards based on
their fair value using an option pricing model. Companies that do not
adopt this new method will be required to make pro forma footnote
disclosures of net income as if the fair value-based method of
accounting required by SFAS No. 123 had been applied. The Company is
required to adopt SFAS No. 123 beginning in fiscal 1997. Adoption of
this pronouncement is not expected to have a material impact on the
Company's financial position or results of operations because the
Company intends to make pro forma footnote disclosures instead of
adopting the new accounting method.
Reclassifications
Certain reclassifications to the 1995 and 1994 consolidated financial
statements have been made to conform to the 1996 presentation.
F-8
<PAGE> 89
(3) INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30, March 31,
1996 1995 1997
---------- ---------- ----------
<S> <C> <C> <C>
Raw materials and purchased parts $ 678,548 $ 360,276 $ 857,254
Work in process 840,244 491,361 938,809
Finished goods 1,171,566 941,243 1,524,482
---------- ---------- ----------
$2,690,358 $1,792,880 $3,320,545
========== ========== ==========
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
September 30,
1996 1995
----------- -----------
<S> <C> <C>
Audioconferencing equipment $ 2,617,982 $ 1,943,691
Furniture and fixtures 723,072 693,495
Equipment under capital lease 1,170,699 753,372
Leasehold improvements 408,214 308,580
Office equipment 1,540,708 1,013,788
----------- -----------
6,460,675 4,712,926
Less accumulated depreciation
and amortization (2,930,821) (1,996,545)
----------- -----------
$ 3,529,854 $ 2,716,381
=========== ===========
</TABLE>
(5) NOTES PAYABLE
At September 30, 1996, the Company had an agreement for a bank line of
credit of $3,000,000 ($2,000,000 in 1995) to provide working capital
financing. Borrowings bear interest at the bank's base lending rate
which was eight and one quarter percent (8.25%) at September 30, 1996.
The line of credit is secured by substantially all of the Company's
assets, is repayable upon demand and is available through December 30,
1997. As of September 30, 1996, there were no borrowings outstanding.
As of September 30, 1995, $800,000 was outstanding under this line of
credit. The line of credit may be withdrawn for reason of default by
the Company, or if the Company fails to bring the balance outstanding
under the line to zero for a period of 30 consecutive days prior to
maturity.
On September 30, 1992, the Company issued $750,000 of 10% subordinated
demand notes due on or before September 30, 1996. Additionally,
detachable common stock purchase warrants to purchase an aggregate of
937,500 shares of the Company's common stock at $.80 per share were
issued to the purchasers of the
F-9
<PAGE> 90
subordinated demand notes. The proceeds were used for working capital
and other general corporate purposes. The subordinated demand notes
payable required interest only payments, in arrears, at the rate of 10%
per annum on the last day of each calendar quarter. In accounting for
the transaction, $7,400 of the proceeds of the subordinated demand
notes was allocated to the detachable common stock purchase warrants
and credited to additional paid-in capital.
On September 30, 1996, the holders of the subordinated demand notes
elected to exercise their warrants to purchase 937,500 shares of the
Company's common stock. Each of the noteholders surrendered their
subordinated notes to complete the transaction.
(6) LEASES
The Company has entered into capital and operating leases for certain
of its equipment and facilities. The operating leases are subject to
adjustment for real estate tax increases and certain of the leases also
provide for operating expense escalators and contain renewal options
for periods up to 12 years.
Future minimum lease payments at September 30, 1996 under these leases
are as follows:
<TABLE>
<CAPTION>
Capital Operating
Lease Leases
--------- ----------
<S> <C> <C>
1997 $ 159,025 $ 766,615
1998 159,025 595,757
1999 132,521 607,438
2000 - 619,120
2001 - 630,801
2002 and thereafter - 3,329,228
--------- ----------
Total minimum lease payments $ 450,571 $6,548,959
==========
Less amounts representing interest (53,631)
---------
Present value of future minimum lease payments 396,940
Less current installments (128,859)
---------
Obligations under capital lease, net of current installments $ 268,081
=========
</TABLE>
Rent expense charged to operations under operating leases was
approximately $505,000, $480,800 and $324,400 for the years ended
September 30, 1996, 1995, and 1994, respectively.
The Company was granted reduced rent under the lease for its office in
Andover, Massachusetts. The accompanying consolidated statements of
operations reflect rent expense on a straight-line basis over the term
of the lease. An obligation of $29,251 and $64,353 representing pro
rata future payments is reflected in the accompanying consolidated
balance sheets at September 30, 1996 and 1995, respectively.
The Company leases certain equipment to an unrelated third party under
an operating lease. The operating lease is for a period of not more
than one year and the future minimum rentals receivable on the
noncancelable lease for the year ending September 30, 1997 is $329,933.
F-10
<PAGE> 91
(7) COMMON STOCK
On February 18, 1992, the Company issued a stock purchase warrant to
purchase 150,000 shares of the Company's common stock at $.50 per share
to a shareholder in return for guaranteeing $75,000 of bank debt for
the period August 1, 1992 to January 31, 1993. The warrant was
exercised in fiscal 1995. The warrant holder is entitled, at the
Company's expense, to certain registration rights under the Securities
Act of 1933 in connection with any shares of the Company's common stock
issued pursuant to exercise of the warrant.
(8) REDEEMABLE CUMULATIVE CONVERTIBLE PREFERRED STOCK
As provided for under the preferred stock agreements, the Company was
required to redeem in cash all shares of Preferred Stock then
outstanding at March 1, 1995 at the liquidation value plus any accrued
but unpaid dividends. On this date, the Company redeemed 329,830 shares
of the outstanding preferred stock in the form of cash payments
aggregating $1,125,743. Of this amount, $650,001 represented payment of
liquidation value and $475,742 represented accrued but unpaid
dividends.
Also, on March 1, 1995, the Company, at the request of the remaining
preferred stockholders, converted the remaining 819,458 shares into
common stock. For Classes A and C of the Preferred Stock, each share
was converted into one share of Common Stock. Class B Preferred stock,
due to its anti-dilutive provision, was converted at a rate of 1.0878.
The aggregate effect of this conversion was to issue 837,953 shares of
common stock.
(9) STOCK OPTION PLANS
In April 1997, the shareholders of the Company approved the amendment
of the 1996 Stock Plan to increase the number of shares available for
grant from 300,000 shares to 600,000 shares.
The Company has adopted three stock option plans summarized as follows:
<TABLE>
<CAPTION>
Shares available Date options can
Plan Type for grants be granted through
---- ---- ---------------- ------------------
<S> <C> <C> <C>
1986 Stock Plan Incentive stock options for 20,000 February 1996
employees
1987 Stock Plan Incentive stock options for 1,915,000 February 1997
employees/nonqualified
stock options for
employees, nonemployee
directors and consultants
1996 Stock Plan Incentive stock options for 600,000 September 2006
employees/nonqualified
stock options for
employees, nonemployee
directors and consultants
</TABLE>
Under the terms of all plans, options vest over a period of four years
or as determined by the board of directors and generally expire no
later than ten years from the date of grant in the case of incentive
stock options and ten years and one day from the date of grant in the
case of nonqualified stock options. In the case of incentive stock
options issued to employees owning more than ten percent of the total
combined voting power of all classes of stock of the Company, options
are exercisable no later than five years from the date of grant. The
price at which shares may be purchased under nonqualified stock options
is determined by the board of directors.
F-11
<PAGE> 92
A summary of the stock option plans is as follows:
<TABLE>
<CAPTION>
September 30,
---------------------------------- Option Price
1996 1995 1994 Per Share
------- --------- --------- ------------
<S> <C> <C> <C> <C>
Options outstanding at
beginning of period 709,975 1,351,844 1,306,925 $ .01-$5.00
Options granted 284,750 189,500 176,000 5.00
Options exercised (109,358) (802,469) (119,737) .15- 5.00
Options forfeited (30,562) (28,900) (11,344) 1.50- 5.00
------- --------- ---------
Options outstanding at end of period 854,805 709,975 1,351,844 $ .01-$5.00
======= ========= =========
Options exercisable 393,748 373,329 1,047,405 $ .01-$5.00
======= ========= =========
Options available for future grants 87,449 19,749 102,237
======= ========= =========
</TABLE>
(10) INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
Current Deferred Total
---------- -------- ----------
<S> <C> <C> <C>
September 30, 1996
------------------
Federal $ 453,858 $284,864 $ 738,722
State 16,220 82,702 98,922
---------- -------- ----------
Total $ 470,078 $367,566 $ 837,644
========== ======== ==========
September 30, 1995
------------------
Federal $ 964,603 $146,720 $1,111,323
State 173,156 42,596 215,752
---------- -------- ----------
Total $1,137,759 $189,316 $1,327,075
========== ======== ==========
September 30, 1994
------------------
Federal $1,524,992 $ 57,345 $1,582,337
State 421,264 16,649 437,913
---------- -------- ----------
Total $1,946,256 $ 73,994 $2,020,250
========== ======== ==========
</TABLE>
F-12
<PAGE> 93
The difference between total expected income tax expense computed by
applying the federal income tax rate of 34% to income before income tax
expense and the reported tax expense is as follows:
<TABLE>
<CAPTION>
September 30,
----------------------------------------
1996 1995 1994
-------- ---------- -----------
<S> <C> <C> <C>
Computed "expected" tax expense
at statutory rate $823,255 $1,210,367 $1,737,414
State tax, net of federal benefit 65,289 142,396 289,023
Utilization of federal research credits (50,132) (100,672) (45,267)
Foreign Sales Corporation benefit (7,972) (16,606) (20,400)
Other 7,204 91,590 59,480
-------- ---------- ----------
$837,644 $1,327,075 $2,020,250
======== ========== ==========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of net deferred tax assets and liabilities at September 30,
1996 and 1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Deferred tax assets:
Warranty reserve $ 54,720 $ 44,720
Inventory reserve 153,000 162,927
Accrued liabilities 116,070 190,558
Bad debts 176,704 70,134
Deferred rent 11,700 25,741
----------- ---------
Total gross deferred tax assets 512,194 494,080
----------- ---------
Deferred tax liabilities:
Fixed Assets (232,020) (155,570)
Capitalized software (911,050) (601,820)
----------- ---------
Total gross deferred tax liabilities (1,143,070) (757,390)
----------- ---------
Net deferred tax liabilities $ (630,876) $(263,310)
=========== =========
</TABLE>
In assessing the realizability of deferred tax assets, the Company
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Due to the fact that
the Company has sufficient taxable income in the carryback period and
projects future taxable income, including the reversal of existing
deferred tax liabilities, over the periods during which the deferred
tax assets are deductible, the ultimate realization of deferred tax as
sets appears more likely than not.
F-13
<PAGE> 94
(11) SEGMENT INFORMATION AND MAJOR CUSTOMERS
The following table summarizes sales information by geographic area:
<TABLE>
<CAPTION>
% of % of % of
1996 Total 1995 Total 1994 Total
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales:
U.S. domestic $20,055,540 89 $15,386,577 90 $15,802,971 90
Foreign export 2,364,811 11 1,655,020 10 1,845,018 10
----------- --- ----------- --- ----------- ---
Total net sales $22,420,351 100 $17,041,597 100 $17,647,989 100
=========== === =========== === =========== ===
</TABLE>
The following table summarizes sales to major customers as a percentage
of total sales for the period:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Customer A 18% 17% 14%
Customer B 31% - -
Customer C - 11% -
Customer D - - 12%
</TABLE>
At September 30, 1996, the accounts receivable balance due from
customer B is $310,629.
MultiLink sells its products to a variety of customers, primarily
telephone carriers and independent service providers. MultiLink
performs ongoing credit evaluations of its customers and maintains
reserves for potential credit losses.
F-14
<PAGE> 95
Annex A
===============================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
PICTURETEL CORPORATION
ML ACQUISITION CORP.
and
MULTILINK, INC.
Dated as of April 15, 1997
===============================================================================
<PAGE> 96
TABLE OF CONTENTS
1. DEFINITIONS............................................................1
1.1. Certain Matters of Construction...............................1
1.2. Cross Reference Table.........................................2
1.3. Certain Definitions...........................................3
2. MERGER................................................................10
3. TERMS OF THE MERGER AND CLOSING.......................................10
3.1. Terms of Merger..............................................10
3.2. Target Securityholders' Representative.......................15
3.3. Time and Place of Closing....................................15
3.4. Deliveries...................................................16
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................18
4.1. Organization and Corporate Power.............................18
4.2. Authorization and Enforceability.............................18
4.3. Capitalization...............................................18
4.4. Subsidiaries.................................................19
4.5. Financial Statements.........................................19
4.6. Absence of Undisclosed Liabilities...........................19
4.7. Absence of Certain Developments..............................19
4.8. Title to Properties..........................................20
4.9. Tax Matters..................................................20
4.10. Contracts and Commitments....................................20
4.11. No Defaults..................................................20
4.12. Intellectual Property........................................21
4.13. Interested Parties and Conflicts of Interest.................23
4.14. Non-Contravention............................................23
4.15. No Governmental Consent or Approval Required.................23
4.16. Litigation...................................................23
4.17. Business.....................................................24
4.18. Brokers. ...................................................24
4.19. Environmental and Safety Laws................................24
4.20. Foreign Corrupt Practices Representation.....................24
4.21. Material Facts. ............................................24
4.22. Insurance....................................................25
4.23. Employees....................................................25
4.24. Employee Benefits............................................25
4.25. Notes and Accounts Receivable................................26
4.26. Inventories..................................................26
4.27. Registration Statement; Proxy Statement/Prospectus...........26
4.28. Change in Control Payments...................................27
4.29. Claims Against Directors and Officers........................27
5. REPRESENTATIONS AND WARRANTIES OF THE BUYING PARTIES..................27
5.1. Corporate Matters............................................27
5.2. Charter and By-Laws..........................................28
5.3. Capitalization...............................................28
5.4. Authorization and Enforceability.............................28
5.5. Non-Contravention, etc.......................................28
<PAGE> 97
5.6. Investment Intent............................................28
5.7. Litigation...................................................28
5.8. SEC Reports..................................................28
5.9. Brokers......................................................29
5.10. Registration Statement; Proxy Statement/Prospectus...........29
5.11. Ownership of Merger Sub; No Prior Activities.................30
6. CERTAIN AGREEMENTS OF THE PARTIES.....................................30
6.1. Proxy Statement/Prospectus; Registration Statement...........30
6.2. Special Meeting..............................................30
6.3. No Solicitation of Other Offers..............................30
6.4. Access to Premises and Information...........................31
6.5. Confidentiality Covenant of the Buying Parties...............31
6.6. Operation of Business in the Ordinary Course.................32
6.7. Certain Notices..............................................34
6.8. Preparation for Closing......................................34
6.9. Governmental Authorizations..................................34
6.10. Pooling of Interests Accounting Treatment;
Certain Tax Covenants .......................................35
6.11. Escrow of Shares Pending Resolution of Certain Matters.......36
6.12. Affiliate Agreements.........................................38
6.13. Further Assurances...........................................38
6.14. Directors and Officers Indemnification.......................38
6.15. Expenses.....................................................39
7. CONDITIONS TO THE OBLIGATION TO CLOSE OF THE BUYING PARTIES...........39
7.1. Representations, Warranties and Covenants of Company.........39
7.2. Effectiveness of the Registration Statement..................40
7.3. No Material Adverse Change...................................40
7.4. Options, etc.................................................40
7.5. Closing Agreements...........................................40
7.6. Tax Opinion..................................................40
7.7. Pooling Opinion..............................................40
7.8. Legality; Governmental Authorization; Litigation.............40
7.9. Consents, etc................................................41
7.10. Nasdaq Listing...............................................41
7.11. Opinion of Counsel...........................................41
7.12. Stockholders Agreement.......................................41
7.13. General......................................................41
8. CONDITIONS TO THE OBLIGATION TO CLOSE OF THE COMPANY..................41
8.1. Representations, Warranties and Covenants of Buying Parties..42
8.2. Effectiveness of the Registration Statement..................42
8.3. Stockholder Approval.........................................42
8.4. Closing Agreements...........................................42
8.5. Tax Opinion..................................................42
8.6. Pooling Opinion..............................................42
8.7. Legality; Government Authorization; Litigation...............42
8.8. Consents, etc................................................43
8.9. Opinion of Counsel...........................................43
8.10. General......................................................43
9. INDEMNIFICATION.......................................................43
-ii-
<PAGE> 98
9.1. Indemnification..............................................44
9.2. Time Limitation on Indemnification...........................44
9.3. Monetary Limitations on Indemnification;
Limitation on Recourse ......................................44
9.4. Third Party Claims...........................................46
9.5. Nature of Indemnification Payments...........................46
10. CONSENT TO JURISDICTION; JURY TRIAL WAIVER............................46
10.1. Consent to Jurisdiction......................................46
10.2. Waiver of Jury Trial.........................................47
11. TERMINATION...........................................................47
11.1. Termination of Agreement.....................................47
11.2. Effect of Termination........................................48
11.3. Fees and Expenses............................................48
12. MISCELLANEOUS.........................................................49
12.1. Entire Agreement; Waivers....................................49
12.2. Amendment or Modification....................................49
12.3. Survival, etc................................................49
12.4. Independence of Representations and Warranties...............49
12.5. Severability.................................................50
12.6. Knowledge....................................................50
12.7. Successors and Assigns.......................................50
12.8. Notices......................................................50
12.9. Public Announcements.........................................51
12.10. Headings, etc................................................51
12.11. Third Party Beneficiaries....................................52
12.12. Counterparts.................................................52
12.13. Governing Law................................................52
Exhibit A - Form of Affiliate Agreement
-iii-
<PAGE> 99
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made as of the
15th day of April, 1997 among PictureTel Corporation, a Delaware corporation
("Parent"), ML Acquisition Corp., a Massachusetts corporation and a wholly-owned
subsidiary of Parent ("Merger Sub"; each of Parent and Merger Sub being
sometimes referred to herein as a "Buying Party" and collectively as the "Buying
Parties"), and MultiLink, Inc., a Massachusetts corporation (the "Company").
Recitals
1. Each of Parent and the Company desire to have Merger Sub merge
with and into the Company (the "Merger"), all upon the terms and subject to the
conditions set forth in this Agreement and in the Articles of Merger (as
hereinafter defined).
2. The parties hereto intend that the Merger (i) be able to be
accounted for by Parent on a "pooling of interests" basis and (ii) qualify as a
tax-free reorganization under Section 368(a)(2)(E) of the Code (as hereinafter
defined).
Agreement
Therefore, in consideration of the foregoing and the mutual agreements
and covenants set forth below, the parties hereto hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
1.1. Certain Matters of Construction. In addition to the definitions
referred to as set forth below in this Section 1:
(a) The words "hereof," "herein," "hereunder" and words of
similar import shall refer to this Agreement as a whole and not to any
particular Section or provision of this Agreement, and reference to a
particular Section of this Agreement shall include all subsections
thereof.
(b) The words "party" and "parties" shall refer to the Company
and the Buying Parties, collectively.
(c) Definitions shall be equally applicable to both the singular
and plural forms of the terms defined, and references to the masculine,
feminine or neuter gender shall include each other gender.
(d) Accounting terms used herein and not otherwise defined herein
are used herein as defined by GAAP (as hereinafter defined).
(e) All references in this Agreement to any Section shall, unless
the context otherwise requires, be deemed to be a reference to a Section
of this Agreement.
(f) All references in this Agreement to any Exhibit or Schedule
shall, unless the context otherwise requires, be deemed to be a reference
to an Exhibit or Schedule to this Agreement, all of which are made a part
of this Agreement.
1.2. Cross Reference Table. The following terms defined elsewhere in
this Agreement in the Sections set forth below shall have the respective
meanings therein defined:
<PAGE> 100
Term Definition
"AAA" Section 6.11.3.2
"Affiliate Agreement" Section 6.12
"Affiliate Letter" Section 6.12
"Agreement" Preamble
"Alternative Transaction" Section 6.3
"Articles of Merger" Section 3.1.3
"Buying Party" Preamble
"Closing" Section 3.3
"Closing Agreements" Section 7.5
"Closing Date" Section 3.3
"Company" Preamble
"Company Common Stock" Section 4.3
"Constituent Corporations" Section 3.1.1
"Dissenting Shares" Section 3.1.2
"Effective Date" Section 3.1.3
"Escrow Agent" Section 6.11
"Escrowed Shares" Sections 3.1.2 and 6.11
"Exchange Act" Section 5.6
"Exchange Ratio" Section 3.1.2
"Expenses" Section 11.3
"Fee" Section 11.3
"Financial Statements" Section 4.5
"HSR Act" Section 4.14
"IRS" Section 4.24
"Merger" Recitals
"Merger Sub" Preamble
"Merger Sub Common Stock" Section 3.1.2
"Most Recent Balance Sheet" Section 4.5
"Parent" Preamble
"Parent Shares" Section 3.1.2
"Principal Stockholders" Section 1.3.38
"Proxy Statement/Prospectus" Section 4.27
"Registration Statement" Section 4.27
"Release Date" Section 6.11.1
"SEC" Section 4.27
"Securities Act" Section 3.1.2
"Surviving Corporation" Section 3.1.1
"Surviving Corporation Common Stock" Section 3.1.2
"Target Securityholders' Representative" Section 3.2
1.3. Certain Definitions. The following terms shall have the following
meanings:
1.3.1. Action. The term "Action" shall mean any claim, action,
cause of action or suit (in contract or tort or otherwise), arbitration,
inquiry, proceeding or investigation by or before any Governmental
Authority.
1.3.2. Adjusted Escrow Percentage. The term "Adjusted Escrow
Percentage" shall mean the percentage of Parent Shares equal to the
quotient of (i) the total number of Parent Shares issuable in connection
with the Merger (with respect to the shares of Company Common Stock
outstanding on the Effective Date and options which are vested,
exercisable for Company Common Stock, and outstanding on
-2-
<PAGE> 101
the Effective Date) multiplied by seven and one-half percent (7.5%)
divided by (ii) the number of Parent Shares issuable in the Merger with
respect to the shares of Company Common Stock outstanding on the
Effective Date.
1.3.3. Affiliate. The term "Affiliate" shall mean, as to the
Company (or, if another Person is specified, as to such other specified
Person), (i) each Person directly or indirectly controlling, controlled
by or under direct or indirect common control with the Company (or such
specified Person), (ii) any Person who is at the time in question an
officer, director or direct or indirect beneficial holder of at least 5%
of any class of the outstanding capital stock of any Person referred to
in clause (i) above and the members of the immediate family of each such
officer, director or holder (and, if such specified Person is a natural
person, of such specified Person), and (iii) each Person of which the
Company (or such specified Person) or an Affiliate (as defined in clauses
(i) or (ii) above) thereof shall, directly or indirectly, beneficially
own at least 5% of any class of outstanding capital stock or other
evidence of beneficial interest. From and after the Effective Date, the
Company as the Surviving Corporation shall be an Affiliate of the Buying
Parties.
1.3.4. Aggregate Consideration Amount. "Aggregate Consideration
Amount" shall mean 3,750,000 shares of Parent Common Stock.
1.3.5. Business. The term "Business" shall mean the business of
the Company and its Subsidiaries as such business is currently conducted.
1.3.6. Business Day. The term "Business Day" shall mean any day on
which banking institutions in Boston, Massachusetts are customarily open
for the purpose of transacting business.
1.3.7. By-laws. The term "By-laws" shall mean all written rules,
regulations and by-laws, and all other documents (other than the
Charter), relating to the management, governance or internal regulation
of a Person (other than an individual) or interpretative of the Charter
of such Person, each as from time to time in effect.
1.3.8. Charter. The term "Charter" shall mean the certificate or
articles of incorporation or organization, statute, constitution, joint
venture or partnership agreement or articles or other charter documents
of any Person (other than an individual), each as from time to time in
effect.
1.3.9. Code. The term "Code" shall mean the federal Internal
Revenue Code of 1986, as amended, or any successor statute, and the rules
and regulations thereunder, and in the case of any referenced Section of
any such statute, rule or regulation, any successor Section thereto,
collectively and as from time to time amended and in effect.
1.3.10. Company Credit Agreement. The term "Company Credit
Agreement" shall mean the Loan Agreement dated July 29, 1993 between the
Company and US Trust, as amended through the Seventh Amendment to Loan
Agreement dated March 18, 1997 and as in effect on the date hereof.
1.3.11. Company Stock Options. The term "Company Stock Options"
shall mean, collectively, all options issued by the Company pursuant to
the Company Option Plans.
1.3.12. Company Material Adverse Effect. The term "Company
Material Adverse Effect" shall mean a Material Adverse Effect with
respect to the Company and its Subsidiaries.
1.3.13. Company Option Plans. The term "Company Option Plans"
shall mean, collectively, the 1984 Restated Stock Plan, the 1986 Restated
Stock Plan, the 1987 Stock Plan and the 1996 Stock Option Plan.
-3-
<PAGE> 102
1.3.14. Compensation. The term "Compensation," as applied to any
Person, shall mean all salaries, compensation, remuneration or bonuses of
any character, and medical, surgical, dental, hospital, disability,
unemployment, retirement, pension, vacation, insurance or fringe benefits
of any kind, or other payments or benefits of any kind whatsoever made or
provided directly or indirectly by or on behalf of the Company to such
Person or members of the immediate family of such Person.
1.3.15. Contractual Obligation. The term "Contractual Obligation"
shall mean, with respect to any Person, any contract, agreement, deed,
mortgage, lease, license, indenture, commitment, undertaking, arrangement
or understanding, written or oral, or other document or instrument,
including, without limitation, any document or instrument evidencing or
otherwise relating to any indebtedness but excluding the Charter and
By-laws of such Person, to which or by which such Person is a party or
otherwise subject or bound or to which or by which any property or right
of such Person is subject or bound.
1.3.16. Debt. "Debt" of any Person shall mean all obligations of
such Person (i) for borrowed money, (ii) evidenced by notes, bonds,
debentures or similar instruments, (iii) for the deferred purchase price
of goods or services (other than trade payables or accruals incurred and
paid in the Ordinary Course of Business, but only to the extent that such
payables or accruals are not interest-bearing), (iv) under capital leases
and (v) in the nature of Guarantees of the obligations described in
clauses (i) through (iv) above of any other Person.
1.3.17. Distribution. The term "Distribution" shall mean, with
respect to any Equity Security issued by any Person, (i) the declaration
or payment of any dividend on or in respect of any Equity Security; (ii)
the purchase, redemption or other retirement of any Equity Security,
directly, or indirectly through an Affiliate or otherwise; (iii) any
other distribution on or in respect of any shares of any class of such
capital stock or beneficial interest or other Equity Security; and (iv)
any payment or other distribution on or in respect of the principal of,
interest on, or otherwise relating to, directly or indirectly, any Debt
of the Person or an Affiliate of the Person.
1.3.18. Environmental Laws. The term "Environmental Laws" shall
mean any and all Legal Requirements relating to the protection of the
environment, including, without limitation, provisions pertaining to or
regulating air pollution, water pollution, noise control, wetlands, water
courses, natural resources, wildlife, Hazardous Substances, or any other
activities or conditions which impact or relate to the environment or
nature, and shall include, without limitation, CERCLA, RCRA, the Clean
Air Act, the Federal Water Pollution Control Act, the Emergency Planning
and Community Right to Know Act, the Oil Pollution Act, and the Toxic
Substances Control Act, all as in effect from time to time, and shall
include, without limitation, Legal Requirements relating to strict
liability, nuisance or with respect to conducting abnormally dangerous
activities.
1.3.19. Equity Securities. The term "Equity Securities" shall
mean, with respect to any Person which is not a natural person, all
shares of capital stock or other equity or beneficial interests issued by
or created in or by such Person, all stock appreciation or similar rights
or grants of, or other Contractual Obligation for, any right to share in
the equity, income, revenues or cash flow of such Person, and all
securities or other rights, warrants or other Contractual Obligations to
acquire any of the foregoing, whether by conversion, exchange, exercise
or otherwise.
1.3.20. Exchange Ratio. The term "Exchange Ratio" shall mean an
amount calculated by dividing the Aggregate Consideration Amount by the
Fully Diluted Shares.
1.3.21. Formula Price Per Share. The term "Formula Price Per
Share" shall mean the average closing price per share of the Parent
Common Stock on the Nasdaq National Market as reported in the Eastern
Edition of the WALL STREET JOURNAL on the ten trading dates ending two
days prior to the Effective Date.
-4-
<PAGE> 103
1.3.22. Fully-Diluted Shares. The term "Fully-Diluted Shares"
shall mean the aggregate number of (i) shares of Company Common Stock
outstanding on the Effective Date and (ii) shares of Company Common Stock
issuable upon the exercise of vested Company Stock Options outstanding on
the Effective Date.
1.3.23. GAAP. The term "GAAP" shall mean generally accepted
accounting principles, as defined by the United States Financial
Accounting Standards Board from time to time.
1.3.24. Governmental Authority. The term "Governmental Authority"
shall mean any U.S. federal, state or local or any foreign government,
governmental authority, regulatory or administrative agency, governmental
commission, court or tribunal (or any department, bureau or division
thereof) or any arbitral body.
1.3.25. Governmental Order. The term "Governmental Order" shall
mean any order, writ, judgment, injunction, decree, stipulation,
determination or award entered by or with any Governmental Authority.
1.3.26. Guarantee. The term "Guarantee" shall mean (i) any
guarantee of the payment or performance of, or any contingent obligation
in respect of, any Debt or other obligation of any other Person, (ii) any
other arrangement whereby credit is extended to one obligor on the basis
of any promise or undertaking of another Person (A) to pay the Debt of
such obligor, (B) to purchase any obligation owed by such obligor, (C) to
purchase or lease assets (other than inventory in the ordinary course of
business) under circumstances that would enable such obligor to discharge
one or more of its obligations, or (D) to maintain the capital, working
capital, solvency or general financial condition of such obligor, and
(iii) any liability as a general partner of a partnership or as a
venturer in a joint venture in respect of Debt or other obligations of
such partnership or venture.
1.3.27. Intellectual Property. The term "Intellectual Property"
shall mean the entire right, title and interest in and to all proprietary
rights of every kind and nature, including patents, copyrights,
Trademarks, mask works, trade secrets and proprietary information, all
applications for any of the foregoing, and any license or agreements
granting rights related to the foregoing (i) subsisting in, covering,
reading on, directly applicable to or existing in the Products or the
Technology; (ii) that are owned, licensed or controlled in whole or in
part by the Company and relate to the business of the Company; or (iii)
that are used in or necessary to the development, manufacture, sales,
marketing or testing of the Products.
1.3.28. Legal Requirement. The term "Legal Requirement" shall mean
any U.S. federal, state or local or any foreign law, statute, standard,
ordinance, code, order, rule, regulation, resolution or promulgation, or
any Governmental Order, or any license, franchise, consent, approval,
permit or similar right granted under any of the foregoing, or any
similar provision having the force and effect of law, all as from time to
time in effect.
1.3.29. Liability. The term "Liability" shall mean any liability
or obligation (whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether
liquidated or unliquidated, whether incurred or consequential and whether
due or to become due), including any liability for Taxes.
1.3.30. Lien. The term "Lien" shall mean any mortgage, pledge,
lien, security interest, charge, claim, attachment, equity, encumbrance,
restriction on transfer (or, in the case of capital stock, restrictions
on the transfer or voting of such securities), conditional sale or other
title retention device or arrangement (including, without limitation, a
capital lease), transfer for the purpose of subjection to the payment of
any Debt, or restriction on the creation of any of the foregoing, whether
relating to any property or right or the income or profits therefrom;
provided, however, that the term "Lien" shall not include
-5-
<PAGE> 104
(i) statutory liens for Taxes to the extent that the payment thereof is
not in arrears or otherwise due, (ii) encumbrances in the nature of
zoning restrictions, easements, rights or restrictions of record on the
use of real property if the same do not detract from the value of the
property encumbered thereby or impair the use of such property in the
Business as currently conducted or proposed to be conducted, (iii)
statutory or common law liens to secure landlords, lessors or renters
under leases or rental agreements confined to the premises rented to the
extent that no payment or performance under any such lease or rental
agreement is in arrears or is otherwise due, (iv) deposits or pledges
made in connection with, or to secure payment of, worker's compensation,
unemployment insurance, old age pension programs mandated under
applicable Legal Requirements or other social security, (v) statutory or
common law liens in favor of carriers, warehousemen, mechanics and
materialmen, statutory or common law liens to secure claims for labor,
materials or supplies and other like liens, which secure obligations to
the extent that (A) payment of such obligations is not in arrears or
otherwise due and (B) such liens do not and will not, individually or in
the aggregate, have a Company Material Adverse Effect or materially
affect the use of any real property, and (vi) restrictions on transfer of
securities imposed by applicable state and federal securities laws.
1.3.31. Losses. The term "Losses" shall mean any and all losses,
damages (including, without limitation, diminution in value), injuries,
deficiencies, demands, obligations, Liabilities, causes of action,
accusations, allegations, claims, awards (including, without limitation,
awards of punitive or treble damages or interest), assessments, amounts
paid in settlement, judgments, orders, decrees, fines, penalties, and
other sanctions, costs and expenses (including, without limitation,
reasonable legal fees and costs and expenses and costs and expenses of
collection).
1.3.32. Material Adverse Effect. The term "Material Adverse
Effect" shall mean, with respect to any Person, any adverse change in or
effect on the business or operations (except to the extent that any such
change in or effect on the business or operations results from the
announcement of the proposed Merger), assets, condition, financial or
otherwise, of such Person (on a combined basis with such Person's
Subsidiaries, if applicable) which, when considered either singly or
together with all other adverse changes and effects with respect to which
such phrase is used in this Agreement with respect to such Person, is
material to such Person (on a combined basis with such Person's
Subsidiaries, if applicable).
1.3.33. Ordinary Course of Business. The term "Ordinary Course of
Business" shall mean the ordinary course of the Business consistent with
past custom and practice (including, without limitation, with respect to
quantity, pricing, payment terms and frequency).
1.3.34. Parent Common Stock. The term "Parent Common Stock" shall
mean the common stock of Parent, par value $0.01 per share.
1.3.35. Person. The term "Person" shall mean any individual,
partnership, corporation, association, trust, joint venture,
unincorporated organization or other entity, and any Governmental
Authority.
1.3.36. Products. The term "Products" shall mean all current
products and services of the Company, any subsequent versions of such
products currently being developed, any products currently being
developed by the Company which are designed to supersede, replace or
function as a component of such products, and any upgrades, enhancements,
improvements and modifications to the foregoing.
1.3.37. Special Meeting. The term "Special Meeting" shall mean the
special meeting of the Company's shareholders to be called pursuant to
Section 6.2 to approve this Agreement and the Merger in accordance with
the Massachusetts Business Corporation Law.
1.3.38. Stockholders Agreement. The term "Stockholders Agreement"
shall mean the Stockholders Agreement, dated as of April 15, 1997,
between Parent and Massachusetts Technology
-6-
<PAGE> 105
Development Corp., Coolidge Investment Corporation, Bruce R. Bower,
Sigmund E. Herzstein, Arthur D. Little Ventures, L.P., Corning Partners
III, L.P., Corning Partners IV, L.P., C.P. IVA Partners, L.P., McAteer
Family Trust and PRIT Fund - Massachusetts Reserve (collectively, the
"Principal Stockholders").
1.3.39. Subsidiary. The term "Subsidiary" shall mean any Person of
which the Company (or other specified Person) shall own directly or
indirectly through a Subsidiary, a nominee arrangement or otherwise at
least a majority of the outstanding capital stock (or other shares of
beneficial interest) entitled to vote generally or at least a majority of
the partnership, joint venture or similar interests, or in which the
Company (or other specified Person) is a general partner or joint
venturer without limited liability.
1.3.40. Target Securityholder. The term "Target Securityholder"
shall mean any holder of Company Common Stock or a Company Stock Option
as of immediately prior to the Merger.
1.3.41. Taxes. The term "Tax" shall mean any (and in the plural
"Taxes" shall mean all) federal, state, local or foreign income, gross
receipts, franchise, estimated, alternative minimum, add-on minimum,
sales, use, transfer, registration, value added, excise, natural
resources, severance, stamp, occupation, premium, profit, windfall
profit, environmental (including Code Section 59A), customs, duties, real
property, personal property, capital stock, intangibles, social security,
employment, unemployment, disability, payroll, license, employee, and
other tax, withholding taxes, assessments, imposts, levies, and other
charges of every kind and nature arising under or imposed by any Legal
Requirement, including, without limitation, all interest, penalties and
additions with respect to any of the foregoing.
1.3.42. Technology. The term "Technology" shall mean all
inventions, copyrightable works, integrated circuit masks, discoveries,
innovations, know-how, information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost
information, business and marketing plans and proposals, documentation,
and manuals), computer software, computer hardware, integrated circuits,
electronic, electrical and mechanical equipment and all other forms of
technology, including improvements, modifications, derivatives or
changes, whether tangible or intangible, embodied in any form, whether or
not protectible or protected by patent, copyright, mask work right, trade
secret law or otherwise, that are incorporated, embodied or used in or
are used to develop, manufacture, test or market the Products.
1.3.43. Trademarks. The term "Trademarks" shall mean any
trademarks, service marks, trade dress, and logos, together with all
translations, adaptations, derivations, and combinations thereof and
including all goodwill associated therewith.
2. MERGER. Upon the terms, subject to the conditions, and in reliance on the
representations, warranties and covenants set forth herein, the Company and the
Buying Parties agree to use their respective best efforts to cause the Merger to
occur on the Closing Date.
3. TERMS OF THE MERGER AND CLOSING.
3.1. Terms of Merger.
3.1.1. Constituent Corporations, Surviving Corporation and
Name of Surviving Corporation. The Company and the Merger Sub are
sometimes collectively referred to herein as the "Constituent
Corporations." The Company shall be the surviving corporation of
the Merger, and is sometimes referred to herein as the "Surviving
Corporation." The name of the Surviving Corporation shall be
MultiLink, Inc.
-7-
<PAGE> 106
3.1.2. The Merger.
(a) Assets and Liabilities, etc. The Merger shall
be pursuant to the provisions of and with the effect
provided in ss.ss. 78 et seq. of the Massachusetts Business
Corporation Law. On the Effective Date (as defined in
Section 3.1.3), the Merger Sub shall be merged with and
into the Company, which shall continue to be governed by
the laws of The Commonwealth of Massachusetts, and the
separate corporate existence of the Merger Sub shall
thereupon cease. From and after the Effective Date, the
identity, existence, purposes, powers, objects, franchises,
privileges, rights and immunities of the Company shall
continue unaffected and unimpaired by the Merger, and the
corporate franchises, existence and rights of the Merger
Sub shall be merged into the Company and the Company shall,
as the Surviving Corporation, be fully vested therewith.
Moreover, upon the Merger becoming effective, all of the
estate, property, rights, privileges, powers and franchises
of the Constituent Corporations, and all their property,
real, personal and mixed, and all the debts on whatever
account to any of them, as well as all stock subscriptions
and other choses in action, belonging to any of them, shall
be transferred to, and shall be vested in, the Surviving
Corporation without further act or deed; but the Surviving
Corporation shall be deemed to have assumed, and shall be
liable for, all liabilities and obligations of each of the
Constituent Corporations in the same manner and to the same
extent as if the Surviving Corporation had itself incurred
such liabilities and obligations.
(b) Charter and By-laws. On the Effective Date,
the Charter of the Company, as in effect immediately prior
to the Effective Date, shall continue to be the Charter of
the Surviving Corporation, until duly amended in accordance
with law. On the Effective Date, the By-laws of the
Company, as in effect immediately prior to the Effective
Date, shall continue to be the Bylaws of the Surviving
Corporation until duly amended in accordance with the law.
(c) Directors and Officers. On the Effective
Date, the persons who are directors and officers of Merger
Sub immediately prior to the Effective Date shall become
the directors and officers, respectively, of the Surviving
Corporation, holding the same offices in the Surviving
Corporation as they held in Merger Sub immediately prior to
the Effective Date, until their successors shall be elected
and qualified in accordance with law and the Charter and
By-laws of the Surviving Corporation. As such, as of the
effective time of the Merger the only directors of the
Surviving Corporation shall be Norman E. Gaut, Domenic J.
LaCava and William L. Avery, the only officers of the
Surviving Corporation shall be as follows:
Name Title
William Avery President
William Avery Treasurer
Mary L. Wilson Clerk
(d) Converting Company Shares and Options. Upon
the effectiveness of the Merger, by virtue of the Merger
and without any action on the part of the holders thereof,
the outstanding Equity Securities of the Company (other
than (i) Equity Securities of the Company held in the
Company's treasury or by any of
-8-
<PAGE> 107
the Company's Subsidiaries, (ii) such Equity Securities of
the Company, if any, as may then be owned by either Buying
Party and (iii) Dissenting Shares (as hereinafter defined))
shall be canceled or converted in the manner set forth
below,
(i) each outstanding share of Company Common
Stock shall be converted into and exchanged for the
right to receive the number of shares of Parent
Common Stock equal to the Exchange Ratio, and
(ii) each Company Stock Option, whether
vested or unvested, shall be assumed by Parent and
shall constitute an option to acquire, on the same
terms and conditions as were applicable under such
Company Stock Option prior to the Effective Date,
the number (rounded down to the nearest whole
number) of shares of Parent Common Stock as the
holder of such Company Stock Option would have been
entitled to receive pursuant to the Merger had such
holder exercised such option in full immediately
prior to the Effective Date (not taking into account
whether or not such option was in fact exercisable),
at a price per share equal to (x) the aggregate
exercise price for Company Common Stock otherwise
purchasable pursuant to such Company Stock Option
divided by (y) the number of shares of Parent Common
Stock purchasable pursuant to such Company Stock
Option.
provided, however, that (A) the Adjusted Escrow Percentage
of the shares of Parent Common Stock issuable in the Merger
with respect to shares of Company Common Stock outstanding
on the Effective Date shall be delivered into escrow and
held as specified in Section 6.11 (all such shares issuable
pursuant to the Merger, including the Escrowed Shares, or
upon exercise of the Company Stock Options, being referred
to herein as the "Parent Shares"; and said portion of the
Parent Shares subject to the escrow provisions of Section
6.11 together with all shares issued in payment or
distribution of any stock dividend on or stock split or
other recapitalization of, or in respect of, any such
escrowed shares, and any securities or other property
issued or distributed with respect to such shares in
connection with any merger, consolidation or liquidation of
Parent being referred to herein as the "Escrowed Shares")
and the Escrowed Shares shall be distributed, to the
Persons who as of and immediately prior to the Closing held
Company Common Stock, only upon release from the Escrow
Account as provided in Section 6.11 upon and subject to
resolution of the matters referred to in Sections 6.11 and
9 and (B) no fractional shares of Parent Common Stock shall
be issued pursuant to the Merger, with each Person
otherwise entitled to such a fractional share being
entitled to cash, payable by check of the Surviving
Corporation, in an amount equal to such fraction multiplied
by the Formula Price Per Share.
(e) Exchange Mechanics. As promptly as
practicable after the Effective Date, each holder (other
than the Company, if applicable) of any outstanding
certificate or certificates theretofore representing shares
of Company Common Stock converted in the Merger as
described in paragraph (d) above shall surrender the same
to Parent for cancellation (in each case together with a
duly executed letter of transmittal in form reasonably
acceptable to Parent and the Surviving Corporation) and
shall be entitled upon such surrender to receive in
exchange therefor a certificate or certificates
representing the number of Parent
-9-
<PAGE> 108
Shares to which such holder is entitled pursuant to the
Merger and cash in lieu of any fractional share otherwise
to be so issued. Until so surrendered, each such
outstanding certificate or other Contractual Obligation
which, prior to the Effective Date, represented Company
Common Stock shall be deemed for all corporate purposes to
evidence ownership of the cash and number of Parent Shares
into which the shares of such Company Common Stock
represented thereby prior to the Effective Date have been
converted pursuant to the Merger.
(f) Options. Parent shall take all corporate
action necessary to reserve for issuance a sufficient
number of Parent Shares for delivery pursuant to the terms
set forth in Section 3.1.2(d)(ii). Subject to Section
3.1.2(d)(ii), the Company Stock Options shall be subject to
the same vesting requirements, terms and conditions after
the Merger as apply to such options prior to the Merger. It
is the intention of the parties that the Company Stock
Options assumed by Parent shall qualify as incentive stock
options to the extent such options qualified as incentive
stock options immediately prior to the Effective Date, and
that the assumption by Parent of the Company Stock Options
qualifying for incentive stock option treatment not
constitute a modification of such options. Subject to any
applicable limitations under the Securities Act of 1933, as
amended, and the rules and regulations thereunder (the
"Securities Act"), Parent shall file a Registration
Statement on Form S-8 (or any successor form), effective as
of the Effective Date, with respect to the Parent Shares
issuable upon exercise of the Company Stock Options, and
Parent shall use all reasonable efforts to maintain the
effectiveness of such registration statement(s) (and
maintain the current status of the prospectus or
prospectuses relating thereto) for so long as such options
shall remain outstanding. As soon as practicable after the
Effective Date, Parent shall deliver to each holder of an
outstanding Company Stock Option an appropriate notice
setting forth such holder's rights pursuant thereto.
(g) Cancellation of Treasury Stock and Stock held
by Parties. On the Effective Date, any and all Equity
Securities of the Company held by the Company or by any of
its Subsidiaries or by either Buying Party shall, by virtue
of the Merger and without any further action on the part of
the Company, its Subsidiaries or the Buying Parties, be
cancelled, retired and cease to exist and no payment or
other distribution shall be made with respect thereto.
(h) Conversion of Merger Sub Shares. On the
Effective Date, each share of the $.01 par value common
stock of the Merger Sub ("Merger Sub Common Stock") then
issued and outstanding shall, by virtue of the Merger and
without any action on the part of the holders thereof, be
converted into one fully paid and nonassessable share of
the $.01 par value common stock of the Surviving
Corporation ("Surviving Corporation Common Stock"). As
promptly as practicable after the Effective Date, each
holder of any outstanding certificate or certificates
theretofore representing shares of Merger Sub Common Stock
shall surrender the same to the Surviving Corporation and
shall be entitled upon such surrender to receive in
exchange therefor a certificate or certificates
representing the number of shares of Surviving Corporation
Common Stock to which such shareholder is entitled pursuant
to the Merger. Until so surrendered, each such outstanding
certificate which, prior to the Effective Date, represented
Merger Sub Common Stock shall be deemed for all corporate
purposes to evidence ownership of the number of shares of
Surviving Corporation Common Stock into
-10-
<PAGE> 109
which the shares of the Merger Sub Common Stock represented
thereby prior to the Effective Date have been converted
pursuant to the Merger.
(i) Dissenting Shares. Notwithstanding anything
to the contrary in this Agreement, shares of Company Common
Stock outstanding immediately prior to the effective time
of the Merger and held by a shareholder who has not voted
in favor of the Merger or consented thereto in writing and
who has demanded appraisal rights for such Equity
Securities of the Company in accordance with the provisions
of ss.ss. 85 through 98 of the Business Corporation Law of
The Commonwealth of Massachusetts ("Dissenting Shares")
shall not be converted into the right to receive Parent
Shares or other consideration that may be distributable in
the Merger, unless such shareholder fails to perfect or
withdraws or otherwise loses his or her right to appraisal.
If, after the Effective Date of the Merger, such holder
fails to perfect or withdraws or loses his or her right to
appraisal, such Equity Securities shall be treated as if
they had been converted as of the Effective Date into a
right to receive the merger consideration provided herein
with respect to his or her shares of Company Common Stock,
without interest thereon.
3.1.3. Effective Date. On the Closing Date (as defined in Section
3.3), the parties hereto shall cause the Merger to be consummated by
filing of articles of merger (the "Articles of Merger") prepared and
filed with the Secretary of State of The Commonwealth of Massachusetts in
accordance with ss. 78 of the Massachusetts Business Corporation Law (the
date of such filing being the "Effective Date").
3.2. Target Securityholders' Representative. J. Edward McAteer shall,
by virtue of the Merger and the votes to be adopted at the Special Meeting, be
appointed attorney-in-fact and authorized and empowered to act for and on behalf
of any or all of the Target Securityholders (with full power of substitution in
the premises) in connection with the indemnity provisions of Section 9 as they
relate to Target Securityholders generally, the escrow provisions of Section
6.11, the notice provisions of this Agreement and such other matters as are
reasonably necessary for the consummation of the transactions contemplated
hereby (the above named representative, as well as any subsequent representative
of the Target Securityholders appointed by him or after his death or incapacity
elected by vote of holders of a majority of the Equity Securities of the Company
or, after the Merger, of the Parent Shares (calculated on a fully exercised and
converted basis) (each being referred to as a "Target Securityholders'
Representative"). By his execution hereof, J. Edward McAteer hereby accepts such
appointment and agrees to act as Target Securityholders' Representative
hereunder. The Target Securityholders' Representative shall not be liable to any
Target Securityholder, the Buying Parties or the Company or any other person
with respect to any action taken or omitted to be taken by the Target
Securityholders' Representative under or in connection with this Agreement
unless such action or omission results from or arises out of fraud, gross
negligence, willful misconduct or bad faith on the part of the Target
Securityholders' Representative. Each of the Buying Parties and each of their
respective Affiliates (including, after the closing, the Company) shall be
entitled to rely on such appointment and treat the Target Securityholders'
Representative as the duly appointed attorney-in-fact of each Target
Securityholder. Each Target Securityholder who executes this Agreement or votes
in favor of the Merger pursuant to the terms hereof, by such execution or vote,
confirms such appointment and authority and acknowledges and agrees that such
appointment is irrevocable and coupled with an interest, it being understood
that the willingness of the Buying Parties to enter into this Agreement is
based, in part, on the appointment of a representative to act on behalf of the
Target Securityholders.
3.3. Time and Place of Closing. The closing of the Merger and the other
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Ropes & Gray in Boston, Massachusetts on the second Business Day
following the satisfaction or waiver of all conditions set forth in Sections 7
and 8 hereof, or at such other time or place upon which the parties may agree
(the day on which the Closing takes place being referred to herein as the
"Closing Date"). Subject to such satisfaction or waiver of such conditions, the
Company and the
-11-
<PAGE> 110
Merger Sub shall execute and deliver the Articles of Merger on or before the
Closing Date, and shall cause the Articles of Merger to be filed in accordance
with the Massachusetts Business Corporation Law on the Closing Date.
3.4. Deliveries.
3.4.1. Deliveries by the Company. At the Closing, the Company
shall deliver or cause to be delivered to the Buying Parties all of the
following:
(i) a copy of the Company's Charter, certified as of a
recent date by the Secretary of State of The Commonwealth of
Massachusetts;
(ii) a certificate of good standing of the Company,
issued as of a recent date by the Secretary of State of The
Commonwealth of Massachusetts;
(iii) a certificate of Tax good standing of the Company,
issued as of a recent date by the Commissioner of Revenue of The
Commonwealth of Massachusetts;
(iv) a certificate of the clerk or an assistant clerk of
the Company, dated the Closing Date, in form and substance
reasonably satisfactory to Parent and Merger Sub as to (A) no
amendments to the Company's Charter or By-laws, (B) the corporate
actions (including copies of relevant votes) taken by the Company
and its board of directors and shareholders to authorize the
transactions contemplated hereby and (C) the incumbency and
signatures of the officers of the Company executing this Agreement
and the other agreements, instruments and other documents executed
by or on behalf of the Company pursuant to this Agreement or
otherwise in connection with the transactions contemplated hereby;
(v) an opinion of counsel to the Company, in form and
substance reasonably satisfactory to the Buying Parties;
(vi) the certificate contemplated by Section 7.1.4, duly
executed by an authorized officer;
(vii) such resignation letters as the Buying Parties may
request not later than two Business Days prior to the Closing Date
from directors and officers of the Company; and
(viii) such other instruments and documents as the Buying
Parties may reasonably request from the Company in connection with
the transactions contemplated hereby not later than two Business
Days prior to the Closing Date.
3.4.2. Deliveries by the Buying Parties. At the Closing, the
Buying Parties shall deliver or cause to be delivered to the Company the
following:
(i) copies of Parent's Charter and the Merger Sub's
Charter, certified as of a recent date by the Secretaries of State
of The State of Delaware and The Commonwealth of Massachusetts,
respectively;
(ii) a certificate of good standing of Parent, issued as
of a recent date by the Secretary of State of The State of
Delaware and a certificate of good standing of the Merger Sub,
issued as of a recent date by the Secretary of State of The
Commonwealth of Massachusetts;
-12-
<PAGE> 111
(iii) a certificate of the secretary or assistant
secretary of Parent, dated the Closing Date, in form and substance
reasonably satisfactory to the Company as to (A) no amendments to
Parent's Charter or By-laws, (B) the corporate actions (including
copies of relevant votes) taken by Parent to authorize the
transactions contemplated hereby and (C) the incumbency and
signatures of the officers of Parent executing this Agreement and
the other agreements, instruments and other documents executed by
or on behalf of Parent pursuant to this Agreement or otherwise in
connection with the transactions contemplated hereby;
(iv) a certificate of the clerk of the Merger Sub or an
assistant clerk of the Merger Sub, dated the Closing Date, in form
and substance reasonably satisfactory to the Company as to (A) no
amendments to the Merger Sub's Charter or By-laws, (B) the
corporate actions (including copies of relevant votes) taken by
the Merger Sub and its board of directors and shareholders to
authorize the transactions contemplated hereby and (C) the
incumbency and signatures of the officers of the Merger Sub
executing this Agreement and the other agreements, instruments and
other documents executed by or on behalf of the Merger Sub
pursuant to this Agreement or otherwise in connection with the
transactions contemplated hereby;
(v) an opinion of Ropes & Gray, counsel to the Buying
Parties, in form and substance reasonably satisfactory to the
Company;
(vi) the certificate contemplated by Section 8.1.3, duly
executed by an authorized officer of Parent and the Merger Sub,
respectively; and
(vii) such other instruments and documents as the Company
may reasonably request from the Buying Parties in connection with
the transactions contemplated hereby not later than two Business
Days prior to the Closing Date.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Buying Parties as follows:
4.1. Organization and Corporate Power. The Company and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization or incorporation,
and is qualified to do business as a foreign corporation in each jurisdiction
where such qualification is required and where the failure to be so qualified
could have a Company Material Adverse Effect. The Company and each of its
Subsidiaries have all required corporate power and authority to own or lease its
property, to carry on its business as presently conducted and proposed to be
conducted and to carry out the transactions contemplated hereby. The copies of
the Charter and By-laws of the Company and each of its Subsidiaries, which have
been furnished to Parent, are correct and complete and contain all amendments
through the date of this Agreement.
4.2. Authorization and Enforceability. Subject only to the requirement
that this Agreement be approved by the Company's shareholders pursuant to the
Massachusetts Business Corporation Law, this Agreement and any other agreements,
instruments, or documents entered into by the Company pursuant to this Agreement
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized, executed and delivered by the Company and are the legal,
valid and binding obligations of the Company, enforceable in accordance with
their terms.
4.3. Capitalization. (a) The entire authorized capital stock of the
Company consists of 15,000,000 shares of Common Stock, $0.01 par value per share
(the "Company Common Stock"), of which 6,242,806 shares are issued and
outstanding. The shares of Company Common Stock outstanding have been duly
authorized and are validly issued, fully paid and nonassessable and have been
offered, issued and sold by the Company in compliance with applicable state and
federal securities laws. No shares of Company Common Stock are held in the
Company's treasury which are available for resale.
-13-
<PAGE> 112
(b) Other than Company Stock Options to purchase an aggregate of
868,245 shares of Company Common Stock, there are no outstanding options,
warrants, Contractual Obligations or commitments of any character relating to
the issued or unissued capital stock of the Company or obligating the Company to
issue or sell any shares of capital stock of, or other equity interests in, the
Company. There are no obligations, contingent or otherwise, of the Company to
repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or to provide funds to or make any investment (in the form of a loan,
capital contribution, guaranty or otherwise) in any Subsidiary or any other
entity. Except as provided in the Stockholders Agreement or as imposed by
applicable securities laws, there are no restrictions on the transfer or voting
of any shares of the Company Common Stock.
4.4. Subsidiaries. The Company has only the Subsidiaries listed in
Schedule 4.4. Such Schedule sets forth the name and jurisdiction of
incorporation or organization and capitalization of each such Subsidiary. The
Company is the record and beneficial holder of all of the issued and outstanding
shares of capital stock of each of its Subsidiaries, such shares have been duly
authorized and validly issued and are fully paid and nonassessable, and the
Company owns such shares free and clear of any Liens other than restrictions on
transfer imposed by applicable securities laws. There is no outstanding Equity
Security of any Subsidiary other than its shares of capital stock. The Company
has never been a Subsidiary of any other Person.
4.5. Financial Statements. The Company has furnished to the Buying
Parties its audited balance sheets as of September 30, 1996, 1995 and 1994 and
statements of income and cash flows for the twelve months ended September 30,
1996, 1995 and 1994, and its unaudited balance sheet as of March 31, 1997 (the
"Most Recent Balance Sheet") and March 31, 1996 and statements of income and
cash flows for the four months ended March 31, 1997 and 1996 (all of which are
collectively referred to as the "Financial Statements"). The Financial
Statements have been prepared in accordance with GAAP, consistently applied
(except as noted therein), and fairly present in all material respects the
financial position of the Company as of each such date and the results of its
operations for each such period then ended, subject, in the case of unaudited
interim financial statements, to an absence of footnotes and to normal year-end
audit adjustments which will not in the aggregate be material.
4.6. Absence of Undisclosed Liabilities. Except as disclosed on
Schedule 4.6, none of the Company and its Subsidiaries has any Liability (and
there is no reasonable basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against any of them
giving rise to any Liability), except for (i) Liabilities set forth on the face
of the Most Recent Balance Sheet (rather than in any notes thereto) and (ii)
Liabilities which have arisen after the date of the Most Recent Balance Sheet in
the Ordinary Course of Business (none of which liabilities referred to under
subsection (ii) results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law).
4.7. Absence of Certain Developments. Except as disclosed on Schedule
4.7, since the date of the Most Recent Balance Sheet, there has been no (i)
Company Material Adverse Effect, (ii) declaration, setting aside or payment of a
Distribution with respect to the capital stock of the Company or any of its
Subsidiaries, (iii) material loss, destruction or damage to any property of the
Company or any of its Subsidiaries, whether or not insured, (iv) labor dispute
involving the Company, or (v) any other action or event that would have required
the consent of Parent pursuant to Section 6.6 had such action or event occurred
after the date of this Agreement.
4.8. Title to Properties. Except as disclosed on Schedule 4.8, the
Company and its Subsidiaries have marketable title to or valid leasehold
interests in all properties and assets necessary to their business as presently
conducted and as proposed to be conducted free and clear of all Liens. All
machinery and equipment included in such properties which is material to the
business of the Company and its Subsidiaries is in good condition and repair,
ordinary wear and tear excepted, and all leases of real or personal property to
which the Company or any of its Subsidiaries is a party are fully effective and
afford the Company or such Subsidiary peaceful and undisturbed possession of the
subject matter of the lease. Neither the Company nor any of its Subsidiaries is
in violation of any material zoning, building or safety ordinance, regulation or
requirement or other law or regulation applicable to the operation of owned or
leased properties likely to impede the normal operation of the business of the
Company or any
-14-
<PAGE> 113
of its Subsidiaries, nor has the Company or any of its Subsidiaries received any
notice of violation with which it has not complied.
4.9. Tax Matters. Except as disclosed to Parent on or prior to the date
hereof, there are no federal, or state, local or foreign Taxes due and payable
by the Company or any of its Subsidiaries which have not been paid. The
provisions for Taxes on the Financial Statements are sufficient for the payment
of all accrued and unpaid federal, state, local and foreign Taxes of the Company
and its Subsidiaries, whether or not assessed or disputed as of the date of said
Financial Statements. The Company and its Subsidiaries have made all filings of
federal, and all filings of state, local and foreign Tax returns required to
have been filed by it within the time prescribed by law (including extensions of
time for filing approved by the appropriate authority) and there are in effect
no waivers of applicable statutes of limitation with respect to Taxes for any
year. Neither the Company nor any of its Subsidiaries has been subject to any
Tax audit.
4.10. Contracts and Commitments. Except as disclosed on Schedule 4.10,
neither the Company nor any of its Subsidiaries has any Contractual Obligation
which involves, by its terms, a commitment in excess of $500,000 or any
employment contracts (including contracts with any agent or independent
contractor or consultant) providing for annual compensation in excess of
$50,000, stock redemption or purchase agreements, financing agreements,
distribution agreements, royalty agreements, licenses under which the Company or
its Subsidiary is licensee, leases of real property, pension, bonus, deferred
compensation, profit-sharing, retirement or stock option plans, insurance
policies, labor union or collective bargaining agreements or agreements limiting
the ability of the Company or any of its Subsidiaries to compete in any line of
business or geographical area.
4.11. No Defaults. Neither the Company nor any of its Subsidiaries is in
default (a) under its Charter or By-laws or under any material note, indenture,
mortgage, lease, contract or other instrument or agreement to which the Company
or such Subsidiary is a party or by which it or any of its property is bound or
affected or (b) with respect to any Governmental Order. Except as disclosed on
Schedule 4.11, there exists no condition, event or act by which, after notice,
lapse of time, or both, could constitute a default under any of the foregoing,
and to the knowledge of the Company, no third party is in default under any
contract or agreement to which the Company or any of its Subsidiaries is a party
or by which its or any of its Subsidiaries' property is affected.
4.12. Intellectual Property. (a) The Company and its Subsidiaries own or
have the right to use pursuant to license, sublicense, agreement, or permission
all Intellectual Property necessary or desirable for the operation of the
businesses of the Company and its Subsidiaries as presently conducted and as
presently proposed to be conducted. Each item of Intellectual Property owned or
used by any of the Company and its Subsidiaries in the Company's and its
Subsidiaries' business immediately prior to the Closing hereunder will be owned
or available for use by the Surviving Corporation on identical terms and
conditions immediately subsequent to the Closing hereunder. The Company and its
Subsidiaries have taken all necessary and desirable action to maintain and
protect each item of Intellectual Property that the Company and its Subsidiaries
own or use.
(b) Except as disclosed on Schedule 4.12(b), none of the Company and
its Subsidiaries has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of third
parties, and there has never been any charge, complaint, claim, demand, or
notice alleging any such interference, infringement, misappropriation, or
violation (including any claim that the Company or one of its Subsidiaries must
license or refrain from using any Intellectual Property rights of any third
party). To the knowledge of any of the Company and its Subsidiaries, no third
party has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of the Company or its
Subsidiaries.
(c) Schedule 4.12(c) sets forth each patent or trademark or copyright
registration which has been issued to the Company or the Subsidiaries with
respect to any of the Company and its Subsidiaries' Intellectual Property, each
pending patent application or application for registration which the Company and
its Subsidiaries have made with respect to any of the Company's and its
Subsidiaries' Intellectual Property, and each license, agreement, or other
permission which the Company and the Subsidiaries have granted to any third
party with respect to any of the
-15-
<PAGE> 114
Company's Intellectual Property. The Company has delivered to Parent correct and
complete copies of all such patents, registrations, applications, licenses,
agreements, and permissions (as amended to date) and has made available to
Parent correct and complete copies of all other written documentation evidencing
ownership and prosecution (if applicable) of each such item. The Company has
also disclosed to Parent each trade name or unregistered trademark used by any
of the Company and its Subsidiaries in connection with their businesses. With
respect to each item of Intellectual Property required to be disclosed to Parent
pursuant to this Section 4.12(c):
(i) the Company and its Subsidiaries possess all right,
title, and interest in and to the item, free and clear of any
Lien, license, or other restriction;
(ii) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the
knowledge of the Company and its Subsidiaries, is threatened,
which challenges the legality, validity, enforceability, use, or
ownership of the item; and
(iv) none of the Company and its Subsidiaries has agreed
to indemnify any Person for or against any interference,
infringement, misappropriation, or other conflict with respect to
the item.
(d) Schedule 4.12(d) sets forth each item of Intellectual Property
that any third party owns and that the Company and its Subsidiaries use pursuant
to license, sublicense, agreement, or permission. The Company has delivered to
Parent correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date). With respect to each item of
Intellectual Property required to be disclosed pursuant to this Section 4.12(d):
(i) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable, and in
full force and effect;
(ii) the license, sublicense, agreement, or permission
will continue to be legal, valid, binding, enforceable, and in
full force and effect on identical terms following the
consummation of the transactions contemplated hereby;
(iii) the Company is not and, to the knowledge of the
Company, no other party to the license, sublicense, agreement, or
permission is in breach or default, and no event has occurred
which with notice or lapse of time would constitute a breach or
default or permit termination, modification, or acceleration
thereunder;
(iv) to the knowledge of the Company and its
Subsidiaries, no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;
(v) with respect to each sublicense, the representations
and warranties set forth in subsections (i) through (iv) above are
true and correct with respect to the underlying license;
(vi) the underlying item of Intellectual Property is not
subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;
(vii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the
knowledge of the Company, is threatened, which challenges the
legality, validity, or enforceability of the underlying item of
Intellectual Property; and
-16-
<PAGE> 115
(viii) the Company has not granted any sublicense or
similar right with respect to the license, sublicense, agreement,
or permission.
(e) To the knowledge of the Company, the Company and the Subsidiaries
will not interfere with, infringe upon, misappropriate, or otherwise come into
conflict with, any Intellectual Property rights of third parties as a result of
the continued operation of its businesses as presently conducted.
4.13. Interested Parties and Conflicts of Interest. Except as disclosed
on Schedule 4.13, neither the Company nor any of its Subsidiaries nor any of
their respective directors or officers directly or indirectly has any
contractual, financial or other interest (other than stock of public companies
and consultant arrangements of outside directors) in any Person other than the
Company or a Subsidiary of the Company that (i) provides any services or
designs, produces or sells any product line or product or engages in any
activity currently engaged in or proposed to be conducted by the Company or any
of its Subsidiaries, (ii) has any direct or indirect interest in any asset,
tangible or intangible, of the Company or any of its Subsidiaries or (iii) is a
customer of the Company or any of its Subsidiaries. Neither the Company nor any
of its Subsidiaries is indebted to any of its respective officers or directors
other than for unpaid salary (or directors' fees) or reimbursement of expenses
in the Ordinary Course of Business, and the officers and directors of the
Company and its Subsidiaries are not indebted to the Company or any of its
Subsidiaries.
4.14. Non-Contravention. The execution, delivery and performance of this
Agreement or any other instrument or document entered into by the Company
pursuant to this Agreement, and compliance with the provisions hereof and
thereof by the Company, do not and will not, with or without the passage of time
or the giving of notice or both, assuming expiration or early termination of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), (a) violate any provision of law, statute, rule or
regulation or any ruling, writ, injunction, order, judgment or decree of any
court, administrative agency or other governmental body or (b) conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute a default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of any Lien upon any of the
properties or assets of the Company or any of its Subsidiaries under the Charter
or By-laws of the Company or any of its Subsidiaries or any note, indenture,
mortgage, lease, agreement, contract or other instrument, document or agreement
to which the Company or any of its Subsidiaries is a party or by which the
Company, any of its Subsidiaries or any property or the Company or any of its
Subsidiaries is bound or affected.
4.15. No Governmental Consent or Approval Required. No authorization,
consent, approval or other order of, declaration to, or filing with, any
governmental agency or body is required for or in connection with the valid and
lawful authorization, execution and delivery by the Company of this Agreement or
any other agreements, instruments or documents entered into by the Company
pursuant to this Agreement or contemplated hereby, except for items disclosed on
Schedule 4.15, which shall have been obtained or made and shall be in force and
effect at the Closing and copies of which shall be delivered to Parent on or
prior to the Closing Date.
4.16. Litigation. Except as disclosed on Schedule 4.16, (i) there is no
action, suit or proceeding pending or threatened against the Company or any of
its Subsidiaries which questions the validity of this Agreement or any other
agreements, instruments or documents entered into by the Company pursuant to
this Agreement, or the right of the Company to enter into them or to consummate
the transactions contemplated hereby or thereby, or which might result, either
individually or in the aggregate, in a Company Material Adverse Effect or any
change in the current equity ownership of the Company or any of its
Subsidiaries, nor is the Company aware that there is any basis for the
foregoing; (ii) neither the Company nor any of its Subsidiaries is a party to,
or subject to the provisions of, any order, writ, injunction, judgment or decree
of any court or governmental agency or instrumentality; and (iii) there is no
action, suit or proceeding by the Company or any of its Subsidiaries currently
pending or which the Company or any of its Subsidiaries presently intends to
initiate.
4.17. Business. The Company and its Subsidiaries have all material
franchises, licenses and other rights and privileges necessary to permit them to
own their property and to conduct the Business. Neither the Company nor
-17-
<PAGE> 116
any of its Subsidiaries is in violation of any law, regulation or order of any
public authority relevant to the ownership of its properties or the carrying on
of the Business where such violation or violations, singly or in the aggregate,
could have a Company Material Adverse Effect.
4.18. Brokers. Except as set forth on Schedule 4.18, no broker, finder,
investment bank or similar agent is entitled to any brokerage, finder's or other
fee, Compensation or reimbursement of expenses in connection with the
transactions contemplated by this Agreement based upon agreements or
arrangements made by or on behalf of the Company or any of its Affiliates.
4.19. Environmental and Safety Laws. Neither the Company nor any of its
Subsidiaries is in violation in any material respect of any Environmental Law or
any law or regulation relating to occupational health and safety and no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.
4.20. Foreign Corrupt Practices Representation. Neither the Company nor
any of its Subsidiaries has made offers or agreed to offer anything of value to
any foreign government official, foreign political party, candidate for
political office of a foreign country, or any person that the Company or any of
its Subsidiaries knows or has reason to know, will offer anything of value to
any foreign government official, foreign political party, or candidate for
political office of a foreign country.
4.21. Material Facts. This Agreement, the information disclosed to the
Buying Parties on or prior to the date hereof, and other agreements and
certificates furnished or to be furnished to the Buying Parties through the
Closing Date by or on behalf of the Company pursuant to this Agreement, do not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained in this Agreement in light of the
circumstances in which they were made not misleading. There is no fact known to
the Company or any of its Subsidiaries which currently causes or could be
reasonably expected to cause in the future a Company Material Adverse Effect
which has not been disclosed in writing to the Buying Parties in connection with
this Agreement.
4.22. Insurance. The Company and its Subsidiaries maintain valid
insurance policies in the kinds and amounts not less than is customarily
obtained by corporations engaged in the same or similar business and similarly
situated, including, without limitation, insurance against loss, damage, fire,
theft and public liability.
4.23. Employees. Neither the Company nor any of its Subsidiaries is
aware that any employee of the Company or any of its Subsidiaries is, or is now
expected to be, in violation of any term of any employment contract, patent
disclosure agreement, noncompetition agreement, or any other contract or
agreement or any restrictive covenant or any other common law obligation to a
former employer relating to the right of any such employee to be employed by the
Company or its Subsidiary because of the nature of the business conducted or to
be conducted by the Company or its Subsidiary or relating to the use of
Intellectual Property of others, and the employment of the employees of the
Company and its Subsidiaries does not subject the Company, any Subsidiary or the
Buying Parties to any liability. Neither Company nor any of its Subsidiaries is
aware of any action, suit, proceeding or claim, or any basis therefor or threat
thereof, with respect to any contract agreement, covenant or obligation referred
to in the preceding sentence. Neither the Company nor any of its Subsidiaries
has any collective bargaining agreement covering any of its employees.
4.24. Employee Benefits. Except as disclosed on Schedule 4.24, (i) there
has been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any employee pension plans
(as defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), any material employee welfare plans (as defined in
Section 3(1) of ERISA), or any material bonus, stock option, stock purchase,
incentive, deferred compensation, supplemental retirement, severance and other
similar fringe or employee benefit plans, programs or arrangements
(collectively, the "Company Employee Plans"), which could result in any
liability of the Company or any of its Subsidiaries; (ii) all Company Employee
Plans are in compliance in all material respects with the requirements
prescribed by any and all Laws (including ERISA and the Code), currently in
effect with respect thereto (including all applicable requirements for
notification to participants or
-18-
<PAGE> 117
the Department of Labor, Pension Benefit Guaranty Corporation (the "PBGC"),
Internal Revenue Service (the "IRS") or Secretary of the Treasury), and the
Company and each of its subsidiaries have performed all material obligations
required to be performed by them under, are not in any respect in default under
or violation of, and have no knowledge of any material default or violation by
any other party to, any of the Company Employee Plans; (iii) each Company
Employee Plan intended to qualify under Section 401(a) of the Code and each
trust intended to qualify under Section 501(a) of the Code is the subject of a
favorable determination letter from the IRS, and nothing has occurred which may
reasonably be expected to impair such determination; (iv) all contributions
required to be made to any Company Employee Plan pursuant to Section 412 of the
Code, or the terms of the Company Employee Plan or any collective bargaining
agreement, have been made on or before their due dates; (v) with respect to each
Company Employee Plan, no "reportable event" within the meaning of Section 4043
of ERISA (excluding any such event for which the 30-day notice requirement has
been waived under the regulations to Section 4043 of ERISA) nor any event
described in Section 4062, 4063 or 4041 of ERISA has occurred; (vi) no
withdrawal (including a partial withdrawal) has occurred with respect to any
multiemployer plan within the meaning set forth in Section 3(37) of ERISA that
has resulted in, or could reasonably be expected to result in, any withdrawal
liability for the Company or any of its subsidiaries; and (vii) neither the
Company nor any of its Subsidiaries has incurred, or reasonably expects to
incur, any liability under Title IV of ERISA (other than liability for premium
payments to the PBGC, and contributions not in default to the respective plans,
arising in the ordinary course).
4.25. Notes and Accounts Receivable. All notes and accounts receivable
of the Company and its Subsidiaries are reflected properly on its books and
records in accordance with GAAP, are valid receivables, arose from bona fide
transactions in the Ordinary Course of Business subject to no setoffs or
counterclaims except as recorded as accounts payable, are current and
collectible and will be collected in accordance with their terms at their
recorded amounts, except as reflected as net of allowance for bad debts on the
face of the Most Recent Balance Sheet (rather than in any notes thereto or
reserve therefor) as adjusted for the passage of time in accordance with GAAP
and past practice and custom of the Company. Schedule 4.25 is a true and correct
list of all receivables which have been deemed uncollectible and are not
reflected in the Most Recent Balance Sheet.
4.26. Inventories. The inventory of the Company consists of raw
materials and supplies, manufactured and purchased parts, goods in process, and
finished goods, all of which is merchantable and fit or suitable and usable for
the production or completion of merchantable products for sale in the Ordinary
Course of Business, and none of which is slow-moving, obsolete, below standard
quality, damaged, or defective, subject only to the reserve for inventory
writedown set forth on the face of the Most Recent Balance Sheet as adjusted for
the passage of time through the Closing Date in accordance with GAAP and the
past custom and practice of the Company and its Subsidiaries. Such inventory
reflected in the Most Recent Balance Sheet and books and records of the Company
is valued at the lower of cost (on a first-in, first-out basis) or market in
accordance with GAAP, consistently applied. Since the Most Recent Balance Sheet
Date, no inventory has been sold or disposed of except through sales in the
Ordinary Course of Business.
4.27. Registration Statement; Proxy Statement/Prospectus. The
information supplied by the Company for inclusion in the registration statement
(the "Registration Statement") pursuant to which the Parent Common Stock to be
issued in the Merger will be registered with the Securities and Exchange
Commission (the "SEC") shall not, at the time the Registration Statement is
declared effective by the SEC, contain any untrue statement of a material fact
or omit to state any 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. The information supplied by the Company
for inclusion in the proxy statement/prospectus to be sent to the stockholders
of the Company in connection with the Special Meeting (such proxy
statement/prospectus as amended or supplemented is referred to herein as the
"Proxy Statement/Prospectus"), will not, on the date the Proxy
Statement/Prospectus (or any amendment thereof or supplement thereto) is first
mailed to stockholders, at the time of the Special Meeting, or at the effective
time of the Merger, contain any statement which, at such time and in light of
the circumstances under which it shall be made, is false or misleading with
respect to any material fact, or shall omit to state any material fact necessary
in order to make the statements made therein not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Special
Meeting which has
-19-
<PAGE> 118
become false or misleading. If at any time prior to the effective time of the
Merger any event relating to the Company or any of its Affiliates, officers or
directors should be discovered by the Company which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, the Company shall promptly inform Parent and Merger Sub.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to any information supplied by the Buying Parties which is
contained in any of the foregoing documents.
4.28. Change in Control Payments. Except as disclosed on Schedule 4.28,
neither the Company nor any of its Subsidiaries has any plans, programs or
Contractual Obligations to which they are a party, or to which they are subject
(including, without limitation, any employment or severance agreements or
arrangements), pursuant to which payments, severance, benefits or acceleration
of any of the foregoing may be required, directly or indirectly, as a result of
a change of control of the Company.
4.29. Claims Against Directors and Officers. There is no action, suit,
proceeding, hearing, investigation, charge, complaint, claim or demand pending
or, to the knowledge of the Company, threatened (and no reasonable basis for any
of the foregoing) against any person who is now or has been at any time prior to
the date hereof an officer or director of the Company for acts or omissions in
such person's capacity as an officer or director of the Company.
5. REPRESENTATIONS AND WARRANTIES OF THE BUYING PARTIES. Each Buying Party
jointly and severally represents and warrants to the Company as follows:
5.1. Corporate Matters. Each Buying Party is a corporation duly
organized, validly existing and in good standing under the laws of Delaware (in
the case of Parent) and Massachusetts (in the case of Merger Sub) and has all
requisite power and authority, corporate and otherwise, to enter into this
Agreement, to carry out and perform its obligations hereunder and to consummate
the transactions contemplated hereby. Each Buying Party is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned, leased or
operated by it or the nature of its activities makes such qualification or
licensing necessary, except for such failures to be so duly qualified or
licensed and in good standing that could not reasonably be expected to have a
Material Adverse Effect.
5.2. Charter and By-Laws. Parent has heretofore furnished to the
Company a complete and correct copy of its Charter and By-Laws, as amended to
date. Such Charter and By-Laws are in full force and effect. Neither Parent nor
Merger Sub is in violation of any of the provisions of its Charter or By-Laws.
5.3. Capitalization. As of March 28, 1997, the authorized capital stock
of Parent consisted of 80,000,000 shares of Parent Common Stock, of which
34,153,421 shares were issued and outstanding, and an aggregate of 6,680,015
shares were reserved for future issuance under Parent's equity incentive plan,
1984 amended and restated stock option plan, directors option plan and employee
stock purchase plan. The authorized capital stock of Merger Sub consists of 100
shares of common stock, $.01 par value, all of which shares are issued and
outstanding.
5.4. Authorization and Enforceability. This Agreement has been duly
authorized, executed and delivered by each Buying Party, and is a legal, valid
and binding obligations of each Buying Party, enforceable in accordance with its
terms. When issued to the holders of Company Common Stock pursuant to this
Agreement, the Parent Shares to be issued to them in connection with the Merger
will be duly authorized, validly issued, fully paid and non-assessable.
5.5. Non-Contravention, etc. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby does or will constitute, result in or give rise to any
breach or violation of, or any default or right or cause of action under the
Charter or By-Laws of either Buying Party or, assuming expiration or early
termination of the waiting period under the HSR Act, any Legal Requirement
applicable
-20-
<PAGE> 119
to either Buying Party. No approval, consent, waiver, authorization or other
order of, and no declaration, filing, registration, qualification or recording
with, any Governmental Authority or any other Person is required to be obtained
or made by or on behalf of either Buying Party in connection with the execution,
delivery or performance of this Agreement and the consummation of the
transactions contemplated hereby by either Buying Party, except for items which
shall have been obtained or made and shall be in full force and effect at the
Closing.
5.6. Investment Intent. Parent is acquiring the Equity Securities of
the Surviving Corporation to be acquired by Parent as a result of the Merger for
Parent's own account and Parent has the present intention of holding such Equity
Securities for investment purposes and not with a view to, or for sale in
connection with, any public distribution of such Equity Securities in violation
of any federal or state securities law.
5.7. Litigation. There is no action pending or, to the Buying Parties'
knowledge, threatened (i) against either Buying Party or any of its Affiliates
with respect to which there is a reasonable likelihood of a determination which
would have a material adverse effect on the ability of either Buying Party to
perform its obligations under this Agreement or (ii) which seeks to enjoin or
obtain damages in respect of the consummation of the transactions contemplated
hereby. Neither either Buying Party nor any of its Affiliates is subject to any
outstanding Governmental Orders which would have a material adverse effect on
the ability of either Buying Party to perform its obligations under this
Agreement.
5.8. SEC Reports. Parent has filed all required forms, reports and
documents with the SEC since January 1, 1995 (collectively, the "SEC Reports"),
each of which has complied in all material respects with all applicable
requirements of the Securities Act and the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder (the "Exchange Act"), each as
in effect on the date so filed. Parent has heretofore delivered or upon request
will deliver to the Company, in the form filed with the SEC (including any
amendments thereto), its Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 and all interim reports on Forms 10-Q or 8-K and all
definitive proxy statements filed with the SEC subsequent to such annual report.
None of such forms, reports or documents, including, without limitation, any
financial statements or schedules included or incorporated by reference therein,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated or incorporated by reference therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The audited consolidated financial statements
and unaudited consolidated interim financial statements of Parent included in
its Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q referred
to above in this Section 5.6, were prepared in accordance with GAAP consistently
applied throughout the periods specified therein, are correct and complete, and
present fairly, in all material respects, the consolidated financial position
and results of operations of Parent and its Subsidiaries for the periods
specified therein, subject in the case of the unaudited consolidated interim
financial statements to an absence of footnotes and to normal year-end audit
adjustments which will not in the aggregate be material.
5.9. Brokers. No broker, finder, investment bank or similar agent is
entitled to any brokerage, finder's or other fee, Compensation or reimbursement
of expenses in connection with the transactions contemplated by this Agreement
based upon agreements or arrangements made by or on behalf of the Buying Parties
or any of their Affiliates, except such fees, Compensation and reimbursement of
expenses (if any) as shall be borne by Parent.
5.10. Registration Statement; Proxy Statement/Prospectus. Subject to the
accuracy of the representations of the Company in Section 4.27, the Registration
Statement shall not, at the time the Registration Statement (including any
amendments or supplements thereto) is declared effective by the SEC, contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements included therein, in light of the circumstances
under which they were made, not misleading. The information supplied by Parent
for inclusion in the Proxy Statement/Prospectus will not, on the date the Proxy
Statement/Prospectus is first mailed to stockholders, at the time of the Special
Meeting and at the effective time of the Merger, contain any statement which, at
such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or will omit to state any
material fact necessary in order to make the statements therein not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the
-21-
<PAGE> 120
solicitation of proxies for the Special Meeting which has become false or
misleading. If at any time prior to the Effective Date any event relating to
Parent, Merger Sub or any of their respective affiliates, officers or directors
should be discovered by Parent or Merger Sub which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, Parent or Merger Sub will promptly inform the Company.
Notwithstanding the foregoing, Parent and Merger Sub make no representation or
warranty with respect to any information supplied by the Company which is
contained in any of the foregoing documents.
5.11. Ownership of Merger Sub; No Prior Activities. As of the date
hereof and the Effective Date, except for obligations or liabilities incurred in
connection with its incorporation or organization and the transactions
contemplated by this Agreement and except for this Agreement and any other
agreements or arrangements contemplated by this Agreement, Merger Sub has not
and will not have incurred, directly or indirectly, through any subsidiary or
affiliate, any obligations or liabilities or engaged in any business activities
of any type or kind whatsoever or entered into any agreements or arrangements
with any person.
6. CERTAIN AGREEMENTS OF THE PARTIES.
6.1. Proxy Statement/Prospectus; Registration Statement. As promptly as
practicable after the execution of this Agreement, the Company and Parent shall
prepare and file with the SEC preliminary proxy materials which shall constitute
the Proxy Statement/Prospectus relating to the adoption of this Agreement and
approval of the transactions contemplated hereby by the stockholders of the
Company and the Registration Statement of Parent with respect to the Parent
Common Stock to be issued in connection with the Merger. As promptly as
practicable after comments are received from the SEC thereon and after the
furnishing by the Company and Parent of all information required to be contained
therein, Parent shall file with the SEC a Registration Statement on Form S-4 (or
on such other form as shall be appropriate) and Parent and the Company shall use
all reasonable efforts to cause the Registration Statement to become effective,
and the Company shall use all reasonable efforts to mail the Proxy
Statement/Prospectus to its shareholders as soon thereafter as practicable.
6.2. Special Meeting. The Company shall call and hold the Special
Meeting as promptly as practicable and in accordance with applicable laws for
the purpose of voting upon the approval of the Merger and the adoption of this
Agreement as soon as practicable after the date on which the Registration
Statement becomes effective. The Company shall (i) recommend approval of the
transactions contemplated by this Agreement by the stockholders of the Company
and include in the Proxy Statement/Prospectus such recommendation and (ii) use
all reasonable efforts to solicit from its stockholders proxies in favor of
adoption of this Agreement and approval of the transactions contemplated hereby,
and shall take all other action necessary or advisable to secure the vote or
consent of stockholders to obtain such approvals.
6.3. No Solicitation of Other Offers. The Company and its Affiliates
will not, and will cause all of their and its respective employees,
representatives and agents not to, directly or indirectly, solicit or initiate
or enter into discussions or transactions or Contractual Obligations with or
encourage or provide any information to any Person (other than the Buying
Parties and their designees) concerning any sale of Equity Securities of, or any
merger or share exchange or sale or other disposition of securities or
substantial assets or any recapitalization or any similar transaction involving,
the Company or any of its Subsidiaries (each, an "Alternative Transaction"),
provided, however, (i) in the event the Company receives an unsolicited proposal
with respect to such a transaction from any corporation, partnership or other
entity or group (other than the Buying Parties and their designees), the Company
may, to the extent it is required to do so by applicable fiduciary duties
confirmed by written opinion of counsel to that effect, enter into discussion or
transactions with or provide information to such corporation, partnership or
other entity or group and (ii) the Company may continue its ongoing discussions
with existing stockholders or investment advisers with respect to a private
placement of up to $10 million of subordinated debt or equity to institutional
or private investors or existing stockholders (which is an alternative in
the event the Merger is not consummated), provided that the Company shall not
enter into any understanding, commitment or transaction with respect thereto
unless this Agreement is terminated in accordance with Section 11.1 in which
event such understanding, commitment or transaction shall not be deemed an
Alternative Transaction. The Company will notify the Buying Parties
-22-
<PAGE> 121
immediately upon becoming aware that any Person has made any proposal, offer,
inquiry, or contact with respect to any Alternative Transaction (other than the
discussions referred to in clause (ii) above), which notice shall include the
identity of all relevant parties and the content of such communication.
6.4. Access to Premises and Information. At all times prior to the
Closing, during normal business hours the Company will permit the Buying Parties
and their respective representatives to have full access to their premises and
documents, books and records and to make copies during normal business hours of
such financial and operating data and other information with respect to the
Company and its Subsidiaries as the Buying Parties or any of their
representatives shall reasonably request. In addition, the Company shall cause
the Company's management and the management of the Company's Subsidiaries to be
available to the Buying Parties at such times, and from time to time, as the
Buying Parties may reasonably request in connection with the Merger and their
review of the Business. The Company will cause to be delivered such additional
information and copies of documents, books and records relating to the Company,
any of its Subsidiaries or the Business as may be reasonably requested by the
Buying Parties or any of their representatives.
6.5. Confidentiality Covenant of the Buying Parties. Each of the Buying
Parties will not, and will not permit any of its respective representatives to,
without the prior written consent of the Company, disclose any confidential
information relating to the Company furnished to the Buying Parties by or on
behalf of the Company or any of its Subsidiaries whether furnished prior to the
date hereof or thereafter or use any such information for any purpose otherwise
than in evaluating the Company and its Subsidiaries in connection with the
transactions contemplated hereby; provided, however, that (i) such information
may be disclosed to any of the representatives of the Buying Parties who have a
need to know such information in connection with the transactions contemplated
hereby, and (ii) the information subject to the foregoing provisions of this
sentence shall be deemed not to include any information known generally in the
industry (other than as a result of disclosure in violation hereof) or any
information received by the Buying Parties or any of its representatives from a
third party not bound by a duty of confidentiality to the Company or any of its
Subsidiaries. In addition, confidential information may be disclosed if required
by legal process or by operation of applicable law; provided, however, that (i)
the disclosing Person shall first promptly advise and consult with the Company
and its counsel concerning the information proposed to be disclosed, (ii) the
Company shall have the right to seek an appropriate protective order or other
remedy concerning the confidential information proposed to be disclosed and the
disclosing Person will cooperate with the Company to obtain such protective
order, and (iii) in the event that such protective order or other remedy is not
obtained by the Company, the disclosing Person will disclose only that portion
of the confidential information which the disclosing Person is legally required
to disclose, and the disclosing Person will use its best efforts to obtain
assurances that confidential treatment will be accorded to such information. In
the event of any termination of this Agreement pursuant to Section 11, each of
the Buying Parties and their respective representatives will return or destroy
all copies of any written materials in their possession furnished by or on
behalf of the Company. The foregoing provisions of this Section 6.5 shall (i)
supersede all prior confidentiality obligations of the Buying Parties, (ii)
terminate upon the consummation of the Closing and (iii) not prohibit any
retention of records or disclosure required by law or made in connection with
the enforcement of any right or remedy relating to this Agreement or the
transactions contemplated hereby.
6.6. Operation of Business in the Ordinary Course. On and prior to the
Closing Date, except as otherwise required by this Agreement, the Company and
its Subsidiaries will conduct the Business only in the Ordinary Course of
Business and use their respective best efforts to maintain the value of the
Business as a going concern and the relationships of the Company and its
Subsidiaries with customers, distributors, suppliers, vendors, employees,
agents, Governmental Authorities and others. Without limiting the generality of
the foregoing, on and prior to the Closing Date, the Company and its
Subsidiaries shall, except as may otherwise be consented to in writing by the
Buying Parties, pay accounts payable when due and maintain inventory levels, all
in accordance with prudent business practice and the Ordinary Course of
Business; and neither the Company nor any of the Subsidiaries will, without the
prior written consent of the Buying Parties:
(a) Amend its Charter or By-laws;
-23-
<PAGE> 122
(b) Sell, pledge, dispose of or encumber any material assets
(other than inventory in the Ordinary Course of Business) (or make any
contract or arrangement therefor);
(c) (i) Increase the Compensation payable or to become payable
to its officers or employees, except for increases in salary or wages of
employees of the Company or its Subsidiaries who are not officers of the
Company in the Ordinary Course of Business in accordance with past
practice; (ii) grant any severance or termination pay to, or enter into
any employment or severance agreement with any director, officer or other
employee of the Company or any of its Subsidiaries; or (iii) establish,
adopt, enter into or amend any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or
other plan, agreement, trust, fund, policy or arrangement for the benefit
of any current or former directors, officers or employees, except, in
each case, as may be required by law;
(d) Incur any Debt in excess of the amount of maximum
availability under the Company Credit Agreement (which amount shall
include amounts outstanding under the Company Credit Agreement);
(e) Make any Distribution;
(f) Issue, sell, pledge, dispose of or encumber, or authorize
the issuance, sale, pledge, disposition or encumbrance of, any shares of
capital stock of any class, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of capital
stock, or any other ownership interest (including, without limitation,
any phantom interest) in the Company or any of its Subsidiaries (except
for the issuance of shares of Company Common Stock issuable pursuant to
Company Stock Options which were granted under the Company Option Plans
and are outstanding on the date hereof);
(g) Split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities or
property in respect of, in lieu of or in substitution for shares of its
capital stock, or amend the terms or change the period of exercisability
of, purchase, repurchase, redeem or otherwise acquire, or permit any
Subsidiary to purchase, repurchase, redeem or otherwise acquire, any of
its securities or any securities of its subsidiaries, including, without
limitation, shares of Company Common Stock or any option, warrant or
right, directly or indirectly, to acquire shares of Company Common Stock,
or provide that upon the exercise or conversion of any such option,
warrant or right the holder thereof shall receive cash, or propose to do
any of the foregoing;
(h) Enter into any transaction otherwise than on an arms'
length basis or any transaction with any Affiliate of the Company (other
than its Subsidiaries);
(i) Allow any permit or license to lapse or terminate or fail
to renew any permit in accordance with prudent business practice;
(j) Enter into, amend, extend, terminate or permit any renewal
notice period to lapse with respect to any lease or any other Contractual
Obligation that contains either consideration to be given or performed by
the Company or any of its Subsidiaries of a value exceeding $500,000 or a
term exceeding one year (except (i) to the extent otherwise required by
this Agreement, (ii) Contractual Obligations involving sales of goods and
purchase of inventory in the Ordinary Course of Business and (iii)
extension of the maturity date of the Company Credit Agreement);
(k) Cancel or compromise any Debt or claim, waive or release
any valuable right of substantial value, or institute, settle or agree to
settle any material Action;
(l) Make any loan or extension of credit to any officer or
employee or shareholder of the Company or any of its Subsidiaries (other
than normal travel advances) in excess of $10,000;
-24-
<PAGE> 123
(m) Enter into any Contractual Obligation relating to the
purchase of any Equity Security of any Person, the purchase of assets
either substantial in amount or constituting a business or any merger,
consolidation or other business combination;
(n) Except as may be required as a result of a change in law or
in GAAP, take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue
recognition, payments of accounts payable and collection of accounts
receivable); or
(o) Take, or agree in writing or otherwise to take, any of the
actions described in this Section 6.6, or any action which would make any
of the representations or warranties of the Company contained in this
Agreement untrue or incorrect or prevent the Company from performing or
cause the Company not to perform its covenants hereunder.
6.7. Certain Notices. Prior to the Closing, each party will promptly
upon becoming aware thereof give the other parties written notice of any
material development affecting its business, financial condition or prospects
and any breach of or inaccuracy in any of its representations or warranties
contained in this Agreement; provided, however, that no such disclosure shall be
deemed to prevent or cure any breach of or inaccuracy in, or disclose any
exception to, any of the representations and warranties set forth herein.
6.8. Preparation for Closing. Each party will use its best efforts to
bring about the fulfillment of each of the conditions precedent to the
obligations of the other parties hereto set forth in this Agreement. The Company
shall give the Buying Parties prompt notice of any demands received by the
Company for appraisal of shares pursuant to ss.ss. 85 through 98 of the Business
Corporation Law of the Commonwealth of Massachusetts, and, prior to the Closing,
the Buying Parties shall have the right to direct all negotiations and
proceedings with respect to such demands. Prior to the Closing, the Company
shall not, except with the written consent of the Buying Parties, make any
payment with respect to, or settle or offer to settle, any such demands.
6.9. Governmental Authorizations. Each party hereto shall use all
reasonable efforts, obtain all approvals, consents, waivers, authorizations or
other orders of, and to make all declarations, filings, registrations,
qualifications and recordings with, any Governmental Authority to the extent
required to be obtained or made in connection with the execution, delivery or
performance of this Agreement and the consummation of the transactions
contemplated hereby
6.10. Pooling of Interests Accounting Treatment; Certain Tax Covenants.
6.10.1. Pooling. The Company acknowledges that Parent intends to
account for the Merger and the consummation of the transactions
contemplated hereby as a "pooling of interests" under GAAP and principles
applied by the SEC, all as from time to time in effect. The Company
represents and warrants that it has not taken, and covenants that it will
not take, any action which would preclude such accounting treatment from
being used by Parent. Without limiting the generality of the foregoing,
the Company acknowledges, represents, warrants and agrees that (a) the
Company is not and has never been a division or more than 50%-owned
Subsidiary of any corporation nor been part of an acquisition which was
later rescinded, (b) the Company has not taken, within the previous two
years, and will not take, prior to the Closing, any action (i) to change
the equity interest of the voting common stock of the Company (or amend
the terms of any Equity Security of the Company or of any Contractual
Obligation relating thereto, including but not limited to the Company
Option Plans) in contemplation of the transactions contemplated by this
Agreement, including, without limitation, any additional issuance,
exchange or retirement of any securities of the Company, (ii) to permit
the Company to reacquire any shares of its voting common stock or (iii)
to permit the Company or any Subsidiary of the Company to dispose of a
significant portion of its assets in contemplation of the transactions
contemplated by this Agreement, and (c) the ratio of the interest in the
Company of each holder of Company Common Stock to each other holder of
Company Common Stock will not be changed by the consummation of the
transactions contemplated by this Agreement.
-25-
<PAGE> 124
6.10.2. Plan of Reorganization and other Tax Matters.
(a) This Agreement shall constitute a "plan of reorganization"
for purposes of Section 368 of the Code.
(b) The parties hereto shall, and shall cause the Company to,
provide such necessary information as any other party hereto may
reasonably request in connection with the preparation of such party's Tax
returns, or to respond to or contest any audit, prosecute any claim for
refund or credit or otherwise satisfy any Legal Requirement relating to
Taxes and the Company.
(c) There shall be withheld from any amount payable hereunder
such amounts as may be required to be withheld under applicable law.
(d) Each of the Buying Parties and the Company shall use its
best efforts to cause the Merger to be treated as a "reorganization"
within the meaning of Section 368(a) of the Code.
6.11. Escrow of Shares Pending Resolution of Certain Matters. Upon
consummation of the Merger, Parent shall deliver to The First National Bank of
Boston, as escrow agent (the "Escrow Agent"), a certificate representing the
Adjusted Escrow Percentage of the Parent Shares. The Escrowed Shares shall be
held and either released to the Target Securityholders or surrendered to the
Buying Parties according to the provisions of this Section 6.11. The Escrowed
Shares of each Target Securityholder shall be applied to indemnify and hold
harmless Parent and its Affiliates against and in respect of any and all Losses
specified in Section 9.1.1 for which the Buying Parties and their Affiliates are
entitled to indemnification pursuant to the provisions of Section 9, the amount
of such indemnification to be determined as provided in Section 9. Each Target
Securityholder shall be entitled to vote such Escrowed Shares as are, from time
to time, held for such Target Securityholder's account as Escrowed Shares and to
receive any dividend or distribution thereon (other than dividends or
distributions in the form of capital stock of Parent or otherwise falling within
the definition of "Escrowed Shares" hereunder, which shall be delivered to the
Escrow Agent and held as part of the Escrowed Shares).
6.11.1. Term of Escrow. Except as provided in Section 6.11.3, the
Escrowed Shares shall not be released from escrow until the earlier of
(i) the date on which Parent's independent auditors shall report on their
audit of Parent's financial statements for the fiscal year of Parent
during which the Closing occurs, or (ii) the first anniversary of the
Closing Date (such earlier date being hereinafter sometimes referred to
as the "Release Date").
6.11.2. Formula for Number of Escrowed Shares to be Returned to
Parent. The number of Escrowed Shares to be returned to Parent in respect
of each Loss for which it is entitled to indemnity hereunder shall be
computed by dividing the dollar amount of the Target Securityholders'
liability in respect of such Loss by the dollar amount of the Formula
Price Per Share (subject to appropriate adjustment in the event of a
stock dividend on, or stock split or combination of shares or other
recapitalization of, or in respect of, the Escrowed Shares or in the
event that other securities or property have been deposited in escrow in
connection with any merger, consolidation or liquidation of Parent); and
such Shares to be so returned to Parent shall be allocated among the
Target Securityholders in proportion to their then respective interests
in the Escrowed Shares.
6.11.3. Certification of Losses, Return of Shares to Parent and
Delivery of Balance to the Target Securityholders.
6.11.3.1. Parent shall provide written notice to the Target
Securityholders' Representative of the occurrence of a Loss to
which it is entitled to indemnification (which notice shall
specify the circumstances of such Loss and the number of Escrowed
Shares to be applied in
-26-
<PAGE> 125
respect thereof). Target Securityholders' Representative shall,
within 30 days after delivery of such notice, (A) provide written
notice to Parent pursuant to Section 6.11.3.2(i) or (ii) or (B)
jointly with Parent instruct the Escrow Agent to apply all or the
specified portion of the Escrowed Shares to the payment,
reimbursement, settlement or discharge of such Loss.
6.11.3.2. Within 30 days after delivery of the notice to
Target Securityholders' Representative referred to in Section
6.11.3.1, Target Securityholders' Representative may provide
written notice to Parent:
(i) questioning the propriety of such proposed
application, in which case such question shall be resolved
under the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA") by an arbitral tribunal
composed of three arbitrators, at least one of whom shall
be an attorney experienced in corporate transactions,
appointed by agreement of the parties in accordance with
said Rules. In the event the parties fail to agree upon a
panel of arbitrators from the first list of potential
arbitrators proposed by the AAA, the AAA will submit a
second list in accordance with said Rules. In the event the
parties shall have failed to agree upon a full panel of
arbitrators from said second list, any remaining
arbitrators to be selected shall be appointed by the AAA in
accordance with said Rules. If, at the time of the
arbitration, the parties agree in writing to submit the
dispute to a single arbitrator, said single arbitrator
shall be appointed by agreement of the parties in
accordance with the foregoing procedure, or, failing such
agreement, by the AAA in accordance with said Rules. The
arbitrators shall determine (A) the amount, if any, of such
proposed application which is proper, and (B) the amount to
be borne by each party and the party or parties and who
shall bear the expense of such determination (which shall
be allocated to the Target Securityholders in the
proportion that the amount of the application designated by
such arbitrators to be borne by the Target Securityholders
bears to the amount originally sought by Parent) and shall
be conclusive on all parties; or
(ii) that the Target Securityholders dispute and
intend to defend the Liability, obligation, claim or Action
giving rise to such Loss or potential Loss, provided that,
and for so long as, such defense is being conducted by such
Target Securityholders at their expense and in a manner
reasonably deemed by Parent to be satisfactory and
effective to protect it against such Loss.
6.11.3.3. The Escrowed Shares, or any balance thereof held
by the Escrow Agent as to which notice shall not have been given
by Parent as aforesaid on or prior to the Release Date shall be
delivered to the Target Securityholders not more than fifteen days
after the Release Date and such Shares to be so returned shall be
allocated among the Target Securityholders in proportion to their
then respective interests in the Escrowed Shares. Any Escrowed
Shares held by the Escrow Agent on the Release Date, the
application of which to an indemnifiable Loss has been deferred
pursuant to clause (i) or (ii) of Section 6.11.3.2 above shall,
upon final determination or settlement of the Loss being
determined or contested, be applied thereto and any balance
delivered to the Target Securityholders in proportion to their
then respective interests in the Escrowed Shares. Parent shall
promptly notify the Escrow Agent on or before the Release Date
indicating the number of Escrowed Shares the application of which
has been deferred pursuant to clause (i) or (ii) of Section
6.11.3.2 above and, if Parent fails to give such notice within 10
days after the Release Date Target Securityholders' Representative
may so notify the Escrow Agent.
6.12. Affiliate Agreements. Each of Parent and the Company shall deliver
to the other, no later than 45 days after the execution of this Agreement, a
letter (an "Affiliate Letter") identifying all persons who may be deemed to be,
on or prior to the Effective Date, "affiliates" of Parent or the Company,
respectively, for purposes of Rule 145 under the Securities Act or otherwise
under applicable SEC accounting releases with respect to pooling-of-interests
-27-
<PAGE> 126
accounting treatment. Each of Parent and the Company shall cause each person who
is identified as an "affiliate" in its Affiliate Letter to deliver to Parent, on
or before the date which is 30 days prior to the Effective Date, a written
agreement in connection with restrictions on affiliates under Rule 145 and
pooling of interests accounting treatment (an "Affiliate Agreement"), in
substantially the form of Exhibit A.
6.13. Further Assurances. Each party, upon the request from time to time
of any other party hereto after the Closing, and without further consideration,
will do each and every act and thing as may be necessary or reasonably requested
to consummate the transactions contemplated hereby in an orderly fashion.
6.14. Directors and Officers Indemnification. From and after the
Effective Date, Parent and Surviving Corporation shall indemnify, defend and
hold harmless each person who is now or has been at any time prior to the date
hereof, an officer or director of the Company (collectively, the "D&O Group") to
the same extent that such officer or director is indemnified by the Company
pursuant to the Company's Charter and By-Laws, as in effect on the date hereof,
for acts or omissions in such person's capacity as an officer or director of the
Company occurring on or prior to the Effective Date, provided that (i) the D&O
Group may retain only one law firm to represent them with respect to any single
action, which firm shall be reasonably satisfactory to Parent and Surviving
Corporation, unless there is, under applicable standards of professional
conduct, conflict on any significant issue between the positions of any two or
more members of the D&O Group, (ii) Parent and Surviving Corporation shall pay
the reasonable fees and expenses of such counsel and (iii) Parent and Surviving
Corporation shall not be liable for any settlement effected without their
written consent.
6.15. Expenses. Within ten calendar days of the date hereof, the Company
shall provide to Parent a good faith estimate and description of the expenses of
the Company and its Subsidiaries which the Company expects to incur, or has
incurred, in connection with the transactions contemplated by this Agreement.
7. CONDITIONS TO THE OBLIGATION TO CLOSE OF THE BUYING PARTIES. The
obligations of the Buying Parties to consummate the Merger are subject to the
satisfaction, at or prior to the Closing, of all of the following conditions,
compliance with which, or the occurrence of which, may be waived prior to the
Closing in writing by the Buying Parties in their sole discretion:
7.1. Representations, Warranties and Covenants of Company.
7.1.1. Continued Accuracy of Representations and Warranties. All
representations and warranties relating to the Company or any of its
Subsidiaries contained in this Agreement shall be true and correct as of
the Closing with the same force and effect as if made at and as of the
Closing, except to reflect changes permitted by this Agreement and in the
case of Section 4.7, subject to the provisions contained in Section 7.3.
7.1.2. Performance of Agreements. The Company shall have performed
and satisfied all covenants and agreements required by this Agreement to
be performed or satisfied by it at or prior to the Closing.
7.1.3. Stockholder Approval; Absence of Appraisal Demands.
Shareholders of the Company holding not less than two-thirds of the
Company Common Stock outstanding as of the record date for the Special
Meeting shall have voted in favor of and approved this Agreement and the
Merger in accordance with the Massachusetts Business Corporation Law; and
the Company shall not have received notice from any holders of more than
5% of the Company Common Stock in the aggregate with respect to an intent
to pursue appraisal rights pursuant to [Sections] 85 through 98 of the
Business Corporation Law of The Commonwealth of Massachusetts in respect
of the Merger.
7.1.4. Closing Certificate. At the Closing, the Company shall
furnish to the Buying Parties an unqualified certificate, signed by the
President or any Vice President of the Company, dated the Closing Date,
to the effect that the conditions specified in Sections 7.1.1, 7.1.2 and
7.1.3 have been satisfied.
-28-
<PAGE> 127
7.2. 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 and no
similar proceeding in respect of the Proxy Statement/Prospectus shall have been
initiated or threatened by the SEC.
7.3. No Material Adverse Change. Without limiting the generality of
Section 7.1, since the date of the Most Recent Balance Sheet no Company Material
Adverse Effect shall have occurred, provided, however, that in making such
determination, a Material Adverse Effect with respect to the business or
operations of the Company shall not be considered.
7.4. Options, etc. Immediately prior to the Effective Date, there shall
be no outstanding options, warrants, Contractual Obligations or commitments of
any character relating to the issued or unissued capital stock of the Company or
obligating the Company to issue or sell any shares of capital stock of, or other
equity interests in, the Company, other than Company Stock Options which will be
converted into options to acquire Parent Shares pursuant to the Merger.
7.5. Closing Agreements. At or prior to the Closing (and, in the case
of (iii), on or before the date which is 30 days prior to the Effective Date),
each of the following agreements (the "Closing Agreements"), in form and
substance satisfactory to the Buying Parties, shall have been executed and
delivered to the Buying Parties:
(i) the Articles of Merger;
(ii) employment and noncompetition agreements executed by each
of Bruce Bower, Raj Shanmugaraj and Carl Yasharian; and
(iii) an agreement in the form of Exhibit A executed by each
Principal Stockholder and each other Person identified as an "affiliate"
of the Company in the Affiliate Letter delivered by the Company pursuant
to Section 6.12 (unless the Buying Parties shall have waived the right to
require pooling of interests accounting treatment pursuant to Section
7.7).
7.6. Tax Opinion. The Buying Parties shall have received a written
opinion from Ropes & Gray, in form and substance reasonably satisfactory to the
Buying Parties, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368 of the Code. The parties agree to make
reasonable representations as requested by counsel to the Buying Parties for the
purpose of rendering such opinion.
7.7. Pooling Opinion. The Buying Parties shall have received an opinion
of each of Coopers & Lybrand LLP and KPMG Peat Marwick LLP, independent
certified public accountants, to the effect that the Merger qualifies for
pooling of interests accounting treatment if consummated in accordance with this
Agreement, unless the Buying Parties shall have waived the requirement that the
Merger qualify for pooling of interests accounting treatment by notice to the
Company prior to the Closing Date.
7.8. Legality; Governmental Authorization; Litigation. The Merger and
the consummation of the other transactions contemplated hereby, shall not be
prohibited by any Legal Requirement, and shall not subject the Company or either
Buying Party to any material penalty or Tax, or other material Liability other
than Liabilities created by the Buying Parties, if any and as set forth on
Schedule 4.18. The Company shall have caused to have been obtained or made and
be in full force and effect all other approvals, consents, approvals, waivers,
authorizations and other orders of, and declarations, filings, registrations,
qualifications and recordings with, any Governmental Authority necessary to be
obtained or made in order to permit the Company to consummate the transactions
contemplated hereby or otherwise reasonably requested by the Buying Parties. The
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act") shall have terminated or expired. No Action shall
have been instituted at or prior to the Closing by any Person or instituted or
threatened by any public authority, relating to this Agreement or any of the
transactions contemplated hereby or against the Company or either
-29-
<PAGE> 128
Buying Party, the result of which could prevent or make illegal the consummation
of any such transaction or could otherwise have a material adverse effect on
either Buying Party or have a Company Material Adverse Effect.
7.9. Consents, etc. The Company shall have secured written consents or
waivers under all leases, Guarantees of leases and other Contractual Obligations
of the Company in a manner satisfactory in form and substance to the Buying
Parties, necessary to permit the consummation of the transactions contemplated
hereby or otherwise reasonably requested by the Buying Parties, without
affecting any rights of the Company under any such Contractual Obligations. The
agreements relating to registration rights referred to in Items 1 and 2 on
Schedule 4.21 shall have been terminated.
7.10. Nasdaq Listing. The Parent Shares shall have been approved for
listing on the Nasdaq National Market.
7.11. Opinion of Counsel. The Company shall have furnished the Buying
Parties with an opinion of the Company's counsel dated the Closing Date, in form
and substance reasonably satisfactory to Parent, covering matters with respect
to the transactions contemplated hereby as the Buying Parties or their counsel
may reasonably request.
7.12. Stockholders Agreement. The Stockholders Agreement shall be in
full force and effect at and as of the Effective Date.
7.13. General. All documents, instruments and legal and corporate
proceedings in connection with the transactions contemplated by this Agreement
shall be satisfactory in form and substance to the Buying Parties, and the
Buying Parties shall have received copies of all documents which either Buying
Party may reasonably have requested in connection therewith, such documents
where appropriate to be certified by proper corporate or governmental
authorities, including, without limitation the documents to be delivered by
the Company pursuant to Section 3.3.
8. CONDITIONS TO THE OBLIGATION TO CLOSE OF THE COMPANY. The obligation of
the Company to consummate the Merger is subject to the satisfaction, at or prior
to the Closing, of all of the following conditions, compliance with which, or
the occurrence of which, may be waived prior to the Closing in writing by the
Company in its sole discretion:
8.1. Representations, Warranties and Covenants of Buying Parties.
8.1.1. Continued Accuracy of Representations and Warranties. All
representations and warranties of the Buying Parties contained in this
Agreement shall be true and correct as of the Closing with the same force
and effect as if made at and as of the Closing.
8.1.2. Performance of Agreements. The Buying Parties shall have
performed and satisfied all covenants and agreements required by this
Agreement to be performed or satisfied by the Buying Parties at or prior
to the Closing.
8.1.3. Officer's Certificate. At the Closing, the Buying Parties
shall furnish to the Company an unqualified certificate signed by the
President or any Vice President of each of the Buying Parties dated the
Closing Date, to the effect that the conditions specified in Sections
8.1.1 and 8.1.2 have been satisfied.
8.2. 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 and no
similar proceeding in respect of the Proxy Statement/Prospectus shall have been
initiated or threatened by the SEC.
8.3. Stockholder Approval. Shareholders of the Company holding not less
than two-thirds of the Company Common Stock outstanding as of the record date
for the Special Meeting shall have voted in favor of and approved this Agreement
and the Merger in accordance with the Massachusetts Business Corporation Law.
-30-
<PAGE> 129
8.4. Closing Agreements. At or prior to the Closing, each Buying Party
shall have entered into each of the Closing Agreements to which it is party,
such agreements being in form and substance reasonably satisfactory to the
Company.
8.5. Tax Opinion. The Company shall have received a written opinion of
Testa, Hurwitz & Thibeault, LLP, in form and substance reasonably satisfactory
to the Company, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368 of the Code. The parties agree to make
reasonable representations as requested by Testa, Hurwitz & Thibeault, LLP for
the purposes of rendering such opinion.
8.6. Pooling Opinion. The Company shall have received copies of the
opinions referred to in Section 7.7 above (unless the Buying Parties shall have
waived the right to require pooling of interests accounting treatment pursuant
to Section 7.7).
8.7. Legality; Government Authorization; Litigation. The Merger, and
the consummation of the other transactions contemplated hereby, shall not be
prohibited by any Legal Requirement. The Buying Parties shall have caused to be
obtained or made and be in full force and effect all approvals, consents,
waivers, authorizations and other orders of, and declarations, filings,
registrations, qualifications and recordings with, any Governmental Authority
necessary to be obtained or made by the Buying Parties in order to permit the
consummation of the transactions contemplated hereby or otherwise reasonably
required by the Company. The waiting period under the HSR Act shall have
terminated or expired. No Action shall have been instituted at or prior to the
Closing by any Person or instituted or threatened by any public authority,
pertaining to this Agreement or any of the transactions contemplated hereby, the
results of which action or proceeding could prevent or make illegal the
consummation of any such transaction.
8.8. Consents, etc. The Buying Parties shall have secured written
consents or waivers under all Contractual Obligations of the Buying Parties, in
a manner satisfactory in form and substance to the Company, necessary to permit
the consummation of the transactions contemplated hereby or otherwise reasonably
requested by the Company.
8.9. Opinion of Counsel. The Buying Parties shall have furnished the
Company with an opinion of the Buying Parties' counsel dated the Closing Date,
in form and substance reasonably satisfactory to the Company, covering such
matters with respect to the transactions contemplated hereby as the Company or
its counsel may reasonably request.
8.10. General. All documents, instruments and legal and corporate
proceedings in connection with the transactions contemplated by this Agreement
shall be satisfactory in form and substance to the Company, and the Company
shall have received copies of all documents which the Company may reasonably
have requested in connection therewith, such documents where appropriate to be
certified by proper corporate or governmental authorities, including, without
limitation the documents to be delivered by the Buying Parties pursuant to
Section 3.4.
9. INDEMNIFICATION.
9.1. Indemnification. Subject to the provisions of Sections 9.2 and
9.3, (i) each Buying Party, the Surviving Corporation and their respective
Affiliates (each in its capacity as indemnified party, an "Indemnitee") shall be
indemnified and held harmless by the Target Securityholders (each in its
capacity as indemnifying party, an "Indemnifying Party") from, against and in
respect of, and (ii) each Buying Party (each in its capacity as indemnifying
party, an "Indemnifying Party") hereby jointly and severally agrees to indemnify
each of the Target Securityholders (each in its capacity as indemnified party,
an "Indemnitee") and hold each of the Target Securityholders harmless, from,
against and in respect of:
-31-
<PAGE> 130
9.1.1. The Target Securityholders. In the case of the Target
Securityholders as Indemnifying Parties, any and all Losses arising from
or related to any of the following: (i) any breach of or inaccuracy in
(or any allegation by any third party of facts which, if true as alleged,
would constitute such a breach or inaccuracy) any representation or
warranty made by, on behalf of or in respect of the Company or its
Subsidiaries in this Agreement or in any document, instrument or
certificate delivered pursuant hereto or (ii) any breach or violation of
any covenant or agreement made by or on behalf of the Company in this
Agreement or in any document, instrument or certificate delivered
pursuant hereto unless waived by the Buying Parties in connection with
the Closing or (iii) the matter referred to in Item E of Schedule 4.6;
provided, however, that the indemnification provided pursuant to this
Section 9.1.1 shall be on the terms and subject to the conditions of
Sections 6.11 and 9.3.1;
9.1.2. The Buying Parties. In the case of either Buying Party as
Indemnifying Party, any and all Losses arising from or related to any of
the following: (i) any breach of or inaccuracy in (or any allegation by
any third party of facts which, if true as alleged, would constitute such
a breach or inaccuracy) any representation or warranty made by or on
behalf of either Buying Party in this Agreement or in any document,
instrument or certificate delivered pursuant hereto or (ii) any breach or
violation of any covenant or agreement made by or on behalf of either
Buying Party in this Agreement or in any document, instrument or
certificate delivered pursuant hereto; provided, however, that the
indemnification provided pursuant to this Section 9.1.2 shall be subject
to the provisions of Section 9.3.2.
9.2. Time Limitation on Indemnification. Notwithstanding the foregoing,
no claim may be made or suit instituted under any provision of this Section 9
after the Release Date except for claims as to which any Indemnitee has given
any Indemnifying Party notice on or prior to the Release Date (and, in the case
of the Buying Parties, the Surviving Corporation or any of their Affiliates as
Indemnitee with respect to Losses of the types identified in Section 9.1.1,
Parent has notified the Escrow Agent as provided in Section 6.11).
9.3. Monetary Limitations on Indemnification; Limitation on Recourse.
9.3.1. The Target Securityholders. Except with respect to claims
(i) arising out of the representations or warranties contained in
Sections 4.1, 4.2, 4.3, 4.4, 4.9, 4.18 and 4.20, (ii) for any breach of
any covenant or agreement made by or on behalf of the Company in this
Agreement or in any other agreement or instrument delivered pursuant to
this Agreement, or (iii) based on fraud, or which arise out of or are
attributable to acts or omissions taken or made prior to Closing in
connection with the Business that constitute willful misconduct or
malfeasance, gross negligence or a violation of applicable Legal
Requirements for which criminal liability may be assessed, or (iv) the
matter referred to in Item E of Schedule 4.6, no Target Securityholder as
Indemnifying Party shall have any obligation to indemnify either Buying
Party or any of their respective Affiliates as Indemnitees in respect of
any Loss of a type identified in Section 9.1.1 incurred by either Buying
Party or any of their respective Affiliates as Indemnitee unless the
aggregate cumulative total of all such Losses incurred by either Buying
Party or any of their respective Affiliates as Indemnitee exceeds
$500,000, whereupon each Buying Party and each of their respective
Affiliates as Indemnitees shall be entitled to indemnification for the
entire aggregate cumulative amount of such Losses described above;
provided that in no event shall the Target Securityholders' indemnity
obligations under this Section 9 for Losses specified in Section 9.1.1
and 9.4 (including expenses) exceed the amount of the Escrowed Shares.
With respect to claims referred to in clauses (i) or (ii) of the first
sentence of this Section 9.3.1, the minimum dollar limitation shall be
$100,000; with respect to claims referred to in clause (iii) of the first
sentence of this Section 9.3.1 the Buying Parties shall only be entitled
to indemnification to the extent the Losses related thereto exceed
$50,000. The Buying Parties, the Company and their respective Affiliates
in their capacities as Indemnitees under this Section 9 shall not have
general recourse against the assets of the Target Securityholders in
respect of their indemnification obligations under this Section 9 for
those Losses specified in Section 9.1.1 and 9.4 (including expenses), but
rather the sole recourse for collection in respect of such
indemnification obligations in respect of Losses specified in Section
9.1.1 shall be limited to application of the Escrowed Shares as provided
in Section 6.11 and as so
-32-
<PAGE> 131
limited the indemnification obligations of the Target Securityholders
shall be joint but not several. Notwithstanding anything herein to the
contrary, except with respect to claims based on fraud or which arise out
of or are attributable to acts or omissions taken or made prior to
Closing in connection with the Business that constitute willful
misconduct, gross negligence or a violation of applicable Legal
Requirements for which criminal liability may be assessed, the rights
of the Buying Parties, the Surviving Corporation and the Indemnitees
under this Section 9 shall be the exclusive remedy of such Persons with
respect to claims resulting from or relating to any misrepresentation,
breach of any representation or warranty or failure to perform any
covenant or agreement of the Company contained in this Merger Agreement.
9.3.2. The Buying Parties. Except with respect to claims (i)
arising out of the representations or warranties contained in Sections
5.1, 5.2, 5.4 and 5.7, (ii) for any breach of any covenant or agreement
made by or on behalf of the Buying Parties in this Agreement or in any
other agreement or instrument delivered pursuant to this Agreement, or
(iii) based upon fraud or which arise out of or are attributable to acts
or omissions taken or made prior to Closing in connection with the
Business that constitute willful misconduct or malfeasance, gross
negligence or a violation of applicable Legal Requirements for which
criminal liability may be assessed, neither Buying Party shall have any
obligation to indemnify any Target Securityholder as Indemnitee in
respect of any Loss of a type specified in Section 9.1.2 incurred by any
Target Securityholder as Indemnitee unless the aggregate cumulative total
of all such Losses incurred by any Target Securityholder as Indemnitee
exceeds $500,000 whereupon the Target Securityholders as Indemnitees
shall be entitled to indemnification for the entire aggregate cumulative
amount of such Losses described above. With respect to claims referred to
in clauses (i), (ii) or (iii) of the immediately preceding sentence, the
minimum dollar limitation shall be $100,000.
Any payments made by the Buying Parties as Indemnifying Parties
hereunder shall (i) be made through the issuance of shares of Parent
Common Stock at a per share value equal to the Formula Price Per Share
and (ii) not be in excess of the amount permitted in respect of
transactions accounted for as a pooling under Accounting Principles Board
Opinion No. 16 and interpretations thereof issued by the American
Institute of Certified Public Accountants on or prior to the date hereof
as determined by Parent's independent auditors.
9.4. Third Party Claims. Promptly after the receipt by any Indemnitee
of notice of the commencement of any Action against such Indemnitee by a third
party, such Indemnitee shall, if a claim with respect thereto is or may be made
against any Indemnifying Party pursuant to this Section 9, use reasonable
efforts to give the Indemnifying Parties written notice thereof. The failure to
give such notice shall not relieve any Indemnifying Party from any obligation
hereunder except where, and then solely to the extent that, such failure
actually and materially prejudices the rights of such Indemnifying Party. Such
Indemnifying Party shall have the right to defend such claim, at such
Indemnifying Party's expense and with counsel of its choice reasonably
satisfactory to the Indemnitee, provided that (a) the Indemnifying Party so
notifies the Indemnitee within 30 days after receipt of such notice, (b) the
claim involves only money damages and does not seek injunctive or other
equitable relief, (c) settlement of, or an adverse judgment with respect to,
such claim is not, in the good faith judgment of the Indemnitee, reasonably
likely to establish a precedent adverse to the continuing business interests of
the Indemnitee, and (d) the Indemnifying Party conducts the defense of such
claim actively and diligently. So long as the Indemnifying Party is conducting
the defense of such claim as provided in the previous sentence, the Indemnitee
may retain separate co-counsel at its sole cost and expense and may participate
in defense of such claim, and neither the Indemnifying Party nor the Indemnitee
will consent to the entry of any judgment or enter into any settlement with
respect to such claim without the prior written consent of the other. In the
event the Indemnifying Party does not or ceases to conduct defense of such claim
as so provided, (x) the Indemnitee may defend against and, with the consent of
the Indemnifying Party, which shall not be unreasonably withheld, consent to the
entry of any judgment or enter into any settlement with respect to, such claim
in any manner it may reasonably deem to be appropriate, (y) the Indemnifying
Party will reimburse the Indemnitee promptly and periodically for the costs of
defending against such claim, including attorneys' fees and expenses, and (z)
the Indemnifying Party will remain responsible for any Losses the Indemnitee may
suffer as a result of such claim to the full extent provided in this Section 9.
-33-
<PAGE> 132
9.5. Nature of Indemnification Payments. Any and all indemnification
payments or offsets pursuant to this Section 9 shall be deemed for all purposes
to be adjustments to the Aggregate Consideration Amount.
10. CONSENT TO JURISDICTION; JURY TRIAL WAIVER.
10.1. Consent to Jurisdiction. Each party to this Agreement, by its
execution hereof, (i) hereby irrevocably submits, and agrees to cause each of
its Subsidiaries to submit, to the exclusive jurisdiction of the state courts of
The Commonwealth of Massachusetts (or the United States District Court located
in Massachusetts) for the purpose of any Action arising out of or based upon
this Agreement or any Closing Agreement or relating to the subject matter hereof
or thereof, (ii) hereby waives, and agrees to cause each of its Subsidiaries to
waive, to the extent not prohibited by applicable law, and agrees not to assert,
and agrees not to allow any of its Subsidiaries to assert, by way of motion, as
a defense or otherwise, in any such Action, any claim that it is not subject
personally to the jurisdiction of the above-named courts, that its property is
exempt or immune from attachment or execution, that any such proceeding brought
in one of the above-named courts is improper, or that this Agreement or any
other Closing Agreement, or the subject matter hereof or thereof may not be
enforced in or by such court and (iii) hereby agrees not to commence or to
permit any of its Subsidiaries to commence any Action arising out of or based
upon this Agreement or any Closing Agreement or relating to the subject matter
hereof or thereof other than before one of the above-named courts nor to make
any motion or take any other action seeking or intending to cause the transfer
or removal of any such Action to any court other than one of the above-named
court whether on the grounds of inconvenient forum or otherwise. Each party
hereby consents to service of process in any such proceeding in any manner
permitted by Massachusetts law, and agrees that service of process by registered
or certified mail, return receipt requested, at its address specified pursuant
to Section 12.8 is reasonably calculated to give actual notice.
10.2. Waiver of Jury Trial. To the extent not prohibited by applicable
law which cannot be waived, each of the parties hereto hereby waives, and agrees
to cause each of its Subsidiaries to waive, and covenants that neither it nor
any of its Subsidiaries will assert (whether as plaintiff, defendant or
otherwise) any right to trial by jury in any forum in respect of any issue or
Action arising out of or based upon this Agreement or any other Closing
Agreement or the subject matter hereof or thereof or in any way connected with
or related or incidental to the transactions contemplated hereby, in each case
whether now existing or hereafter arising. Any party hereto may file an original
counterpart or a copy of this Section 10.2 with any court as written evidence of
the consent of each such party to the waiver of its right to trial by jury.
11. TERMINATION.
11.1. Termination of Agreement. This Agreement may be terminated by the
parties only as provided below:
(a) The Buying Parties and the Company may terminate this
Agreement by mutual written consent at any time prior to the Closing.
(b) The Buying Parties may terminate this Agreement by giving
written notice to the Company at any time prior to the Closing either (i)
in the event the Company is in material breach of any representation,
warranty, covenant or agreement contained in this Agreement, Parent has
notified the Company of the breach and such breach has continued without
cure for a period of 5 days after the notice of breach or (ii) if the
Closing shall not have occurred on or before August 31, 1997 by reason of
the failure of any condition set forth in Section 7 to be satisfied
(unless the failure results primarily from either Buying Party breaching
any representation, warranty, covenant or agreement contained in this
Agreement); provided that such date shall be extended to September 30,
1997 with the consent of the Company upon request of Parent, which
consent shall not be unreasonably withheld.
(c) The Company may terminate this Agreement by giving written
notice to the Buying Parties at any time prior to the Closing (i) in the
event either Buying Party is in material breach of any representation,
-34-
<PAGE> 133
warranty, covenant or agreement contained in this Agreement, the Company
has notified the Buying Parties of the breach and such breach has
continued without cure for a period of 5 days after the notice of breach,
(ii) if the Closing shall not have occurred on or before August 31, 1997
by reason of the failure of any condition set forth in Section 8 to be
satisfied (unless the failure results primarily from the Company
breaching any representation, warranty, covenant or agreement contained
in this Agreement), provided that such date shall be extended to
September 30, 1997 with the consent of the Company upon request of
Parent, which consent shall not be unreasonably withheld, or (iii) in
the event the Company receives an unsolicited proposal with respect to
such a transaction from any corporation, partnership or other entity or
group (other than the Buying Parties and their designees) and is required
by applicable fiduciary duties, confirmed by written opinion of counsel
to that effect, to enter into an Alternative Transaction with such
corporation, partnership or other entity or group.
11.2. Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 11.1, all obligations of the parties hereunder
shall terminate without any liability of any party to any other party (other
than the provisions of Sections 6.5, 10.1, 10.2, 11.3, 12.1, 12.8, 12.9, 12.11
and 12.13, each of which shall survive any such termination); provided, however,
that no termination shall relieve any party from any liability arising from or
relating to breach prior to termination.
11.3. Fees and Expenses.
(a) Except as set forth in this Section 11.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, whether or not the
Merger is consummated; provided, however, that Parent and the Company shall
share equally all fees and expenses, other than accountants' and attorneys'
fees, incurred in connection with the printing and filing of the Proxy
Statement/Prospectus (including any preliminary materials related thereto) and
the Registration Statement (including financial statements and exhibits) and any
amendments or supplements thereto in the event this Agreement is terminated by
the Company.
(b) In consideration of the strategic importance of the Merger to
Parent and other valuable consideration, receipt of which is hereby
acknowledged, in the event that the Company terminates this Agreement pursuant
to Section 11.1(c)(iii), the Company shall reimburse Parent for actual,
documented and reasonable out-of-pocket expenses of Parent relating to the
transactions contemplated by this Agreement not to exceed $500,000 in the
aggregate (the "Expenses"), which shall be paid within five (5) Business Days
after such termination. In the event that the Company consummates an Alternative
Transaction within ninety (90) days of this Agreement, in addition to the
Expenses, the Company shall pay Parent a fee of $1,000,000 (the "Fee"). The Fee
shall be paid within five (5) Business Days after consummation by the Company of
an Alternative Transaction.
12. MISCELLANEOUS.
12.1. Entire Agreement; Waivers. This Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether oral or written, of the parties with
respect to such subject matter. No waiver of any provision of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), shall constitute a continuing waiver unless otherwise
expressly provided nor shall be effective unless in writing and executed, in the
case of a waiver by the Buying Parties, by the Buying Parties and, in the case
of a waiver by the Company, by the Company.
12.2. Amendment or Modification. The parties hereto may not amend or
modify this Agreement except in such manner as may be agreed upon by a written
instrument: (i) in the case of any amendment prior to the Closing, executed by
each Buying Party and the Company or (ii) in the case of any amendment after the
Closing, subject to any contrary requirement of applicable law, executed by
Parent or the Company and by holders of not less than two-thirds of the Parent
Shares.
-35-
<PAGE> 134
12.3. Survival, etc. All representations, warranties, covenants and
agreements made by or on behalf of any party hereto in this Agreement
(including, without limitation, the Schedules hereto), or pursuant to any
document, certificate, financial statement or other instrument referred to
herein or delivered in connection with the transactions contemplated hereby,
shall be deemed to have been material and relied upon by the parties hereto,
notwithstanding any investigation made by or on behalf of any of the parties
hereto or any opportunity therefor or any actual or constructive knowledge
thereby obtained, and shall survive the execution and delivery of this
Agreement and the Closing until the Release Date or, in the case of Section
9.1.1(b), provided that if written notice of a claim has been given prior to
the Release Date, then relevant representations, warranties, covenants or
agreements shall survive as to such claim until such claims have been finally
resolved. Neither the period of survival nor the liability of any party with
respect to such party's representations, warranties, covenants and agreements
shall be reduced by any investigation made at any time by or on behalf of any
party.
12.4. Independence of Representations and Warranties. The parties hereto
intend that each representation, warranty and covenant contained herein shall
have independent significance. If any party has breached any representation,
warranty or covenant contained herein in any respect, the fact that there exists
any other representation, warranty or covenant relating to the same subject
matter (regardless of the relative levels of specificity) which the party has
not breached shall not detract from or mitigate the fact that such party is in
breach of the first representation, warranty or covenant.
12.5. Severability. In the event that any provision hereof would, under
applicable law, be invalid or unenforceable in any respect, such provision shall
(to the extent permitted under applicable law) be construed by modifying or
limiting it so as to be valid and enforceable to the maximum extent compatible
with, and possible under, applicable law. The provisions hereof are severable,
and in the event any provision hereof should be held invalid or unenforceable in
any respect, it shall not invalidate, render unenforceable or otherwise affect
any other provision hereof.
12.6. Knowledge. Whenever reference is made herein to the knowledge of
any Person with respect to any matter, it is understood that (i) such Person has
made, or caused to be made by personnel or representatives of such Person and
its Affiliates reasonably competent to determine the accuracy of the statement
with respect to such matter, an inquiry which is reasonably appropriate to
determine the accuracy of the statement in question and (ii) the results of such
inquiry will be deemed to have been reported to such Person.
12.7. Successors and Assigns. All of the terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective transferees, successors and assigns (each of which
such transferees, successors and assigns shall be deemed to be a party hereto
for all purposes hereof); provided, however, that no transfer or assignment by
any party shall relieve such party of any of its obligations hereunder.
12.8. Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if in writing and delivered personally or
sent by telecopier, Federal Express, or registered or certified mail, postage
prepaid, addressed as follows:
If to Parent, to it at: PictureTel Corporation
100 Minuteman Road
Andover, MA 01810
Attention: Les B. Strauss, Chief
Financial Officer
Telecopier: (508) 292-3334
-36-
<PAGE> 135
If to Merger ML Acquisition Corp.
Sub, to it at: c/o PictureTel Corporation
100 Minuteman Road
Andover, MA 01810
Attention: Les B. Strauss, Chief
Financial Officer
Telecopier: (508) 292-3334
with a copy to: Ropes & Gray
One International Place
Boston, MA 02110-2624
Attention: Howard F. Fuguet, Esq.
Telecopier: (617) 951-7050
If to the Company, to it at: MultiLink, Inc.
6 Riverside Drive
Andover, MA 01810
Attention: Bruce R. Bower, President
Telecopier:(508) 691-2191
with a copy to: Testa, Hurwitz & Thibeault, LLP
125 High Street, High Street Tower
Boston, MA 02110-2711
Attention: William B. Simmons, Jr., Esq.
Telecopier: (617) 248-7100
Unless otherwise specified herein, such notices or other communications shall be
deemed received (a) on the date delivered, if delivered personally, (b) one
Business Day after being sent by Federal Express, if sent by Federal Express,
(c) one Business Day after being delivered, if delivered by telecopier and (d)
three Business Days after being sent, if sent by registered or certified mail.
Each of the parties hereto shall be entitled to specify a different address by
giving notice as aforesaid to each of the other parties hereto.
12.9. Public Announcements. At all times at or before the Closing, no
party hereto will issue or make any reports, statements or releases to the
public or generally to the customers, suppliers or other Persons to whom the
Company sells goods or provides services or with whom the Company otherwise has
significant business relationships with respect to this Agreement or the
transactions contemplated hereby without the consent of the other parties
hereto, provided that the initial press release regarding the execution of this
Agreement shall be mutually agreed upon; and provided further that Parent may
make an additional public report, statement or release without such consent if
Parent is advised by counsel in writing that such public report, statement or
release is required by law in order to discharge Parent's disclosure
obligations, in which event Parent shall notify the Company that it intends to
take such action and shall deliver to the Company in advance a copy of such
public report, statement or release. Each party hereto will also obtain the
prior approval by the other parties hereto of any press release to be issued
immediately following the Closing announcing the consummation of the
transactions contemplated by this Agreement.
12.10. Headings, etc. Section and subsection headings are not to be
considered part of this Agreement, are included solely for convenience, are not
intended to be full or accurate descriptions of the content thereof and shall
not affect the construction hereof. This Agreement shall be deemed to express
the mutual intent of the parties, and no rule of strict construction shall be
applied against any party.
12.11. Third Party Beneficiaries. Nothing in this Agreement is intended
or shall be construed to entitle any Person other than the parties, the Company,
the Target Securityholders or their respective transferees, successors and
assigns permitted hereby to any claim, cause of action, remedy or right of any
kind.
-37-
<PAGE> 136
12.12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
12.13. Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic substantive laws of The Commonwealth of
Massachusetts, without giving effect to any choice or conflict of law provision
or rule that would cause the application of the laws of any other jurisdiction.
-38-
<PAGE> 137
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be executed, and in the case of the
Company and Merger Sub executed as an instrument under seal, as of the date
first above written by their respective officers thereunto duly authorized.
PICTURETEL CORPORATION
By /s/ Norman E. Gaut
---------------------------------------
Title: Chief Executive Officer
ML Acquisition Corp.
By /s/ William C. Avery
---------------------------------------
Title: President
[Seal]
and by /s/ William C. Avery
----------------------------------
Title: Treasurer
MULTILINK, INC.
By /s/ Bruce R. Bower
---------------------------------------
Title: President
[Seal]
and by /s/ Mary B. Miller
-----------------------------------
Title: Treasurer
TARGET SECURITYHOLDERS' REPRESENTATIVE
/s/ J. Edward McAteer
------------------------------------------
J. Edward McAteer, as Target Securityholders'
Representative
*
-39-
<PAGE> 138
EXHIBIT A
Form of Affiliate Agreement
_____________, 1997
PictureTel Corporation
100 Minuteman Road
Andover, MA 01810
Re: Merger Agreement
----------------
Ladies and Gentlemen:
PictureTel Corporation, a Delaware corporation ("Parent"), ML Acquisition
Corp., a Massachusetts corporation and wholly-owned subsidiary of Parent
("Merger Sub"), and MultiLink, Inc., a Massachusetts corporation (the
"Company"), have entered into an Agreement and Plan of Merger dated April ,
1997 (the "Merger Agreement"), pursuant to which Merger Sub would be merged
with and into the Company (the "Merger"), and each outstanding share of Company
Common Stock would be converted into the right to receive shares of Parent
Common Stock. Capitalized terms used herein and not defined have the meanings
assigned to them in the Merger Agreement.
The undersigned has been advised that as of the date the Merger is
submitted to stockholders of the Company for approval, the undersigned may be an
"affiliate" of the Company, as the term is defined for purposes of paragraph (c)
of Rule 145 of the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act") and may be deemed an
"affiliate" of the Company for purposes of qualifying the Merger for pooling of
interests accounting treatment under Opinion 16 of the Accounting Principles
Board and applicable SEC rules and regulations, although nothing contained
herein shall be construed as an admission of either such fact.
Parent has requested the undersigned to represent and agree, and the
undersigned represents and agrees, with Parent as follows:
1. Pooling.
From and after 30 days prior to the Effective Time of the Merger, the
undersigned will not sell, transfer, exchange or otherwise, directly or
indirectly, dispose of, or reduce the risk of loss (by short sale or otherwise)
or enter into any contract or other arrangement with respect to, or consent to
the sale or exchange of or other disposition of any interest in, any securities
of the Company or Parent until after such time as Parent has published financial
results covering at least 30 days of combined operations of Parent and the
Company after the Effective Time of the Merger in the form of a quarterly
earnings report, an effective registration statement filed with the SEC, a
report to the SEC on Form 10-K, 10-Q or 8-K, or any other public filing or
announcement which includes such combined results of operations. The undersigned
understands that certificates representing the shares of Parent Common Stock, if
any, received by the undersigned in the Merger will be placed on the
"stop-transfer list" maintained by Parent's transfer agent and will remain so
listed until the publication of such financial results and that there will be
placed on the certificate(s) representing such stock, or any certificates
delivered in substitution therefor, a legend stating in substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
COMPLIANCE WITH THE CONDITIONS SPECIFIED IN A LETTER AGREEMENT DATED AS OF
<PAGE> 139
_________, 1997 RELATING THERETO, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF PICTURETEL CORPORATION."
Parent agrees and covenants that (i) Parent will use its reasonable best
efforts to publish financial results covering at least 30 days of combined
operations of Parent and the Company after the Effective Time of the Merger, as
soon as practicable and in no event later than 45 days after the end of the
first fiscal quarter which includes at least 30 days of such combined operations
after the Effective Time if such 30 days is included in any of the first three
fiscal quarters of Parent, and in no event later than 90 days after the end of
the first fiscal quarter which includes at least 30 days of combined operations
of Parent and the Company if such 30 days is included in the fourth fiscal
quarter of Parent; and (ii) promptly after such publication the stop transfer
instructions and legends referred to above shall be terminated or removed.
2. Rule 145.
The undersigned has been advised that the issuance of shares of Parent
Common Stock pursuant to the Merger will be registered under the Securities Act
pursuant to a registration statement on Form S-4. The undersigned has also been
advised that, if the undersigned is in fact an "affiliate" of the Company at the
time the Merger is submitted to a vote of the stockholders of the Company, Rule
145 under the Securities Act will restrict the undersigned's sales of shares of
Parent Common Stock, if any, received in the Merger. The undersigned has been
advised that if the undersigned is so subject to Rule 145, the undersigned may
not sell or otherwise dispose of any shares of Parent Common Stock except in
accordance with Rule 145(d) under the Securities Act or pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act.
The undersigned understands and agrees that:
(i) Parent is under no obligation to register the sale, transfer
or other disposition of the shares of Parent Common Stock to be received
by the undersigned in the Merger except as set forth in written
agreements, if any, with the undersigned which have been entered into by
Parent or which have been specifically assumed by Parent.
(ii) Stop transfer instructions will be given to the transfer
agent of Parent with respect to the shares of Parent Common Stock to be
received by the undersigned in the Merger, and there will be placed on
the certificate representing such stock, or any certificates delivered in
substitution therefor, a legend stating in substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 UNDER THE SECURITIES ACT OF 1933 (THE
"ACT") APPLIES. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH RULE 145(D) OR PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR EXEMPTION FROM REGISTRATION UNDER THE
ACT."
(iii) Unless the transfer by the undersigned of the shares of
Parent Common Stock is a sale made in conformity with the provisions of
Rule 145(d), or is made pursuant to a registration statement under the
Securities Act, Parent reserves the right to put an appropriate legend on
the certificate issued to a transferee.
In connection with the foregoing, Parent agrees as follows:
(i) For so long as and to the extent necessary to permit the
undersigned to sell the shares of Parent Common Stock pursuant to Rule
145 and, to the extent applicable, Rule 144 under the Securities Act,
Parent shall use reasonable best efforts to file, on a timely basis, all
reports required to be filed with the
-41-
<PAGE> 140
Securities and Exchange Commission ("SEC") by it pursuant to Section 13
of the Exchange Act, so long as it is subject to such requirement,
furnish to the undersigned upon request a written statement as to whether
Parent has complied with such reporting requirements during the 12 months
preceding any proposed sale under Rule 145 and otherwise use its
reasonable efforts to permit such sales pursuant to Rule 145 and Rule
144. Parent has filed, on a timely basis, all reports required to be
filed with the SEC under Section 13 of the Securities Exchange Act of
1934, as amended, during the preceding 12 months.
(ii) Parent agrees that the stop transfer instructions and legends
referred to above shall be terminated or removed if the undersigned shall
have delivered to Parent a copy of a letter from the staff of the SEC or
an opinion of counsel with recognized expertise in securities law
matters, in form and substance satisfactory to Parent, to the effect that
such instructions and legends are not required for the purposes of the
Securities Act.
This letter agreement shall be governed by and construed in accordance
with the laws of the State of Delaware.
This letter agreement shall terminate if and when the Merger Agreement is
terminated according to its terms.
Please indicate your agreement with the foregoing by signing the
acknowledgment below on the enclosed copies of this letter, and returning the
same to the undersigned, whereupon this letter agreement shall become an
effective agreement between Parent and the undersigned.
Very truly yours,
____________________________
By:_________________________
Name:
Title:
Acknowledged and agreed as of
the date hereof.
PICTURETEL CORPORATION
By_________________________
Name:
Title:
-42-
<PAGE> 141
Annex B
[Section]85. Dissenting stockholder; right to demand payment for stock;
exception
A stockholder in any corporation organized under the laws of
Massachusetts which shall have duly voted to consolidate or merge with another
corporation or corporations under the provisions of sections seventy-eight or
seventy-nine who objects to such consolidation or merger may demand payment for
his stock from the resulting or surviving corporation and an appraisal in
accordance with the provisions of sections eighty-six to ninety-eights,
inclusive, and such stockholder and the resulting or surviving corporation shall
have the rights and duties and follow the procedure set forth in those sections.
This section shall not apply to the holders of any shares of stock of a
constituent corporation surviving a merger if, as permitted by subsection (c) of
section seventy-eight, the merger did not require for its approval a vote of the
stockholders of the surviving corporation.
Added by St.1964, c. 723, [Section]1. Amended by St.1969, c.392, [Section]22.
[Section]86. Sections applicable to appraisal; prerequisites
If a corporation proposes to take a corporate action as to which any
section of this chapter provides that a stockholder who objects to such action
shall have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have such
right unless (1) he files with the corporation before the taking of the vote of
the shareholders on such corporate action, written objection to the proposed
action stating that he intends to demand payment for his shares if the action is
taken and (2) his shares are not voted in favor of the proposed action.
Added by St.1964, c. 723, [Section]1. Amended by St.1965, c. 685, [Section]40;
St.1973, c. 749, [Section]1.
[Section]87. Statement of rights of objecting stockholders in notice of meeting;
form
The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of notice
shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting
and effected by the corporation, any stockholder (1) who files with the
corporation before the taking of the vote on the approval of such action,
written objection to the proposed action stating that he intends to demand
payment for his shares if the action is taken and (2) whose shares are not voted
in favor of such action has or may have the right to demand in writing from the
corporation (or, in the case of a consolidation or merger, the name of the
resulting or surviving corporation shall be inserted), within twenty days after
the date of mailing to him of notice in writing that the corporate action has
become effective, payment for his shares and an appraisal of the value thereof.
Such corporation and any such stockholder shall in such cases have the rights
and duties and shall follow the procedure set forth in sections 88 to 98,
inclusive, of chapter 156B of the General Laws of Massachusetts."
Added by St.1964, c. 723, [Section]1. Amended by St.1973, c, 794, [Section]2.
[Section]88. Notice of effectiveness of action objected to
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any
<PAGE> 142
stockholder receiving the same to demand payment for his stock. The notice shall
be sent by registered or certified mail, addressed to the stockholder at his
last known address as it appears in the records of the corporation. Added by
St.1964, c. 723, [Section]1. Amended by St.1973, c. 749, [Section]3.
[Section]89. Demand for payment; time for payment
If within twenty days after the date of mailing of a notice under
subsection (e) of section eighty-two, subsection (f) of section eighty-three, or
section eighty-eight, any stockholder to whom the corporation was required to
give such notice shall demand in writing from the corporation taking such
action, or in the case of a consolidation or merger from the resulting or
surviving corporation, payment for his stock, the corporation upon which such
demand is made shall pay to him the fair value of his stock within thirty days
after the expiration of the period during which such demand may be made.
Added by St.1964, c. 723, [Section]1. Amended by St.1973, c. 7498, [Section]4.
[Section]90. Demand for determination of value; bill in equity; venue
If during the period of thirty days provided for in section eighty-nine
the corporation upon which such demand is made and any such objecting
stockholder fail to agree as to the value of such stock, such corporation or any
such stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county where
the corporation in which such objecting stockholder held stock had or has its
principal office in the commonwealth.
Added by St.1964, c. 723, [Section]1.
[Section]91. Parties to suit to determine value; service
If the bill is filed by the corporation, it shall name as parties
respondent all stockholders who have demanded payment for their shares and with
whom the corporation has not reached agreement as to the value thereof. If the
bill is filed by a stockholder, he shall bring the bill in his own behalf and in
behalf of all other stockholders w ho have demanded payment for their shares and
with whom the corporation has not reached agreement as to the value thereof, and
service of the bill shall be made upon the corporation by subpoena with a copy
of the bill annexed. The corporation shall file with its answer a duly verified
list of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill. The corporation shall give
notice in such form and returnable on such date as the court shall order to each
stockholder party to the bill by registered or certified mail, addressed to the
last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation to
any such stockholder in compliance with the order of the court shall be a
sufficient service of process on him. Failure to give notice to any stockholder
making demand shall not invalidate the proceedings as to other stockholders to
whom notice was properly given, and the court may at any time before the entry
of a final decree make supplementary orders of notice.
Added by St.1964, c. 723, [Section]1.
[Section]92. Decree determining value and ordering payment; valuation date
After hearing the court shall enter a decree determining the fair value
of the stock of those stockholders who have become entitled to the valuation of
and payment for their shares, and shall order the corporation to make payment of
such value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such stock if certificated or, if uncertificated,
upon receipt of an instruction transferring such stock to the corporation. For
this purpose, the value of the shares shall be determined as of the day
preceding the date of the vote approving the proposed corporate action and shall
be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
Added by St.1964, c. 723, [Section]1. Amended by St.1983, c. 522, [Section]22.
<PAGE> 143
[Section]93. Reference to special master
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report the
same to the court, all in accordance with the usual practice in suits in equity
in the superior court.
Added by St.1964, c. 723, [Section]1.
[Section]94. Notation on stock certificates of pendency of bill
On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for the notation thereon of the
pendency of the bill and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
Added by St.1964, c. 723, [Section]1. Amended by St.1983, c. 522, [Section]23.
[Section]95. Costs; interest
The costs of the bill, including the reasonable compensation and expenses
of any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided in
this chapter shall be paid by the corporation. Interest shall be paid upon any
award from the date of the vote approving the proposed corporate action, and the
court may on application of any interested party determine the amount of
interest to be paid in the case of any stockholder.
Added by St.1964, c. 723, [Section]1. Amended by St.1965, c. 685, [Section]41.
[Section]96. Dividends and voting rights after demand for payment
Any stockholder who has demanded payment for his stock as provided in
this chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the date of the vote approving the proposed corporate action) unless:
(1) A bill shall not be filed within the time provided in section ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the corporation, or
in the case of a consolidation or merger, the resulting or surviving
corporation, deliver to it a written withdrawal of his objections to and an
acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
Added by St.1964, c. 723, [Section]1. Amended by St.1982, c. 149.
[Section]97. Status of shares paid for
The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock, or in the
case of a consolidation or merger the shares or the securities of the resulting
or surviving corporation into which the shares of such objecting stockholder
would have been converted had he not objected to such consolidation or merger
shall have the status of treasury stock or securities.
Added by St.1964, c. 723, [Section]1. Amended by St.1965, c. 685, [Section]42.
<PAGE> 144
[Section]98. Exclusive remedy; exception
The enforcement by a stockholder of his right to receive payment for his
shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground that
such corporate action will be or is illegal or fraudulent as to him.
Added by St.1964, c. 723, [Section]1. Amended by St.1965, c. 685,
[Section]43.
<PAGE> 145
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law, as amended,
provides that a corporation may indemnify any person who is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal or investigative (other than an
action by or in the right of the corporation) by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, against expenses actually and
reasonably incurred in connection with the defense or settlement of such action
or suit if he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interest of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 102(b)(7) of the Delaware General Corporation Law, as amended,
permits a corporation to include in its certificate of incorporation a provision
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that such provision shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit.
The Registrant's Third Restated Certificate of Incorporation provides
that the Registrant's Directors shall not be liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as director,
except to the extent that exculpation from liabilities is not permitted under
the Delaware General Corporation Law as in effect at the time such liability is
determined. The Restated Certificate of Incorporation further provides that the
Registrant shall indemnify its directors and officers to the full extent
permitted by the law of the State of Delaware.
II-1
<PAGE> 146
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed with, or incorporated by reference
in, this Registration Statement:
Exhibits
Exhibit
No. Description
------- -----------
2.1 Agreement and Plan of Merger by and among the Registrant, Merger
Sub and MultiLink, dated as of April 15, 1997 (the "Merger
Agreement") (incorporated by reference to Exhibit 1 to the
Registrant's Current Report on Form 8-K filed April 18, 1997).
2.1.1* Form of Amendment No. 1 to the Merger Agreement.
3.1 Third Restated Certificate of Incorporation of Registrant,
effective June 10, 1992 (incorporated by reference to Exhibit
3.1.4 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 27, 1992).
3.2 By-Laws as amended September 13, 1994 (incorporated by reference
to Exhibit 1 to the Registrant's Current Report on Form 8-K filed
September 14, 1994).
4.1 Form of Common Stock Certificate (incorporated by reference to
Exhibit 4(b) to Registrant's Registration Statement on Form S-8,
Registration Number 33-36315 effective August 10, 1990).
4.2 Shareholders' Rights Agreement between the Registrant and The
First National Bank of Boston as Rights Agent, dated March 25,
1992 (incorporated by reference to Exhibit 1 to the Registrant's
Registration of Certain Classes of Securities on Form 8-A/A filed
February 1, 1995).
4.2.1 Form of Certificate of Designation with respect to Junior
Preference Stock (incorporated by reference to Exhibit 2 to the
Registrant's Registration of Certain Classes of Securities on Form
8-A/A filed February 1, 1995).
4.2.2 Form of Rights Certificate (incorporated by reference to Exhibit 3
to the Registrant's Registration of Certain Classes of Securities
on Form 8-A/A filed February 1, 1995).
4.2.3 Summary of Purchase Rights (incorporated by reference to Exhibit 4
to the Registrant's Registration of Certain Classes of Securities
on Form 8-A/A filed February 1, 1995).
4.2.4 Amendment dated January 13, 1995 to Shareholders' Rights Agreement
(incorporated by reference to Exhibit 5 to Registrant's
Registration of Certain Classes of Securities on Form 8-A/A filed
February 1, 1995).
5.1 Opinion of Ropes & Gray as to the legality of the securities being
issued.
8.1* Form of Opinion of Testa, Hurwitz & Thibeault, LLP as to certain
federal income tax consequences of the Merger.
8.2* Form of Opinion of Ropes & Gray as to certain federal income tax
consequences of the Merger.
10.1** 1984 Amended and Restated Stock Option Plan as amended through
December 13, 1988 (incorporated by reference to Exhibit 10.10 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988)
10.1.1** Amendment dated October 26, 1994 to 1984 Amended and Restated
Stock Option Plan (incorporated by reference to Exhibit 10.10.1 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).
II-2
<PAGE> 147
10.2** PictureTel Corporation Equity Incentive Plan as amended through
October 26, 1994 (incorporated by reference to Exhibit 10.11 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.2.1** Amendment dated June 29, 1995 to PictureTel Corporation Equity
Incentive Plan (incorporated by reference to Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
July 1, 1995)
10.3** Amended 1992 Non-Employee Director Stock Option Plan as amended
through April 10, 1996 (incorporated by reference to Exhibit 4(a)
to Registrant's Registration Statement on Form S-8, Registration
Number 333-10163 effective September 2, 1997).
10.4 PictureTel Corporation 1994 Employee Stock Purchase Plan
(incorporated by reference to Exhibit 4 to Registrant's
Registration Statement on Form S-8, Registration Number 33-81848,
effective July 22, 1994).
10.5 401(k) Profit Sharing Retirement Plan as amended through July 1,
1994 (incorporated by reference to Exhibit 10.45 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.6** Employment Agreement between PictureTel Corporation and Norman E.
Gaut dated July 29, 1988 (incorporated by reference to Exhibit
10.12 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1988).
10.6.1** Amendment dated January 15, 1995 to the Employment Agreement
between PictureTel Corporation and Norman E. Gaut (incorporated by
reference to Exhibit 10.1 to Registrant's Quarterly Report on Form
10-Q for the quarter ended April 1, 1995).
10.7** Agreement between PictureTel Corporation and Les Strauss as
amended through January 15, 1995 (incorporated by reference to
Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended April 1, 1995).
10.8** Agreement between PictureTel Corporation and Domenic J. LaCava as
amended through January 17, 1995 (incorporated by reference to
Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended April 1, 1995).
10.9** Agreement between PictureTel Corporation and Lawrence Bornstein as
amended through January 16, 1995 (incorporated by reference to
Exhibit 10.5 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended April 1, 1995).
10.11** Agreement between PictureTel Corporation and William Avery dated
June 15, 1995 (incorporated by reference to Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 29, 1996).
10.12 Form of Indemnification Agreement for directors and officers
(incorporated by reference to Exhibit 10.34 to Registrant's
Registration Statement on Form S-1, Registration No. 33-6368,
effective August 12, 1986)
10.13** Agreement between PictureTel Corporation and Khoa Nguyen as
amended through March 6, 1995 (incorporated by reference to
Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended April 1, 1995).
10.14 Lease Agreement between PictureTel Corporation and 100 Minuteman
Limited Partnership dated October 7, 1995 (incorporated by
reference to Exhibit 10.47 to Annual Report on Form 10-K for the
year ended December 31, 1995).
10.15 Lease Agreement between PictureTel Corporation and Andover Mills
Realty Limited Partnership dated February 10, 1994 (incorporated
by reference to Exhibit 10.51 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994).
10.16 Lease Agreement between PictureTel Corporation and 50 Minuteman
Limited Partnership dated August 26, 1996 (incorporated by
reference to Exhibit 10.1 to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 28, 1996).
II-3
<PAGE> 148
10.17** Agreement between PictureTel Corporation and Bruce R. Bower dated
May 23, 1997.
11.1* Statement re computation of MultiLink per share earnings.
21 Subsidiaries of PictureTel (incorporated by reference to Annual
Report on Form 10-K for the year ended December 31, 1996).
23.1 Consent of Ropes & Gray (included in its opinion filed as
Exhibit 5.1).
23.2* Consent of Testa, Hurwitz & Thibeault, LLP.
23.3 Consent of Coopers & Lybrand L.L.P. with respect to the
Registrant's financial statements.
23.4 Consent of KPMG Peat Marwick LLP with respect to MultiLink's
financial statements.
24.1* Power of Attorney.
27* Financial Data Schedule as required by Item 601 (c) of Regulation
S-K.
99.1* Form of Proxy to be used by MultiLink in connection with the
MultiLink Special Meeting.
99.2 Stockholders Agreement between the Registrant, certain directors
of MultiLink and certain major shareholders of MultiLink dated
April 15, 1997 (incorporated by reference to Exhibit 2 to the
Registrant's Current Report on Form 8-K filed April 18, 1997).
* Previously filed.
** Indicates management contract or compensatory plan, contract or
arrangement.
II-4
<PAGE> 149
ITEM 22. UNDERTAKINGS.
The Undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933 (the "Securities Act");
(b) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement; and
(c) To include any material information with respect
to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the Registration Statement
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(5) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of
this Registration Statement, by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c), the Registrant
undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
(6) That every prospectus (i) that is filed pursuant to the
immediately preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the Registration Statement and will
not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(7) That insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person
of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling
II-5
<PAGE> 150
precedent, submit to a court of appropriate jurisdiction the questions
whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(8) To respond to requests for information that is
incorporated by reference into the prospectus pursuant to Items 4
10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained
in documents filed subsequent to the effective date of the Registration
Statement through the date of responding to the request.
(9) To supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
II-6
<PAGE> 151
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Andover, Massachusetts.
PICTURETEL CORPORATION
By: /s/ DR. NORMAN E. GAUT
------------------------------
Dr. Norman E. Gaut
Chief Executive Officer
Dated: June 10, 1997
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed below on June 10,
1997 by the following persons in the capacities indicated.
Signature Capacity
--------- --------
* /s/ DR. NORMAN E. GAUT Chairman of the Board and Chief Executive
- --------------------------------- Officer (principal executive officer)
Dr. Norman E. Gaut
* /s/ LES B. STRAUSS Vice President, Chief Financial Officer
- --------------------------------- (principal financial and accounting
Les B. Strauss officer)
* /s/ VINOD KHOSLA Director
- ---------------------------------
Vinod Khosla
* /s/ ROBERT T. KNIGHT Director
- ---------------------------------
Robert T. Knight
* /s/ DAVID B. LEVI Director
- ---------------------------------
David B. Levi
* /s/ JAMES R. SWARTZ Director
- ---------------------------------
James R. Swartz
* /s/ ENZO TORRESI Director
- ---------------------------------
Enzo Torresi
By: /s/ Dr. Normon E. Gaut
-----------------------------
* Attorney-In-Fact
II-7
<PAGE> 152
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
5.1 Opinion of Ropes & Gray as to the legality of the securities being
issued.
10.17 Agreement between PictureTel Corporation and Bruce R. Bower dated
May 23, 1997.
23.1 Consent of Ropes & Gray (included in its opinion filed as Exhibit
5.1).
23.3 Consent of Coopers & Lybrand L.L.P. with respect to Registrant's
financial statements.
23.4 Consent of KPMG Peat Marwick LLP with respect to MultiLink's
financial statements.
<PAGE> 1
Exhibit 5.1
June __, 1997
PictureTel Corporation
100 Minuteman Road
Andover, MA 01810
Ladies and Gentlemen:
This opinion is furnished to you in connection with a registration
statement on Form S-4 (the "Registration Statement") filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended, for the registration of 3,750,000 shares of Common Stock, $0.01 par
value per share (the "Shares"), of PictureTel Corporation, a Delaware
corporation (the "Company"). The Shares are to be issued in exchange for shares
of common stock, $.01 par value per share, of MultiLink, Inc. ("MultiLink")
pursuant to an Agreement and Plan of Merger dated as of April 15, 1997, as
amended (the "Merger Agreement") among the Company, MultiLink and ML
Acquisition Corp. ("Sub"), a wholly-owned subsidiary of the Company and a
Massachusetts corporation. The Merger Agreement provided for Sub to merge with
and into MultiLink (the "Merger") and for MultiLink to survive the Merger as a
wholly-owned subsidiary of the Company.
We have acted as counsel for the Company in connection with the
issuance of Shares pursuant to the Merger. For purposes of our opinion, we have
examined and relied upon such documents, records, certificates and other
instruments as we have deemed necessary.
Based on the foregoing, we are of the opinion that the Shares being
issued by the Company have been duly authorized and, when issued in accordance
with the Merger Agreement, will be fully paid and nonassessable.
We hereby consent to the filing of this opinion as part of the
Registration Statement and to the use of our name therein and in the related
proxy statement/prospectus under the caption "Legal Matters."
This opinion is to be used only in connection with the issuance of the
Shares while the Registration Statement is in effect.
Very truly yours,
Ropes & Gray
<PAGE> 1
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 23rd day of May, 1997 by and between Bruce R.
Bower, whose address is set forth beneath his name below (the "Executive"), and
PictureTel Corporation, a Delaware corporation, having its principal place of
business at 100 Minuteman Road, Andover, Massachusetts 01810 (the "Company").
WHEREAS, the Executive is presently employed by MultiLink, Inc. as its
President and Chief Executive Officer; and
WHEREAS, the Company recognizes that your contribution to the growth and
success of MultiLink, Inc. has been substantial and desires to assure the
Company of your continued employment for an interim period after the Effective
Date, as that term is defined in the Agreement and Plan of Merger between
PictureTel Corporation, ML Acquisition Corp. and MultiLink, Inc. dated April 15,
1997 (the "Merger Agreement"); and
WHEREAS, the Company understands that you desire to continue to serve the
Company on the terms set forth below;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
covenants and obligations herein contained, the parties hereto agree as follows:
1. TITLE, POSITION AND RESPONSIBILITIES. For a term commencing on the
Effective Date and ending December 31, 1997 (the "Term"), the Executive shall
serve as a Vice President, Network Systems Division of the Company and shall
exercise such powers, comply with such directions and perform such duties in
relation to the business and affairs of the Company as may from time to time be
vested in or given to him by William Avery. The Executive shall at all times
report to, and his activities shall at all times be subject to the direction and
control of William Avery. The Executive agrees to devote substantially all of
his business time, attention and services and best efforts to the diligent,
faithful and competent discharge of such duties for the successful operation of
the Company's business. Should the parties mutually agree to continue the
Executive's employment beyond the Term, a new agreement shall be entered into by
the parties which shall include the standard provisions available to employees
of the Company at comparable levels. In such case, this Agreement will be
superseded and be of no force or effect.
2. COMPENSATION: SALARY, BONUSES AND OTHER BENEFITS. During the Term, the
Company shall pay the Executive the following compensation, inclusive of the
following base salary, bonuses and other fringe benefits:
(A) SALARY. In consideration of the employment services to be rendered
by the Executive to the Company, the Company shall pay to the Executive a salary
of $194,400 per annum. Such salary shall be paid ratably for the Term in
conformity with the Company's
1
<PAGE> 2
customary payroll practices as such payroll practices shall be established or
modified from time to time.
(B)(1) BONUSES. The Executive shall be continued as a participant in
the MultiLink, Inc. 1997 Profit Sharing Plan for the period ending September 30,
1997 in accordance with its terms. The measurement of the Operating Income
component of the plan will be in accordance with Exhibit A. Any interpretation
of the plan required to determine the amount of a payout under the plan, if any,
is at the sole discretion of the Board of Directors of the Company.
(B)(2) 1997 REVENUE BONUS. Provided the Executive remains in the
employ of the Company until completion of the Term, the Executive shall be
eligible to receive a bonus for the achievement of a MultiLink revenue goal of
$10.3 million from October 1, 1997 through December 31, 1997. The amount of such
bonus will be calculated as follows: Base plan for 75% revenue attainment is
$75,000. The plan for 100% revenue attainment will be $100,000. The Executive
will be entitled to 18% of the applicable base amount, as determined by the
Company based solely upon actual revenue attainment.
(B)(3) ASSIGNMENT COMPLETION BONUS. Provided that the Executive
remains in the employ of the Company until completion of the Term, the Company
shall pay the Executive an assignment completion bonus in an amount equal to
$35,000, payable in lump sum during the first quarter of 1998.
(C) FRINGE BENEFITS. The Executive shall be entitled to participate in
the Company's standard fringe benefits package generally available to all other
employees of the Company at his level, including the Company's group health,
disability, dental and life insurance programs.
(D) STOCK OPTIONS. The Company will recommend to the Compensation
Committee of the Board of Directors the Executive's participation in
PictureTel's Equity Incentive Plan commencing on the Effective Date. The
recommendation presented will be for 40,000 shares (the "Option Shares"). The
Option Shares will be made as non-statutory options. The Option Shares will vest
over a four year period, with the first twenty-five (25) percent of the
aggregate number of shares vesting on December 31, 1997; six and one quarter
percent (6.25%) of the aggregate number of shares vesting on the first
anniversary of the Effective Date and six and one quarter percent (6.25%) of the
aggregate number of shares vesting each quarter thereafter. The option price
will be determined by the Compensation Committee on the Effective Date and will
be no less than the fair market value per share (closing price as quoted on the
National Market System of NASDAQ) on that date. Vesting is conditional on the
Executive's continued full-time employment with the Company until the completion
of the Term. Certain other restrictions may apply to the Option Shares as set
forth in the Equity Incentive Plan. This description is qualified in its
entirety by reference to the terms of such plan.
All compensation paid to the Executive shall be subject to all applicable
federal and state withholding, payroll and other taxes.
2
<PAGE> 3
3. TERMINATION. The Executive's term of employment may be terminated prior
to the end of the Term only as follows:
(A) UPON DEATH OR DISABILITY. The Executive's employment shall
automatically terminate upon his death or if he is physically or mentally
incapacitated for a period of ninety (90) consecutive days prior to the end of
the Term. Except as provided in Section 3(C), if the Executive's employment is
terminated under this Section 3(A), no further compensation shall be due or
payable to the Executive, except for compensation due and payable through the
date of such termination, including a pro rata portion of any bonus to which the
Executive would have otherwise been entitled had employment continued to the end
of the Term.
(B) AT THE ELECTION OF THE COMPANY FOR JUST CAUSE. The Company may
immediately terminate the Executive's employment hereunder "for just cause" at
any time upon written notice to the Executive. Termination of the Executive's
employment by the Company shall constitute a termination "for just cause" under
this Section 3(B) if such termination is for one or more of the following
causes:
(i) the substantial and continuing failure of the Executive to render
services to the Company in accordance with his obligations after notice of
such failure to cure within 15 days of such notice;
(ii) a material breach of the terms of this Agreement or the agreement
referred to in Section 5 hereof;
(iii) the commission by the Executive of an act of fraud or
embezzlement against the Company or the commission by the Executive of any
other action with the intent to injure the Company; or
(iv) the conviction by the Executive of a felony.
If the Executive is terminated "for just cause" under this Section 3(B), no
further compensation shall be due or payable to the Executive, except for
compensation due and payable through the date of such termination, excluding
bonuses.
(C) AT THE ELECTION OF THE COMPANY BEFORE THE END OF THE TERM. The
Company may terminate the Executive's employment, without cause, at any time
upon written notice prior to the end of the Term. In the event of such a
termination without cause, provided the Executive complies with his Proprietary
Agreement and Non-Competition Agreement, the Executive shall be entitled to:
(i) continuation on the Company's payroll as an active employee at the
base salary, and with the fringe benefits and such bonuses as are set out in
Section 2 (A )through 2(D) through December 31, 1997; provided, however, that
the revenue bonus in Section 2(B)(2) will be calculated assuming 100% attainment
of the 1997 revenue goal referred to in that Section.
3
<PAGE> 4
(ii) severance payments of one year's salary at an annualized rate of
$194,400, payable in twenty-six (26) equal biweekly installments commencing
on the first regular payroll following December 31, 1997;
(iii) continuation, on the same cost share basis as active employees,
of all fringe benefits as set forth in Section 2(C) until the earlier of
(x) December 31, 1998 or (y) such time as the Executive obtains other
employment;
(iv) the right to continue to vest under the Executive's stock options
through December 31, 1997, and to maintain the exercise rights to such
vested options for a period beginning December 31, 1997 ending on March 31,
1998; and
(v) voicemail and secretarial coverage from the date when the
Executive is released from active employment through December 31, 1998.
(D) NO ELECTION BY THE EMPLOYEE. The Company agrees that Executive's
primary responsibility will be to assist in the merger-related transition and
the Executive will remain a Vice President operating from a Vice Presidential
office located in Andover, Massachusetts. Any reduction in the Executive's base
salary or title or if his office is moved more than 45 miles from Andover,
Massachusetts will be deemed a termination without cause, entitling the employee
to severance payments and benefits under Section 3C.
4. SEVERANCE PAYMENTS AT THE END OF THE TERM. Provided the Executive
remains in the employ of the Company through the Term, and complies with his
Proprietary Agreement and Non-Competition Agreement, the Executive shall be
entitled to the severance payments and benefits set forth in Section 3(C)(ii),
(iii), (iv) and (v) subsequent to the Term.
5. (A) CONFIDENTIALITY AND INVENTIONS AGREEMENT. The Executive has executed
the Company's standard proprietary agreement, a copy of which is attached as
Exhibit B, and he hereby confirms that he will comply with its terms and
conditions both during and after the term of his employment. The Executive
acknowledges that the severance payments and other benefits contained in this
Agreement are conditioned upon his compliance with Exhibit B.
(B) NON-COMPETITION AGREEMENT. The Executive has executed the
Non-Competition Agreement attached hereto as Exhibit C. The Executive confirms
that he will comply with the terms of the Non-Competition Agreement both during
and after the term of his employment and he further acknowledges that the
severance payments and other benefits contained in this Agreement are conditions
upon his compliance with Exhibit C.
6. NOTICES. All notices, requests, demands and other communications
hereunder must be in writing and shall be given by prepaid certified or
registered mail, return receipt requested, or by prepaid telegram, sent to the
addresses set forth in this Agreement, or to such other address as shall have
been designated in writing by either party.
4
<PAGE> 5
7. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of Massachusetts and shall
be deemed to be performable in Massachusetts.
8. SEVERABILITY. In case any one or more of the provisions contained in
this Agreement for any reason shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provisions had never
been contained herein.
9. WAIVERS AND MODIFICATIONS. This Agreement may be modified, and the
rights and remedies of any provision hereof may be waived, only in accordance
with this Section 9. No waiver by either party of any breach by the other or any
provision hereof shall be deemed to be a waiver of any later or other breach
thereof or as a waiver of any other provision of this Agreement. This Agreement
sets forth all of the terms of the understandings between the parties with
reference to the subject matter set forth herein and may not be waived, changed,
discharged or terminated orally or by any course of dealing between the parties,
but only by an instrument in writing signed by the party against whom any
waiver, change, discharge or termination is sought.
10. ASSIGNMENT. The Executive acknowledges that the services to be rendered
by him are unique and personal. Accordingly, the Executive may not assign any of
his rights or delegate any of his duties or obligations under this Agreement.
The rights and obligations of the Company under this Agreement shall inure to
the benefit of, and shall be binding upon, the successors and assigns of the
Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PICTURETEL CORPORATION
By: /s/ William Avery
-------------------------------
William Avery, Vice President
EXECUTIVE
/s/ Bruce R. Bower
------------------------------
Bruce R. Bower
166 Dow Road
Hollis, NH 03045
5
<PAGE> 6
EXHIBIT A
TO THE EMPLOYMENT AGREEMENT
BETWEEN BRUCE BOWER AND PICTURETEL CORPORATION
This exhibit sets forth the intention of the parties in determining the
Operating income component of the MultiLink 1997 Profit Sharing Plan in
accordance with Section 2(B)(1) of the Employment Agreement between Bruce Bower
(the "Executive") and PictureTel Corporation ("the Company").
The parties have agreed as follows:
1. The MultiLink profit and loss statement (P&L) will remain segregated from
the Company's Network Systems Division P& L through September 30, 1997.
2. The Executive will retain decision-making control over MultiLink P&L
management through September 30, 1997, subject to prior review by the Company
of all critical MultiLink business decisions affecting the MultiLink P&L, such
as, for example, those impacting product schedules or product content. The
Executive agrees that he will exercise his decision-making in good fair and in
accordance with generally accepted management practices.
3. The company retains the right to reject, modify or otherwise alter the
Executive's decisions made in accordance with Paragraph 2, provided that if
Executive's good faith decisions are modified or not implemented, an
appropriate good faith modification will be make to ameliorate the resulting
impact on the Executive's ability to attain the MultiLink management targets
for Operating Income under the Plan. In the event that the company takes action
to reduce MultiLink costs are eliminated MultiLink operating expenses prior to
September 30, 1997, and such action results in a favorable and quantifiable
impact on the MultiLink Operating Income target under the Plan.
4. It is the mutual intent of the Executive and the Company that all review and
decision-making required under Paragraphs 2 and above be done promptly and
efficiently. Specific operating practices, such as the designated management
individuals at the Company charged with carrying out the review under Paragraph
2, and the schedule for meetings between the parties, will be determined in good
faith and in compliance with the spirit of this Exhibit.
5. Merger-related expenses (as defined by the Company in accordance with
standard GAAP rules) will be borne by the Company.
END OF EXHIBIT
<PAGE> 7
Exhibit B
---------
PictureTel
HUMAN RESOURCES
Proprietary Information and Inventions Agreement
I recognize that PictureTel Corporation, a Delaware corporation (the
"Company", which term includes any subsidiaries thereof), is engaged in a
continuous program of research, development and production respecting its
business, present and future.
I understand that:
A. As part of my employment by the Company I am expected to make new
contributions and inventions of value to the Company.
B. My employment creates a relationship of confidence and trust between me
and the Company with respect to any information:
(1) Applicable to the business of the Company; or
(2) Applicable to the business of any client or customer of the Company,
which may be made known to me by the Company, or learned by me during the period
of my employment.
C. The Company possesses and will continue to possess information that has
been created, discovered or developed, or has otherwise become known to the
Company (including without limitation information created, discovered, developed
or made known by or to me during the period of or arising out of my employment
by the Company), and/or in which property rights have been assigned or otherwise
conveyed to the Company, which information has commercial value in the business
in which the Company is engaged. All of the aforementioned information is
hereinafter called "Proprietary Information." By way of illustration, but not
limitation, Proprietary Information includes trade secrets, processes, formulae,
data and know-how, improvements, inventions, techniques, marketing plans,
strategies, forecasts and customer lists.
D. As used herein, the period of my employment includes any time in which I
may be retained by the Company as a consultant.
<PAGE> 8
In consideration of my employment or continued employment, as the case may
be, and the compensation received by me from the Company from time to time, I
hereby agree as follows:
Prior to entering the employ of the Company I have terminated employment
with one or more prior employers. I agree to indemnify and hold harmless the
Company, its directors, officers and employees against any liabilities and
expenses, including amounts paid in settlement, incurred by any of them in
connection with any claim by any of my prior employers that the termination of
my employment with such employer, my employment by the company, or use of any
skills and knowledge by the Company is a violation of contract or law.
1. All Proprietary Information shall be the sole property of the Company
and its assigns, and the Company and its assigns shall be the sole owner of all
patents and other rights in connection therewith. I hereby assign to the Company
any rights I may have or acquire in all Proprietary Information. At all times,
both during my employment by the Company and after its termination, I will keep
in confidence and trust all Proprietary Information, and I will not use or
disclose any Proprietary Information or anything relating to it without the
written consent of the Company, except as may be necessary in the ordinary
course of performing my duties as an employee of the Company.
2. I agree that during the period of my employment by the Company I will
not, without the Company's express written consent, engage in any employment or
activity in any competitive business, other than for the Company.
3. In the event of the termination of my employment by me or by the Company
for any reason, I will deliver to the Company all documents and data of any
nature pertaining to my work with the Company and I will not take with me any
documents or data of any description or any reproduction of any description
containing or pertaining to any Proprietary Information.
I agree that for a period of one year following termination of my
employment with the Company, I will not solicit or in any manner encourage
employees of the Company to leave its employ. I further agree that during such
period I will not offer or cause to be offered employment to any person who was
employed by the Company at any time during the six months prior to the
termination of my employment with the Company.
4. I will promptly disclose to the Company, or any persons designated by
it, all improvements, inventions, formulae, processes, techniques, know-how and
data, whether or not patentable, made or conceived or reduced to practice or
learned by me, either alone or jointly with others, during the period of my
employment which are related to or useful in the business of the Company, or
result from tasks assigned me by the Company, or result from use of premises
owned, leased or contracted for by the Company (all said improvements,
-2-
<PAGE> 9
inventions, formulae, processes, techniques, know-how and data shall be
collectively hereinafter called "Inventions").
5. I agree that all Inventions shall be the sole property of the Company
and its assigns, and the Company and its assigns shall be the sole owner of all
patents and other rights in connection therewith. I hereby assign to the Company
any rights I may have or acquire in all Inventions. I further agree as to all
Inventions to assist the Company in every proper way (but at the Company's
expense) to obtain from time to time enforce patents on Inventions in any and
all countries, and to that end I will execute all documents for use in applying
for and obtaining such patents, thereon and enforcing same, as the Company may
desire, together with any assignments thereof to the Company or persons
designated by it. My obligation to assist the Company in obtaining and enforcing
patents for inventions in any and all countries shall continue beyond the
termination of my employment, but the Company shall compensate me at a
reasonable rate after such termination for time actually spent by me at the
Company's request on such assistance.
I understand that this paragraph 5 does not apply to inventions for which
no equipment, supplies, facility or trade secret information of the Company was
used and which was developed entirely on my own time, and (a) which does not
relate (1) to the business of the Company or (2) to the Company's actual or
demonstrably anticipated research or development, or (b) which does not result
from any work performed by me for the Company.
6. As a matter of record I have identified on Exhibit A attached hereto all
inventions or improvements relevant to the subject matter of my employment by
the Company which have been made or conceived or first reduced to practice by me
alone or jointly with others prior to my engagement by the Company which I
desire to remove from the operation of this Agreement; and I covenant that such
list is complete. If there is no such list on Exhibit A, I represent that I have
made no such inventions and improvements at the time of signing this Agreement.
7. I represent that my performance of all the terms of this Agreement and
as an employee of the Company does not and will not breach any agreement to keep
in confidence proprietary information acquired by me in confidence or in trust
prior to my employment by the Company. I have not entered into, and I agree I
will not enter into, any agreement either written or oral in conflict herewith.
8. I understand as part of the consideration for the offer of employment
extended to me by the Company and of my employment by the Company, including
continued employment where this Agreement is signed after the first day of my
employment by the Company, that I have not brought and will not bring with me to
the Company any materials or documents of a former employer which are not
generally available to the public, unless I have obtained written authorization
from the former employer for their possession and use.
-3-
<PAGE> 10
Accordingly, this is to advice the Company that the only materials or
documents of a former employer which are not generally available to the public
that I have brought or will bring to the Company or have used or will use in my
employment are identified on Exhibit A attached hereto, and, as to each such
item, I represent that I have obtained prior to the effective date of my
employment with the Company written authorization for their possession and use
in my employment with the Company.
I also understand that, in my employment with the Company, I am not to
breach any obligation of confidentiality that I have to former employers, and I
agree that I shall fulfill all such obligations during my employment with the
Company.
I agree that in addition to any other rights and remedies available to the
Company for any breach by me of my obligations thereunder, the Company shall be
entitled to enforcement of my obligations hereunder by court injunction.
If any provision of this Agreement shall be declared invalid, illegal or
unenforceable, such provision shall be severed and all remaining provisions
shall continue in full force and effect.
9. This Agreement shall be effective as of the first day of my employment
by the Company.
10. This Agreement shall be binding upon me, my heirs, executors, assigns
and administrators and shall inure to the benefit of the Company, its successors
and assigns.
This Agreement shall take effect as a sealed instrument under the laws of
The Commonwealth of Massachusetts and shall be governed in all respects by the
laws of the Commonwealth of Massachusetts.
Dated: May 23, 1997 By: /s/ Bruce Bower
-------------------------- ------------------------------
ACCEPTED AND AGREED TO:
PICTURETEL CORPORATION
By: /s/ Ralph Walker Date: May 23, 1997
----------------------------- -------------------
Title: Human Resources Representative
-4-
<PAGE> 11
Exhibit C
---------
NON-COMPETITION AGREEMENT
This Non-Competition Agreement dated as of May 23, 1997 between Bruce
Bower, with an address in New Hampshire of 166 Dow Road, Hollis, 03045
(hereinafter referred to as "you"), and PictureTel Corporation, a Delaware
corporation, with is principal offices at 100 Minuteman Road, Andover,
Massachusetts 01810.
WHEREAS, you will become an employee of PictureTel Corporation as of the
Effective Date of that certain merger between PictureTel Corporation, ML
Acquisition Corporation and MultiLink, Inc., all as more fully described in the
Employment Agreement between the parties dated May 23, 1997 (the Employment
Agreement"); and
WHEREAS, the parties wish to record their agreement with respect certain
non-competition terms in connection with the Employment Agreement;
NOW THEREFORE, in consideration of these premises, the mutual promises set
forth below and other good and valuable consideration, the receipt of which is
hereby acknowledged by each party, the parties hereby agree as follows:
1. (a) In consideration of the benefits described in the Employment
Agreement, which you acknowledge are valuable benefits, you covenant
and agree not to engage in Competitive Activity (as that term is
defined below) during the term of your employment and for the twelve
(12) month period following the later of: (i) the effective date of
your termination from PictureTel Corporation, or (ii) December 31,
1997 (PictureTel Corporation and its subsidiaries being defined as the
"Company").
Competitive Activity shall mean the following activities undertaken in
the United States and anywhere else in the world where the Company's
products or services are currently sold, directly, through
distributors or otherwise, or where the Company otherwise currently
conducts business (the Company currently conducts a worldwide
business): (1) owning, operating, engaging in or rendering services,
whether as an employee, consultant, owner or otherwise, for any
business entity which at the time develops, sells or markets products,
components or service which compete, directly or indirectly, with
business of the Company; and (2) developing products, components or
services, either for your own behalf or on the behalf of a business,
entity or other person which is competitive, directly or indirectly,
with products, components or services developed or in the process of
being developed by the Company. Competitive Activity also includes,
without limitation: (3) accepting employment or a consulting position
with any business or entity which is, or at any time within twelve
(12) months prior to termination of your employment has been, a
distributor or OEM of Company; (4) contacting or soliciting, directly
or indirectly, any supplier, current or former customer or prospect of
the Company on behalf or any product, component, service or business
which competes with Company; or (5) soliciting, directly or
indirectly, or causing others tot solicit Company employees for
competitive employment.
<PAGE> 12
In this connection, if you have questions as to whether work by you
will be viewed by the Company as competitive with the businesses of
the Company under this Non-Competition Agreement, you may make a
written inquiry to the Company with respect to such matter.
(b) You agree that the scope of activity, period of time and the
geographic area specified for restriction on Competitive Activity are
reasonable in view of the competitiveness of the videoconferencing
businesses in which the Company is engaged, including competition in
the technological development of new products, components, and
services and new product, component and service improvements, the
nature of the Company's customer and supplier base, and your access to
proprietary information relating to the business of the Company. You
further acknowledge that the restrictions imposed on you are no
greater than necessary to protect the goodwill, confidential
information and other legitimate interests of the Company. You further
acknowledge that the severance and other benefits provided to you by
the Company under the Employment Agreement in connection with the
termination of your employment (and the timing of the effective date
thereof) are adequate to provide your livelihood during the period of
this Agreement.
(c) During this twelve (12) month period, you agree to give notice to the
Company of each new business activity which you plan to undertake.
Such notice shall state the name and address of the person, if any,
for whom such activity is undertaken and the nature of your business
relationship(s) and position(s) with such persons. You shall provide
the Company with such other pertinent information concerning such
business activity as the Company may reasonably request in order to
determine your continued compliance with your obligations hereunder.
(d) The provisions of this Agreement shall not be deemed to preclude you
from acquiring or holding, solely as an investment, publicly traded
securities of any competitor entity so long as such securities do not,
in the aggregate, constitute more than one percent (1%) of the
outstanding voting securities of such entity.
2. In the event that provisions of this Agreement as to duration, geographic
area or scope of activity restrained are held by a court of competent
jurisdiction to impose a greater restraint than necessary to protect the
goodwill or other business interests of the Compnay, this covenant not to
compete shall be reformed by said court to impose the maximum restrictions which
are no greater than necessary to protect the goodwill or other business
interests of the Company and you agree that this Agreement as so reformed shall
then be enforced.
3. You acknowledge that, were you to breach any of the covenants contained in
this Non-Competition Agreement, the damage to the Company would be irreparable.
You therefore agree that the Company, in addition to any other remedies
available to it, shall be entitled to preliminary and permanent injunctive
relief against any breach or threatened breach by you of this Agreement without
having to post bond.
2
<PAGE> 13
4. This Agreement shall inure to the benefit of and be binding upon the Company
and you, their respective successors, executors, administrators, heirs and
assigns. No wavier of any provision hereof shall be effective unless made in
writing and signed by the waiving party. The failure of either party to require
the performance of any term or obligation of this Agreement, or the waiver by
either party of any breach of this Agreement, shall not prevent any subsequent
enforcement of such term or obligation or be deemed a waiver of any subsequent
breach. Any and all notices, requests, demands and other communications provided
for this Agreement shall be in writing and shall be effective when delivered in
person or deposited in the United States mail, postage pre-paid, registered or
certified, and addressed to you at your last known address on the books of the
Company or, in the case of the Company, at its principal place of business,
attention Vice President of Human Resources.
5. This Agreement, the Employment Agreement and your proprietary agreement
constitute the entire agreement with respect to confidentiality, non-competition
and employment between the parties and supersedes all prior communications,
representations and supersedes all prior communications, representations and
understandings, written or oral, with respect to the terms and conditions of
your employment. This Agreement may be amended or modified only by a written
instrument signed by you and by an authorized officer of the Company. The
invalidity or unenforceability of any term or provision of this Agreement shall
not affect the validity or the enforceability of any other terms or provisions,
subject to the more specific provisions of Section 2 hereof.
6. To the extent not prohibited by applicable law which cannot be waived, each
of the Company and you waives and covenants not to assert (whether as plaintiff,
defendant or otherwise), any right to trial by jury in any form in respect of
any issue, claim, demand or action arising out of or based upon this Agreement
or the subject matter hereof, whether now existing or hereafter arising and
whether in contract, tort or otherwise. You acknowledge that you have been
informed by Company that the provisions of this Section 6 constitute a material
inducement upon which the Company is relying and entering into this Agreement
and that you have reviewed the provisions of this Agreement, including this
Section 6, with your counsel. Each of the Company and you may file an original
counterpart or a copy of this Agreement with any court as written evidence of
the consent of the Company and you to the waiver of the right to a trial by jury
and to the exclusive jurisdictional agreement set forth in Section 7 below.
7. You agree that this is a Massachusetts contract and shall be construed and
enforced under and be governed in all respects by the laws of The Commonwealth
of Massachusetts without regard to the conflict of laws principles thereof. Each
of the Company and you: (i) irrevocably submits to the jurisdiction of the
United States District Court for the District of Massachusetts and to the
jurisdiction of the state courts of The Commonwealth of Massachusetts for the
purpose of any claim, dispute, suit or other proceedings arising out of or based
upon this Agreement or the Employment Agreement or the subject matter hereof and
thereof and agrees that such proceeding shall be brought or maintained only in
such court, and (ii) waives, to the extent not prohibited by applicable law and
agrees not to assert in any such proceedings, any claim that you or it is not
subject personally to the jurisdiction of the above-named courts, that you or it
is immune from
3
<PAGE> 14
extraterritorial injunctive relief or other injunctive relief, that such
proceeding brought or maintained in a court, should be transferred to some other
court or should be stayed or dismissed by reason of the pendency of some other
proceeding in some other court, or that this Agreement or the Employment
Agreement or the subject matter hereof and thereof may not be enforced in or by
such other court.
IN WITNESS WHEREOF, this Agreement has been executed by the Company, by its
duly authorized officer, and by you this 23rd of May, 1997.
PICTURETEL CORPORATION
By: /s/ William L. Avery
------------------------------
Name: William L. Avery
---------------------------
(Print or Type)
Title: Vice President - NSD
--------------------------
BRUCE BOWER
By: /s/ Bruce Bower
------------------------------
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of PictureTel Corporation
We consent to the incorporation by reference in this registration statement of
PictureTel Corporation on Form S-4 of our reports dated February 12, 1997, on
our audits of the consolidated financial statements and financial statement
schedule of PictureTel Corporation as of December 31, 1996 and 1995, and for
each of the three years in the period ended December 31, 1996, which reports
are included in the Annual Report on Form 10-K, as amended by the Amendment to
the Annual Report on Form 10-K/A of PictureTel Corporation for the year ended
December 31, 1996. We also consent to the reference to our firm under the
caption "Experts."
/s/ Coopers & Lybrand, L.L.P.
-----------------------------------
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
May 27, 1997
<PAGE> 1
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
MultiLink, Inc. and Subsidiary
We consent to the use of our reports included herein and to the reference to our
firm under the headings "Experts" and "Selected Historical and Unaudited Pro
Forma Financial and Comparative Per Share Data" in the Proxy
Statement/Prospectus.
/s/ KPMG Peat Marwick LLP
----------------------------------
KPMG Peat Marwick LLP
Boston, Massachusetts
May 27, 1997
-1-
